[July 29, 2015] |
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ADT Reports Third Quarter 2015 Results
The ADT Corporation (NYSE:ADT) today reported its financial results for
the third quarter of 2015. The Company reported total revenue of $898
million, an increase of 5.8%, or 6.2% in constant currency(1),
compared to the third quarter of 2014. Recurring revenue, which made up
approximately 93% of total revenue in the quarter, was $834 million, up
6.2% compared to the same period last year and up 6.8% in constant
currency(1). Recurring revenue growth in the quarter was
driven by an increase in ADT's new and resale revenue per user, which
rose 2.4% over last year to $48.19, the addition of Reliance Protectron
Inc. ("Protectron"), strong revenue growth by ADT Business and improved
customer retention. Revenue attrition for the quarter improved to 12.4%,
an improvement of 10 basis points sequentially and 150 basis points
year-over-year. Unit attrition for residential and business improved 20
basis points sequentially, and 120 basis points from last year, ending
at 12.3% for the quarter. ADT closed the quarter with 6.6 million
customer accounts, a 4.9% increase over last year. Pre-SAC EBITDA before
special items increased by $16 million to $560 million(1), a
2.9% increase over the prior year, and pre-SAC EBITDA margin before
special items was 66.0%(1). EBITDA before special items
decreased by $1 million to $451 million(1), while EBITDA
margin before special items was 50.2%(1) for the quarter.
EBITDA before special items includes the impact of approximately $6.3
million pre-tax related to the previously disclosed change in the way
the Company accounts for dealer payments for leads generated through its
marketing efficiency program.
The Company reported diluted earnings per share of $0.44 versus $0.47 in
the prior year. Excluding special items, diluted earnings per share was
$0.49(1) versus $0.55(1) in the prior year. The
diluted earnings per share of $0.49 also includes the quarterly impact
of approximately $0.02 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 $0.68(1).
Steady-state free cash flow before special items grew to $936 million(1)
this quarter, $2 million above prior year. Operating cash flow was $424
million, up 4% from $408 million last year. Excluding special items,
operating cash flow was $435 million(1), a $25
million increase over prior year. Free cash flow before special items
was $99 million(1) in the quarter, up $1 million when
compared to the same period last year, despite an increase in gross
subscriber additions of approximately 5%.
"I'm pleased with the progress we're making and the encouraging trends
we see developing creating opportunities for profitable growth in the
future," said Naren Gursahaney, ADT's chief executive officer. "Gross
adds were up versus prior year, revenue growth is strong, and we're
continuing to improve the efficiency of adding new customers. Our
primary focus continues to be on enhancing the customer experience, and
our efforts are paying off as we again improved revenue and unit
attrition. We're investing to capitalize on growth opportunities by
launching new products and services, building capabilities to
participate in new market segments, and establishing exciting new
partnerships. This quarter we announced a new partnership with Nest
Labs, expanding our Pulse ecosystem and giving our Pulse customers the
security they need along with the smart home technologies they desire,
all powered by our newly released ADT Pulse mobile app. And, earlier
this month, our Board authorized an incremental 3 year, $1 billion share
repurchase program, reinforcing our confidence in future cash generation
and in our long term strategy."
PROGRESS ON 2015 PRIORITIES: DELIVERING ON GROWTH INITIATIVES
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Improving customer retention - The Company continued to improve
attrition, including reducing the percentage of voluntary and lost to
competition disconnects compared to last year. Revenue attrition in
the quarter improved to 12.4% - a 10 basis point improvement
sequentially and 150 basis points below prior year, and unit attrition
in our residential and business channel was 12.3% - a 20 basis point
improvement sequentially and 120 basis points below the same period
last year.
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Tenure screening and non-pay initiatives continue to
deliver improvements in non-pay disconnects. Company screened out
approximately 4,000 lower quality potential customers in the
quarter.
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Stronger resale efforts have led to a 30% improvement in
resales over the prior year.
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Driving increases in ADT Pulse - Pulse customers grew to
1.4 million in the quarter and total interactive customers now
make up 21% of ADT's customer base. In our residential direct
channel, over 75% of new customers purchased a Pulse system
resulting in approximately 140,000 Pulse customer additions in the
quarter along with upgrades of almost 30,000 existing customers to
Pulse, including selected current 2G customers in-line for
conversion to 3G. Pulse drives higher RPU and delivers a better
customer experience, resulting in stronger retention
characteristics. In particular, Pulse customers choosing
Automation tiers have nearly 40% better attrition on a cumulative
basis after 36 months, and a significantly higher resale rate when
compared to non-Pulse customers.
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Enhancing customer experience
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New Pulse app: The Company
released its new Pulse app, enhancing the mobile
experience for Pulse customers. The new Pulse app, available
for free through the Apple App Store or Google Play, is an
intuitive and contemporary experience that makes managing home
automation and security more effective - especially for
on-the-go lifestyles. In addition, ADT's changes to the Pulse
app reflect the Company's open API strategy for further
integration with best-in-class third-party solutions, such as
Nest, and to equip consumers with a smart and secure home
platform that will evolve to meet their changing needs.
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New product integration: ADT
announced that it has rolled out its integration with Nest
Labs. The Nest Learning ThermostatTM is now
supported by ADT Pulse® - the first such commercial
integration by a North American home security & automation
provider - and is available now for current ADT customers in
Atlanta, Chicago, Denver and Miami. A nationwide rollout of
the Nest thermostat is planned by the end of the year.
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Improving service levels: The
Company continued to invest in customer care and service
personnel in order to reduce the time required for service and
repair. The average time for repair has improved 30% compared
to last year.
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Quality gross add growth driven by multi channel approach - In-line
with efforts to drive stronger, high-quality gross adds in both the
direct and dealer channels, the Company delivered a 4.8% increase in
gross customer additions over the prior year despite implementing
tenure screening in its direct channel.
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Strong telesales and solid close rates helped increase gross adds
in the direct channel by 4% over the prior year. Telesales
increased 12% and self-generated sales increased by 14%. Demand
for ADT Pulse continued to increase, resulting in a 63% take rate
when considering both new and resale Pulse customers in the
residential direct channel.
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The dealer channel continued to deliver new customer growth as its
production increased more than 6% year-over-year, driven by higher
production from existing dealers, 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 54%
Pulse take rate, up from 43% in the same period last year.
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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 commercial
market.
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Included in the total Company growth, the small business channel
is driving strong year-over-year organic growth with gross
additions up nearly 14%, while new and resale revenue per user
increased by 5% over last year in the US. Following the expiration
of a prior non-compete agreement, the Company has increased sales
coverage which is contributing to the accelerated growth. Strong
sales of hosted video and a year-over-year increase in Pulse sales
also contributed to this success.
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The Company continues to build its commercial presence by adding
to its sales force and expanding its product line and
capabilities. Commercial gross adds increased by 34% and total
revenues increased by 74% from the second quarter, while adding a
strong backlog for the coming period.
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Health channel accelerates growth driven by several key initiatives -
The Company implemented several growth initiatives to reposition the
health channel for future success.
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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 mobile PERS product,
which is offered through several retailers and ADT.com. Gross
additions in the quarter grew nearly 29% and new customer RPU
increased 10% when compared to the same period last year, much of
this driven by the new mPERS product, which made up over one-third
of gross additions after its mid-February launch.
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Progress on efforts to serve new non-traditional market segments - ADT
previously announced its alliance with LG Electronics to deliver a new
all-in-one security product and service for the North American "DIY"
market. The new product, scheduled to be launched later this year and
targeted at a market segment outside of ADT's traditional business,
will be manufactured by LG and "secured by ADT."
"The third quarter was further evidence of continued improvement in our
core operations, while strategically positioning ADT for a bright and
profitable future through targeted growth investments," said Michael
Geltzeiler, ADT's chief financial officer. "We are delivering upon the
commitments we outlined earlier in the year and at our recent investor
day meeting, driving increases in gross adds, improving our operating
metrics and investing in growth initiatives in commercial, customer
experience, and the DIY market. Overall, we drove 5% gross add growth
year-over-year, reduced attrition and lowered our direct SAC creation
multiple net of upgrades, while generating higher levels of operating
cash flow. We continue to improve our subscriber acquisition costs,
driving net SAC in our direct channel lower on a sequential basis
despite increased Pulse take rates. EBITDA before special items(1)
was nearly flat with last year largely driven by the negative impact of
the marketing efficiency program and increased maintenance and service
costs targeted at improving customer service levels, as well as the
investments we are making in growth initiatives such as commercial, our
DIY offering and the new Pulse mobile app. Pre-SAC EBITDA before special
items(1) grew 3% over last year. Free cash flow before
special items(1)was modestly higher despite a 5% growth in
customer additions. We also continued to invest in what we believe is
the best investment in the security industry, by repurchasing
approximately 1.3 million shares in the quarter."
PROGRESS ON 2015 PRIORITIES: DRIVING COST EFFICIENCIES
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Subscriber acquisition cost (SAC) / Creation multiple - Total
net SAC creation multiple, excluding the impact of Pulse upgrades, was
30.7x, a year-over-year improvement of 0.3x. Direct net SAC, excluding
the impact of Pulse upgrades, fell below $1,500 to $1,477, and the
creation multiple was 30.7x, an improvement of 0.4x over the same
period last year. The Company reduced net creation multiples by
lowering installation costs and realizing higher RPU generated from
new customers additions.
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Total Company operating expenses before special items(3)
were up 11.2% over last year driven primarily by the consolidation of
Protectron and the expense recognition from the marketing efficiency
program. Depreciation and amortization ("D&A") before special items(3)
expenses rose 9.3% largely related to the consolidation of Protectron,
transitioning a portion of our customer base to Pulse, and the
implementation of certain infrastructure investments to separate from
Tyco and improve our operating efficiency. Excluding Protectron and
the impact of the marketing efficiency program, total operating
expenses before special items(3) were up by 5.8% from last
year, as the Company made additional investments in customer
experience, expanding its commercial business and health channel,
rolling out its new Pulse mobile app and developing a new all-in-one
product targeted at the DIY market. Excluding Protectron, D&A before
special items(3)rose by 5.8%.
PROGRESS ON 2015 PRIORITIES: CAPITAL STRUCTURE OPTIMIZATION
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Share repurchases - The Company repurchased 1.3 million shares
of its common stock at an average price of $35.56 per share during the
third quarter and completed an additional $6 million in share
repurchases subsequent to the end of the quarter. Year-to-date, the
Company has repurchased 5.6 million shares of its common stock at an
average price of $33.53 per share. In July, the Company's Board of
Directors approved a new incremental share repurchase program
authorizing the Company to purchase $1 billion of its common stock
over the next 3 years, expiring in July 2018. The previous share
repurchase authorization has $192 million remaining and expires on
November 26, 2015.
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Debt/Capital Structure - Long-term debt totaled $5.2 billion at
the end of the quarter, maintaining the Company's leverage ratio,
based off of trailing twelve month EBITDA before special items at 2.9x(1)
and 2.3x trailing twelve month pre-SAC EBITDA before special
items(1). The Company's average cost of borrowing remained
below 4% in the quarter.
-
Quarterly dividend - The Company paid a quarterly dividend of
$0.21 per share on May 20th, an increase of 5% versus last year.
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THIRD QUARTER 2015 RESULTS HIGHLIGHTS
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($ in millions, except per share amounts)
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Q3 2015
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Q3 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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834
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$
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785
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6.2
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%
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$
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2,488
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$
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2,333
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6.6
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%
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Other revenue
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$
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64
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$
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64
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-
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%
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$
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187
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$
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192
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(2.6
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)%
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Total revenue
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$
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898
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$
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849
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5.8
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%
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$
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2,675
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$
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2,525
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5.9
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%
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EBITDA before special items(1)
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$
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451
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$
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452
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(0.2
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)%
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$
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1,348
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$
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1,309
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3.0
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%
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EBITDA margin before special items(1)
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50.2
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%
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53.2
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%
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-300
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bps
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50.4
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%
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51.8
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%
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-140
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bps
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Net income
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$
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75
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$
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82
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(8.5
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)%
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$
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215
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$
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222
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(3.2
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)%
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Diluted earnings per share
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$
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0.44
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$
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0.47
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(6.4
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)%
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$
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1.24
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$
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1.20
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3.3
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%
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Diluted earnings per share before special items(1)
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$
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0.49
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$
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0.55
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(10.9
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)%
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$
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1.46
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$
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1.47
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(0.7
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)%
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Diluted weighted-average shares outstanding
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172
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175
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(1.7
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)%
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173
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185
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(6.5
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)%
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(1) Reconciliations from GAAP to non-GAAP financial
measures can be found in the attached tables.
(2) All variances are year-over-year unless
otherwise noted.
(3) Operating expenses in Q3 2015 include (i) $29
million from Protectron before special items, $10 million of which is
depreciation and amortization, (ii) special items totaling $12 million,
which is comprised of $8 million in cost to serve and $4 million in
depreciation and amortization, and (iii) $6 million related to the
marketing efficiency program discussed above; Q2 2015 operating expenses
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; Q3 2014 operating expenses include special
items totaling $30 million, which is comprised of $29 million in cost to
serve and $1million in separation costs.
CONFERENCE CALL AND WEBCAST
Management will discuss the Company's third 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) 276-8173, enter pass code 61613417 when prompted. The telephone
dial-in number for participants outside the United States is (678)
562-4231, enter pass code 61613417 when prompted.
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An audio replay of the conference call will be available at 1:30 p.m.
(ET) on July 29, 2015, and ending at 11:59 p.m. (ET) on August 5,
2015. The dial-in number for participants in the United States is
(855) 859-2056, enter pass code 61613417 when prompted. For
participants outside the United States, the replay dial-in number is
(404) 537-3406, enter pass code 61613417 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 may be presented as the ratio of EBITDA or Pre-SAC
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 and Pre-SAC
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 Nine Months Ended
|
|
|
|
June 26, 2015
|
|
June 27, 2014
|
|
% Change
|
|
|
June 26, 2015
|
|
June 27, 2014
|
|
% Change
|
|
Revenue
|
$
|
898
|
|
|
$
|
849
|
|
|
5.8
|
%
|
|
$
|
2,675
|
|
|
$
|
2,525
|
|
|
5.9
|
%
|
Cost of revenue
|
396
|
|
|
354
|
|
|
11.9
|
%
|
|
1,176
|
|
|
1,072
|
|
|
9.7
|
%
|
Selling, general and administrative expenses
|
334
|
|
|
307
|
|
|
8.8
|
%
|
|
983
|
|
|
918
|
|
|
7.1
|
%
|
Radio conversion costs
|
5
|
|
|
18
|
|
|
(72.2
|
)%
|
|
47
|
|
|
27
|
|
|
74.1
|
%
|
Separation costs
|
-
|
|
|
1
|
|
|
(100.0
|
)%
|
|
-
|
|
|
10
|
|
|
(100.0
|
)%
|
Operating income
|
163
|
|
|
169
|
|
|
(3.6
|
)%
|
|
469
|
|
|
498
|
|
|
(5.8
|
)%
|
Interest expense, net
|
(52
|
)
|
|
(49
|
)
|
|
6.1
|
%
|
|
(153
|
)
|
|
(142
|
)
|
|
7.7
|
%
|
Other income (expense)
|
1
|
|
|
(35
|
)
|
|
N/M
|
|
|
4
|
|
|
(33
|
)
|
|
(112.1
|
)%
|
Income before income taxes
|
112
|
|
|
85
|
|
|
31.8
|
%
|
|
320
|
|
|
323
|
|
|
(0.9
|
)%
|
Income tax expense
|
(37
|
)
|
|
(3
|
)
|
|
N/M
|
|
|
(105
|
)
|
|
(101
|
)
|
|
4.0
|
%
|
Net income
|
$
|
75
|
|
|
$
|
82
|
|
|
(8.5
|
)%
|
|
$
|
215
|
|
|
$
|
222
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.44
|
|
|
$
|
0.47
|
|
|
(6.4
|
)%
|
|
$
|
1.25
|
|
|
$
|
1.21
|
|
|
3.3
|
%
|
Diluted
|
$
|
0.44
|
|
|
$
|
0.47
|
|
|
(6.4
|
)%
|
|
$
|
1.24
|
|
|
$
|
1.20
|
|
|
3.3
|
%
|
Weighted-average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
171
|
|
|
174
|
|
|
(1.7
|
)%
|
|
172
|
|
|
184
|
|
|
(6.5
|
)%
|
Diluted
|
172
|
|
|
175
|
|
|
(1.7
|
)%
|
|
173
|
|
|
185
|
|
|
(6.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
33.0
|
%
|
|
3.5
|
%
|
|
2950 bps
|
|
32.8
|
%
|
|
31.3
|
%
|
|
150 bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M - not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2015
|
|
|
|
September 26, 2014
|
|
Assets
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
69
|
|
|
|
|
|
$
|
|
66
|
|
Accounts receivable trade, net
|
|
97
|
|
|
|
|
|
101
|
|
Inventories
|
|
73
|
|
|
|
|
|
76
|
|
Prepaid expenses and other current assets
|
|
49
|
|
|
|
|
|
55
|
|
Deferred income taxes
|
|
120
|
|
|
|
|
|
111
|
|
Total current assets
|
|
408
|
|
|
|
|
|
409
|
|
Property and equipment, net
|
|
275
|
|
|
|
|
|
265
|
|
Subscriber system assets, net
|
|
2,445
|
|
|
|
|
|
2,260
|
|
Goodwill
|
|
3,703
|
|
|
|
|
|
3,738
|
|
Intangible assets, net
|
|
3,027
|
|
|
|
|
|
3,120
|
|
Deferred subscriber acquisition costs, net
|
|
618
|
|
|
|
|
|
571
|
|
Other assets
|
|
225
|
|
|
|
|
|
186
|
|
Total Assets
|
|
$
|
|
10,701
|
|
|
|
|
|
$
|
|
10,549
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
5
|
|
|
|
|
|
$
|
|
4
|
|
Accounts payable
|
|
179
|
|
|
|
|
|
208
|
|
Accrued and other current liabilities
|
|
238
|
|
|
|
|
|
260
|
|
Deferred revenue
|
|
241
|
|
|
|
|
|
236
|
|
Total current liabilities
|
|
663
|
|
|
|
|
|
708
|
|
Long-term debt
|
|
5,225
|
|
|
|
|
|
5,096
|
|
Deferred subscriber acquisition revenue
|
|
884
|
|
|
|
|
|
838
|
|
Deferred tax liabilities
|
|
742
|
|
|
|
|
|
651
|
|
Other liabilities
|
|
123
|
|
|
|
|
|
128
|
|
Total Liabilities
|
|
7,637
|
|
|
|
|
|
7,421
|
|
Total Equity
|
|
3,064
|
|
|
|
|
|
3,128
|
|
Total Liabilities and Equity
|
|
$
|
|
10,701
|
|
|
|
|
|
$
|
|
10,549
|
|
THE ADT CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
|
|
|
|
For the Nine Months Ended
|
|
June 26, 2015
|
|
June 27, 2014
|
Cash Flows from Operating Activities:
|
|
|
|
Net income
|
$
|
215
|
|
|
$
|
222
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
Depreciation and intangible asset amortization
|
839
|
|
|
767
|
|
Amortization of deferred subscriber acquisition costs
|
105
|
|
|
98
|
|
Amortization of deferred subscriber acquisition revenue
|
(122
|
)
|
|
(111
|
)
|
Stock-based compensation expense
|
17
|
|
|
15
|
|
Deferred income taxes
|
96
|
|
|
102
|
|
Provision for losses on accounts receivable and inventory
|
46
|
|
|
33
|
|
Changes in operating assets and liabilities and other
|
(16
|
)
|
|
39
|
|
Net cash provided by operating activities
|
1,180
|
|
|
1,165
|
|
Cash Flows from Investing Activities:
|
|
|
|
Dealer generated customer accounts and bulk account purchases
|
(408
|
)
|
|
(362
|
)
|
Subscriber system assets
|
(521
|
)
|
|
(488
|
)
|
Capital expenditures
|
(76
|
)
|
|
(56
|
)
|
Other investing
|
(42
|
)
|
|
(7
|
)
|
Net cash used in investing activities
|
(1,047
|
)
|
|
(913
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
Proceeds from exercise of stock options
|
30
|
|
|
14
|
|
Repurchases of common stock under approved program
|
(164
|
)
|
|
(1,384
|
)
|
Dividends paid
|
(107
|
)
|
|
(97
|
)
|
Proceeds from long-term borrowings
|
575
|
|
|
1,725
|
|
Repayment of long-term debt
|
(458
|
)
|
|
(377
|
)
|
Other financing
|
(5
|
)
|
|
(21
|
)
|
Net cash used in financing activities
|
(129
|
)
|
|
(140
|
)
|
Effect of currency translation on cash
|
(1
|
)
|
|
-
|
|
Net increase in cash and cash equivalents
|
3
|
|
|
112
|
|
Cash and cash equivalents at beginning of period
|
66
|
|
|
138
|
|
Cash and cash equivalents at end of period
|
$
|
69
|
|
|
$
|
250
|
|
THE ADT CORPORATION
GAAP to Non-GAAP Reconciliations
(Unaudited)
Net Income Before Special Items
|
|
|
For the Quarters Ended
|
|
For the Nine Months Ended
|
($ in millions)
|
June 26, 2015
|
|
March 27, 2015
|
|
June 27, 2014
|
|
June 26, 2015
|
|
June 27, 2014
|
Net Income (GAAP)
|
$
|
75
|
|
|
$
|
68
|
|
|
$
|
82
|
|
|
$
|
215
|
|
|
$
|
222
|
|
Restructuring and other, net(1)
|
3
|
|
|
1
|
|
|
6
|
|
|
6
|
|
|
15
|
|
Acquisition and integration costs(1)
|
1
|
|
|
-
|
|
|
2
|
|
|
1
|
|
|
2
|
|
Radio conversion costs(1)
|
5
|
|
|
12
|
|
|
11
|
|
|
32
|
|
|
17
|
|
Non-recurring separation costs(1)
|
-
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
7
|
|
Separation related other expense (income)(2)
|
(1
|
)
|
|
(1
|
)
|
|
34
|
|
|
(2
|
)
|
|
35
|
|
Pre-separation and other discrete tax items
|
1
|
|
|
-
|
|
|
(39
|
)
|
|
1
|
|
|
(26
|
)
|
Net Income before special items
|
$
|
84
|
|
|
$
|
80
|
|
|
$
|
97
|
|
|
$
|
253
|
|
|
$
|
272
|
|
(1) Items have been presented net of tax of $3M for the quarter ended
June 26, 2015, $8M for the quarter ended March 27, 2015, $10M for the
quarter ended June 27, 2014, $20M for the nine months ended June 26,
2015 and $22M for the nine months ended June 27, 2014.
(2) Relates to the 2012 Tax Sharing Agreement among Tyco, ADT and
Pentair.
Diluted EPS Before Special Items
|
For the Quarters Ended
|
|
For the Nine Months Ended
|
|
June 26, 2015
|
|
March 27, 2015
|
|
June 27, 2014
|
|
June 26, 2015
|
|
June 27, 2014
|
Diluted EPS (GAAP)
|
$
|
0.44
|
|
|
$
|
0.40
|
|
|
$
|
0.47
|
|
|
$
|
1.24
|
|
|
$
|
1.20
|
Impact of special items(1)
|
0.05
|
|
|
0.07
|
|
|
0.08
|
|
|
0.22
|
|
|
0.27
|
Diluted EPS before special items
|
$
|
0.49
|
|
|
$
|
0.47
|
|
|
$
|
0.55
|
|
|
$
|
1.46
|
|
|
$
|
1.47
|
(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 Nine Months Ended
|
|
|
June 26, 2015
|
|
March 27, 2015
|
|
June 27, 2014
|
|
June 26, 2015
|
|
June 27, 2014
|
Diluted EPS (GAAP)
|
|
$
|
0.44
|
|
|
$
|
0.40
|
|
|
$
|
0.47
|
|
|
$
|
1.24
|
|
|
$
|
1.20
|
|
Plus: Impact of income tax expense on diluted EPS
|
|
0.22
|
|
|
0.19
|
|
|
0.02
|
|
|
0.61
|
|
|
0.54
|
|
Less: Impact of income taxes paid, net of refunds
|
|
(0.04
|
)
|
|
(0.03
|
)
|
|
(0.04
|
)
|
|
(0.08
|
)
|
|
(0.11
|
)
|
Diluted EPS at cash tax rates
|
|
$
|
0.62
|
|
|
$
|
0.56
|
|
|
$
|
0.45
|
|
|
$
|
1.77
|
|
|
$
|
1.63
|
|
Impact of special items(1)
|
|
0.06
|
|
|
0.11
|
|
|
0.35
|
|
|
0.31
|
|
|
0.51
|
|
Diluted EPS before special items at cash tax rates
|
|
$
|
0.68
|
|
|
$
|
0.67
|
|
|
$
|
0.80
|
|
|
$
|
2.08
|
|
|
$
|
2.14
|
|
(1) Items presented at cash tax rates where applicable.
THE ADT CORPORATION
|
GAAP to Non-GAAP Reconciliations (continued)
|
(Unaudited)
|
|
EBITDA and Pre-SAC EBITDA Before Special Items
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Nine Months Ended
|
|
|
June 26,
|
|
March 27,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
($ in millions)
|
|
2015
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Net Income (GAAP)
|
|
$
|
75
|
|
|
$
|
68
|
|
|
$
|
82
|
|
|
$
|
215
|
|
|
$
|
222
|
|
Interest expense, net
|
|
52
|
|
|
51
|
|
|
49
|
|
|
153
|
|
|
142
|
|
Income tax expense
|
|
37
|
|
|
32
|
|
|
3
|
|
|
105
|
|
|
101
|
|
Depreciation and intangible asset amortization
|
|
286
|
|
|
278
|
|
|
258
|
|
|
839
|
|
|
767
|
|
Amortization of deferred subscriber acquisition costs
|
|
36
|
|
|
35
|
|
|
33
|
|
|
105
|
|
|
98
|
|
Amortization of deferred subscriber acquisition revenue
|
|
(42
|
)
|
|
(40
|
)
|
|
(37
|
)
|
|
(122
|
)
|
|
(111
|
)
|
EBITDA
|
|
$
|
444
|
|
|
$
|
424
|
|
|
$
|
388
|
|
|
$
|
1,295
|
|
|
$
|
1,219
|
|
EBITDA Margin
|
|
49.4
|
%
|
|
47.6
|
%
|
|
45.7
|
%
|
|
48.4
|
%
|
|
48.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other, net
|
|
1
|
|
|
2
|
|
|
9
|
|
|
5
|
|
|
15
|
|
Acquisition and integration costs
|
|
2
|
|
|
-
|
|
|
2
|
|
|
3
|
|
|
3
|
|
Radio conversion costs
|
|
5
|
|
|
19
|
|
|
18
|
|
|
47
|
|
|
27
|
|
Non-recurring separation costs
|
|
-
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
10
|
|
Separation related other expense (income)(1)
|
|
(1
|
)
|
|
(1
|
)
|
|
34
|
|
|
(2
|
)
|
|
35
|
|
EBITDA before special items
|
|
$
|
451
|
|
|
$
|
444
|
|
|
$
|
452
|
|
|
$
|
1,348
|
|
|
$
|
1,309
|
|
EBITDA Margin before special items
|
|
50.2
|
%
|
|
49.9
|
%
|
|
53.2
|
%
|
|
50.4
|
%
|
|
51.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber acquisition cost expenses, net of related revenue
|
|
109
|
|
|
113
|
|
|
92
|
|
|
327
|
|
|
284
|
|
Pre-SAC EBITDA before special items
|
|
$
|
560
|
|
|
$
|
557
|
|
|
$
|
544
|
|
|
$
|
1,675
|
|
|
$
|
1,593
|
|
Pre-SAC EBITDA Margin before special items
|
|
66.0
|
%
|
|
66.1
|
%
|
|
68.2
|
%
|
|
66.2
|
%
|
|
67.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (GAAP)
|
|
$
|
898
|
|
|
$
|
890
|
|
|
$
|
849
|
|
|
$
|
2,675
|
|
|
$
|
2,525
|
|
Subscriber acquisition cost related revenue
|
|
(49
|
)
|
|
(47
|
)
|
|
(51
|
)
|
|
(143
|
)
|
|
(153
|
)
|
Pre-SAC Revenue
|
|
$
|
849
|
|
|
$
|
843
|
|
|
$
|
798
|
|
|
$
|
2,532
|
|
|
$
|
2,372
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA before special items
|
|
$
|
451
|
|
|
$
|
444
|
|
|
$
|
452
|
|
|
$
|
1,348
|
|
|
$
|
1,309
|
|
Effect of Protectron on EBITDA before special items
|
|
(14
|
)
|
|
(15
|
)
|
|
-
|
|
|
(41
|
)
|
|
-
|
|
EBITDA before special items excluding Protectron
|
|
$
|
437
|
|
|
$
|
429
|
|
|
$
|
452
|
|
|
$
|
1,307
|
|
|
$
|
1,309
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (GAAP)
|
|
$
|
898
|
|
|
$
|
890
|
|
|
$
|
849
|
|
|
$
|
2,675
|
|
|
$
|
2,525
|
|
Effect of Protectron on revenue
|
|
(33
|
)
|
|
(35
|
)
|
|
-
|
|
|
(104
|
)
|
|
-
|
|
Revenue excluding Protectron
|
|
$
|
865
|
|
|
$
|
855
|
|
|
$
|
849
|
|
|
$
|
2,571
|
|
|
$
|
2,525
|
|
EBITDA Margin before special items excluding Protectron
|
|
50.5
|
%
|
|
50.2
|
%
|
|
53.2
|
%
|
|
50.8
|
%
|
|
51.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Relates to the 2012 Tax Sharing Agreement among Tyco, ADT and
Pentair.
|
THE ADT CORPORATION
|
GAAP to Non-GAAP Reconciliations (continued)
|
(Unaudited)
|
|
|
SSFCF Before Special Items
|
|
|
|
|
|
For the Quarters Ended
|
|
|
June 26,
|
|
March 27,
|
|
June 27,
|
($ in millions)
|
|
2015
|
|
2015
|
|
2014
|
Last quarter, annualized pre-SAC EBITDA before special items
|
|
$
|
2,240
|
|
|
$
|
2,228
|
|
|
$
|
2,176
|
|
SAC required to maintain recurring revenue(1)
|
|
(1,294
|
)
|
|
(1,278
|
)
|
|
(1,232
|
)
|
Maintenance capital expenditures
|
|
(10
|
)
|
|
(10
|
)
|
|
(10
|
)
|
SSFCF before special items
|
|
$
|
936
|
|
|
$
|
940
|
|
|
$
|
934
|
|
|
|
|
(1) SAC required to maintain recurring revenue is calculated as
follows:
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
June 26,
|
|
March 27,
|
|
June 27,
|
($ in millions)
|
|
2015
|
|
2015
|
|
2014
|
Last quarter average recurring revenue under contract for the period
|
|
$
|
278
|
|
|
$
|
276
|
|
|
$
|
262
|
|
Trailing twelve month disconnects net of price escalation(2)
|
|
14.5
|
%
|
|
14.2
|
%
|
|
14.6
|
%
|
Last quarter gross recurring revenue creation multiple(3)
|
|
32.1
|
|
|
32.6
|
|
|
32.2
|
|
SAC required to maintain recurring revenue
|
|
$
|
1,294
|
|
|
$
|
1,278
|
|
|
$
|
1,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow and FCF Before Special Items
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Nine Months Ended
|
|
|
June 26,
|
|
March 27,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
($ in millions)
|
|
2015
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Operating cash flow (GAAP)
|
|
$
|
424
|
|
|
$
|
387
|
|
|
$
|
408
|
|
|
$
|
1,180
|
|
|
$
|
1,165
|
|
Restructuring and other, net
|
|
-
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
3
|
|
Acquisition and integration costs
|
|
1
|
|
|
-
|
|
|
1
|
|
|
3
|
|
|
2
|
|
Tax sharing costs received
|
|
-
|
|
|
-
|
|
|
(19
|
)
|
|
-
|
|
|
(31
|
)
|
Radio conversion costs
|
|
10
|
|
|
24
|
|
|
14
|
|
|
51
|
|
|
20
|
|
Non-recurring separation costs within cash from operating activities
|
|
-
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
14
|
|
Operating cash flow before special items
|
|
$
|
435
|
|
|
$
|
413
|
|
|
$
|
410
|
|
|
$
|
1,238
|
|
|
$
|
1,173
|
|
Dealer generated customer accounts and bulk account purchases
|
|
(141
|
)
|
|
(121
|
)
|
|
(137
|
)
|
|
(408
|
)
|
|
(362
|
)
|
Subscriber system assets
|
|
(169
|
)
|
|
(175
|
)
|
|
(163
|
)
|
|
(521
|
)
|
|
(488
|
)
|
Capital expenditures
|
|
(26
|
)
|
|
(18
|
)
|
|
(23
|
)
|
|
(76
|
)
|
|
(56
|
)
|
Non-recurring separation capital expenditures
|
|
-
|
|
|
-
|
|
|
11
|
|
|
11
|
|
|
20
|
|
FCF before special items
|
|
$
|
99
|
|
|
$
|
99
|
|
|
$
|
98
|
|
|
$
|
244
|
|
|
$
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
|
GAAP to Non-GAAP Reconciliations (continued)
|
(Unaudited)
|
|
|
Leverage Ratio
|
|
|
|
|
|
|
For the Twelve
|
|
|
Months Ended
|
|
|
June 26,
|
($ in millions)
|
|
2015
|
Net Income (GAAP)
|
|
$
|
297
|
|
Interest expense, net
|
|
203
|
|
Income tax expense
|
|
132
|
|
Depreciation and intangible asset amortization
|
|
1,112
|
|
Amortization of deferred subscriber acquisition costs
|
|
138
|
|
Amortization of deferred subscriber acquisition revenue
|
|
(162
|
)
|
EBITDA
|
|
$
|
1,720
|
|
Restructuring and other, net
|
|
7
|
|
Acquisition and integration costs
|
|
7
|
|
Radio conversion costs
|
|
64
|
|
Non-recurring separation costs
|
|
7
|
|
Separation related other income(1)
|
|
1
|
|
EBITDA before special items
|
|
$
|
1,806
|
|
EBITDA Margin before special items
|
|
51.5
|
%
|
|
|
|
Protectron adjustment to EBITDA before special items
|
|
1
|
|
Pro-forma EBITDA before special items
|
|
$
|
1,807
|
|
Subscriber acquisition cost expenses, net of related revenue(2)
|
|
435
|
|
Pre-SAC EBITDA before special items
|
|
$
|
2,242
|
|
|
|
(1) Relates to the 2012 Tax Sharing Agreement between Tyco, ADT and
Pentair.
|
|
|
|
(2) Includes an immaterial adjustment for pro-forma Protectron.
|
|
|
|
|
|
|
June 26,
|
($ in millions)
|
|
2015
|
Current maturities of long-term debt
|
|
$
|
5
|
Long-term debt
|
|
5,225
|
Total Debt
|
|
$
|
5,230
|
|
|
|
EBITDA Leverage Ratio(3)
|
|
2.9
|
EBITDA Leverage Ratio including pro-forma Protectron(3)
|
|
2.9
|
Pre-SAC EBITDA Leverage Ratio(3)
|
|
2.3
|
|
(3) Leverage ratio is defined as the ratio of debt to trailing
twelve month EBITDA before special items, trailing twelve month
EBITDA or Pre-SAC EBITDA before special items including pro-forma
Protectron.
|
THE ADT CORPORATION
|
GAAP to Non-GAAP Reconciliations (continued)
|
(Unaudited)
|
|
Revenue at Constant Currency
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Nine Months Ended
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
($ in millions)
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Recurring revenue as reported
|
|
$
|
834
|
|
|
$
|
785
|
|
|
$
|
2,488
|
|
|
$
|
2,333
|
Recurring revenue at constant currency(1)
|
|
$
|
838
|
|
|
$
|
785
|
|
|
$
|
2,499
|
|
|
$
|
2,333
|
|
|
|
|
|
|
|
|
|
Total revenue as reported
|
|
$
|
898
|
|
|
$
|
849
|
|
|
$
|
2,675
|
|
|
$
|
2,525
|
Total revenue at constant currency(1)
|
|
$
|
902
|
|
|
$
|
849
|
|
|
$
|
2,687
|
|
|
$
|
2,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
THE ADT CORPORATION
|
SELECTED FINANCIAL AND OPERATING DATA
|
(Unaudited)
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
|
|
June 26,
|
|
June 27,
|
|
|
|
|
2015
|
|
2014
|
|
Change
|
Recurring customer revenue (in millions)
|
|
$
|
834
|
|
|
$
|
785
|
|
|
6.2
|
%
|
Other revenue (in millions)
|
|
64
|
|
|
64
|
|
|
-
|
%
|
Total revenue (in millions)
|
|
$
|
898
|
|
|
$
|
849
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
Ending number of customers (in thousands)
|
|
6,625
|
|
|
6,313
|
|
|
4.9
|
%
|
Gross customer additions (in thousands)
|
|
262
|
|
|
250
|
|
|
4.8
|
%
|
Customer revenue attrition rate(1)
|
|
12.4
|
%
|
|
13.9
|
%
|
|
-150 bps
|
Customer unit attrition rate(2)
|
|
12.3
|
%
|
|
13.5
|
%
|
|
-120 bps
|
Average revenue per customer (dollars)(3)
|
|
$
|
42.50
|
|
|
$
|
42.20
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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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