Tyco International Ltd. (

TYC

)

Barclays Industrial Select Conference Call

February 23, 2012 02:05 pm ET

Executives

Naren Gursahaney - President, Tyco Security Solutions

Analysts

Scott David - Barclays Capital

Presentation

Scott David - Barclays Capital

Compare to:
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We are thrilled to have Tyco with us here and obviously Tyco is going through a bit of a transition period and breaking up into three separate companies, you’re going to have ADT North American and Naren’s going to talk about this in a second. The flow business and then the commercial business, a break up that was announced, was it this summer?

Unidentified Company Representative

September, September. It was announced in September.

Scott David - Barclays Capital

September, okay. That's right, I was thinking it was August but yeah, September that sounds right. I was on gardening leave and most of that time I came back, it was announced. But anyway, obviously this breakup makes a lot of sense into parsing into three very focused companies. One of the more interesting pieces obviously from our perspective it is indeed ADT. I have always felt on a personal and analytical level that it is a misunderstood and maybe in some way, shape or form, really it’s a new word I am looking for.

Unidentified

Company Representative

I am not even going there. Exciting there…

Scott David - Barclays Capital

It’s less love than it ought to be. Let's just put it that way. It’s highly cash generative. I think the growth can be very reasonable. I think there's a tendency for people to try to comp these guys, the cable providers and I think cable would love to have these guys problems, right I mean, cable doesn't really grow and you guys do, you certainly can.

There's always a lot of chatter about increased competition and such that's never been a concern of ours, but obviously something that will have Naren address as well. Antonella Franzen is here also and she is miked up if you have any general Tyco questions I am she should be happy to field them within reason, but Naren why don’t we, I know there is some background that you wanted to at least make some opening comments and than we can move into Q&A and obviously we want to get the audience involved as well as fast as we can as well. So, with that perfect.

Naren Gursahaney

Well, first of all I think I will speak on behalf of our entire management team. We’re very excited about the prospect of ADT being a standalone public company. I think we’re in a great industry, large, resilient and still growing security industry and I think ADT has just got a great position within that industry. It’s about a $12 billion market with what I think is good growth prospects right now and a steady environment with even the potential for some upside if in fact the new home construction market ever picks up again. So I think there’s some good market dynamics in the industry right now.

Penetration of residential securities is still only at 20% and when you look at that against other home based services, we think over time as long as we can strengthen the value proposition to customers, we can grow that penetration rate and like I said ADT has just got a great position within that market. We are the clear market leader with a great brand, a very strong field force of sales, install and service technicians, a robust monitoring infrastructure that supports those customers and a very strong customer base of over 6 million customers right now.

From a business model perspective, I think Scott hit the nail on the head. It probably is a misunderstood business because it is very different from the other business models even within Tyco. It’s a subscriber-based business model where we are making investment up front in our subscriber acquisition cost and we get that return overtime through the monthly recurring, monitoring and service revenues that we generate.

I think as a leadership team, our team has demonstrated our ability to improve those key business drivers over the past several years. And when you look at our strategy going forward, it’s just building on the successes that we have demonstrated over the past several years as well as some interesting potential growth opportunities that will be beyond kind of the base case if in fact we can take the penetration rates up to other comparable home based services, small business where our share is probably lower than where it is on the residential side. And then kind of looking at some adjacencies, things like home health where the demographics kind of support the need to do some monitoring in there.

Clearly we’d have to build out our capabilities and build out a partner network to be successful in that space. But I think when you look at the opportunities, we see out there to just continue to improve our business model and ultimately grow it overtime, I think we are very excited about what we see out there.

Scott David - Barclays Capital

That’s interesting, I mean, I think, I am going to start with something more specific and may be we can work our way back to more general questions. But [Pulse] is a product that demoed first at the Trade Show I think four, five years ago. And it was the first security product that ever demoed where I said this one has got it. And I wouldn’t say that if I didn’t mean it. I really I thought it was a fantastic product and took a couple of years after that to come out and now it’s fully out and still, what’s in the customer feedback, I mean two kind of questions. I mean one customer feedback of people using it, do they like that? I mean, I am

in this technology stuff. So I use mine but and then what’s been the competitor response. I mean, I haven’t seen anybody else who has had anything overly interesting, but you would know better than us. So let’s address the feedback first.

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