Shares of security company ADT Inc. slid 3% Thursday, after the company posted an unexpected loss for the second quarter as it continued to grapple with high costs, including to service debt taken on as part of a 2016 leveraged buyout by Apollo Global Management.
Boca Raton, Fla.–based ADT ADT, -10.65% said it had a net loss of $67 million, or 9 cents a share, in the period, narrower than the loss of $93 million, or 14 cents a share, posted in the year-earlier period. The adjusted per-share loss came to 7 cents, while the FactSet consensus was for earnings per share of 10 cents.
Revenue rose 6% to $1.131 billion, above the $1.126 billion FactSet consensus. Monitoring and related services revenue, the company’s core business, saw revenue rise 2% to $1.02 billion. Growth was driven by an increase in recurring monthly revenue, or RMR, a key metric in the alarm and security business, as it raised average prices and improved customer attrition rates.
On the cost side, the cost of revenue rose to $246 million from $215 million, SG&A expenses rose to $323 million from $287 million, and depreciation and amortization costs rose to $488 million from $458 million.
On the company’s earnings call, Chief Financial Officer Jeff Likosar said the company redeemed $750 million in Koch Preferred Securities in the quarter for about $950 million. Those preferred shares and warrants were issued to an affiliate of privately held Koch industries Inc. by Apollo as part of the funding for the LBO.
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Stock compensation rose sharply due to the accelerated vesting of certain shared distributed upon conversion of B units in connection with the company’s January IPO, he said. The company expects to pay $600 million in interest costs this year, to service its roughly $10 billion of debt.
The company said it is expecting full-year revenue of $4.50 billion to $4.55 billion, up from a prior range of $4.45 billion to $4.565 billion and compared with a FactSet consensus of $4.53 billion.
Chief Executive Timothy Whall said the company bolstered its position in the connected home while working to grow its commercial business.
“While we remain focused on the largest segment of the industry, which is the professionally installed residential market, we now have a similar opportunity in the commercial space, as well as a smaller, but quickly growing opportunity in the do-it-yourself market,” Whall told analysts on the call, according to a transcript.
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The company is pinning big hopes on ADT Go, a service launched in the first quarter that allows customers to monitor loved ones outside of the home with a mobile app that offers family location sharing and an emergency SOS feature. The app allows customers track relatives while driving with roadside assistance and crash detection and response features. The app has chalked up 150,000 downloads to date, said Whall.
Then there’s the company’s Pulse app, which allows users to monitor and manage the home remotely, whether to switch lights on and off, adjust air conditioning or heating and make sure appliances were not left on. Pulse is part of the company’s push into the Internet of Things and smart home space. The company has partnerships with Amazon AMZN, +0.64% , Z-Wave, Kwikset, Netgear, Ring, Alphabet Inc.’s GOOG, +0.28% GOOGL, +0.25% Nest and others, “and our Pulse app is compatible with a large variety of connected home devices,” said Whall.
About three quarters of the company’s customers had adopted Pulse at the end of the quarter, up from about two-thirds a year ago, said Whall. “The percentage of our total base now using interactive services is approaching 40%,” he said. “We see embedded growth opportunities as 40% figure gradually moves towards the current take rate.”
ADT is also moving to expand its commercial business, which has lower subscriber acquisition costs, and helps drive cash flow. In July, the company said it closed the acquisition of Access Systems Integration, a regional systems integrator that delivers, installs and services electronic security systems, including enterprise-level access control, video and visitor management solutions, perimeter security, and security operation command centers.
ADT also acquired Secure Designs Inc., which offers protection to small businesses and their digital networks.
Shares have risen about 14% in the last three months, while the S&P 500 SPX, -0.14% has gained about 7%.
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