First-Quarter 2018 Earnings Webcast. May 1, 2018

Transcription

1 First-Quarter 2018 Earnings Webcast May 1,

2 Cautionary Statements Safe Harbor Statement This presentation contains forward-looking statements, including 2018 revenue and Adjusted EBITDA outlook, organic revenue growth projections, 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. Forwardlooking 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, 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 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. 2

3 Agenda Nik Varty Chief Executive Officer Tony DiLucente Chief Financial Officer Brian Turcotte VP IR & Treasurer Q1 Highlights American Home Shield Separation Update Progress on Terminix Business Transformation Q1 Financial Summary and Segment Results FY 2018 Outlook 3

4 Q1 Highlights 1 See Appendix 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 135.6M shares and 136.0M shares for first quarter 2018 and 2017, respectively. 4

5 American Home Shield Separation Update July 31 5

6 Progress on Terminix Business Transformation Build a strong leadership team Reinforce accountability Empower our technicians to deliver an exceptional customer experience Rebuild a strong commercial business Implement disciplined, Lean Six Sigma approach Built a strong leadership team and reinforcing accountability 6

7 Rebuild a Strong Commercial Business Driving strong focus on the commercial pest control space: - Adding strong leadership - Investing in process control and technology - Driving systematic efforts to improve service capabilities - Rebuilding relationships with key customers Leveraging best-in-class capabilities, leadership and process from our newest Copesan brands 7

8 Q1 Consolidated Financial Summary ($ millions, except EPS) Q Q Variance Revenue $ 675 $ 643 $ 32 5% Adjusted EBITDA 1 $ 141 $ 134 $ 7 5% Margin 20.9% 20.8% Adjusted Net Income 1 $ 59 $ 46 $ 14 30% Margin 8.8% 7.2% Adjusted EPS 1,2 $ 0.44 $ 0.34 $ % Continued strong organic revenue growth at AHS driven by new unit sales growth and improved price realization Strong revenue growth at FSG, driven by higher disaster restoration royalty fees and janitorial national accounts revenue growth Terminix improved margins, primarily due to benefits from business productivity initiatives 1 See Appendix 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 135.6M shares and 136.0M shares for the first quarter of 2018 and 2017, respectively. 8

9 Q1 Financial Results ($ millions) Q Q Variance Revenue $ 368 $ 365 $ 2 1% Gross Profit $ 164 $ 159 $ 5 3% Margin 44.6% 43.6% Adjusted EBITDA 1 $ 86 $ 81 $ 5 6% Margin 23.4% 22.3% Adjusted EBITDA ($M) $ $86 Q1'17 Revenue Conversion Business Productivity Production Labor Chemicals & Materials Bad Debt Expense (3) Sales & Marketing Q1'18 Revenue growth driven primarily by termite renewals and wildlife exclusion sales Adjusted EBITDA margin expansion primarily due to business process and productivity initiatives, including bad debt expense reduction, materials sourcing savings and production labor efficiencies Higher sales and marketing includes increased targeted investment to drive unit growth ($2M) and timing of commission expense due to an accounting rule change ($1M) 1 See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions. 9

10 Q1 Revenue Growth by Channel $ millions +0% $202 $202 (3)% +5% $70 $68 $79 $83 +2% Termite Completions & Other Services $14 $15 Termite Renewals Pest Control Services Other Q Q

11 Q1 Financial Results ($ millions) Q Q Variance Revenue $ 247 $ 227 $ 20 9% Gross Profit $ 112 $ 106 $ 6 6% Margin 45.3% 46.5% Adjusted EBITDA 1 $ 32 $ 31 $ 2 6% Margin 13.1% 13.4% $31 Q1'17 Adjusted EBITDA ($M) Organic revenue growth of 9% in the first quarter versus prior year, largely driven by the direct-to-consumer channel 13 Org. Revenue Conversion (6) Claims Costs (3) Sales & Marketing (2) Call Center Costs $32 Q1'18 Unusually cold temperatures drove high incidence rates related to heating systems Increase in sales and marketing costs to drive direct-to-consumer unit growth Increase in customer care center costs to deliver a new level of customer experience 1 See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions. 11

12 FSG Q1 Financial Results ($ millions) Q Q Variance Revenue $ 60 $ 50 $ 10 21% Gross Profit $ 37 $ 31 $ 5 16% Margin 61.3% 63.6% Adjusted EBITDA 1 $ 23 $ 21 $ 1 5% Margin 37.8% 43.3% Adjusted EBITDA ($M) Revenue growth driven by higher royalty fees related to disaster restoration services, 2 janitorial national accounts revenue, and revenue recognition accounting rule 2 change $21 $23 (1) Lower Adjusted EBITDA margin percent due to a higher mix of janitorial national accounts revenue as well as the revenue recognition accounting rule change Q1'17 Revenue Conversion Other Q1'18 1 See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions. 2 FSG recognized $3 million of national advertising fund contributions as revenue pursuant to Company s adoption of a new accounting rule regarding revenue recognition on January 1,

13 Q1 Consolidated Results $ millions, except per share data First Quarter B/(W) Revenue $ 675 $ 643 $ 32 YoY Growth 5% Gross Profit % of revenue 46.4% 46.2% 0.3 pts Selling and administrative expenses (197) (186) (11) % of revenue 29.2% 28.9% -0.2 pts Amortization expense (5) (7) 2 Fumigation related matters (1) Restructuring charges (12) (2) (10) American Home Shield spin-off charges (7) (7) Interest expense (37) (37) (1) Income from Continuing Operations before Income Taxes (7) Provision for income taxes (14) (24) 9 Income from Continuing Operations Income from discontinued operations, net of income taxes 1 (1) Net Income $ 40 $ 39 $ 1 Weighted-average diluted common shares outstanding Diluted Earnings Per Share $ 0.30 $ 0.29 $ 0.01 Adjusted Net Income 1 $ 59 $ 46 $ 14 Adjusted EBITDA 1 $ 141 $ 134 $ 7 Adjusted Earnings Per Share 1 $ 0.44 $ 0.34 $ See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions. 13

14 Q1 Cash Flow $ millions First Quarter Net Income $ 40 $ 39 Depreciation and amortization expense Working capital, excluding impact of accrued interest and taxes Fumigation related matters 1 Payments on fumigation related matters (1) Working capital impact of accrued interest and taxes Deferred income tax provision 2 Stock-based compensation expense 4 5 Restructuring charges, net of payments 8 American Home Shield spin-off charges, net of payments 4 Other non-cash expenditure add-backs 11 5 Net Cash Provided from Operating Activities $ 142 $ 126 Property additions, net of Government grant fundings for property additions (23) (18) Free Cash Flow $ 119 $

15 Full-Year 2018 Outlook 1 Range ($ millions) Low High Revenue $ 3,085 $ 3,115 Growth Rate 6% 7% Adjusted EBITDA 2 $ 695 $ 710 Growth Rate 2% 5% Margin 23% 23% 1 Outlook assumes AHS remains with ServiceMaster for full year and does not include potential financial impact from future acquisitions or projected costs related to AHS separation targeted for Q See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions. 3 FSG recognizing approximately $12 million of national advertising fund contributions as revenue pursuant to Company s adoption of a new accounting rule regarding revenue recognition on January 1,

16 ServiceMaster Shared Vision We Serve We Care We Deliver 16

17 Appendix 17

18 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; non-cash stock-based compensation expense; restructuring charges; American Home Shield spin-off charges; gain on sale of Merry Maids branches; non-cash impairment of software and other related costs; (income) loss from discontinued operations, net of income taxes; provision for income taxes; loss on extinguishment of debt and interest expense. 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; gain on sale of Merry Maids branches; impairment of software and other related costs; (income) loss from discontinued operations, net of income taxes; loss on extinguishment of debt; the tax impact of the aforementioned adjustments and the impact of the tax law changes on deferred taxes. Adjusted earnings per share is calculated as adjusted net income divided by the weighted-average diluted common shares outstanding. Free Cash Flow is defined as net cash provided from operating activities from continuing operations; less property additions, net of government grant fundings for property additions. 18

19 Q1 Net Income to Adjusted EBITDA and Adjusted Net Income Reconciliations $ millions, except per share data First Quarter Net Income $ 40 $ 39 Depreciation and amortization expense Fumigation related matters 1 Non-cash stock-based compensation expense 4 5 Restructuring charges 12 2 American Home Shield spin-off charges 7 Non-cash impairment of software and other related costs 2 Income from discontinued operations, net of income taxes (1) Provision for income taxes Interest expense Adjusted EBITDA $ 141 $ 134 Terminix $ 86 $ 81 American Home Shield Franchise Services Group Corporate Adjusted EBITDA $ 141 $ 134 Net Income $ 40 $ 39 Amortization expense 5 7 Fumigation related matters 1 Restructuring charges 12 2 American Home Shield spin-off charges 7 Impairment of software and other related costs 2 Income from discontinued operations, net of income taxes (1) Tax impact of adjustments (6) (5) Adjusted Net Income $ 59 $ 46 Weighted-average diluted common shares outstanding Adjusted Earnings Per Share $ 0.44 $

20 Q1 Adjusted EBITDA Bridge to Adjusted Net Income $ millions First Quarter 2018 B/(W) PY Adjusted EBITDA 1 $ 141 $ 7 Excluded from Adj. EBITDA / Included in Adj. Net Income Stock-based compensation (4) Interest expense (37) (1) Depreciation (20) (2) Provision for income taxes (20) 8 Adjusted Net Income 1 $ 59 $ 14 1 See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions. 20