ADT Investor Day Presentation 2013
Transcript of ADT Investor Day Presentation 2013
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© 2013 ADT LLC dba ADT Security Services. All rights reserved.
The ADT Corporation
INVESTOR DAY PRESENTATION
DECEMBER 6, 2013
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Our reports, filings, and other public announcements may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects,
outcome of regulatory proceedings, market conditions and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this presentation that address activities, events or developments that we expect, believe or anticipate will
exist or may occur in the future, are forward-looking statements. Forward-looking statements can be identified by various words such as “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,”
“continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and similar expressions. These forward-looking statements
are based on management’s current beliefs and assumptions and on information currently available to management that are subject to risks and uncertainties, many of which are outside of our control,
and could cause future events or results to be materially different from those stated or implied in this presentation. Specific factors that could cause actual results to differ from results contemplated by
forward-looking statements include, among others, the following:
• competition in the markets we serve, including new entrants in these markets;
• entry of potential competitors upon the expiration of non-competition agreements;
• unauthorized use of our brand name;
• risks associated with ownership of the ADT® brand name outside of the United States and Canada by Tyco International Ltd., our former parent company (“Tyco”);
• failure to enforce our intellectual property rights;
• allegations that we have infringed the intellectual property rights of third parties;
• failure to maintain the security of our information and technology networks;
• interruption to our monitoring facilities;
• an increase in the rate of customer attrition;
• downturns in the housing market and consumer discretionary income;
• our ability to develop or acquire new technology;
• changes in U.S. and non-U.S. governmental laws and regulations;
• increase in government regulation of telemarketing, e-mail marketing and other marketing upon cost and growth of our business;• risks associated with our non-compete and non-solicit arrangements with Tyco;
• shifts in consumers’ choice of, or telecommunication providers’ support for, telecommunication services and equipment;
• our dependence on certain software technology that we license from third parties;
• failure or interruption in products or services of third-party providers;
• our greater exposure to liability for employee acts or omissions or system failures;
• interference with our customers’ access to some of our products and services through the Internet by broadband service providers;
• potential impairment of our deferred tax assets;
• risks associated with acquiring and integrating customer accounts;
• potential loss of authorized dealers and affinity marketing relationships;
• failure to realize expected benefits from acquisitions;
• risks associated with pursuing business opportunities that diverge from our current business model;
• adverse developments in our relationship with our employees;
• potential liabilities for obligations of The Brink’s Company under the Coal Act;
• changes in our credit ratings;
• risks related to our increased indebtedness;
• capital market conditions, including availability of funding sources;
• potential liabilities for legacy obligations relating to the separation from Tyco;
• failure to fully realize expected benefits from the separation from Tyco; and
• difficulty in operating as an independent public company separate from Tyco.
Given the risk factors and uncertainties that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-
looking statements. These risk factors should not be construed as exhaustive. We disclaim any obligations to and do not intend to update the above list or to announce publicly the result of any revisions
to any of the forward-looking statements to reflect future events or developments. If one or more of these risks or uncertainties materialize or if our underlying assumptions prove to be incorrect, actual
results may vary materially from what we projected, including the market prices of our common stock during the term and after the completion of the accelerated share repurchase, the ability of the broker
selected by us to buy or borrow shares of our common stock, the ability to complete the share repurchases within the proposed timing or at all, the number of shares that ultimately will be repurchased, and
the uncertainty regarding the amount and timing of future share repurchases by ADT and the origin of funds used for such repurchases. Consequently, actual events and results may vary significantly from
those included in or contemplated or implied by our forward-looking statements. More detailed information about these and other factors is set forth in ADT's most recent annual report on Form 10-K, ourquarterly reports on Form 10-Q and in other subsequent filings with the U.S. Securities and Exchange Commission.
Forward Looking Statements/Safe Harbor
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Naren Gursahaney
Chief Executive Officer
Michael Geltzeiler Chief Financial Officer
Don Boerema Senior Vice President and
Chief Corporate Development Officer
Luis Orbegoso
President, Small Business
Alan Ferber
President, Residential
Introduction
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Agenda
Business Overview
Year One Progress and FY14 Outlook
Growing Our Business
Residential Security and Automation
Small Business Security and Automation
PERS/Health
M&A and Other Adjacencies
Financial Overview and Cost Efficiency Program
Concluding Remarks
Q&A
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What We Are Excited to Share About ADT Today
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Leading Player in Residential and Small Business
Security and Automation Markets
Leading Player in Residential and Small Business Security & Automation Markets
Large, Resilient and Growing Industry with Strong Growth Outlook
ADT Has Clear Competitive Advantages:
Leading Brand
National and Local Scale for Sales, Service and Monitoring
Standard-setting Technology, Products and Services
Unique Multi-Channel Sales Network
Consistent Mid-Single Digit Revenue Growth, Industry-leading Profit Margins and Customer
Return Metrics that Drive Cash Flow Generation and Shareholder Returns
1
2
3
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Leading Player in Residential and Small Business
Security and Automation Markets
92% of RMR 8% of RMR
Market Size
Market Penetration
Market Growth
Residential
Security & Automation
Small Business Security &
Automation
$11.0 Billion $2.4 Billion
4%-5% 3%-4%
19% 50%
13%
1
Market Share
Rank in Market
Contribution
25%
1
Source: ADT Segmentation Study; ADT Penetration Study; IMS Americas Market for Remote Monitoring Services.
Note: Markets include US and Canadian monitoring & services and installation/equipment revenues, unless otherwise noted.(1) Monitoring & services only, based on Bain HS&A national consumer survey estimate of household growth, 80% driven by automation services with premium RPU.
(2) IMS Americas Market for Remote Monitoring Services , US and Canadian monitoring and services revenue growth.
(3) Bain HS&A national consumer survey, based on number of subscribers.
(1) (2)
(3)
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$14.4$14.5
$15.9 $16.3$17.2
$18.0$19.4
2006 2007 2008 2009 2010 2011 2012
Residential Small Business Commercial & Other
Large, Growing and Resilient Market
Continuous growth throughout
market downturns
(1) Barnes Industry & Market Overview. Residential and Small Business data based on IMS Americas Market for Remote Monitoring Services.
(2) Monitoring & services only, based on Bain HS&A national consumer survey estimate of household growth, 80% driven by automation services with premium RPU.(3) IMS Americas Market for Remote Monitoring Services, US and Canadian monitoring and services revenue growth.
(4) ADT Segmentation Study; ADT Penetration Study; IMS Americas Market for Remote Monitoring Services; Bain analysis. Addressable market includes monitoring & services and
installation/equipment revenues for residential, fire, small and medium businesses in the US and Canada. Non-compete provisions with Tyco expire on September 29, 2014.
US Monitoring & Services Revenue ($ in Billions) (1)
4% - 5%
Residential
Security and Automation
Annual Growth
(2)
3% - 4%
Small Business
Security and Automation
Annual Growth
(3)
Consistent Historical Growth
Strong Growth
Outlook
21B total ADT addressable market once non-compete expires in September 2014
(4)
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Clear Market Leader with Competitive Advantages
6x
size of our next largest competitor
25%
4%
4%
3%
2%
2%
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13%
14%
20%
23%
88%
Telco 2
Telco 1
Cable 1
Traditional 1
ADT Has Leading Brand Awareness
~90% Brand Awareness
Among Consumers
(1)
Most Considered by
Consumers When Choosing
Their Security Provider
(1)(2)
50% of ADT Customers Did
Not Consider Any Other
Competitor During Their
Purchase Process
(3)
3%
5%
5%
6%
41%
Telco 2
Traditional 2
Traditional 1
Cable 1
4%
4%
7%
8%
50%
Traditional 1
Telco 2
Cable 1
All Others
I did not consider
any other
companies
(1) Bain HS&A national consumer survey (N=1,461).
(2) Companies considered by
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National / Local Scale in Sales, Service, and Monitoring
• Monitoring Centers
> 50k customers
10k-50k customers
< 10k customers
Established and trusted across
North America
Lower marketing and sales costs
per subscriber relative to main
competitors
National Scale
Reduces Sales
and Marketing
Costs
High regional density reduces
monitoring and service costs
Lower cost to serve per
subscriber relative to main
competitors
Local Scale
Reduces Cost to
Serve
Leverage scale to enhance
Pulse upgrade campaigns
Enables more robust
technological innovation
Platform for partnering and M&A
Other Scale-
Driven
Advantages
Unparalleled Scale of
Over
6.5 Million
Customers
Proven Scale Benefits
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Connections
Automation and scheduling
Alerts
Savings from consumption
management and rate
reductions
Energy
The foundation and heritage of
ADT’s offer
Life Safety
Media integration and control
Real-time content
Lifestyle
Entertainment
Standard-Setting Technology, Products and Services
Comprehensive Safety
and Automation
Product Solutions
Obsession with
Protection
Industry-Leading
Innovation
Superior Customer
Experience
n
e
r
g
E
e
a
nm
e
Lifestyle
Life Safety
Smart
Meter
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Video: Our Greatest Advantage
Average tenure of sales representatives
3 years
Average tenure of call center representatives
4 years
Average tenure of service technicians
11 years
Average tenure of install technicians
7 years
17,000 Employees
who are Security Experts
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Multi-Channel Model Provides Unique Advantages
Indirect
ResidentialNational Sales
Center (NSC)
HealthSmall Business
(SB)
Broad network of 3,900 sales
professionals and 4,300
installation and service
technicians
Largest dealer network in North
America consisting of ~350
authorized third-party dealers
Strategic sales partners
Complementary customer segments, marketing channels, geographies and promotional strategies
Efficient use of overflow capacity
Innovation driven by leveraging best practices and processes from ~350 potential sources
Insulates against volatility
Ability to leverage lower-cost channel at any point in time
M&A
Grow customer additions
through acquisitions
Proven history of integration
capabilities
3rd-Party (Lead &
Sales Providers)
Authorized Dealers
Affinity
(Lead Providers)
Builder / HOAs
(Lead Generators)
Direct
Large Bulk
Acquisitions
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5.0%
1.2%
3.6%
Cable/Telecom
0.2%
3.9%
1.4%
FY2013
LTM Attrition
Lost to
Competition
Relocation
Non-Pay
Voluntary
excl. Lost to
Competition
Lost to
Competition
New Entrants Highlight Attractiveness of Industry
While ADT Continues to Win
Subscribers Lost to Cable / Telecom Account
for Only 0.2% of Customer Base
ADT Winning Consistent Share of New
Customers Despite New Entrants
46% 48% 44%
16%
25%
49%15%10%
3%
23%18%
4%
Past 12M 1-3 Years >3 Years
ADT Other Security Firms Cable/Satellite Telecom
Share of Total Subscribers by Installation Date (1)
Other
Competitors
ADT
Stability
(1) AlphaWise, Morgan Stanley Research, Survey of US Residential Security Market (2013, N=1,192).
(2) Based on July 2013 internal survey results.
(2)
13.9% 1.4%
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$1.8
$2.3
$3.0
43.8%47.5%
51.1%
$0
$1
$1
$2
$2
$3
$3
$4
$4
2007 2010 2013Recurring Revenue EBITDA Margin
Favorable Market Dynamics and Competitive
Advantages Drive Financial Performance
Strong Recurring Revenue Growth
Attractive Account Growth Opportunities
Consistent ~ 1 billion of steady-state free cash flow generated every year
(1) Pro-forma acquisition of Broadview Security in 2010.
(2) EBITDA is before special items and is a non-GAAP measure. For a reconciliation to the most comparable GAAP measures please see the Appendix.
(3) IRR is calculated on a 15-year after tax. basis
(2)
Dealer
Resi. Direct -Pulse
Resi. Direct – Trad.
Total Resi.Direct
SB - Pulse
SB – Trad.
Health
Devcon
Large BulkPurchase
0
200
400
600
5% 10% 15% 20%
IRR (3)
F Y 2 0 1 3 C u s t o m e r
A d d i t i o n s ( 0 0 0 s )
Weighted
Average Cost
of Capital
Customer IRRs well
above weighted
average cost of capital
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Agenda
Business Overview
Year One Progress and FY14 Outlook
Growing Our Business
Residential Security and Automation
Small Business Security and Automation
PERS/Health
M&A and Other Adjacencies
Financial Overview and Cost Efficiency Program
Concluding Remarks
Q&A
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Significant Progress Made In 2013, First Year as a
Public Company
Enhanced
Management
Team
Built
Momentum in
Pulse
Small
Business
Growth
Successful
M&A
Execution
More than doubled recurring revenue growth in FY2013
Accelerated Pulse take rates to 34% in Q4
Expanded security solutions offerings and cross-selling capabilities
Devcon added 117k customers with attractive retention profile Further strengthened self-generated sales via Absolute acquisition
Added 34k accounts via bulk purchase
Rolled out Pulse across all channels
32% Pulse take rate in Q4 resulting in 26% Pulse take rate for FY 2013
Continuing to expand capabilities and enhance customer experience
Mike Geltzeiler
Chief Financial
Officer
>30 years of public
company finance
leadership
experience
Alan Ferber
President,
Residential
Track record of
improving customer
retention in
subscriber business
Luis J. Orbegoso
President, Small
Business
Deep security
industry expertise in
commercial markets
Kathleen McLean
Chief Information
Officer
Broad information
technology and
operating
experience in
telecom market
Arthur Orduña
Chief Innovation
Officer
Emerging technology
and product
management
experience in cable
industry
Returned
1.4B of
Capital
1.3 billion in share repurchases and 112 million in dividends
Committed to additional $1.2B of share repurchases and dividend increase
subsequent to close of fiscal year
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Connecting Key Operating Levers and Financial
Metrics to Drive Total Shareholder Return
Customer Additions
Average Revenue Per
User (ARPU)
Cost to Serve
(CTS)
Attrition
Subscriber Acquisition
Cost (SAC)
Capital Structure &
Share Repurchases
M&A
Pre-SAC
EBITDA Margin
EBITDA Margin
Steady-State Free
Cash Flow
EPS using Cash
Tax Rate
Cash Tax Rate
Recurring
Revenue
Key Levers
Financial Metrics
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Adding Over 1 Million Customers Per Year
Customer Additions
Direct Channel Growth Accelerating with
Housing Recovery
Unique Multi-Channel Approach Boosts
Customer Additions
157
161163
173
Q1 2013 Q2 2013 Q3 2013 Q4 2013
Y-o-Y
Growth(1.3%) 0.6% 4.5% 8.1%
507 566597 634 654
464459
491 527 453
117
9711,025
1,0881,161
1,224
2009 2010 2011 2012 2013
Gross Direct Additions
Gross Dealer Additions and Bulk PurchasesTuck-In Acquisitions
(Thousand Customers)
(Thousand Customers)
2013 Direct Additions
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13.9%13.5%
12.2%
13.0%
12.6%
Net Attrition asReported
Net Attrition on a UnitBasis
Net AttritionAdj. for
Recaptures
Vivint Monitronics
Industry-Leading Customer Retention,
Committed to Further Improvements
Attrition
(1) T12M RMR of canceled subscribers divided by the T12M average total RMR. Net of dealer chargebacks (replacements contractually provided by dealers) and resale units (new subscribers
at a location with previously installed ADT system).
(2) T12M number of canceled subscribers divided by the T12M average number of subscribers, net of dealer chargebacks and resale units.(3) Net of relocated customers who re-enter contract with ADT at new location.
(4) Vivint investor presentation, as of September 30, 2013.
(5) Monitronics filings, as of June 30, 2013.
Y-o-Y +40bps +30 bps N/A +330bps +60 bps
(2)(3)
(4) (5)
~170 bps lower on a unit basis and
excluding customers that moved and re-signed
with ADT: most comparable to peers
LTM Net Attrition is More Stable than Peers
(2)(1)
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Consistent Growth in Revenue Per User
ARPU
$42.99$43.36
$43.94$44.20 $44.24
$38.87$39.27
$39.66$40.08 $40.31
Q42012
Q12013
Q22013
Q32013
Q42013
New Customers RPUAverage RPU All Customers
4.6%
3.7%
Pulse Adds Driving Higher RPU
RPU of Pulse customers is 25% higher than non-Pulse customers
Regular Price Increases
2.8%
3.1%
2.8%2.7%
2.8%
Q42012
Q12013
Q22013
Q32013
Q42013
(% of trailing 12 months recurring revenue)
Price Escalations
FY2013
YoY
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$1,187
$1,251 $1,245
$1,294$1,322
$10
$22 $32
$32$32
$1,197
$1,273 $1,277
$1,326$1,354
28.2x
28.8x
28.3x
29.3x29.9x
FY 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
Net Subscriber Acquisition Cost Upgrade Cost Net Creation Multiple
Majority of SAC Increase Driven by Pulse Adoption
SAC
(1) Excludes upgrade costs associated with traditional customers upgrading to Pulse service. Estimated cost of $750-$800 per subscriber upgrade.
Increase in SAC Partially Offset by Higher ARPU of New Customers - Modest Increase in Net
Creation Multiple Reflects More Valuable Pulse Customers
(1)
($ / Customer Addition)
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High local density of subscribers leading to
high economies of scale for monitoring and
customer service $14
$18
FY2013 Monitronics Vivint
$13
Leveraging Scale for ADT Cost Advantage
Cost to Serve is Lower than Peers
(Cost to Serve per Customer per Month)
Cost to Serve
(1) Estimated based on Monitronics public filings as of September 30, 2013.
(2) Estimated based on Vivint public filings and press releases as of September 30, 2013, based on YTD 2013 figures, adjusted for transaction costs.
(1) (2)
Multiple Sources of Scale Advantage Driving
Down Costs
Large and diverse customer base reducing
concentration risk of bad debt
Synergies from acquisitions as a result ofintegrating operations and capabilities
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Strategy in Place to Drive Growth and Margin
Expansion in FY2014
Customer Additions Attrition ARPU
SAC Cost to Serve
Continued penetration
in Residential
Dealer channel
optimization
Expansion in Small
Business and Health Successful M&A
execution
Increasing Pulse take
rates to drive higher
ARPU
Consistent price
escalations
New initiatives and
Pulse will help offset
the impact of the
housing recovery
Impact of Pulse take
rates offset by
initiatives to reduce
cost, holding creation
multiple relatively
constant
Programmatic G&A
reduction
Initiatives in place to
streamline processes
and reduce cost
Comment Outlook Comment Outlook Comment Outlook
Comment OutlookComment Outlook
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Strengths and Opportunities Driving ADT Priorities
ADT Priorities
Large, resilient and
growing industry
Advantaged position as
industry acquirer/partner
of choice
ADT well positioned to grow
as clear leader with
competitive advantages
Invest in
Growth
Optimize Cost
Structure
Balanced
Capital
Allocation
Accelerate innovation and enhance
leadership position in Residential
Optimize Dealer network and stabilize attrition
Expand presence in Small Business
Capture opportunities in Health
Leverage M&A to accelerate growth
Efficiency program focused on cost to serve
and subscriber acquisition cost
G&A reduction
Strengthen business platforms to support
efficiency improvements and growth
Optimized capital structure
Dividend growth
Strategic M&A
Opportunistic share repurchases
Favorable Environment
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Agenda
Business Overview
Year One Progress and FY14 Outlook
Growing Our Business
Residential Security and Automation
Small Business Security and Automation
PERS/Health
M&A and Other Adjacencies
Financial Overview and Cost Efficiency Program
Concluding Remarks
Q&A
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Leverage M&A to Further Grow Share
and Improve Economics
Accelerate Innovation and Capture
Opportunities in Residential Security and
Automation Business
Strengthen PERS Platform and
Capitalize on Health Opportunity
Expand Presence and Market Share
in Small and Medium Business Market
Attrition
Customer Adds
ARPU
Customer Adds
Cost to Serve
1 2
3 4
Growing Our Business
Customer Adds
ARPU
Customer Adds
ARPU
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Alan Ferber
–
President, Residential
Prior Experience
Former Chief Strategy and Brand Officer and
Executive Vice President – Operations at U.S.
Cellular Co-founded Traq Wireless
Earlier career positions with Ameritech
Corporation and First Chicago Corporation
Areas of Expertise
Education
20+ years in technology-based, consumer subscription services
(wireless)
Marketing, sales, operations and customer service expertise
Driving loyalty through customer-obsessed culture and differentiated
customer experience
MBA from Northwestern University's Kellogg
School of Management
Bachelor of Arts from the University of
Michigan
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Clear Path to Grow Residential Business
Focused efforts to stabilize attrition
Optimize Dealer channel and expand partner network
Significant room for increased penetration
Positive Industry
Momentum
Net Customer
Additions Growth
Leverage consumer insights to drive innovation
Invest in Pulse to drive ARPU and net customer additions
Automation Growth
Clear Path to Growing Net Customers and Recurring Revenue
Market growth expected to accelerate with housing recovery,
automation trend and technological innovation
Positive Industry Momentum
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Significant Room for Further Penetration
Market Penetration of Home Services (U.S.)
100%
83%75%
64%
19%
1%
Wireless Internet HDTV Landline Phone Security HomeAutomation
Source: Industry Journals; penetration of home security from ADT 2010 Penetration study and 2008 Parks Associates.
Opportunity to expand
market by 3x if
penetration reaches that
of other home services
Automation
Net Customer Additions
Positive Industry Momentum
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US Housing Market (2)
Positive Industry Momentum
Pace of Growth to Accelerate with
Housing Recovery
Key Macro Considerations Indicate
Positive Industry Momentum
75%
of new ADT customers start monitoring
when they move into a new home(1)
4.2 4.0 4.14.5
4.9 5.15.5
2009 2010 2011 2012 2013E 2014E 2015E
(1) Per ADT customer survey response to question “why start monitoring?”; n=1440.
(2) National Association of Home Builders (September 2013).
(Units in Millions)
Existing Home Sales New Home Sales
Automation
Net Customer Additions
Key Considerations Potential impact
Housing
Market
Technology
Development
Customer
Demand
Demographic Trends
Economy & Consumer
Confidence
Crime
Rates
Regulatory
Environment
Aggregate
Impact
Positive Industry Momentum
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Home Automation Solutions to Drive Growth
20% of current security users have or
intend to purchase automation services
(1)
(1) Bain HS&A national consumer survey (N=1461).
(2) Bain HS&A national consumer survey, estimated growth from 2013E to 2018E.
45% of home security intenders also
intend to pursue automation service
(1)
Automation Expected to Drive 80% of Market Growth
80%
Home Security
and Automation
20%
Home
Security
2013E-2018E Expected Sources of Growth
(2)
Automation
Net Customer Additions
Positive Industry Momentum
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Well Positioned to Capture Growth in
Automation Services
Needed to Win in
Automation Market
ADT?
Leading Security Capabilities Leading Home Automation
Solutions Positive Customer Service
Performance Preferred Industry Partner
Status
National and Local Scale
Source: Barnes Associates; Bain HS&A national consumer survey (N=1461)
Current 8% Pulse penetration reflects
untapped potential within existing
customer base
Automation
Net Customer Additions
Pulse adoption has just begun in Dealer
channel and is accelerating
Continued innovation will drive growth
and additional partnership opportunities
Positive Industry Momentum
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Pulse Take Rates Continue to Increase
11%
27%
49%
54%
8%
19%
35%
39%
0% 1%
13%
23%
FY 2011 FY 2012 FY 2013 Q4 2013
Direct New Only(Excluding Devcon)
New and Resale(Including Devcon)
Dealer
(% of New Customer Adds)
Pulse Take Rates
Automation
Net Customer Additions
Pulse Customers have 25% Higher ARPU and Better Retention Characteristics
11
27
48
54
8
19
35
0
1
13
(Excluding Devcon)
Positive Industry Momentum
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Further Innovation Driven by Consumer
Insights and Quick to Market Approach
Expanding Solution Set Benefits
Shift from physical to
physical + digital security
Additional peripherals
Enhanced user interface
Shift from fixed / premise based to
mobile / personal security
Increased customer engagementto drive ARPU and loyalty
ADT Everywhere increasescompetitive differentiation
Big Data generates new
partnership and value creation
opportunities
Automation
Net Customer Additions
Positive Industry Momentum
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Dealer Channel Continues to Contribute
High Quality Customer Accounts
Automation
Net Customer Additions
Consistent creation multiple
Increase in ARPU more than offset
slight increase in SAC
High credit quality customers
Average of 700+ credit score
Initiatives underway to drive FY2014
growth in Dealer customer additions
Historical Dealer Channel Customer Additions
Avg. New
Customer
Credit Score
714 715 718
(1) Cost to acquire a dealer sourced customer, net of chargebacks.
491K527K
453K
29.6x 29.5x 28.2x
$41.10$42.57
$44.61
2011 2012 2013
Gross Dealer Adds
Net Dealer Creation Multiple
Dealer New ARPU
(1)
Positive Industry Momentum
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Strengthen and Optimize the Dealer Channel
Initiatives Underway to Support Dealer Channel
Improvement
Enhanced install, sales and Pulse training
“Business-in-a-Box” comprehensive
startup program
Training &
Nurturing
Reach 100% of our Dealers each year
with greater frequency for planning &
performance management
Business reviews with Top 50
Execute
“Reach
Frequency”
Additional sales support, managerial
oversight, realignments
New recruitment and development team
Staffing &
Operational
Support
Changes Among our
Largest Dealers
Pace of Pulse
Adoption
FY2013 Dealer
Dynamics
Termination of a
Major Third PartyLead Generator
Improved funding to drive Pulse adoption
Improved funding for existing dealers
New Dealer recruitment
Funding &
Incentives
Dealer
Rationalization
Automation
Net Customer Additions
Positive Industry Momentum
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Expanding Lead Sources, Distribution
Channels and Innovation Partners
Home Insurance
Strategic Technology Partners
Energy
Lead generation
Take advantage of uptick in
home construction rates
Early access to movers
Lead generation
Leverage broadband
infrastructure
Early access to movers
Lead generation
Distribution opportunities
including peripherals
Lead generation
Mitigate insurance risks
Pulse / product integration
ADT Everywhere
Enable innovation
Lead generation
Early access to movers
Pulse / product integration
Builders
Broadband
Retail
Automation
Net Customer Additions
Positive Industry Momentum
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Improve lifecyclemanagement
Drive Pulse adoption
Leverage data toincrease resales and
recaptures
Enhance attractivecustomer metrics
through tighter credit
screening
Voluntary Relocations Non-Pay
FY2012 FY2013
Initiatives to Drive Further Improvements in
Attrition and Mitigate Relocation Impact
-5bps
-15bps +60bps
40bps of Overall Increase in Attrition in FY2013 Driven by Relocations
40% of
Disconnects38% of
Disconnects34% of
Disconnects
36% of
Disconnects
27% ofDisconnects 26% ofDisconnects
Automation
Net Customer Additions
Disconnect Units by Reason (U.S.)
Positive Industry Momentum
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Comprehensive View of Customer Lifecycles
Improves Customer Experience and Retention
Customer Life
Attrition Risks
Proactive
Customer Experience
& Retention
Programs to
Lengthen Lifecycle
Welcome /
On-Boarding
Non-Pay Risk Relocation Risk
eactive / Trigger-
Based Risk
Upgrade Campaignsuto-Pay Adoption
Resale & Recaptureoyalty / Save Desk
Characteristics of customers with long lifecycle:
Larger system installation / investment
Have more services and interaction with system
Use automated payment methods
Automation
Net Customer Additions
Positive Industry Momentum
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Higher Pulse Penetration to Improve
Customer Retention
0 6 12 18 2
Months After Installation
Pulse Customers
Non-Pulse Customers
Increase Pulse take-rates across all
channels
– New and upgrade promotions
– Targeted base marketing efforts
Leverage 2G—3G truck rolls
Focused pursuit to upgrade non-
converters
Continued innovation of Pulse to driveadoption
Pulse Customers Show Better Retention
Characteristics
Initiatives
Cumulative Residential Customer Attrition Rate (1)
After 24 months, residential
cumulative Pulse attrition is
30% lower vs. non-Pulse
attrition
(1) Estimated based on FY2011-2013 new customers.
Automation
Net Customer Additions
Positive Industry Momentum
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Resale
Recapture
NetRelocation
Disconnects
FY 13 Relocation Disconnects
Resale and Recapture Efforts to Mitigate
Impact of Relocations
Faster detection of potential relocations
and planned response through more
vigilant customer tracking processes
Increase sales capacity dedicated to
resale
Increase resales by leveraging all sales
channels and strengthening training
programs
Enhance centralized relocation desk
Relocation Disconnects vs.
Resale and Recapture
Initiatives
Automation
Net Customer Additions
For every relocation
disconnect today, we
are generating ~0.5 customers through
new sales, our goal is
to generate 1.5 newsales per relocation
disconnect
Positive Industry Momentum
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6%
45%
94%
55%
New Sales Cumulative Non-Pay Attrition
8 Months After Sale
Customers who Fail Credit Screening
Customers who Pass Credit Screening
Implementing Enhanced Credit Screening to Lower
Attrition and Reduce Collection Costs
New enhanced screening leverages
internal credit criteria and third-party
credit models
– Customers who fail screen areasked to pay annual monitoring
fees up front
National rollout of Phase 1 screening
program has begun
– Final rollout targeted for Q2 FY2014
Revised customer credit screening will impact Direct channel gross additions in the
short term but provide a dramatic improvement in overall non-pay attrition over-time
National Rollout of New Enhanced
Screening Program
Non-Pay Attrition Predictability
Automation
Net Customer Additions
6% of new sales representing 45% of non-pay
attrition by the 8th month
100% 100%
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Clear Path to Grow Residential Business
Capture fair share of overall market growth
Increase net customer additions
– Dealer channel optimization
– Targeted customer retention initiatives
– Increase partnerships
Invest in Pulse to capitalize on premium
ARPU and better retention characteristics
Assert market leadership position through
continued innovation
Customer Adds
ARPU
Attrition
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Leverage M&A to Further Grow Share
and Improve Economics
Accelerate Innovation and Capture
Opportunities in Residential Security and
Automation Business
Strengthen PERS Platform and
Capitalize on Health Opportunity
Expand Presence and Market Share
in Small and Medium Business Market
Attrition
Customer Adds
ARPU
Customer Adds
Cost to Serve
1 2
3 4
Growing Our Business
Customer Adds
ARPU
Customer Adds
ARPU
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Prior Experience
Former President of the Global Detection and
Alarm segment of United Technologies
Corporation (UTC)
Former President of Lenel Systems International,a division of UTC’s Fire and Security segment
Chief Marketing Officer of GE Equipment Services
10+ years at GE Healthcare in various
commercial leadership roles
Areas of Expertise
MBA from Northwestern University’s Kellogg
School of Management
B.S.M.E. from the University of Cincinnati
Education
Commercial and Enterprise Security products and services
Commercial and Enterprise Fire products and services
Software and Electrical products development and manufacturing
Sales, Marketing, Six Sigma, P&L leadership
Luis Orbegoso – President, Small Business
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ProfessionallyMonitored
security
Self-
Monitored /Unmonitored
Security
No Security
ADT
Protection1Vivint
Monitronics
All OtherPlayers
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Security Use Monitored Security
Market Size
Market Penetration
Market Growth
Market Share
Rank in Market
Contribution
Market Snapshot Competitive Landscape
Source: ADT Segmentation Study; ADT Penetration Study; IMS Americas Market for Remote Monitoring Services.
Note: Markets include US and Canadian monitor ing & services and installation/equipment revenues, unless otherwise noted.
(1) IMS Americas Market for Remote Monitoring Services, US and Canadian monitoring and services revenue growth.
(2) Bain HS&A national consumer survey, based on number of subscribers.
$2.4 Billion
3%-4%
50%
13%
1
(1)
8% of RMR
7.0M 3.5M
Growing Small Business Market with Further Upside
Number of Addressable Small Businesses(2)
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$209
$224
$231
$247
2010 2011 2012 2013
ADT Outpacing Small Business Market Growth
$2.2
$2.3 $2.3
$2.4
2010 2011 2012 2013
Growing Small Business Security Market ADT Has Outpaced Market Growth
(1) ADT Segmentation Study; ADT Penetration Study; IMS Americas Market for Remote Monitoring Services.
Recurring Revenue ($M) US and Canada Alarm Monitoring & Equip/Install Revenue (1)
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2.9%
6.9%
FY 12 FY 13
(1.0%)
7.8%
FY 12 FY 13
Increased Focus Has Accelerated ADT Share Gain
Region realignment
Forecasting tool
Revamped sales
processes
Increased
Level of
Accountability
Technology – Pulse
Optimizing media
Business Journals ads
Restaurant Stakeout
sponsorship
Small
Business-
Specific
Marketing
Salesforce.com
investment
1200 iPads for the field
Model sales call
Investment in
Field Tools and
Resources
Focused Initiatives
Recurring Revenue Growth (%)
ecurring Revenue Growth (%)
Subscriber Growth (%)
(1)
(1) Includes accounts acquired through Devcon acquisition.
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0 6 12 18 2
Months After Installation
Pulse Customers
Non-Pulse Customers
Pulse Customers Show Better Retention
Characteristics
Cumulative Small Business Customer Attrition Rate (1)
After 24 months, small
business cumulative Pulse
attrition is 40% lower vs.
non-Pulse attrition
(1) Estimated based on FY2011-2013 new customers.
(2) Includes Devcon.
Higher Pulse Penetration Will Benefit Attrition
Pulse Take Rates are Accelerating
0.6%
10.0%
27.6%
34.2%
FY2011 FY2012 FY2013 Q4 2013
Small Business Pulse Take Rates (2)
Small Business Pulse
customers have27%
higher ARPU
than
non-Pulse customers
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Video: Small Business Solutions
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Vertical
Examples
Retailers
Convenience
stores
Restaurants
Bars/grills
Doctor offices
Health clinics
Laboratories
Financial advisors
Tax preparers
Insurance agents
Auto service
stations
Small distributors
Needs
Employee theft
Shoplifting
Time andattendance
Monitor premises
Secure high value
inventory
Ensure food safety
Adhere to
regulatory policies Employee efficiency
Process
standardization
and control
Secure and
monitor drug
inventory Restricted areas
Compliance
Automated
reports (Audits)
Protect
confidential
information Selective
employee access
to sensitive areas
Digital security
Ensure customer/
employee safety
Restrict access tohazardous areas
Some have retail
components (gas
stations)
Market
Size
350M 375M 190M 400M 190M
Customer
Value
High Medium Very High High Medium
Products
Vertical-Specific Approach Will Accelerate Growth
Bundled security products that address specific needs by vertical
Store-Front Food & Beverage Clinical Office Mechanical
Source: Bain analysis; ADT Segmentation Study; IMS Americas Market for Remote Monitoring Services.
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Multi-location account organization: single
point of contact
Coverage augmented by 1,200 local reps
Our Capabilities Are Well Matched for Multi-Location
Accounts and Franchises
Consistent configurations, capabilities and
products
Pre-defined budgeting process/ROIStandardized Offerings
Multi-Location Accounts and
Franchises have Specific Needs
ADT has Unmatched Capabilities To
Serve These Accounts
Account Management
Nationwide coverage
200 Branches
4,300 techniciansConsistent and Reliable Support
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Growth Strategy for Small and Medium Business
Consists of Three Phases
Optimize
12-36 months
Secure
Next 12 months
Grow
36-60 Months
Provide insights and
management tools that
accelerate profit/margins
Leverage analytics that
can be easily monetized
― E.g. buying patterns,
demographics, social
marketing
Uniquely positioned to
offer technologies and
insights to small
businesses previously
afforded by only giant
retailers
Optimize customer
operations
― Focus on
operational cost
reduction
Integrate solutions into
Pulse to drive business
efficiencies
Technology and
commercial partnerships
Provide right solution set
Optimize field processes
with vertical-specific tools
and training
Vertical specific
marketing/brand
awareness
Pursue franchises and
multi-location accounts
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Growth Phase Store-Front Vertical Example
Real-time promotions
Advanced video analytics
Customer insight on efficiency of
promotions
Increased sales and margins
Business Owner Benefits
Attracting more customers
Sound investment decisions
Increased differentiation
Scaling effectively with growth
Effective marketing
Business Owner Challenges
Business Management Tools
that Drive Growth
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Addressable Small and Medium Business Market (1)
Small
Business
Medium
Business
Fire
2.2
2.4
10.4
2010 2013 2016E
Addressable Market Opens Up Significantly After
Non-Compete Expires on September 29, 2014
4x
Current Addressable Market
After Tyco Non-Compete Ends
Small Business Market
defined as sites
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Leverage M&A to Further Grow Share
and Improve Economics
Accelerate Innovation and Capture
Opportunities in Residential Security and
Automation Business
Strengthen PERS Platform and
Capitalize on Health Opportunity
Expand Presence and Market Share
in Small and Medium Business Market
Attrition
Customer Adds
ARPU
Customer Adds
Cost to Serve
1 2
3 4
Growing Our Business
Customer Adds
ARPU
Customer Adds
ARPU
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Prior Experience
Former Chief Marketing Officer for ADT North
America-Residential and Commercial
President and Chief Operating Officer at FDN
Communications
Senior VP Strategy & Business Development and
Senior VP Business Marketing at AT&T Wireless
Former leadership roles held at Pepsi and McCaw
Cellular Communications
Areas of Expertise
MBA and B.S. from Eastern Illinois University
Education
20+ years of experience in technology-based, consumer subscription
services (wireless/telecom)
Strategy, business development, marketing, sales, and operations
expertise
Creating new businesses leveraging disruptive technologies
Building partnerships that deliver win-win results
Don Boerema– Chief Corporate Development Officer
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Philips
Life Alert
Alert 1
TunstallConnect America
Alert USA
Other
North America PERS Market
Significant Opportunity in PERS and Health Market
Source: Frost & Sullivan – Analysis of the NA Telehealth Industry; Parks Associates; SDM; ABI Research; Credit Suisse.
Personal Emergency Response Systems (PERS)
Market Expected to Grow 10% per Year
ADT Has Significant Opportunity to Grow
Market Share
1.9M
ADT has opportunity to grow Health revenue to > 100 million by 2016
2%
$1.0B$1.1B
$1.1B$1.2B
$1.3B
$1.5B
$1.7B
2010 2011 2012 2013E 2014E 2015E 2016E
North America PERS Revenue ($B) 2012 North America PERS Market (subscribers)
Market
Share
The Healthcare Environment and Demographic
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Trends are Favorable to Health Business
Rising Cost of Institutional Care
Aging Demographics
Affordable Care Act Conducive to Home-Based Health Development
Tremendous Opportunities in Insurance Reimbursement
New Technologies Continue to Enhance Value Proposition
ADT’s Potential Areas of Focus
User Device Data Transmission Data User /
Institutions
Hub
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Health Product Evolution and Customer Segment
Expansion Drive Long-Term Growth
POTS based PERS
Cellular enabled in-premise PERS
mPERS
Telehealth
Monitoring
Mobile
Monitoring
Seamless integration
PERS, automation, telehealth
Non-Emergency
mPERs
Shared functionality:
PERS, automation, telehealth
Horizon I:
Focus on Elderly
Horizon II:
Bundle for Purpose
Horizon III:
Integrate with Lifestyle
In-premise
only
Integrated
Health
solution
Expand into New Customer Segments
P
o
E
o
u
o
Telehealth-Driven Business
ERS-Driven Business
Example of DT’s Remote Care Products Providing
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Supportive Virtual Care at Home and On-the-Go
1
2
3
4
4
1
3
2
5
PERs
Motion sensors (Video)
Heart rate Monitoring
PERs
Motion sensors
Glucometer, Medication (box/cabinet)
Weight Scale Monitoring
PERs
Motion sensors, Video
Device on/off Sensors
Cabinet/Fridge door sensors Door/window sensors
PERs
Motion sensors, Video
Thermostat control
HR, BP, Glucometer Monitoring
Medication (box/cabinet) + reminders
Door/window sensors (front door sensor)
Door locks
TV access
PERs
Motion sensors, Video
Wake-up
Bathroom
Meals
Daily activity
Outdoors around
the house
5
6
6
MPERs
Mobile Health Tracking
Activity Monitoring and Alerts
Strengthen PERS Platform and Capitalize on Health
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Opportunity
Customer Adds
ARPU
Opportunity for double-digit growth in PERS and
Health market
Leverage significant growth trajectory in Health
market to gain share and expand product offerings
Continue to increase ARPU and expand customer
segments by integrating product functionalities into
Pulse ecosystem
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Leverage M&A to Further Grow Share
and Improve Economics
Accelerate Innovation and Capture
Opportunities in Residential Security and
Automation Business
Strengthen PERS Platform and
Capitalize on Health Opportunity
Expand Presence and Market Share
in Small and Medium Business Market
Attrition
Customer Adds
ARPU Customer Adds
Customer Adds
Cost to Serve
1 2
3 4
Growing Our Business
Customer Adds
ARPU
ARPU
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M&A Strategy Aligned with Business Strategy
Invest in
Adjacencies
Strengthen
the Core
Extend Our
Leadership Position
Bulk account
purchases
Dealer account
purchases
Strengthen functional
capabilities
Increase scale
Leverage synergies
Expand geographic
coverage
Pulse penetration
Small Business
Health
Other adjacencies
Examples
Broadview/Brinks
Devcon Security
iControl
Ideal Life
Pinnacle
Absolute
Changing Security Market Will Witness Increased
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M&A Activity Over the Next Few Years
Increasing competitiveness of home security market place by well capitalized public companies
Combination of above dynamics is leading private-equity owned competitors to consider sale
Interactive, internet-based technologies being deployed that drive complexity into business
Changing Market Factors
Evolution of the market makes this an attractive time for M&A
Sunset of 2G wireless network by January 2017 will place financial pressure on all players
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ADT is Well Positioned as the Acquirer of Choice
25%
4%
4%
3%
2%
2%
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Capabilities and Accelerate Organic Growth
Sales capabilities
Self-generating lead/door knocking
Fire-NICET/NFPA certification
Enterprise selling
Marketing capabilities
Data analytics
Mobile, social media, location based services
Installation
Other in-home services
Home entertainment
Service
Online customer self service
Billing
Technology
Intellectual Property
Extend our
Leadership
Position
Strengthen
functional
capabilities
Increase scale
Leverage synergies
Expand geographic
coverage
Devcon Acquisition
–
An Example of Our Disciplined
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Acquired Devcon on July 31, 2013 for 146M (1)
― $2.9M of RMR excluding Mutual and Stat-Land
― 41x 2013 RMR acquisition multiple
Run-rate synergies of 14M by FY2015
― Represents 34% of projected operating costs
― On track to achieve synergies
― One-time integration costs lower than plan
117,OOO high quality customers with low attrition
Efficient self-generating salesforce with lower SAC
Strong presence and operating model in the Homeowners
Association market
Overall business maintaining positive operating trajectory
― Sales force successfully integrated into ADT’s with rapid adoption of Pulse
Large commercial Mutual and Stat-Land business divested on
November 21, 2013 at a positive valuation
― 43x 2013 RMR
Extend our
Leadership
Position
Strengthen
functional
capabilities Increase scale
Leverage synergies
Expand geographic
coverage
Approach to M&A
(1) Net of cash acquired.
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Vehicle― Pulse integration with voice
management
― Asset management
Software and solutions― Location based services
― Video analytics― Intellectual Property
Data management and
analytics
― Identity Theft
Other Investment Opportunities
Invest in
Adjacencies
Pulse Extension
Business
Health
Other Adjacencies Hardware― Industrial Design
― Exclusive core elements
Entertainment
― Actionable local content
― Entertainment and Smart TV
integration
Monitoring
― Solar, vehicle, healthcare
Health 20% preferred ownership position
― Board seat Access to solution and platform
― Rights worldwide
― Integration with Pulse
Pre-determined rights to expand
ownership position― Timing is performance based
― 100% pre-negotiated
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Guiding Principles for Disciplined M&A
Our M&A
Guiding
Principles
Be fast and nimble to take advantage of opportunities
Approach M&A collaboratively, internally and externally
Measure all deals against quantifiable economic, operational
and strategic criteria – target IRR of >12%
Position ADT as the “Partner/Acquirer of Choice” in the
marketplace
Involve integration team early in the deal process to enable fast,effective integration activities
Identify unknown/exclusive deals to avoid auctions
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Built Capabilities to Execute on M&A Opportunities
Deal Origination / Negotiation Due Diligence Integration Process
M&A
Team
SalesR
Operations
Tinance
Legal
Oversee M&A function &
champion acquisitions
Ensure alignment with strategy
Manage process and diligence
Prioritize opportunities
Determine valuations
Develop relationships with
potential target companies
Deal Process
Conduct diligence across all
functional areas
― Synergies
― Quality of customers andoperations
― Growth engine
― Identify risks/opportunities
Support contract negotiations
Integration
Leader
Finance IT Operations
HR Sales
Customer
Experience
Develop integration plan with
timelines and key deliverables
Assimilate into ADT
Integration of sales and
operations Deliver synergies
Execute terms of negotiated
contract with speed and quality
Ongoing assessment of performance and lessons learned
1 2 3
4
Leverage M&A to Further Grow Share and Improve
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Economics
Customer Adds
Cost to Serve
Leverage fragmented, changing Home Security and
Automation landscape for attractive M&A
opportunities
Capabilities in place to integrate customer accounts
and operations
Capitalize on synergies that arise from consolidating
operations and capabilities to lower cost to serve
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Agenda
Business Overview
Year One Progress and FY14 Outlook
Growing Our Business Residential Security and Automation
Small Business Security and Automation
PERS/Health
M&A and Other Adjacencies
Financial Overview and Cost Efficiency Program
Concluding Remarks
Q&A
Mike Geltzeiler – Chief Financial Officer
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Prior Experience
Former Chief Financial Officer and Group
Executive Vice President at NYSE Euronext
Former Chief Financial Officer at the Reader’s
Digest Association
Former Chief Financial Officer at ACNielsen
Corporation
Served in a variety of senior finance positions
both in the US and abroad for Dun & Bradstreet
Areas of Expertise
MBA in Finance from New York University’s
Stern School of Business
CPA certification in the State of New York
Bachelor of Science in Accounting from the
University of Delaware
Education
Over 30 years of experience in finance executive roles, much of it atbusinesses with subscription models
Public company CFO for past 13 years, with track record of creating value
for shareholders
Extensive capital markets experience
Expertise in large, complex M&A
International background, includes 7 years work experience abroad
Favorable Market Dynamics and Competitive
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Advantages Drive Financial Performance
Strong Recurring Revenue Growth
Attractive Account Growth Opportunities
Consistent ~ 1 billion of steady-state free cash flow generated every year
$1.8$1.9 $1.9
$2.3
$2.8$2.9
$3.0
43.8% 44.4%46.3%
47.5%49.3% 49.8%
51.1%
66.5% 66.7%
$0
$1
$1
$2
$2
$3
$3
$4
$4
2007 2008 2009 2010 2011 2012 2013
Recurring Revenue
EBITDA MarginPro-Forma Pre-SAC EBITDA Margin
(2)(4)
(2)(3)
(1) Pro-forma acquisition of Broadview Security in 2010.
(2) Before special items and non-GAAP. For a reconciliation to the most comparable GAAP measures please see the Appendix.
(3) Not normalized for Dis-Synergies from spinoff from Tyco and Public Company Costs.(4) Normalized for Dis-Synergies from spinoff from Tyco and Public Company Costs.
(5) IRR is calculated on a 15 year, after tax basis.
Dealer
Resi. Direct -
Pulse
Resi. Direct – Trad.
Total Resi.Direct
SB - Pulse
SB – Trad.
Health
Devcon
Large BulkPurchase
0
200
400
600
5% 10% 15% 20%
IRR (5)
F Y 2 0 1 3 C u s t o m
e r A d d i t i o n s ( 0 0 0 s )
Weighted
Average Cost
of Capital
Customer IRRs wellabove weighted
average cost of capital
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Operating Focus
on Five Value Levers
Customer
Additions
Average Revenue
Per User
(ARPU)
Cost to Serve
(CTS)
Attrition
Subscriber
Acquisition Cost
(SAC)
Optimize Capital
Structure to Propel
Growth
Return Capital to
Shareholders
Organic Customer
Growth
Strategic M&A
3x Leverage Target
Share
Repurchases
Dividend Payout
Ratio of
40%-50%
Total Shareholder Return and Valuation on a Per Share Basis
Overview of Long Term Financial Strategy
ADT Enterprise Valuation
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Note: Unless otherwise noted, all figures are before special items and are non-GAAP measures. For a reconciliation to the most comparable GAAP measures please see the appendix.
(1) Increase mainly due to dis-synergies and public company costs associated with Tyco spinoff.
(2) Excludes subscriber upgrades.
(3) Includes repurchases completed after fiscal year-end.(4) Based on a $41.00 illustrative share price, reflects increase in dividends announced after FY2013 year end.
(5) Based on pro forma capital structure and a $41.00 illustrative share price.
Customer
Additions
Average Revenue
Per User
(ARPU)
Cost to Serve
(CTS)
Attrition
Subscriber
Acquisition Cost
(SAC)
Capital Returns
M&A
Pre-SAC
EBITDA Margin
67%
EBITDA Margin
51%
Steady-State
Free Cash Flow
939 M
EPS using Cash
Tax Rate
2.88
Cash Tax Rate
Recurring
Revenue
3,041 M
+1.1 million
new customers
+40 bps
net attrition
+3.7%
+0.8x
creation multiple(2)
2.4B share
repurchases(3)
2% dividend yield(4)
Devcon and
Absolute
5%-7% to 2022
+ 0.58
per subscriber(1)
Implied FY2013
Trading Multiples
(5)
EV / LTM RMR
47.3x
EV / Pre-SAC
EBITDA
5.8x
EV / SSFCF
12.8x
Cash P/E
14.2x
EV / EBITDA
7.1x
Overview of Cost Efficiency Program
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Cost to
Serve
(CTS)
Subscriber
Acquisition
Cost
(SAC)
Cost
Component
Initiatives in Place
Drive down SAC through sales / marketing
optimization and installation / equipment
rationalization
― Optimize sales and marketingactivities across channels
― Reduce installation costs and further
integrate and automate installation
activities
― Deploy Common Order Entry platform
Create lean support model and reduce G&A
― Continued business simplification and
automation
― Real estate optimization
Reduce CTS through improved maintenance
cost efficiency and use of tools and
technology
Significant Room to
Improve Cost Position
FY2013 focus…
― Separation from Tyco
― Establishing public
company capabilities
… Driving a ramp-up in costs
Renewed focus on cost
efficiency moving forward
― Three year efficiency
program underway
― Tangible opportunitiesidentified
Efficiency Program – Cost to Serve
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Cost to
Serve
(CTS)
G&A
Customer Service
Maintenance
Revenue Share
Bad Debt
Pre-SAC EBITDA Margin
(1)
Cost to Serve per Subscriber
Cost Component
$483M
$212M
$179M
$77M
$49M
66.7%
Cost Reduction Initiatives Impact
10% Overall Reduction
in Cost to Serve per
Subscriber by 2016
Including $50 Million
Reduction in G&Aotal Cost to Serve
12.88
$1,000M
2013
(1) Before special items and non-GAAP. For a reconciliation to the most comparable GAAP measures please see the Appendix.
Efficiency Program – Subscriber Acquisition Cost
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Subscriber
Acquisition
Cost
(SAC)
Net SAC per Subscriber
(3)
Net Creation Multiple
(3)
Cost Component 2013
1,277
Cost Reduction Initiatives Impact
Installation Revenue (P&L and Capitalized)
29.1x
($294)M
1x Reduction
in Net Creation Multiple (2)
by 2016
150bps Improvement
in EBITDA Margin (2)
by 2016
P&L
Portion
of SAC
(1)
Capitalized Direct SAC
Capitalized Dealer SAC
Selling incl.
Commissions
Advertising &
Marketing
Installation
Cost
EBITDA Margin
(2)
$217M
$171M
$60M
51.1%
$738M
$555M
(1) Over 90% attributable to Direct Subscriber Acquisition Cost.(2) Before special items and non-GAAP. For a reconciliation to the most comparable GAAP measures please see the Appendix.
(3) Excluding upgrade costs.
Net Subscriber Acquisition Cost $1,447M
New Steady-State Free Cash Flow (SSFCF) Definition
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Better Reflects Performance
Best proxy for analyzing the cash potential of existing subscriber base― Equalizes deferments and capitalization for cost of replacing attrition
― Strips out amortization complexities and inconsistencies
Captures full impact of all five key value drivers
More intuitive calculation reflects fundamental drivers of value
Simpler,
More Intuitive
Calculation
SSFCF is an
Important
Financial
Metric
Ties back to key value and financial drivers: – Pre-SAC EBITDA
– Direct and Dealer New RPU
– Direct and Dealer SAC
– T12M Disconnects Net of Price Escalation (trends with Net Attrition)
New Methodology Enhances and Simplifies SSFCF Definition to Achieve Greater
Transparency, Understanding and Comparability
Calculation now more aligned with key peers and enhances transparency
New SSFCF Definition Better Captures Performance
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Q4 T12M
FY2013
Free Cash Flow before Special Items
(4)
507
+Interest Paid 107
+Income Taxes Paid, Net of Refunds (2)
+Reduction in Dealer CAPEX 283
SSFCF before Special (Prior Definition)
(4)
895
Start
with fundamental
metric (Pre-SAC
EBITDA)
Q4 FY2013
Last Quarter, Annualized EBITDA (Pre-SAC) 2,108
- SAC to Maintain Recurring Revenue ($1,159)
- Maintenance CAPEX(1) ($10)
SSFCF Before Special Items 939
Last Quarter Average RMR 259
X T12M Disconnects Net of Price Escalation(2) 14.3%
X Last Quarter Gross RMR Creation Multiple(3) 31.3x
SAC to Maintain Recurring Revenue 1,159
Note: All values in $ millions except per subscriber amounts.
(1) Based on management’s estimate of maintenance CAPEX spending in Steady State.
(2) Average T12M recurring revenue disconnected net of price escalations. Disconnects account for dealer chargebacks.
(3) Gross creation cost includes amount held back from dealers for chargebacks.(4) Free Cash Flow before Special and Steady-State Free Cash Flow before Special are non-GAAP measures. For a reconciliation to the most comparable GAAP measure, please refer to the
Investor Relations section of our website at www.adt.com.
Trailing Recurring Revenue 3,063
Gross Attrition 17.1%
Recurring Revenue Lost to Attrition 524
Trailing Recurring Revenue from Price Escalation $85Price Escalation % 2.8%
Net Recurring Revenue Lost 439
Direct Gross Additions (thousands) 654
Direct New ARPU $43.4
Recurring Revenue Created Through Direct 341
Recurring Revenue required through Dealer Channel $98
Gross Dealer Annual Creation Multiple 2.78x
Dealer CAPEX Required to Maintain Recurring 272
Dealer CAPEX Required Under Growth Scenario $555
Dealer CAPX Required for Steady State Scenario $272
Reduction in Dealer CAPEX 283
Prior Definition New Definition
Simplify and relate to
key drivers
(attrition and
creation
multiple)
5% -10% FY2014 Growth 5% - 10% FY2014 Growth
Optimize Capital Structure - 3.0x Leverage
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Increasing leverage to 3.0x provides flexibility to invest in organic growth and pursue
opportunistic M&A while also continuing to return capital to shareholders
Recurring revenue
represents >90% of total
revenue, providing
stability and predictability
Opportunity to Invest in Attractive
Investments and Return Capital
Business Model Supports
3.0x Leverage
Predictable Cash
Flow Generation
Provides flexibility in
downturns to reduce
spending on subscriberacquisitions and limit
downside risk
Scalable and
Flexible Sales
Channel
Opportunity to lock-in
historically low interest
rates
Attractive
Interest Rate
Environment
Attractive Organic
Growth
Opportunities
Well Positioned
as Industry
Consolidator
Capital Return to
Shareholders
Customer accounts IRR
of mid-teens is
significantly higher than
cost of capital
Leader in fragmented
and rapidly changing
industry
Opportunity to return
capital to shareholders
via share repurchases
and dividends
Significant Sources of Capital Over Next Few Years
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~ 3.4 billion of capital available for M&A and shareholder return over the next 2 years and
~ 1.0 billion annually thereafter to invest in acquisitions and return to shareholders
2 Free Cash Flow generated
(2)
andincremental capital from growing EBITDA(1)
Sources of Capital
Total Available Capital
2014-2015
2016+
Annually
~ 1.7B
~ 3.4B
~ 1.0B
~ 1.0B
1~ 1.7B
Incremental capital from increasing
leverage (2.0x to 3.0x Debt/EBITDA(1))0.0B
(1) EBITDA before special items.
(2) Free cash flow after special items.
Note: Figures are illustrative. Free cash flow estimates and incremental capital from growing EBITDA estimates are
contingent on ultimate allocation between acquisitions and share repurchases.
2014 – 2015 Capital Allocation Framework
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~$3.4B
~$1.9B
~$0.3B
~$1.1B
Capital Available Dividends M&A and Share Repurchases
Sources of Capital Uses of Capital
Payout ratio of
40% - 50%
Advantaged position as
industry consolidator, and
opportunity to return significantcapital to shareholders
~$1.2B of share
repurchases
already completed
in FY 2014
M&A Criteria
IRR target >12%
Accretive to Steady-
State Free Cash Flow(1)
Alignment with
strategic criteria:
― Scale / density
― Geography
― Capabilities― Synergies
― Growth engine
Disciplined approach to capital allocation
~$3.1B
(1) Before special items on a levered, after-tax, per share basis.
Note: Figures are illustrative. Free cash flow estimates and incremental capital from growing EBITDA estimates are
contingent on ultimate allocation between acquisitions and share repurchases.
Pro-Forma Capital Structure
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FY 2012
Actual
FY 2013
Actual Pro-Forma
Total Debt $2,527 $3,376 $4.5B
EBITDAbefore special items(1)
$1,609 $1,690 $1.7B
Debt / EBITDA 1.6x 2.0x 2.6x
Diluted Ending Shares
(% reduction)235
212
(9.8%)
187
(20.0%)
Note: Pro-forma incorporates subsequent actions taken since year end:
• $1 billion debt offering closed Oct. 1, 2013
• Net $75M increase in revolver borrowings ($150M repayment and $225M drawdown)
• Share Repurchases: $300M open-market program (7.3 million shares), $400M accelerated
share repurchase program (initial delivery of 7.9 million shares), and $451M bulk purchase from
Corvex (10.2 million shares )
Note: $ in millions unless otherwise noted.(1) EBITDA is before special items and is a non-GAAP measure. For a reconciliation to the most comparable GAAP measures please see the Appendix.
There were no pro-forma adjustments to FY2013 EBITDA.
FY2014 Guidance
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Customer
Additions
Attrition
ARPU
SAC
Cost to Serve
O
a
o
Special Items
Share
Repurchase
M&A
t
a
o
a
o
Consistent growth
Levers Outlook
Expected to stabilize
Grow with Pulse and
escalations
$50-$65M, ~50% allocated
to 2G conversion program
Restructuring, Devcon
integration and Tycoseparation costs
$1.2B to date
Capitalize on advantaged
position as industry
consolidator
Stabilize with
initiatives
Improve with cost-
reduction programs
FY2013A FY2014E
Recurring
Revenue
Growth %
4.8% 4% - 5%
EBITDA Margin %
(before special
items)
51.1%50+ bps
Expansion
Steady-State Free
Cash Flow (1) $939M
+5% - 10%
Growth
Note: Unless otherwise noted, all figures are before special items and are non-GAAP measures. For a reconciliation to the most comparable GAAP measures please see the Appendix.
(1) Based on new definit ion of SSFCF.
Longer Term Outlook
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Recurring Revenue Growth
Adjusted EBITDA Margin Expansion
Steady-State Free Cash Flow Growth
Residential
Small Business
Healthcare
Mid-single digits
Mid-to-high single digits
Double digits
Mid-to-high single digits
150 bps margin expansion over the next three years
High-single digits
M&A
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Agenda
Business Overview
Year One Progress and FY14 Outlook
Growing Our Business Residential Security and Automation
Small Business Security and Automation
PERS/Health
M&A and Other Adjacencies
Financial Overview and Cost Efficiency Program
Concluding Remarks
Q&A
What We are Excited to Share About ADT Today
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Strong and
Stable Core
Business
Actionable
Priorities for
Improvement
Opportunity to
Meaningfully
Improve
Margins
Clear Multi-year
Plan for
Success
Right
Leadership
Team to Ensure
Success
25% residential
market share
6.5 million
customers with
>90% recurring
revenue
Attractive
incremental returns
Stabilize attritionOptimize Indirect
channel
Simplify the ADT
value creation story
Cost advantage opportunities in
cost to serve and subscriberacquisition cost
G&A reduction through business
simplification and real estateoptimization
Investing to grow organically
and via M&A
Key financial targets for long
term ADT business success
Complemented existing ADT management team with strong new
additions over the course of the year
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© 2013 ADT LLC dba ADT Security Services. All rights reserved.
Q&A
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© 2013 ADT LLC dba ADT Security Services. All rights reserved.
Appendix
Non-GAAP Measures
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Earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA margin, EBITDA (pre-SAC), EBITDA margin (pre-SAC), steady-state free cash
flow (SSFCF), and EPS at cash tax rates in each case “before special items” and/or “pro-forma” are non-GAAP measures and should not be considered
replacements for GAAP results.
EBITDA is a useful measure of the The ADT Corporation’s (the Company) success in acquiring, retaining and servicing our customer base and ability to
generate and grow recurring revenue while providing a high level of customer service in a cost-effective manner. The difference between Net Income (the
most comparable GAAP measure) and EBITDA (the non-GAAP measure) is the exclusion of interest expense, the provision for income taxes, depreciation
expense and amortization expense. Excluding these items eliminates the impact of expenses associated with our capitalization and tax structure as well as
the impact of non-cash charges related to capital investments.
EBITDA (pre-SAC) is a useful measure of the Company’s success in retaining and servicing our customer base while providing a hig h level of customer service
in a cost-effective manner. The difference between Net Income (the most comparable GAAP measure) and EBITDA (pre-SAC) (the non-GAAP measure) is the
exclusion of interest expense, the provision for income taxes, depreciation expense, amortization expense, and subscriber acquisition related revenue and
expenses. Excluding these items eliminates the impact of expenses associated with our capitalization and tax structure, the impact of non-cash charges
related to capital investments, and the impact of growing our subscriber base.
In addition, from time to t ime, the Company may present EBITDA and EBITDA (pre-SAC) before special items, or on a pro-forma basis which are EBITDA and
EBITDA (pre-SAC), adjusted to exclude the impact of the items highlighted below. These numbers provide information to investors regarding the impact of
certain items management believes are useful to identify, as described below.
There are material limitations to using EBITDA and EBITDA (pre-SAC). EBITDA and EBITDA (pre-SAC) may not be comparable to similarly tit led measures
reported by other companies. Furthermore, EBITDA and EBITDA (pre-SAC) do not take into account certain significant items, including depreciation expense,
amortization expense, interest expense, and tax expense, which directly affect our net income. Additionally, EBITDA (pre-SAC) does not take into account
expenses related to acquiring new customers. These limitations are best addressed by considering the economic effects of the excluded items independently,
and by considering EBITDA and EBITDA (pre-SAC) in conjunction with net income as calculated in accordance with GAAP.
Non-GAAP Measures (continued)
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SSFCF is a useful measure of pre-levered c