Security technology and services company ADT (NYSE:ADT) reported Q3 CY2024 results beating Wall Street’s revenue expectations , but sales were flat year on year at $1.24 billion. The company’s full-year revenue guidance of $4.9 billion at the midpoint came in slightly above analysts’ estimates. Its non-GAAP profit of $0.20 per share was also 17.2% above analysts’ consensus estimates.

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“ADT delivered solid third quarter performance resulting in a record-high recurring monthly revenue balance, healthy customer retention, strong operating profitability, and cash generation. Our successful performance reflects the dedication of our employees to serve the needs of our customers,” said ADT Chairman, President and CEO, Jim DeVries.

Company Overview

Founded in 1874 and headquartered in Boca Raton, Florida, ADT (NYSE:ADT) is a provider of security, automation, and smart home solutions, offering comprehensive services for home and business protection.

Specialized Consumer Services

Some consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.

Sales Growth

Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. ADT’s demand was weak over the last five years as its sales were flat, a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. ADT’s recent history shows its demand has stayed suppressed as its revenue has declined by 8.4% annually over the last two years.

This quarter, ADT’s $1.24 billion of revenue was flat year on year but beat Wall Street’s estimates by 1.7%.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, an acceleration versus the last two years. While this projection shows the market believes its newer products and services will catalyze better performance, it is still below the sector average.

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Cash Is King

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

ADT has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 15% over the last two years, better than the broader consumer discretionary sector.

ADT’s free cash flow clocked in at $455 million in Q3, equivalent to a 36.6% margin. This result was good as its margin was 24.6 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts predict ADT’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 17.8% for the last 12 months will decrease to 16%.

Key Takeaways from ADT’s Q3 Results

We enjoyed seeing ADT exceed analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad its full-year revenue guidance came in higher than Wall Street’s estimates and that it lifted its full-year EPS guidance. Overall, this quarter had some key positives. The stock traded up 2.1% to $7.07 immediately following the results.

Indeed, ADT had a rock-solid quarterly earnings result, but is this stock a good investment here?We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.