'Exciting road ahead' as ADT doubles down on residential, small business

BOCA RATON, Fla. – ADT shook things up by preempting its second fiscal quarter 2023 earnings call with the news that the company is divesting itself of its commercial business.

As reported earlier by Security Systems News the company has entered into a definitive agreement to sell its commercial security, fire and life safety business unit to private equity firm GTCR for a purchase price of $1.6 billion. The transaction has been approved by the company’s board of directors and is expected to close in the fourth quarter of 2023, subject to closing conditions and regulatory approvals.

Money from the sale is being used to reduce the company’s debt. ADT President and CEO Jim DeVries referred to the future of the company as “the exciting road ahead” and told call participants that there were five key benefits as a result of the transaction.

“First, the divestment enables more focus for ADT to facilitate the pursuit of significant residential and small business growth opportunities in the smart home and solar markets,” DeVries said. “Second, the sale price represents an attractive enterprise value and at just over $1.6 billion is equivalent to a multiple of 11.2 times the Commercial trailing 12 month adjusted EBITDA, including an estimated allocation of corporate costs. Third, ADT will have a meaningfully lower leverage profile following the close of the transaction. The entirety of the net proceeds will be used to pay down debt, reducing our net leverage ratio from the current level of 3.7, down to 3.3 times, accelerating the achievement of our debt reduction goal by two years.”

DeVries finished by noting that the transaction would strengthen ADT's financial profile, and that the valuation showcases ADT Commercial’s strong growth in revenue. He concluded that besides those benefits, that it was the right time and price to maximize value for the shareholders.

With the largest news out of the way the rest of the quarterly results were a mixed bag for the company. ADT saw record high recurring monthly revenue (RMR) balance (up 4% or roughly $382 million) and maintained record high customer retention. However, solar continues to haunt ADT from its Q1 performance with high prices and interest rates driving lower installations among residential customers. This has led ADT to revise its financial guidance to be lower for the year. Other financial highlights include:

• 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

You can find their official release documents and the recorded call online at investor.adt.com.