ADT 2015 Annual Report Download - page 93

FORM 10-K
pursue other external financing, which may not be readily available. Any of these factors could materially and
adversely affect our business, financial condition, results of operations and cash flows.
Our customer generation strategies through our authorized dealer and affinity marketing programs and
the competitive market for customer accounts may affect our future profitability.
An 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 2015 fiscal year.
Our future operating results will depend in large part on our ability to continue to manage this business
generation strategy effectively. Although we currently generate accounts through hundreds of independent, third
party authorized dealers, a significant portion of our accounts originate from a smaller number of such authorized
dealers including one of our authorized dealers that signed a 5-year renewal agreement as a premier provider
with us in 2014 and accounted for approximately 19% 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 customer account generation from our authorized dealer program or if we are unable to replace or
recruit authorized dealers or alternate distribution channel partners in accordance with our business strategy, 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 to our partners. 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 pay higher fees to them, decrease our pricing for their members, introduce
additional competitive options 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 affinity or marketing relationships were terminated or altered
in an unfavorable manner, we may lose a source of sales leads and our business, financial condition, results of
operations and cash flows could be materially and adversely affected.
We face risks in acquiring and integrating customer accounts.
An element of our business strategy may involve the bulk acquisition of customer accounts. Acquisitions of
customer accounts involve a number of special risks, including the possibility of unexpectedly high rates of
attrition and unanticipated deficiencies in the accounts and systems acquired despite our investigations prior to
acquisition. We face competition from other alarm monitoring companies, including companies that may offer
higher prices and more favorable terms for customer accounts purchased, and/or lower minimum financial or
operational qualifications requirements for purchased accounts. This competition could reduce the acquisition
opportunities available to us, 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 or
platform 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,
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