ADT 2013 Annual Report Download - page 103

FORM 10-K
governed by multi-year contracts with automatic renewal provisions. This provides us with significant recurring
revenue, which for fiscal year 2013 was approximately 92% of our revenue. We believe that the recurring nature
of the majority of our revenue enables us to continuously invest in growing our business. This includes
investments in technologies to further enhance the attractiveness of our solutions to current and potential
customers, to continue development and training to enable our direct sales, installation, customer service and
field service personnel to more effectively deliver exceptional service to our customers, to expand our dealer and
partner network and to make continued enhancements to operations efficiency.
Factors Affecting Operating Results
Our subscriber-based business requires significant upfront costs to generate new customers, which in turn
provide predictable recurring revenue from monthly monitoring fees. In any period, our business results will be
impacted by the following factors: customer additions, costs associated with adding new customers, average
revenue per customer, costs related to providing services to customers and customer tenure. We manage our
business to optimize these factors. We focus on investing wisely in each of our customer acquisition channels to
grow our account base in a cost effective manner and generate positive future cash flows and attractive margins.
We also focus on “Creating Customers for Life” by maintaining consistently high levels of customer satisfaction,
which increases customer tenure and improves profitability.
Our ability to add new accounts depends on the overall demand for our solutions, which is driven by a
number of external factors. Growth in our customer base can be influenced by the overall state of the housing
market in the geographies we serve. A significant factor is the rate of household moves, whether involving newly
constructed housing stock or existing homes. Household moves may drive a majority of new customer volume in
any given period, but as household moves increase, our attrition rate also tends to increase. The overall
performance of the economies in geographies in which we operate may also affect our ability to attract new
customers and grow our business. Although we have not observed a noticeable impact to our financial results of
operations during the most recent economic downturn, that does not preclude any future downturn from having a
negative effect on our performance. Another external factor that affects customer additions is the perceived level
of crime in the communities we serve.
Our marketing efforts are designed to direct potential customers into one of our customer acquisition
channels, where we work with the potential customers to identify the most appropriate set of solutions to meet
their needs. We closely monitor and manage our costs associated with on-boarding new customers. We utilize a
structured customer acquisition process that is designed to produce customers with attractive characteristics,
including strong credit scores and high usage of automated payment methods, which we believe results in long
average customer tenure.
The monthly fees that we generate from any individual customer depend primarily on the customer’s level
of service. We offer a wide range of services at various price points, from basic burglar alarm monitoring to our
full suite of ADT Pulse interactive services. Our ability to increase monthly average revenue per customer
depends on a number of factors, including our ability to effectively introduce and market additional features and
services that increase the value of our offerings to customers, which we believe drives customers to purchase
higher levels of service and supports our ability to make periodic adjustments to pricing.
We focus on keeping customer service and monitoring costs as low as possible without detracting from the
high-quality service levels for which we are known and that our customers have come to expect. We believe that
our ability to retain customers for longer periods of time is driven in part by our disciplined customer selection
practices and our delivery of a superior customer experience.
39