ADT Q4 Revenue Up, Pulse Surpasses 1M Customers

The nation’s largest security provider posted revenue of $883 million for the quarter ended Sept. 26, up from $846 million for the same period last year.

BOCA RATON, Fla. – Although its profits declined, ADT Corp. sales increased in the fourth quarter as the company’s Pulse product suite marked its millionth customer, according to earnings released Wednesday. More than 70% of new customers are choosing the Pulse security and home automation offering, the company said.

For fiscal 2014, revenue was $3.4 billion, an increase of 3% over 2013, the company said. Much of that was recurring revenue from ongoing sales of its security services, up 3.7% compared to last year. For the fourth quarter, ADT reported revenue of $883 million, an increase of 4.4% over a year ago. Profits fell to $82 million from $96 million for the same quarter in 2013.

For the fiscal year, ADT (NYSE: ADT) reported net income of $304 million or $1.66 per share compared with $421 million or $1.88 per share during the same period last year. Despite higher revenues, earnings for fiscal 2014 declined year over year primarily due to high operating expenses. Adjusted earnings for fiscal 2014 were $369 million or $2.02 per share compared with $413 million or $1.84 per share in fiscal 2013. Adjusted earnings for the reported fiscal year beat the Zacks Consensus Estimate of $1.97.

“We delivered a strong finish to the year driving another quarter of improved results, in line with our most recent guidance in creating good momentum to drive profitable growth in the year ahead,” ADT CEO Naren Gursahaney said during an earnings call with analysts.

The company closed the quarter with 6.7 million customer accounts, a 3.6% increase over last year, including accounts from Reliance Protectron, a Canadian acquisition completed this year.

Recurring monthly revenue (RMR), which made up 93% of total revenue in the quarter, was $819 million, up 5.4% compared to the same period last year. The improved RMR growth in the fourth quarter was primarily driven by an increase in ADT’s organic average revenue per customer, which rose 3.7% over last year to $42.32, and the consolidation of Reliance Protectron for eleven weeks in the quarter. Revenue attrition for the quarter improved 40 basis points sequentially and year-over-year to 13.5%, while unit attrition for residential and small business improved 30 basis points sequentially, and 10 basis points from last year, to 13.2%.

“Non-pay initiatives, enhanced resale efforts and tighter credit screening, along with more stable existing home sales and our enhanced customer care initiatives all contributed to the lower attrition,” ADT CFO Mike Geltzeiler said during the earnings call. “Our plans are to drive this number even lower in 2015.”

The success of Pulse continues to be an important driver behind ADT’s positive results as Pulse take rates continued to increase for new system sales and Pulse “upgrade activities also grew nicely,” Gursahaney said.

For the fourth quarter, 51% of ADT’s total gross adds were attributed to Pulse units, up from 49% over last quarter and 33% a year ago. In the residential direct channel, the take rate for new and resale units was more than 55%, up 16 percentage points from the same quarter last year and 70% of all new residential customers ADT added via its direct sales channel were Pulse customers.

In ADT’s small business channel, the Pulse take rate was 46%, up 11 percentage points over the fourth quarter of last year. In the company’s dealer channel, Pulse take rates increased in the fourth quarter to almost 47% from about 43% last quarter and 23% last year.

In total, Pulse customers account for 16% of ADT’s total customer base, Gursahaney said. “To put this into context, if Pulse were an independent company, it would be the fourth largest security company in North America on its own and we achieved all of this in about four years.”

ADT executives reviewed fourth quarter initiatives during the earnings call, as well as touched on expansion efforts they will pursue 2015. Namely, with the expiration of its non-compete agreement with Tyco Integrated Security, the company launched ADT Business, positioning its move into the midsize commercial market and thereby “tripling the addressable market for us in this channel to over $7 billion,” Gursahaney said. He also said 2015 would be an investment year for ADT Business as they build the necessary staffing resources and make further enhancements to its product portfolio.

Also notable, during the fourth quarter ADT began to execute an initiative with Best Buy to have its products and services on display and sold through their retail stores in the United States. The company said it views this partnership as a significant step in broadening ADT’s retail distribution presence.

“What we’re doing with Best Buy today is very much of a lead generation, kind of try and understand Pulse and what Pulse capabilities are. But ultimately that still leads to an appointment with a sales rep and then that sale over the kitchen table,” Gursahaney said.

Despite an ever more competitive marketplace, overall market dynamics remain healthy as reflected by the more than 280,000 new customers ADT added in the fourth quarter, Gursahaney said. And while its primary focus continues to be on the integrated monitored security arena, he said ADT recognizes “the incredible opportunity developing” in the unmonitored, do-it-yourself (DIY) product segment that is largely unpenetrated and hasn’t been reached by traditional security solutions.

“We’re looking at that DIY market and seeing if there is an opportunity. I think we’re excited by what we do see. We’ve still got some more work to do to understand the value of a professionally monitored solution in there to make a smart home truly a smart and safe home and that’s the opportunity we see and we will be talking more about that as we move forward,” Gursahaney.

About the Author

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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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