Summarize in up to four sentences.: One way ADT is benefiting from housing market struggles
Brian Sozzi and Mariela Rosales
Thu, September 7, 2023 at 4:47 p.m. EDT
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ADT

High mortgage rates are making people reluctant to sell their homes and buy a new one. It's something that is helping ADT keep customers. ADT President and CEO Jim DeVries sits down with Yahoo Finance Executive Editor Brian Sozzi at the Goldman Sachs Communacopia & Technology Conference to discuss how the company is being impacted by the challenged housing market.

DeVries explains that “when relocations are down, our base is stickier. Fewer relocations is a headwind from a gross add perspective, but from a customer retention perspective, it helps us a great deal.”

DeVries notes that ADT (ADT) is at “a 12.5 percent attrition on a trailing 12-month basis. Never in our history have we been as low as 12.5 percent.”

Click here for more of Yahoo Finance's coverage from the Goldman Sachs Communacopia tech conference.

Video Transcript
BRIAN SOZZI: Jim, good to see you here. One year ago, we were talking about the future of ADT. Since then you have sold this commercial business, like Seana just mentioned. What's next for your company?

JIM DEVRIES: Well, I tell you. First, thanks for having me, Brian. Thrilled to be here. Big opportunity for us with selling the commercial business. We got a great price for it, a multiple arbitrage. We're using all the dollars to pay down debt and sort of accelerate our deleveraging.

We went from a 3.7 down to a 3.3, feel really good about that. We have a path to 3. And now we'll be more focused on the residential market and our sweet spot in residential home security.

BRIAN SOZZI: The commercial business, is that just ADT signaling we don't want exposure to commercial real estate. And whatever might happen with that because of higher interest rates over the next couple of years.

JIM DEVRIES: Not so much. We had inbounds over the course of the last couple of years about this business. The implied multiple for ADT right now is about a 6x. And we traded the business, the commercial business for an 11. So we had a big multiple arbitrage, something in the neighborhood of $700, $750 million of arbitrage. From a cash flow perspective, it's about a wash.

The interest expense savings that we realize from paying off about a billion five of debt is about what the business would have provided. And then in these markets, especially it's important to delever. And we've heard that from our investors. We've heard that from prospective investors. And we think it opens more doors for us to talk about our story.

BRIAN SOZZI: What's the health of your customer base from a residential perspective?

JIM DEVRIES: Very good. We measure our retention very closely. It's one of our key metrics. And we're at 12 1/2% attrition on a trailing 12-month basis. Never in our history have we been as low as 12 1/2% It wind-aided a bit because relocations are down. When relocations are down, our base is stickier. Fewer relocations is a headwind from a gross add perspective.

But from a customer retention perspective, it helps us a great deal. And so we're at we're at 12 1/2% attrition. Never been better.

BRIAN SOZZI: Do you survey your customers on-- I'm curious-- on why they haven't cut their alarm bill. We talked to a lot of different consumers and businesses, people are cutting back on clothing. They're cutting back on various lines of food. They're trading down on types of food, but they're not cutting their alarm bill.

JIM DEVRIES: They are not. And generally speaking, , broadly, we have two kinds of customers. A customer that is security-centric that relies on their system for pure peace of mind. And that's not-- that's not a service that customer is interested in eliminating. They derive a great deal of comfort from the security that the system provides.

The second kind of customer is a customer that uses our system much more for smart home, to make their home more helpful. They have cameras. They might have mesh Wi-Fi. Lights locks are integrated into the system. And it becomes how they interact with their home. And because they derive convenience and a more helpful home because of the system, that's not something that they're willing to do without.

BRIAN SOZZI: It is fun to try to open my door lock from my phone inside from my car. I know I don't have an AT&T-- ADT. We'll take that off camera, though. Well, it is what it is.

Where are you at with your Google partnership? What is next from there?

JIM DEVRIES: Google has been a great partner for us. They're an equity owner. Three years ago, they purchased about $450 million of stock. They own about 6% of our company. They've been terrific. We're going to mark it as ADT plus Google, so it helps our brand as ADT be a little more tech forward, a little more contemporary. And their products are fantastic.

I've shared this a number of times the year before the Google deal. We were selling white label equipment and our average installation was about 700 bucks. Now we're selling Google-branded hardware cameras, video doorbell, nest thermostat. Our average installation revenue is $1,450. They've been really good partner for us.

BRIAN SOZZI: Do you have any new products sitting on that deal soon.

JIM DEVRIES: We have some new products that we're developing. We're not ready for prime time quite yet. But first quarter, maybe second quarter, we'll have some products start to-- that will be ready to unveil.

BRIAN SOZZI: Does that change will it change how we interact with an ADT now or does it give a glimpse into the future of the smart home?

JIM DEVRIES: It does. One of the things-- I'll frame it up a little bit for you. One of the things that we're excited about is leveraging the analytics, leveraging the AI available to us via the Google partnership to essentially use your cameras as a digital assistant of sorts in the home.

And so you can query to understand is anybody in the house? Is my kid home from school yet? Are any of my children playing by the pool? Are any of my children in the pool? And get proactive notification of that event in the house. And it just makes for the system to be much smarter, much more helpful to give more convenience and information to our customers.

BRIAN SOZZI: That's wild stuff.

JIM DEVRIES: It's really cool. It's really cool. I think it will result in a stickier customer for us. And there's all kinds of use cases, all kinds of applications that you can build off of that to create great customer experiences.

BRIAN SOZZI: Before I let you go, just in terms of the stock price, are you surprised it hasn't maybe reacted to some of these big moves that you have-- I mean, you sold a business for well over a billion dollars. You have a deal with Google. You struck a deal, I think, a couple of weeks before this conference last year with State Farm. I mean, you've made all the moves. What else does the market need to see from ADT?

JIM DEVRIES: We've always been a show me stock, will continue to be a show me stock. One of the issues that we continually faced was the leverage. When we were close to 4.0 on a leverage ratio, we were getting screened out pretty consistently. Now that we're at 3.3 with line of sight to 3, I think it opens the aperture for us. We're excited about our future

As you know Brian, it's about getting new investors. It's about farming, not hunting. It takes a little bit of time. And we're going to go out there. Do what we do. Continue to deliver results. And eventually the stock's going to get there.

BRIAN SOZZI: Fair enough. We'll leave it there. ADT CEO Jim DeVries, always good to see you. Can you post on that smart home stuff, sounds cool.

JIM DEVRIES: It's a deal.