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'Lender Insolvency'

Google a Growth Catalyst for ADT's Security Business, Says CEO

ADT’s partnership with Google is a “catalyst to accelerate growth,” said Jim DeVries, CEO of the security company, on its Q2 earnings call Thursday. ADT now sells, installs, and services a “full suite” of Google Nest products nationwide, including doorbells, cameras, and thermostats, he said.

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DeVries referenced Google products’ role in ADT’s record 12.7% gross customer attrition over the last 12 months. The strongest drivers of customer retention are the initial investment customers make in their security system and the frequency of interaction with the system, DeVries said. With the extension of Google products within ADT’s offering, “we now see more ADT customers choosing interactive, integrated and more comprehensive systems,” he said. The Q2 attachment rate for the Google doorbell was 48%, helping drive a 23% increase in residential installation revenue per unit in the quarter and 7% sequentially, he said.

ADT reached a “milestone” this week with the national rollout of more Google Nest products, including indoor/outdoor cameras, DeVries said. The company expects interest in the Nest offerings to grow with the rollout of its ADT+ app in conjunction with the self-setup Google product suite due before year's end, he said.

To support the rollout, ADT and Google will launch their first joint marketing and advertising campaign in the fall, partially funded by $50 million from Google. The rollout of Nest products “underpins an improving trend in capital efficiency” from higher installation revenue per unit and stronger customer retention, DeVries said.

ADT is continuing to have strong demand in its residential solar business, DeVries said, saying it had a 50% bump in residential installs vs. Q2 2021 to $215 million on installation of about 5,600 systems. Since rebranding ADT Solar from Sunpro ADT, organic searches have tripled and website traffic is up 60%, said Chief Financial Officer Jeff Likosar.

The solar segment’s financial results were “below expectations” due to “lender insolvency,” DeVries said. A third-party lender’s unexpected insolvency led to installation delays and an adjusted earnings before interest, taxes, depreciation and amortization loss of $15 million. The insolvency affected about 2,500 customers at various stages of installation. “We were unable to convert effectively,” said the executive, but the company has “good faith” in its current lenders.

ADT launched a successful retail solar pilot with 28 Lowe’s stores in North Carolina and plans to expand to Florida in Q4, DeVries said. He sees a potential "tailwind” from the Inflation Reduction Act, which extended tax credits for rooftop solar systems to up to 30% for the next 10 years. “That could be yet another catalyst for growth in that space,” he said.

ADT’s Consumer and Small Business segment (CSB) had revenue of $1.1 billion in Q2, a 6% increase from the year-ago quarter, driven by monitoring and services revenue growth and cost efficiencies, said Likosar. Shares closed 5.3% higher Thursday at $7.70.

Likosar cited ADT’s recently launched Virtual Assistance program (see 2207130012) that supports customers via video calls vs. in person to lower service costs. Year-to-date, ADT has done almost a half million virtual visits, which he said improves the company’s carbon footprint and customer satisfaction scores due to a quicker resolution to problems.