ADT Brings the Death of Growth

Outside of items tied to the Tyco spin-out and other issues, earnings came to $0.43 per share in the company’s first fiscal quarter of 2014. Recurring revenue growth was up only 4.4% to $775 million, and total revenue was up 3.7% to $839 million. Recurring revenue accounts for 92% of total revenue. Thomson Reuters was calling for earnings of $0.49 per share and $849.5 million in revenue.

These numbers were borderline bad enough that the company would have had time to tone down expectations with slightly lower guidance. Management likely would have known that the revenue and earnings were looking soft, even when the company raised its dividend by 60% to $0.20 per share back on January 9, when the stock was up at $39.00.

EBITDA before special items was up 2.2% to $426 million, but the EBITDA margin before special items of 50.8% was actually down by 70 basis points.

Pulse customers now make up approximately 9.5% of the total customer base, and upgrades rose by 143% from a year ago. This generates higher average revenue per user than the average of the base and also comes with lower customer attrition characteristics. ADT also is seeking to lower customer acquisition costs and to reduce its service costs.

ADT shares hit an all-time low on Thursday. It is amazing that you can make this much money, buy back about $2.4 billion worth of stock in the past year and still see your stock get crushed this much. ADT shares were down almost 18% to $31.10 in late morning trading. The new 52-week range was $29.56 to $50.37. Another concern is that the 22 million shares seen before noon were already seven times normal trading volume.

If you just looked at the stock price and know that ADT is a security company, you might just think that ADT’s corporate headquarters had been broken into.