ADT Corporation (ADT) Q4 2020 Earnings Call Transcript

Image source: The Motley Fool.

ADT Corporation (ADT -0.78%)
Q4 2020 Earnings Call
Feb 25, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the ADT Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Derek Fiebig, Vice President, Investor Relations for ADT. Thank you. You may begin.

Derek A Fiebig -- Investor Relations

Thank you, operator, and thank you, everyone, for joining ADT's Fourth Quarter 2020 Earnings Conference Call. This afternoon, we issued a press release and slide presentation of our financial results. These materials are available on our website at investor.adt.com. Our remarks today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we've described in our press release issued this afternoon and in our filings with SEC. Please note that all forward-looking statements speak only as of the time they are made, and we disclaim any obligation to update these forward-looking statements. During today's call, we'll make reference to non-GAAP financial measures. Our historical and forward-looking non-GAAP financial measures include special items, which are difficult to predict and/or may be mainly dependent upon future uncertainties. For a complete reconciliation of historical non-GAAP to the most comparable GAAP financial measures, please refer to our press release issued this afternoon and our slide presentation, both of which are available on our website. With me on today's call are ADT's President and CEO, Jim DeVries; and our CFO, Jeffrey Likosar. Also joining us in the room and available for Q&A is Don Young, our CIO and EVP of Field Operations; and Jason Smith, Senior Vice President of Finance. With that, I'll turn the call over to Jim.

Jim DeVries -- President and Chief Executive Officer

Thanks, Derek, and thank you to everyone for joining us today. I'd like to begin our first call of 2021 with some comments reflecting on our 2020 overall performance and then share some thoughts regarding our new partnerships and current growth momentum. Finally, I'll offer some perspective on ADT's priorities as we advance into 2021. I'll then ask Jeff to cover our financial results as well as our 2021 outlook. With the world thrust into an unexpected pandemic, 2020 was an extraordinarily challenging year for so many and impacted everyone's lives in different ways. It was also a year which brought us, at ADT, the gift of perspective. We were reminded more than ever of the importance of protecting one's home and family. For all of us at ADT, 2020 brought a new-found appreciation for the essential role we play, partnering with first responders and serving our customers and communities continuously and reliably. After witnessing the tremendous collaborative efforts of our team during the past year, I'm humbled to be able to lead such a great organization and couldn't possibly be more proud of the collective performance of our more than 20,000 ADT associates and our dealer partners. During our first call last year, on March 5, prior to the impact of the pandemic even being understood, ADT provided a full year 2020 financial outlook. Our guide was $5 billion to $5.3 billion for revenue, $2.175 billion to $2.25 billion for adjusted EBITDA and $630 million to $670 million for adjusted free cash flow. Because of the resiliency of ADP's business model and the outstanding performance of our team and despite the challenges and volatility of the economy, we exceeded the upper range of our revenue, delivered in range on adjusted EBITDA and performed just above range on adjusted free cash flow. As I will explain, we also set the table for accelerating our growth and continuing momentum going into 2021.

Further, in 2020, we grew our net subscribers for the full year. Our new U.S. RMR additions started off solid in Q1 at plus 7%, but then in Q2 were down 11% as most of the country began shutting down. However, we continue to drive sustainable internal improvements to our subscriber acquisition engine. This efficiency contributed to not only favorable results, but the positive momentum for our business, especially when combined with secular trend and external demand catalysts, such as new household formation, deurbanization, the desire for increased home security, the acceleration of smart home adoption and growing consumer spending on home improvement more generally. U.S. RMR additions increased year-over-year 10% in the third quarter and 15% in the fourth quarter. Further, our interactive take rate increased to 86%, and we reached the milestone of three million residential interactive customers, and just this month, ADT added our one millionth customer on the command platform. As we've mentioned in the past, our DIY business continues to grow nicely as well, and we're excited about this complementary part of our business. We remain anchored to capital-efficient growth and the cost of acquiring subscribers also improved with a record-best revenue payback of 2.2 years. This efficiency was driven by our successful consumer pricing and financing initiative as well as benefits from the Defenders acquisition. Exceeding our expectations, our gross attrition metric improved by 30 basis points to 13.1% as relocations across the country were less common than normal in the second and third quarters, and importantly, our customer satisfaction was strong. We also delivered on our commitment to drive strategic partnerships and alliances to expand our reach and offerings and ultimately, to better serve our customers. On the residential front, we entered into a long-term relationship with D.R. Horton, the nation's largest homebuilder. And in mobile, we introduced ADT to a broader set of potential customers through the national rollout of our partnerships with Lyft and Instacart. Certainly, our most transformative partnership with 2020 was with Google. ADT's long-term strategic relationship with Google significantly enhances our growth opportunities.

The foundation for our partnership is a shared vision for the future of the smart and helpful home and a steadfast commitment to our customers. As a reminder, Google invested $450 million of equity in the ADT and has committed $150 million in matching dollars to fund marketing, product development and employee training. Our partnership facilitates the development of new offerings, both services and products, as well as new technologies, which will power ADT's leadership in the rapidly growing smart home market. I'm pleased to share that our partnership with Google is off to a tremendous start. We'll be rolling out product integration beginning in the second quarter, and we're on track to introduce a first-generation ADT + Google solution in the second half of this year. Finally, ADT and Google have agreed on an exciting new joint go-to-market branding strategy, which we'll share later in the year. Summarizing a unique and unexpected 2020, we purposely and strategically played the long game and will continue to do so. ADT navigated amid the pandemic with resilience and as a whole, avoided any material adverse business impacts while building a strong foundation for growth in the years ahead. We committed to persevere through the COVID-19 crisis with a goal to ultimately become a stronger company, and we've done so. Our momentum going into 2021 is real, and I'm excited to share a few comments about the year to come. We've invested a significant amount of time over the last few years improving our operating KPIs, driving improvements in customer service, better operating metrics, improved efficiencies and field performance. Having made substantial progress in many areas, we begin to focus our improved internal growth capabilities and the pursuit of strategic alliances and partnerships. As mentioned, we developed a relationship with D.R. Horton, and more recently with Google as a catalyst, we've added new partners such as Ackerman Security and DISH. Ackerman, a successful company over many years with customers in the southeast part of the country, Atlanta in particular, will join forces with ADT as a new residential dealer. Ackerman also provides ADT with some commercial assets.

The strategic partnership with DISH expands our total addressable market to additional ex-urban and more rural geographies of the country. Many of the DISH technicians have experience with the installation of Google products and will be a great asset for ADT as we grow. Our operating improvements, the partnerships we've developed and will continue to pursue, the many macro tailwinds and demand catalysts are all converging as we focus more intently on allocating capital to the vast array of growth opportunities we're now presented with. 2021 represents an exciting pivot point for ADT. We'll leverage our strengths, our trusted brand, our operating excellence, our outstanding customer service, our talented field force, our national scale and our capital efficiency to lean further into high-return growth opportunities before us. With these in mind, I'd like to provide three markers to evaluate our progress in 2021. First will be the continued growth in RMR additions. After a strong 2020, we're targeting 2021 growth rates in RMR additions in the mid-teens. As such, you will see a higher aggregate dollar level of SAC investment, which we're allocating toward this high-return growth. We'll continue to be disciplined in our approach with high credit standards and will remain focused on efficient SAC investments with high IRRs in the high teens and above. Keeping these high ROI standards, we plan to deploy between $150 million and $250 million of incremental residential SAC in 2021 versus 2020. Second, we will drive innovation highlighted with the launch of the first generation ADT + Google Smart Home solution during the second half of the year. We will also invest significantly in our next-generation, end-to-end ADT-owned technology platform and continue to pursue meaningful partnerships in mobile safety. Third, while COVID-19 and its continuing impact provides some uncertainty, we expect to return to low double-digit revenue growth and substantial year-over-year improvement in profitability levels for commercial customers during the course of the year. Our early optimism is heightened because the backlog of commercial customers was actually higher at the end of 2020 than the prior year, and the pipeline for new business is healthy.

We have an outstanding leadership team in commercial, and we're very excited about this part of our business. In summary, our current momentum is strong, and we're encouraged about our future. 2021 is positioned to be an exciting year for ADT, one where our growth is more significant than in the past and where investments executed well will result in attractive, sustainable growth for years to come. I'll now hand the call over to Jeff. Jeff?

Jeff Likosar -- Chief Financial Officer

Thanks, Jim, and thank you, everyone, for joining our call this evening. As Jim described, we performed very well in a highly unusual 2020 environment. Like most companies, we encountered many unexpected dynamics, and we are very pleased that we were able to execute on opportunities to offset several of the unplanned challenges we faced. More importantly, we maintained our long-term focus and continued our strategic progress and are specially encouraged by the trends we saw in the second half of the year into 2021. As a reminder, during 2018 and 2019, our priorities centered on enhancing our service culture, improving our operations and expanding our cash generation capabilities. More recently, we have focused on strengthening our foundation and executing initiatives to drive efficient, sustainable growth in addition to recurring monthly revenue, or RMR. We are pleased with the progress we saw during the second half of 2020 with U.S. RMR additions up 12%, following a 3% first half decline driven by challenges arising from the COVID-19 pandemic. On a full year basis, U.S. RMR adds grew by 5%. We concurrently grew our full year adjusted free cash flow by 14% to $675 million. By comparison and as evidence of our cumulative progress in recent years, adjusted free cash flow in 2017, the year prior to our IPO, was just over $400 million. As Jim mentioned, other full year 2020 highlights include gross revenue attrition at 13.1%, down from 13.4% in 2019 and significantly below the 16-plus percent attrition for legacy ADT prior to the Apollo acquisition. And revenue payback at a record 2.2 times in 2020 compares to 2.3 times in 2019 and 2.7 times on a pro forma basis in 2015. As a reminder, some of our core financial measures were affected by the disposition of our Canadian operations in 2019 and the acquisition of Defenders in early 2020.

Despite their favorable economics, these transactions reduced our adjusted EBITDA, which was $533 million in the fourth quarter of 2020 and just under $2.2 billion for the full year. Our total year 2020 revenue was $5.315 billion, up 4%, driven by growth in installation revenue primarily due to a higher volume of outright sales transactions for residential customers, which includes volume from the Defenders acquisition. This increase was partially offset by lower sales to commercial customers, which, while down for the year due to COVID-19, improved sequentially in the third and fourth quarters. For the fourth quarter, total revenue was $1.315 billion, up 1% versus 2019, despite the effects of the Canadian disposition and lower sales to commercial customers. The strong 2020 adjusted free cash flow, I already mentioned, up 14%, was a result of several factors, including some offsetting dynamics related to COVID-19. A key contributor was efficiency in net subscriber acquisition costs, or SAC, which was down year-over-year, despite our growth in RMR adds. Other noteworthy items affecting cash flow included our participation in the CARES Act, payroll tax deferral program and the offsetting acceleration of a portion of 2020 annual incentive plan payments. In addition to strong cash generation, we built on our 2019 refinancing transactions to further improve our capital structure during 2020. In January of 2020, we refinanced our second lien notes. In August, we replaced our 2021 first lien notes with new 2027 notes. In December, we repaid $300 million of our term loan, which we then repriced in January of 2021. Our resulting lower borrowing costs and extended maturities provide us with greater flexibility to deploy capital to high-return growth opportunities. In 2021, we are eager to build on our substantial progress from the past several years. We have strengthened our business fundamentals, enhanced our service culture, grown our cash-generation capability, improved our capital structure and developed new and more efficient routes to market. We are enthusiastic and optimistic about our future, and you can see, on Page eight in our deck, a summarized framework of our strategic priorities.

The next chapter for our company is focused on driving more RMR growth, creating new innovative offerings, further enhancing our overall customer experience and continuing our commitment to generating shareholder returns. We plan to share more detail on our long-term strategic plans and objectives, including our ADT Google branding and products, during Investor Day later in the year. Our teams across the business are energized by our strategy and our growth prospects for 2021 and into the future. As Jim mentioned, we anticipate 2021 RMR additions in the mid-teens, which reflects the significant increase from our growth rates during the past few years. We are also investing to support our strategy with our new interactive platform, the development of new offerings in collaboration with google, upgrades to our infrastructure and the launch of the ADT Google marketing program. You can see our result in 2021 financial outlook in our investor deck. It includes total revenue in the range of $5.05 billion to $5.25 billion, adjusted EBITDA in the range of $2.1 billion to $2.2 billion and adjusted free cash flow in the range of $450 million to $550 million. While many factors affect our cash flow, implicit in our guidance is $150 million to $250 million higher cash tax spending in support of the strong RMR growth I just mentioned. As a reminder, our reported revenue and adjusted EBITDA are affected by the Defenders acquisition and the different accounting policies applicable to accounts generated via differing channels and under differing ownership models. These different accounting policies do not affect cash flows, and we described in more detail in our investor deck and 10-K. As you can tell from our 2020 progress and our 2021 outlook, we are well positioned to capitalize on our improved capabilities in several favorable secular trends. Our focus has decided to leave long term, the long game Jim mentioned, and our teams have never been more excited by our future. Before concluding my comments, I want to express my appreciation for our more than 20,000 employees, our dealers and growing list of partners and our investors for the continued support of our company. Thank you, everyone, for joining our call today. Operator, please now open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Peter Christiansen with Citi.

Peter Corwin Christiansen -- Citigroup -- Analyst

Good evening, gentlemen. Thanks for the question and nice execution on the tough year. Jim, it's really good to see you guys in a position to up the offense in '21. It makes a ton of sense, but I want to dig a little bit into the cadence on how you're thinking about the incremental SAC throughout the year and introducing new products, particularly the next phase of Google. Is that something that you kind of save your powder for a little bit and then act a little bit more aggressively once that comes out? And as a quick follow-up, it sounds to me that this joint product could have a much higher value proposition for the customer. So is there any preliminary thoughts on pricing and relative to the current interactive offering that you guys provide on the residential side? Thanks again.

Jim DeVries -- President and Chief Executive Officer

Yes. Thanks, Pete. So I'll give a little bit of context to the pivot to growth and then ask Jeff to address your question in a little more detailed way. Much of the last several years, Pete, we've been focused on operational excellence. Our retention improved 300 basis points, customer satisfaction improvements. As you're aware, better operating KPIs across the board. Revenue paybacks come down 2.7 to 2.2 years. And at the same time, as we're getting our operational house in order, we have macro trends and the demand catalyst that we've been talking about and discussing as tailwinds. Essentially, our products -- we see our products and services are in demand. And then in addition to getting our operational house in order and the macro tailwinds, we have worked really hard on building strategic relationships. It's a long list. D.R. Horton, DISH, Ackerman, some relationships in the insurance space. And when you combine all those factors, operational excellence, macro trends, new partnerships and now Google, we're able to allocate capital to high-return growth and pivot more assertively to capital-efficient growth. Jeff, do you want to add something?

Jeff Likosar -- Chief Financial Officer

Yes. I'd just add that it's energizing for the whole organization to be in a growth mode. So there's a lot of enthusiasm across the company, a lot of fun. Your specific question about the cadence, the comparisons will be odd because last year was odd. So second quarter, of course, was the most depressed quarter so the compares are easy. The Ackerman alliance and initial account purchases from that agreement will be helpful in the first quarter. But the way I would think about it is, our pace of adds or our pace of SAC spending, setting aside the Ackerman purchase in the first quarter, we would expect to be relatively normal with historic patterns, excluding last year. So a bit higher in the summer season when there tends to be more activity, but aside from that, we're modeling as if it returns to a more normal cadence over the course of the year-on-year will be affected by the abnormal cadence in 2020.

Peter Corwin Christiansen -- Citigroup -- Analyst

Great. So not really like a first half, second half story? Pretty normal cadence throughout the year?

Jeff Likosar -- Chief Financial Officer

Yeah. We're expecting to layer things in as we go through the year, but we exit 2020 with really strong momentum, having grown U.S. RMR at by 15% in the second half of the year. So we're entering the year with momentum. We have additional benefit coming from -- even the recent partnerships we've announced just over the past several days with the easiest comparables in the second quarter of 2021 because of the soft 2020, and then the tougher compares in the second half of the year.

Peter Corwin Christiansen -- Citigroup -- Analyst

That's great. Thanks gentlemen. Very helpful.

Operator

Our next question is from George Tong with Goldman Sachs.

Keen Fai Tong -- Goldman Sachs -- Analyst

Hi, thanks. Good afternoon. I wanted to dive deeper into your plans to deploy $150 million to $250 million of residential SAC in 2021. Can you elaborate on which customer segments you plan to go after with this incremental spend? And what returns you expect from the investment?

Jim DeVries -- President and Chief Executive Officer

Yes. George, it's Jim. The -- so there is a handful of different opportunities in front of us. Most of the incremental SAC will be spent in the residential business. [Technical Issues] we've talked about since the third quarter bringing some pretty significant headwinds or tailwinds for us and some unique opportunities to really allocate capital to that business and grow. The returns are high-teens and above, and we'll also allocate some of that capital to opportunities in the commercial space, but most of the incremental capital will be in residential.

Jeff Likosar -- Chief Financial Officer

And George, one thing I'd add is that if you look at our historical financials and we included a slide in our deck that shows back 2017, the year prior to the IPO, but we're planning to generate these RMR adds still with more free cash flow generation, adjusted free cash flow as compared to 2017, which is just a testament -- kind of a quantitative testament to some of the points Jim made earlier about all the progress we've made in recent years, becoming more efficient, better attrition, better SAC efficiency, improving our capital structure. So we're very excited to be in a position to have the capital structure and the cash-generation capabilities to be able to grow at a higher rate.

Keen Fai Tong -- Goldman Sachs -- Analyst

Got it. That's helpful. And just as a follow-up, do you view the increase in SAC as a permanent/structural step-up? Or do you expect it to reverse? And then perhaps, related to that question, what kind of payback period do you expect? Is it a two-year payback? So in other words, you get back to this $150 million to $250 million two years down the line? How are you thinking about that?

Jeff Likosar -- Chief Financial Officer

I would think about it, and we plan to share more in an Investor Day in the second half of the year. But I would think of it as we are raising the water level with respect to the quantity of new subscribers and/or new RMR that we add each year. So we would expect to continue to grow. Of course, we will seek to become more SAC-efficient and improve revenue payback over time. And then in terms of your question on payback, I would describe that in the context of IRRs, we target IRRs in the teens and higher. And as we've talked about many times in the past, the IRRs is a combination of the upfront cost to acquire the customer, the profitability of the customer on an ongoing basis and then how long the customer stays with us. So we're always looking at all -- each of those variables, among others, with an eye on optimizing the return on the capital that we deploy.

Jim DeVries -- President and Chief Executive Officer

All right. Two quick points of elaboration, George. The first is that as a philosophy, we'll continue to pursue our growth in a very disciplined way. We won't retreat from our standards on credit. We'll continue to be disciplined and ensure that this growth is good growth. And then specifically, on your question on payback, I think we'll continue to have a revenue payback that's in the zone of where we are now. It might move a bit up, it might move a bit down, but we'll be in a range that will facilitate the returns that Jeff just mentioned on IRRs and in a revenue payback range consistent with those higher IRRs.

Keen Fai Tong -- Goldman Sachs -- Analyst

Got it, thank you. Very helpful.

Operator

Our next question is from Toni Kaplan with Morgan Stanley.

Toni Michele Kaplan -- Morgan Stanley -- Analyst

Thanks so much. Just wanted to understand the revenue impact versus the RMR growth. So I understand the equipment financing shift, but excluding that, I guess, revenue would maybe be up about 4%. And your RMR estimate looks like more of a high-teens growth. So is that largely due to a decline in installation revenue? Just why it doesn't the RMR addition flow more through to the top line?

Jeff Likosar -- Chief Financial Officer

Yeah. It's definitely that. It's a somewhat complex topic, but because we are in the process of converting legacy Defenders to our historic ADT ownership model and because last year, we, for a portion of the year, had legacy ADT in an outright sales model, we had meaningfully more installation revenue last year. We included some description of this in our earnings materials. We estimate it's about $350 million to $400 million of lower revenue. It will predominantly be lower install revenue, which is worth about seven points. So it's not for that pressure that we have, we have additional revenue. The drivers of that additional revenue is a recovery in the commercial part of our business, which we expect to get back to something that looks more like the trajectory pre-COVID-19 and then the flow-through of our M&S revenue growth that comes from the RMR adds that we had last year and expect to continue into this year.

Toni Michele Kaplan -- Morgan Stanley -- Analyst

That makes sense. And I wanted to ask about attrition. So just given the fewer customer relocations during COVID, that was a real benefit to the attrition this year. And of course, it's a trailing 12-months metric. So just help us out with how you're expecting attrition to trend this year. I just want to make sure that we have a good sense as the year goes on, just expectations for what you're thinking there.

Jim DeVries -- President and Chief Executive Officer

Sure, Toni. The retention for us in 2020 was a real strength, ending the year at 13.3%, down 30 basis points from last year. Some companies report net attrition. If we use that metric, we're actually closer to 10% attrition level. And so we feel good about the progress that we've made. We saw improvement in most categories, and they had a record low in Q3. In the fourth quarter, we continued to improve in the categories of lost competition and non-pay, but real estate activity, as everybody knows, picked up late in the year, and we saw pressure on relocations, in particular. So we're -- long term, we're optimistic about customer retention, especially as we enter the smart home space more aggressively. We know the more our customers use our systems when devices are more plentiful, when the devices and the system is integrated in the daily activities of our customer, then we know that retention improves. So we think that we'll trade -- we think that we'll be in a range here for attrition with some relocation headwinds and some smart home and interactive rate tailwinds that we'll carry through 2021. One additional thing to mention to you. When we acquired Defenders, we continued to receive a chargeback benefit for accounts sold prior to the acquisition. And that benefit expired over 12 months and was a slight metric headwind in 2020. The impact of the chargeback change in 2021 is about 40 basis points.

Toni Michele Kaplan -- Morgan Stanley -- Analyst

Very helpful, thank you.

Jeff Likosar -- Chief Financial Officer

And Toni, one other point that I don't believe I mentioned. When I talk about the change in revenue recognition because of the ownership model for residential customers, that is a noncash change. So we're still collecting the same amount of revenue from customers. In fact, we're collecting even more revenue because of the success of our pricing and our financing initiatives. But we capitalized that revenue netted against the equipment costs, and then we recognized that revenue over time. So this is a different accounting treatment because of the different ownership model, nothing to do with cash. And in fact, more install revenue is one that contributed to the improved acquisition cost efficiency or revenue payback improvement that you see.

Derek A Fiebig -- Investor Relations

And Toni, this is Derek. If you look at [Technical Issues].

Toni Michele Kaplan -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

Our next question is from Kevin McVeigh with Credit Suisse.

Kevin Damien McVeigh -- Credit Suisse -- Analyst

Could you just give us a little more context on what the $50 million investment is in next-gen technology platforms? What you expect -- how do you expect that to impact the business longer term?

Jim DeVries -- President and Chief Executive Officer

So you were breaking up a little bit there, Kevin, but I'll -- I think you're asking about the $50 million?

Jeff Likosar -- Chief Financial Officer

About the platform in which we're investing...

Kevin Damien McVeigh -- Credit Suisse -- Analyst

Yes.

Jeff Likosar -- Chief Financial Officer

...with the $50 million.

Kevin Damien McVeigh -- Credit Suisse -- Analyst

Yes. That's right.

Jim DeVries -- President and Chief Executive Officer

Okay. Give some insight on the platform?

Jeff Likosar -- Chief Financial Officer

Yes. Just for context, and then I'll ask Don to describe a bit more. But the two areas of investment that we've called out is the higher SAC spending that goes with the RMR as in the teams. And then the second, we noted in our materials, is approximately $50 million associated with the development of our next-generation platform, which we described on our last call. There is, of course, lots of other puts and takes that go into our cash flow guidance, but those are a couple that are noteworthy, and I'll ask Don to describe a bit more about the platform itself.

Don Young -- Chief Information Officer and Executive Vice President, Field Operations

Yes. So Kevin, we've actually inherited some nice IT and project engineers from three acquisitions, Red Hawk, LifeShield and Defenders. But in addition to that since the Google announcement, we've doubled the number of engineers that are specifically working on this platform, and they're targeting another 1/3 on top of that. And that's equal by the number of engineers, by the way, that were working with Google. But it's meant to basically move us to a more advanced platform than we have right now with Command and Control. And that platform is also meant to serve both DIFM and DIY customers in the future.

Kevin Damien McVeigh -- Credit Suisse -- Analyst

Thank you.

Operator

Our next question is from Gary Bisbee with Bank of America.

Gary Elftman Bisbee -- Bank of America Securities -- Analyst

Hey, guys. Good afternoon. Jeff, I wonder if you could just be real clear with us because it's been difficult to know. What was revenue growth ex the accounting -- different accounting treatment for install revenue? If we pull that out of 2020, what was the revenue growth for the year? And what does 2021 guidance imply for revenue growth if that normalizing and that revenue not recurring? What's the clean number, both backwards and forwards?

Jeff Likosar -- Chief Financial Officer

So forwards, there is about seven points of revenue pressure that comes from the change associated with the ownership model. And backwards, a bit more complex because of the interplay with Defenders, with the Canada disposition and with the ownership model change. But I would point you to our install revenue and the predominant driver of our install revenue growth was more install revenue associated with the ownership model change.

Gary Elftman Bisbee -- Bank of America Securities -- Analyst

So if we just take the actual revenue, the midpoint of the guidance range, calculate the growth rate that implies at seven points, and that's what the growth rate would imply? Or is that not?

Jeff Likosar -- Chief Financial Officer

Yes. Yes.

Gary Elftman Bisbee -- Bank of America Securities -- Analyst

So I'm trying to think if that's clean. Okay. All right. Fair enough. And then on the -- two small ones. On the Google investment, the $150 million, do you have any more insight on timing of when you'd spend it? And what's capex versus opex? And the other small one, just you have had a couple of press releases out about this technology that could eliminate the -- or reduce the impact of the 3G conversion because people could just plug-and-play. Like what's the update on that? And what's implied in your guidance and cash flow for spending related to the conversion? Thank you.

Jim DeVries -- President and Chief Executive Officer

I'll take both of those, Gary, and then ask for Don to elaborate on the technology associated with the radio conversion. On Google, as a reminder, both parties agreed to invest an incremental $150 million in the partnership. So there is a total of $300 million. The Google funds can be used for marketing, product and employee training and are generally earmarked for those three categories. We haven't yet agreed with Google on the specific expenditures. We'll likely make a meaningful investment in the launch campaign, the ADT + Google launch campaign later this year and expect to invest an incremental $50 million. And that's built into our guide. On radio conversion, we started the year with 3.6 million conversions, shared an initial range of $200 million to $325 million net of revenue. Our replacement plans are essentially on pace. Despite the pandemic, we'll finish Q1 with about 1.3 million radios. Remaining new convert, we've updated the range to $225 million to $300 million. The majority of that will be spent this year. So the short answer on the radio conversion is that we're on track. And I'll ask Don to comment on your question related to the technology company we acquired called CellBounce.

Don Young -- Chief Information Officer and Executive Vice President, Field Operations

Sure. And a quick correction. I think Jim said 3.6 million to start off the year, which were actually 1.6 million to start off the year with, but -- so we're calling it Cell Bridge internally for our ADT recipients of the device, CellBounce externally because we do have an agreement with AT&T to provide this device for those elsewhere in the industry. But we have successfully tested this device, both in the lab and at a handful of homes. We are looking to go out and launch this, as we said on the last call, nationally this quarter. And we're exceptionally excited to do that and see how well it's looking with some of the panels that all the line systems that are particularly more difficult than others to be able to go to swap out the very OS. So we're very bullish on how it's going, and we're looking forward to the first quarter rollout.

Gary Elftman Bisbee -- Bank of America Securities -- Analyst

And then if I could sneak one more in, Jim. Since you become CEO, you've obviously pivoted hard toward investment, a flurry of partnerships. You invest a lot in commercial, the DIY, the ADT mobile stuff and obviously, Google. There's just been a lot of activity. What I hear from many of your investors is, while each one of these on their own makes sense and it's logical, we don't all understand exactly what the vision is, in particular, because you haven't really given any color on sort of what's the end game. What are you aiming for here? What is the return for ADT and its shareholders from this flurry of activity? I guess one of the challenges is, you haven't given any long-term targets so that we could assess your performance. And so I guess I want to put that to you as a comment. Certainly hear the optimism, but what does this all mean for revenue growth? Two years, three years, four years down the road, what does it mean for profitability? What does it mean for cash flow? Because I just -- there is a lot of excitement, and certainly, we understand it. But profits have been stagnant for years, and we haven't seen revenue accelerate. And so it's just -- I think there's some frustration that it all sounds good, but we don't have a great sense what the return for the company and shareholders is from all this activity in the last two years. I don't mean that to sound critical, if it does. I'm just trying to get some color on where this is heading and maybe what some targets might be to help us understand the vision you're aiming for. Thank you.

Jim DeVries -- President and Chief Executive Officer

Yes. I'll talk a little bit about the vision from a high-level perspective. We're going to have a chance to elaborate a good bit on this in the Investor Day that we do later this year. I'll ask Jeff to weigh in here as well. But Gary, what might appear as a flurry of activity externally is all really engineering to get our organization positioned for capital efficient growth. I mentioned this earlier to -- when I was answering Pete's question, the work that we've done over the course of the last 24, 30 months has been to get the operational house in order; get attrition where it needs to be; get our revenue payback where it needs to be; set the pins from a marketing perspective to more efficiently acquire customers; develop partnerships, Google being central to that; to facilitate growth and then to really take advantage of these macro headwinds that are out there. And I think that it's -- in 2021, the evidence that those pins are set, and we're ready to knock them down is mid-teen RMR adds. I think over the course of the last four years or so, our CAGR on RMR adds was something like 3%. And we're talking in 2021 about the mid-teens, and that's before Google kicks in, in a major way in the second half and in 2022. Jeff, additional comments?

Jeff Likosar -- Chief Financial Officer

Yes, it's something we've spent significant time on internally. We -- after spending the first -- the three or four years or the past three or four years more focused on operational execution, our next chapter is going to be more about growth being more innovative, taking the customer experience to an even better place, leveraging our brand, especially in partnership with Google with further differentiating our frontline service capability, which nobody else has. And then building, as part of the innovation point, more of the technologies that further extend the realm of the various offerings that we provide for smart home and security together. And we think nobody is positioned to do this better than ADT is. And as Jim alluded to, we plan to hold an Investor Day later in the year and go through that in more detail, including some perspective as to exactly your question, what that means in terms of economics over time with some longer-term targets and objectives that goes with it.

Gary Elftman Bisbee -- Bank of America Securities -- Analyst

Fair enough. Thank you. Appreciate the call.

Operator

[Operator Instructions] Our next question is from Manav Patnaik with Barclays.

Manav Shiv Patnaik -- Barclays Bank -- Analyst

Yes. Thank you. So just kind of a follow-up to Gary's question. I mean, the partnership with Google, so I think you kind of answered it in that last statement, but on a high level, you're just trying to get a foot into the door in the smart home and therefore, hopefully expand the TAM. Is that how we should think about the real benefits of this partnership?

Jim DeVries -- President and Chief Executive Officer

Much more broadly than that, Manav. We think we can leverage Google to not get a foot in the smart home space, but to grow significantly and be a major player in the smart home space. I've mentioned this before, we're super excited about the hardware that Google brings. The ADT + Google branding is something that our marketing research reveals is pretty exciting, but I'm most excited about what the partnership does from an AI perspective, video analytics and data analytics perspective. We think that we can not only compete in the smart home space, but really be a -- with Google as a partner, a technology leader and provide customers services that don't exist today. That's all part of a second-generation offering, some of which will be available in the second half of this year, but will be launched when we have our own interactive platform built in-house, combined with Google hardware and video analytics to launch the next-generation 1/1/23.

Manav Shiv Patnaik -- Barclays Bank -- Analyst

Got it. And another broad question. The residential space, obviously, has been tough. And I think all the efforts you're doing make sense in order to grow better in that market, but commercial has always been the preferred area. And I'm just curious, like at some point down the road, you used the word pivot earlier. Like, is there a pivot to become just more exposed to commercial? Or is residential just such a big animal for you that, that's probably not something in the near future?

Jim DeVries -- President and Chief Executive Officer

No. I wouldn't say it's not in our future. Commercial, we expect to return to growth in 2021 in commercial. I mentioned this in my prepared remarks, our backlog, both install and recurring revenue, are higher at the end of 2020 than at the end of 2019. The pipeline healthy. We've got incredible upside in some of the growing verticals, healthcare, education, government, critical infrastructure. Manav, we think the leadership team is outstanding. We provide the best service in the space. That's the most critical source of differentiation. And we expect to grow the commercial business in a capital-efficient way and get back to double-digit growth as we were prior to the pandemic.

Manav Shiv Patnaik -- Barclays Bank -- Analyst

All right. Thank you, guys.

Operator

Our next question is from Jeff Kessler with Imperial Capital.

Jeffrey Ted Kessler -- Imperial Capital -- Analyst

It's ironic. I feel like Obi-Wan, having my two pupils go right in front of me. The first question I have is on Defenders. We've talked a bit about Defenders today, but Defenders has been a growth company for basically its entire history regardless of what it was selling. And right now, it's focused just solely on security. And I'm wondering, given the fact that you've had -- we see the accounting adjustments having been made. What I want to know operationally, what is -- what are you doing to get Defenders? And have they been already -- has that group been already integrated into what we'll call the -- not just the interactive platform, but the -- being able to -- because they're able to sell, do they have and have they -- are they being trained on the IT level to be able to sell a new platform that you folks are going to be coming out with over the next couple of years? And how is this -- how is Defenders going to come out in the wash since it hasn't -- doesn't come out in the accounting, but it should come out in the way the operations are handled?

Jim DeVries -- President and Chief Executive Officer

Yeah. That's absolutely right. That's absolutely right, Jeff. The -- so the Defenders integration is going well. We're on track. Parts of the teams have been integrated into the ADT branch infrastructure already. We expect that the integration will be complete in the March, April time frame. We are leveraging all of the skills that the Defenders organization brought to our company in a way that's incredibly efficient. We're training the organization in the ADT processes, and they're doing well. We had started using our command panel -- Defenders had started using our command panel even prior to the acquisition, and now they're using the panel exclusively just like core ADT. In terms of the future and the products that will be integrating with Google, both Defenders and ADT technicians and customer care professionals will be trained on that new equipment and it will be standardized as part of our offering.

Jeff Likosar -- Chief Financial Officer

And Jeff, one thing I'd add. We talk about this internally periodically. And even if you look in our deck on Slide 10, where we show our view as to RMR add growth. We list on that page four factors. But the point I want to make is, there is a lot of factors, and it's difficult to decompose the factors because they interplay with one another. So it's the macro drivers. It changes to our pricing model. It's the financing stuff we've done to simplify our offer advertising effect and install efficiency analytics. But included in those internal initiatives is just the sharing of best practices between legacy ADT and legacy Defenders. So we would struggle to tell you precisely how much of the 15% growth in RMR adds that we're guiding to for next year comes from that, but it's an important ingredient into that mix overall.

Jeffrey Ted Kessler -- Imperial Capital -- Analyst

Okay. Great. Second question, a follow-up is, having gone through the earnings results of a lot of the industrial companies in security that I cover, Allegion and ASSA ABLOY and those guys. Clearly, they are looking for a -- still a kind of a slow first half of 2021, hopefully, picking up in the second half. I'm not going to call it a vacation, but your commercial industrial guys who were killing it two years ago, obviously, let's call them, they had a vacation where part of -- while they could not get on the premises or they were able -- unable to finalize deals that were put off. What was -- in the interim period, what have you done with the commercial industrial -- your commercial industrial group to actually get them ready to be accelerating out of the box and not lose a step relative to some of your other large competitors so that when the market does come back, they will -- whether it's national accounts or whether it's specific large enterprise installations, you will be ready to essentially take over that growth that you had before and not be enough far behind these other companies whose only business is commercial and industrial.

Jim DeVries -- President and Chief Executive Officer

Yeah. Four key areas, Jeff, that we took the opportunity when we couldn't have access to customer premises to really bolster up. The first is training. I don't think that we expended as much energy in training in the commercial space in any year like we did in 2020, and so we doubled down in a significant way in employee development. Number 2 is recruiting. From the start, we played the long game. And if organizations weren't as healthy overall as ADT, we took the opportunity to recruit some excellent talent in 2020, both at the technician level and the leadership level. The third is integration. We've done a number of tuck-in acquisitions, Red Hawk a couple of years ago, and so we cleaned up the house from an integration perspective. And then lastly, we advanced the cause on IT systems and IT integration. So we feel good about the positioning of that business and, as I mentioned earlier, expect 2021 to be a really good year in commercial.

Jeffrey Ted Kessler -- Imperial Capital -- Analyst

All right. Great. I have more questions to ask but I have to call back later. Okay. Thank you very much.

Jim DeVries -- President and Chief Executive Officer

Thanks, Jeff.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. I'd like to turn the call back to management for closing remarks.

Jim DeVries -- President and Chief Executive Officer

Thank you, operator. In closing, I'd like to again extend my appreciation to our employees and our dealers. 2020 was a unique year, an extraordinary year. I'm completely proud to be associated with all of you. Thanks to everyone for joining our call this evening. As you heard, we're exceedingly optimistic about ADT's future, looking forward to the growth ahead. And have a great night, everybody. Thanks.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Derek A Fiebig -- Investor Relations

Jim DeVries -- President and Chief Executive Officer

Jeff Likosar -- Chief Financial Officer

Don Young -- Chief Information Officer and Executive Vice President, Field Operations

Peter Corwin Christiansen -- Citigroup -- Analyst

Keen Fai Tong -- Goldman Sachs -- Analyst

Toni Michele Kaplan -- Morgan Stanley -- Analyst

Kevin Damien McVeigh -- Credit Suisse -- Analyst

Gary Elftman Bisbee -- Bank of America Securities -- Analyst

Manav Shiv Patnaik -- Barclays Bank -- Analyst

Jeffrey Ted Kessler -- Imperial Capital -- Analyst

More ADT analysis

All earnings call transcripts