Good day, ladies and gentlemen and welcome to the Q4 2014 ADT Corporation earnings conference call. [Operator Instructions]. As a reminder, this call is being recorded for replay purposes. I would now like to hand the call over to Mr. Tim Perrott, Vice President of Investor Relations. Please proceed, sir.

Thank you, Michelle and good morning to everyone and thank you for joining us for our call to discuss ADT's fourth-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 remind you and remind everyone 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 in our Form 10-K for the year ended September 26, 2014, which we expect to file with the SEC later today. In our fourth-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 discussion. For those of you following on the webcast, we will be using this slide deck to supplement our commentary this morning. Please note that, unless otherwise mentioned, references to our operating results exclude special items and these metrics are non-GAAP measures. Now I would like to turn the call over to Naren. Naren?

Thanks, Tim and good morning, everyone. Thank you all for joining our call today. We hope you had a chance to review our earnings press release we issued earlier this morning that highlights our results for the fourth quarter and our fiscal full year 2014. This morning, I will discuss our key performance highlights and accomplishments for the quarter and the year. Then our CFO, Mike Geltzeiler, will provide additional details on our financial and operational performance, as well as our outlook for 2015. We delivered a strong finish to the year driving another quarter of improved results, in line with our most recent guidance in creating good momentum to drive profitable growth in the year ahead. We have improved our execution, achieved many of our major goals for the year and crossed some important milestones. We have also strengthened our competitive position and the results of our action are evidenced in the quarter by an increase in gross adds, a reduction in attrition, improvement in cost efficiencies and strong margin performance. Before I go into detail, I'd like to reflect back on our progress and the path we've been pursuing to improve our performance. Over the past 2 years since becoming a public company, we've been working to complete our post-separation activities and taking several steps to further strengthen the foundation for ADT. Since the spin, we've built a new leadership team, enhanced our customer focus and invested in the business, all in order to improve execution and take ADT to the next level. I'm proud of the senior team that we've assembled and of all of our employees for what we've accomplished over the past year. We have the right team in place with the right strategy and operational focus to drive the business forward. At the beginning…

Thanks, Naren. After a slow start to the year, the Company has now delivered 3 consecutive quarters of above expectation performance. Our financial results and underlying operating metrics progressively improved throughout the year punctuated by a strong fourth quarter providing us favorable momentum as we head into 2015. We accomplished this while continuing to invest in growth, closing the Protectron acquisition and preparing for our launch into the mid-size commercial market. And while we are pleased with the fourth-quarter results, we have larger aspirations in the year ahead. Over the next few slides, I will review our Q4 performance and provide some guidance for 2015. Slide 9 provides an overview of our GAAP and non-GAAP results. Recurring revenue was up 5.4% to $819 million and accounted for nearly 93% of our total revenue. Adjusting for the decline in the Canadian dollar, recurring revenue was up nearly 6%. Total revenue rose 4.4% or 4.7% at constant exchange rates. The gap between recurring revenue growth and total revenue growth reflects lower levels of non-recurring revenue, particularly in our business channel as the unit is shifting away from low margin one-time sales of DVRs towards a more profitable recurring revenue model of selling hosted video services. This trend will continue into 2015. The consolidation of Protectron's results for the first time in the fourth quarter contributed about two-thirds of the revenue growth in the period. However, since Protectron currently operates at a lower margin than our ADT business, the consolidation had a dilutive impact to EBITDA margins in the period and also increased our D&A. EBITDA for the quarter was $458 million, up 6% or $27 million over prior year. This translated to an EBITDA margin of 51.9%, an increase of 100 basis points year-over-year. Good execution of our cost efficiency initiatives drove…

Thanks, Mike. I'm proud of our team and what we accomplished in 2014, but also recognize that we have much more to accomplish in the year ahead. We will continue to focus on execution and making smart investments to grow and strengthen our foundation for the future. On slide number 17, I've highlighted 5 priorities that we're focused on in 2015 in support of our goals. We will continue to invest in our business in order to generate growth, as well as to defend our leading position in the monitored security industry. We remain focused on improving the customer experience and retention, a significant value driver for our business and continue to drive cost efficiencies through a number of initiatives. We will also pursue and invest in new growth opportunities, expanding into the mid-size commercial market for one example and work to integrate Protectron and create a growth platform in Canada. With that, we will open up for questions. Michelle, can you provide the instructions for asking a question?

[Operator Instructions] Please stand by for your first question.

Yes and I'd like to remind those that will ask questions today to keep it to one question and then a follow-up, if we could do that so everybody gets a chance to get their questions asked.

The first question we have comes from the line of Charles Clarke from Credit Suisse. Please go ahead your line is now open. Charles Clarke – Credit Suisse: Hey, guys, congrats on another solid quarter. I was just hoping, first, if you could highlight where you were in terms of various initiatives to improve the SAC creation multiples. I know in the past you guys have spoken about wireless equipment helping reduce the install times, more efficient advertising spending, more self-generated leads to drive more direct adds. If you could expand on those initiatives, as well as the timing of when those may start to help the numbers and maybe any other initiatives that I may have missed. I think that would be helpful for me, especially in the context of guidance to kind of bring down creation multiples again next year.

Sure, Charlie. I will start and maybe Mike can chime in on a couple. Clearly, one of the big keys is the wireless Pulse platform that we have talked about in the past and Mike mentioned in his comments. We've begun the rollout of that across our residential business footprint. At this stage, we've rolled out about half of our footprint, really starting aggressively towards the end of the fourth quarter and as we moved into the first quarter of FY ‘15. We expect to be rolled out across our entire platform I'd say by mid-second quarter, second fiscal quarter and again, that will be a continuous ramp-up. The initial focus is for the higher-end Pulse solutions, those that include automation and then over time, we will look across the entire Pulse platform. As I mentioned in my comments, self-generated sales per rep are up about 10% year-over-year. We've done a lot of work in collecting the best practices across our footprint and sharing those with all of our sales managers and our sales reps. And it's a story of teaching a person to fish, so I think we're starting to see some real nice traction there, but we've got plenty of room ahead of us on that in order to get the balance that we think will be appropriate for the business. And then we continue to drive other productivity initiatives. Mike mentioned the new electronic contracting. That's a big customer satisfaction, but it also eliminates a couple steps in our installation and activation process and the scheduling process as well. So we are very excited about what that project can do for us. We are again early in the rollout, starting with our small business or our business channel first and then we will be rolling that out across residential towards the latter part of the year. Charles Clarke – Credit Suisse: Great, thanks. And then second on attrition, congrats on now having over a million Pulse customers under contract. With this many Pulse customers under contract, are you guys still confident that the Pulse customers will exhibit better attrition characteristics when compared to the traditional customers?

Again, with only 4 years under our belt, we clearly don't have as much of lifing data as we have on our traditional customers, but based on the data we have, we are seeing better retention characteristics, especially for the automation customers. So that drives much higher engagements, so we're still confident that we can continue to drive improvements as Pulse becomes a bigger part of our overall customer base. Charles Clarke – Credit Suisse: And with the non-pays, I know that that's hurt additions over the past couple quarters, is that going to be a tailwind for attrition next year? Will that start to impact it next year?

Non-pays really are just again an overall progress we're making just in terms of improving the customer experience, changes we've made with the collection team to get focused more on resolution of issues. So I think we continue to see that category of attrition decline. And we have, as I indicated, a number of initiatives like the largest being the credit screening. We really didn't fully launch the credit screening for the direct salesforce, the 10-year screening, until the fourth quarter. We were testing it as we went through the year, so you don't really see the benefit of that. One of the largest categories of non-pay is the first 6 months, so it really is sort of 6 months after you bring a customer in that you would see the benefit in attrition on that. So I think that's something that will benefit us in 2015 as we have now fully rolled out that credit screening. Charles Clarke – Credit Suisse: Great. Thanks a lot, guys.

Thanks, Charlie.

The next question we have comes from the line of Jeff Kessler from Imperial Capital. Please go ahead. Jeff Kessler – Imperial Capital: Thank you. First, could you talk about – your Q4 last year was strong relative to the rest of the – earlier on in the year and then obviously you had some weakness in the beginning of this year. Granted, you've gone through what you've done somewhat on the infrastructure to put in place a more sustainable model so that this doesn't happen again. What is going to keep – can you tell us to convince us that the types of numbers that we are seeing and the types of growth we're seeing, metrics we're seeing in the fourth quarter, which was a good quarter, are going to be sustainable into 2015 the way you've just given us your outlook? The outlook sounds great, but what are the infrastructure differences that you can stand on now to make those assumptions?

I will highlight a couple things. One is, remember, there is some seasonality in this business, so Q4 to Q1 gross adds I don't necessarily expect a growth because we're getting out of the summer season where we have a lot more activity. That said, looking more on a year-over-year basis, I would say a couple changes. One, from a marketing perspective, I think we've just got a better portfolio of offers and if there are some competitive changes in the marketplace, some aggressive competitive offers, I think we've got a good portfolio of things that have been tested and we have the confidence that we can roll those out quickly across the organization. Secondly, as we've discussed, we have seen nice steady improvements in the self-generation with our sales reps and we expect to see continued momentum there, so they are not as dependent on the leads that we've got. We've strengthened our dealer channel and I think we are seeing good performance out of our dealer channel and not just total point of units generated, but also the stronger focus on Pulse with our dealers. So I think we've got good momentum in that channel as well. And then, finally, I would say some of the other partnerships that we've developed, which again at a minimum provide us new lead generation opportunities and in some cases really new distribution channels like the relationship that we talked about with Best Buy that's just very early in that pilot, but we're excited about that opportunity. So I think we just have a lot more arrows in the quiver than we had a year ago at this time. Jeff Kessler – Imperial Capital: Okay. The second question is, and you did mention that your non-recurring revenue, low-margin sales of DVRs were kind of going away moving toward hosted video services. This is quite interesting. Can you describe a little bit – I'm assuming a lot of this has to do with a small business opportunity, that maybe it has – ties in a little bit into (technical difficulty).

Sure, I'll kick it off. It's primarily in small biz or businesses as we call it today. Really the essence of it is we had a decent amount of sales historically selling DVRs to our customers at cost or sometimes a little less than cost. And I think that's both an additional outlay that our business customers have to incur and I think that the market is moving and we are moving the Company more towards us hosting those videos in the cloud and we've launched a number of products like that, as well as ancillary services we sell, which sort of move like the rest of the Company, move it from a 1-time sale to a recurring revenue model where people are leasing the activity. So it's more profitable for us; it's less of a cash investment for our customers. I think it will build the recurring revenue base, but it will also reduce – now the good news is it's also reducing the cost, so in a 1-time sale, you are breaking even, it certainly will – it's not hurting your EBITDA, but you will see some of it in the non-recurring revenue decline year-over-year.

I think the other thing I'd add to that, Jeff, is it allows us to bundle it with other value-added services like analytics, which should make those services sticky. When they were just buying the camera and DVR, many of them were discontinuing the service aspect of that. With analytics and other things that we can deliver through that cloud-based solution, hopefully we'll see better stickiness as well.

The next question we have comes from the line of Ian Zaffino from Oppenheimer. Please go ahead. Your line is now open. Ian Zaffino – Oppenheimer & Co.: Hi, great, thank you very much. I wanted to touch on the 2015 guidance. As you look at your recurring revenue growth, how much of that is new customer adds, how much of that is pricing? Also, how much is commercial and what would we expect maybe from like the non-recurring revenues on the commercial side? Thanks.

We are not providing that level of granularity, but commercial is an investment; you need to understand that. We really are starting from the beginning of this year. Commercial is a little different model. We will definitely – the installation and the sale of the unit will probably be at a profit more than a financing. And yes, we will be building a recurring revenue, but it builds over time as you bring the customers in. So it's not going to materially impact. It will benefit, but it will not materially impact the recurring revenue for the period. In terms of the pricing and new customers, I think we continue to trend in the way we are guiding that with attrition coming down and adds growing, at some point, you start to go from where we were this year, which was a net customer loss to closer to customer growth again. So I think, in the meantime, we feel good about pricing as I mentioned, and about ARPU trends as we increase the amount of customers on Pulse, add additional services, the hosted video we discussed, etc. So again, I think we will continue to report those metrics. Ian Zaffino – Oppenheimer & Co.: Okay. And then on – just staying on the commercial side for just one more question. As you look at the recurring revenues that you are going to generate on the commercial side, is it primarily that you're just on the smaller side of the commercial business, so therefore the mix of recurring/non-recurring would be very similar or are you going to move to a model that is going to be more let's just say hardware-focused?

I think it will be a mix, Ian. As we move into above small business to that mid-size segment, I think you'll see probably a little bit more non-recurring revenue there, but we're still focusing on those customers that will deliver good solid recurring revenue, but it would be a little different mix than what we have with our small business customers.

And customers, as the installations are a little more sophisticated, customers tend to want to own their systems rather than having ADT own it. So if the customers own it, we recognize it as a sale whereas ADT owns it, it's amortized over time. Ian Zaffino – Oppenheimer & Co.: Okay, thank you very much.

The next question we have comes from the line of Shlomo Rosenbaum from Stifel. Please go ahead. Your line is now open. Shlomo Rosenbaum – Stifel Nicolaus: Good morning. Thank you for taking my questions this morning. Mike, I just wanted to ask you a little bit about attrition rates because we're layering in Protectron. It has materially lower attrition rates and can you just give us an indication as to the unit attrition rate sequentially, where they went, in order to get down to the level we talked about? Because it looks to me like, if I just do the math, it's possible that the unit attrition rates would've gone down maybe a tick, 10 basis points or something like that and still come out with the same number. Does that sound right to you?

As we indicated on the call, Protectron does have a lower attrition percent. Now keep in mind it's small and we're only talking about 370,000 customers. For the fourth quarter, it was barely an impact, a 10th of a percent on 1 metric and no movement on the other metric because we only have 1 quarter. As we roll it out for the year, there will be a little bit of – certainly a little bit of tailwind from Protectron consolidating their numbers into our numbers, but it's not materially changing the improvements and the messaging of the improvement. But as you know, we've indicated in our guidance – we didn't say we were going to be at 13%. We are guiding we are going to be below 13% and it's fair to say that Protectron will have a small improvement for the full year next year. Shlomo Rosenbaum – Stifel Nicolaus: Okay, thank you. And then just to kind of parse the numbers on the core business, it looks like the dealer, even if I exclude Protectron, certainly had an improvement and I know it's a high focus area for the Company. On the direct side, if I take out the Protectron gross adds, you are flat sequentially. And I was wondering how we should think about that? Is that the enhanced credit screening process, is there something else going on over there I should think about or seasonally is that the way we should normally expect? I would've kind of thought a little bit of a tick-up on the organic direct gross adds.

I'll start and Naren can – just remember that, first off, that excludes upgrades, so we did double the upgrades this quarter as well, but being kind of in line with last year – someone mentioned earlier on the call that we had a very strong fourth quitter last year in both direct – actually more direct than even dealer last year. So kind of being in line with – sequentially higher than third quarter, in line with the prior year, which was a very strong prior year with what was probably our best performance of the year. So I think we do agree that our guidance is for improvement next year year-over-year, but that the fourth quarter was actually stronger than it had been throughout this year, but albeit in line with last year. Shlomo Rosenbaum – Stifel Nicolaus: I'm looking at it sequentially, if you take out the Protectron gross adds sequentially, the direct number looks to be the same as last quarter.

It's definitely up quarter sequentially. That Protectron number, most of their gross adds, that 17,000 that Mike and I talked about is in the dealer channel.

There is only 4,000 gross adds from Protectron direct.

On the direct side. Shlomo Rosenbaum – Stifel Nicolaus: All right, maybe I have to go back over the math.

Take 4,000 out of our number, so there was 17,000 in total, 4,000 direct, 4,000 bulk and the rest dealer. So when I look at our direct channel, we were definitely up sequentially meaningfully in the I'd say high single digits.

We were up 8,000, 8,000 adds sequentially without Protectron.

And we're down slightly year-over-year with much of that being driven by the enhanced credit screening. Shlomo Rosenbaum – Stifel Nicolaus: Okay, great. Thank you.

The next question we have comes from the line of Jason Bazinet from Citi. Please go ahead. Your line is now open. Jason Bazinet – Citi Investment Research: Thank you. I have a question for Mr. Gursahaney. In 2012, at your Analyst Day, you laid out the recurring revenue growth historically on an organic basis, 2008 to 2012, of sort of 4% to 6% with the view that between 2013 and 2017, it could be more like 5% to 7%. As we went through this last year, I think we understand the source of the top-line weakness given what happened with gross adds and attrition, but given the improvements that you're making on both fronts and the strong Pulse adoption, why is the recurring revenue growth outlook in that 2% to 3% range if you back out Protectron? What is it that's causing that?

It's a great question, Jason. And when you look at it over a 1-year period, the gross adds in FY ‘14 is what really drives the recurring revenue growth in FY ‘15. So the fact that we had a soft first half of the year will definitely impact the growth rates and you've seen the deceleration as we move through this year, excluding Protectron. We expect to turn that corner and start seeing an acceleration again as we move forward, but it really just is the impact of the slow gross adds and the sluggishness we saw in the first half of this year. Jason Bazinet – Citi Investment Research: Okay. Is there anything going on – this may be a smart business decision, but is there anything going on on the installed base where you guys are going out and discounting to protect the customer from defecting to a rival that makes the churn numbers look better, but it sort of manifests itself in a lower recurring revenue or is that not what's going on?

When you look at our revenue attrition, it would be captured in the revenue attrition number and we still report both unit attrition and revenue attrition. Again, I think we do have a loyalty desk, so there are certain cases where we may, but that's a very, very small percentage. We're continuing to have modest escalations in our prices and I would say the big focus for us on the installed base is driving Pulse upgrades there to enhance the functionality that those customers get.

And as I mentioned, the ARPU for new and resale was up 7%, excluding Protectron, and up 4% in average. And that's where you would see it. So if anything, as we look at it, the level of credits are lower than they have been in the past, but we are definitely focused on the customer experience and retention. So with SAC being down and with the ARPU growing, those are the 2 metrics I look at and the revenue attrition, as Naren mentioned, that are telling a different story. Jason Bazinet – Citi Investment Research: Understood. Okay, thank you very much.

Thanks, Jason.

The next question we have comes from James Krapfel from Morningstar. Please go ahead. Your line is now open. James Krapfel – Morningstar: Hi, good morning. Thanks for taking my questions. So just curious to hear your thoughts on the competitive landscape and just general industry promotional activity that you're seeing.

I would say that things have been pretty stable for the past couple quarters. I haven't seen anything meaningfully new in the 20% of the market that is really focused on professionally monitored security. I think over the past couple quarters, most of the activity and announcements that I've seen have been focusing on the other 80% that tends to be either unmonitored or self-monitored. I would say stable in our core business where we've been traditionally focused. James Krapfel – Morningstar: Okay. And then previously you've given guidance on EBITDA margins expanding by 150 basis points over a 3-year period. So you've got 70 basis points this most recent year. It looks like in your guidance you are guiding to about flat margins this year. Correct me if I'm wrong there and then do you still anticipate the 150 basis points over that 3-year period?

I think there's 2 things in there that have been a little bit of headwinds. One is the consolidation of Protectron. Protectron runs at lower margins and hence that is dilutive to our EBITDA margins and 2 are some of the investments that Mike talked about as we now look to grow our presence in that mid-tier mid-size business market, as well as in the health business. So I would say, as we look at our core business and strip out those things, we are continuing to drive improvements in the rates. But those headwinds will – the reported numbers may not – .

If I could just add to what Naren said, we're totally committed to that on a core basis. I think to get the numbers straight, so without Protectron, we were 52% this year, 52.0%, so we are up 90 basis points of that 150. We will continue to drive that 150 on an underlying basis. Unfortunately, commercial, the growth in health, the Protectron and some other strategic things we're doing that are a different model and a different margin model in our opinion make margins – we're absolutely driving that on the core business – but make that as an external metric not the right metric. And then our goal is to grow – to pursue profitable growth and to grow EBITDA with the right ROI characteristics. So that's why we didn't throw that out there, but we will obviously be continuing to be reporting EBITDA margins as we always have. James Krapfel – Morningstar: Got you. That's helpful. Thank you.

Great. Michelle, I think we are going to have time – I think we have some of those who got back into the queue maybe for 1 question each, so we will just take 1 or 2 more questions and then we will have to cut the call off.

Okay. The next question we have comes from the line of Jeff Kessler from Imperial Capital. Please go ahead. Jeff Kessler – Imperial Capital: Okay. We've talked a lot about Protectron and what it does to the cost of getting an EBIT – putting it together, EBITDA margins being affected, adds being affected. What are you going to do to get your return on capital employed? Meaning what are you going to do to get Protectron integrated into ADT so it runs at ADT level margins and ADT level adds?

We're still very early in the integration planning and the integration work there. We've got some expectations of the teams this year, what they're going to deliver, but that is going to be a two-year integration process. Clearly, when we valued the deal, we valued some level of synergies and operational improvements, as well as some things that they could help us with, particularly on the attrition side. So again, that's not going to be a long term; I think that's going to be what we deal with over the next 18 to 24 months.

Yes, it's a scale issue. We're using the ADT margin as overall. We're not saying that ADT Canada has that same margin as the Company either. When you are a business up in Canada with all their infrastructure that's necessary, you will have lower – Protectron has excellent margins and as Naren mentioned, they will be helping ADT Canada. ADT Canada will be helping Protectron and I think the parent company will be helping [indiscernible]. I think with the synergy opportunities, we're very comfortable that we – a margin enhancer will be bringing this business into the portfolio over time.

Okay. Thank you.

Last question and just one more question. I think there's a follow-up.

Yes. The last question comes from the line of Shlomo Rosenbaum from Stifel. Please go ahead. Your line is now open. Shlomo Rosenbaum – Stifel Nicolaus: Hi, thank you for letting me back in. My question was more on attacking that 80% of the market that has not historically been the core. Can you just elaborate a little bit more about the do-it-yourself pilot that is going on with DEFENDER Direct? And then also what the strategy is in Best Buy because I understand that the overwhelming majority of your contracts are closed over the kitchen table. Is Best Buy doing a do-it-yourself type offering or how are you guys attacking that retail channel? It's really a different mode of sale than what you guys have normally done. Thank you.

Sure, I'll cover that. The DEFENDER Direct pilot that they are doing for a DIY solution is really still focused on that 20%. There are a few DIY companies in the marketplace today with a product offering that is very similar to what we install, but maybe a little bit easier than allowing the customer to self-install. They have got a solution out there that is professionally monitored by ADT that they are testing. I would argue that that really still focuses on the 20% versus the 80%. What we're doing with Best Buy today is very much of a lead generation, kind of try and understand Pulse and what Pulse capabilities are. But ultimately that still leads to an appointment with a sales rep and then that sale over the kitchen table. I think over time you will see us – we're looking at that DIY market and seeing if there is an opportunity. I think we're excited by what we do see. We've still got some more work to do to understand the value of a professionally monitored solution in there to make a smart home truly a smart and safe home and that's the opportunity we see and we will be talking more about that as we move forward.

And we could leverage the Best Buy relationship for that offering.

Okay, Michelle, I think that's all the time we have for questions today. Naren, any just final thoughts before we turn the call?

Again, I just want to reiterate our focus for 2015. Number 1 is going to be continuing to drive profitable growth in the business across all channels and all geographies. 2 is we are going to continue to invest in the business, to strengthen our leadership position and develop new capabilities. 3 is we have got a relentless focus on customer and customer retention and delivering a great customer experience. And I'd say 4 will be the integration of Protectron and building that growth platform for the future in Canada. I think all of our leadership team feels good about the way we ended 2014 and the momentum that we carry into 2015 and we continue to be very excited about the future of this business. So thank you all for your time and interest.

Great, thank you. Michelle, that's all the time we have for the call today and thanks, everyone, for joining.