ADT (NYSE: ADT) reported solid revenue and profit increases for both Q4 and for the full year 2017. For the fourth quarter, the security giant had total revenue generated from monitoring and related services, installation and other revenue of $1.106 billion, up 5 percent over the prior year period. For the full fiscal year 2017, the company had a 4 percent revenue gain to $4.316 billion. Meanwhile, both the attrition rate as well as the breakeven point for a subsidized security installation are lower.
In Q4, approximately 92 percent of ADT's total revenue was derived from monitoring and related monitoring services, equaling $1.012 billion, up 2 percent over the same period last year. ADT says the growth in monitoring revenue was driven by improvements in customer revenue attrition and higher average price. The remaining increase in total revenue was driven by higher outright sales and incremental amortization of deferred installation revenue.
In terms of profitability, the company's adjusted EBITDA in the fourth quarter totaled $598 million, an 8 percent increase over the prior year period. The growth was driven by the higher monitoring revenue, lower net expense associated with subscriber acquisition costs, and efficiency improvements in operating costs, partially offset by investments in customer service improvements, according to the company.
The profit represents quite a turnaround… last year, the company reported a net income of negative $85 million for the quarter. Much of the 2017 reversal can be attributed to the new tax law, which ADT says resulted in a $690 million tax benefit. Also, remember that ADT just became a public company on January 19, 2018, so last year's comparative data reflects a much different company. In recent months, ADT has shown it plans to be aggressive in its move back into the commercial security market with some acquisitions.
ADT Amazon Deal in the Works?
Meanwhile, ADT also revealed it was able to reduce its breakeven point in the quarter on its subsidized installation business model from 2 years, 8-and-a-half months to 2 years, 6 months. The company says the improvement was the result of more targeted marketing and sales expenditures, efficiencies in installation costs and increased up-front installation revenue.
Operating cash flow in the quarter was $330 million, up from $236 million from the same period last year.
“Our fourth quarter results reflect a very strong finish to 2017. We grew revenue, EBITDA, and cash flow year-over-year, and we also meaningfully reduced customer attrition while improving customer acquisition efficiency. Following our initial public offering, we are excited about the future of ADT and our ability to drive significant cash flow growth as we continue to execute against our strategic objectives,” says Tim Whall, ADT’s CEO.
Whall also told investors that ADT's average installation now takes six hours and involved 15 to 30 devices. He noted the attrition rate for ADT Pulse installations is not dissimilar to the attrition rate for a standard security system (13.7 percent… down from 16 percent). Whall says the company is analyzing usage patterns among its Pulse clients so ADT can work to enhance the value of the purchase and reduce cancellations.
Whall also mentioned that ADT has been in “conversation” with Amazon regarding partnering with the online giant on its Amazon Key program designed to protect package deliveries. He added ADT is also in discussion with other package delivery service companies.
“I think you see a little difference in the competitive landscape. When we're trying to put this two together a few years ago, it was more AT&T, Verizon, Time Warner, Comcast coming in more of a service offering. Now you see a Google Nest coming out there with products; you see Amazon, potentially Apple coming out more on the hardware side,” Whall told investors. He says those competive factors are among the reasons ADT partners with Samsung on its own DIY solution. Ultimately, he sees the DIY market as a positive for security overall as it helps drive awareness.
ADT Full Year 2017 Results
As noted, ADT, the No. 3 company in the CE Pro 100, reported total revenue of $4.316 billion, up 4 percent versus 2016. Adjusted EBITDA for the year increased by $176 million, or 8 percent, to $2.353 billion. Net income was $343 million, up from a net loss of $285 million.
Operating cash flow was $1.592 billion, up 39 percent year-over-year, and free cash flow before special items was $403 million, up from $331 million in 2016.
“Beyond our strong financial performance, we fully integrated legacy ADT and Protection One field operations during 2017. We deployed tools and processes to drive operational performance and we strengthened our customer focused culture within our direct and dealer channels.
“Our strong performance is the result of the hard work from the men and women at ADT throughout our local offices and call centers across North America. I am proud that our entire organization, our employees and our dealer partners, are laser focused on serving our customers,” says Whall.
2018 Financial Outlook
ADT is providing the following financial guidance for 2018:
- Total revenue between $4.450 billion and $4.550 billion
- Adjusted EBITDA between $2.415 billion and $2.435 billion
- Free cash flow before special items between $475 million and $525 million
- Gross customer revenue attrition between 13.0 percent and 13.3 percent
ADT recently acquired Aronson Security Group (ASG) as well as Acme Security Systems to drive commercial growth and expansion.
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