ADT 2014 Annual Report Download - page 1

January 23, 2015
Dear ADT Stockholder,
We closed the 2014 fiscal year making significant progress on each of our key performance measures, and delivered a strong second half
performance after some challenges at the outset of the year. Our steady progress in delivering against our strategic initiatives was evidenced by
a strong fourth fiscal quarter financial performance, driven by an increase in gross customer additions, a reduction in attrition, improvement in
cost efficiencies, and strong margin performance. We enter the new fiscal year with a clear focus on execution and maintaining the positive
momentum in our operating and financial performance to position ADT for continued growth.
Reflecting on our progress against our strategic initiatives, there were several significant achievements that put us on the path to continued
growth as we seek to create long-term shareholder value—
•Installed our 1 Millionth ADT Pulse®customer. To put this milestone in context, if ADT Pulse®were an independent company, it
would be the fourth largest security company in North America. Today, just four years after its initial launch, Pulse take rates are exceeding
50% across all channels, and approximately 70% of all direct new Residential ADT sales are interactive security systems – representing
successful transformations of our technology expertise, product portfolio, and customer engagement.
•Improved the customer experience and drove significant improvements in revenue and unit attrition. We ended the fiscal year
with fourth quarter attrition favorable to both our guidance and prior year. Enhanced customer experience initiatives across the service
value chain, along with non-pay initiatives, enhanced resale efforts and tighter credit screening all contributed to lower attrition in 2014.
Our plan is to drive attrition even lower in 2015.
•Expanded our addressable market with the launch of ADT Business. Upon the expiration of the non-competition agreement with
our former parent company in late September 2014, we expanded our product and service offerings to the mid-size commercial market,
tripling the addressable market for our business services. The newly rebranded “ADT Business” team will continue to serve small business
owners while we begin to build the expertise and product capability to capture growth opportunities in this expanded market, where the
strength of ADT’s trusted brand continues to be a competitive advantage.
•Completed strategic acquisition and forged new partnerships. In July, we successfully closed the acquisition of the second-largest
security company in Canada, Reliance Protectron, that when combined with ADT Canada, creates a strong platform for future growth in
that country. Over the course of 2014, we formed new relationships with technology companies such as Life360, McAfee and IFTTT,
providing opportunities to expand our services and improve the customer experience.
•Continued to optimize our cost structure. In fiscal year 2014, we continued to make progress in driving down customer acquisition
costs and lowering our overall net creation multiple despite higher Pulse take rates, which require a larger upfront investment. In 2015, we
remain focused on driving creation costs even lower, through our cost efficiency programs and a solid pipeline of productivity initiatives
including the launch of electronic contracts, the roll out of our new wireless Pulse panel, and other planned hardware cost efficiencies.
•Added tremendous new talent to the management team. Four executives joined our Executive Leadership Team in the last year:
Chief Financial Officer Michael Geltzeiler; Chief Marketing Officer Jerri DeVard; Chief Human Resources Officer Laura Miller; and President
of ADT Canada Andrea Martin. Each of these leaders brings deep expertise in their field, having led large functions at leading public
companies such as the New York Stock Exchange, Verizon, and Coca-Cola. We also strengthened our sales leadership teams in
Residential and Business.
•Completed all post-separation transition activities with our former parent company. After a three-year change effort that began
pre-separation and touched all 200 of our facilities across North America and nearly every single IT platform, we completed all separation
activities and freed up significant resources to focus on executing against ADT’s strategic and operational priorities.
ADT continues to lead in a market that is creating new opportunities for future growth. Those opportunities are being fueled by innovation, new
services, and the potential demand for monitored security as an integral part of connected homes and businesses. Today only about 20% of
homes in North America have a professionally monitored security system, and home automation services are only in their infancy, leaving 80% of
the market without monitored security or automation. This represents a significant potential growth opportunity for ADT.
This is an exciting time for our industry, and we believe that ADT is in the right place, at the right time, with the right capabilities to capitalize on
these opportunities and deliver meaningful value to our investors. We intend to strengthen our position as the #1 security company in North
America, trusted by millions to meet their needs and provide peace of mind.
Thank you for your continued support and partnership as we forge ahead.
Regards,
Naren Gursahaney
President & Chief Executive Officer
The ADT Corporation