ADT 2013 Annual Report Download - page 86

FORM 10-K
for purchased accounts or lower prices for monitoring services provided. This competition could reduce the
acquisition opportunities available to us, thus slowing our rate of growth and/or increase the price we pay for
such account acquisitions, thus reducing our return on investment and negatively impacting our revenue and
results of operations. We cannot assure you that we will be able to purchase customer accounts on favorable
terms in the future.
The purchase price we pay for customer accounts is affected by the recurring revenue historically generated
by such accounts, as well as several other factors, including the level of competition, our prior experience with
accounts purchased in bulk from specific sellers, the geographic location of accounts, the number of accounts
purchased, the customers’ credit scores and the type of security or home/business automation equipment used by
the customers. In purchasing accounts, we have relied on management’s knowledge of the industry, due diligence
procedures and representations and warranties of bulk account sellers. We cannot assure you that in all instances
the representations and warranties made by bulk account sellers are true and complete or, if the representations
and warranties are inaccurate, that we will be able to recover damages from bulk account sellers in an amount
sufficient to fully compensate us for any resulting losses. If any of these risks materializes, our business, financial
condition, results of operations and cash flows could be materially and adversely affected.
Our customer generation strategies and the competitive market for customer accounts may affect our
future profitability.
A principal element of our business strategy is the generation of new customer accounts through our
authorized dealer program, which accounted for approximately 40% of our new customer accounts for our 2013
fiscal year. Our future operating results will depend in large part on our ability to manage this generation strategy
effectively. Although we currently generate accounts through hundreds of authorized dealers, a significant
portion of our accounts originate from a smaller number of authorized dealers. In particular, during our 2013
fiscal year one authorized dealer accounted for approximately 16% of all our new accounts. We experience loss
of authorized dealers from our authorized dealer program due to various factors, such as authorized dealers
becoming inactive or discontinuing their electronic security business, non-renewal of our dealer contracts and
competition from other alarm monitoring companies. If we experience a loss of authorized dealers representing a
significant portion of our account generation from our authorized dealer program or if we are unable to replace or
recruit authorized dealers in accordance with our business plans, our business, financial condition, results of
operations and cash flows may be materially and adversely affected.
In addition, successful promotion of our brand depends on the effectiveness of our marketing efforts and on
our ability to offer member discounts and special offers for our products and services. We have actively pursued
affinity marketing programs, which provide members of participating organizations with discounts on our
products and services. The organizations with which we have affinity marketing programs closely monitor their
relationships with us, as well as their members’ satisfaction with our products and services. These organizations
may require us to increase our fees to them, decrease our pricing for their members or otherwise alter the terms
of our participation in their marketing programs in ways that are unfavorable to us. These organizations may also
terminate their relationships with us if we fail to meet member satisfaction standards. If any of our important
affinity or marketing relationships, such as our relationships with USAA or AARP, were terminated, we would
lose a significant source of sales leads and our business, financial condition, results of operations and cash flows
could be materially and adversely affected.
Our business strategy includes making acquisitions and investments that complement our existing
business. These acquisitions and investments could be unsuccessful or consume significant resources,
which could adversely affect our operating results.
We will continue to analyze and evaluate the acquisition of strategic businesses or product lines with the
potential to strengthen our industry position or enhance our existing set of products and service offerings. We
cannot assure you that we will identify or successfully complete transactions with suitable acquisition candidates
in the future. Nor can we assure you that completed acquisitions will be successful.
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