Tyco's Breen talks about new entrants, PULSE, ADT spin-off

There were some interesting tidbits on today's Tyco earnings call—about earnings of course, but also about new cable/telco entrants into the security industry, stats on ADT's PULSE offering, and a progress report on the conglomerate's split into three, separate, publicly traded companies.

On the new entrants: In response to a question about how/if new cable/telco entrants into the security industry is affecting ADT, Tyco CEO Ed Breen said: “We track every market we're in very closely, and we know where the cable guys are and where we're competing with them [and the metrics in those markets where we have cable/telco competitors] are there's no difference in those markets compared to any other markets.”
Breen said he feels “very good about our competitive position.” He said that the question of partnerships is a “question for the future” one that ADT will look into “if that opportunity makes sense.”

He didn't mention that ADT is in fact, already partnering with Frontier Communications in New York.� Frontier Communications—which calls itself the nation's largest provider of communications services focused on rural America, offering Broadband, Phone, Satellite television, wireless Internet data access, in 27 states. It has 15,200 employees—Frontier gave security a go four years ago, but then decided it wanted to partner with big nationals. It's now partnering with Pro1 in Pennsylvania and ADT in New York.

Breen shared some stats on the PULSE product. ADT currently has 105,000 PULSE units in field. All of those have been sold by ADT's internal sales force. The average monthly revenue for those units is $50, which is a nice bump from legacy ADT accounts which average $36 and the Brink's/Broadview legacy accounts which average $33 per month.

The ADT dealer base has been in training for months and will begin to sell the PULSE product at the end of the current quarter (Q2). When ADT first started selling Pulse, the take rate was 14 percent, last quarter it was 23 percent and this most recent quarter it was 28 percent, Breen said. A 30-percnet take rate is the goal, he said “and we're nicely on our way.” In addition, he said it's “clearly a stickier account.”

Breen said the separation of Tyco into three separate companies is progressing, with most of the work centered on finance and legal considerations.

In this, the first quarter of 2012, Tyco finished reorganizing its reporting segments to align with its reporting and management structure. Breen said the company is “nearing completion in filling out he management teams and boards of directors for the three companies,” though no new personnel announcements other than the CEOs of the three companies (George Oliver, Commercial Fire and Security; Naren Gursahaney, ADT North America Residential; and Patrick Decker, Flow Control) have been publicly announced.

Tyco has filed its tax ruling requests, is getting ready to talk to rating agencies in Feburary (so is holding tight to its $1b cash reserve right now.)

In late March the company will file important statements: From 10s for the the spincos—ADT North amercia Resi and Flow Control, as well as the preliminary proxy statement �which will include pro forma info on the Commercial Fire and Security Company—which by the way, is losing the ADT name.

Breen pointed out that it still has the right to the Tyco and SimplexGrinnell brands and said that this company's commercial customers know who they're working with, so the loss of the ADT name for the commercial company, he seemed to imply, is not a big concern.

Oh, yes, and earnings:� Q1 revenue was $4.2b, which is down from the same time period one year ago when it was $4.3b. Its operating income was up—at $549m compared to $495m one year ago. Likewise, its operating margin was 13 percent, up from 11.3 percent a year ago. For the security segment, from the release: "Revenue of $2.2 billion increased 2% in the quarter with organic revenue growth of 3%. Recurring revenue grew 4% organically with growth in all geographic regions. Non-recurring revenue grew 1% with strong growth in Asia Pacific and Latin America partially offset by modest declines in the North America and EMEA regions. Operating income was $339 million and the operating margin was 15.7%. Special items of $36 million primarily consisted of separation-related impairment and restructuring charges. Operating income before special items was $375 million and the operating margin improved 70 basis points to 17.4%. The increase in operating margin resulted from faster growth in ADT's higher margin recurring revenue business and the continued benefit of restructuring and cost reduction activities."

And for the fire segment" "Revenue of $1.1 billion increased 3% in the quarter with organic revenue growth of 2%. Organic revenue growth of 8% in fire products and 2% in service partially was offset by a 5% organic revenue decline in systems installation due to continued softness in the non-residential construction market. Excluding the impact of foreign currency, orders increased 6% year-over-year and backlog increased 4% to $1.2 billion on a quarter sequential basis. Operating income was $144 million and the operating margin was 12.7%. Operating income before special items was $147 million and the operating margin was 13.0%. The 140 basis point margin improvement was driven by increased volume in products and a higher mix of service revenue as well as the continued benefit of cost-containment and restructuring actions."