ServiceMaster Global Holdings, Inc. Reports Preliminary Third-Quarter 2015 Financial Results

Third-Quarter 2015

  • Revenue increased 6% to $706 million with 12% and 5% growth at
    AHS and Terminix, respectively
  • Net income of $49 million or $0.36 per share versus a net loss
    of $4 million or ($0.03) per share a year ago
  • Adjusted net income(1) of
    $74 million or $0.54 per share versus $61 million or $0.46 per share a
    year ago
  • Adjusted EBITDA(2)
    increased 11% to $174 million from $157 million a year ago

MEMPHIS, Tenn.–(BUSINESS WIRE)–ServiceMaster
Global Holdings, Inc
. (NYSE: SERV), a leading provider of
essential residential and commercial services, today announced
preliminary unaudited third-quarter 2015 results. The company reported a
year-over-year revenue increase of 6 percent driven by strong organic
growth at American Home Shield (“AHS”), increased sales of new services
at Terminix and price increases.

Third-quarter 2015 net income was $49 million or $0.36 per share,
including a loss on extinguishment of debt of $31 million related to the
company’s redemption of its 7% Senior Notes due 2020, versus a loss of
$4 million or ($0.03) per share in the same period in 2014.

Third-quarter 2015 adjusted net income was $74 million, or $0.54 per
share, versus $61 million, or $0.46 per share, for the same period in
2014.

Third-quarter 2015 Adjusted EBITDA was $174 million, a year-over-year
increase of $17 million or 11 percent driven largely by increases at AHS
and Terminix of $13 million and $5 million, respectively.

Rob Gillette, ServiceMaster’s chief executive officer, noted “Since
going public in July 2014, we have reported six consecutive quarters of
year-over-year revenue and Adjusted EBITDA growth. As we implement our
mobile strategy across all our business units, we expect the convenience
of services we bring to our customers to result in continued growth and
profitability.”

 

Preliminary Consolidated Performance

 
      Three Months Ended September 30,     Nine Months Ended September 30,
$ millions 2015     2014     B/(W) 2015     2014     B/(W)
Revenue $ 706 $ 664 $ 42 $ 1,993 $ 1,880 $ 113
YoY growth 6.3 % 6.0 %
Gross Margin 338 320 18 957 897 60
% of revenue 47.9 % 48.2 % (0.3 ) pts 48.0 % 47.7 % 0.3 pts
SG&A (178 ) (176 ) (2 ) (512 ) (505 ) (7 )
% of revenue 25.2 % 26.5 % 1.3 pts 25.7 % 26.9 % 1.2 pts

Income (Loss) from Continuing Operations before Income Taxes

83 (5 ) 88 237 48 189
% of revenue 11.8 % (0.8 ) % 12.6 pts 11.9 % 2.6 % 9.3 pts
Income (Loss) from Continuing Operations 50 (3 ) 53 145 22 123
% of revenue 7.1 % (0.5 ) % 7.6 pts 7.3 % 1.2 % 6.1 pts
Net Income (Loss) 49 (4 ) 53 144 (76 ) 220
% of revenue 6.9 % (0.6 ) % 7.5 pts 7.2 % (4.0 ) % 11.2 pts
Adjusted Net Income(1) 74 61 13 201 135 66
% of revenue 10.5 % 9.2 % 1.3 pts 10.1 % 7.2 % 2.9 pts
Adjusted EBITDA(2) 174 157 17 498 443 55
% of revenue 24.6 % 23.6 % 1.0 pts 25.0 % 23.6 % 1.4 pts
Pre-Tax Unlevered Free Cash Flow(3) 125 120 5 463 387 76
 
 

Preliminary Segment Performance

 

Revenue and Adjusted EBITDA for each reportable segment and
Corporate were as follows:

 
 
      Three Months Ended September 30,     Nine Months Ended September 30,
Revenue     Adjusted EBITDA Revenue     Adjusted EBITDA
$ millions 2015     B/(W) vs. PY 2015     B/(W) vs. PY 2015     B/(W) vs. PY 2015     B/(W) vs. PY
Terminix $ 372 $ 19 $ 82 $ 5 $ 1,103 $ 54 $ 272 $ 24
YoY growth / % of revenue 5.4 % 22.0 % 0.2 pts 5.1 % 24.7 % 1.1 pts
American Home Shield 275 30 74 13 711 74 174 30
YoY growth / % of revenue 12.2 % 26.9 % 2.0 pts 11.6 % 24.5 % 1.9 pts
Franchise Services Group 58 (6 ) 20 1 178 (11 ) 58
YoY growth / % of revenue (9.4 ) % 34.5 % 4.8 pts (5.8 ) % 32.6 % 1.9 pts
Corporate(4)   1   (1 )     (1 )         2   (3 )     (6 )     1  
Total $ 706 $ 42 $ 174 $ 17 $ 1,993 $ 113 $ 498 $ 55
YoY growth / % of revenue 6.3 % 24.6 % 1.0 pts 6.0 % 25.0 % 1.4 pts
 

A reconciliation of income from continuing operations to both adjusted
net income and Adjusted EBITDA, as well as a reconciliation of net cash
provided from operating activities from continuing operations to pre-tax
unlevered free cash flow, are set forth below in this press release.

Terminix

Terminix reported a 5 percent year-over-year revenue increase in the
third-quarter of 2015 driven primarily by increased sales of new
services and improved pricing, partially offset by lower demand for
traditional termite services. Adjusted EBITDA increased 6 percent or $5
million versus prior year, driven primarily by the flow-through effect
of higher revenue, partially offset by higher selling costs during the
quarter.

American Home Shield

American Home Shield reported a 12 percent year-over-year revenue
increase in the third-quarter of 2015 driven by organic growth and price
increases. Adjusted EBITDA increased 21 percent or $13 million versus
prior year, primarily reflecting the flow-through effect of higher
revenue, partially offset by an increase in claim costs.

Franchise Services Group

The Franchise Services Group reported a 9 percent year-over-year revenue
decrease in the third-quarter of 2015 reflecting primarily the
conversion of company-owned Merry Maids branches to franchises. Adjusted
EBITDA increased 5 percent or $1 million versus prior year, primarily
reflecting cost reduction initiatives, largely offset by the
flow-through effect of lower revenue.

Cash Flow

For the nine months ended September 30, 2015, net cash provided from
operating activities from continuing operations increased to $229
million from $132 million for the nine months ended September 30, 2014.

Net cash used for investing activities from continuing operations was
$34 million for the nine months ended September 30, 2015 compared to $51
million for the nine months ended September 30, 2014.

Net cash used for financing activities from continuing operations was
$314 million for the nine months ended September 30, 2015 compared to
$274 million for the nine months ended September 30, 2014.

Pre-tax unlevered free cash flow(3) was $463 million for the
nine months ended September 30, 2015, compared to $387 million for the
nine months ended September 30, 2014.

Other Matters

On August 17, 2015, the company redeemed the remaining outstanding $488
million of its 7% Senior Notes due 2020. As part of the transaction, the
company paid $30 million in fees and pre-payment premium. To redeem the
$488 million 7% Senior Notes, the company used $118 million in cash and
incurred incremental borrowings of $400 million under its term loan.

Full-Year 2015 Outlook

The company anticipates that revenue will be between $2,580 million and
$2,590 million, a 5 percent increase compared to 2014. Adjusted EBITDA
is anticipated to be $620 million for the full-year 2015, an increase of
11 percent compared to 2014.

Third-Quarter 2015 Earnings Conference Call

The company will discuss its third-quarter 2015 operating results during
a conference call at 8 a.m. central time today, November 3, 2015. To
participate on the conference call, interested parties should call
888.225.2695 (or international participants, 303.223.4364).
Additionally, the conference call will be available via webcast. A slide
presentation highlighting the company’s results and key performance
indicators will also be available. To participate via webcast and view
the slide presentation, visit the company’s investor
relations home page
.

The call will be available for replay until December 3, 2015. To access
the replay of this call, please call 800.633.8284 and enter reservation
number 21780085 (international participants: 402.977.9140, reservation
number 21780085). You may also review the webcast on the company’s investor
relations home page
.

About ServiceMaster

ServiceMaster Global Holdings, Inc. is a leading provider of essential
residential and commercial services, operating through an extensive
service network of more than 8,000 company-owned locations and franchise
and license agreements. The company’s portfolio of well-recognized
brands includes American Home Shield (home warranties), AmeriSpec (home
inspections), Furniture Medic (furniture repair), Merry Maids
(residential cleaning), ServiceMaster Clean (janitorial), ServiceMaster
Restore (disaster restoration) and Terminix (termite and pest control).
The company is headquartered in Memphis, Tenn. Go to www.servicemaster.com
for more information about ServiceMaster or follow the company at twitter.com/ServiceMaster
or Facebook.com/ServiceMaster.

Information Regarding Forward-Looking Statements

This press release contains forward-looking statements and cautionary
statements. Some of the forward-looking statements can be identified by
the use of forward-looking terms such as “believes,” “expects,” “may,”
“will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,”
“projects,” “is optimistic,” “intends,” “plans,” “estimates,”
“anticipates” or other comparable terms. Forward-looking statements are
subject to known and unknown risks and uncertainties, many of which may
be beyond our control, including, without limitation, the risks and
uncertainties discussed in the “Risk Factors” and “Information Regarding
Forward-Looking Statements” sections in the company’s reports filed with
the U.S. Securities and Exchange Commission. We caution you that
forward-looking statements are not guarantees of future performance or
outcomes and that actual performance and outcomes, including, without
limitation, our actual results of operations, financial condition and
liquidity, and the development of the market segments in which we
operate, may differ materially from those made in or suggested by the
forward-looking statements contained in this press release.

Additional factors that could cause actual results and outcomes to
differ from those reflected in forward-looking statements include,
without limitation, the effects of our substantial indebtedness; changes
in interest rates, because a significant portion of our indebtedness
bears interest at variable rates; lawsuits, enforcement actions and
other claims by third parties or governmental authorities; compliance
with, or violation of environmental health and safety laws and
regulations; weakening general economic conditions; weather conditions
and seasonality; the success of our business strategies, and costs
associated with restructuring initiatives. The company assumes no
obligation to update the information contained herein, which speaks only
as of the date hereof.

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures.
Non-GAAP measures should not be considered as an alternative to GAAP
financial measures. Non-GAAP measures may not be calculated or
comparable to similarly titled measures used by other companies. See
non-GAAP reconciliations below in this press release for a
reconciliation of these measures to the most directly comparable GAAP
financial measures. Adjusted EBITDA, adjusted net income and pre-tax
unlevered free cash flow are not measurements of the company’s financial
performance under GAAP and should not be considered as an alternative to
net income or any other performance measures derived in accordance with
GAAP or as an alternative to net cash provided by operating activities
or any other measures of the company’s cash flow or liquidity. We
believe these non-GAAP financial measures are useful for investors,
analysts and other interested parties as it facilitates
company-to-company operating and financial condition performance
comparisons by excluding potential differences caused by variations in
capital structures, taxation, the age and book depreciation of
facilities and equipment, restructuring initiatives, consulting
agreements and equity-based, long-term incentive plans.

_________________________________________________

(1) Adjusted net income is defined by the company as income (loss) from
continuing operations before: amortization expense; impairment of
software and other related costs; consulting agreement termination fees;
restructuring charges; gain on sale of Merry Maids branches; management
and consulting fees; loss on extinguishment of debt; and the tax impact
of all of the aforementioned adjustments. The company’s definition of
adjusted net income may not be comparable to similarly titled measures
of other companies.

(2) Adjusted EBITDA is defined as income (loss) from continuing
operations before: depreciation and amortization expense; non-cash
impairment of software and other related costs; non-cash stock-based
compensation expense; restructuring charges; gain on sale of Merry Maids
branches; management and consulting fees; consulting agreement
termination fees; provision (benefit) for income taxes; loss on
extinguishment of debt; interest expense; and other non-operating
expenses. The company’s definition of Adjusted EBITDA may not be
comparable to similarly titled measures of other companies.

(3) Pre-tax unlevered free cash flow is defined by the company as
(i) Net Cash Provided from Operating Activities from Continuing
Operations before: cash paid for interest expense; call premium paid for
retirement of debt; cash paid for income taxes, net of refunds; cash
paid for restructuring charges; cash paid for management and consulting
fees; cash paid for consulting agreement termination fees; cash paid for
impairment of software and other related costs; excess tax benefits from
stock-based compensation; gain on sales of marketable securities; and
other non-operating items; (ii) less property additions.

(4) Corporate includes The ServiceMaster Acceptance Company Limited
Partnership (SMAC) and the unallocated expenses of our headquarters
function.

 
SERVICEMASTER GLOBAL HOLDINGS, INC.
Consolidated Statements of Operations and Comprehensive Income
(Loss)

(In millions, except per share data)

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2015     2014 2015     2014
Revenue $ 706 $ 664 $ 1,993 $ 1,880
Cost of services rendered and products sold 368 344 1,036 983
Selling and administrative expenses 178 176 512 505
Amortization expense 7 13 31 39
Impairment of software and other related costs 47
Consulting agreement termination fees 21 21
Restructuring charges 2 1 4 7
Gain on sale of Merry Maids branches (3 ) (5 )
Interest expense 41 49 128 171
Interest and net investment income (8 ) (7 )
Loss on extinguishment of debt   31     65     58     65  
Income (Loss) from Continuing Operations before Income Taxes 83 (5 ) 237 48
Provision (benefit) for income taxes   32     (3 )   91     26  
Income (Loss) from Continuing Operations 50 (3 ) 145 22
Loss from discontinued operations, net of income taxes   (1 )   (1 )   (2 )   (98 )
Net Income (Loss) $ 49   $ (4 ) $ 144   $ (76 )
Total Comprehensive Income (Loss) $ 42   $ (8 ) $ 130   $ (82 )
Weighted-average common shares outstanding – Basic 135.2 133.2 134.9 105.8
Weighted-average common shares outstanding – Diluted 136.8 133.2 136.5 106.7
Basic Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations $ 0.37 $ (0.02 ) $ 1.08 $ 0.20
Loss from discontinued operations, net of income taxes (0.01 ) (0.01 ) (0.01 ) (0.93 )
Net Income (Loss) 0.37 (0.03 ) 1.07 (0.72 )
Diluted Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations $ 0.37 $ (0.02 ) $ 1.07 $ 0.20
Loss from discontinued operations, net of income taxes (0.01 ) (0.01 ) (0.01 ) (0.92 )
Net Income (Loss) 0.36 (0.03 ) 1.05 (0.72 )
 
 
SERVICEMASTER GLOBAL HOLDINGS, INC.
Consolidated Statements of Financial Position

(In millions, except share data)

 
      As of     As of
September 30, December 31,
2015 2014
Assets:
Current Assets:
Cash and cash equivalents $ 260 $ 389
Marketable securities 23 19
Receivables, less allowances of $24 and $25, respectively 520 441
Inventories 36 42
Prepaid expenses and other assets 43 44
Deferred customer acquisition costs 34 35
Deferred taxes   51     76  
Total Current Assets   967     1,044  
Property and Equipment:
At cost 397 369
Less: accumulated depreciation   (247 )   (233 )
Net Property and Equipment   150     136  
Other Assets:
Goodwill 2,086 2,069
Intangible assets, primarily trade names, service marks and
trademarks, net
1,673 1,696
Notes receivable 32 26
Long-term marketable securities 58 88
Other assets 57 41
Debt issuance costs   24     34  
Total Assets $ 5,046   $ 5,134  
Liabilities and Shareholders’ Equity:
Current Liabilities:
Accounts payable $ 110 $ 84
Accrued liabilities:
Payroll and related expenses 69 82
Self-insured claims and related expenses 103 92
Accrued interest payable 3 34
Other 50 51
Deferred revenue 549 514
Liabilities of discontinued operations 1 9
Current portion of long-term debt   49     39  
Total Current Liabilities   934     905  
Long-Term Debt 2,702 3,017
Other Long-Term Liabilities:
Deferred taxes 718 715
Other long-term obligations, primarily self-insured claims   170     138  
Total Other Long-Term Liabilities   888     854  
Commitments and Contingencies (See Note 4)
Shareholders’ Equity:

Common stock $0.01 par value (authorized 2,000,000,000 shares with
143,040,318 shares issued and 135,396,779 outstanding at September
30, 2015 and 141,731,682 shares issued and 134,092,335 outstanding
at December 31, 2014)

2 2
Additional paid-in capital 2,240 2,207
Retained deficit (1,576 ) (1,720 )
Accumulated other comprehensive loss (22 ) (8 )

Less common stock held in treasury, at cost 7,643,539 shares at
September 30, 2015 and 7,639,347 shares at December 31, 2014)

  (122 )   (122 )
Total Shareholders’ Equity   522     359  
Total Liabilities and Shareholders’ Equity $ 5,046   $ 5,134  
 
 
SERVICEMASTER GLOBAL HOLDINGS, INC.
Consolidated Statements of Cash Flows

(In millions)

 
      Nine Months Ended
September 30,
2015     2014
Cash and Cash Equivalents at Beginning of Period $ 389 $ 484
Cash Flows from Operating Activities from Continuing Operations:
Net Income (Loss) 144 (76 )
Adjustments to reconcile net income (loss) to net cash provided from
operating activities:
Loss from discontinued operations, net of income taxes 2 98
Depreciation expense 35 36
Amortization expense 31 39
Amortization of debt issuance costs 4 6
Impairment of software and other related costs 47
Gain on sale of Merry Maids branches (5 )
Loss on extinguishment of debt 58 65
Call premium paid on retirement of debt (49 ) (35 )
Deferred income tax provision 41 19
Stock-based compensation expense 8 5
Excess tax benefits from stock-based compensation (12 )
Gain on sales of marketable securities (6 ) (4 )
Other 6 3
Change in working capital, net of acquisitions:
Receivables (77 ) (62 )
Inventories and other current assets 3 (7 )
Accounts payable 29 11
Deferred revenue 35 36
Accrued liabilities 5 (4 )
Accrued interest payable (31 ) (40 )
Accrued restructuring charges (2 )
Current income taxes   12     (5 )
Net Cash Provided from Operating Activities from Continuing
Operations
  229     132  
Cash Flows from Investing Activities from Continuing Operations:
Property additions (30 ) (29 )
Sale of equipment and other assets 9 2
Other business acquisitions, net of cash acquired (31 ) (52 )
Purchases of available-for-sale securities (5 ) (10 )
Sales and maturities of available-for-sale securities 30 46
Origination of notes receivables (77 ) (64 )
Collections on notes receivables   69     58  
Net Cash Used for Investing Activities from Continuing Operations   (34 )   (51 )
Cash Flows from Financing Activities from Continuing Operations:
Borrowings of debt 578 1,825
Payments of debt (911 ) (2,687 )
Discount paid on issuance of debt (2 ) (18 )
Debt issuance costs paid (5 ) (24 )
Contribution to TruGreen Holding Corporation (35 )
Repurchase of common stock and RSU vesting (5 )
Issuance of common stock 14 671
Excess tax benefits from stock-based compensation   12      
Net Cash Used for Financing Activities from Continuing Operations   (314 )   (274 )
Cash Flows from Discontinued Operations:
Cash used for operating activities (9 ) (11 )
Cash used for investing activities (2 )
Cash used for financing activities       (3 )
Net Cash Used for Discontinued Operations   (9 )   (15 )
Effect of Exchange Rate Changes on Cash   (1 )    
Cash Decrease During the Period   (129 )   (208 )
Cash and Cash Equivalents at End of Period $ 260   $ 275  
 

The following table presents reconciliations of Income from Continuing
Operations to Adjusted Net Income for the periods presented.

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
(In millions) 2015     2014 2015     2014
Income (Loss) from Continuing Operations $ 50 $ (3 ) $ 145 $ 22
Amortization expense 7 13 31 39
Impairment of software and other related costs 47
Consulting agreement termination fees 21 21
Restructuring charges 2 1 4 7
Gain on sale of Merry Maids branches (3 ) (5 )
Management and consulting fees 4
Loss on extinguishment of debt 31 65 58 65
Tax impact of adjustments   (14 )   (36 )   (33 )   (69 )
Adjusted Net Income $ 74   $ 61   $ 201   $ 135  
 

The following table presents reconciliations of Net Cash Provided from
Operating Activities from Continuing Operations to Pre-Tax Unlevered
Free Cash Flow for the periods presented.

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
(In millions) 2015     2014 2015     2014
Net Cash Provided from Operating Activities from Continuing
Operations
$ 19 $ (17 ) $ 229 $ 132
Cash paid for interest expense 56 82 149 199
Call premium paid on retirement of debt 26 35 49 35
Cash paid for income taxes, net of refunds 31 2 38 11
Cash paid for restructuring charges 1 2 6 7
Cash paid for management and consulting fees 4
Cash paid for consulting agreement termination fees 21 21
Cash paid for impairment of software and other related costs 3
Excess tax benefits from stock-based compensation 2 12
Other (1 ) 3 1
Gain on sales of marketable securities (1 ) 6 4
Property additions   (10 )   (3 )   (30 )   (29 )
Pre-Tax Unlevered Free Cash Flow $ 125   $ 120   $ 463   $ 387  
 

The following table presents reconciliations of Adjusted EBITDA to
Income from Continuing Operations for the periods presented.

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
(In millions) 2015     2014 2015     2014
Terminix $ 82 $ 77 $ 272 $ 248
American Home Shield 74 61 174 144
Franchise Services Group 20 19 58 58
Corporate   (1 )   (1 )   (6 )   (7 )
Adjusted EBITDA $ 174   $ 157   $ 498   $ 443  
 
Depreciation and amortization expense (18 ) (25 ) (66 ) (76 )
Non-cash impairment of software and other related costs (47 )
Non-cash stock-based compensation expense (3 ) (2 ) (8 ) (5 )
Restructuring charges (2 ) (1 ) (4 ) (7 )
Gain on sale of Merry Maids branches 3 5
Management and consulting fees (4 )
Consulting agreement termination fees (21 ) (21 )
Provision for income taxes (32 ) 3 (91 ) (26 )
Loss on extinguishment of debt (31 ) (65 ) (58 ) (65 )
Interest expense (41 ) (49 ) (128 ) (171 )
Other non-operating expenses       1     (3 )    
Income (Loss) from Continuing Operations $ 50   $ (3 ) $ 145   $ 22  
 

The table below presents selected operating metrics related to renewable
customer counts and customer retention for our Terminix and American
Home Shield segments.

 
      As of September 30,
2015     2014((1))
Terminix
(Reduction) Growth in Pest Control Customers (2 ) % %
Pest Control Customer Retention Rate 79 % 80 %
Reduction in Termite and Other Services Customers (2 ) % (3 ) %
Termite and Other Services Customer Retention Rate 85 % 85 %
American Home Shield
Growth in Home Warranties 7 % 13 %
Customer Retention Rate 75 % 75 %
 

(1) As of September 30, 2014, excluding the Home Security of America
(“HSA”) accounts acquired on February 28, 2014, the growth in home
warranties was 4 percent, and, excluding all HSA accounts, the customer
retention rate for our American Home Shield segment was 76 percent.

 

Terminix Segment

 

Revenue by service line is as follows:

 
 
      Three Months Ended     % of
September 30, Revenue
(In millions) 2015     2014 2015
Pest Control $ 217 $ 202 58 %
Termite and Other Services 135 133 36
Other   21   18 6  
Total revenue $ 372 $ 353 100 %
 

Termite renewal revenue comprised 51 percent of total revenue from
Termite and Other Services for the three months ended September 30, 2015
and 2014.

Contacts

ServiceMaster Global Holdings, Inc.
Investor Relations:
James
Shields, 901-597-6839
James.Shields@servicemaster.com
or
Media:
Peter
Tosches, 901-597-8449
Peter.Tosches@servicemaster.com

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