ADT 2015 Annual Report Download - page 81

FORM 10-K
and operating issues related to monitored security and home/business automation systems and in many cases are
able to remotely resolve customer concerns. We continue to implement new customer self-service tools via
interactive voice response systems and the Internet, which will provide customers additional choices in managing
their services.
Suppliers
We purchase equipment and components of our products from a limited number of suppliers and
distributors. Inventory is held in our regional distribution center at levels we believe sufficient to meet current
and anticipated customer needs. We also maintain inventory of equipment and components at each field office
and in technicians’ vehicles. Generally our third-party distributors maintain a safety stock of certain key items to
cover any minor supply chain disruptions. We also utilize dual sourcing methods to minimize the risk of a
disruption from a single supplier. We do not anticipate any major interruptions in our supply chain.
Industry and Competition
We believe that technology trends are creating significant change in our industry. Innovation has lowered
the barriers to entry in home automation, and new business models and competitors have emerged. We believe
that a combination of increasing customer interest in lifestyle and business productivity and technology
advancements will support the increasing penetration of interactive services and home/business automation. We
are focused on extending our leadership position in the monitored security industry while also growing our share
of the fast-growing home/business automation industry. The security systems market in the United States and
Canada remains highly competitive and fragmented, with a number of major firms and thousands of smaller
regional and local companies. The high fragmentation of the industry is primarily the result of relatively low
barriers to entering the business in local geographies and the availability of wholesale monitoring (whereby
smaller companies outsource their monitoring to operations that provide monitoring services but do not maintain
the customer relationship). We believe that our principal competitors within the security systems market are
Monitronics International, Inc., Vivint, Inc., Protection One, Inc., Comcast Corporation, AT&T, Inc., Tyco and
Stanley Security Solutions, a subsidiary of Stanley Black and Decker.
Success in acquiring new customers in the residential and business security and home/business automation
markets is dependent on a variety of factors, including company brand and reputation, market visibility, service
and product capabilities, quality, price and the ability to identify and sell to prospective customers. Competition
is often based primarily on price in relation to value of the solutions and service. Rather than compete purely on
price, we emphasize the quality of our monitored security and home/business automation services, the reputation
of our industry leading brands and our knowledge of customer needs, which together allow us to deliver an
outstanding customer experience. In addition, we are increasingly offering added features and functionality, such
as those in our ADT Pulse®interactive services offering, which provide new services and capabilities that serve
to further differentiate our offering and support a pricing premium.
We believe our field sales force, including our nationwide team of in-home sales consultants, our solid
reputation for and expertise in providing reliable security and monitoring services through our in-house network
of redundant monitoring centers, our reliable product solutions and our highly skilled installation and service
organization position us well to compete with traditional and new competitors.
Seasonality
Our business experiences a certain level of seasonality. Because more household moves take place during
the second and third calendar quarters of each year, our disconnect rate is typically higher in those quarters than
in the first and fourth calendar quarters. There is also a slight seasonal effect on our new customer installation
volume and related cash expenses incurred in investment in new subscribers; however, other factors, such as the
level of marketing expense and relevant promotional offers, can mitigate the effects of seasonality. In addition,
7