Record high recurring monthly revenue balance and maintained record high customer retention
Improved capital efficiency with record revenue payback of 1.9 years
Positive net income with strong Adjusted EBITDA and operating cash flows
Announced agreement to divest commercial business for $1.6 billion unlocking significant shareholder value; net proceeds to be used for debt reduction
BOCA RATON, Fla., Aug. 08, 2023 (GLOBE NEWSWIRE) -- ADT Inc. (: ADT), the most trusted brand in smart home and small business security, today reported results for the second quarter of 2023.
Financial highlights for the second quarter of 2023 are listed below. Variances are on a year-over-year basis unless otherwise noted.
- Total revenue of $1.6 billion with end-of-period recurring monthly revenue (RMR) up 4% or $382 million
- High customer retention with gross revenue attrition maintaining record low of 12.5%
- Record revenue payback of 1.9 years
- GAAP net income of $92 million, or $0.10 per diluted share, down less than $1 million
- Adjusted net income of $148 million, or $0.16 per diluted share, up $98 million
- Adjusted EBITDA of $651 million, up $54 million
“ADT’s second quarter results underscore the resiliency and momentum of our business with a record high recurring monthly revenue balance and customer retention. Our success reflects the dedication ADT’s employees have with our customers and is a testament to the strong demand for ADT’s innovative offerings and premium experiences,” said ADT President and CEO, Jim DeVries. “The divestiture of ADT’s commercial business unlocks shareholder value by enhancing cash flows and accelerating debt reduction goals while sharpening our focus on core residential, small business and multifamily consumer markets.”
BUSINESS HIGHLIGHTS
Foundation for Growth
- Continued growth of RMR – The end-of-period RMR balance was $382 million, representing a 4% increase over the prior year period. Approximately 75% of total Consumer and Small Business (CSB) and Commercial revenue was generated from this durable recurring revenue.
- Maintained record customer retention and improved revenue payback – With strong customer satisfaction, trailing 12-month gross customer revenue attrition was 12.5%, a 20-basis-point improvement versus the prior year period, and revenue payback ended the second quarter of 2023 at 1.9 years, reflecting a 0.3x year-over-year improvement.
- Upgrade of corporate credit rating – S&P Global Ratings upgraded ADT’s corporate credit rating to ‘BB-’ from ‘B+’ with a stable rating outlook in recognition of the Company’s resilient business model and continued progress towards debt reduction goals.
Innovative Offerings
- ADT Self Setup and enhanced Google offerings – As part of ADT’s partnership with Google, the Company nationally sells, installs, and services a full suite of Google Nest products which seamlessly integrate the security and protection of ADT with the helpful convenience of Google Nest. During the second quarter of 2023, the attachment rate for the Nest Doorbell was approximately 50% and Nest cameras are currently realizing an 8% increase in cameras per home, helping drive a 17% increase in residential installation revenue per unit as compared to the prior year period.
- ADT Home Security Program for State Farm customers to expand – ADT announced that its program for State Farm customers plans to expand to up to 13 states by year end 2023. In all program states, new and existing State Farm homeowners customers can participate in the ADT Home Security Program to receive ADT home security products and professional monitoring services at a reduced cost.
- ADT Solar to offer lease and PPA financing options through SunPower Financial – ADT Solar entered into an agreement in principle with SunPower Financial to offer lease and power purchase agreement (PPA) financing options to new ADT Solar customers seeking greater flexibility and accessibility in their rooftop solar financing. SunPower Financial is expected to become the exclusive lessor for ADT Solar customers seeking an alternative to outright purchases beginning this year.
Unrivaled Safety
- False alarm reductions – In the second quarter of 2023, ADT’s patented SMART Monitoring innovations reduced false alarms by more than 50%, eliminating over 770,000 unnecessary dispatches by local first responders – conserving community resources and reducing environmental impact.
Premium Experience
- ADT Virtual Tour App – ADT launched its new Virtual Tour App, a mobile-based tool utilizing augmented reality to enable ADT Solutions Advisors to help customers visualize how ADT and Google smart home security products can protect and connect their homes. Virtual storytelling offers an individualized experience and helps customers see how our products would look in their home through augmented reality.
Progress on our ESG Journey
- Baltimore nonprofit Requity partnership – Through our long-term partnership with Requity, a Baltimore nonprofit that provides vocational education and workforce development, the company is forging a path to potential ADT employment for certain Requity students through mentoring and hosting skills workshops. ADT hosted a workshop for Requity students this spring focused on interview skills and troubleshooting.
2023 FINANCIAL OUTLOOK
The Company is revising its financial guidance for 2023. Total revenue is now projected to be lower than prior guidance due to the Solar outlook from low installation volume and efficiency headwinds, partially offset by CSB and Commercial performance. The Company is maintaining previously issued guidance on Adjusted EBITDA, Adjusted EPS, Adjusted Free Cash Flow (including interest rate swaps), and Adjusted Free Cash Flow as we expect M&S revenue and improved operating margins within CSB and Commercial to largely offset the profitability and cash flow impact of Solar underperformance.
As a result of the announced agreement to divest the commercial business, the commercial business is expected to be reported as discontinued operations beginning in the third quarter of 2023. Full year Commercial results are included in guidance, pending the close of the transaction.
| (in millions) | Prior Guidance | Updated Guidance | |
| Total Revenue | $6,600 - $6,850 | $6,300 - $6,500 | |
| Adjusted EBITDA | $2,525 - $2,625 | $2,525 - $2,625 | |
| Adjusted EPS | $0.30 - $0.40 | $0.30 - $0.40 | |
| Adjusted Free Cash Flow (including interest rate swaps) | $600 - $700 | $600 - $700 | |
| Adjusted Free Cash Flow | $525 - $625 | $525 - $625 | |
| The Company is not providing forward-looking guidance for U.S. GAAP financial measures other than Total Revenue or a quantitative reconciliation to the most directly comparable GAAP measures for its non-GAAP financial guidance shown above because the GAAP measures cannot be reliably estimated and the reconciliations cannot be performed without unreasonable effort due to their dependence on future uncertainties and adjusting items that the Company cannot reasonably predict at this time but which may be material. Please see "Non-GAAP Measures" for additional information. | |||
| TOTAL COMPANY RESULTS(1)(2) | ||||||||||||||||
| (in millions, except revenue payback, attrition, and per share data) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| GAAP | ||||||||||||||||
| Total revenue | $ | 1,593 | $ | 1,601 | $ | 3,205 | $ | 3,146 | ||||||||
| Net income (loss) | $ | 92 | $ | 92 | $ | (27 | ) | $ | 143 | |||||||
| Net cash provided by (used in): | ||||||||||||||||
| Operating activities | $ | 493 | $ | 515 | $ | 799 | $ | 823 | ||||||||
| Investing activities | $ | (319 | ) | $ | (402 | ) | $ | (655 | ) | $ | (807 | ) | ||||
| Financing activities | $ | (217 | ) | $ | (85 | ) | $ | (258 | ) | $ | 7 | |||||
| Net income (loss) per share of Common Stock - diluted | $ | 0.10 | $ | 0.10 | $ | (0.03 | ) | $ | 0.15 | |||||||
| Net income (loss) per share of Class B Common Stock - diluted | $ | 0.10 | $ | 0.10 | $ | (0.03 | ) | $ | 0.15 | |||||||
| Non-GAAP Measures | ||||||||||||||||
| Adjusted EBITDA | $ | 651 | $ | 597 | $ | 1,276 | $ | 1,198 | ||||||||
| Adjusted Free Cash Flow | $ | 201 | $ | 185 | $ | 200 | $ | 143 | ||||||||
| Adjusted Free Cash Flow (including interest rate swaps) | $ | 221 | $ | 174 | $ | 237 | $ | 118 | ||||||||
| Adjusted Net Income (Loss) | $ | 148 | $ | 50 | $ | 255 | $ | 43 | ||||||||
| Adjusted Diluted Net Income (Loss) per share | $ | 0.16 | $ | 0.06 | $ | 0.30 | $ | 0.05 | ||||||||
| Other Measures | ||||||||||||||||
| Trailing twelve-month revenue payback | 1.9 years | 2.2 years | ||||||||||||||
| Trailing twelve-month gross customer revenue attrition | 12.5 | % | 12.7 | % | ||||||||||||
| End of period RMR | $ | 382 | $ | 369 | ||||||||||||
| SEGMENT RESULTS (2) | ||||||||||||||
| CSB | ||||||||||||||
| Three Months Ended June 30, | ||||||||||||||
| (in millions) | 2023 | 2022 | $ Change | % Change | ||||||||||
| Monitoring and related services | $ | 1,043 | $ | 1,011 | $ | 32 | 3 | % | ||||||
| Security installation, product, and other | 125 | 77 | 48 | 62 | % | |||||||||
| Total CSB revenue | $ | 1,168 | $ | 1,088 | $ | 80 | 7 | % | ||||||
| Adjusted EBITDA | $ | 644 | $ | 581 | $ | 63 | 11 | % | ||||||
| Adjusted EBITDA Margin (as a % of Total CSB Revenue) | 55 | % | 53 | % | ||||||||||
Total CSB revenue was $1,168 million for the second quarter, up 7% versus the prior year. Monitoring and related services (M&S) revenue increased year-over-year resulting primarily from higher average pricing. Security installation, product, and other increased year-over-year resulting primarily from an increase in the volume of transactions under the customer-owned equipment ownership model and higher amortization of deferred subscriber acquisition revenue.
CSB Adjusted EBITDA increased 11% to $644 million in the second quarter compared to the prior year period. These improvements were driven by higher M&S revenue from our record RMR base and improved operating margins. The improvement in operating margins benefited from execution on our cost reduction initiatives, proceeds from a legal settlement, and receipts from Google related to our joint marketing efforts.
| Commercial | ||||||||||||||
| Three Months Ended June 30, | ||||||||||||||
| (in millions) | 2023 | 2022 | $ Change | % Change | ||||||||||
| Monitoring and related services | $ | 144 | $ | 134 | $ | 9 | 7 | % | ||||||
| Security installation, product, and other | 204 | 163 | 41 | 25 | % | |||||||||
| Total Commercial revenue | $ | 348 | $ | 297 | $ | 50 | 17 | % | ||||||
| Adjusted EBITDA | $ | 45 | $ | 31 | $ | 14 | 43 | % | ||||||
| Adjusted EBITDA Margin (as a % of Total Commercial Revenue) | 13 | % | 11 | % | ||||||||||
Total Commercial revenue was $348 million for the second quarter, up 17% versus prior year. Improvements were driven primarily by an increase in installation volumes as well as increases in product and service prices.
Commercial Adjusted EBITDA increased 43% to $45 million in the second quarter. These improvements were driven primarily by higher revenue and improved cost performance, which delivered EBITDA margin of 13%.
| Solar | ||||||||||||||
| Three Months Ended June 30, | ||||||||||||||
| (in millions) | 2023 | 2022 | $ Change | % Change | ||||||||||
| Solar installation, product, and other | $ | 78 | $ | 215 | $ | (138 | ) | (64)% | ||||||
| Total Solar revenue | $ | 78 | $ | 215 | $ | (138 | ) | (64)% | ||||||
| Adjusted EBITDA | $ | (37) | $ | (15) | $ | (23 | ) | (153)% | ||||||
| Adjusted EBITDA Margin (as a % of Total Solar Revenue) | (48) | % | (7) | % | ||||||||||
| Note: M&S revenue is not applicable to the Solar segment. | ||||||||||||||
Total Solar revenue for the second quarter was $78 million, down 64% versus the second quarter of last year. This performance was driven by lower installations and weaker sales performance.
Solar Adjusted EBITDA was a $37 million loss for the second quarter. Adjusted EBITDA was negatively impacted by the lower revenue discussed above.
During the second quarter, the Company recognized a non-cash goodwill impairment charge of $181 million associated with the Solar segment. This charge is a result of current macroeconomic conditions as well as Solar’s continued underperformance of operating results relative to expectations in the second quarter of 2023. This goodwill impairment charge is excluded from Adjusted EBITDA.
| BALANCE SHEET, CASH, AND LIQUIDITY | ||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | $ Change | % Change | 2023 | 2022 | $ Change | % Change | ||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 493 | $ | 515 | $ | (22 | ) | (4) | % | $ | 799 | |||||||||||||||
