Kenneth Porpora: And George, on specifically on the TSA that Jim mentioned — sorry to cut you off there, buddy. The overlap, again, between commercial and the consumer business was very slight, given it was kind of its autonomous segment. So if you think about the stuff that we’re providing service for over the time frame that Jim mentioned and the fees that we’ll charge the commercial business, which has now left the mother ship, they’ll offset over the next couple of years. And over time, we’ll pull additional cost out. So as we kind of back up and look at what’s the impact of that service cost and the service revenue, we see that as immaterial going forward as we kind of rightsize the business, as we release more of the function and service to the commercial business.
Operator: Our next question comes from the line of Toni Kaplan with Morgan Stanley.
Toni Kaplan: First, I just wanted to ask a clarification on the solar restructuring. You mentioned keeping the 16 branches, and that was about 70% of revenue. Sorry if I missed it, but did you also give how much of the EBITDA loss in 3Q was associated with the remaining branches? Just wanted to get that for our modeling purposes.
Kenneth Porpora: Toni, it’s Ken. What we did give is we’ve essentially pulled out $80 million of annualized cost reduction from those branches and from corporate. So if you think about kind of the existing run rate results you’ve seen, we have kind of line of sight to $80 million of annualized run rate and pulling that out pretty quickly. So that’s why we kind of connected the dots with, hey, first half, we turned the corner — sorry, turn the corner. And then second half starts to turn free cash flow positive for solar. But $80 million is the strict cost reduction that we see related to the wind down of those branches.
Toni Kaplan: Great. And then you’re talking about 7% growth at the midpoint for CSB this year. Could you just talk about how you’re thinking about ’24 sustainability of that sort of level? Or if the macro is sort of impacting that? Or maybe extra focus on it because maybe you won’t have to deal with solar as much the issues there. So just wanting to talk about sustainability of that 7% top line growth for the CSB part?
Kenneth Porpora: Sure, Toni. It’s Ken. I’ll give this one a shot as well. So we tried to give the color on the guidance for CSB given the actions in solar. So that’s why we gave the midpoint of the 7%. We haven’t given a guide for 2024. We absolutely will on our next call. But we did give in our prepared remarks and the earnings deck on Page 6 was overall medium-term guidance, kind of 2 to 3 years. So we see revenue in line with market growth. We see the market growth for the CSB business or the consumer business around mid- to 6% growth. So that kind of gives you a feel of how we’re thinking about revenue growth. It was pretty consistent with our 2023 guide. And we see that for continuing the operation activities that we’ve talked about, but also activating the catalyst that Jim talked about in his prepared remarks related to growth in the CSB business, specifically, whether it’s activating our ADT+ platform and attaching innovation to that, whether it’s activating more State Farm and expanding into more and more states there.
And we have another other — a number of other initiatives as well to activate the growth catalyst. So if we’re at kind of 7% today, that gives you a feel of how we’re thinking about ourselves specifically versus the market.
Operator: [Operator Instructions]. Our next question comes from the line of Ashish Sabadra with RBC Capital Markets.
Ashish Sabadra: If you don’t mind, I just wanted to drill down further on the solar itself. And is there a way to think about how much is the impact to free cash flow from the solar headwinds this year? So in a way to think about what the free cash flow would have been excluding the negative impact of solar.
Kenneth Porpora: I can give you a feel, Ashish. So far, we’ve — in EBITDA, we’re just under $90 million negative for the first 9 months of this year for the solar business. So we don’t disclose the exact solar free cash flow given our entanglement there, but assume that EBITDA is in the ballpark of free cash flow. So that’s why I tried to connect the dots on the $80 million cost out that relates to the solar restructuring, put it in the context of we’re down $89 million of EBITDA, 9 months in, taking that $80 million. But a key point that Jim mentioned in his script was we’ve left the higher-performing markets. So not only do we take out the cost, but the dynamics of the market that remain the 16 branches in the 8 or 9 states, those are the higher-performing branches. So I think that gives you a bit of color, Ashish, to connect the dots on your model.
James DeVries: One thing to add, Ashish, is just for context, the loss — cash losses in solar this year have obviously been very significant. The CSB business is performing very well from a cash perspective. And now that we’ll have very significantly less interest expense, that is another tailwind for us next year. And part of our bridge for 2024, which makes the $1 billion in 2025 much more realistic, is putting a turn a kit, simply putting a turn a kit on the cash losses in solar. Had our cash losses this year in solar not been so significant, it just would have been an absolutely exceptional cash year for us and a much closer bridge to getting to that $1 billion in 2025.
Ashish Sabadra: Yes. No, that’s very helpful color. Actually, that’s what I was trying to get to is so that we better understand the normalized free cash flow in the business when we exclude these issues and as you turn around the business next year or think about strategic optionality. Maybe just as a follow-up, wanted to focus on the State Farm partnership and the success that you’re having there. Things are trending ahead of your expectations and the success that you’re having also in selling additional hardware and services. I was just wondering, how should we think about — given the success that you’ve had so far, how are you thinking about that going forward from — particularly from the time line perspective and ruling it out across the country?
James DeVries: Thank you, Ashish. So State Farm, all the intangibles are positive. Everything from shared vision, an integrated insurance product, very customer-focused cultures. I mentioned this on our last call, the chemistry between project teams is outstanding. We feel great about the partnership. There’s a great deal of regulatory work to do. A great deal has been accomplished. We’re now in 13 states. I think the preliminary plan for next year is in the range of 15 to 20 more states in 2024. I think that will put us in market overlap with 75% of the State Farm policies in force. We’re up to about 3,600 systems sold now. And as I think Ken included in the prepared remarks, not unimportantly, about 2/3 of the time that we install one of these systems, we’re able to upsell to a broader security and smart home offering.
So the economics are living into what we had hoped they would at the time the partnership was created. So net-net, feel good about it, anxious to get a little more traction on subscriber adds, but they’re a terrific partner.
