Separation Provides Both ServiceMaster and American Home Shield the Opportunity to Realize Their Respective Growth Potential and Deliver Enhanced Long-Term Value for Shareholders
Mr. Varty Brings Significant Operational Expertise and Proven Track Record of Executing Strategic Priorities
ServiceMaster Global Holdings, Inc. (“ServiceMaster” or the “Company”)
(NYSE: SERV), a leading provider of essential residential and commercial
services, today announced its intention to separate its American Home
Shield (AHS) business from its Terminix and Franchise Services Group
(FSG) businesses, as well as the appointment of Nikhil Varty as Chief
Executive Officer of the Company and as a member of the Board, effective
immediately.
The separation of AHS is expected to result in two publicly traded
companies – ServiceMaster and AHS – by means of a spin-off of the AHS
business to ServiceMaster shareholders, in a transaction intended to be
tax-free. The transaction is expected to be completed in the third
quarter of 2018. ServiceMaster will disclose additional information
regarding the separation, including historical financial and
capitalization information, in a Form 10 registration statement expected
to be filed with the Securities and Exchange Commission during the next
several months.
Both ServiceMaster and AHS remain committed to Memphis, Tennessee, and
intend to maintain their headquarters there.
Following completion of the separation, each company’s board and
management team will be able to pursue its distinct strategies, and
focus on its own long-term growth and profitability. The separation is
expected to result in increased growth opportunities and greater market
clarity for both companies. Additional benefits of the separation
include:
-
Distinct investment identity – With the separation, investors
will be able to evaluate and invest in each business with greater
clarity based on its individual merits and future prospects.
-
Enhanced strategic and management focus – The dedicated board
and management team of each company will be able to pursue its
distinct strategies, and focus on its own long-term growth and
profitability.
-
More efficient allocation of capital - Each company will
concentrate its financial resources solely on its own operations and
will have greater flexibility to invest capital in the manner
appropriate for its unique strategy and opportunities.
-
Independent access to capital markets - Each company will have
individual access to the capital markets and more flexibility to
capitalize on its individualized growth opportunities. Each company
will have its own pure play equity currency to use for corporate
development and for management equity compensation.
Mark Tomkins, Chairman of the ServiceMaster Board of Directors,
commented, “Following a careful and thorough review of the business,
it’s clear that ServiceMaster’s pest control and home warranty
businesses have distinct, separate opportunities for profitable growth.
The plan announced today will allow both ServiceMaster and AHS to
leverage their market-leading positions and focus on realizing their
respective growth potential. Shareholders of both companies will be able
to participate in this upside potential.
“As separate entities, ServiceMaster and AHS will be better able to
focus on their unique growth strategies. The transaction will allow
ServiceMaster to better implement a capital structure and capital
management strategy appropriate to each business. We believe this
transaction is in the best interests of our shareholders and will
produce attractive returns and enhanced long-term value.”
To oversee the separation process and position each of ServiceMaster’s
businesses for long-term growth, the Board also named Nikhil Varty as
CEO effective immediately, replacing Rob Gillette. Mr. Varty is a
dynamic leader with extensive experience leading and managing large,
complex organizations for high-performing multi-national corporations,
including WABCO Holdings Inc., Honeywell International, Inc. and
PricewaterhouseCoopers, over his 30-year career. Under his innovative
and results-oriented leadership, Mr. Varty has a proven track record of
establishing strategic direction, driving revenue growth and
profitability and leading companies to achieve operational excellence.
Mr. Tomkins said, “We are also pleased to announce the appointment of
Nikhil Varty to the role of CEO during this important time for
ServiceMaster. With more than three decades of deep operational
expertise and strategic leadership experience, Nik is uniquely qualified
to lead ServiceMaster into the next chapter of its growth story. He has
direct experience developing and executing successful global business
strategies, as well as achieving record returns on investments and
delivering superior shareholder value on a sustainable basis. With a
background in transforming companies through building the right
organization, structure and talent, the Board firmly believes that Nik
is the right leader to lead ServiceMaster as it looks to execute on the
next stage of its growth strategy. The entire Board looks forward to
working closely with Nik and continuing on our path to become the number
one choice of customers for essential services through empowered people
and convenient access.”
“I am very excited to join ServiceMaster and am eager to begin working
closely with the Board and management team to grow and enhance
opportunities for our employees, customers and partners,” said Mr.
Varty. “I am very supportive of the Company’s decision to separate its
businesses and believe that it is the right and necessary step at this
point in time. My strategic focus will be to deliver superior results,
identify levers for growth and develop the right talent, all while
aiming to consistently beat expectations. I am committed to executing on
the Company’s strategic plan and am confident that our talented team
will work together to capitalize on existing and future growth
opportunities and enhance shareholder value.”
Mr. Tomkins concluded, “We thank Rob for his significant contributions
and years of dedicated service to ServiceMaster and Memphis. His
leadership has brought ServiceMaster to the point where we can take this
transformative step in our company’s history. We wish him all the best
in his future endeavors.”
Mr. Gillette is expected to be available to the Company on a
transitional basis and to work with Mr. Varty during his remaining time
at the Company in order to ensure a smooth transition.
Additional Information on Separation of American Home Shield
American Home Shield
AHS is the national leader in home warranties covering the repair and
replacement of many major home systems, components and appliances. AHS
reported full-year 2016 revenues of $1.02 billion.
AHS is a proven market leader with a stable customer base and a growing
market in the home warranty industry. It has significant scale and brand
recognition in a fragmented market, with nearly 2 million customers
across all 50 United States and a national network of approximately
14,000 pre-qualified contractors. AHS has demonstrated consistent
performance and significant cash flow generation with significant
recurring revenue and a high customer retention rate. AHS is defined by
its operational and customer service excellence and strong marketing and
lead generation capabilities through both the Real Estate and
Direct-to-Consumer Channels to market.
ServiceMaster
ServiceMaster’s Terminix business maintains a strong market position,
with a 21 percent share of the $8 billion U.S. pest control services
market. Management has recently implemented a number of strategic
investments to strengthen the Terminix business that focus on talent,
technology and customers. Following the separation of AHS, ServiceMaster
will be better positioned to continue strategic reinvestment in
Terminix’s field operations and sales force and progress on the path to
higher organic growth and improved customer retention.
Franchise Services Group (FSG), which will remain part of ServiceMaster,
holds a leading market position in strong and trusted brands such as
AmeriSpec®, Furniture Medic®, Merry Maids®, ServiceMaster Clean®, and
ServiceMaster Restore®. FSG will continue its key initiatives to drive
results, such as helping franchisees drive customer-level growth.
The transaction is intended to take the form of a tax-free distribution
to ServiceMaster shareholders of publicly traded shares of AHS’s common
stock. The planned separation is subject to customary conditions,
including the effectiveness of a Registration Statement on Form 10 to be
filed with the U.S. Securities and Exchange Commission, receipt of a
favorable ruling from the Internal Revenue Service concerning certain
tax matters and final approval by ServiceMaster’s Board of Directors.
The separation will not require a shareholder vote. There can be no
assurance regarding the ultimate timing of the separation or that the
separation will ultimately occur.
Additional Information on Nikhil Varty
Mr. Varty most recently served as President of the Americas and Global
Vice President of Mergers & Acquisitions at WABCO, where he achieved a
major turnaround in market position and generated double digit market
outperformance. While in that role, Mr. Varty was also instrumental in
driving growth for WABCO in South America, executing a complete
restructuring of regional operations and significantly growing market
share.
Mr. Varty previously served as Vice President and Business Unit Leader
for WABCO’s Compression & Braking business unit in Brussels, Belgium,
leading a transformation that resulted in more than doubling the
business in seven years while significantly improving profitability.
Before WABCO, he served as the Global Director of Finance for
Pharmaceuticals and Fine Chemicals at Honeywell International. Mr. Varty
received his B.S. in Financial Accounting & Management and M.S. in
General Management from Bombay University in Mumbai, India. He received
his MBA from the University of Scranton.
Earnings
As previously announced, ServiceMaster will release its second-quarter
2017 financial results after 6 a.m. central time (7 a.m. eastern time)
on Monday, July 31, 2017. The Company expects to:
-
Report an approximate 8% increase in revenue to $807 million for the
quarter and an approximate 3% increase in Adjusted EBITDA to $210
million;
-
Report Net income of $85 million, or $0.63 per share, versus $16
million, or $0.11 per share, a year ago.
-
Raise revenue outlook for full year 2017 to between $2,900 million and
$2,920 million, or growth of 6% over 2016;
-
Lower Adjusted EBITDA outlook to between $675 million and $685 million
to reflect increased investment in sales and service at Terminix
The Company will hold a conference call to discuss financial and
operating results and the separation at 8 a.m. central time (9 a.m.
eastern time) on Monday, July 31, 2017.
Participants may join this conference call by dialing 800.732.6870 (or
international participants, +1.212.271.4657). Additionally, the
conference call will be available via webcast. A slide presentation
highlighting the Company’s results will also be available. To
participate via webcast and view the presentation, visit the Company’s
investor relations home page.
J.P. Morgan Securities LLC is serving as financial advisor to
ServiceMaster on the separation and Wachtell, Lipton, Rosen & Katz is
serving as legal counsel.
About ServiceMaster
ServiceMaster (NYSE: SERV) solves the homeowner’s dilemma. Every day, we
visit more than 75,000 homes and businesses through our extensive
service network of expert professionals. Technology powers our trusted
experts to engage with customers so they can order, buy and receive
services when, where and how they want them. Our well-recognized brands
includes American Home Shield (home warranties), AmeriSpec (home
inspections), Furniture Medic (furniture repair), Merry Maids
(residential cleaning), ServiceMaster Clean (janitorial and residential
floor cleaning), ServiceMaster Restore (disaster restoration) and
Terminix (termite and pest control). Like, follow or visit us at facebook.com/ServiceMaster,
linkedin.com/ServiceMaster,
twitter.com/ServiceMaster,
or servicemaster.com.
ServiceMaster® is the Official Home Services Provider of Minor League
Baseball™.
Information Regarding Forward-Looking Statements
This press release contains forward-looking statements and cautionary
statements, including 2017 revenue and Adjusted EBITDA outlook, as well
as statements with respect to the potential separation of AHS from
ServiceMaster and the distribution of AHS shares to ServiceMaster
shareholders. 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. Such risks, uncertainties
and changes in circumstances include, but are not limited to:
uncertainties as to the timing of the spin-off or whether it will be
completed at all, the results and impact of the announcement of the
proposed spin-off, the failure to satisfy any conditions to complete the
spin-off, the expected tax treatment of the spin-off, the impact of the
spin-off on the businesses of ServiceMaster and AHS, and the failure to
achieve anticipated benefits of the spin-off. 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, lawsuits, enforcement actions and other claims by
third parties or governmental authorities; compliance with, or violation
of environmental health and safety laws and regulations; the effects of
our substantial indebtedness; changes in interest rates; weakening
general economic conditions; 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 of 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 is not a measurement of the company’s financial
performance under GAAP and should not be considered as an alternative to
net income, net cash provided by operating activities from continuing
operations or any other performance or liquidity measures derived in
accordance with GAAP. Management uses these non-GAAP financial measures
to facilitate operating performance and liquidity comparisons, as
applicable, from period to period. We believe these non-GAAP financial
measures are useful for investors, analysts and other interested parties
as they facilitate company-to-company operating and liquidity
performance comparisons, as applicable, by excluding potential
differences caused by variations in capital structures, taxation, the
age and book depreciation of facilities and equipment, restructuring
initiatives and equity-based, long-term incentive plans.
|
|
Reconciliation of Preliminary Net Income to Preliminary
Adjusted EBITDA
(In millions)
(Unaudited)
|
|
|
|
Preliminary
Three Months Ended
June 30, 2017
|
Net income
|
$85
|
Depreciation and amortization expense
|
25
|
Fumigation related matters
|
1
|
Non-cash stock-based compensation expense
|
4
|
Restructuring charges
|
1
|
Provision for income taxes
|
52
|
Loss on extinguishment of debt
|
3
|
Interest expense
|
38
|
Adjusted EBITDA
|
$210
|
A reconciliation of the forward-looking 2017 Adjusted EBITDA outlook to
net income is not being provided as the company does not currently have
sufficient data to accurately estimate the variables and individual
adjustments for such reconciliation.
ServiceMaster Global Holdings, Inc.
Investor Relations:
Brian Turcotte, 901-597-3282
Brian.Turcotte@servicemaster.com
or
Media:
Peter Tosches, 901-597-8449
Peter.Tosches@servicemaster.com