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The ADT Corporation (NYSE: ADT) today reported its financial results for the second quarter of 2014. The Company reported diluted earnings per share of $0.34 for the second quarter of 2014, which includes a non-cash tax charge of $13 million related to Tyco's pending settlement with the IRS of a pre-separation tax liability. Excluding this and other special items, diluted earnings per share was $0.49
(1). This compares to diluted earnings per share excluding special items of $0.41
(1) in the second quarter of 2013. Using the Company's cash tax rate, diluted earnings per share before special items was $0.69
The Company reported total revenue of $837 million, an increase of 1.9% compared to the second quarter of 2013. Recurring revenue, which made up 92% of total revenue in the quarter, was $773 million, up 2.2% compared to the same period last year and up 2.8% in constant currency
(1). Recurring revenue growth was primarily driven by an increase in average revenue per customer, which rose 3.2% over last year to $41.05. Revenue attrition was flat at 14.2% for the quarter sequentially and unit attrition for residential and small business was 13.7%, up 10 basis points sequentially primarily due to higher attrition in small business. ADT closed the quarter with 6.4 million customer accounts.
EBITDA before special items increased by $22 million to $431 million
(1), 5.4% higher than the prior year and EBITDA margin before special items was 51.5%
(1), a 170 basis point improvement. The year-over-year increase in margins was primarily attributable to productivity improvements and cost reductions.
Free cash flow before special items increased 33% to $121 million
(1) in the quarter, up from $91 million
(1) in the same period last year. The Company also reported steady-state free cash flow before special items, calculated on a pre-tax and unlevered basis, of $786 million
(1). Steady-state free cash flow was flat sequentially as subscriber acquisition costs remained relatively high on increases in Pulse installations, elevated attrition levels, and flat sequential subscriber growth in the quarter.
"We drove improvements in our financial results, stabilized revenue attrition sequentially and made significant progress on our initiatives during the quarter," said Naren Gursahaney, ADT's chief executive officer. "We grew EBITDA, generated substantially more free cash flow, and delivered better bottom-line results. Also, aligned with our strategy to capture opportunities for growth, we invested in our future through an agreement to acquire Reliance Protectron Security Services, a high quality security services firm in Canada. Our Pulse home automation product continued to gain strong traction with take rates climbing to 44% combined and Pulse customer upgrades rising by 38% year-over-year. We also strengthened our senior team, adding new talent in the roles of chief marketing officer and vice president of dealers."