Prepared remarks
Hello, everyone. Thank you for joining us, and welcome to the ADT Second Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. To withdraw your question, press 1 again. I will now hand the conference over to Elizabeth Landers, Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today to discuss ADT's second quarter 2026 results. Speaking on today's call are Jim DeVries, our Chairman, President, and Chief Executive Officer, and Jeffrey Likosar, our Chief Financial Officer. Following their prepared remarks, we will be joined by Omar Sharif Khan, our Chief Business Officer, and we will open the call for analyst questions. Earlier today, we issued a press release and an earnings presentation summarizing our results. Both are available on the Investor Relations section of our website. During today's call, we will reference certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in the earnings presentation on our website. Unless otherwise noted, all financials and metrics discussed reflect continuing operations. Our remarks today also include forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act. These statements are subject to risks and uncertainties that are described in the earnings presentation and in our SEC filings. Actual results may differ materially. Please refer to our SEC filings for more details. With that, I am happy to turn the call over to Jim DeVries.
Thanks, Elizabeth. Good morning, everyone, and thank you for joining us today. I will focus my remarks this morning mainly on the key highlights in the second quarter and our continued progress on the strategic priorities shared earlier this year. Then I will turn the call over to Jeffrey Likosar to walk through our financial results and outlook in more detail. Let me start with a few key takeaways from the quarter. We delivered a solid second quarter with continued strength in cash flow and disciplined execution across the business. Cash generation was again a highlight with adjusted free cash flow, including interest rate swaps, up nearly 50% versus last year. In the first half of the year, our strong cash generation has supported significant returns to shareholders: $684 million. During the second quarter, Apollo sold its remaining holdings in a secondary offering and following the closing of that offering, is now no longer an ADT shareholder.
ADT repurchased 29 million shares in connection with that secondary offering, reflecting our conviction in the value of our business and our disciplined approach to capital allocation. Total second quarter revenue grew 2% to $1.3 billion, and our end-of-period recurring monthly revenue was $360 million. Adjusted earnings per diluted share was $0.23, flat to last year. Based on our first-half financial performance, we are modestly raising our full-year outlook which Jeffrey will describe in more detail later on our call. Turning to our operational metrics: trailing 12-month attrition remains at approximately 13%. Subscriber and recurring revenue trends remain consistent with the first quarter with softness in our dealer channel and relatively stronger performance in direct. Also during the quarter, we completed a bulk purchase of 10,000 accounts. By comparison, last year's second quarter included a bulk purchase of 50,000 accounts.
As we have shared previously, the pipeline for quality bulks can be episodic, and we will continue to evaluate bulk and other acquisition opportunities with a focus on attractive economics. We are operating well in a dynamic and competitive environment and our priority remains on generating strong economic returns while improving core metrics. This includes balancing growth, retention, and cash generation in a way that drives long-term value creation. We remain focused on the strategy we laid out earlier this year. We believe ADT is well positioned as the leader in smart home with a differentiated model built on our trusted brand, professional monitoring, and integrated technology platform. We continue to invest in three priority areas during 2026: product and technology, service excellence, and customer acquisition efficiency improvement. Let me briefly walk through how we are executing against our key initiatives.
First, on product and technology. We continue to expand the capabilities of our ADT Plus ecosystem and advance our roadmap to include more intelligent connected solutions. As part of that evolution, we broadened our reach this quarter with the launch of ADT Blue, a lower-cost, self-installed security solution that pairs the convenience of do-it-yourself setup with the flexibility of the ADT Plus platform and professional monitoring. While it is very early, we are pleased with customer receptiveness and reviews. Separately, our third-party dealer network, which has historically represented more than a third of our gross additions, is beginning to transition to the ADT Plus platform. We expect to migrate dealers onto our proprietary ecosystem in phases over the next year. Through the quarter, 30% of our new customer additions were on ADT Plus. We are also making progress on our path to commercialization of a new presence-sensing offering based on the technology we acquired earlier this year.
We advanced manufacturing and integration of a WiFi-based smart plug that will bring privacy-preserving presence sensing into the ADT Plus platform for security and aging-in-place use cases. We expect customer pilots to begin this fall, ahead of a planned launch in early 2027. Next on our initiatives is service excellence, where we remain focused on improving both customer experience and operating efficiency. We are seeing good momentum from our AI initiatives. During the quarter, we combined AI-driven call routing with our virtual AI agents to improve first-call resolution and reduce transfers. As a result, we handle nearly 20% fewer customer contacts through human agents and reduced service tickets by a similar amount, all while achieving improved customer satisfaction. Our deployment of these technologies is generating both a better customer experience and a more efficient service model, including cost savings.
Looking ahead, we will be expanding AI across the enterprise. In the third quarter, we will begin transcribing and analyzing our sales and service calls, enabling customers to engage with our virtual agents through SMS, and rolling out AI-enabled fleet safety technology across our technician fleet. These efforts are designed to improve responsiveness, increase containment, and ultimately drive better outcomes for both our customers and our business, including customer retention and sales conversion. We believe we are still in the early stages of this opportunity and that these initiatives will be a meaningful contributor to both growth and margin expansion. Importantly, ADT employees continue to handle situations where human expertise matters most, such as during emergencies or when an on-site, highly trained service technician is the best way to resolve a customer issue. In the third area, customer acquisition efficiency, a key objective this year is migration to lower-cost sales channels.
A highlight in our quarter that I already mentioned was our ADT Blue launch which is now available through phone and online channels, including Amazon. This offering broadens ADT's reach to more value-conscious and DIY-oriented customers, a market segment we have not historically targeted. Over time, it also gives us a path to convert a subset of these customers to our professionally monitored solutions. During the second half of this year, we will scale our presence on Amazon, and build ADT Blue momentum through additional advertising. We expect volumes to begin to grow in the third and fourth quarters. Beyond ADT Blue, we are continuing to drive efficiency across our go-to-market activities, including rationalizing spend in our highest-cost channels. As we have said, some of these changes may temporarily affect subscriber additions, but are designed to improve our long-term returns. We are working to improve the economics in our most costly channels as we optimize long-term economics.
Through these changes, our direct do-it-for-me sales engine continues to perform well with residential ads up in the high single digits and SMB up mid single digits for the quarter. Across all of these key initiatives, our focus is consistent: driving better customer engagement, improving efficiency, and ultimately supporting more sustainable growth. In closing, our financial performance demonstrates the resilience of our model, with strong cash generation, disciplined cost management, and consistent capital allocation. I want to thank our employees, partners, and customers for their dedication and their contributions through the first half of the year. I am excited about the opportunities ahead. With that, I will turn the call over to Jeffrey.
Thanks, Jim, and good morning, everyone. I will start by adding some detail on our second quarter results and then share an update on our outlook for the remainder of the year. As Jim noted, we again delivered solid financial performance with very strong cash generation as a continued highlight. Adjusted free cash flow, including interest rate swaps, was $406 million, up $133 million or 48% compared to last year. On a year-to-date basis, we have $820 million, up more than $300 million or 64% versus the prior year. This result was driven primarily by working capital timing, lower cash taxes and interest, and lower subscriber acquisition spending. Our cash flow was also stronger than we expected entering the quarter due to the benefits of some tax planning progress and working capital management as we repurchased shares, including in Apollo's secondary offering. On the top line, we delivered total revenue of $1.3 billion, up 2%.
Monitoring and services revenue was down 1% with an ending recurring monthly revenue balance of $360 million reflecting the revenue loss from the multifamily business we divested last October. Installation revenue was $230 million, up 17% due to a higher mix of outright equipment sales. Adjusted EBITDA for the quarter was $671 million and adjusted income from continuing operations was $180 million, or $0.23 per diluted share. On a year-to-date basis, our adjusted EPS is $0.47, up $0.03. Beyond the effect of revenue and gross margins, our earnings reflect ongoing efficiency actions and cost controls, some offsetting investment in growth initiatives and increased amortization, including from our Origin acquisition. On a per-share basis, we also benefited from lower share count due to the repurchases enabled by our cash generation and efficient capital structure. We added 190,000 gross new subscribers in the quarter with $11.9 million of RMR.
As Jim mentioned, we had fewer bulk account purchases than last year, along with softness in our dealer channel, which we partially offset with growth in direct subscriber and RMR additions. Net cash SAC was $345 million, down 7% driven primarily by fewer bulk purchases partially offset by the timing of consumer financing flows. Attrition was 13.1%, flat to last quarter, with revenue payback also holding at 2.3 years. Now turning to capital allocation. A core attribute of our business is consistently strong cash generation, and we continue to deploy that capital in a disciplined manner to drive returns. Through the first half, we returned $684 million to shareholders, including $594 million to repurchase and retire 86 million shares and $90 million of dividends. Through this week, we have repurchased approximately 89 million shares, and we have $885 million remaining under our $1.5 billion 3-year repurchase authorization.
Our overall capital structure and liquidity position remains strong with our $800 million revolving credit facility undrawn. In May, we secured $100 million of borrowings under our term loan A. While we used these proceeds to fund repurchases, we expect this incremental debt to ultimately support our August 2027 notes refinancing. We ended the quarter with net debt of approximately $7.4 billion with leverage of 2.8x adjusted EBITDA at a weighted average cost of approximately 4.3%. We remain very comfortable with our capital structure and our overall capital allocation priorities are unchanged. We will invest in the business where returns are compelling both organically and through periodic acquisitions; we will return capital directly to shareholders; and we will maintain a healthy balance sheet with an objective of further reducing leverage targeting 2.5x. Turning to our expectations for the rest of the year, we are modestly raising our full-year 2026 outlook based on our year-to-date performance and share repurchases and expected progress in the second half.
We now expect total revenue to grow approximately 2%, mainly reflecting installation revenue trends. We expect adjusted EPS to also grow approximately 2% with the improvement a result of the timing of share repurchases. And we expect adjusted free cash flow to grow approximately 30% with the improvement driven primarily by tax planning and working capital management. While we are very pleased with our full-year 2026 cash generation, we do expect higher cash taxes and cash interest in 2027. As Jim outlined, our primary focus during the second half is execution of our investments in growth initiatives and improvement in our new subscriber additions and retention. Within the second half, we expect fourth quarter income to be somewhat higher than the third quarter due to the timing of some of these investments, seasonal dynamics, and other items. We expect revenue and cash to be similar in the third and fourth quarters.
Our full-year outlook and our performance through the first half reflect the resilience of our model and our disciplined execution while we also continue to invest in our business for the long term. I am very excited by the advancement in our technologies and capabilities and the new ways we will be able to serve our customers to deliver peace of mind with innovative offerings, unrivaled safety, and a premium experience. Thank you again for joining us and for your continued support. Operator, please open the call for questions.
Questions and answers
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of George Tong with Goldman Sachs. Your line is now open. Please go ahead.
Hi, thanks. Good morning. Gross RMR additions fell 17% year over year and gross unit additions declined 22%, which you attributed largely to fewer dealer and bulk account purchases. How much of the current pressure reflects intentional changes to your acquisition strategy versus underlying end-market demand? And what does the path back to gross additions growth look like?
Good morning, George. This is Jim. I will share a little bit of overall context on gross additions and ask Jeffrey if he has anything to contribute on this question as well. You are correct: the biggest difference between this quarter and the second quarter last year is related to bulk units. We completed a 10,000-unit bulk this quarter and a 50,000-unit bulk in Q2 of last year. When comparing the quarter to last year, absent the difference in bulk, we had 10,000 fewer additions this quarter. That was attributable really to two things. The first is we have been dialing back our reliance on expensive channels like affiliate channels, and we have seen some decline in affiliate. Second, we have had some softness in our dealer channel as well. One dealer in particular was a notable factor, but between affiliates, dealers, and the bulk difference, that explains more than the gross-add shortfall versus Q2 of last year.
It is worth mentioning our core do-it-for-me business: our direct organic business is up high single digits year-over-year to date. SMB is up organically about 4% over last year. So we feel good about the organic engine. It will take a bit of time to replace the volume from affiliate and some of the softness in dealer, but the underlying engine we feel excellent about. One last thing: the per-unit economics remain really strong for us. Installation revenue per unit and net SAC are solid.
Yes. I would add just a couple comments. We always want more additions, but focused on the strong economics Jim described, we feel really good about our overall quarter. Even the additions were generally consistent with our expectations. We are very excited about the growth initiatives that will start to contribute later this year and into next year and are even more pleased that we were able to raise our guidance across each of the three measurements: revenue, earnings per share, and especially our cash outlook for the rest of the year.
That is very helpful. And then as a follow-up, as you think about improving retention rates, service costs, and customer economics, those attributes are central elements of the ADT Plus thesis and should help with all those things. With the dealer rollout beginning in the second half of this year, when would you expect ADT Plus platform adoption to become large enough to produce measurable improvements in attrition, service costs, and customer lifetime value?
Omar, do you want to take that? Hi, George.
Yes. We began rolling out ADT Plus to dealers at the beginning of this month. We launched in our Western Region and are in the process of launching our Eastern Region. The initial feedback from the dealer community has been very positive, both on training and uptake as well as installation progress on ADT Plus. It is going to be about a three- to four-quarter migration of the dealer community across the board. We are being very thoughtful and intentional about that rollout. As you know, about a third of our ads come from the dealer community, so it is going to be about a three- to four-quarter transition for the dealer community to ADT Plus. You will see that benefit phasing in over time, over the next nine to twelve months.
George, I will add to that with some short-term proof points. NPS is up over Q2 of last year. Our operating metrics in customer service—first-call resolution and digital self-service—are tracking nicely. Our retention team has lower employee turnover than we have ever had before. We have tightened up our credit standards and changed how we do proactive save offers. Some of these process changes should start to help move the needle on attrition. And then, longer term, deeper product experiences and more frequent customer engagement should bode well for us.
Got it. Very helpful. Thank you.
Thank you. Your next question is from the line of Ashish Sabadra with RBC Capital Markets. Your line is now open. Please go ahead.
Thanks for taking my question. Really strong momentum in free cash flow. I was wondering if you could help parse out some of the tailwinds that we are seeing from working capital, tax planning, and lowered SAC. If you could quantify that. Also, if you could provide some preliminary color on how to think about the increased interest expense and cash taxes in 2027? And as a follow-up, how should we think about the free cash flow trajectory over the midterm? Free cash flow has significantly exceeded expectations and your original guidance as well.
Okay. I will take that. We feel really good about our cash performance so far this year. The most significant reason we were able to increase our outlook is progress on some tax planning initiatives. Setting that aside and just looking at the results, we are up on a year-to-date basis a little more than $300 million. About half of that is working capital management. There are a discrete item or two associated with timing of some payroll outflows; aside from that, it is inventory and payables. We also benefited meaningfully from not having made a material cash tax payment this year related to the point I already made. Our interest is also lower year-over-year, driven mainly by coupon timing along with the benefits of our recent refinancing activities. SACs are a little bit lower. There are always a lot of puts and takes in cash flow and working capital timing specifically. We managed working capital especially tightly this quarter due to the attractiveness of our stock and in support of Apollo's secondary to be able to repurchase shares.
Regarding the longer-range outlook, we have not provided specific guidance beyond the current year. But we would expect to become a bigger cash taxpayer next year. We exhausted our NOLs a couple years ago. Last year, our taxes were $142 million. We expect less this year, but probably more next year. We are always working to optimize and minimize, but it is likely a headwind. On interest expense, this year it was lower than last year, but we do have some attractive interest rate swaps that expire at the end of this year, and our upcoming refinancing next year is at lower rates than current market conditions might allow. Both of those items could be roughly $50 million to $100 million each of headwind next year. We will continue to work to optimize that and find other ways to continue to generate strong cash.
That is very helpful color. A quick question on ADT Blue: could you share any initial feedback from the launch? As this scales, how should we think about ARPU and SAC for ADT Blue compared to your more traditional customer acquisition channel?
For ADT Blue, it is still very early from a progress perspective; we just launched. The ARPU is obviously lower because we have plans starting at $10 per month for video-only, but we are encouraged by the initial results. As we scale our channels, the initial results show a majority of customers adopting and engaging with us in the fully monitored security package, which tends to price at $34.99 and above depending on accessories. So we are seeing very good progress from an ADT Blue perspective. While the overall ARPU is lower, we are trending higher than the general market in terms of adoption of full security packages and fully monitored security. That will play out over time, but the initial results are positive.
A little context on DIY and ADT Blue: our rollout was almost exclusively on Amazon in the second quarter. Customer response has been very positive, but we are really early in the process and just now starting to put some advertising fuel behind ADT Blue. We are optimistic that will generate incremental volume.
It is worth mentioning that the economics we seek on our self-install offerings are similar in terms of returns to the SAC we deploy. Even though average pricing is lower and other characteristics differ, the subscriber acquisition cost to take on these customers is also much lower.
That is very helpful color. Thank you, and congrats on such strong free cash flow.
Your next question is from the line of Manav Patnaik with Barclays. Your line is now open. Please go ahead.
Hi. Good morning. This is Ronan Kennedy on for Manav. Thank you for taking our questions. Could you unpack attrition trends and drivers? Also, could you comment on non-pay cancellations relative to where you exited 2025, and any retention benefits you are seeing from ADT Plus, My Safety Trusted Neighbor, or increasing engagement with the ecosystem?
Good morning, Ronan. We ended the quarter with attrition essentially flat sequentially; the metric measures trailing 12 months. If we zoom into the last three months, we are actually flat to last year. Relocation losses were flat. There was modest pressure from non-payment cancellations; they were higher than last year, but only modestly so. Voluntary cancels were better than last year. As I mentioned earlier, our customer service metrics are tracking very well, and we are seeing the benefit of that in fewer voluntary cancels. The sale of multifamily was a small headwind for us compared to last year. Small business was flat to last year, about 4% attrition for small business. Interestingly, non-pay cancels in small business were actually a little better than last year. While attrition is flat overall, non-pay cancels are down modestly in some segments. A handful of leading indicators—team stability, customer service metrics, and process changes—are all moving in the right direction.
On the related point about credit losses: the drivers are very similar to what Jim described. With more outright sales, we record install revenue and, because much of it is financed, we record an estimate of credit loss at the time we record that install revenue. It is considered when we evaluate subscriber economics. While credit losses and related provisions are elevated year-over-year, they are generally in line with our expectations and our credit policies are continually fine-tuned.
That is very helpful. Shifting gears, you highlighted nearly 20% fewer customer contacts to human agents and a similar reduction in service tickets. You also commented on AI initiatives potentially being meaningful contributors. Which AI applications currently have the highest ROI and are expected to—whether customer care, marketing, sales conversion, field optimization, or product innovation? How much of that benefit is already showing up from a cost standpoint, and what opportunities do you see over the next 12 to 24 months?
There is a lot there, so I will give you a treetop perspective on where we are deploying AI and the progress we've made. Most of our focus so far has been around call center improvements: call routing technology and virtual AI agents to drive more calls and chats to AI agents, improving containment and first-call resolution while maintaining or improving NPS. We are no longer in the very early innings; we are in the middle innings. Our next-generation AI efforts include call transcription and insights, two-way SMS lead nurturing, and deploying Gemini across the enterprise to move AI from a buzzword to an employee productivity tool. We are using AI in fleet safety and virtually every area of the organization is being exposed as we ramp and scale. Omar can provide comments on AI in the product area and share perspective on what to expect in the coming quarters.
Thank you. From a product and engineering perspective, we started using AI in coding and software development in the third quarter of last year. Over the past year, we've seen strong adoption and efficiency improvements across our software organization. For example, last month a significant portion of code authored by our product software team was generated and accepted with AI assistance, which improves our efficiency for new feature launches and prototyping. On the customer-experience side, there are two areas customers will see over the next several quarters. First, Origin AI features include motion intelligence, the ability to classify motion, alarm-event intelligence which guides first responders on how to respond, and zone-based intelligence for the home—all model-driven capabilities that we will roll out starting in the first half of 2027. Second, video analytics and video-based AI solutions will generate insights and also assist our monitoring centers. These will begin rolling out to customers through ADT Plus.
Thank you. Appreciate it.
Your next question is from the line of Gregory Parrish with Morgan Stanley. Your line is now open. Please go ahead.
Hi, everyone. Good morning. Thanks for taking my question. On ADT Blue, Omar, you said a majority of customers are adopting the fully monitored package. I want to clarify: do you mean professionally monitored? How many ADT Blue customers are choosing the professionally monitored $35 package?
What I meant was specifically the professionally monitored $35 package. It is still early in the adoption cycle, but initial data shows customers choosing the full security package which includes cameras, sensors, and the base, not the camera-only package or self-monitoring only. Over time, we expect some balance shift because our goal is to bring customers in at entry-level camera-only self-monitoring and move them up the value chain to professionally monitored security. But the initial data shows a majority choosing the full security packages including sensors and the base.
Okay. Thanks for clarifying—pretty impressive uptake there. A follow-up: you talked about rationalizing marketing spend in your highest-cost channels. You've been doing this for some time. Going forward, do you expect to increase ads in other channels to offset that, or is this a change in go-to-market strategy where you expect ads in the pro-install channel to improve? Help us think through the puts and takes.
That is the objective. Our core do-it-for-me business is up high single digits year-to-date, and SMB is roughly mid-single digits. We are focused on ADT Plus expansion, more differentiator-oriented advertising, advancing AI technology and the Origin product, and growing DIY through e-commerce and retail partners. We are early in e-commerce and optimistic on DIY gross additions. Ultimately, the goal is to drive more efficient and higher-return customer acquisition across channels.
Thank you. Your next question is from the line of Peter Christiansen with Citigroup. Your line is now open. Please go ahead.
Thank you. Good morning. Nice execution here. Jeffrey, can you walk us through working capital a little more? You called out some timing elements and one-time items. How should we expect working capital to flow over the next two quarters, and how should we think about normalized contribution to free cash flow going forward?
Over the next couple of quarters, I would expect working capital to be less of a benefit. It is implicit in our cash flow guidance that the second half will be lower than the first half. There are many drivers that go in various directions on timing items, but the net is that I would not expect the same benefit as we saw in the first half. Specific things I mentioned earlier: there was a discrete item associated with payroll timing that benefited us in the first half. We also managed working capital tightly to support share repurchases, which involved timing of inventory and payables. As we head into 2027, I would not expect working capital to be as much of a benefit as it was in 2026, but we will always work to optimize our working capital.
Fair enough. On installation, the acceleration there—can you give a sense of how much outright system sales are contributing to that acceleration?
Yes. Total installation revenue in the quarter was up 17%, and outright sales were up about 30%. The main driver is our transition away from historically retaining ownership of equipment toward transitioning equipment ownership to the customer with ADT Plus. We are continuing to move more customers to an equipment-ownership model even on non-ADT Plus offerings. I would expect to continue to see higher growth in outright sales in the third and fourth quarters, after which we will have largely completed the transition, so less growth in installation revenue next year. But I would expect the second half to continue to grow like you have seen in the last couple quarters.
Impressive. Okay. Thank you so much.
We have reached the end of the Q&A session. We will now turn the call back to Jim DeVries, CEO, for closing remarks. Please go ahead.
Thank you, and thanks everyone for taking time to join us today. ADT delivered another solid quarter. We continue to feel good about the direction of the business and are confident in our 2026 plans—both operational and the investments we are making for a stronger future. I would like to extend my appreciation to our ADT employees and dealer partners. Congrats on a good first half of the year. Thanks again everyone, and have a great day.
This concludes today's call. Thank you for attending. You may now disconnect.