ADT Q3 gains driven by strong retention, divestiture of commercial business

BOCA RATON, Fla. – ADT is reporting a significant improvement to its balance sheet in its third fiscal quarter, thanks to the divestiture of its former commercial division, as well as strong retention numbers and revenue from Consumers and Small Business (CSB).

A list of financial highlights from the quarter include total revenue of $1.2 billion with end-of-period recurring monthly revenue (RMR) up 3% to $350 million, high customer retention with gross revenue attrition maintaining 12.9%, record revenue payback of 2.0 years, and more.

“ADT’s core security and smart home business delivered a strong third quarter with recurring monthly revenue topping $350 million, revenue payback at a record low of 2.0 years and continued progress in product development. The solar business continued to perform below our expectations and we’ve undertaken a substantial restructuring in an effort to drive more positive results,” said Jim DeVries, ADT Chairman, President and CEO. “In October, ADT closed on the previously announced divestiture of the commercial business with all net proceeds allocated to debt reduction. Additionally, following this transaction and a credit rating upgrade, ADT refinanced approximately $1.4 billion of debt, extending the maturity from 2026 to 2030 and reducing borrowing costs. Closing out 2023, ADT is in a position of strength, focused on continued value creation, growing cash flow, and optimized capital allocation.”

ADT notes in its release that the company is taking immediate action in order to “streamline” the solar business. They said this will be accomplished by focusing on the top-performing markets and rationalizing the overhead and infrastructure of the business. In the second quarter of 2023 the U.S. solar market installed 5.6 gigawatts of capacity, a 20% increase over the previous years Q2 according to the quarterly SEIA/Wood Mackenzie Power & Renewables Solar Market Insight report. The same report notes that solar accounted for 45% of all new electricity-generating capacity added to the U.S. grid in the first half of the year. With 2023 volumes set to grow year-over-year, it seemingly signals a reverse of the contraction seen in the industry in 2022.

While strong CSB numbers were seen to offset the majority of solar losses, and the divestiture helped pay down debt, the company has revised its 2023 guidance as follows:

Total Revenue (in millions)|PRIOR $6,300-$6,500 UPDATED $4,950-$5,150

Adjusted EBITDA| PRIOR $2,525–$2,625 UPDATED $2,350–$2,400

Adjusted Free Cash Flow | PRIOR $525–$625 UPDATED $525–$575

The full release of the financial results and the accompanying presentation can be found online at investor.adt.com.