ADT Reports $300M Q1 Net Loss on Improved Total Revenues
First quarter revenues of $1.4 billion increased 10% over the prior year despite the loss of contribution from ADT’s Canadian operations.
ADT reported quarterly free cash flow before special items of $173 million, up from $171 million, despite $66 million increase in cash interest due to quarterly timing of payments.
BOCA RATON, Fla. — ADT (NYSE: ADT) on Thursday reported a net loss of $300 million in its first quarter, compared to $66 million during the same period the prior year. The company had total revenues of $1.37 billion, a 10% increase from the $1.24 billion posted during the prior-year period.
ADT said it had a per-share quarterly loss of 40 cents. Losses, adjusted for non-recurring costs, amounted to 9 cents per share. The company expects full-year revenue in the range of $5 billion to $5.3 billion.
Adjusted EBITDA of $539 million was down from $621 compared to the prior-year period. The decline was primarily attributed to expenses related to the Defenders acquisition, along with the sale of the company’s Canadian operations in Q4 2019, which previously amounted to approximately 4% of total revenue and adjusted EBITDA.
During an earnings call with investors on Thursday, CFO Jeffrey Likosar said another factor creating downward pressure on adjusted EBITDA was the launch of the company’ consumer financing program and the transitioning of many residential transactions to outright sales.
“Defenders transactions are also of an outright sales nature. This differs from ADT’s historical ADT-owned model and therefore, leads to the recognition of higher installation revenue and the associated costs,” he explained.
Likosar cited free cash flow before special items remained robust at $173 million, which was stronger than Q1 of 2019 despite more than $65 million in higher cash interest due to the timing of the company’s debt coupons. He said an important component of ADT’s free cash flow growth was efficiency in net subscriber acquisition costs, which were down year-over-year.
The company reported its trailing 12-month revenue payback improved to 2.3 years from 2.4 years. Trailing 12-month gross customer revenue attrition was 13.5%, an increase of 20 base points. The increase is primarily due to a higher level of dealer disconnects, partially offset by a lower level of direct residential disconnects.
During the earnings call, President and CEO Jim DeVries said the company had a strong first quarter adding new customers, resulting in more subscribers at the end of Q1 than the company had at the beginning of the year.
“This is the first net adds in any quarter for ADT since 2015. Along with unit adds, our recurring revenue, or RMR additions, were also strong and brought our quarter-end RMR balance to $339 million, up over $6 million sequentially from the fourth quarter,” he said.
Resilient Business Model
DeVries said relocations drive about one-third of the company’s attrition. Because the rate of relocations has decreased during the coronavirus pandemic, ADT’s April retention was better than its internal budget, he said.
In the time since the pandemic resulted in shelter-in-place orders and upended the economy, residential sales remained “reasonably resilient” through April and early May, DeVries said. Despite significant uncertainty, ADT is still able to provide strong guidance ranges during the pandemic crisis due in part to the company’s resilient business model, he explained.
“While we obviously see a lower number of leads, we’ve witnessed a significantly higher sales conversion rate, reflecting strong intent to buy security. It’s more of a qualitative observation, but our sense is that shelter-in-place consumers are more aware than ever of the value of ADT security and automation systems in their homes,” he said. “The brand is strong and trusted. And in the truest sense of the word, our service is considered essential.”
DeVries referenced favorable “market dynamics” that have prompted the company to explore “very high-quality bulk acquisitions as an option for deploying capital for low-risk, high-return growth.”
He said the company’s commercial growth over time will be deferred, but not diminished. “Going forward, we believe the environment will give us the opportunity to aggressively compete with weakened and smaller competitors.”
ADT’s small business and commercial channels represent 17% of its RMR balance and 29% of its total revenue. DeVries said these two segments have been more impacted than residential, with many businesses forced to temporarily close.
“We started the strong year in commercial with a 10% organic growth rate through February before declining in March as COVID-19 effects came into play, and we ended the quarter with 6% organic growth,” he said. “While it’s still early, we expect the new commercial sales impact to be more pronounced than with our residential sales and the pressure are expected commercial installation revenues on a year-over-year basis.”
The company expects its commercial growth over time will be deferred, but not diminished. In fact, DeVries said the company’s national accounts organization this week received a global commitment for the largest retail deal in the history the company. Contractual details are being finalized with plans to begin the project in the second quarter.
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About the Author
Rodney Bosch, Senior Editor
Although Bosch’s name is quite familiar to those in the security industry, his previous experience has been in daily newspaper journalism. Prior to joining SECURITY SALES & INTEGRATION in 2006, he spent 15 years with the Los Angeles Times, where he performed a wide assortment of editorial responsibilities, including feature and metro department assignments as well as content producing for latimes.com. Bosch is a graduate of California State University, Fresno with a degree in Mass Communication & Journalism. In 2007, he successfully completed the National Burglar and Fire Alarm Association’s National Training School coursework to become a Certified Level I Alarm Technician.
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