ADT Stock Surges - "Leading The Commercial Space"

By John Honovich, Published Nov 15, 2019, 08:05am EST (Info+)

Don't call it comeback... but maybe call it a commercial provider.

ADT, whose stock dropped by as much as 2/3rds since IPOing in 2018, has now doubled in price since summer 2019.

While the company's stock price challenges and general residential market struggles are still there, ADT is now in the midst of a run, fueled by what ADT's CEO says is the company 'leading the commercial space'.

In this note, we examine the moves and the outlook for the commercial security market vs competitors JCI / Tyco IS, Convergint and Securitas.

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Competing ******* *** / **** **, **********, *** *********

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Vote / ****

Comments (14)

As a manufacturer I work with all of those companies. I see the effort being put into the space. ADT is certainly investing, and succeeding. From my perspective ADT and Convergint are the two that are trying the hardest to win new business. They're also the two that seem to be on the hunt for acquisitions the most.

Obviously JCI and Securitas are not going to sit around and congratulate the others on their success, but I don't see them putting forth the the same level of effort.

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I work with all these companies as well. The main difference I see, and both companies have ambitious sales forces, is that Securitas and Convergint are narrowly focused on enterprise level businesses that have several locations regionally or nationally and large municipalities. ADT is happy to go after a single 20k sq ft warehouse that needs video and intrusion. So I see ADT competing more against the regional and local dealers than the big national integrators.

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We never see any of the above. Security 101 is surprisingly a rising competitor in our market that is "national". I wouldn't classify my employer as a big national integrator but I can say we have a large accounts that is international for us. We occasionally used Securadyne as a subcontractor in hard to reach areas. I don't think they have the capability to scale beyond where they are regardless of who owns them.

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ADT can keep buying companies and watch talent walkout the door because of the poor management of commercial business in our region. ADT is the best recruiting tool we have in our region.

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Having been served by both ADT and Tyco recently I can say that Tyco (from a national perspective) not care less about working with us and keeping us around. I really think they take us for granted. ADTs. National reps are exceptional in my experience. And working with the regional managers has also been a good experience. I knew going in that ADT is looking to break out in the enterprise space and I think they're well on their way.

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ADT subscription customer/revenue base includes about 50% deterrent type customers, residential and commercial, including many of the recent acquisitions. The decades old ADT business models still expect the local police to be their silent partner (go-fer site response) to determine if, IF an emergency exists, not because of an emergency. The nationwide trend is toward slow or no police response to deterrent/nuisance type systems, when called by monitoring firms for private property alarm systems. The consequence is high customer attrition and nasty liability exposure. Note, ADT does not report their customer unit attrition, which we estimate to be over 15%, and growing. Another public company, Monitronics, recently emerged from Chapter 11, and we believe is now headed for Chapter 7 due to over 17% customer attrition… unstainable for “subscription revenue”. ADT deep pockets will add much revenue and customers; and lots and lots of debt; but not prevent the current rapid erosion of their core.
Source: Lee Jones; Support Services Group.

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ADT deep pockets will add much revenue and customers; and lots and lots of debt; but not prevent the current rapid erosion of their core.

Let's say they lose their core, i.e., residential. Can they make a successful escape to commercial?

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John…. The “core” issues are the same for residential and commercial, ie emergency response to a customer site in reaction to customer alarm signals. Many commercial systems are still deterrent types, however, commercial customers generally can afford the greater cost to meet remote-witness requirements and/or private security response. Most customers, residential or commercial, believe they are paying for “site response”, and get mad when they learn of the reality. Even SimpliSafe promotes site response that depends on the same core issues.

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The “core” issues are the same for residential and commercial

No, the commercial integrators they are buying are more video and access centric rather than intrusion / alarm.

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I can be more specific. The trend is moving toward remote-witness of 911 type threats before site response by law enforcement. Most remote monitoring firms already have the technology to provide remote-witness…. BUT most customer sites are not compatible. Millions of customer sites, resi and commercial, must upgrade their system to be in compliance, for site response, the “core”.. This disruption of the core is industry-wide. Customers are expecting site response, and not getting it, thus high attrition. They normally blame the cops but should be blaming their alarm supplier. What ADT is doing right… is their really good acquisition investment in “commercial fire monitoring”. Fire is a totally different business! Most fire systems are mandated by insurance with long term high margin contracts and very low attrition… and totally compatible with interactive monitoring for fire department response (and lots of manageable false alarms). We believe leadership of the alarm industry would be wise to disclose the large core disruption for their deterrent alarm customers and investors.

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No, again, the commercial business has a much smaller percentage of revenue related to remote monitoring / visual verification / police response. Even if what you are campaigning from comes to pass, most large businesses spend most of their security budget on video and access, which they largely monitor themselves.

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The stock is up another dollar in the 11 days since we published this article:

Stock prices obviously can vary over time but for now, ADT is on a run.

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We still believe ADT stock will stay in the single digits, and return to the lower end when they disclose their huge attrition/liability exposure. We now have another explanation for the trend toward local police withdrawing from the “silent partnership” with the remote monitoring segment of the alarm industry. Rules for Municipal Sovereign Immunity. Municipalities can incur major liability if they DO respond; but no liability if they DONOT respond to deterrent/nuisance calls from private monitoring firms like ADT for their private customers. Note 98% are false/nuisance industry-wide…. powerful incentive for slow or no police response for millions of private property alarm customers. ADT still has several million deterrent type residential and commercial customers.

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...and return to the lower end when they disclose their huge attrition/liability exposure.

i would expect that disclosure to drop at 5:00 PM the Friday before hell freezes over :)

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