ADT Reports Positive Q4 Earnings, Shares 2018 Financial Outlook
Interestingly, ADT also revealed how long it takes to recover its net expenditures on customer acquisitions and installation costs.
BOCA RATON, Fla. — ADT (NYSE: ADT) today reported the results for its fourth quarter and full year 2017. Total revenue, including revenue generated from monitoring and related services (“M&S revenue”), installation and other revenue, was $1.106 billion, up 5% over the prior year period.
M&S revenue made up approximately 92% of total revenue in the quarter for a total of $1.012 billion, up 2% over the same period last year.
ADT says the growth in M&S 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.
Adjusted EBITDA in the fourth quarter totaled $598 million, an 8% increase over the prior year period. Growth in fourth quarter Adjusted EBITDA was driven by the higher M&S revenue, lower net expense associated with subscriber acquisition costs (“SAC”), and efficiency improvements in operating costs, partially offset by investments in customer service improvements, according to the company.
Reported net income was $638 million, up from negative $85 million last year, and diluted earnings per share of $0.99 versus $(0.13) in the prior year.
Excluding special items, diluted earnings per share was $(0.06) versus $(0.07) in the same period last year. The net income results include a $690 million tax benefit due to the 2017 Tax Reform.
Trailing 12-month gross customer revenue attrition for the quarter was 13.7%, an improvement of 110 basis points year-over-year, as the company says it focused on higher quality customer additions and executed operational improvements to enhance customer service levels.
Trailing 12-month customer revenue payback, which measures how many years it will take ADT to recover, via new revenue, its net expenditures on customer acquisitions and installation costs, improved to 2.5 years compared to 2.7 years in the fourth quarter of 2016.
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. Free cash flow before special items was $22 million in the fourth quarter of 2017, up from negative $42 million in the same period last year.
Fourth quarter 2017 cash net income totaled $76 million, an increase of $66 million over the prior year period. The year-over-year improvement in free cash flow before special items and cash net income was driven by EBITDA improvements, efficiency gains in SAC and lower cash interest, according to the company.
“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,” said Tim Whall, ADT’s CEO.
Full Year 2017 Results
ADT reported total revenue of $4.316 billion and M&S Revenue of $4.029 billion, up 4% and 2%, respectively, when compared to 2016 pro forma results.
Adjusted EBITDA increased by $176 million, or 8%, to $2.353 billion. Net income was $343 million, up from a net loss of $285 million, and diluted earnings per share of $0.53, up from $(0.44) last year.
Excluding special items, diluted earnings per share for the year was $(0.35) compared to $(0.20) in 2016. Operating cash flow was $1.592 billion, up 39% 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,” said 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% and 13.3%
ADT recently acquired Aronson Security Group (ASG) as well as Acme Security Systems to drive commercial growth and expansion.
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Oooops… they (ADT) forgot to talk about a core component of their “security” business … police response to their calls for help. Silence is suggestive …. something to hide? The other big guy, ASCMA; aka Moni; aka Monitronics, has been silent too. Maybe too hard to explain to customers and investors that their security provider has lost credibility with law enforcement, nationwide, and most deterrent property alarms are treated like nuisance alarms, slow or no response. Majority of the ADT and MONI customers have monitored deterrent systems …. a source of heavy attrition. Maybe Investors and the analysts already know the back-story, which is why ADT shares have dived to single digits since the IPO ($9.01 today). And Moni has slide from $88 to $4.80 (today).
Source: Lee Jones; Support Services Group; [email protected]