Slide 1: Q1 2018 Earnings Presentation
Q1 2018 Earnings Presentation May 9, 2018
Slide 2: Forward Looking Statements
Forward Looking Statements ADT has made statements in this presentation and other reports, filings, and other public written and verbal announcements that are forward-looking and therefore subject to risks and uncertainties. All statements, other than statements of historical fact, included in this
Slide 3: Q1 Performance Highlights
Q1 Performance Highlights Strong quarter with positive momentum across all areas of our business ▪ Improved attrition by 90 basis points year-over-year, to 13.6% LTM gross Continue to Reduce customer revenue attrition Attrition ▪ Achieved our best month ever of attrition during Q1 Acquire New ▪ Cont
Slide 4: Our Operating Focus is Centered on Three Core Objectives
Our Operating Focus is Centered on Three Core Objectives Key Levers and Objectives Further Drivers of Management Attributes Revenue Growth ▪ Data and daily management Retain Our ▪ New partners and are core to how we manage 1 Existing services (ADT Go, Cyber, the company Customers DIY) ▪ Fluent in an
Slide 5: Subscriber Acquisition Cost (SAC) Efficiency: Significant Opportunity for Continued Improvement
Subscriber Acquisition Cost (SAC) Efficiency: Significant Opportunity for Continued Improvement Illustrative SAC Reduction from Revenue Payback Multiple Improvement(2) ▪ Lower attrition and improved revenue payback multiple enable reduced SAC(1) – To generate cash flow and/or fund revenue growth $36
Slide 6: Q1'18 Key Performance Indicators: Retain Our Existing Customers
Q1’18 Key Performance Indicators 1 Retain Our Existing Customers and Drive Revenue Growth Excluding impact of newly adopted Gross Customer Revenue Attrition(1)(2) Revenue(3) revenue recognition standard, Q1’18 monitoring & service revenue is % $MM $1,019M and installation & other revenue is $97M 14.
Slide 7: Q1'18 Key Performance Indicators: Acquire New Customers More Efficiently
Q1’18 Key Performance Indicators 2 Acquire New Customers More Efficiently Customer Revenue Payback(1) Net Subscriber Acquisition Costs Years $MM 2.6x 363 354 2.5x 86 76 278 279 LTM 3/31/17 LTM 3/31/18 Q1 CY17 Q1 CY18 Capitalized SAC Expensed SAC Revenue Payback improves 0.1x Spend down 3% ▪ Reduced
Slide 8: Q1'18 Key Performance Indicators: Optimize Adjusted EBITDA
Q1’18 Key Performance Indicators 3 Optimize Adjusted EBITDA Adjusted EBITDA & Margin %(1) Adjusted Net Income(2) $MM $MM 620 249 577 197 59.5% 57.8% 57.8% 60.9% normalized Q1 CY17 Q1 CY18 Q1 CY17 Q1 CY18 Adjusted EBITDA increase of 7% Adjusted Net Income up $52M ▪ Adj. EBITDA growth is driven by hig
Slide 9: Strong Q1 Free Cash Flow Generation of $187 million
Strong Q1 Free Cash Flow Generation of $187 million For the quarter ended ($ in millions) Mar 31,2018 Mar 31,2017 Y/Y Change Adjusted EBITDA 620 577 43 Less: Capitalized SAC Expense (279) (278) (1) Less: Cash Taxes 2 (2) 4 Less: Cash Interest (94) (79) (15) Less: Preferred Interest 0 (21) 21 Adjuste
Slide 10: Capital Allocation and Capital Structure
Capital Allocation and Capital Structure Capital Allocation Framework Capital Structure $MM $MM 12/31/17 3/31/18 ▪ Organic Growth: target growth capex that supports First Lien Term Loan 3,536 3,527 stable growth and margin accretion First Lien Notes 3,750 3,750 Capital Leases 41 39 ▪ M&A Opportuniti
Slide 11: Reiterating FY 2018 Guidance
Reiterating FY 2018 Guidance Gross Customer Revenue Attrition (1) Total Revenue % $MM 13.7% 4,450-4,550 13.0 - 13.3% 4,316 2017 2018 2017 2018 Adjusted EBITDA (2) Free Cash Flow (2)(3) $MM $MM 2,415-2,435 475-525 2,353 403 2017 2018 2017 2018 Notes 1. Excludes wholesale customers who outsource their
Slide 12: DIY Market Differs From Professionally Installed Systems
DIY Market Differs From Professionally Installed Systems… Opportunity + Market Expansion Professional Installation DIY Installation Market Market Participants (1) Market Penetration ~20% ~1% Primary Customer Homeowner (and business for ADT) Renter / DIY / Tech savvy Access to home; less so
Slide 13: ADT is Already at the Center of the Connected Home
ADT is Already at the Center of the Connected Home Existing Pulse Products and Features Control your lights from almost Lock and unlock smart locks from anywhere, including dimming. your phone. Get immediate alerts on your Adjust and schedule your smartphone if one of your sensors thermostat remotel
Slide 14: Q&A
Q&A 14 Confidential, not for distribution or publication without express consent of ADT
Slide 15: Appendix: GAAP to Non-GAAP Reconciliations
Appendix: GAAP to Non-GAAP Reconciliations
Slide 16: Statements of Operations
Statements of Operations For the Three Months Ended March 31, 2018 2017 Monitoring and related services $ 1,017 $ 998 Installation and other(1) 99 62 Total Revenue 1,116 1,059 Cost of revenue (exclusive of depreciation and amortization shown separately below) 248 219 Selling, general and administrat
Slide 17: Net Loss and Diluted EPS Before Special Items
Net Loss and Diluted EPS Before Special Items(1) For the Three Months Ended March 31, (in millions) 2018 2017 Net loss $ (157) $ (141) Merger, restructuring, integration, and other costs 6 13 Financing and consent fees — 55 Foreign currency losses / (gains) 1 (2) Loss on extinguishment of debt 47 1
Slide 18: Q1 Free Cash Flow Before Special Items
Q1 Free Cash Flow Before Special Items For the Three Months Ended March 31, (in millions) 2018 2017 Net cash provided by operating activities $ 505 $ 412 Dealer generated customer accounts and bulk account purchases (160) (144) Subscriber system assets (138) (152) Capital expenditures (33) (34) Free
Slide 19: Historical Combined Free Cash Flow
Historical Combined Free Cash Flow For the Years Ended December 31, (in millions) 2017 2016(1) 2015(1) Net cash provided by operating activities $ 1,592 $ 1,143 $ 1,659 Dealer generated customer accounts and bulk account purchases (653) (583) (572) Subscriber system assets and deferred subscriber in
Slide 20: Adjusted EBITDA Reconciliation to Net Loss
Adjusted EBITDA Reconciliation to Net Loss For the Three Months Ended Twelve Months Ended March 31, March 31, (in millions) 2018 2017 2018 Net (loss) income $ (157) $ (141) $ 327 Interest expense, net 174 181 726 Income tax benefit (8) (32) (740) Depreciation and intangible asset amortization 484 46
Slide 21: Historical Adjusted EBITDA
Historical Adjusted EBITDA For the Years Ended December 31, (in millions) 2017 2016(1) 2015(1) Net income (loss) $ 343 $ (285) $ (281) Interest expense, net 733 750 769 Income tax benefit (764) (119) (189) Depreciation and intangible asset amortization 1,863 1,574 1,591 Merger, restructuring, integr
Slide 22: Adjusted Net Income
Adjusted Net Income For the Three Months Ended March 31, (in millions, except per share data) 2018 2017 Adjusted EBITDA $ 620 $ 577 Capitalized SAC (279) (278) Cash taxes 2 (2) Cash interest (94) (100) Adjusted net income $ 249 $ 197 Adjusted net income per share $ 0.34 $ 0.31 Diluted weighted-avera
Slide 23: Non-GAAP Measures
Non-GAAP Measures To provide investors with additional information in connection with our results as determined by generally accepted accounting principles in the United States (“GAAP”), we also disclose the following non-GAAP financial measures: Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Fl
Slide 24: Appendix: Supplemental Investor Materials
Appendix: Supplemental Investor Materials
Slide 25: Service is Our Business and Our Key Competitive Advantage
Service is Our Business and Our Key Competitive Advantage Our Expansive National Footprint Iconic Brand with Unparalleled Recognition 200+ % of Consumers Surveyed Who Viewed ADT as the Best Branch Locations Brand vs. Other Competitors (1) 54% ~7.2MM Customers (2) ~2MM+ Disaster Recovery Annual Servi
Slide 26: Daily Measurement Is Core to How We Manage the Company
Daily Measurement Is Core to How We Manage the Company and Serve Our Customers… Daily Scorecard Total Cost of Ownership & Call Center Report Cust#: 60282969 ABC Company From: 9/1/2013 Active 92 Sites: To: 9/1/2014 All Sites: 353 Monitoring/RMR Installation Service Totals Per-Site Totals Revenue Gros
Slide 27: A Vastly Improved Customer Experience Is at the Core of Our Transformation
…And a Vastly Improved Customer Experience Is at the Core of Our Transformation New Approach to Customer Care Longest Call Wait Time Call Abandonment Rate Minutes % >90 >10% ▪ Engagement with the frontline <1% <1 Historical Target Historical Target Employee Turnover (1) Same-Day / Next-Day Service (
Slide 28: Customer Retention Has Improved Significantly
Customer Retention Has Improved Significantly Retain our Existing Customers: Trailing 12-Months Gross Revenue Attrition Our Key Metric is Gross Revenue Attrition We Have Opportunity for Further Improvement ▪ Captures all customer loss and focuses management ▪ Customer service initiatives are in the
Slide 29: Our Efficient Customer Acquisition Approach
Our Efficient Customer Acquisition Approach Net Subscriber Acquisition Costs (‘SAC’) are down substantially and Revenue Payback improved from 2.7x to 2.5x since 2015(1) Customer Profile (2) Our Focus on RMR Commercial Residential Small Business Large / Multi-Site ▪ Our focus is on adding high qualit
Slide 30: ADT Has Achieved Significant Operational Improvements
ADT Has Achieved Significant Operational Improvements With Lots of Room to Go….. Gross Customer Revenue Attrition (1) Revenue Payback (1) % Years 15.9% 2.7x 2.7x 14.8% 2.5x 13.7% Continued Progress 13.0–13.3% 2015 2016 2017 2018 Legacy ADT 2016 2017 2018 Guidance LTM 9/25/15 Adjusted EBITDA (2) Free
Slide 31: While Strengthening Our Profile For Future Growth
…..While Strengthening Our Profile For Future Growth Illustrative Revenue Growth Build A Core Growth & Efficiency B Commercial Expansion C New Markets/Market Growth Improving core operations with Building out Commercial and Positioning for opportunities in data and outlier management Multi-Site capa