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Investing.com -- S&P Global Ratings has upgraded ADT Inc. to ’BB’ from its previous rating, citing improvements in credit metrics and decreasing ownership by financial sponsor Apollo.
The rating agency noted that Apollo’s equity holding in ADT has declined to about 14%, which S&P believes will lead to stronger governance and a more prudent financial policy. Apollo currently holds three out of 12 board seats.
S&P expects ADT to develop a broader investor base with a more diverse board of directors, pursuing a financial policy focused on improving cash flows and disciplined capital allocation. Large strategic shareholders like State Farm (16% ownership) and Google (NASDAQ:GOOGL) (7% ownership) are expected to influence ADT’s business and financial plans toward a stronger business risk profile.
ADT reported free operating cash flow (FOCF) of over $600 million for fiscal 2024 and nearly $410 million for the first six months of this year. This performance was driven by strong top-line growth in the core business, cost efficiencies, and reduced subscriber acquisition costs.
The company’s shift toward core residential and small to midsize business operations following its exit from underperforming solar and commercial alarm monitoring segments is progressing well. While revenues and profits continue to grow, subscriber count has remained flat, and revenue attrition is still elevated at about 12.7%.
S&P maintains a stable outlook for ADT, expecting revenues and profits to strengthen as the company increases business efficiencies and broadens its home automation solutions. The rating agency noted that tariffs could potentially impact equipment costs this year, affecting ADT’s growth plans.
A future upgrade could occur if ADT demonstrates sustained growth in free cash flow with FOCF to debt approaching 15%, along with reduced customer attrition and subscriber acquisition costs. Conversely, S&P could lower the rating if FOCF to debt stays below 10% due to competitive pressures or operational challenges.
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