The ADT Corporation

Transcription

The ADT CorporationINVESTOR DAY PRESENTATIONDECEMBER 6, 2013 2013 ADT LLC dba ADT Security Services. All rights reserved.

Forward Looking Statements/Safe HarborOur reports, filings, and other public announcements may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects,outcome of regulatory proceedings, market conditions and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private SecuritiesLitigation Reform Act of 1995. All statements, other than statements of historical facts, included in this presentation that address activities, events or developments that we expect, believe or anticipate willexist or may occur in the future, are forward-looking statements. Forward-looking statements can be identified by various words such as “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,”“continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and similar expressions. These forward-looking statementsare based on management’s current beliefs and assumptions and on information currently available to management that are subject to risks and uncertainties, many of which are outside of our control,and could cause future events or results to be materially different from those stated or implied in this presentation. Specific factors that could cause actual results to differ from results contemplated byforward-looking statements include, among others, the following: competition in the markets we serve, including new entrants in these markets; entry of potential competitors upon the expiration of non-competition agreements; unauthorized use of our brand name; risks associated with ownership of the ADT brand name outside of the United States and Canada by Tyco International Ltd., our former parent company (“Tyco”); failure to enforce our intellectual property rights; allegations that we have infringed the intellectual property rights of third parties; failure to maintain the security of our information and technology networks; interruption to our monitoring facilities; an increase in the rate of customer attrition; downturns in the housing market and consumer discretionary income; our ability to develop or acquire new technology; changes in U.S. and non-U.S. governmental laws and regulations; increase in government regulation of telemarketing, e-mail marketing and other marketing upon cost and growth of our business; risks associated with our non-compete and non-solicit arrangements with Tyco; shifts in consumers’ choice of, or telecommunication providers’ support for, telecommunication services and equipment; our dependence on certain software technology that we license from third parties; failure or interruption in products or services of third-party providers; our greater exposure to liability for employee acts or omissions or system failures; interference with our customers’ access to some of our products and services through the Internet by broadband service providers; potential impairment of our deferred tax assets; risks associated with acquiring and integrating customer accounts; potential loss of authorized dealers and affinity marketing relationships; failure to realize expected benefits from acquisitions; risks associated with pursuing business opportunities that diverge from our current business model; adverse developments in our relationship with our employees; potential liabilities for obligations of The Brink’s Company under the Coal Act; changes in our credit ratings; risks related to our increased indebtedness; capital market conditions, including availability of funding sources; potential liabilities for legacy obligations relating to the separation from Tyco; failure to fully realize expected benefits from the separation from Tyco; and difficulty in operating as an independent public company separate from Tyco.Given the risk factors and uncertainties that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forwardlooking statements. These risk factors should not be construed as exhaustive. We disclaim any obligations to and do not intend to update the above list or to announce publicly the result of any revisionsto any of the forward-looking statements to reflect future events or developments. If one or more of these risks or uncertainties materialize or if our underlying assumptions prove to be incorrect, actualresults may vary materially from what we projected, including the market prices of our common stock during the term and after the completion of the accelerated share repurchase, the ability of the brokerselected by us to buy or borrow shares of our common stock, the ability to complete the share repurchases within the proposed timing or at all, the number of shares that ultimately will be repurchased, andthe uncertainty regarding the amount and timing of future share repurchases by ADT and the origin of funds used for such repurchases. Consequently, actual events and results may vary significantly fromthose included in or contemplated or implied by our forward-looking statements. More detailed information about these and other factors is set forth in ADT's most recent annual report on Form 10-K, ourquarterly reports on Form 10-Q and in other subsequent filings with the U.S. Securities and Exchange Commission.1

IntroductionNaren GursahaneyChief Executive OfficerMichael GeltzeilerChief Financial OfficerAlan FerberPresident, ResidentialLuis OrbegosoPresident, Small BusinessDon BoeremaSenior Vice President andChief Corporate Development Officer2

AgendaBusiness OverviewYear One Progress and FY14 OutlookGrowing Our Business Residential Security and AutomationSmall Business Security and AutomationPERS/HealthM&A and Other AdjacenciesFinancial Overview and Cost Efficiency ProgramConcluding RemarksQ&A3

What We Are Excited to Share About ADT Today4

Leading Player in Residential and Small BusinessSecurity and Automation Markets1Leading Player in Residential and Small Business Security & Automation Markets2Large, Resilient and Growing Industry with Strong Growth Outlook3ADT Has Clear Competitive Advantages: Leading Brand National and Local Scale for Sales, Service and Monitoring Standard-setting Technology, Products and Services Unique Multi-Channel Sales NetworkConsistent Mid-Single Digit Revenue Growth, Industry-leading Profit Margins and CustomerReturn Metrics that Drive Cash Flow Generation and Shareholder Returns5

Leading Player in Residential and Small BusinessSecurity and Automation MarketsResidentialSecurity & AutomationMarket SizeMarket GrowthMarket Penetration 11.0 Billion4%-5% (1)19%Small Business Security &Automation 2.4 Billion3%-4% (2)50%(3)Market Share25%13%Rank in Market#1#1Contribution92% of RMR8% of RMRSource: ADT Segmentation Study; ADT Penetration Study; IMS Americas Market for Remote Monitoring Services.Note: Markets include US and Canadian monitoring & services and installation/equipment revenues, unless otherwise noted.(1)Monitoring & services only, based on Bain HS&A national consumer survey estimate of household growth, 80% driven by automation services with premium RPU.(2)IMS Americas Market for Remote Monitoring Services , US and Canadian monitoring and services revenue growth.(3)Bain HS&A national consumer survey, based on number of subscribers.6

Large, Growing and Resilient MarketStrong GrowthOutlookConsistent Historical GrowthUS Monitoring & Services Revenue ( in Billions) (1)Continuous growth throughoutmarket downturns 14.4 14.5 15.9 16.34% - 5% 17.2 18.0 19.4ResidentialSecurity and AutomationAnnual Growth (2)3% - 4%Small BusinessSecurity and AutomationAnnual Growth (3)20062007Residential20082009Small Business201020112012Commercial & Other 21B total ADT addressable market once non-compete expires in September 2014 (4)(1)(2)(3)(4)Barnes Industry & Market Overview. Residential and Small Business data based on IMS Americas Market for Remote Monitoring Services.Monitoring & services only, based on Bain HS&A national consumer survey estimate of household growth, 80% driven by automation services with premium RPU.IMS Americas Market for Remote Monitoring Services, US and Canadian monitoring and services revenue growth.ADT Segmentation Study; ADT Penetration Study; IMS Americas Market for Remote Monitoring Services; Bain analysis. Addressable market includes monitoring & services andinstallation/equipment revenues for residential, fire, small and medium businesses in the US and Canada. Non-compete provisions with Tyco expire on September 29, 2014.7

Clear Market Leader with Competitive Advantages6x size of our next largest competitorADT Advantages25%Leading Brand AwarenessResidentialSecurity &Automation2013E Number ofHouseholds59%Thousandsof Others4%4%3%VivintMonitronicsProtection 12% Slomins2% Guardian 1% MSOs CombinedNational and Local Scale in Sale, Service, andMonitoringStandard-Setting Technology, Products, andServicesDiverse Distribution Channels8Source: Bain analysis.

ADT Has Leading Brand Awareness 90% Brand AwarenessAmong Consumers(1)(% Residential Security Intenders)Most Considered byConsumers When ChoosingTheir Security Provider (1)(2)(% Residential Security Intenders Who WouldConsider Each Company for Security Service)88%41%50% of ADT Customers DidNot Consider Any OtherCompetitor During TheirPurchase Process (3)(% ADT Customers)I did not considerany othercompanies50%Traditional 123%Cable 16%All Others8%Cable 120%Traditional 15%Cable 17%5%Telco 24%Traditional 14%(1)(2)(3)Telco 114%Traditional 2Telco 213%Telco 23%Bain HS&A national consumer survey (N 1,461).Companies considered by 3% of respondents excluded.ADT New Customer Welcome Survey (February-September 2013, N 51,405). When asked to check all companies customers were considering for home security service.9

National / Local Scale in Sales, Service, and MonitoringUnparalleled Scale ofOver 6.5 Million CustomersProven Scale BenefitsNational ScaleReduces Salesand MarketingCostsLocal ScaleReduces Cost toServe 50k customers10k-50k customers 10k customers Monitoring CentersOther ScaleDrivenAdvantages Established and trusted acrossNorth America Lower marketing and sales costsper subscriber relative to maincompetitors High regional density reducesmonitoring and service costs Lower cost to serve persubscriber relative to maincompetitors Leverage scale to enhancePulse upgrade campaigns Enables more robusttechnological innovation Platform for partnering and M&A10

Standard-Setting Technology, Products and ServicesLife SafetyComprehensive Safetyand AutomationProduct Solutions The foundation and heritage ofADT’s offerObsession withProtectionLifestyle Connections Automation and scheduling tLifestyleSmartMeterLife SafetyEnergy Savings from consumptionmanagement and ratereductionsEntertainmentSuperior CustomerExperience Media integration and control Real-time content11

Video: Our Greatest Advantage17,000 Employeeswho are Security Experts11 yearsAverage tenure of service technicians7 yearsAverage tenure of install technicians4 yearsAverage tenure of call center representatives3 yearsAverage tenure of sales representatives12

Multi-Channel Model Provides Unique Advantages Complementary customer segments, marketing channels, geographies and promotional strategies Efficient use of overflow capacity Innovation driven by leveraging best practices and processes from 350 potential sources Insulates against volatility Ability to leverage lower-cost channel at any point in timeDirectIndirect Broad network of 3,900 salesprofessionals and 4,300installation and servicetechnicians Largest dealer network in NorthAmerica consisting of 350authorized third-party dealers Strategic sales partnersResidentialNational SalesCenter (NSC)Authorized DealersBuilder / HOAs(Lead Generators)Small Business(SB)Health3rd-Party (Lead &Sales Providers)Affinity(Lead Providers)M&A Grow customer additionsthrough acquisitions Proven history of integrationcapabilitiesLarge BulkAcquisitions13

New Entrants Highlight Attractiveness of IndustryWhile ADT Continues to WinADT Winning Consistent Share of NewCustomers Despite New EntrantsSubscribers Lost to Cable / Telecom Accountfor Only 0.2% of Customer BaseShare of Total Subscribers by Installation Date (1)18%23%4%3%10%15%49%13.9%1.4%Lost toCompetition1.4%Voluntaryexcl. Lost ast 12M1-3 Years 3 YearsADT(1)(2)Other Security ion5.0%FY2013LTM AttritionOtherCompetitors1.2%Lost toCompetition(2)TelecomAlphaWise, Morgan Stanley Research, Survey of US Residential Security Market (2013, N 1,192).Based on July 2013 internal survey results.14

Favorable Market Dynamics and CompetitiveAdvantages Drive Financial Performance 4 4 3.0 3 2.3 3 1.8 2 2 143.8% 147.5%51.1%Attractive Account Growth OpportunitiesFY 2013 Customer Additions (000s)Strong Recurring Revenue Growth60020072010Recurring Revenue2013EBITDA Margin (2)Customer IRRs wellabove weightedaverage cost of capitalTotal Resi.DirectDealer400Resi. Direct –Trad.Resi. Direct Pulse200Devcon0 0WeightedAverage Costof CapitalSB – Trad.SB - Pulse5%10%Large BulkPurchaseIRR (3)Health15%20%Consistent 1 billion of steady-state free cash flow generated every year(1)(2)(3)Pro-forma acquisition of Broadview Security in 2010.EBITDA is before special items and is a non-GAAP measure. For a reconciliation to the most comparable GAAP measures please see the Appendix.IRR is calculated on a 15-year after tax. basis15

AgendaBusiness OverviewYear One Progress and FY14 OutlookGrowing Our Business Residential Security and AutomationSmall Business Security and AutomationPERS/HealthM&A and Other AdjacenciesFinancial Overview and Cost Efficiency ProgramConcluding RemarksQ&A16

Significant Progress Made In 2013, First Year as aPublic CompanyEnhancedManagementTeamBuiltMomentum inPulseMike GeltzeilerChief FinancialOfficerAlan FerberPresident,ResidentialLuis J. OrbegosoPresident, SmallBusinessKathleen McLeanChief InformationOfficerArthur OrduñaChief InnovationOfficer 30 years of publicBroad information Emerging technologyTrack record ofDeep securitycompany finance improving customer industry expertise intechnology andand productleadershipoperatingmanagementretention incommercial marketsexperienceexperience inexperience in cablesubscriber businesstelecom marketindustry Rolled out Pulse across all channels 32% Pulse take rate in Q4 resulting in 26% Pulse take rate for FY 2013 Continuing to expand capabilities and enhance customer experienceSmallBusinessGrowth More than doubled recurring revenue growth in FY2013 Accelerated Pulse take rates to 34% in Q4 Expanded security solutions offerings and cross-selling capabilitiesSuccessfulM&AExecution Devcon added 117k customers with attractive retention profile Further strengthened self-generated sales via Absolute acquisition Added 34k accounts via bulk purchaseReturned 1.4B ofCapital 1.3 billion in share repurchases and 112 million in dividends Committed to additional 1.2B of share repurchases and dividend increasesubsequent to close of fiscal year17

Connecting Key Operating Levers and FinancialMetrics to Drive Total Shareholder ReturnKey LeversFinancial MetricsCustomer AdditionsAttritionAverage Revenue PerUser (ARPU)RecurringRevenuePre-SACEBITDA MarginEBITDA MarginCost to Serve(CTS)Steady-State FreeCash FlowSubscriber AcquisitionCost (SAC)Cash Tax RateCapital Structure &Share RepurchasesEPS using CashTax RateM&A18

Customer AdditionsAdding Over 1 Million Customers Per YearUnique Multi-Channel Approach BoostsCustomer AdditionsDirect Channel Growth Accelerating withHousing Recovery(Thousand Customers)2013 Direct Additions(Thousand oss Direct AdditionsGross Dealer Additions and Bulk PurchasesTuck-In AcquisitionsQ1 2013Y-o-YGrowth(1.3%)Q2 20130.6%Q3 2013Q4 20134.5%8.1%19

AttritionIndustry-Leading Customer Retention,Committed to Further ImprovementsLTM Net Attrition is More Stable than Peers 170 bps lower on a unit basis andexcluding customers that moved and re-signedwith ADT: most comparable to peers13.9%13.5%13.0%12.2%Net Attrition as(1)ReportedY-o-Y(1)(2)(3)(4)(5) 40bpsNet Attrition on a UnitBasis(2) 30 bpsNet AttritionAdj. for(2)(3)RecapturesN/AVivint(4) 330bps12.6%Monitronics(5) 60 bpsT12M RMR of canceled subscribers divided by the T12M average total RMR. Net of dealer chargebacks (replacements contractually provided by dealers) and resale units (new subscribersat a location with previously installed ADT system).T12M number of canceled subscribers divided by the T12M average number of subscribers, net of dealer chargebacks and resale units.Net of relocated customers who re-enter contract with ADT at new location.20Vivint investor presentation, as of September 30, 2013.Monitronics filings, as of June 30, 2013.

ARPUConsistent Growth in Revenue Per UserPulse Adds Driving Higher RPURegular Price IncreasesRPU of Pulse customers is 25% higherthan non-Pulse customersPrice Escalations(% of trailing 12 months recurring revenue)FY2013YoY 42.99 38.87Q42012 43.36 39.27Q12013 43.94 39.66Q22013 44.20 44.243.1%4.6%2.8% 40.08 %Q42012Q12013New Customers RPUAverage RPU All Customers21

SACMajority of SAC Increase Driven by Pulse AdoptionIncrease in SAC Partially Offset by Higher ARPU of New Customers - Modest Increase in NetCreation Multiple Reflects More Valuable Pulse Customers( / Customer Addition) 1,354 1,326 1,197 10 1,18728.2xFY 2012 1,273 22 1,251 1,277 32 32 1,294 1,322 1,24528.8x28.3xQ1 2013Q2 2013Net Subscriber Acquisition Cost 32Upgrade Cost29.9x29.3xQ3 2013Q4 2013Net Creation Multiple(1)22(1)Excludes upgrade costs associated with traditional customers upgrading to Pulse service. Estimated cost of 750- 800 per subscriber upgrade.

Cost to ServeLeveraging Scale for ADT Cost AdvantageMultiple Sources of Scale Advantage DrivingDown CostsCost to Serve is Lower than Peers(Cost to Serve per Customer per Month) 18 14High local density of subscribers leading tohigh economies of scale for monitoring andcustomer service 13Large and diverse customer base reducingconcentration risk of bad debtSynergies from acquisitions as a result ofintegrating operations and imated based on Monitronics public filings as of September 30, 2013.Estimated based on Vivint public filings and press releases as of September 30, 2013, based on YTD 2013 figures, adjusted for transaction costs.23

Strategy in Place to Drive Growth and MarginExpansion in FY2014Customer AdditionsCommentAttritionOutlook Continued penetrationin Residential Dealer channeloptimization Expansion in SmallBusiness and Health Successful M&AexecutionComment New initiatives andPulse will help offsetthe impact of thehousing recoverySACComment Impact of Pulse takerates offset byinitiatives to reducecost, holding creationmultiple relativelyconstantARPUOutlookCommentOutlook Increasing Pulse takerates to drive higherARPU Consistent priceescalationsCost to ServeOutlookCommentOutlook Programmatic G&Areduction Initiatives in place tostreamline processesand reduce cost24

Strengths and Opportunities Driving ADT PrioritiesFavorable EnvironmentADT Priorities Acceler

(3) ADT New Customer Welcome Survey (February-September 2013, N 51,405). When asked to check all companies customers were considering for home security