ADT 2015 Annual Report Download - page 114

FORM 10-K
Prior to the fourth quarter of fiscal year 2015, we reported financial and operating information in one
segment. Where applicable, prior period amounts reported herein are based on the new segment structure. See
Note 1 to our Consolidated Financial Statements for additional information.
For fiscal year 2015, our consolidated revenue was $3.6 billion and our consolidated operating income was
$639 million. The majority of the monitoring and home/business automation services and a large portion of the
maintenance services we provide to our customers are governed by multi-year contracts with automatic renewal
provisions. This provides us with significant recurring revenue, which for fiscal year 2015 was approximately
93% of our consolidated revenue. We believe that the recurring nature of the majority of our revenue combined
with our large customer base and increasing average revenue per customer, enables us to continuously invest in
growing and optimizing our business. This includes investments (i) in technologies to further enhance the
attractiveness of our solutions to current and potential customers; (ii) 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; (iii) to expand our independent authorized dealer and partner networks; and
(iv) to make continued enhancements to operational 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 customer accounts depends on the overall demand for our products and 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.
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