KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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comment on central stations and false alarms / comment on ADT public offering
February 6, 2018
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comment on central stations and false alarms from January 29, 2018
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Ken
    Once again I am impressed with the quality of some of the responses you get to the columns you publish. I was doubly impressed by the quality of the information that Morgan Hertel put out there in response to a column by "Gene". Not exactly sure what was being responded to, but I can tell you that quality and depth of knowledge that Morgan has is truly impressive. He presents the facts succinctly, offers real-life scenarios and draws reasonable conclusions. His response was a model good information that should be looked at and reviewed by alarm dealers, over and over again. You and your readers are indeed fortunate to have someone of Morgan's experience respond to issues and questions. Keep up the good work! Take care, Ron
Ron Davis
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Response
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    I try and circulate all comments.  Some editing is required at times.
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comment on ADT public offering from January 29, 2018 article
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Ken,
    I have had conference calls with a number of hedge funds and institutional investors over the past year seeking a better understanding on ADT’s position in the market.  Having been an ADT executive for a brief minute, and closely following the company continuously for over 30 years, I think I have some perspective.
    ADT once enjoyed a very healthy mix of business.  Residential including mass-market, dealer and ordinary regular and high-end, commercial included small business; enterprise and national accounts.  When Tyco sold off its residential business, this delicate balance was thrown off.  After a year, when the non-compete period expired, ADT re-entered the commercial space, a start-up in the most difficult and competitive markets in the industry.
    Tim Whall is a competent leader with a good track record.  He is, however accustomed to an enterprise where the skeleton is fleshed out, actually, a little too fleshed out.  At Protection One, he trimmed fat and improved efficiency.  ADT is distracted by replacing residential attrition.  Depending on what numbers you choose to apply the formula to, that equates to roughly $12.6 MM per month of lost recurring monthly revenue to replace, $420,000 a day, if that’s easier to digest.  The job of replacing one small alarm company per day is a daunting one to say the least. 
    The street continues to use the same criteria to judge financial health in the security space:  attrition and EBITDA.  Add their fear of new competitors peddling any sort of  iOT—I think this recent CNBC interview captures that best:  https://www.cnbc.com/video/2018/01/19/adt-ceo-addresses-the-companys-lackluster-ipo.html and you should see why ADT’s IPO was received unfavorably. 
    You didn’t buy the stock, I haven’t shorted it.  Based on your logic, I’d be surprised if we see much movement in a stock that went public too soon.   I’d be interested in hearing your take as well as any other feedback you receive.
    Please keep me,
 anonymous
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Ken…
     questions and concerns about the ADT IPO 
    Quote from Renaissance Capital, 1.19.18, an IPO expert...
    “…. Apollo-backed ADT priced below the range and traded down, making it the only billion dollar IPO from a US company in the past 10 years to have a double-digit drop in its debut….” 
    OUCH…!!!!  What went wrong??? 
    Maybe nothing went wrong… maybe the market is smarter that the promoters.  Maybe the market did its own research, although it was made difficult, due to “minimal” disclosure.  What impact can it have on the thousands of traditional industry stakeholders going forward.  We believe it is a timely wakeup call.  Maybe the market saw too much similarity to KODAK. 
    Remember Kodak developed “digital” photography about 1975, but buried it as a threat to their traditional business model. One of the scary ADT similarities to Kodak includes the ADT purchase of Sonitrol 2001 and sold it (buried it) about 2004. We believe Sonitrol was considered a threat to the aging traditional ADT business model. Sonitrol models assume all signals are false unless remote witness determines a real threat (very low false alarms). Whereas the traditional ADT model (millions of customers) assumes all signals are real until verified false, aka “deterrent” systems (nearly all error/false). 
    Survival of RMR market value going forward will demand law enforcement response to calls for help from remote monitoring services.  Law enforcement has already rejected support of “deterrent” systems, whereas it has embraced “remote witness verification” systems. 
    ADT and alarm association SIAC may not be the “leaders” to follow going forward.  Look again at the alarm association, PPVAR/Partnership for Priority Verified Alarm Response. And consider support for VR-Verified Response, and SR-Subsidy Recovery... the foundation of future RMR market value.
Lee Jones
Support Services Group
leessg@att.net
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Response
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    Anybody taking a position in ADT?  Of course where the company goes doesn't necessarily mean the stock will follow, but could be.  
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
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