[April 29, 2015] |
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ADT Reports Second Quarter 2015 Results
The ADT Corporation (NYSE:ADT):
SECOND QUARTER 2015 FINANCIAL HIGHLIGHTS
-
GAAP: revenue of $890 million, net income of $68 million, diluted EPS
of $0.40, operating cash flow of $387 million
-
Recurring revenue of $829 million, up 7.2% or 7.8% in constant currency(1)(2)
-
Pre-SAC EBITDA before special items of $557 million(1), up
$32 million or $34 million in constant currency
-
EBITDA before special items of $444 million(1), up $13
million
-
Diluted EPS before special items of $0.47(1), includes a
$0.04 negative impact related to a marketing efficiency program
-
Operating cash flow before special items of $413 million(1)
-
Steady-state free cash flow of $940 million(1), up $154
million or 19.6% from prior year
SECOND QUARTER 2015 BUSINESS HIGHLIGHTS
-
Increased gross additions to 249 thousand, up 7.3% from prior
year; up 8.3% excluding bulk acquisitions
-
Improves revenue attrition to 12.5%, year-over-year improvement
of 170 basis points
-
Improves unit attrition to 12.5%, a year-over-year improvement
of 120 basis points
-
Increased new and resale revenue per unit to $48.18, an
increase of $2.10 or 4.6% over prior year
-
Reduced Direct Channel net SAC creation multiple excluding
upgrades to 31.5x, a 2.4x improvement over prior year
-
Drove ADT Pulse take rates to 56%; Pulse customers comprise 19%
of the total ADT base
-
Repurchased 1.3 million shares during the quarter at an average price
of $34.20 per share
The ADT Corporation (NYSE: ADT) today reported its financial results for
the second quarter of 2015. The Company reported total revenue of $890
million, an increase of 6.3%, or 6.8% in constant currency(1),
compared to the second quarter of 2014. Recurring revenue, which made up
93% of total revenue in the quarter, was $829 million, up 7.2% compared
to the same period last year and up 7.8% in constant currency(1).
Recurring revenue growth in the quarter was driven by an increase in
ADT's new revenue per customer, which rose 4.6% over last year to
$48.18, the addition of Reliance Protectron Inc. ("Protectron"), strong
growth by ADT Business and improved customer retention. Revenue
attrition for the quarter improved to 12.5%, an improvement of 50 basis
points sequentially and 170 basis points year-over-year. Unit attrition
for residential and small business improved 40 basis points
sequentially, and 120 basis points from last year, ending at 12.5% for
the quarter. ADT closed the quarter with 6.7 million customer accounts,
a 4.7% increase over last year. Pre-SAC EBITDA before special items
increased by $32 million to $557 million(1), a 6.1% increase
over the prior year, and pre-SAC EBITDA margin before special items was
66.1%. EBITDA before special items increased by $13 million to $444
million(1), 3.0% higher than the prior year, while EBITDA
margin before special items was 49.9%(1) for the quarter.
EBITDA before special items includes the impact of approximately $11
million pre-tax related to a change in how the Company accounts for
dealer payments for leads generated through a marketing efficiency
program from the beginning of the fiscal year. Although participating
dealers pay the Company for leads generated by the program, after the
change, these payments are accounted for as a reduction in capital
expenditures incurred for dealer generated customer accounts, rather
than as a reduction in the associated marketing expense on the income
statement, creating a timing effect on expense recognition. The change
for this program has no impact on SAC, net creation multiples, pre-SAC
EBITDA, future returns and cash flow.
The Company reported diluted earnings per share of $0.40. Excluding
special items for restructuring and 2G radio conversion costs, diluted
earnings per share was $0.47(1). The diluted earnings per
share of $0.47 also includes the year-to-date impact of approximately
$0.04 per share related to the previously mentioned marketing efficiency
program. Using the Company's cash tax rate, diluted earnings per share
before special items was $0.67(1).
Steady-state free cash flow increased to $940 million this quarter, $154
million or 19.6% above prior year. The improved results were driven by
higher pre-SAC EBITDA, lower attrition and lower subscriber acquisition
costs excluding upgrades. Operating cash flow was $387 million on a
reported basis. Excluding special items for restructuring and 2G radio
conversion costs, operating cash flow was $413 million(1).
Free cash flow before special items was $99 million(1) in the
quarter, up $53 million from the first quarter 2015, but $22 million
below the same period last year. The unfavorable variance was driven by
growth initiatives including a 7.3% increase in gross subscriber
additions, higher Pulse take rates and Pulse upgrades, all investments
which are expected to increase free cash flow in the future.
"We continued to build on the momentum we have generated over the past
year, delivering another quarter of improved performance," said Naren
Gursahaney, ADT's chief executive officer. "Solid execution of our
initiatives, along with our focus on quality subscriber growth, drove
improved operational results, highlighted by strong year-over-year
growth in gross customer adds and significant improvement in retention.
Our key customer metrics continue to move in the right direction. Solid
lead generation, coupled with improved phone and field close rates
contributed to more than a 7% increase in gross adds. The growth in
gross adds, coupled with significant improvements in revenue and unit
attrition, both of which reached 12.5%, moved us meaningfully closer to
our goal of net customer growth. Our strong operational results fueled
solid increases in revenues and pre-SAC EBITDA before special items.
Pulse take rates were 56% during the quarter and continue to be an
important driver of our results, driving higher revenue per user and
delivering what we believe is a better customer experience. We continue
to invest in new growth opportunities, as evidenced by the launch of our
new mobile PERS product in our health business, the expansion of our
commercial activities, and the launch of a new advertising campaign
which spotlights ADT's smart and safe security and automation solutions.
I am very proud of our team for delivering another solid quarter."
PROGRESS ON 2015 PRIORITIES: DELIVERING ON GROWTH INITIATIVES
-
Growth investments in ADT Pulse fuel New RPU growth - The
Company continued to drive strong growth in its ADT Pulse platform,
which has now grown to approximately 1.2 million customers, or 19% of
ADT's total customer base. In our residential direct channel, over 73%
of new customers purchased a Pulse security system and upgrade units
nearly doubled from a year ago. ADT added over 130,000 Pulse customers
in the quarter and upgraded almost 32,000 existing customers to Pulse,
including many current 2G customers in-line for conversion to 3G.
Pulse customers drive higher ARPU and a better customer experience,
which the Company believes will result in stronger retention
characteristics.
-
Customer retention initiatives help drive lowest level of attrition
since spin off - The Company continued to reduce customer
attrition by improving customer experience and continuing to execute
upon its retention initiatives. In the last year, the Company has
focused on lowering attrition by implementing non-pay initiatives,
strengthening resale efforts and developing customer loyalty programs,
while driving increased penetration of ADT Pulse automation services,
which currently exhibit better retention characteristics. These
actions drove improvements resulting in revenue attrition in the
quarter of 12.5% -- a 50 basis point improvement sequentially and 170
basis points below prior year, and unit attrition in our residential
and small business channels of 12.5% -- a 40 basis point improvement
sequentially and 120 basis points below the same period last year.
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Focus on quality sales and increasing demand for ADT Pulse drives
strong increase in gross additions - In-line with efforts to drive
stronger, high-quality gross adds in both the direct and dealer
channels, the Company delivered an 8.3% increase in organic gross
customer additions over the prior year despite implementing tenure
screening in its direct channel.
-
Continued solid lead generation helped fuel a 9% increase in gross
adds in the direct channel, as sales leads increased and self
generated sales improved by more than 19% over the prior year. A
28% increase in telesales contributed to this growth. Demand for
ADT Pulse continued to increase, resulting in a 60% take rate when
considering both new and resale Pulse customers in the residential
direct channel.
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Excluding bulk acquisitions, the dealer channel's production grew
7% year-over-year, driven by higher production from existing
dealers, as well as the inclusion of Protectron's dealer channel,
and new dealers that have joined ADT. Pulse demand in the dealer
channel continued to rise, as evidenced by a 51.9% Pulse take
rate, up from 35.8% in the comparable period last year.
-
Business channel gains traction in small business and making
progress in commercial expansion activities - The Company is
executing on growth initiatives in the small business and mid-size
commercial space.
-
Included in the total company growth, the small business channel
is driving strong year-over-year organic growth with gross
additions up 12.8% in the U.S. market, while new and resale
revenue per unit increased by 3.4% and recurring revenue grew 9.5%
organically over last year. Following the expiration of a prior
non-compete agreement, the Company expanded its traditional small
business product portfolio to a larger customer base which is
contributing to the accelerated growth. Strong sales of hosted
video and a year-over-year increase in Pulse sales, resulting in a
46.9% take rate, contributed to this success.
-
The Company continues to build its commercial presence, adding
over 20 additional employees to its sales force, expanding its
product line and capabilities, completing nearly 400 new
installations, and contributing over $900 thousand in revenue in
the quarter. The Company also secured its first national account
customer.
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Health channel positioned for growth as several key initiatives
launched in second quarter - The Company implemented several
growth initiatives to reposition the health channel for future success.
-
ADT's health channel has undergone several changes since the start
of fiscal 2015, including the launch of a health-specific
advertising campaign and the new, on-the-go mPERS product, which
is now offered through several dealers, retailers and ADT.com.
Gross additions in the quarter grew nearly 20% and new customer
RPU increased 12% when compared to the same period last year, much
of this driven by the new mPERS product, which made up 29% of
gross additions after its mid-February launch.
"We continued to drive strong growth and improved operating metrics,
while accelerating our investment in growth," said Michael Geltzeiler,
ADT's chief financial officer. "We are delivering on our commitments to
increase gross adds and reduce attrition, which for the quarter reduced
our net customer churn to less than 3,000, versus nearly 30,000 in the
second quarter last year. We continue to implement improvements in our
subscriber acquisition costs, driving net SAC in our direct channel
lower on a year-over-year basis, despite increased Pulse take rates. Our
continued deployment of our new Total Security (TS) panel for Pulse
automation and our electronic order entry initiative resulted in
lowering the cost to create new customers, as evidenced by a 2.4x
improvement in our direct channel SAC creation multiple net of upgrades.
Margins on an adjusted basis were flat with last year, despite
accelerating incremental maintenance and service costs targeted at
improving customer care response time, and invested in new products and
services. In the quarter, we also drove a 19.6% increase in steady-state
free cash flow, improved pre-SAC EBITDA before special items by 6.1%,
and enhanced our capital structure with the repurchase of 1.3 million
shares."
PROGRESS ON 2015 PRIORITIES: DRIVING COST EFFICIENCIES
Total operating expenses before special items(3) were up
10.2% over last year driven primarily by the increase in ADT Pulse
customers, the acquisition of Protectron, and the expense recognition
from the marketing efficiency program. Depreciation and amortization
("D&A") before special items(3) expenses rose
9.8% as we transition a portion of our customer base to Pulse,
consolidate Protectron, and implement certain infrastructure investments
to separate from Tyco and improve operating efficiency. Excluding the
impact of Protectron and the marketing efficiency program, total
operating expenses before special items(3) rose 4%.
-
Cost to serve / G&A - Cost to serve before special items(3)
was up 10.1% compared to last year, primarily related to the
consolidation of Protectron. Without the consolidating effects of
Protectron, cost to serve expenses were up less than 5% compared with
the same period last year, despite the Company making additional
investments in improving customer experience, launching its commercial
business, expanding its health operations, and generating a higher mix
of ADT Pulse accounts over last year which require a license fee and
incremental telecommunication costs.
-
Subscriber acquisition cost (SAC) / Creation multiple - Total
net SAC creation multiple, excluding the impact of Pulse upgrades, was
31.2x, a year-over-year improvement of 0.9x. Direct net SAC, excluding
the impact of upgrades, was $1,519, $42 lower than the same period
last year, and the creation multiple was 31.5x, an improvement of 2.4x
over the same period last year. The Company reduced net creation
multiples by lowering installation costs and realizing higher ARPU
generated from new customers additions. We expect to continue to
benefit more from these and other initiatives, including the full
roll-out of electronic contracts and the deployment our TS Panel for
ADT Pulse, over the course of 2015.
-
Marketing efficiency program - The Company has a marketing
efficiency program which significantly improves the cost efficiency of
generating leads for both its direct and dealer network by reducing
the costs associated with its paid search activities. This program has
resulted in an 80% reduction in the cost per "click" resulting in
meaningful annual paid search savings benefiting ADT and participating
dealers.
PROGRESS ON 2015 PRIORITIES: CAPITAL STRUCTURE OPTIMIZATION
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Share repurchase - The Company repurchased 1.3 million shares
for $44 million, at an average price of $34.20. Year to date, the
Company has repurchased 4.2 million shares at an average price of
$32.91 per share.
-
Debt/Capital Structure - Long-term debt totaled $5.3 billion at
the end of the quarter, keeping the Company's leverage ratio, based
off of a trailing twelve month EBITDA before special items at 2.9x(1).
The Company's average cost of borrowing remained below 4% in the
quarter.
-
Quarterly dividend - The Company paid a quarterly dividend of
$0.21 per share on February 18th, an increase of 5% versus last year.
FULL YEAR FISCAL 2015 GUIDANCE UPDATE
The Company is updating its previously issued guidance for full year
fiscal 2015 as follows:
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FY 2015 E Guidance
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Previously Issued
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Updated Guidance
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($ in millions)
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Reported
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Constant Currency
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Recurring revenue growth
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5% - 6%
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5.5% - 6%
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> 6%
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Pre-SAC EBITDA before special items growth
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N/A
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$80 - $100
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> $100
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T12M Net Unit Attrition
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< 13%
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mid 12%
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mid 12%
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Steady-state free cash flow before special items
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> $1 billion
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> $1 billion
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> $1 billion
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SECOND QUARTER 2015 RESULTS HIGHLIGHTS
($ in millions, except per share amounts)
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Q2 2015
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Q2 2014
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Change
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YTD 2015
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YTD 2014
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Change
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Recurring revenue
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$
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829
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$
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773
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7.2
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%
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$
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1,654
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$
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1,548
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6.8
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%
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Other revenue
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$
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61
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$
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64
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(4.7
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)%
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$
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123
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$
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128
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(3.9
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)%
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Total revenue
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$
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890
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$
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837
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6.3
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%
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$
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1,777
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$
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1,676
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6.0
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%
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EBITDA before special items(1)
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$
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444
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$
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431
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3.0
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%
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$
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897
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$
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857
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4.7
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%
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EBITDA margin before special items(1)
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49.9
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%
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51.5
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%
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-160 bps
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50.5
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%
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51.1
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%
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-60 bps
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Net income
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$
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68
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$
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63
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7.9
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%
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$
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140
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$
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140
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|
|
-
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%
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Diluted earnings per share
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$
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0.40
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|
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$
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0.34
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17.6
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%
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$
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0.81
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|
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$
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0.74
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|
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9.5
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%
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Diluted earnings per share before special items(1)
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$
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0.47
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$
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0.49
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(4.1
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)%
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$
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0.98
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$
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0.92
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|
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6.5
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%
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Diluted weighted-average shares outstanding
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|
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172
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|
|
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183
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|
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(6.0
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)%
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|
|
173
|
|
|
|
190
|
|
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(8.9
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)%
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(1) Reconciliations from GAAP to non-GAAP
financial measures can be found in the attached tables.
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(2) All variances are year-over-year unless
otherwise noted.
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(3) Operating expenses in Q2 2015 include $28
million from Protectron before special items, $8 million of which
is depreciation and amortization, and special items totaling $21
million in cost to serve; Q1 2015 include $33 million from
Protectron, $10 million of which is depreciation and amortization,
and special items totaling $26 million in cost to serve; Q2 2014
operating expenses include special items totaling $19 million,
which is comprised of $7 million in cost to serve, $8 million in
depreciation and amortization and $4 million in separation costs.
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CONFERENCE CALL AND WEBCAST
Management will discuss the Company's second quarter 2015 results during
a conference call and webcast today beginning at 8:30 a.m. (ET). During
the conference call and webcast management will refer to a slide
presentation hosted on and accessible at http://investors.adt.com.
Today's conference call for investors can be accessed in the following
ways:
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At the investor relations section of ADT's website: http://investors.adt.com
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By telephone: For both "listen-only" participants and those
participants who wish to take part in the question-and-answer portion
of the call, the telephone dial-in number in the United States is
(877) 415-3186, enter pass code 56647482 when prompted. The telephone
dial-in number for participants outside the United States is (857)
244-7329, enter pass code 56647482 when prompted.
-
An audio replay of the conference call will be available at 12:00 p.m.
(ET) on April 29, 2015 and ending at 11:59 p.m. (ET) on May 6, 2015.
The dial-in number for participants in the United States is (888)
286-8010, enter pass code 76601061 when prompted. For participants
outside the United States, the replay dial-in number is (617)
801-6888, enter pass code 76601061 when prompted.
ABOUT ADT
The ADT Corporation (NYSE: ADT) is a leading provider of security and
automation solutions for homes and businesses in the United States and
Canada. ADT's broad and pioneering set of products and services,
including ADT Pulse® interactive home and business solutions, and health
services, meet a range of customer needs for today's active and
increasingly mobile lifestyles. Headquartered in Boca Raton, Florida,
ADT helps provide peace of mind to nearly seven million customers, and
it employs approximately 17,500 people at 200 locations. More
information is available at www.adt.com
or by downloading the ADT IR app for iPhone, iPad and Android Devices.
From time to time, ADT may use its website as a channel of distribution
of material Company information. Financial and other material
information regarding the Company is routinely posted on and accessible
at http://investors.adt.com.
In addition, you may automatically receive email alerts and other
information about ADT by enrolling your email by visiting the "Investor
Relations" section at http://investors.adt.com.
NON-GAAP MEASURES
Revenue in constant currency, recurring revenue in constant currency,
leverage ratio, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), EBITDA margin, pre-SAC EBITDA, pre-SAC EBITDA
margin, free cash flow (FCF), steady-state free cash flow (SSFCF),
diluted earnings per share (EPS) and diluted EPS at cash tax rates, in
each case "before special items," are non-GAAP measures that may be used
from time to time and should not be considered replacements for GAAP
results.
Revenue and recurring revenue, each in constant currency, are useful
measures because they provide transparency to the underlying performance
in markets outside the United States by excluding the effect that
foreign currency exchange rate fluctuations have on comparability. Revenue
and recurring revenue in constant currency as presented herein may not
be comparable to similarly titled measures reported by other companies.
The difference between revenue (the most comparable GAAP measure),
revenue in constant currency (non-GAAP measure) and recurring revenue in
constant currency (the non-GAAP measure) is the exclusion of the impact
of foreign currency exchange fluctuations. This is also the
primary limitation of this measure, which is best addressed by using
revenue and recurring revenue in constant currency in combination with
GAAP revenue.
The leverage ratio is defined as the ratio of EBITDA before special
items to total debt. The leverage ratio is a useful measure of the
Company's credit position and progress towards leverage targets. Refer
to the discussion on EBITDA before special items for a description of
the differences between the most comparable GAAP measure. The
calculation is limited in that the Company may not always be able to use
cash to repay debt on a dollar-for-dollar basis.
EBITDA is a useful measure of the Company's success in acquiring,
retaining and servicing our customer base and ability to generate and
grow recurring revenue while providing a high level of customer service
in a cost-effective manner. The difference between Net Income
(the most comparable GAAP measure) and EBITDA (the non-GAAP measure) is
the exclusion of interest expense, the provision for income taxes,
depreciation and amortization expense. Excluding these items
eliminates the impact of expenses associated with our capitalization and
tax structure as well as the impact of non-cash charges related to
capital investments.
Pre-SAC EBITDA is useful because it measures the Company's
operational profits from its existing customer base by excluding certain
revenue and expenses related to acquiring new customers. The
difference between Net Income (the most comparable GAAP measure) and
pre-SAC EBITDA (the non-GAAP measure) is the exclusion of interest
expense, the provision for income taxes, depreciation expense,
amortization expense, gross subscriber acquisition cost expenses and
revenue associated with the sale of equipment. Excluding these
items eliminates the impact of expenses associated with our
capitalization and tax structure, the impact of non-cash charges related
to capital investments and the impact of growing our subscriber base.
In addition, from time to time, the Company may present EBITDA and
pre-SAC EBITDA before special items, which are the respective measures,
adjusted to exclude the impact of the special items highlighted below.
These numbers provide information to investors regarding the impact
of certain items management believes are useful to identify, as
described below. EBITDA and pre-SAC EBITDA may also be presented
at constant currency. Constant currency presentation is useful
because it provides transparency to the underlying performance in
markets outside the U.S. by excluding the effect that foreign currency
exchange rate fluctuations have on comparability.
There are material limitations to using EBITDA and pre-SAC EBITDA.
EBITDA and pre-SAC EBITDA may not be comparable to similarly titled
measures reported by other companies. Furthermore, EBITDA and
pre-SAC EBITDA do not take into account certain significant items,
including depreciation and amortization, interest expense and tax
expense, which directly affect our net income. Additionally,
pre-SAC EBITDA does not take into account expenses related to acquiring
new customers. When presented at constant currency, these
measures exclude of the impact of foreign currency exchange fluctuations.
These limitations are best addressed by considering the economic
effects of the excluded items independently, and by considering EBITDA
and pre-SAC EBITDA in conjunction with net income as calculated in
accordance with GAAP. The EBITDA and pre-SAC EBITDA discussion
above is also applicable to the respective margin measures.
FCF is a useful measure of the Company's ability to repay debt, make
other investments and return capital to shareholders through dividends
and share repurchases. The difference between Cash Flows from
Operating Activities (the most comparable GAAP measure) and FCF (the
non-GAAP measure) consists of the impact of capital expenditures,
subscriber system assets, dealer generated customer accounts and bulk
account purchases. Dealer generated accounts are accounts that
are generated through the network of authorized dealers. Bulk
account purchases represent accounts acquired from third parties outside
of the authorized dealer network, such as other security service
providers, on a selective basis. These items are subtracted from
cash flows from operating activities because they represent long-term
investments that are required for normal business activities.
SSFCF is a useful measure of pre-levered cash that is generated by
the Company after the cost of replacing recurring revenue lost to
attrition, but before the cost of new subscribers that drive recurring
revenue growth. The difference between Net Income (the most
comparable GAAP measure) and SSFCF (the non-GAAP measure) consists of
the factors discussed above regarding pre-SAC EBITDA, on a
quarter-to-date basis. Pre-SAC EBITDA is then annualized and
adjusted for additional factors, described in the reconciliation below,
required to maintain the steady-state. Certain components of
these inputs are determined using trailing twelve month information or
information from the most recent quarter.
In addition, from time to time the Company may present FCF and SSFCF
before special items, which is FCF or SSFCF, adjusted to exclude the
impact of the special items highlighted below. These numbers
provide information to investors regarding the impact of certain items
management believes are useful to identify, as described below.
The limitation associated with using FCF and SSFCF is that they
adjust for certain items that are ultimately within management's and the
Board of Directors' discretion to direct, and therefore, may imply that
there is less or more cash that is available than the most comparable
GAAP measure. FCF is not intended to represent residual cash flow
for discretionary expenditures since debt repayment requirements and
other non-discretionary expenditures are not reduced. This
limitation is best addressed by using FCF and SSFCF in combination with
other GAAP financial measures.
FCF and SSFCF as presented herein may not be comparable to similarly
titled measures reported by other companies. These measures
should be used in conjunction with other GAAP financial measures. Investors
are urged to read the Company's financial statements as filed with the
Securities and Exchange Commission, as well as the accompanying tables
to this press release that show all the elements of the GAAP measure.
Diluted EPS at cash tax rates is a useful measure of the Company's
diluted earnings per share after considering the difference between the
effective tax rate and cash tax rate. The difference between
diluted EPS (the most comparable GAAP measure) and diluted EPS at cash
tax rates (the non-GAAP measure) is the exclusion of the impact of
income tax expense and the inclusion of the impact of income taxes paid,
net of refunds. Adjusting for these items provides information on
the impact of our net operating loss carryforwards on our diluted EPS.
The Company has presented its diluted EPS, diluted EPS at cash tax
rates, EBITDA, EBITDA margin, pre-SAC EBITDA, pre-SAC EBITDA margin,
FCF, SSFCF and other measures before special items. Special items
include charges and gains related to acquisitions, restructurings,
impairments, and other income or charges that may mask the underlying
operating results and/or business trends of the Company. The
Company utilizes these measures to assess overall operating performance,
as well as to provide insight to management in evaluating overall
operating plan execution and underlying market conditions. The
Company may also present its effective tax rate as adjusted for special
items for consistency. One or more of these measures may be used
as components in the Company's incentive compensation plans. These
measures are useful for investors because they may permit more
meaningful comparisons of the Company's underlying operating results and
business trends between periods. The difference between net
income and diluted EPS before special items and net income and diluted
EPS (the most comparable GAAP measures) consists of the impact of the
special items noted above on the applicable GAAP measure. EBITDA,
EBITDA margin, pre-SAC EBITDA and pre-SAC EBITDA margin before special
items do not reflect any additional adjustments, other than taxes, that
are not reflected in net income before special items. The
limitation of these measures is that they exclude the impact (which may
be material) of items that increase or decrease the Company's reported
operating income, operating margin, net income and EPS. This
limitation is best addressed by using the non-GAAP measures in
combination with the most comparable GAAP measures in order to better
understand the amounts, character and impact of any increase or decrease
on reported results.
The Company is not providing a quantitative reconciliation of our
non-GAAP outlook to the corresponding GAAP information because the GAAP
measures that we exclude from our non-GAAP outlook, other than those
described above, are difficult to predict and are primarily dependent on
future uncertainties. The GAAP measures excluded from our
non-GAAP outlook for which we do not prepare a reconcilable GAAP
forecast include the factors described above for recurring revenue,
pre-SAC EBITDA before special items, SSFCF before special items, and in
each case at constant currency.
FORWARD-LOOKING STATEMENTS
Our 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 the Securities
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 Securities Litigation Reform Act
of 1995. All statements, other than statements of historical
facts, included in this press release or report that address activities,
events or developments that we expect, believe or anticipate will exist
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 statements are 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 press release or report. Specific factors that
could cause actual results to differ from results contemplated by
forward-looking statements include, among others, the following:
-
competition in the markets we serve, including new entrants in
these markets, and our ability to continue to execute a competitive,
profitable pricing structure;
-
our ability to compete with new and existing competitors by
developing or acquiring new technologies that achieve market
acceptance and acceptable margins;
-
entry of potential competitors upon the expiration of
non-competition agreements;
-
an increase in the rate of customer attrition, including impact to
our depreciation and amortization expenses or impairment of assets
related to our security monitoring services;
-
changes in the housing market and consumer discretionary income;
-
shifts in consumers' choice of, or telecommunication providers'
support for, telecommunication services and equipment;
-
failure to maintain the security of our information and technology
networks, including personally identifiable information;
-
interruption to our monitoring facilities;
-
volatility in the market price of our stock;
-
current and potential securities litigation;
-
failure to realize expected benefits from acquisitions and
investments;
-
risks associated with pursuing business opportunities that diverge
from our current business model;
-
potential loss of authorized dealers and affinity marketing
relationships;
-
risks associated with acquiring and integrating customer accounts;
-
failure of our authorized dealers to mitigate certain risks;
-
increase in government regulation of telemarketing, e-mail
marketing and other marketing upon cost and growth of our business;
-
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") and other third parties;
-
failure to enforce our intellectual property rights;
-
allegations that we have infringed the intellectual property rights
of third parties;
-
changes in U.S. and non-U.S. governmental laws and regulations;
-
imposition by local governments of assessments, fines, penalties
and limitations on either us or our customers for false alarms;
-
refusal to respond to calls from monitored security service
companies, including us, by police departments in certain U.S. and
Canadian jurisdictions;
-
our dependence on certain software technology that we license from
third parties, and 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;
-
inability to hire and retain key personnel, including an effective
sales force;
-
adverse developments in our relationship with our employees;
-
capital market conditions, including availability of funding
sources;
-
changes in our credit ratings;
-
risks related to our increased indebtedness, including our ability
to meet certain financial covenants in our debt instruments;
-
impact of any material adverse legal judgments, fines, penalties or
settlements;
-
exposure to counterparty risk in our hedging agreements;
-
fluctuations in foreign currency exchange rates;
-
potential liabilities for legacy obligations relating to the
separation from Tyco; and
-
failure to fully realize expected benefits from the separation 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
forward-looking 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 revisions to 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, actual results may vary materially from what we projected.
Consequently, actual events and results may vary significantly from
those 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,
our quarterly reports on Form 10-Q and in other subsequent filings with
the U.S. Securities and Exchange Commission.
|
THE ADT CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(Unaudited)
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Six Months Ended
|
|
|
|
|
March 27, 2015
|
|
March 28, 2014
|
|
% Change
|
|
March 27, 2015
|
|
March 28, 2014
|
|
% Change
|
Revenue
|
|
$
|
890
|
|
|
$
|
837
|
|
|
6.3
|
%
|
|
$
|
1,777
|
|
|
$
|
1,676
|
|
|
6.0
|
%
|
Cost of revenue
|
|
|
392
|
|
|
|
356
|
|
|
10.1
|
%
|
|
|
780
|
|
|
|
718
|
|
|
8.6
|
%
|
Selling, general and administrative expenses
|
|
|
331
|
|
|
|
307
|
|
|
7.8
|
%
|
|
|
649
|
|
|
|
611
|
|
|
6.2
|
%
|
Radio conversion costs
|
|
|
19
|
|
|
|
6
|
|
|
216.7
|
%
|
|
|
42
|
|
|
|
9
|
|
|
366.7
|
%
|
Separation costs
|
|
|
-
|
|
|
|
4
|
|
|
(100.0
|
)%
|
|
|
-
|
|
|
|
9
|
|
|
(100.0
|
)%
|
Operating income
|
|
|
148
|
|
|
|
164
|
|
|
(9.8
|
)%
|
|
|
306
|
|
|
|
329
|
|
|
(7.0
|
)%
|
Interest expense, net
|
|
|
(51
|
)
|
|
|
(46
|
)
|
|
10.9
|
%
|
|
|
(101
|
)
|
|
|
(93
|
)
|
|
8.6
|
%
|
Other income
|
|
|
3
|
|
|
|
-
|
|
|
N/M
|
|
|
|
3
|
|
|
|
2
|
|
|
50.0
|
%
|
Income before income taxes
|
|
|
100
|
|
|
|
118
|
|
|
(15.3
|
)%
|
|
|
208
|
|
|
|
238
|
|
|
(12.6
|
)%
|
Income tax expense
|
|
|
(32
|
)
|
|
|
(55
|
)
|
|
(41.8
|
)%
|
|
|
(68
|
)
|
|
|
(98
|
)
|
|
(30.6
|
)%
|
Net income
|
|
$
|
68
|
|
|
$
|
63
|
|
|
7.9
|
%
|
|
$
|
140
|
|
|
$
|
140
|
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.40
|
|
|
$
|
0.35
|
|
|
14.3
|
%
|
|
$
|
0.81
|
|
|
$
|
0.74
|
|
|
9.5
|
%
|
Diluted
|
|
$
|
0.40
|
|
|
$
|
0.34
|
|
|
17.6
|
%
|
|
$
|
0.81
|
|
|
$
|
0.74
|
|
|
9.5
|
%
|
Weighted-average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
171
|
|
|
|
182
|
|
|
(6.0
|
)%
|
|
|
173
|
|
|
|
189
|
|
|
(8.5
|
)%
|
Diluted
|
|
|
172
|
|
|
|
183
|
|
|
(6.0
|
)%
|
|
|
173
|
|
|
|
190
|
|
|
(8.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
32.0
|
%
|
|
|
46.6
|
%
|
|
(1460) bps
|
|
|
32.7
|
%
|
|
|
41.2
|
%
|
|
(850) bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M - not meaningful
|
|
|
THE ADT CORPORATION
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(in millions)
(Unaudited)
|
|
|
|
March 27, 2015
|
|
|
September 26, 2014
|
Assets
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63
|
|
|
$
|
66
|
Accounts receivable trade, net
|
|
|
98
|
|
|
|
101
|
Inventories
|
|
|
80
|
|
|
|
76
|
Prepaid expenses and other current assets
|
|
|
51
|
|
|
|
55
|
Deferred income taxes
|
|
|
120
|
|
|
|
111
|
Total current assets
|
|
|
412
|
|
|
|
409
|
Property and equipment, net
|
|
|
272
|
|
|
|
265
|
Subscriber system assets, net
|
|
|
2,384
|
|
|
|
2,260
|
Goodwill
|
|
|
3,694
|
|
|
|
3,738
|
Intangible assets, net
|
|
|
3,031
|
|
|
|
3,120
|
Deferred subscriber acquisition costs, net
|
|
|
601
|
|
|
|
571
|
Other assets
|
|
|
243
|
|
|
|
186
|
Total Assets
|
|
$
|
10,637
|
|
|
$
|
10,549
|
Liabilities and Equity
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
5
|
|
|
$
|
4
|
Accounts payable
|
|
|
183
|
|
|
|
208
|
Accrued and other current liabilities
|
|
|
240
|
|
|
|
253
|
Income taxes payable
|
|
|
4
|
|
|
|
7
|
Deferred revenue
|
|
|
237
|
|
|
|
236
|
Total current liabilities
|
|
|
669
|
|
|
|
708
|
Long-term debt
|
|
|
5,264
|
|
|
|
5,096
|
Deferred subscriber acquisition revenue
|
|
|
867
|
|
|
|
838
|
Deferred tax liabilities
|
|
|
705
|
|
|
|
651
|
Other liabilities
|
|
|
124
|
|
|
|
128
|
Total Liabilities
|
|
|
7,629
|
|
|
|
7,421
|
Total Equity
|
|
|
3,008
|
|
|
|
3,128
|
Total Liabilities and Equity
|
|
$
|
10,637
|
|
|
$
|
10,549
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
|
|
|
|
For the Six Months Ended
|
|
|
March 27, 2015
|
|
March 28, 2014
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
140
|
|
|
$
|
140
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
Depreciation and intangible asset amortization
|
|
|
553
|
|
|
|
509
|
|
Amortization of deferred subscriber acquisition costs
|
|
|
69
|
|
|
|
65
|
|
Amortization of deferred subscriber acquisition revenue
|
|
|
(80
|
)
|
|
|
(74
|
)
|
Stock-based compensation expense
|
|
|
12
|
|
|
|
9
|
|
Deferred income taxes
|
|
|
59
|
|
|
|
82
|
|
Provision for losses on accounts receivable and inventory
|
|
|
30
|
|
|
|
25
|
|
Changes in operating assets and liabilities and other
|
|
|
(27
|
)
|
|
|
1
|
|
Net cash provided by operating activities
|
|
|
756
|
|
|
|
757
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
Dealer generated customer accounts and bulk account purchases
|
|
|
(267
|
)
|
|
|
(225
|
)
|
Subscriber system assets
|
|
|
(352
|
)
|
|
|
(325
|
)
|
Capital expenditures
|
|
|
(50
|
)
|
|
|
(33
|
)
|
Other investing
|
|
|
(39
|
)
|
|
|
28
|
|
Net cash used in investing activities
|
|
|
(708
|
)
|
|
|
(555
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
27
|
|
|
|
12
|
|
Repurchases of common stock under approved program
|
|
|
(138
|
)
|
|
|
(1,286
|
)
|
Dividends paid
|
|
|
(71
|
)
|
|
|
(62
|
)
|
Proceeds from long-term borrowings
|
|
|
505
|
|
|
|
1,725
|
|
Repayment of long-term debt
|
|
|
(367
|
)
|
|
|
(376
|
)
|
Other financing
|
|
|
(5
|
)
|
|
|
(21
|
)
|
Net cash used in financing activities
|
|
|
(49
|
)
|
|
|
(8
|
)
|
Effect of currency translation on cash
|
|
|
(2
|
)
|
|
|
-
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(3
|
)
|
|
|
194
|
|
Cash and cash equivalents at beginning of period
|
|
|
66
|
|
|
|
138
|
|
Cash and cash equivalents at end of period
|
|
$
|
63
|
|
|
$
|
332
|
|
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
GAAP to Non-GAAP Reconciliations
(Unaudited)
|
|
Net Income Before Special Items
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
($ in millions)
|
|
March 27, 2015
|
|
December 26, 2014
|
|
March 28, 2014
|
|
March 27, 2015
|
|
March 28, 2014
|
Net Income (GAAP)
|
|
$
|
68
|
|
|
$
|
72
|
|
|
$
|
63
|
|
|
$
|
140
|
|
|
$
|
140
|
Restructuring and other, net(1)
|
|
|
1
|
|
|
|
2
|
|
|
|
6
|
|
|
|
3
|
|
|
|
9
|
Radio conversion costs(1)
|
|
|
12
|
|
|
|
15
|
|
|
|
4
|
|
|
|
27
|
|
|
|
6
|
Non-recurring separation costs(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
6
|
Separation related other expense (income)(2)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
1
|
Pre-separation and other discrete tax items
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
13
|
Net Income before special items
|
|
$
|
80
|
|
|
$
|
89
|
|
|
$
|
89
|
|
|
$
|
169
|
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Items have been presented net of tax of $8M for the quarter
ended March 27, 2015, $9M for the quarter ended December 26, 2014,
$6M for the quarter ended March 28, 2014, $17M for the six months
ended March 27, 2015 and $12M for the six months ended March 28,
2014.
|
(2) Relates to the 2012 Tax Sharing Agreement between Tyco, ADT
and Pentair.
|
|
Diluted EPS Before Special Items
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
|
|
March 27, 2015
|
|
December 26, 2014
|
|
March 28, 2014
|
|
March 27, 2015
|
|
March 28, 2014
|
Diluted EPS (GAAP)
|
|
$
|
0.40
|
|
|
$
|
0.41
|
|
|
$
|
0.34
|
|
|
$
|
0.81
|
|
|
$
|
0.74
|
Impact of special items(1)
|
|
|
0.07
|
|
|
|
0.10
|
|
|
|
0.15
|
|
|
|
0.17
|
|
|
|
0.18
|
Diluted EPS before special items
|
|
$
|
0.47
|
|
|
$
|
0.51
|
|
|
$
|
0.49
|
|
|
$
|
0.98
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Items have been presented net of tax where applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Before Special Items at Cash Tax Rates
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
|
|
March 27, 2015
|
|
December 26, 2014
|
|
March 28, 2014
|
|
March 27, 2015
|
|
March 28, 2014
|
Diluted EPS (GAAP)
|
|
$
|
0.40
|
|
|
$
|
0.41
|
|
|
$
|
0.34
|
|
|
$
|
0.81
|
|
|
$
|
0.74
|
|
Plus: Impact of income tax expense on diluted EPS
|
|
|
0.19
|
|
|
|
0.21
|
|
|
|
0.30
|
|
|
|
0.39
|
|
|
|
0.52
|
|
Less: Impact of income taxes paid, net of refunds
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
(0.05
|
)
|
|
|
(0.05
|
)
|
|
|
(0.08
|
)
|
Diluted EPS at cash tax rates
|
|
$
|
0.56
|
|
|
$
|
0.59
|
|
|
$
|
0.59
|
|
|
$
|
1.15
|
|
|
$
|
1.18
|
|
Impact of special items(1)
|
|
|
0.11
|
|
|
|
0.14
|
|
|
|
0.10
|
|
|
|
0.25
|
|
|
|
0.17
|
|
Diluted EPS before special items at cash tax rates
|
|
$
|
0.67
|
|
|
$
|
0.73
|
|
|
$
|
0.69
|
|
|
$
|
1.40
|
|
|
$
|
1.35
|
|
|
(1) Items presented at cash tax rates where applicable.
|
|
|
THE ADT CORPORATION
GAAP to Non-GAAP Reconciliations (continued)
(Unaudited)
|
|
EBITDA Before Special Items
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
($ in millions)
|
|
March 27, 2015
|
|
December 26, 2014
|
|
March 28, 2014
|
|
March 27, 2015
|
|
March 28, 2014
|
Net Income (GAAP)
|
|
$
|
68
|
|
|
$
|
72
|
|
|
$
|
63
|
|
|
$
|
140
|
|
|
$
|
140
|
|
Interest expense, net
|
|
|
51
|
|
|
|
50
|
|
|
|
46
|
|
|
|
101
|
|
|
|
93
|
|
Income tax expense
|
|
|
32
|
|
|
|
36
|
|
|
|
55
|
|
|
|
68
|
|
|
|
98
|
|
Depreciation and intangible asset amortization
|
|
|
278
|
|
|
|
275
|
|
|
|
260
|
|
|
|
553
|
|
|
|
509
|
|
Amortization of deferred subscriber acquisition costs
|
|
|
35
|
|
|
|
34
|
|
|
|
33
|
|
|
|
69
|
|
|
|
65
|
|
Amortization of deferred subscriber acquisition revenue
|
|
|
(40
|
)
|
|
|
(40
|
)
|
|
|
(37
|
)
|
|
|
(80
|
)
|
|
|
(74
|
)
|
EBITDA
|
|
$
|
424
|
|
|
$
|
427
|
|
|
$
|
420
|
|
|
$
|
851
|
|
|
$
|
831
|
|
EBITDA Margin
|
|
|
47.6
|
%
|
|
|
48.1
|
%
|
|
|
50.2
|
%
|
|
|
47.9
|
%
|
|
|
49.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other, net
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
|
|
4
|
|
|
|
6
|
|
Acquisition and integration costs
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
Radio conversion costs
|
|
|
19
|
|
|
|
23
|
|
|
|
6
|
|
|
|
42
|
|
|
|
9
|
|
Non-recurring separation costs
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
9
|
|
Separation related other expense (income)(1)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
1
|
|
EBITDA before special items
|
|
$
|
444
|
|
|
$
|
453
|
|
|
$
|
431
|
|
|
$
|
897
|
|
|
$
|
857
|
|
EBITDA Margin before special items
|
|
|
49.9
|
%
|
|
|
51.1
|
%
|
|
|
51.5
|
%
|
|
|
50.5
|
%
|
|
|
51.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber acquisition cost expenses, net of related revenue
|
|
|
113
|
|
|
|
105
|
|
|
|
94
|
|
|
|
218
|
|
|
|
192
|
|
Pre-SAC EBITDA before special items
|
|
$
|
557
|
|
|
$
|
558
|
|
|
$
|
525
|
|
|
$
|
1,115
|
|
|
$
|
1,049
|
|
Pre-SAC EBITDA Margin before special items
|
|
|
66.1
|
%
|
|
|
66.4
|
%
|
|
|
66.7
|
%
|
|
|
66.3
|
%
|
|
|
66.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (GAAP)
|
|
$
|
890
|
|
|
$
|
887
|
|
|
$
|
837
|
|
|
$
|
1,777
|
|
|
$
|
1,676
|
|
Subscriber acquisition cost related revenue
|
|
|
(47
|
)
|
|
|
(47
|
)
|
|
|
(50
|
)
|
|
|
(94
|
)
|
|
|
(102
|
)
|
Pre-SAC Revenue
|
|
$
|
843
|
|
|
$
|
840
|
|
|
$
|
787
|
|
|
$
|
1,683
|
|
|
$
|
1,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA before special items
|
|
$
|
444
|
|
|
$
|
453
|
|
|
$
|
431
|
|
|
$
|
897
|
|
|
$
|
857
|
|
Effect of Protectron on EBITDA before special items
|
|
|
(15
|
)
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
(28
|
)
|
|
|
-
|
|
EBITDA before special items excluding Protectron
|
|
$
|
429
|
|
|
$
|
440
|
|
|
$
|
431
|
|
|
$
|
869
|
|
|
$
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (GAAP)
|
|
$
|
890
|
|
|
$
|
887
|
|
|
$
|
837
|
|
|
$
|
1,777
|
|
|
$
|
1,676
|
|
Effect of Protectron on revenue
|
|
|
(35
|
)
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
(71
|
)
|
|
|
-
|
|
Revenue excluding Protectron
|
|
$
|
855
|
|
|
$
|
851
|
|
|
$
|
837
|
|
|
$
|
1,706
|
|
|
$
|
1,676
|
|
EBITDA Margin before special items excluding Protectron
|
|
|
50.2
|
%
|
|
|
51.7
|
%
|
|
|
51.5
|
%
|
|
|
50.9
|
%
|
|
|
51.1
|
%
|
|
(1) Relates to the 2012 Tax Sharing Agreement between Tyco, ADT
and Pentair.
|
|
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
GAAP to Non-GAAP Reconciliations (continued)
(Unaudited)
|
|
SSFCF Before Special Items
|
|
|
For the Quarters Ended
|
($ in millions)
|
|
March 27, 2015
|
|
December 26, 2014
|
|
March 28, 2014
|
Last quarter, annualized pre-SAC EBITDA before special items
|
|
$
|
2,228
|
|
|
$
|
2,232
|
|
|
$
|
2,100
|
|
SAC required to maintain recurring revenue(1)
|
|
|
(1,278
|
)
|
|
|
(1,329
|
)
|
|
|
(1,304
|
)
|
Maintenance capital expenditures
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(10
|
)
|
SSFCF before special items
|
|
$
|
940
|
|
|
$
|
893
|
|
|
$
|
786
|
|
|
(1) SAC required to maintain recurring revenue is calculated as
follows:
|
|
|
For the Quarters Ended
|
($ in millions)
|
|
March 27, 2015
|
|
December 26, 2014
|
|
March 28, 2014
|
Last quarter average recurring revenue under contract for the period
|
|
$
|
276
|
|
|
$
|
275
|
|
|
$
|
258
|
|
Trailing twelve month disconnects net of price escalation(2)
|
|
|
14.2
|
%
|
|
|
14.6
|
%
|
|
|
15.0
|
%
|
Last quarter gross recurring revenue creation multiple(3)
|
|
|
32.6
|
|
|
|
33.1
|
|
|
|
33.7
|
|
SAC required to maintain recurring revenue
|
|
$
|
1,278
|
|
|
$
|
1,329
|
|
|
$
|
1,304
|
|
|
(2) Average trailing twelve month recurring revenue disconnected
net of price escalations. Disconnects account for dealer
chargebacks.
|
(3) Gross creation cost includes amount held back from dealers for
chargebacks.
|
|
Operating Cash Flow and FCF Before Special Items
|
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
($ in millions)
|
|
March 27, 2015
|
|
December 26, 2014
|
|
March 28, 2014
|
|
March 27, 2015
|
|
March 28, 2014
|
Operating cash flow (GAAP)
|
|
$
|
387
|
|
|
$
|
369
|
|
|
$
|
422
|
|
|
$
|
756
|
|
|
$
|
757
|
|
Restructuring and other, net
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
Acquisition and integration costs
|
|
|
-
|
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
Tax sharing costs received
|
|
|
-
|
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
-
|
|
|
|
(12
|
)
|
Radio conversion costs
|
|
|
24
|
|
|
|
17
|
|
|
|
5
|
|
|
|
41
|
|
|
|
6
|
|
Non-recurring separation costs within cash from operating activities
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
11
|
|
Operating cash flow before special items
|
|
$
|
413
|
|
|
$
|
390
|
|
|
$
|
421
|
|
|
$
|
803
|
|
|
$
|
763
|
|
Dealer generated customer accounts and bulk account purchases
|
|
|
(121
|
)
|
|
|
(146
|
)
|
|
|
(115
|
)
|
|
|
(267
|
)
|
|
|
(225
|
)
|
Subscriber system assets
|
|
|
(175
|
)
|
|
|
(177
|
)
|
|
|
(168
|
)
|
|
|
(352
|
)
|
|
|
(325
|
)
|
Capital expenditures
|
|
|
(18
|
)
|
|
|
(32
|
)
|
|
|
(21
|
)
|
|
|
(50
|
)
|
|
|
(33
|
)
|
Non-recurring separation capital expenditures
|
|
|
-
|
|
|
|
11
|
|
|
|
4
|
|
|
|
11
|
|
|
|
9
|
|
FCF before special items
|
|
$
|
99
|
|
|
$
|
46
|
|
|
$
|
121
|
|
|
$
|
145
|
|
|
$
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
GAAP to Non-GAAP Reconciliations (continued)
(Unaudited)
|
|
Leverage Ratio
|
|
|
For the Twelve Months Ended
|
($ in millions)
|
|
March 27, 2015
|
|
September 26, 2014
|
|
September 27, 2013
|
Net Income (GAAP)
|
|
$
|
304
|
|
|
$
|
304
|
|
|
$
|
421
|
|
Interest expense, net
|
|
|
200
|
|
|
|
192
|
|
|
|
117
|
|
Income tax expense
|
|
|
98
|
|
|
|
128
|
|
|
|
221
|
|
Depreciation and intangible asset amortization
|
|
|
1,084
|
|
|
|
1,040
|
|
|
|
942
|
|
Amortization of deferred subscriber acquisition costs
|
|
|
135
|
|
|
|
131
|
|
|
|
123
|
|
Amortization of deferred subscriber acquisition revenue
|
|
|
(157
|
)
|
|
|
(151
|
)
|
|
|
(135
|
)
|
EBITDA
|
|
$
|
1,664
|
|
|
$
|
1,644
|
|
|
$
|
1,689
|
|
Restructuring and other, net
|
|
|
15
|
|
|
|
17
|
|
|
|
(1
|
)
|
Acquisition and integration costs
|
|
|
7
|
|
|
|
7
|
|
|
|
2
|
|
Radio conversion costs
|
|
|
77
|
|
|
|
44
|
|
|
|
-
|
|
Non-recurring separation costs
|
|
|
8
|
|
|
|
17
|
|
|
|
23
|
|
Separation related other income(1)
|
|
|
36
|
|
|
|
38
|
|
|
|
(23
|
)
|
EBITDA before special items
|
|
$
|
1,807
|
|
|
$
|
1,767
|
|
|
$
|
1,690
|
|
EBITDA Margin before special items
|
|
|
51.5
|
%
|
|
|
51.8
|
%
|
|
|
51.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Protectron adjustment to EBITDA before special items
|
|
|
19
|
|
|
|
54
|
|
|
|
|
Pro-forma EBITDA before special items
|
|
$
|
1,826
|
|
|
$
|
1,821
|
|
|
|
|
|
(1) Relates to the 2012 Tax Sharing Agreement between Tyco, ADT
and Pentair.
|
|
($ in millions)
|
|
March 27, 2015
|
|
September 26, 2014
|
|
September 27, 2013
|
Current maturities of long-term debt
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
3
|
Long-term debt
|
|
|
5,264
|
|
|
|
5,096
|
|
|
|
3,373
|
Total Debt
|
|
$
|
5,269
|
|
|
$
|
5,100
|
|
|
$
|
3,376
|
|
|
|
|
|
|
|
|
|
Leverage Ratio(2)
|
|
|
2.9
|
|
|
|
2.9
|
|
|
|
2.0
|
Leverage Ratio including pro-forma Protectron(2)
|
|
|
2.9
|
|
|
|
2.8
|
|
|
|
|
(2) Leverage ratio is defined as the ratio of debt to trailing
twelve month EBITDA before special items or trailing twelve month
EBITDA before special items including pro-forma Protectron.
|
|
|
THE ADT CORPORATION
GAAP to Non-GAAP Reconciliations (continued)
(Unaudited)
|
|
Revenue and Pre-SAC EBITDA Before Special Items at Constant
Currency
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
($ in millions)
|
|
March 27, 2015
|
|
March 28, 2014
|
|
March 27, 2015
|
|
March 28, 2014
|
Recurring revenue as reported
|
|
$
|
829
|
|
|
$
|
773
|
|
|
$
|
1,654
|
|
|
$
|
1,548
|
Recurring revenue at constant currency(1)
|
|
$
|
833
|
|
|
$
|
773
|
|
|
$
|
1,661
|
|
|
$
|
1,548
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue as reported
|
|
$
|
890
|
|
|
$
|
837
|
|
|
$
|
1,777
|
|
|
$
|
1,676
|
Total revenue at constant currency(1)
|
|
$
|
894
|
|
|
$
|
837
|
|
|
$
|
1,784
|
|
|
$
|
1,676
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-SAC EBITDA before special items as reported
|
|
$
|
557
|
|
|
$
|
525
|
|
|
$
|
1,115
|
|
|
$
|
1,049
|
Pre-SAC EBITDA before special items at constant currency(2)
|
|
$
|
559
|
|
|
$
|
525
|
|
|
$
|
1,119
|
|
|
$
|
1,049
|
|
(1) Constant currency revenue results are calculated by
translating current period revenue, excluding Protectron, in local
currency using the prior comparable period's currency conversion
rate.
|
(2) Constant currency pre-SAC EBITDA results are calculated by
translating current period pre-SAC EBITDA, excluding Protectron,
in local currency using the prior comparable period's currency
conversion rate.
|
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
SELECTED FINANCIAL AND OPERATING DATA
(Unaudited)
|
|
|
|
For the Quarters Ended
|
|
|
|
|
March 27, 2015
|
|
March 28, 2014
|
|
Change
|
Recurring customer revenue (in millions)
|
|
$
|
829
|
|
|
$
|
773
|
|
|
7.2
|
%
|
Other revenue (in millions)
|
|
|
61
|
|
|
|
64
|
|
|
(4.7
|
)%
|
Total revenue (in millions)
|
|
$
|
890
|
|
|
$
|
837
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
Ending number of customers (in thousands)
|
|
|
6,653
|
|
|
|
6,352
|
|
|
4.7
|
%
|
Gross customer additions (in thousands)
|
|
|
249
|
|
|
|
232
|
|
|
7.3
|
%
|
Customer revenue attrition rate(1)
|
|
|
12.5
|
%
|
|
|
14.2
|
%
|
|
-170 bps
|
Customer unit attrition rate(2)
|
|
|
12.5
|
%
|
|
|
13.7
|
%
|
|
-120 bps
|
Average revenue per customer (dollars)(3)
|
|
$
|
41.98
|
|
|
$
|
41.40
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The customer revenue attrition rate is a 52-week trailing
ratio, the numerator of which is the annualized recurring revenue
lost during the period due to attrition, excluding contracts
monitored but not owned and net of dealer charge-backs and
re-sales, and the denominator of which is total annualized
recurring revenue based on an average of recurring revenue under
contract at the beginning of each month during the period.
|
(2) The customer unit attrition rate is a 52-week trailing ratio,
the numerator of which is the trailing twelve month residential
and business customer sites canceled during the period due to
attrition, excluding health services and contracts monitored but
not owned and net of charge-backs and re-sales, and the
denominator of which is the average of the customer base at the
beginning of each month during the trailing twelve month period.
|
(3) Average revenue per customer measures the average amount of
recurring revenue per customer per month, excluding contracts
monitored but not owned, and is calculated based on the recurring
revenue under contract at the end of the period, divided by the
total number of customers under contract at the end of the period.
|
|
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