ADT 2014 Annual Report Download - page 105

FORM 10-K
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 investment to generate new customers, which in
turn provide predictable recurring revenue generated from monthly monitoring fees. In any period, our business
results will be impacted by a number of factors including: 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 in each of our customer acquisition
channels in order to grow our account base in a cost effective manner and generate positive future cash flows and
attractive margins. We also focus on maintaining consistently high levels of customer satisfaction to increase
customer tenure and improve 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 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. 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, and interactive service contracts,
which we believe results in longer 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.
Key Performance Measures
We operate our business with the goal of retaining customers for long periods of time in order to recoup our
initial investment in new customers, achieving cash flow break-even in approximately three years. We generate
substantial recurring net operating cash flow from our customer base. In evaluating our financial results, we
review the following key performance indicators:
Customer Growth. Growth of our customer base is crucial to drive our recurring customer revenue as well as to
leverage costs of operations. To grow our customer base and improve awareness of our brands, we market our
monitored security and home/business automation systems and services through national television
39