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ADT to Buy Devcon Security for $149 Million

Posted By:  |  August 22, 2013  |  0 Comment(s)

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Originally published by The Wall Street Journal

ADT Corp. (ADT) agreed to buy Devcon Security for $148.5 million in cash, while also reporting its fiscal third-quarter profit rose 11% as the security-monitoring company logged higher recurring revenue.

Known for its electronic-security systems, ADT was spun off of industrial conglomerate Tyco International Ltd. (TYC) in October. The vast majority of ADT’s revenue is recurring, meaning it comes from existing customers who pay monthly fees for monitoring services. To increase recurring revenue, the company has been broadening its home-management services to include remote-access features such as adjusting thermostats, unlocking doors or keeping tabs on children at home through live video feeds.

The company noted that its acquisition of Devcon includes about 117,000 customer sites with total recurring monthly revenue of roughly $3.6 million. The deal is expected to close early next month.

For the quarter ended June 28, ADT reported a profit of $113 million, or 52 cents a share, versus a year-earlier profit of $102 million, or 43 cents a share. Stripping out one-time items, the per-share profit was 53 cents versus 44 cents.

Revenue edged up 2.3% to $833 million.

Analysts polled by Thomson Reuters recently expected per-share earnings of 44 cents on revenue of $830 million.

Recurring revenue–which made up 92% of revenue for the quarter–rose 4.2% to $764 million, while nonrecurring revenue dropped 15% to $69 million.

For the fiscal year, ADT cut its forecast for recurring revenue, now expecting 4.5% to 4.8% growth, down from its prior view of 4.9% to 5.2%.

Shares of ADT closed Tuesday at $42.09 and were inactive in recent premarket trading. The stock has dropped 3.6% in the past three months.

Write to Saabira Chaudhuri at [email protected]

(Updates with S&P downgrade of ADT, recent share price)

By Saabira Chaudhuri

ADT Corp. (ADT) agreed to buy Devcon Security for $148.5 million in cash, while also reporting its fiscal third-quarter profit rose 11% as the security-monitoring company logged higher recurring revenue.

Known for its electronic-security systems, ADT was spun off of industrial conglomerate Tyco International Ltd. (TYC) in October. The vast majority of ADT’s revenue is recurring, meaning it comes from existing customers who pay monthly fees for monitoring services. To increase recurring revenue, the company has been broadening its home-management services to include remote-access features such as adjusting thermostats, unlocking doors or keeping tabs on children at home through live video feeds.

The company noted that its acquisition of Devcon includes about 117,000 customer sites with total recurring monthly revenue of roughly $3.6 million. The deal is expected to close early next month.

For the quarter ended June 28, ADT reported a profit of $113 million, or 52 cents a share, versus a year-earlier profit of $102 million, or 43 cents a share. Stripping out one-time items, the per-share profit was 53 cents versus 44 cents.

Revenue edged up 2.3% to $833 million.

Analysts polled by Thomson Reuters recently expected per-share earnings of 44 cents on revenue of $830 million.

Recurring revenue–which made up 92% of revenue for the quarter–rose 4.2% to $764 million, while nonrecurring revenue dropped 15% to $69 million.

For the fiscal year, ADT cut its forecast for recurring revenue, now expecting 4.5% to 4.8% growth, down from its prior view of 4.9% to 5.2%.

Standard & Poor’s Ratings Services on Wednesday also downgraded its rating on ADT into junk territory, noting the company’s revised and more aggressive financial policy will increase its leverage over time. S&P lowered ADT’s rating to double-b-minus, three levels into junk territory, from triple-B-minus. The outlook is stable.

ADT shares were down 2.7% to $40.95 in recent trading. The stock has dropped 6.2% in the past three months.

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