ADT reports second quarter 2021 results

BOCA RATON, Fla. —ADT Inc., the most trusted brand in smart home and small business security, has reported results for the second quarter of 2021.

Among the operational highlights announced for Q2 2021 were:

• Gross recurring monthly revenue (RMR) additions grew 28 percent

• End-of-period RMR of $352 million increased by 4 percent

• Solid customer retention with attrition at 13.3 percent

• Commercial recovery continues with improved year-over-year results

• Proactively improving capital structure to improve liquidity and address near-term debt maturities

“We continue to make substantial progress against our key priorities for 2021, including growing our RMR additions and our recurring monthly revenue base, improving the performance of our Commercial business, and driving innovation both through our internal expertise and through our strategic partnerships,” said Jim DeVries, ADT President and CEO. “I want to thank our entire ADT team for serving our customers and delivering solid results for our shareholders. From mobile to residential to commercial, the breadth and scope of service ADT provides is unmatched in the marketplace. We are well positioned to lead the way in the fast-growing markets for smart home and commercial protection, leveraging our trusted brand to drive profitable growth through premium services, innovative technology, and best-in-class partnerships.”

Q2 2021 Results

Total revenue declined 2 percent year over year to $1,304 million, driven primarily by a $69 million decrease in installation and other revenue. Consumer and Small Business installation revenue declined by $109 million from a year ago, reflecting the non-cash reduction in reported revenue due to equipment ownership model changes, which was partially offset by higher Commercial installation revenue. Monitoring and related services revenue was up $42 million or 4 percent, driven by higher recurring monthly revenue.

Reflecting strong customer retention, trailing 12-month gross customer revenue attrition of 13.3 percent increased slightly from a year ago due primarily to headwinds from the 2020 Defenders acquisition and an increase in customer relocations. Trailing 12-month customer revenue payback remained at 2.2 years.

The Company reported a net loss of $126 million, compared to the prior year’s net loss of $107 million, as strong M&S revenue and improved Commercial performance were offset by higher year-over-year expense related to radio conversion, service, and net subscriber acquisition costs. Diluted net loss per share of common stock was $(0.15) compared to $(0.14) a year ago, and diluted net loss per share of Class B common stock was $(0.15). As detailed below, diluted net loss per share before special items was $(0.07) in both periods.

Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was $542 million, down from $563 million in the prior year, reflecting the non-cash impact of the ownership model changes, an increase in service costs, and investment in IT infrastructure and next generation technology. These items were partially offset by strong monitoring and related services revenue performance, as well as improved Commercial results.

Year-to-date net cash provided by operating activities was $786 million and net cash used in investing activities was $777 million. These amounts compare to $629 million and $536 million, respectively, for the first six months of 2020. The increase in cash provided by operating activities reflects the impact of lower outright sales to residential customers in 2021 and the non-recurrence of a 2020 payment related to the Defenders acquisition, partially offset by higher net payments for radio conversion costs. The increase in net cash used in investing activities reflects subscriber system asset expenditures and additional spending for dealer and bulk account purchases, partially offset by the non-recurrence of the Defenders acquisition. Net cash used in financing activities was $60 million compared to $96 million a year ago.

Year-to-date Adjusted Free Cash Flow was $227 million, down from $405 million in the prior year period. The decrease was driven by higher subscriber acquisition costs to fund significant growth in customers and RMR additions.

Business Highlights

ADT is a trusted consumer brand, driving profitable growth through innovative technology, strategic partnerships, and premium products and service. Key highlights of the Company’s performance include:

• Continued Growth of RMR – During the quarter, Gross RMR additions increased to $14.5 million, an increase of 28 percent from the prior year. This growth included stronger year over year performance of ADT’s dealer network. Total U.S. Gross RMR additions have increased by double digits in each of the past four quarters. As of the end of the quarter, RMR totaled $352 million, representing a 4 percent year-over-year increase. Approximately 80 percent of the Company’s total revenues come from this durable recurring revenue.

• Radio Conversions Progress – The Company continued to make significant progress in replacing the 3G and Code-Division Multiple Access (“CDMA”) cellular equipment used in many of its security systems. During the first half of 2021, the number of customer systems to be converted was reduced by one million. As of June 30, 2021, there were approximately 800,000 customer systems remaining to be converted.

• Proactively improving capital structure – Subsequent to the end of the quarter, the Company completed a number of transactions to proactively improve its balance sheet. In July, the Company issued $1 billion in new notes due in 2029 and plans to use the proceeds to retire its $1 billion of notes due in 2022. The Company also extended the maturity of its revolving credit facility to 2026 and upsized its capacity from $400 million to $575 million. The Company amended its consumer financing agreement on more favorable terms while aligning the facility more closely with customers’ needs, including a wider range of smart home products. Combined with other refinancing transactions in 2019 and 2020, the Company has flattened near-term maturities, improved liquidity, and reduced annual cash interest by more than $100 million.

• Cash dividend declared – Effective Aug. 4, 2021, the Company’s board of directors declared a cash dividend of $0.035 per share to holders of the Company’s common stock and Class B common stock of record as of Sept. 16, 2021. This dividend will be paid on Oct. 5, 2021.