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COMPANY PROFILE

ADT Inc

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ADT Inc TABLE OF CONTENTS

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TABLE OF CONTENTS

Company Overview ........................................................................................................ 3 Key Facts ......................................................................................................................... 3 SWOT Analysis ............................................................................................................... 4

ADT Inc Company Overview

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Company Overview

COMPANY OVERVIEW

ADT Inc (ADT) is a provider of monitored security, interactive home and business automation services. The company offers home and business security systems and services for video surveillance, access control, temperature monitoring, flood monitoring, fire and smoke, carbon monoxide monitoring, and other environmental conditions and hazards. It also offers personal emergency response system products and services, maintenance and installation services. ADT serves owners of single-family homes, retail businesses, medical offices, financial institutions, food and beverage service providers, and professional service providers, among others. The company distributes products directly and also through a network of distributors across the US and Canada. ADT is headquartered in Boca Raton, Florida, the US.

The company reported revenues of (US Dollars) US$4,581.7 million for the fiscal year ended December 2018 (FY2018), an increase of 6.2% over FY2017. In FY2018, the company’s operating margin was 0.1%, compared to an operating margin of 6.5% in FY2017. The net loss of the company was US$609.2 million in FY2018, compared to a net profit of US$342.6 million in FY2017.

The company reported revenues of US$1,283.7 million for the second quarter ended June 2019, an increase of 3.3% over the previous quarter.

Key Facts

KEY FACTS

Head Office ADT Inc 1501 Yamato Road Boca Raton Florida Boca Raton Florida USA

Phone 1 561 3227235 Fax Web Address www.adt.com Revenue / turnover (USD Mn) 4,581.7 Financial Year End December Employees 19,000 New York Stock Exchange Ticker ADT

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SWOT Analysis

SWOT ANALYSIS

ADT Inc (ADT) is one of the leading providers of security, interactive home and business automation and alarm monitoring services. ADT's strong market position, improving cash reserves and sales and distribution channel are its strengths, even as declining profitability could be a cause for concern. Strategic acquisitions and growing construction industry will provide growth opportunities for the company. However, intense competition could impact ADT's business, results of operations and cash flows.

Strength

Market position Sales and distribution channel Improving Cash Reserves

Weakness

Declining Profitability

Opportunity

Strategic Acquisitions Increasing demand: Smart Homes Positive Outlook for the Global Construction Industry

Threat

Changing Customer Preferences Lawsuits and litigations Intense competition

Strength

Market position

ADT has a strong position in the markets in which it operates. It is one of the leading providers of monitored security, interactive home and business automation and related monitoring services in the US and Canada. The company is also one of the largest full-service companies with national footprint offering residential and commercial monitored security. It serves approximately 7.2 million customers in the US and Canada; and handles 15 million alarm signals annually and provides support from around 240 sales and service locations in the US and Canada.

Sales and distribution channel

ADT has a well-established sales and distribution channel that includes a mix of direct and indirect channels. This multichannel model provides unique advantages to the company. It also secures new customers through authorized dealer program, and to a small extent, through agreements with homebuilders and related partners. The company has around 250 authorized dealers across the US and Canada. The company operates 12 monitoring facilities which provide 24/7 support services.

Improving Cash Reserves

Sufficient cash or assets that are easily convertible to cash provide more flexibility to the firm and reduce

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investors’ risk. The increasing cash reserves indicate the company’s ability to obtain debt to finance acquisitions, capitalize on business opportunities, and meet capital expenditure or other capital requirements in the future. Such position is favorable enough to meet its short term obligations efficiently. ADT reported an increase in the cash and cash equivalents in FY2018. The company had US$363.2 million in cash and cash equivalents in FY2018, as compared to cash and cash equivalents of US$122.9 million in FY2017, reflecting an increase of 195.5%.

Weakness

Declining Profitability

The company’s profitability declined considerably in FY2018. It recorded low operating income and margins. Its operating margin was 0.06% in FY2018, as against 6.54% in FY2017. The company reported operating income of US$3 million in FY2018 indicating a decrease of 98.9% over that for FY2017. As a result, its operating margin declined 647 basis points (bps) over 2017, which may indicate that the company's cost management and pricing strategy could be weakening. In FY2018, the company recorded a fall in its various profitability indicators. The company’s return on equity (ROE) was (14.4%) at the end of FY2018, as compared to 9.98% in FY2017. Its return on capital employed and return on assets were 0.02%, and (3.56%) in FY2018, as compared to 1.75% and 2% respectively in FY2017. The fall was due to an increase in operating expenses, owing to which its profitability also declined considerably.

Opportunity

Strategic Acquisitions

The company focuses on expanding its operations through several acquisitions. In February 2019, the company acquired LifeShield LLC, a provider of advanced wireless home security systems. The addition of LifeShield would enable ADT to enhance its offerings and customer base across the US. In December 2018, the company acquired Red Hawk Fire & Security, a provider of commercial fire, life safety, and security services. This acquisition would accelerate its growth in commercial security market and could expand its product portfolio.

Increasing demand: Smart Homes

The strong growth in the smart home market would drive the demand for home automation products of ADT and enhance its top line in the future. The smart home market has been growing at a robust pace in the developed countries and is expected to grow strongly due to the regulatory initiatives from various governments and an increased consumer interest in reducing the energy consumption. According to the International Housewares Association, the smart home market in the US has entered the mass market phase of consumer adoption and is expected to reach approximately US$40 billion by 2020. Customers’ intentions to save time, money and energy, and adoption of technology are likely factors for this growth. ADT is one of the leading providers of home automation products and services in the US and Canada. The company's home automation products enable customers to manage security, lifestyle and home, which include receiving security alerts, adjusting thermostat, controlling appliances and lighting,

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controlling customized programs, and locking and unlocking the door, among others.

Positive Outlook for the Global Construction Industry

ADT is likely to benefit from the positive outlook for the global construction industry. According to in-house research, the global construction output is expected to increase at an annual average growth of 3.4% during 2019 and 2023 (forecast period). The improvement is entirely owing to acceleration in construction activity in emerging markets, most notably in China. The construction industry in emerging markets is estimated to grow at a faster rate than the advanced economies. The average annual growth in emerging markets is expected to be 4.7% in the forecast period, while advanced economies are estimated to grow 1.7%. The Asia-Pacific region will continue to account for the largest share of the global construction industry due to large markets such as China, Japan and India. The emerging markets of South-East Asia are expected to invest heavily in new infrastructure projects, supported by private investment. The Middle East and African regions are expected to perform better than all other regions in the construction industry during the forecast period. Large-scale investment in infrastructure projects, mostly related to transport, will be a key driving force behind the growth in the region. Construction activity across Eastern Europe and Central Asia also expanded at a rapid pace in 2018, primarily reflecting recovery in a number of markets, as EU funding was restarted after a hold-up in 2016. Despite weakness in Russia’s economy, construction is reported to have grown sharply in 2018, and investment in road and rail projects in addition to a recovery in the oil and gas sector will support a recovery in Russia’s construction output. The construction output growth in the Middle East and Africa are estimated to grow in the forecast period with 5.9%, followed by Eastern Europe (3.2%), Asia-Pacific (4.4%), Latin America (2.6%), Western Europe (2.3%) and North America (1.2%).

Threat

Changing Customer Preferences

The increasing adoption of bundled services provided by telecommunications service providers might lead to a decline in the demand for ADT's services. The growing trend of customers switching to use of cellular, satellite or internet communications technology in their homes and businesses, and telecommunications providers may discontinue their land-line services in the future. In addition, many of the company's customers who use cellular communications technology for their security and home/business automation systems use ADT's products that rely on second generation (2G) cellular technology. Further, older installed security systems use technology incompatible with the newer cellular, satellite or internet communications technology, such as third generation (3G) and fourth generation (4G) networks, and will not be able to transmit alarm signals on these networks. The discontinuation of land- line, 2G cellular and any other services by telecommunications providers, and the switch by customers to the exclusive use of cellular, satellite or internet communications technology may require system upgrades to alternative, and potentially more expensive, technologies to transmit alarm signals and for systems to function properly. This could increase customer attrition rates and slow new customer generation. The company may be required to upgrade or implement other new technologies, including offering to subsidize the replacement of customers' outdated systems, at ADT's expense. Any technology upgrades or implementations could require significant capital expenditures and also divert management's attention and other important resources away from its customer service and sales efforts. In addition, any

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inability of the company to successfully implement new technologies or adapt existing technologies to changing market demands and customer preferences may affect its customer base.

Lawsuits and litigations

The company is subject to various claims and lawsuits in the ordinary course of its business. These lawsuits and litigations may include contractual disputes, employment matters, product and general liability claims, infringement of intellectual property rights of others, claims related to alleged security system failures, and consumer and employment class actions. The company may face legal actions pertaining to violation of the California Business and Professions Code and the California Health and Safety Code. Defending against any of these pending or future actions will likely be costly and time- consuming and could significantly divert management's efforts and resources. Any involvement in such legal issues may burden the company with additional cost impacting the results of operations and cash flows.

Intense competition

The company operates in highly fragmented securities systems market in the US , which is intensively competitive. The company competes with a number of major firms and thousands of smaller regional and local companies. The fragmentation of the industry is primarily due to low entry barriers and the availability of wholesale monitoring. The major competitors of the company within the security systems market are Vivint, Comcast and AT&T. The company experiences competitive pricing pressures on installation, monitoring and service fees. The company also faces competition from improvements in Do- It-Yourself (DIY) or self-monitoring systems which enable customers to monitor and control their environments without third-party involvement through the internet, text messages, emails or similar communications. In addition, the changing technologies, leading to the potential new entrants into the markets intensify the competitive environment. ADT also competes with cable and telecommunications companies that are expanding into the monitored security industry and are bundling their existing offerings with monitored security services. Continued pricing pressure or improvements in technology and shifts in customer preferences towards self-monitoring or DIY could impact ADT's customer base and/or pricing structure and have a material adverse effect on its business, results of operations and cash flows.

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