Home Security Company ADT Betting On Google Partnership To Build Revenue

The alarm system-provider began selling Google’s Nest products this spring, hoping to solidify its place in the smart-home arena. Home Security Company ADT Betting On Google Partnership To Build Revenue

Security-system provider ADT Inc. is betting on its partnership with Google’s smart-home business to increase revenue as it struggles to turn a profit three years after going public.

The company, best known for its home alarm systems, last summer announced the deal with Google, whose Nest business makes thermostats and smoke detectors that customers can monitor from their phones. Under the agreement, Alphabet Inc.’s Google invested $450 million in the Boca Raton, Fla.-based firm, taking a 6.6% stake.

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In late April, ADT began selling Google’s hardware, including its smart display and speakers, to its home-security customers, Chief Financial Officer Jeff Likosar said. The two companies are working on integrating their devices—for example, ensuring ADT’s systems recognize Google voice commands and temperature controls, he said. They are also drawing up plans for new products and services, he said, though he declined to provide specific sales figures and forecasts. Google declined to comment.

“We envision over time this would be our core offering,” said Mr. Likosar. ADT currently generates revenue by installing security systems and providing monitoring systems to homes and businesses in the U.S.

The partnership is expected to bolster ADT’s revenue, he said. The company reported a net loss of $48 million during the first quarter, due in part to fewer installations during the pandemic, compared with a $300 million loss a year earlier. It hasn’t reported a full-year profit since its public listing in 2018.

Total revenue for the quarter slipped 5%, to $1.3 billion. ADT expects sales to bounce back as the economic recovery takes hold, particularly in light of the recent housing boom.

Increasing recurring monthly revenue—what it earns from providing alarm monitoring and other services—is a key priority for the company. Recurring revenue made up 80% of ADT’s total quarterly revenue as of March 31.

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Adding new customers who want to use Google’s Nest products will help the company achieve that goal, Mr. Likosar said. The company has about 6.6 million recurring customers.

“As we have jointly acquired more customers, and we have an offering in the customer’s home, there are opportunities to expand the services that a given customer might have, ” Mr. Likosar said. ADT acquires the Nest hardware it offers to customers directly from Google, he said.

Home security systems have historically required professional installation, but the rise of smartphone-connected and do-it-yourself products in recent years has expanded the market, according to Jennifer Kent, vice president of research at Parks Associates, a market research firm.

Approximately 34% of U.S. households with broadband access had a home-security system last year, up from 27% five years earlier, according to Parks Associates.

Competitors in the industry include Amazon.com Inc., which three years ago acquired video-doorbell company Ring, as well as SimpliSafe Inc. and Vivint Smart Home Inc.

ADT benefits from the arrangement by tapping into Google’s analytics capabilities and reaching a larger group of digitally-savvy customers, Mr. Likosar said. Google benefits, meanwhile, by having access to ADT’s staff of roughly 5,700 technicians and its customer service capabilities, he said.

Under the seven-year partnership, both companies also agreed to invest $150 million each that will go toward engineering, designing and marketing of new products.

In connection with Google’s investment, ADT also repaid $300 million in debt. The company had $9.7 billion in net debt as of March 31, compared with $10.3 billion a year earlier, according to S&P Global Market Intelligence, a data provider.

The companies are exploring ways to develop new offerings, such as cameras, doorbells, thermostats and analytics capabilities, Mr. Likosar said. An example: If someone opens a customer’s front door and trips an alarm, the smart-home system could gather information from other devices, such as motion detectors, to assign a threat level to the incident, he said.

Before its 2018 listing, ADT was owned by private-equity firm Apollo Global Management Inc. which acquired it in 2016 and merged it with two other companies, Protection 1 and ASG Security. Apollo still owns 73.4% of ADT’s shares outstanding.

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