Very good morning, ladies and gentlemen, and thank you, all, for joining. Welcome to the Third Quarter 2014 ADT Earnings Conference Call. My name is Lisa, and I'll be your event coordinator today. Today's conference is being recorded. [Operator Instructions] Now I'd like to turn the conference over to your host, Mr. Tim Perrott, VP of Investor Relations for opening remarks. Please proceed, sir. Thank you.

Great, Lisa, and good morning to everyone. And thank you for joining us for our call to discuss ADT's third quarter results for fiscal year 2014. With me on the call today are Naren Gursahaney, ADT's CEO; and Mike Geltzeiler, ADT's CFO. Let me begin by reminding us all that the discussion today contains certain forward-looking statements about the company's future performance, which are subject to the risks and uncertainties and speak only as of today. Factors that could cause actual results to differ from these forward-looking statements are set forth within today's earnings release, which was furnished to the SEC in an 8-K report, and on our Form 10-Q for the quarter-ended June 27, 2014, which we expect to file with the SEC later today. In our third quarter 2014 earnings release and slides, which are now posted on our website at adt.com and on our Investor Relations app, we have provided a reconciliation of the company's non-GAAP financial measures to GAAP. We urge you to review that information in conjunction with today's call. For those of you following on the webcast, we will be using this slide deck to supplement our commentary this morning. And please note that, unless otherwise mentioned, references to our operating results exclude special items, and these metrics are non-GAAP measures. I would now like to turn the call over to Naren. Naren?

Thanks, Tim, and good morning, everyone. Thank you for joining our call today. We hope you had a chance to review our earnings press release that we issued earlier this morning, that highlights our results for the third quarter. Overall, we delivered solid results in the quarter, in line with our expectations and consistent with our plan to drive better performance in the second half of the year. On a sequential basis, we reduced attrition, grew gross adds, increased margins and reduced our overall creation multiple. And while we're pleased with our progress, we do recognize we still have much more to accomplish in the future. This morning, I'll discuss some of our key performance highlights and our major accomplishments during the quarter. Then our CFO, Mike Geltzeiler, will provide additional details on our financial and operational performance. However, before I discuss the quarter, I wanted to share with you my thoughts on our industry and some of the current dynamics we're seeing. I think this is important context for evaluating the strategy we're pursuing to drive profitable growth and assessing the progress we've made at this point in the year. As we all are witnessing, our industry is evolving rapidly and the market opportunity is increasing. Innovation is creating new opportunities for growth and demand remains solid. Homes and businesses are becoming smarter and more connected, and the Internet of Things, which is only in its infancy, is attracting more attention and investment, resulting in new products and services. And yet, still only about 20% of homes in the U.S. and Canada have a monitored security system, and home automation penetration is just beginning to scratch the surface, leaving 80% of households without monitored security or automation. And like any market that offers opportunities for growth, our industry has…

Thanks, Naren. Our third quarter results showed improvement in almost every metric, consistent with our statements both last quarter and at investor day, where we signaled improvements in the second half of this fiscal year. Since our slow initial quarter, we've grown EBITDA and margins, delivered better bottom line results on a per share basis and improved each of our value drivers, all while generating solid free cash flow. Further, we continue to invest organically to strengthen our core and extend our leadership position, as well as through M&A and strategic partnerships. Despite the improved results, there is more work to do in order to return the business to net subscriber growth and further reduce subscriber acquisition costs and cost to serve. Now let me get into more detail on our financial results and the 5 value drivers. Slide 7 provides an overview of our GAAP and non-GAAP results. Recurring revenue grew by 2.7% to $785 million and accounted for 92% of our total revenue. Adjusting for the 6% decline in the Canadian dollar, recurring revenue was up 3%. Total revenue was $849 million, up 1.9% over the third quarter of last year or 2.2% at constant exchange rates. EBITDA was $452 million, up 4.4%, or $19 million over prior year, resulting in EBITDA margins of 53.2%, an increase of 120 basis points year-over-year. This is the highest EBITDA margin we have reported since our spin and reflects a 4% reduction in gross SAC P&L expenses and only a 2% increase in cost to serve and G&A expenses. We also benefited from some favorable timing of expenses in the quarter, which partially contribute to the higher margins. Growth in EBITDA was offset by higher depreciation and amortization expenses of $22 million, primarily from the increase in investments in Pulse and…

Thanks, Mike. I know that we've covered a lot of information today, and I want to make sure we leave time for your questions. In summary, we're pleased with the progress we're making, and we're executing against our initiatives. We're delivering upon our promise to improve performance in the second half of the year, in line with our expectations. Our position in the industry remains strong, and we believe that the market opportunity continues to grow for ADT. That said, we recognize that we have much more to accomplish in the future and our entire team remains committed to executing our plan and delivering results. Now we can open up the mic for questions. Lisa, can you remind people of the instructions for those who want to ask questions?

[Operator Instructions] Okay, our first question is from the line of Ian Zaffino of Oppenheimer. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: You guys made great progress on the churn side. Where do you think you are in terms of innings, maybe, in your churn-reduction efforts? What can it go to? What sort are your targets that you're looking at? And what should we expect going forward?

I would say, based on the fact that we just saw it turn for the first time since we've spun off from Tyco, that we're definitely in the early innings of the improvement opportunities that we see ahead of us. As Mike and I both mentioned, we do believe that, that will come down further in the fourth quarter. We're not in a position to provide guidance right now on a quarterly basis, and I think when we get to report our fourth quarter total year results at the end of next quarter, we'll provide some directional information on where we think FY '15 is going to play out. But again, I still think we're very in the early days of the opportunity we see ahead of us. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: So I guess, when you look at your churn and you kind of comp yourself versus the rest of the industry, do you think you're in a position to achieve the industry average, maybe best the industry average? I'm just trying to think structurally what that number could look like.

Again, I'd hesitate to put a number out there right now. I would say that, historically, we've been very aggressive on the pricing side and managing the balance between gross adds, pricing and attrition. I think you're seeing us focus a little bit more on the attrition side especially over this past year. So we're going to continue to make those trade-offs, but again, I think we've got plenty of room ahead of us. Mike, I don't know if you want to add anything.

Yes, I mean, I think -- again, we're trying to move people to the unit attrition metrics, so at 13.5%, we're in line with several of our peers. But as Naren and I said, we're not satisfied with that number. We think we can go lower. I think the other thing that continues to boost -- the industry is going through an automation transformation, and as we get 14% of our customers now on Pulse, we think that bodes well for attrition in the future. So I think some of the churn we have seen is people moving off of -- as Naren said, a reasonably high-priced burglar alarm systems and looking for better technology. I think we feel confident that, once we get people on our latest technology, that retention will be stronger. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. And then the other question would be -- looks like you're doing a good job in your Pulse penetration rates. With the introduction of some of the new products like the Pulse Voice, do you anticipate maybe the penetration rates going above and beyond what you original anticipated? Or is there any opportunity for upside there? Or is it pretty much as you said before?

Yes, Ian, I guess I'll kind of take the bullet on this one. If you go back to what our original expectations when we launched 3.5 years ago, I think I got out on a conference call and said we thought we'd get somewhere between 10% and 20% of our new customer adds going on to Pulse. Yet clearly, we're at almost 50% in aggregate across all channels, and new customers are coming in about 70%. So I think at some point in time, especially for new customers, we will hit a ceiling. But that said, considering our dealer is still significantly below our direct channel at this time, small business is both below resi in total, both dealer and direct, I think we've got plenty of upside opportunity. And I think, as far as the total base goes, we need to and we are being more aggressive on driving upgrades there. As Mike mentioned, one of the reasons customers might leave us is because they see the opportunity to get new technology from a competitor. We've got to make sure that they're aware that we have those capabilities and that we have a competitive upgrade opportunity and offer for those customers. So I think the total base will continue to move, and our total penetration rate should continue to grow.

Our next question is from the line of Shlomo Rosenbaum of Stifel. Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division: I want to ask just a couple of like housekeeping items just on calculating attrition. I know that 13.5% is a methodology that you guys have. I want to ask if you can just kind of bridge me. If you did a simple attrition calculation, meaning if I took unit attritions over prior quarter on a quarterly basis, it looks like unit attritions were 18%. And if I look at them sequentially, it looks like the unit attrition was flat. What -- how do I bridge that? And when I -- around the 18% level, what is the bridge between that and the number you're getting for the 13.5%?

It really is just a gross versus net, so you're looking at the gross attrition numbers. We net out resales there, so the difference in there would be resales and potentially charge-backs to our dealers, where our agreements allow them to charge back certain customers in the -- within an initial 12- to 15-month period.

And I think our gross attrition for small business resi was lower in the third quarter this year than the third quarter last year, which is what brought the numbers down. Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then, if I do the math just in terms of the CapEx on the direct side per subscriber, it looks like it was down sequentially, which is good. You're showing that it's costing you less on the equipment. I'm just -- want to know just from some commentary of what was going on in terms of the sales during the quarter? Historically, that's been an issue for you guys, and you've had to throw in extra equipment. And it seems like despite the promotions, your message is getting through -- or is getting through better than it was before. Can you talk a little bit about what you're hearing from the people on the ground?

Well, I think couple of things. One is the promotion clearly did help us drive greater lead activity, greater appointment activity. I think our sales team did a very good job of upselling versus the promotion package and driving more content and driving more revenues from those customers. And just the volume of activity we got on our direct channel gave us better absorption of our installation resources and teams. Mike, anything you want to add on that?

Yes, I mean, I think basically, the -- we call it CapEx but really it's the subscriber acquisition cost, which includes marketing. We have savings on the web search optimization. It includes the labor efficiency on the installation. As Naren mentioned, we have higher volumes. We have -- we've been doing some work on when we outsource installation versus insource and optimizing that. And of course, you got the equipment side. So it's a combination of all 3 of those, not just the equipment, as well as the promotion that goes into that figure. And we've been saying it all along. The first quarter, SAC was high and it's not where we intend to be. We have a pretty good pipeline of initiatives to bring it even lower, and we were pleased to see the direct creation multiple go down to 31x. Again, our goal is to go lower than that as well, so stay tuned. Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division: One more question. Just -- what seems to be a potential game changer would be the hardware efforts and kind of being able to roll out an integrated hardware platform that's lower cost and just would be a quicker install. Where does that stand right now? You were in beta last quarter. How much longer is it going to be in beta? And can you give us some more detail on what the potential impact could be?

Yes. Well, again, we've been in friends-and-family pilot testing. We continue to expand that friends-and-family group. The success has been very positive. We're seeing meaningful reductions in installation time and, hence, installation labor associated with that. The product cost is higher and our sourcing team is working with our partners to see how we can continue to bring that down. I had the opportunity to meet with one of our larger suppliers, and they provided a couple ideas that we're going to move on. And I've opened the door for them to come back with other value-engineering ideas. We expect that in FY '15, we will start ramping up that across our base. Again, that will be for new systems we put out there. For existing systems where we do upgrades, we'll continue, for economic reasons, to use the existing equipment, including the panel, and then add in the hub for the automation side.

Our next question is from the line of Jason Bazinet, Citi Investment Research.

I just had a question for Mr. Gursahaney. Appreciate your comments at the beginning of the call regarding the changes in the broader industry. And I was just wondering if I could simplify it a bit. Today, I think of you as a home security company with a retail brand. And the 2 obvious or easiest, I think, bump out opportunity is to move a -- more of a wholesale role, where you're you providing back-end connectivity to others or broadening the definition from home security to sort of the connected home. If you could just comment on each of those potential bump-out opportunities: a, do you think it's the right way to frame it; and b, which one do you think is the most likely area where ADT may go, if you migrate to any other sort of adjacent opportunity?

Yes, Jason, I guess, that is one lens to look at it. We have not really been a wholesale monitoring company for competitors or other third parties. So -- and honestly, I don't think we would necessarily go down that path in our current market. I do think that if you looked at that 80% that seems to be interested in the DIY solutions that, today, don't have a monitoring option with those, I think that's probably the space that we would look at. Is there the potential for a robust, reliable from a security and life-safety perspective, DIY product that has professional monitoring tied to that? I think that's probably the area we're more interested in and that's the area we're continuing to explore.

Our next question is from the line of Jeff Kessler from Imperial Capital.

Granted that some of the improvement in your attrition -- sequential attrition for the quarter probably is due to the slackening of relocations or moving, so to speak, could you perhaps, to your best ability, parse out where efficiencies and the customer touch and your ability to use effectively analytics on your customers was part of that attrition decrease versus what was just purely out of your control, so to speak, the lower amount of moving?

Yes, Jeff, remember we use a trailing 12-month attrition number. So when you look at it on a year-over-year basis, look at external trends around the housing market, I would say it's about flat year-over-year, when you look at just home sales in total -- existing home sales, because that's what would drive potential attrition there. So I would say, that piece has really stabilized for us and the improvement you're starting to see is more on the operational side. When I look at the reason codes, where we're making the biggest impact, I think the biggest impact in the short term or recent term has been on the non-pay area. I think -- and Mike has kind of been leading this effort with the finance team and the operations team. And I think we've made some good progress there. I think clearly Pulse is having some -- the Pulse take rates and the increased Pulse penetration is benefiting but that's more of a long-term benefit rather than a short term. And resales, I would say, are starting to pick up at this stage, so we're getting good momentum there. But the housing piece, I think, is more kind of neutral versus last year.

Okay, I know Mike has talked at a number of lunches about going from -- getting -- going from 20% -- let's just say 20% reconnect, if you want to call it, to maybe 70% or 80%. You're still at the very beginning of that, I'm assuming?

Yes, very much so. And this is for those who disconnect because of relocations?

Yes.

We're still very early in that. Mike, anything to add?

I'm not predicting 70% or 80%. We're shooting for 100%. But I think that would show up, as Naren mentioned, in resales. I mean, on the gross relocation, there's nothing you can do about it. We can cover that on a net basis by increasing resales of the person who bought the home.

Okay. Next question is -- congratulations on your contract with Defender Direct. These are guys I respect a lot. They are -- this Premier annotation you've given to them, what does this mean? And what does this mean in terms of the potential of you actually getting a positive comp on your dealer program, maybe by early 2015?

Well, again, they are the first dealer that we've given this special designation. And honestly, Jeff, it was because when you look at the volume that they provide within our channel, they are significantly different from any of our other dealers. Now clearly, we have other dealers who are performing very well and now aspire to achieve that same level of performance. And it's -- while it's somewhat symbolic, it also does reflect a much stronger and tighter relationship that we have with Defender, where we have regular meetings with them, we encourage them to bring their ideas to us on how we can jointly grow the business, and we work closely with them on those partnership opportunities.

Okay. If I could just follow up on that -- on the hub panel and equipment question on lowering cost. Can you go through the step process that you intend for us to see in terms of lowering, not just your absolute SAC, but the customer creation cost? What will the equipment side of this equation -- how -- when will that begin to kick in now that you have this in front of family and friends? Is this a -- is this something that we're going to see somewhere in the middle of 2015, late 2015?

I would say kind of beginning of the calendar year is when you'll start to see a ramp-up of that.

I think as Naren said, I mean, at this stage, we have 1 more quarter left in the year. This thing is being tested with the SAC effort. And I think we will try to provide more guidance about 2015 when we report our fourth quarter earnings.

Okay. One more question, I'll let you guys go. I'll get back in queue or whatever. I'll go talk to you later. On your SMB business, I noticed there's less and less information coming out about it. As you get closer and closer to the date, it's clearly obviously reasons why for that. But in talking -- in looking at SMB, it does look: number one, as if your -- the initial, let's say we'll call it Pulse penetration has been slowing there. My assumption is, is that -- my assumption is, as you begin to verticalize and figure out exactly what you want to do in these markets, this is going to somehow be pent-up demand when you start coming out with -- not just this, but some of the other technologies that you are going to be adding to the small business project, whether it be your VSaaS business or whether it be the -- or whether it be some of the other DVD or cloud-based systems you're putting in.

Yes. No, Jeff, I think your assertion is right on the mark. As we develop more of those bundles, we need to integrate those into the Pulse platform, and then you'll see the Pulse take rates grow accordingly. The one thing I will say about the small business channel in the third quarter, their percentage of automation, the higher-end Pulse, was significantly higher than what we've seen in the past. And throughout the year, they've been driving that improvement mix. And again, as we look at retention characteristics of our base, the higher-end Pulse always seems to do better. So again, I'm encouraged by what we're seeing there.

And they're, also -- unlike the residential business, where you're linking your automation to cameras, we have this cloud-based hosted video, which works well with the traditional system as well. So someone need not get Pulse automation in small business to get the video, which is hosted in the cloud.

Our next question is from the line of Charles Clarke, Crédit Suisse. Charles Clarke - Crédit Suisse AG, Research Division: Just to confirm the question on attrition. So sequentially, just the number of disconnects was higher in the third quarter compared to the second quarter. That's also a function of just seasonality throughout the year, isn't that correct?

Yes, if you looking just at the 3-month disconnects, absolutely. [indiscernible]

Yes, third quarter and the fourth are the highest. That's where the doorknockers, the summer season. There's more relocations, et cetera. So for us to move down -- that's why we use a 12-month rolling number. So for us, to move down, the attrition figure as we did 30 basis points, we had to produce better results this third quarter than third quarter 2013. Charles Clarke - Crédit Suisse AG, Research Division: Right. And then, so I think everyone was pleased just to see the attrition start to come down. And then personally, I was further pleased just to see that credit screening, the fully automated credit screening process didn't roll out fully to the direct channel until May. So that short-term effect there. So I guess, do you think that -- when will the fully automated credit screening process be rolled out to both the -- to the dealer channel as well? And when do you think that, that will start to have an impact on attrition?

So let's just take a break here. So I think the dealer channel already does have credit screening. Because we have a charge-back process with the dealers, so we only buy the accounts with the credit score, et cetera. The 10-year screening or credit screening we're discussing is for the direct channel. Exactly to your point, not -- it will be fully rolled out at the end of this year. But just so we're on the same page, you don't really -- people are allowed to non-pay for a number of months before they disconnect, so it really is almost a 6-month lag, 5-, 6-month lag from when you fully roll it out to when you see the attrition lower. So exactly to your point, I think the benefits of -- that right now, we're mentioning it, that the credit screening of anything is probably going to slow down adds, but it's probably not helping attrition quite yet, and it will help attrition in '15 because of the customers you didn't bring in. Charles Clarke - Crédit Suisse AG, Research Division: So in terms of kind of sequentially the pressure that you'll see on gross adds in the direct channel related to kind of enhanced credit screening, you shouldn't see tremendous kind of pressure sequentially relative to this quarter on adds because of that, but you'll see the benefit.

We're rolling it, so I -- we are phasing it between now and the end of the year. By the end of the year, it will be fully in. So it's being rolled out sequentially. So it was a little bit in this quarter, and it will continue a little bit in the fourth quarter. That said, we're giving guidance that we expect fourth quarter adds to be higher than third quarter anyway. But by the end of fourth quarter, you'll see, right -- the full year effect will be less on the add side and you'll get the benefit of attrition in '15. Charles Clarke - Crédit Suisse AG, Research Division: Great. And then just lastly, just on Pulse, I heard you say that, just for the small business, that the mix shift towards kind the higher-end Pulse. Is $50 still a good number for kind of residential, just normal Pulse?

Yes, it's still running about $50 on average. We haven't seen any meaningful moves there.

[Operator Instructions]

Our next question is from the line of Nigel Coe, Morgan Stanley.

This is Jiayan filling in for Nigel. Can you please just provide an update on your dealer fleet? I think the number you provided last year was you ended 2013 with 350 dealers? Have you been increasing dealers, recruiting more? And maybe a little bit update on the new 5-year contract with Defender Direct. Is there any difference in terms of -- like how is it different from your contract with other dealers?

So on the first question, Jiayan, I would say our dealer count is kind of stable. We were up, I think, 2 for the quarter, but that's on a net basis. We added a few good, high-quality dealers. We continue to weed out on the other side. So I'd say, we're pretty stable, but it's in the low 300s, not as high as 350 at this stage. I think we're right around 335, just if I remember correctly, in that range. And as far as the new agreement with Defender. Again, it was an extension of the existing agreement. We did change some of the multiples we pay to make sure that their incentives were aligned with ours. So they do get a little bit more, not just for Pulse, but for higher-end Pulse, to make sure that they want to drive the same products and the same mix of business that we're looking to drive internally.

And our next question is from the line of Jim Krapfel, Morningstar.

So I just wanted to get some more color on the competitive environment. Just sounds like -- or it appears that your competition really started to advertise more aggressively in the fall and winter. It may have pulled back a little bit in the spring and the summer period. I just want to hear if that's what you're seeing as well. And then, just trying to get a sense of your share of new customer additions in the industry and how that's trended really over the last 12 months or so.

Yes. Jim, I would say it has stabilized, would probably be the best description. We did see an aggressive ramp-up in that December-January time frame. I think we've adjusted, and we have ramped up our advertising spend, even though it may not show in our dollars because we've become more efficient in other areas. And I think the past, I'd say, quarter and a half or so, I'd characterize it as stable at this stage. It's -- there are no good external metrics as to what's going on from a share perspective, so I kind of look at how we're performing, 250,000 gross adds in the quarter between our direct and dealer channel, again, slightly below last year still, but clearly, nice sequential improvements. So I feel pretty good about where we are, and especially with our focus on quality growth. I'm comfortable and we'll continue to improve that, while maintaining the quality as we move forward.

Great. Lisa, that's all the time we have for today. Thanks, everybody, for joining our call. And if there's any follow-up, please feel free to give us a call here. Thank you.

Thanks very much. Ladies and gentlemen, that concludes today's conference call. You may now disconnect your lines. Have a good day. Thank you.