Security services provider The ADT Corporation (ADT - Analyst Report) reported relatively healthy fourth-quarter fiscal 2015 results with GAAP net income of $81 million or 48 cents per share compared with $82 million or 47 cents per share in the year-ago quarter. Although net income decreased slightly on an absolute basis, earnings per share increased year over year due to lower number of outstanding shares in the reported quarter.

Excluding non-recurring items, adjusted net income in the reported quarter was $86 million or 51 cents per share compared with $97 million or 55 cents per share in the year-ago quarter. The year-over-year decrease in adjusted earnings despite higher revenues was primarily due to higher operating costs. However, the adjusted earnings for the reported quarter beat the Zacks Consensus Estimate by 3 cents.

The ADT Corporation (ADT - Analyst Report) - Earnings Surprise | FindTheCompany

For fiscal 2015, ADT reported GAAP net income of $296 million or $1.72 per share compared with $304 million or $1.66 per share in fiscal 2014. Excluding non-recurring items, adjusted net income in fiscal 2015 was $339 million or $1.97 per share compared with $369 million or $2.02 per share in fiscal 2014.

Quarter Details

Total revenue for the quarter increased 1.8% year over year to $899 million but missed the Zacks Consensus Estimate of $908 million. Recurring revenues of $835 million, which accounted for 93% of total revenue in the reported quarter, was up 2.0% compared with the year-earlier period. For fiscal 2015, ADT reported revenues of $3,574 million, up 4.9% year over year.

Recurring revenue growth for the quarter was driven by an increase in revenue per customer, which was up 3.4% year over year to $48.40, along with increased interactive service upgrades, price escalations and lower attrition. Revenue attrition for the quarter improved 130 basis points year over year to 12.2%, while unit attrition for residential and business improved 100 basis points year over year to 12.2%. ADT closed the quarter with 6.6 million customer accounts.

Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) increased to $449 million from $425 million in the prior-year period for respective EBITDA margins of 49.9% and 48.1%. EBITDA before special items increased to $460 million from $458 million in the year-earlier quarter. EBITDA margin before special items declined 70 basis points year over year to 51.2%.

In its earnings release, ADT provided key insights to some of the initiatives it has taken to accelerate growth, and optimize capital structure. In order to capture a larger share in the market, the company invested heavily in its ADT Pulse platform and launched several new products.

Pulse customers grew to 1.5 million in the reported quarter. The company made 108,000 Pulse customer additions in the quarter and upgraded 39,000 existing customers to Pulse. Gross customer additions in the quarter were 278,000 – the highest level achieved in 2015. Pulse take rates reached 59% during the quarter, while total interactive customers made up 23% of ADT's total customer base.

During the reported quarter, the company announced a new partnership with LG Electronics to deliver a new all-in-one security product and service for the North American market.ADT has made significant progress on its retail strategy and is expected to launch the service in the first calendar quarter of 2016. At the same time, ADT improved average time for repairing service by 10% compared to last year with continued investment in customer care and service personnel.

Balance Sheet and Cash Flow

Cash and cash equivalents at the end of fiscal 2015 were $78 million compared with $66 million in the prior year period, while long-term debt aggregated $5,389 million – up from $5,096 million at the end of fiscal 2014. Cash from operating activities stood at $1,605 million for fiscal 2015 compared with $1,519 million in the prior-year period. Free cash flow before special items decreased to $321 million in fiscal 2015 from $341 million in fiscal 2014.

ADT repurchased 4.3 million shares during the quarter at an average price of $32.70 each, bringing its fiscal 2015 tally to 9.8 million shares at an average price of $33.16 per share. The company paid a quarterly dividend of 21 cents, which represents a 5% year-over-year improvement.

Fiscal 2016 Guidance

ADT offered an initial guidance for fiscal 2016. The company expects revenues to grow 3.5%-4.5% compared with fiscal 2015, with EBITDA (before special items) growth of $75 million-$90 million. Unit attrition rate is expected to be below 12%. Free cash flow (before special items) for fiscal 2016 is expected to be above fiscal 2015 levels.

Moving Forward

ADT is continuously investing to capitalize on growth opportunities by launching new products and services, building capabilities to participate in new market segments and aims to form new partnerships. We remain impressed with the relatively solid quarterly results of the company and its bullish fiscal guidance.

ADT currently has a Zacks Rank #4 (Sell). Stocks that look promising and are worth a look now in the industry include Dun & Bradstreet Corp. (DNB - Analyst Report), IHS Inc. (IHS - Snapshot Report) and Alarm.Com Holdings, Inc. (ALRM - Snapshot Report), each carrying a Zacks Rank #2 (Buy).