To say 2020 was a bit of a roller coaster ride is perhaps an understatement. At this time last year, most security integrators anticipated a strong 2020, only to be thrown into turmoil late in the first quarter by the emergence of the COVID-19 pandemic. This year’s SDM Industry Forecast Study (a report published every year since 1982) certainly reflects that, with more than 30 percent anticipating finishing 2020 with a decrease in revenue. However, this year’s forecast — illustrated in the graphs on the following pages and on SDM’s website at www.SDMmag.com/annual-security-industry-forecast — underscores the resilience of the security industry and a continued sense of optimism. Despite a rocky year that saw a series of shutdowns and slowdowns, there was still double-digit growth in both total annual revenue and recurring monthly revenue (RMR) for integrators and dealers who participated in the study. Their total annual revenue increased by an average of 17 percent, while RMR grew by 23 percent, on average — one percentage point up and five percentage points down from 2019, respectively.
SDM 2021 INDUSTRY FORECAST
What’s more, they remain optimistic for 2021. More than half (60 percent) of integrators expect their total annual revenues will increase in 2021; of those, the anticipated increase is 23 percent, up from 19 percent last year. Only 4 percent expect revenues to decrease this year. This largely tracks with this year’s Industry Forecast panel, made up of four security integrators from different parts of the country.
“We started 2020 forecasting low double digit growth,” recalls Brent Duncan, president and COO, Interface Security Systems, Earth City, Mo. “We had a really strong January and February, then obviously everything went sideways starting in March. The second quarter was very slow and we focused on reaching out to our customers and figuring out how to support them as they were navigating the shutdowns. Things were flat through July, then we saw this big whipsaw in the third quarter as things opened back up. There was a lot of pent-up demand. In the third quarter we saw a 300 percent increase over the third quarter of 2019 and things have stayed steady since.”
Melissa Brinkman, CEO, Custom Alarm, Rochester, Minn., reports ending 2020 up, but by less than anticipated. “We finished the year up from 2019 about 4 percent and RMR was up about 2 percent,” she says. “We actually had a strong first half of the year before we really starting seeing [the effects of the pandemic] in early April. In Minnesota the slower times are typically November through February, but last year we didn’t experience that. We were thankful to get a nice cushion for when the bottom fell out.”
Geography seemingly played a role in when and how big the impacts were for many security dealers and integrators. “We are geographically focused in the Intermountain West,” says Eric Garner, president and CEO of Ogden, Utah.-based Mountain Alarm. “It was very interesting. Everyone shut down for a couple weeks in March; but most states with Republican governors weren’t locked down very hard. Now we have crazy high cases, but we are still not shutting down much. It really only lasted two to four weeks, then we were able to get right back to work [with precautions in place]. We had a little lull for the month of April but bookings remained really strong. We expect our 2020 revenue to be up about 6.4 percent and a lot of that is install revenue. We also did a lot of acquisitions during the pandemic. It would probably be lower if we hadn’t done that.”
Atlanta-based LOUD Security Systems also experienced growth in 2020, says John Loud, president, who adds the election year and demonstrations to the mix of reasons why. “The second half of 2020 has been incredibly robust. I don’t know if it is the uncertainty with the elections or riots and the social unrest that has gone on around Atlanta, as well as our state being relatively open, but there are a lot of folks sitting at home pondering the safety of their environments and our organic growth starting in the month of June, we had never seen numbers like that. But the best news was July made us look like we didn’t even know what we were doing in June. September was even better than June. October was a freeze/hold moment and November has been far greater.”
Whether their 2020 was decent or great, one thing it wasn’t was predictable. Loud and the other integrators on this year’s panel all anticipate 2021 getting back to, if not precisely normal, then at least “new normal” and being the year they had hoped 2020 would be. But they realize that may not happen overnight.
At the time of the roundtable discussion in early December, the U.S. was experiencing a rise in COVID-19 cases in nearly every state. Duncan says that as cases rise, some customers are having to pull back again, but there is a lot of optimism around the vaccine. “Hopefully as we move into second quarter it will correct,” he says. “I think the second quarter of 2021 will look a lot like the third quarter of 2020 and we are preparing for that.” Duncan is forecasting a healthy 20 percent growth this year, which is in line with what the company had predicted for 2020, he says.
“We are expecting and budgeting for a 7 percent increase and of that, about 10-15 percent growth on installations,” Brinkman says. She cites both pent-up demand as well as changing customer needs as reasons for optimism. Cloud and remote services in particular are technologies that Brinkman anticipates driving growth.
Indeed, 64 percent of Industry Forecast respondents said they currently offer managed access control, while 62 percent offer remote video monitoring. A whopping 67 percent plan to offer remote video monitoring in the next 12 months. More integrators also planned to offer video surveillance as a service in the coming year (60 percent) than currently offer it (56 percent). Sixty percent of respondents who offer it predict an increase in revenue coming from managed services and cloud-based services this year.
Loud echoes the pent-up demand prediction. While there were customers that had stacks of papers and order forms that sat on their desks, they did eventually get through those and turn to the future. “They see those cameras and access control do make sense; we are looking for a strong and healthy 2021,” Loud says.
Garner says Mountain Alarm is forecasting about 10 percent growth in 2021, largely driven by acquisitions such as the purchase of Reno, Nev.-based CEI Alarm that was announced in Mid-December.
(To read more about the strategies of each of these security professionals, see the sidebars throughout this article and on SDM’s website, “The Panel Talks,” at www.SDMmag.com/annual-security-industry-forecast.)
These anecdotal responses align with many of the survey responses from the Industry Forecast Study, where integrators were asked both about their top business challenges as well as what will have the greatest impact on their 2021 sales. Not surprisingly, half of respondents listed COVID-19 as their top challenge this year, while 29 percent listed it as having the greatest impact on sales, followed closely by economic conditions. Interestingly, the question about impact can be either positive or negative. Only time will tell which is the case here.
If the panelists are any indication, it seems as if many security integrators feel they have their feet under them, are prepared to weather any lingering pandemic issues and are firmly looking ahead to new opportunities.
“Our expectation is that we are probably going to see a Q1 slowdown as people wait for things to calm down, but I think we will see the same Q2 whipsaw we saw [in Q3 2020] as organizations become more comfortable with the state of the economy,” Duncan says. “We view [COVID-19 and its impact] as being a temporary situation and we can see the light at the end of the tunnel.”
Editor’s Note: This article is based primarily on a report produced by Clear Seas Research, “SDM Industry Forecast,” produced in November 2020. To learn more about the report or to purchase, visit https://www.sdmmag.com/annual-security-industry-forecast.
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