ServiceMaster. Credit Suisse 5 th Annual Industrials Investor Conference. November 30, 2017

Transcription

1 ServiceMaster Credit Suisse 5 th Annual Industrials Investor Conference November 30, 2017

2 Cautionary Statements Safe Harbor Statement This presentation contains forward-looking 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, that are based on management s beliefs and assumptions and on information currently available to management. Most forward-looking statements contain words that identify them as forward-looking, such as anticipates, believes, continues, could, seeks, estimates, expects, intends, may, plans, potential, predicts, projects, should, will, would or similar expressions and the negatives of those terms that relate to future events. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause ServiceMaster s actual results, performance or achievements to be materially different from any projected results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements represent the beliefs and assumptions of ServiceMaster only as of the date of this presentation and ServiceMaster undertakes no obligation to update or revise publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. As such, ServiceMaster s future results may vary from any expectations or goals expressed in, or implied by, the forward-looking statements included in this presentation, possibly to a material degree. ServiceMaster cannot assure you that the assumptions made in preparing any of the forward-looking statements will prove accurate or that any long-term financial or operational goals and targets will be realized. For a discussion of some of the important factors that could cause ServiceMaster s results to differ materially from those expressed in, or implied by, the forward-looking statements included in this presentation, investors should refer to the disclosure contained under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, and our other filings with the SEC. Note to Non-GAAP Financial Measures This presentation 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 presentation 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 measure 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

3 ServiceMaster At A Glance ServiceMaster helps make the homeowner s life easier every step of the way. Our extensive portfolio of home and commercial services include cleaning, disaster restoration, home warranties, furniture and cabinet restoration, inspections, mold remediation, pest control and fire and water damage restoration. Our unmatched network of trusted employees, technicians, contractors and franchisees reach into more than 75,000 homes and businesses each day. Selected Q LTM Financial Data $2.9B Revenue $688M Adjusted EBITDA 7 years Consecutive Revenue & Adjusted EBITDA Growth 24% Adjusted EBITDA Margin 2

4 Investment Highlights New CEO and management team focused on driving consistent performance and long-term growth Transformation strategy underway at Terminix Planned spinoff of AHS business in 3Q18 to create two new independent, more focused companies better positioned to pursue their unique strategies and growth opportunities Powerful and well-recognized brands that reach into more than 5 million homes nationwide annually Capital-light business model, generating significant free cash flow 3

5 Scale: June 26, 2014 prices = 100 Delivering Significant Returns To Shareholders 300% 250% Data From: June 26, 2014 September 30, % 200% 150% 100% 141% 138% S & P 400 Consumer Services Index S & P 500 Index 50% We continue to outperform the major indices 4

6 Tax-Free American Home Shield Spin On July 26, 2017 ServiceMaster announced its intention to separate American Home Shield (AHS) from the Terminix and Franchise Services Group businesses Benefits of the separation strategy include: - Enhanced strategic and management focus - Distinct investment identity - More efficient allocation of capital - Independent access to capital markets Separation expected to be completed in the third quarter of 2018 Committed to keeping you informed as this process moves forward 5

7 Leading Positions In Large and Growing Markets Pest & Termite Industry Home Warranty Industry Other Residential and Commercial Services Industries Others (~20,000) 48% Ecolab 5% 2 Terminix 21% 1 Rollins 19% 1 Rentokil 7% 2 Others 33% Old Republic 9% First American 11% AHS 47% 3 U.S. Market: ~$8B U.S. Market: ~$2B Source: Specialty Consultants, LLC, NPMA, National Association of Realtors, SEC filings and management estimates based on industry data; 1 As measured on 12/31/2016 customer-level revenue basis. Rollins customer-level revenue derived from company filings and management estimates; 2 As derived from Pest Control Technology (PCT) Magazine s top 100 list published in Derived from 12/31/2016 results, adjusted to include annualized impact of Landmark and One Guard acquisitions. 6

8 Terminix Overview Leading provider of U.S extermination services Operate in 20 countries and 47 U.S. states U.S. locations include ~330 company-owned branches and ~25 franchise agreements Large and attractive U.S. market (~$8B) Competitive strengths include scale and expertise Positioned for growth in core and new services Historical Revenue and Adj. EBITDA Margin Revenue ($millions) Adj. EBITDA Margin 2,000 30% 1,309 1,370 1,444 1,524 1,538 1,500 23% 24% 24% 1,000 22% 20% 20% % Q3 '17 LTM Q3 17 LTM Revenue/CLR: $1.5B/$1.9B Q3 17 LTM Adj. EBITDA: $342M Q3 17 LTM Adj. EBITDA margin: 22% 7

9 Terminix Business Transformation Building a strong leadership team Driving accountability Empowering our technicians to deliver an exceptional customer experience Developing a strong commercial business Implementing disciplined, Lean Six Sigma approach Deliver consistently strong revenue & earnings growth 8

10 American Home Shield Overview Leading provider of home warranties in the U.S. Serves 1.9M customers in 50 states Significant market leadership: 4x larger than nearest competitors 76% customer retention rates National network of ~15,000 contractors Significant direct-to-consumer marketing and lead generation capabilities Historical Revenue and Adj. EBITDA Margin 1,500 1, Revenue ($millions) Adjusted EBITDA Margin 30% 1,133 1, % 22% 22% 23% 20% 20% 0 10% Q3 '17 LTM Q3 17 LTM Revenue: $1.1B Q3 17 LTM Adj. EBITDA: $259M Q3 17 LTM Adj. EBITDA Margin: 23% 9

11 2016 Home Warranty Category Dynamics Real Estate Channel Direct-to-Consumer Channel 5.5M 1.5M 70.1M 2.8M 4M homes sold without home warranty 1.5M sold with home warranty Home Resales 68% Competitors 32% AHS Home Resales with Home Warranty 67.3M homes without home warranty 2.8M with home warranty 53% AHS Owner-Occupied Households (less home resales) 47% Competitors Households with Home Warranty Significant opportunity in a large under-penetrated growing market 10

12 Franchise Services Group Overview Operates in 50 U.S. states and 10 countries ~5,700 world-wide franchise licenses 1 Strong and trusted brand Leading market positions in all brands Attractive value proposition to franchisees Scale to service national accounts Historical Revenue and Adj. EBITDA Margin Revenue ($millions) % 31% % Adj. EBITDA Margin Merry Maids Branch Dispositions % 42% Q3 '17 LTM Q3 17 LTM Revenue/CLR: $207M/$2.5B Q3 17 LTM Adj. EBITDA: $86M Q3 17 LTM Adj. EBITDA Margin: 42% 1 Active licenses related to franchise agreements managed by FSG as of December 31, % 40% 30% 20% 11

13 % of Adj. EBITDA Adj. EBITDA Margin¹ Consistent Financial Performance 2,293 Revenue ($millions) CAGR = 6.3% 2,746 2,880 2,457 2, Adjusted EBITDA¹ ($millions) CAGR = 10.4% % 23% 24% 24% 24% Q3 '17 LTM Q3 '17 LTM Free Cash Flow 2,4 ($millions) Net Debt / Adjusted EBITDA % % % 49% 57% 7.8x 5.0x 4.2x 4.1x 3.7x Q3 '17 LTM Q3 '17 LTM Adjusted EBITDA and Adjusted EBITDA margin reflect the annualized benefit of transferring $25 million of corporate costs to TruGreen. 2 Free Cash Flow is defined in the appendix. 3 Adjusted EBITDA in 2013 does not reflect the annualized benefit of transferring $25 million of corporate costs to TruGreen Free Cash Flow excludes the impact of $56 million, net of tax in payments on fumigation related matters. 12

14 Our Differentiation Framework Growth through service Relentlessly improving the customer experience Putting the customer first Inverted pyramid of customer service Make commitments and keep them Customers Employees Shareholders 13

15 Strategic Growth Priorities Execute business transformation Achieve world-class customer service Expand commercial business Increase market penetration using world-class service Extend current product offerings Expand into adjacent markets Leverage relationships with insurance companies Accelerate national accounts growth Extend reach & growth beyond core areas 14

16 Appendix

17 Q3 Results Solid Revenue and EBITDA Growth ($ millions, except EPS) Q Q Variance Revenue $ 797 $ 758 $ 39 5% Adjusted EBITDA 1 $ 200 $ 192 $ 8 4% Margin 25.1% 25.4% Adjusted Net Income 1 $ 99 $ 81 $ 18 22% Margin 12.5% 10.7% Adjusted EPS 1,2 $ 0.73 $ 0.59 $ % Continued strong organic revenue and EBITDA growth at AHS Terminix margin compression, primarily due to the impact of hurricanes and business transformation initiatives Franchise Services Group delivered solid revenue growth 1 See below for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions. 2 Adjusted earnings per share (EPS) is calculated as adjusted net income divided by the diluted share counts of 135.2M shares and 137.1M shares for the third quarter of 2017 and 2016, respectively. 16

18 Full-Year 2017 Outlook (As of October 31, 2017) Range ($ millions) Low High Revenue $ 2,900 $ 2,920 Growth Rate 6% 6% Adjusted EBITDA 1 $ 670 $ 675 Growth Rate 0% 1% Margin 23% 23% Maintaining revenue growth outlook of 6% over prior year Revising Adjusted EBITDA outlook to reflect impact of hurricanes and on-going business transformation initiatives at Terminix 1 See below for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.

19 Non-GAAP Reconciliation Definitions Adjusted EBITDA is defined as net income before: depreciation and amortization expense; 401(k) plan corrective contribution; fumigation related matters; insurance reserve adjustment; management and consulting fees; consulting agreement termination fees; non-cash stock-based compensation expense; restructuring charges; gain on sale of Merry Maids branches; non-cash impairment of software and other related costs; loss on extinguishment of debt; income from discontinued operations, net of income taxes; provision for income taxes; interest expense; and other nonoperating expenses. Free Cash Flow is defined as net cash provided from operating activities from continuing operations plus cash paid for consulting agreement termination fees less property additions and government grants for property additions. Adjusted net income is defined as net income before: amortization expense; 401(k) Plan corrective contribution; fumigation related matters; insurance reserve adjustment; restructuring charges; gain on sale of Merry Maids branches; impairment of software and other related costs; income from discontinued operations, net of income taxes; loss on extinguishment of debt and the tax impact of the aforementioned adjustments. Adjusted earnings per share is calculated as adjusted net income divided by the weightedaverage diluted common shares outstanding. 18

20 Adjusted EBITDA Reconciliation Q17 LTM Net Income (Loss) ($507) ($57) $160 $155 $235 Reconciliation to Adjusted EBITDA: (Income) Loss from discontinued operations, net of income taxes (0) Depreciation & amortization expense (k) Plan corrective contribution (2) Fumigation related matters Insurance reserve adjustment Non-cash stock-based compensation expense Management and consulting fees Consulting agreement termination fees Non-cash impairment of software and other related costs Restructuring charges (Benefit) Provision for income taxes Interest expense Loss on extinguishment of debt Gain on sale of Merry Maids branches - (1) (7) (2) (0) Other non-operating expenses Total Adjustments Adjusted EBITDA $450 $557 $622 $667 $688 Terminix American Home Shield Franchise Services Group Other Operations & Headquarters (39) (9) (9) (3) 1 Adjusted EBITDA $450 $557 $622 $667 $688 Note: Adjusted EBITDA in 2013 does not reflect the annualized benefit of transferring $25m of corporate costs to TruGreen 19

21 Free Cash Flow Reconciliation Q17 LTM Net Cash Provided from Operating Activities from Continuing Operations 1 $208 $289 $398 $325 $451 Reconciliation to Free Cash Flow: Cash paid for consulting agreement termination fees Property additions, net of Government grant funding for property additions (39) (35) (40) (56) (59) 2 Free Cash Flow $169 $274 $358 $270 $392 1 As a result of the early adoption of Accounting Standards Updates and , $13 million of excess tax benefits for 2015 were retrospectively presented as an operating activity, and $49 million, and $35 million of call premium paid on retirement of debt, net of premium received on issuance of debt for 2015, and 2014 respectively, were retrospectively presented as financing activities Free Cash Flow includes the impact of $56 million, net of tax, in payments on fumigation related matters 20

22 Q Net Income to Adjusted EBITDA and Adjusted Net Income Reconciliations $ millions, except per share data Third Quarter Net Income $ 80 $ 70 Depreciation and amortization expense (k) Plan corrective contribution (4) Fumigation related matters 1 Non-cash stock-based compensation expense 1 3 Restructuring charges 21 8 Provision for income taxes Loss on extinguishment of debt 3 Interest expense Adjusted EBITDA $ 200 $ 192 Terminix $ 82 $ 92 American Home Shield Franchise Services Group Corporate Adjusted EBITDA $ 200 $ 192 Net Income $ 80 $ 70 Amortization expense (k) Plan corrective contribution (4) Fumigation related matters 1 Restructuring charges 21 8 Loss on extinguishment of debt 3 Tax impact of adjustments (9) (7) Adjusted Net Income $ 99 $ 81 Weighted-average diluted common shares outstanding Adjusted Earnings Per Share $ 0.73 $ 0.59