ServiceMaster
Global Holdings, Inc. (NYSE: SERV), a leading provider of
essential residential and commercial services, today announced
preliminary revenue, net income, Adjusted net income(1) and
Adjusted EBITDA(2) for the second-quarter 2018 financial
results and provided an update to full-year 2018 outlook. The company
plans to release its full second-quarter 2018 financial results, as
previously scheduled, on Tuesday, July 31, 2018.
Preliminary Second-Quarter Results
The company expects to report revenue of $874 million for the second
quarter, or a year-over-year increase of eight percent, driven primarily
by nine percent organic growth at American Home Shield (“AHS”) and six
percent growth at Terminix, largely due to the Copesan Services
acquisition in March 2018.
The company expects to report second-quarter 2018 net income of $96
million, or $0.71 per share, versus $85 million, or $0.63 per share, in
the same period in 2017. Second-quarter 2018 Adjusted net income is
expected to be $108 million, or $0.79 per share, versus $93 million, or
$0.69 per share, for the same period in 2017.
The company expects to report Adjusted EBITDA of $208 million for the
quarter, versus $210 million for the same period prior year.
Reconciliations of both Adjusted net income and Adjusted EBITDA to net
income are set forth below in this press release.
The company’s net income, Adjusted net income and Adjusted EBITDA for
the quarter were negatively impacted by an increase in contract claims
costs at AHS of $22 million ($16 million, net of tax), principally
driven by a higher mix of appliance replacements versus repairs. Due to
the adverse impact of the higher contract claims costs on the company’s
operating performance, the company is providing preliminary
second-quarter results and updated 2018 outlook in advance of its
scheduled earnings call.
The increase in contract claims costs includes an adjustment of $12
million related to the first quarter of 2018 and the second half of
2017. This adjustment recorded in the second quarter represents a change
in estimate as a result of adverse development of contract claims costs
from previous quarters. Accruals for home service plan claims are made
based on our claims experience and actuarial projections. Our actuary
performs a reserve analysis utilizing generally accepted actuarial
methods that incorporate cumulative historical claims experience and
information provided by us. We regularly review our estimates of claims
costs and adjust the estimates as needed. The increase in contract
claims costs in the second quarter, and the change in our previous
contract claims costs reserve estimates, were principally driven by the
appliance mix described above. We believe the impact of higher appliance
replacements in the second quarter increased claims costs by $4 million.
The increase in contract claims costs in the second quarter also include
normal inflationary pressure on the underlying costs of repairs totaling
$3 million and a higher number of work orders driven by significantly
warmer summer temperatures in 2018, which increased claims costs by $3
million.
“Despite the recent spike in contract claims costs we have experienced
at AHS, I am pleased to report that the performance at Terminix and
Franchise Services Group continues to fully meet our expectations driven
by our business transformation initiatives and we look forward to
updating the financial community on our progress during our second
quarter earnings conference call on July 31st,” said Chief
Executive Officer Nik Varty. “We continue to drive strong revenue growth
at AHS focusing on improving service levels and are taking a series of
appropriate actions at AHS to address the contract claims costs,
including renegotiating appliance repair costs, increasing pricing to
properly reflect the rise in replacements of appliances, and
implementing processes to more dynamically price home service contracts.
We strongly believe that these actions, combined with new leadership and
upgrades to processes that we’re making in connection with the late
third quarter spin of AHS, fully support the long-term attractiveness of
the business and positions it for continued strong revenue and earnings
growth in the future.”
Segment Performance
Revenue and Adjusted EBITDA for each reportable segment and Corporate
were as follows:
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Three Months Ended June 30,
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Six Months Ended June 30,
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Revenue
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Adjusted EBITDA
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Revenue
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Adjusted EBITDA
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$ millions
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2018
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B/(W) vs. PY
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2018
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B/(W) vs. PY
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2018
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B/(W) vs. PY
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2018
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B/(W) vs. PY
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Terminix
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$
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456
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$
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27
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$
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109
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$
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4
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$
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823
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$
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30
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$
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195
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$
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9
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YoY growth / % of revenue
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6.3
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%
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24.0
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%
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(0.5
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)
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pts
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3.7
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%
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23.7
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%
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0.2
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pts
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American Home Shield
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355
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29
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73
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(10
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)
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602
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49
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105
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(8
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)
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YoY growth / % of revenue
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8.9
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%
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20.6
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%
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(4.8
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)
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pts
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8.8
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%
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17.5
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%
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(2.9
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)
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pts
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Franchise Services Group
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64
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11
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24
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2
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123
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21
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46
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3
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YoY growth / % of revenue
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21.4
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%
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37.4
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%
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(4.2
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)
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pts
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21.0
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%
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37.6
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%
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(4.8
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)
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pts
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Corporate
(3)
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—
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—
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2
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1
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1
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—
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1
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1
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Total
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$
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874
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$
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67
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$
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208
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$
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(2
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)
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$
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1,549
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$
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100
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$
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349
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$
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5
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YoY growth / % of revenue
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8.3
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%
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23.8
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%
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(2.2
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)
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pts
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6.9
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%
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22.5
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%
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(1.2
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)
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pts
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Full-Year 2018 Outlook
In anticipation of the separation of AHS from ServiceMaster late in the
third quarter of 2018, full-year 2018 revenue and Adjusted EBITDA
outlooks are provided below for WholeCo (pre-spin ServiceMaster),
RemainCo (post-spin Terminix and FSG) and SpinCo (AHS) including 2018
separation-related dis-synergies of approximately $4 million for
RemainCo and approximately $5 million for SpinCo. Dis-synergies for the
three and six months ended June 30, 2018, were $1 million. For WholeCo,
the 2018 outlook assumes AHS remains with the company for the full year.
For WholeCo, RemainCo and SpinCo, the 2018 outlook excludes the impact
of any future potential acquisitions.
The company’s revised full-year 2018 outlook includes an annualized $12
million ongoing increase in contract claims costs related to the
appliance replacements versus repairs issue, normal inflation and $18
million related to an increased number of claims due to weather.
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Full-Year 2018 Outlook (excluding Spin dis-synergy costs)
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RemainCo
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SpinCo
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WholeCo
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(In millions)
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Low
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High
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Low
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High
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Low
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High
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Revenue
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$
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1,875
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$
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1,890
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$
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1,250
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$
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1,270
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$
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3,125
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$
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3,160
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Growth Rate
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7
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%
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8
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%
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8
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%
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10
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%
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7
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%
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9
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%
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Adjusted EBITDA
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$
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430
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$
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440
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$
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250
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$
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260
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$
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680
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$
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700
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Growth Rate
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3
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%
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5
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%
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-4
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%
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0
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%
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0
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%
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3
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%
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Margin
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23
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%
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23
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%
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20
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%
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20
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%
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22
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%
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22
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%
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Full-Year 2018 Outlook (including Spin dis-synergy costs)
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RemainCo
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SpinCo
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WholeCo
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(In millions)
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Low
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High
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Low
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High
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Low
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High
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Revenue
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$
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1,875
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$
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1,890
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$
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1,250
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$
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1,270
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$
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3,125
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$
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3,160
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Growth Rate
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7
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%
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8
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%
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8
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%
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10
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%
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7
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%
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9
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%
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Adjusted EBITDA
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$
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425
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$
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435
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$
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245
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$
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255
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$
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670
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$
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690
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Growth Rate
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2
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%
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4
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%
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-6
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%
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-2
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%
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-1
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%
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2
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%
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Margin
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23
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%
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23
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%
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|
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20
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%
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|
|
20
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%
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21
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%
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22
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%
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A reconciliation of the forward-looking 2018 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.
Second-Quarter 2018 Earnings Conference Call
The company will discuss its second-quarter 2018 financial and operating
results during a conference call at 8 a.m. central time (9 a.m. eastern
time) Tuesday, July 31, 2018. To participate on the conference call,
interested parties should call 800.699.0623 (or international
participants, 303.223.4373). 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
slide presentation, visit the company’s investor relations home page.
The call will be available for replay until August 30, 2018. To access
the replay of this call, please call 800.633.8284 and enter reservation
number 21892864 (international participants: 402.977.9140, reservation
number 21892864). 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 service plans), AmeriSpec
(home inspections), Furniture Medic (cabinet and 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, including 2018 revenue and Adjusted EBITDA outlook for
WholeCo, RemainCo and SpinCo, as well as statements with respect to the
potential separation of AHS from ServiceMaster, including estimates for
dis-synergies. 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 increased
demands on management to prepare for and accomplish the spin-off, the
incurrence of significant transaction costs, 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, because a
significant portion of our indebtedness bears interest at variable
rates; 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 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, adjusted net income, adjusted earnings per share and
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, 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 performance and
liquidity 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.
_______________________________________________
(1) Adjusted net income is defined as net income before: amortization
expense; 401(k) Plan corrective contribution; fumigation related
matters; insurance reserve adjustment; restructuring charges; American
Home Shield spin-off charges; impairment of software and other related
costs; (gain) loss from discontinued operations, net of income taxes;
loss on extinguishment of debt; and the tax impact of the aforementioned
adjustments and the impact of tax law change on deferred taxes. The
company’s definition of adjusted net income may not be comparable to
similarly titled measures of other companies. Adjusted earnings per
share is calculated as adjusted net income divided by the
weighted-average diluted common shares outstanding.
(2) Adjusted EBITDA is defined as net income before: depreciation and
amortization expense; 401(k) Plan corrective contribution; fumigation
related matters; insurance reserve adjustment; non-cash stock-based
compensation expense; restructuring charges; American Home Shield
spin-off charges; non-cash impairment of software and other related
costs; (gain) loss from discontinued operations, net of income taxes;
provision for income taxes; loss on extinguishment of debt and interest
expense. The company’s definition of Adjusted EBITDA may not be
comparable to similarly titled measures of other companies.
(3) Corporate includes The ServiceMaster Acceptance Company Limited
Partnership (SMAC) and the unallocated expenses of our corporate
functions.
The following table presents reconciliations of Adjusted Net Income to
Net Income for the periods presented.
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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(In millions)
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2018
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2017
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2018
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2017
|
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Net Income
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$
|
96
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$
|
85
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$
|
136
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$
|
124
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|
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Amortization expense
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7
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7
|
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12
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|
|
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14
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Fumigation related matters
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|
|
—
|
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|
|
1
|
|
|
|
—
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|
|
2
|
|
|
Restructuring charges
|
|
|
—
|
|
|
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1
|
|
|
|
12
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|
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3
|
|
|
American Home Shield spin-off charges
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8
|
|
|
|
—
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|
15
|
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|
|
—
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Impairment of software and other related costs
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|
—
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|
|
|
—
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|
|
—
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2
|
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Gain from discontinued operations, net of income taxes
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—
|
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|
|
—
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|
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—
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|
|
(1
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|
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Tax impact of adjustments
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
Adjusted Net Income
|
|
$
|
108
|
|
|
$
|
93
|
|
|
$
|
167
|
|
|
$
|
138
|
|
|
Weighted-average diluted common shares outstanding
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|
|
135.8
|
|
|
|
135.0
|
|
|
|
135.7
|
|
|
|
135.5
|
|
|
Adjusted earnings per share
|
|
$
|
0.79
|
|
|
$
|
0.69
|
|
|
$
|
1.23
|
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents reconciliations of Adjusted EBITDA to Net
Income for the periods presented.
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Three Months Ended
|
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Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
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(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Net income
|
|
$
|
96
|
|
$
|
85
|
|
$
|
136
|
|
$
|
124
|
|
|
Depreciation and amortization expense
|
|
|
28
|
|
|
25
|
|
|
53
|
|
|
51
|
|
|
Fumigation related matters
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
2
|
|
|
Non-cash stock-based compensation expense
|
|
|
4
|
|
|
4
|
|
|
8
|
|
|
9
|
|
|
Restructuring charges
|
|
|
—
|
|
|
1
|
|
|
12
|
|
|
3
|
|
|
American Home Shield spin-off charges
|
|
|
8
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
Non-cash impairment of software and other related costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Gain from discontinued operations, net of income taxes
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
Provision for income taxes
|
|
|
34
|
|
|
52
|
|
|
48
|
|
|
76
|
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
Interest expense
|
|
|
37
|
|
|
38
|
|
|
75
|
|
|
75
|
|
|
Adjusted EBITDA
|
|
$
|
208
|
|
$
|
210
|
|
$
|
349
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminix
|
|
$
|
109
|
|
$
|
105
|
|
$
|
195
|
|
$
|
186
|
|
|
American Home Shield
|
|
|
73
|
|
|
82
|
|
|
105
|
|
|
113
|
|
|
Franchise Services Group
|
|
|
24
|
|
|
22
|
|
|
46
|
|
|
43
|
|
|
Corporate
|
|
|
2
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Adjusted EBITDA
|
|
$
|
208
|
|
$
|
210
|
|
$
|
349
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
|
ServiceMaster Global Holdings, Inc.
Investor Relations:
Brian Turcotte, 901-597-3282
Brian.Turcotte@servicemaster.com
or
Media Relations:
James Robinson, 901-597-7521
James.Robinson@servicemaster.com