ADT Posts $107M Net Loss in Q2 as Revenue Outlook Brightens
ADT’s improving financials are coupled with a partnership with Google that is expected to advance its opportunities in security and smart home automation.
BOCA RATON, Fla. — ADT (NYSE: ADT) on Wednesday reported a net loss of $107 million in its second quarter, compared to $104 million during the same period the prior year. The company had total revenues of $1.31 billion, a 4% increase from the $1.28 billion posted during the prior-year period.
On a per-share basis, ADT reported a loss of 14 cents. Losses, adjusted for non-recurring costs, came to 7 cents per share.
Adjusted EBITDA of $563 million was down from $630 million compared to the prior-year period. The decline was primarily attributed to the previously disclosed impact from the acquisition of Defenders, the elimination of financial contribution from ADT Canada and lower volume of commercial transactions due to COVID-19. The decline was partially offset by higher volume of outright sale residential transactions and spending controls.
Monitoring and related services revenue was down 4% or $44 million year-over-year. The decrease was primarily due to a reduction of revenue as a result of the sale of ADT Canada, partially offset by an increase in recurring monthly revenue (RMR) in U.S. operations.
Installation and other revenue increased $92 million from a year ago. The increase was primarily due to a higher volume of revenue from security equipment sold outright to residential customers as a result of the Defenders acquisition and consumer financing-enabled revenue model initiative. The revenue increase was partially offset by a decrease in the volume of revenue from equipment sold outright to commercial customers as a result of COVID-19 and due to the sale of ADT Canada.
In May, ADT began to transition its security system ownership model back to a predominately company-owned model for residential transactions following the conclusion of its consumer financing program.
The company’s trailing 12-month revenue attrition ended at 13.1% for the quarter, an improvement of approximately 20 basis points from a year ago and approximately 40 basis points sequentially. Trailing 12-month revenue payback improved to 2.3 years from 2.4 years.
Year to date adjusted free cash flow was $405 million, up from $292 million. The improvement was attributed primarily to lower spending on net subscriber acquisition costs, a decrease in interest payments as a result of changes to the timing of interest payments, lower capital expenditures, among other factors.
During an earnings call with investors on Thursday, ADT CFO Jeff Likosar said although the economy continues to face uncertainty due to COVID-19 and other dynamics, the company’s “recession resilient characteristics” have improved its overall financial outlook relative to the ranges provided in May. ADT expects full-year revenue in the range of $5.05 billion to $5.3 billion; adjusted EBITDA range is $2.1 billion to $2.2 billion, and adjusted free cash flow range is $625 million to $725 million.
In March, ADT said its commercial business was experiencing a year-over-year decline due to COVID-19, which continued into the second quarter with revenue ending down approximately 15% from a year ago. During the earnings call, ADT President and CEO Jim DeVries said new residential sales finished the second quarter strong with each month better than the prior month after shelter-in-place restrictions had negatively impacted the business in late March and in April. Sales demand improved during the course of May and spiked higher in June.
“Net customer additions remained positive for the first six months of the year. We’re monitoring the resurgence of COVID-19 and the broader macroeconomic situation carefully,” DeVries continued. “Despite the near-term uncertainty, the resilient characteristics of our business are illustrated with consumers placing a high-value on safety, security and peace of mind.”
During the quarter ADT made significant announcements vis-à-vis its residential and commercial businesses. These include the discount retail chain Dollar Tree becoming the company’s largest commercial customer, and ADT was named the premier provider of smart home security and automation services for D.R. Horton, the nation’s largest homebuilder by volume. Also, Lyft is now extending ADT’s mobile safety tools to its drivers, allowing both drivers and riders to quickly get emergency help if they ever feel unsafe during the ride.
Of course, the company’s biggest development came Monday when ADT and Google jointly announced a long-term, transformational partnership, which will combine Nest hardware and services, Google’s machine learning technology, and ADT’s installation and monitoring services.
“Over time, this groundbreaking partnership will enable us to develop new offerings, new products and technology to service the rapidly growing smart home market,” DeVries said. “Our shared vision, mutual commitment to serving customers, complementary strengths, significant equity investment and meaningful go-to-market funding, position our partnership for success for many years to come.”
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