2022 SDM Industry Forecast
Looking Up
There was a lot of hope going into 2021 that, with the rollout of vaccines, by the time we got to January of 2022 the COVID-19 pandemic would be largely in the rearview mirror. Alas, many of the issues caused by COVID-19 remained. Even so, security dealers and integrators again showed resilience and positive trends continuing from last year.
The SDM Industry Forecast Panel: 2022
Advanced Security is 50 years old in 2021, and co-owners Chuck and Rick Petrusha have been involved in the company for 42 of those years.
Louis Boulgarides, CPP is president and CEO of Ollivier Corp., Los Angeles, and manages field operations and sales at Ollivier. Louis joined Ollivier in 2015 and brings 25 years of experience in the security guard and systems industries. Boulgarides has extensive experience with local operations centers, regional command centers, global command centers, and managed access control and video. He has overseen managed system deployments in excess of 4,000 readers. Ollivier Corp. ranked No. 40 on the 2021 SDM Top Systems Integrator’s Report.
Jerrod Smith founded Arlington, Texas-based Fortress Security in 2001 after gaining years of experience at large national security companies. He is a passionate security nut, hyper- focused on serving the company’s clients. Over the past 20 years under Smith’s leadership, Fortress has grown from a small company with one office and one employee to a statewide company with three offices across Texas, more than 50 employees, and ranked near the top half of the Top 100 security companies in America. Fortress Security ranked No. 86 on the 2021 SDM 100 and 92 on the 2021 SDM Top Systems Integrator’s Report.
Amy Becker, Alarm Detection Systems Inc., Aurora, Ill., was appointed chief operations officer — a new role for the company — in 2021. Before this critical role, she served as vice president of the company in 2015 and chief financial officer in 2019. Becker started with Alarm Detection Systems in 1997 as the controller for the company. She is a graduate of Aurora University with an accounting degree. She is both a certified public accountant and a certified management accountant. While with ADS, her ever-increasing responsibilities have included oversight of the company’s financials and coordination of several acquisitions. ADS ranked No. 16 on the 2021 SDM 100.
Joe Oliveri currently serves as president and CEO of CTSI, a Wind Point Partners Platform Company based in Chantilly, Va., which enables its customers to boost collaboration, increase life safety and security, and deliver enhanced communications. Oliveri joined the company in 2021 to lead the organization through accelerated acquisitive and organic growth, expand the company’s service portfolios and geographic reach, while improving business operations, customer service, and financial performance metrics. Prior to joining CTSI, he held senior executive positions with Johnson Controls and Tyco International. He brings expertise in operations management, organizational growth, market penetration, accelerated revenue and EBITDA growth, M&A, innovation, and transformation. CTSI ranked No. 32 on the 2021 SDM 100 and No. 26 on the 2021 SDM Top Systems Integrator’s Report.
Looking back at last year’s Industry Forecast, respondents were cautiously optimistic, with 60 percent of them predicting an increase in revenue by the end of 2021, and 36 percent at least expecting revenues to stay the same. The 2022 SDM Industry Forecast Study (a report published every year since 1982) results suggest the reality was not quite as rosy, with 41 percent realizing that increase and 47 percent staying the same. Twelve percent decreased their revenue in 2021 from 2020. However, the changes last year versus those predicted were 28 percent increasing, 40 percent staying the same and 31 decreasing. So, while things may not be roaring back as fast as had been hoped, they are definitely on the upswing.
The Panel Talks Revenue Expectations for 2022
SDM: What is your revenue forecast/expectation for 2022? What one factor do you feel will most significantly affect sales of security systems by your company next year?
Becker:We are forecasting total revenue in 2022 will increase by 8 to 9 percent over 2021. We are growing our staff in a tight labor market. We have so much to offer, and as we expand our geographical territory, we continue to explain and train the ADS way of delivering great customer experiences.
Smith: Due to a number of factors, we expect total revenue to increase by 25 to 35 percent in 2022 compared to 2021. If I am narrowing this down to one and assuming demand in this economy remains strong, the most important factor impacting our sales will be internal — our ability to execute our strategy.
Boulgarides: We are projecting 5 percent top-line growth and 20 percent growth in our managed services business. Since we are a Los Angeles-based business, continued progress with vaccinations and COVID-19 levels is critical to us. We really need to see the reopening of business and folks returning to work. A backslide on the COVID front would be a problem.
Oliveri: This is hard to predict; however, if supply chain improves, we anticipate revenue growth in 2022.
This year’s forecast — illustrated in the graphs here and on SDM’s website at www.SDMmag.com/annual-security-industry-forecast — shows an industry finding its footing in a changing landscape, while continuing to demonstrate the hallmark staying power that is the security industry in good times and bad.
As was the case last year, there was double-digit growth in both total annual revenue and recurring monthly revenue (RMR) for security integrators and dealers who participated in the study. Their total annual revenue increased by an average of 18 percent (up from 17 percent last year), while RMR grew at an even higher rate by an average of 29 percent, up from 23 percent last year for a 6 percentage point increase.
SDM spoke with three of our panelists — Louis Boulgarides, Amy Becker, and Joe Oliveri — about three of the most talked-about issues recently: supply chain shortages, the “great resignation,” and mergers and acquisitions.
“We had a great year from an RMR standpoint,” says Louis Boulgarides, president and CEO of Ollivier Corp., Los Angeles, and one of this year’s four panelists. “We are expecting to see similar if not greater growth in 2022.” For Aurora, Ill.-based Alarm Detection Systems, 2021 saw approximately a 5 percent increase in RMR, says chief operations officer Amy Becker. “RMR is expected to increase by roughly 8 percent in 2022.”
This optimism extends to annual revenues for both this year’s Industry Forecast panelists — consisting of four security dealers and integrators from all over the country — and the survey respondents, with 67 percent predicting an increase in revenues in 2022. Of those, the average anticipated increase is 20 percent. However, there are signs of adjusting expectations this year. While fewer anticipated an increase last year, the average increase expected was higher; and slightly more anticipate a decrease in 2022 — 6 percent — up from 4 percent last year.
While panelist Jerrod Smith, president of Fortress Security, Arlington, Texas, is in line with the respondents anticipating a healthy 25 percent to 35 percent increase this year, Becker predicts her company’s total revenue will increase by a more modest 9 percent in 2022; and Boulgarides predicts 5 percent increase in revenues.
The Panel Talks Ongoing COVID-19 Impacts
Oliveri: The greatest impact of the ongoing pandemic remains with supply chain. All of our manufacturers continue to struggle with material delays, which in turn delays our ability to complete projects, which creates inefficiency with our labor — including design, engineering, installation, and support resources. Project delays and labor inefficiencies are having an adverse impact on margins. We continue to see more client vaccine requirements, which puts greater stress on our workforce as some of our employees are choosing not to get vaccinated.
Becker: We have had back-to-back years of solid performance despite the pandemic. With the uncertainty that existed in early 2020 and continues today, our team has risen to the occasion and delivered our customers the excellent service they have come to expect.
We see ourselves as a service organization, and we go to great lengths to ensure our customers have a great experience. Therefore, I would say we did better than expected by capitalizing on this value proposition. Our customers understood the stability and quality of our service and trusted that we would be here at a high level to solve their needs.
Boulgarides: We are still seeing issues with supply chain and surcharges on equipment. Many orders are pushing into 2022. The adoption of cloud and remotely managed system and services gained a lot of traction in 2021. As more and more people are working remotely, being able to access their security and all aspects of their program remotely is critical for our customers. I do not see this slowing down in 2022.
Smith: We have dealt with supply chain issues sporadically only over the past six months or so and most have been short lived for us. Our team has planned well for inventory shortages and we have been keeping a keen eye on that particular issue while staving off most if not all shortages. Throughout the pandemic and everything in its wake, we have experienced unprecedented demand for all our products and services. With some demand possibly linked to the pandemic itself, most has been related to robust growth in the economy that was present pre-COVID, then pent-up demand from release from lockdowns provided another jolt. The pandemic has directly and indirectly contributed to a change in the landscape of competitors, clients, and client-requested solutions, which have all been positive for us. We have experienced some negative aspects from the pandemic not unique to us that have impacted our company as well, but overall minor comparatively.
Where things get interesting, both with our panelists and on the Industry Forecast, is on the service-revenue side. Boulgarides projects his company will realize a 20 percent growth in its managed services business in 2022.
Joe Oliveri, president and CEO of CTSI, Chantilly, Va., predicts that demand for subscription-based offerings will continue to increase.
Among Industry Forecast respondents, almost 60 percent reported an increase in RMR in 2021. Managed access control, video surveillance as a service, and access control as a service all reported healthy increases of at least 7 percentage points — with access as a service jumping 12 percentage points over 2020.
This is not totally surprising, given ongoing pandemic impacts that saw businesses continuing to have employees work from home, often necessitating relying on cloud-based technology to maintain security.
Both in the Industry Forecast responses and for our panel, the pandemic continues to play a looming role, both positively and negatively.
“Our team has done a fantastic job adjusting to COVID and we are having a great year,” Becker says.
Asked about top business challenges next year, almost 50 percent of Industry Forecast respondents listed supply chain issues — a new option this year — as their top concern, with finding/retaining employees and ongoing pandemic impacts rounding out the top three.
The Panel Talks RMR
SDM: How did your company’s 2021 recurring monthly revenue (RMR) change compared with 2020?
And how do you expect 2022 RMR will change compared with 2021? Have you increased any service-based offerings such as managed or hosted access or video?
Smith: 2021 was a good year for organic RMR growth at Fortress and was steady as compared to 2020. If we execute our strategy well it is our expectation that we’ll have another great year with gross RMR gains of over 20 percent.
Cloud services for access systems is beginning to grow at an accelerated pace, with cloud video maintaining a steady growth. Over the past year, we have seen an increase in the velocity of acceptance of cloud services, especially for access systems, whereas a few years ago we received quite a bit of resistance to pay for those monthly services, with most clients requesting a stand-alone system. We offer cloud services for access and video on every proposal and expect this area of RMR to continue to grow.
Becker: Our recurring monthly revenue in 2021 is expected to be 5 percent higher than in 2020; in 2022, RMR is expected to increase by roughly 7 to 8 percent compared to 2021.
Oliveri: RMR in 2021 increased, primarily by our continued increase in CTSI Subscription Services, which enable our customers to consume technology on a monthly Op-Ex subscription versus one-time Cap-Ex. Demand for subscription continues to increase, which increases our RMR forecast for 2022; however, this growth is also paced by supply chain.
Boulgarides: We had a great year from an RMR standpoint. We expect to see similar if not greater growth in 2022. We are all-in on managed services and systems. In Q4, we have inked deals with multiple manufacturing partners that touch robotics, weapons detection, identity management, and other offerings
“We are communicating to customers that we do have an issue with supply chain and we are asking them to get purchase orders to us early,” Oliveri says. “But I will tell you the biggest impact for us has been labor and deployment because we will get a third of the equipment in to do the job, then another third and do the job, so we are not as efficient with our labor.”
The Panel Talks Opportunities for 2022
SDM: What are the biggest growth opportunities you see for your business in 2022?
Smith: Generally, the commercial space will still be our No. 1 area of growth and more specifically in fire alarm and access control systems.
Boulgarides: We are focused on being a holistic security provider. We provide the greatest benefit to our customers in that existing space between security systems and security personnel. We allow companies to leverage their security systems to augment and/or reduce their existing staff. This provides a lot of value for our customers as more work is being done remotely and they can access their security program from any device, anytime, anywhere.
Oliveri: We see subscription services as our largest growth opportunity in 2022.
Becker: First, we are targeting acquisitions more aggressively than we have in the last few years. We have put together a team whose focus is to identify and analyze deals. Second, we are investing a lot in growing our organic sales organization by adding new teams in our residential and commercial groups to cover more ground in our market areas.
We are a full-service company, from residential and small commercial to large enterprise systems. While we certainly provide a wide breadth of solutions from video to access control, to fire alarms, our growth has come from strategically targeting vertical markets where we are strong. From financial services, property management, and marijuana companies, our focus has been to integrate multiple products and services into key markets.
Boulgarides adds, “We have gone to customers and ordered hundreds of HID readers for customers. They are basically ordering it now to be installed next year. We have tried to get the customer to foot the bill for that rather than us having to carry that inventory.”
Boulgarides doesn’t see the supply issue going away immediately but is ultimately optimistic. “I drive by Newport Beach every day and I can see the boats backed up from Long Beach into the harbor. The manufacturers I have talked to say the first half of the year is going to be tough and then they are going to get caught up, and may even have surplus at that point. I am optimistic that about halfway through the year we will see things start to resolve themselves.”
The Panel Talks Competition
SDM: What or who do you view as your company’s greatest competition in 2022?
Smith: I’m always happy to see ADT do well because their strength is to our benefit in a lot of ways. Our greatest competition will come from small or regional players in our markets who can compete with us in experience, talent, speed, and price. We enjoy a nice advantage as a moderately sized company in a huge Texas market, so another one of our greatest challenges will be to maintain our forecasted headcount or reports to managers and meet our hiring goals to fulfill our sales, installation, and service quotas.
Becker: We are beginning the next 50 years of our company with a new management structure. ADS created the position of chief operating officer this year, and I am now filling that role. With this transition, we plan to examine the business with fresh eyes to improve every area and be even better than we have been for the last 50-plus years. We are our own greatest competition.
Oliveri: Supply chain, labor capacity, and vaccine mandates.
Boulgarides: The consolidation of security system companies presents both an opportunity and a threat. As one of the last large regional integrators in the greater Los Angeles area, we provide a more hands-on experience for our customers — but we do not have the resources of some of the national players.
Listen to what our industry panelists had to say about supply chain challenges and more in our podcast.
SDM 2021 INDUSTRY FORECAST
Security dealers and integrators were asked: How do you expect your overall company revenue to change compared with 2021?
Respondents to SDM’s Industry Forecast Study are a little more optimistic this year, with 67 percent still expecting double-digit revenue growth in 2022, versus 60 percent last year. However, among those, the expected mean increase is 20 percent, down slightly from last year’s mean of 23 percent; and 6 percent expect a decrease, versus 4 percent last year. // SOURCE: SDM 2022 INDUSTRY FORECASTSecurity dealers and integrators were asked: How would you rate the current state of the market for each of the following areas
Video surveillance was again the top rewarding market segment for producing sales in 2021, giving it an average of 3.8 out of 5, up slightly from 3.6 last year. Following video surveillance was access control, followed by monitoring and intrusion alarms. // SOURCE: SDM 2022 INDUSTRY FORECASTDistribution of Recurring Monthly Revenue in 2020/2021
Among companies that generate recurring monthly revenue, almost 60 percent reported an increase in their RMR in 2021 over 2020, the same percentage as last year. Average 2021 RMR growth was 29 percent higher than 2020’s. This table shows the distribution of RMR in various dollar ranges, comparing 2021 with 2020. About half of the companies who responded to the study have $25,000 or less in RMR. // SOURCE: SDM 2022 INDUSTRY FORECASTTop Business Challenges: Supply Chain, Finding Employees & Ongoing Pandemic Impacts
The factors security integrators feel will be major challenges to their companies in 2022 (ranked among top three)
The percent of respondents citing COVID-19 impacts as their biggest challenge fell by 18 percentage points, from 50 percent last year, but it still makes the top three. New this year and topping the list at nearly 50 percent is the issue of supply chain shortages. Finding/retaining employees is back in second place following 2021’s “great resignation” and employee shortages. Generating recurring revenue continues to be less of a concern, falling 10 percentage points as a concern from last year, which in turn was down 11 percentage points from 2019. // SOURCE: SDM 2022 INDUSTRY FORECASTCOVID-19 & Economic Conditions Remain Greatest Influencer on 2022 Sales
The factors security integrators think will have the most impact on sales of security systems by their companies in 2022
Economic conditions is once again the top factor security integrators and dealers believe will impact 2022 sales, after falling to second last year, after COVID-19. This year COVID-19 is still the second most cited factor, followed by sales and marketing of security systems, with a 7 percentage point increase. The factors cited in this list could have either a positive or a negative effect on sales. // SOURCE: SDM 2022 INDUSTRY FORECASTManaged/Cloud-Based Services Currently Offered
The specific managed/cloud-based services currently offered by security integrators
Managed access control continues its rise as the top managed/cloud-based service currently offered by SDM Industry Forecast respondents, up 8 percentage points over last year. Access control as a service grew the most over last year’s report, with a 12 percentage point jump to 60 percent now offering it. Of the service offerings, only network health and cybersecurity services fell, by 10 and 6 percentage points, respectively. Remote video monitoring is the service most respondents are planning to offer in the next two years, with 69 percent of respondents indicating that is their plan. // SOURCE: SDM 2022 INDUSTRY FORECASTRevenue Change Expectations for 2022
Among those who currently offer the following products/services, respondents were asked: Compared to this year, how do you expect your company’s revenue in each of the following categories to change next year?
Almost two-thirds of respondents expect their company’s revenue to increase within the video surveillance category in 2022. Managed/cloud-based services, monitoring and smart home systems are also expected to see revenue growth for about half of respondents. Very few expect to see declines across any technology categories. // SOURCE: SDM 2022 INDUSTRY FORECAST5-YEAR REVENUE BREAKOUT BY: Type of Service SDM’s Industry Forecast Survey tracks how security dealers’ and integrators’ total revenue is distributed among types of services. Together, 51 percent of revenue comes from sales and installation — across both residential and non-residential segments with the residential portion increasing 5 percentage points over last year and he non-residential remaining steady. // SOURCE: SDM 2022 INDUSTRY FORECAST
5-YEAR REVENUE BREAKOUT BY: Type of Service SDM’s Industry Forecast Survey tracks how security dealers’ and integrators’ total revenue is distributed among types of products. The 2022 results show video surveillance steady and still on top, with intrusion alarms rising 6 percentage points after a dip last year and back in second place. Most product categories held steady year over year. // SOURCE: SDM 2022 INDUSTRY FORECAST
STRONGEST RESIDENTIAL MARKET: Middle-Market Homes & High-End Homes
Security dealers were asked to indicate the one residential market segment where they expect to see the highest rate of revenue growth for their companies in 2022.
The results of SDM’s 2022 Industry Forecast Study show that security dealers continue to look to existing middle-market homes for their residential sales. New construction, however, fell significantly by 13 percentage points, perhaps reflecting ongoing issues with supply chain that are slowing down projects. // SOURCE: SDM 2022 INDUSTRY FORECAST5 STRONGEST NON-RESIDENTIAL MARKETS: Commercial, Industrial, Retail, Government, Healthcare
Security dealers and integrators were asked to indicate the one non-residential market segment where they expect to see the highest rate of revenue growth for their companies in 2022.
The dealer and integrator channel expects its top three most prolific segments in 2022 to be commercial office space — up 5 percentage points over last year and back in first place — industrial/manufacturing/distribution, and retail — up 4 percentage points and back up to third place after a dip last year. // SOURCE: SDM 2022 INDUSTRY FORECASTAverage Monthly – Residential: $112
Security dealers were asked to indicate the one residential market segment where they expect to see the highest rate of revenue growth for their companies in 2022.
The average monthly monitoring price of residential systems among respondents to the study was $112; however, the median price of $35 is likely more realistic. Both numbers rose over last year’s, with the median reported last year as $30. A majority — 60 percent — reported their average residential price was $31 or higher. // SOURCE: SDM 2022 INDUSTRY FORECASTExternal Capital Usage
Security dealers and integrators were asked: Do you currently or are you planning on utilizing external capital to support your business this year?
Thirty-five percent of dealers and integrators say they currently use external capital or plan to for the first time this year. A larger percentage don’t plan to use external capital or don’t know. // SOURCE: SDM 2022 INDUSTRY FORECASTEDITOR’S NOTE: This article is based primarily on a report produced by Clear Seas Research, “SDM Industry Forecast,” produced in November 2021. To learn more about the report or to purchase, visit https://www.sdmmag.com/annual-security-industry-forecast.
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