ServiceMaster Delivers Fourth-Quarter 2018 Revenue Growth of 12 Percent Including 5 Percent Organic Growth at Terminix  

  • Full-year 2018 Terminix revenue increased 7 percent
    year-over-year, the highest growth rate since 2002
  • Fourth-quarter 2018 Terminix revenue of $396 million increased
    12 percent year-over-year
  • Fourth-quarter 2018 Terminix organic growth was 5 percent, the
    highest since 2014
  • 2018 consolidated net loss of $41 million, included a $249
    million mark-to-market adjustment on investment in frontdoor, inc.
  • Full-year 2018 Revenue and Adjusted EBITDA(1)
    met the high-end and mid-point of guidance, respectively
  • Full-year 2019 consolidated revenue guidance of between $2,020
    million and $2,050 million
  • Full-year 2019 consolidated Adjusted EBITDA guidance of between
    $435 million and $445 million

MEMPHIS, Tenn.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24SERV&src=ctag” target=”_blank”gt;$SERVlt;/agt; lt;a href=”https://twitter.com/hashtag/earnings?src=hash” target=”_blank”gt;#earningslt;/agt;–ServiceMaster
Global Holdings, Inc.
(NYSE:SERV), a leading provider of
essential services to residential and commercial customers in the
termite, pest control, cleaning and restoration markets, today announced
unaudited fourth-quarter and full-year 2018 results. On October 1, 2018
we completed the previously announced separation of our American Home
Shield business. Concurrent with the effective date of the spin, the
American Home Shield segment is reported in discontinued operations for
all displayed periods, including prior periods.

For the full year 2018, the company reported a year-over-year revenue
increase of 8 percent to $1,900 million and a net loss of $41 million,
or $0.30 per share. Net loss was negatively impacted by a $249 million
mark-to-market loss on investment in frontdoor, inc. Our post-spin
Adjusted EBITDA of $398 million included $33 million of costs which were
historically allocated to American Home Shield but are not permitted to
be classified as discontinued operations under U.S. GAAP. Our pre-spin
Adjusted EBITDA guidance of between $425 and $435 million excluded these
$33 million of historically allocated costs. Adjusted net income(2)
was $130 million, or $0.95 per share versus $101 million, or $0.74 per
share, for the same period in 2017.

For the fourth quarter, the company reported a year-over-year revenue
increase of 12 percent to $457 million and net loss of $248 million, or
$1.83 per share. Fourth quarter net loss in 2018 was negatively impacted
by a $249 million mark-to-market loss on investment in frontdoor, inc.
Adjusted EBITDA was $80 million, a year-over-year increase of $6 million
and adjusted net income was $26 million, or $0.19 per share versus $10
million, or $0.07 per share, for the same period in 2017.

“Our primary goal in 2018 was to transform our Terminix business and
unlock the potential to drive sustainable revenue growth. We are pleased
to report that our focused efforts throughout 2018 and strategic
initiatives resulted in record revenue at Terminix in the fourth quarter
and full year 2018,” said ServiceMaster Chief Executive Officer Nik
Varty. “Improvements in pest sales, driven by enhanced marketing
initiatives, and stronger start and completion rates drove organic
growth of 5 percent during the quarter, including over 7 percent in
residential pest for a second consecutive quarter. The strong second
half performance in these areas led to full-year organic growth of 2
percent, meeting the high end of expectations we set a year ago.
ServiceMaster Brands grew revenue organically 5 percent in the fourth
quarter and 9 percent for the full year. We continue to create strong
growth by focusing on high-value segments in the cleaning and
restoration businesses, with revenue in both commercial restoration and
commercial cleaning national accounts up over 20 percent in 2018.”

“While making meaningful strategic investments in the business to drive
long-term sustainable growth and shareholder value, the company
delivered on its guidance for Adjusted EBITDA for the full year. Our
growth strategy is on track for 2019, including major initiatives in the
commercial pest and termite businesses, as well as a focus on adjacent
opportunities in the cleaning and restoration businesses. We will also
remain diligent in our focus on business productivity as we absorb
dis-synergies from the successful spin of the American Home Shield
business, which increased shareholder value.”

Consolidated Performance

           
 
Three Months Ended December 31, Year Ended December 31,

$ millions

2018 2017 B/(W) 2018 2017 B/(W)
Revenue $ 457 $ 409 $ 48 $ 1,900 $ 1,755 $ 145
YoY growth 11.9 % 8.3 %
Gross Margin 192 174 18 860 794 66
% of revenue 42.0 % 42.5 % (0.5) pts 45.2 % 45.2 % 0.0 pts
SG&A (138) (119) (18) (555) (500) (56)
% of revenue 30.1 % 29.2 % (0.9) pts 29.2 % 28.5 % (0.8) pts
(Loss) Income from Continuing Operations before Income Taxes (233) 8 (241) (126) 99 (225)
% of revenue (51.0) % 2.1 % (53.0) pts (6.6) % 5.6 % (12.3) pts
Net (Loss) Income (248) 306 (554) (41) 510 (551)
% of revenue (54.3) % 74.8 % (129.1) pts (2.2) % 29.0 % (31.2) pts
Adjusted Net Income(2)

26

10

17

130 101 29
% of revenue

5.8

%

2.4

%

3.4

pts 6.8 % 5.7 % 1.1 pts
Adjusted EBITDA(1) 80 75 6 398 374 23
% of revenue 17.6 % 18.2 % (0.7) pts 20.9 % 21.3 % (0.4) pts
Net Cash Provided from Operating Activities from Continuing
Operations

24

15

9

229 204 25
Free Cash Flow(3)

17

(10)

28

187 138 49

Segment Performance

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

                     
 
Three Months Ended December 31, 2018 Year Ended December 31, 2018
Revenue Adjusted EBITDA Revenue Adjusted EBITDA

$ millions

2018 B/(W) vs. PY 2018 B/(W) vs. PY 2018 B/(W) vs. PY 2018 B/(W) vs. PY
Terminix $ 396 $ 43 $ 56 $ (6) $ 1,655 $ 113 $ 333 $ 2
YoY growth / % of revenue 12.2 % 14.0 % (3.4) pts 7.4 % 20.1 % (1.3) pts
ServiceMaster Brands 61 6 22 244 32 89 2
YoY growth / % of revenue 10.6 % 35.9 % (4.6) pts 15.1 % 36.4 % (4.6) pts
Corporate(4) 3 2.0 1 9 8
Costs historically allocated to American Home Shield                       (33)     11  
Total $ 457 $ 48 $ 80 $ 6 $ 1,900 $ 145 $ 398 $ 23
YoY growth / % of revenue 11.9 % 17.6 % (0.7) pts 8.3 % 20.9 % (0.4) pts

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

Terminix

Terminix reported 12 percent year-over-year revenue growth in the fourth
quarter of 2018, including over 7 percent organic growth in residential
pest control services and 33 percent growth from acquisitions in
commercial pest control, primarily from the March 2018 Copesan
acquisition. This is the second consecutive quarter of over 7 percent
organic revenue growth in residential pest control. Organic termite
growth in the fourth quarter of 3 percent was aided by approximately $2
million from a one-time acceleration of revenue related to an accounting
method change for a bundled pest and termite service offering in order
to comply with new revenue recognition standards. This fourth quarter
benefit was more than offset in the full year by an initiative to
upgrade bait stations for a sub-set of our customers in 2017.

Adjusted EBITDA in the fourth quarter decreased by $6 million
year-over-year, partially the result of absorbing $4 million in spin
related dis-synergies, $3 million increased sales and marketing expense
to drive continued growth, $5 million of selling and administrative
expenses from acquisitions and $3 million in other investments in
growth, including our partnership with Salesforce to replace legacy
operating systems. These costs were partially offset by $14 million in
flow-through from higher revenue. The company expects full year 2019
dis-synergies will impact Terminix by $16 million, or $11 million higher
than the impact in 2018.

ServiceMaster Brands

ServiceMaster Brands, previously referred to as Franchise Services
Group, reported a $6 million, or 11 percent, year-over-year revenue
increase in the fourth quarter of 2018. Organic growth of 5 percent was
highlighted by 11 percent growth in commercial cleaning national
accounts. Approximately half of the growth related to the recognition of
national advertising fund franchisee contributions as revenue pursuant
to our adoption of a new accounting rule regarding revenue recognition
that took effect on January 1, 2018. Prior to 2018, contributions to the
national advertising fund made by our franchisees were treated as an
offset to advertising expense. This accounting standards change
increased revenue by $3 million but had no impact on Adjusted EBITDA.

Adjusted EBITDA in the fourth quarter was relatively flat with the pass
through of higher revenue offset largely by the absorption of $1 million
of dis-synergies in the quarter. The company expects full year 2019
dis-synergies will impact ServiceMaster Brands by $3 million, or $2
million higher than the impact in 2018.

Corporate

Adjusted EBITDA in the fourth quarter increased $3 million from the
prior year. The increase is primarily related to continued favorable
claims trends related to the company’s workers’ compensation, auto and
general liability program as a result of operational improvements in
claims management.

Historically Allocated Services

We have historically incurred the cost of certain corporate-level
activities that we performed on behalf of our businesses, including
American Home Shield, such as executive functions, communications,
public relations, finance and accounting, tax, treasury, internal audit,
human resources operations and benefits, risk management and insurance,
supply management, real estate management, legal, marketing, facilities,
information technology and other general corporate support services. The
cost of such activities were historically allocated to our segments,
including American Home Shield. Certain corporate expenses which were
historically allocated to the American Home Shield segment are not
permitted to be classified as discontinued operations under U.S. GAAP
(“Historically Allocated Services”). Such Historically Allocated
Services amounted to $33 million and $44 million for the years ended
December 31, 2018, and 2017, respectively.

The costs of Historically Allocated Services which were not transferred
to American Home Shield will be borne by our remaining businesses in the
future as dis-synergies. We estimate these dis-synergies to be
approximately $5 million in 2018 and expect total dis-synergies to be
approximately $18 million in 2019.

Share Repurchase Plan

On February 19, 2019, the ServiceMaster Board of Directors approved a
three-year extension allowing up to $150 million of repurchases through
February 2022. Under the share repurchase program, the company may
repurchase shares in accordance with all applicable securities laws and
regulations, including Rule 10b-18 of the Securities Exchange Act of
1934, as amended. The extent to which the company repurchases its
shares, and the timing and manner of such repurchases, will depend upon
a variety of factors, including market conditions, regulatory
requirements and other corporate considerations, as determined by the
company. The repurchase program may be suspended or discontinued at any
time. The company expects to fund the purchases from operating cash flow.

American Home Shield Spin-Off

On October 1, 2018, we completed the previously announced separation of
our American Home Shield business (the “Separation”). In connection with
the Separation, we distributed 67,781,527 shares of common stock of
Frontdoor to our stockholders and retained 16,734,092 shares, or
approximately 19.8% of the common stock of frontdoor, inc. This
investment is accounted for as an available for sale security and will
be marked to market as required by accounting rules. We currently intend
to responsibly dispose of all the frontdoor, inc. common stock we
retained after the Separation through one or more subsequent exchanges
for debt by June 14, 2019, in accordance with terms set forth in a
private letter ruling with the Internal Revenue Service (“IRS”)
governing the tax-free status of the Separation. The ultimate result of
this disposition will be a debt reduction for the company.

The American Home Shield segment is reported in this press release in
discontinued operations.

Free Cash Flow

Free cash flow was $187 million for the year ended December 31, 2018
compared to $138 million for the year ended December 31, 2017. Post-spin
free cash flow excludes any contributions from the American Home Shield
segment, which have been restated as dis-continued operations. The full
year 2018 free cash flowto Adjusted EBITDA conversion was 47
percent. The conversion was negatively impacted by Historically
Allocated Services and cash interest not permitted to be allocated to
discontinued operations under U.S. GAAP, as a result of the American
Home Shield spin. The company expects free cash flow to range between 50
to 60 percent of Adjusted EBITDA in 2019.

Full-Year 2019 Outlook

The company expects full-year 2019 revenue to range from $2,020 million
to $2,050 million, or an increase of 6 to 8 percent compared to 2018.
Organic revenue growth at Terminix is expected to range from 2 to 3
percent. ServiceMaster Brands will continue to focus on high value
business verticals and revenue channels such as commercial restoration,
healthcare and commercial cleaning national accounts and is expected to
drive organic growth in the mid-single digits.

Full-year 2019 Adjusted EBITDA is anticipated between $435 million and
$445 million. Terminix is expected to contribute approximately 30
percent incremental margins, less incremental spin dis-synergies of $11
million and $9 million of investments due, in part to, operating
duplicate systems during Salesforce implementation. At ServiceMaster
Brands, continuing growth in national accounts will increase Adjusted
EBITDA but creates slight margin pressure in 2019. We expect a positive
inflection point in our year-over-year Adjusted EBITDA margins in the
second half of the year as a result of revenue conversion more than
offsetting year-over-year dis-synergies and investments in growth.

A reconciliation of the forward-looking 2019 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.

Fourth-Quarter and Full-Year 2018 Earnings Conference Call

The company will provide an update on and discuss the company’s
operational performance and financial results for the fourth quarter and
full year ended December 31, 2018 during a conference call at 8 a.m.
central time (9 a.m. eastern time) today, February 26, 2019.

Participants may join this conference call by dialing 800.698.4476 (or
international participants, +1.303.223.4363). 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
.

The call will be available for replay until March 28, 2019. To access
the replay of this call, please call 800.633.8284 and enter reservation
number 21916426 (international participants: +1.402.977.9140,
reservation number 21916426). Or you can review the webcast on the
company’s investor
relations home page
.

About ServiceMaster

ServiceMaster Global Holdings, Inc. is a leading provider of termite and
pest control, cleaning and restoration services in both the residential
and commercial markets, 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
AmeriSpec (home inspections), Copesan (commercial national accounts pest
management), Furniture Medic (cabinet and furniture repair), Merry Maids
(residential cleaning), ServiceMaster Clean (commercial cleaning),
ServiceMaster Restore (restoration and reconstruction), Terminix
(termite and pest control), and Terminix Commercial (commercial 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 2019 revenue and Adjusted EBITDA outlook and
organic revenue growth projections. 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: 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. 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. 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 like 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 EBITDA is defined as net (loss) income before: depreciation
and amortization expense; acquisition-related costs; 401(k) Plan
corrective contribution; fumigation related matters; insurance reserve
adjustment; non-cash stock-based compensation expense; restructuring
charges; non-cash impairment of software and other related costs;
mark-to-market loss on investment in frontdoor, inc.; (gain) loss from
discontinued operations, net of income taxes; provision (benefit) 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.

(2) Adjusted net income is defined as net (loss) income before:
amortization expense; 401(k) Plan corrective contribution; fumigation
related matters; insurance reserve adjustment; restructuring charges;
acquisition-related costs; mark-to-market loss on investment in
frontdoor, inc.; 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.

(3) 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.

(4) Corporate includes the unallocated expenses of our corporate
functions.

       

SERVICEMASTER GLOBAL HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Income

(In millions, except per share data)

 
 
 
Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
Revenue $ 457 $ 409 $ 1,900 $ 1,755
Cost of services rendered and products sold 265 235 1,041 962
Selling and administrative expenses 138 119 555 500
Amortization expense 4 4 18 18
Acquisition-related costs 3 5
401(k) Plan corrective contribution (3)
Fumigation related matters 3 2 3 4
Impairment of software and other related costs 2
Mark-to-market loss on investment in frontdoor, inc. 249 249
Restructuring charges 4 3 17 21
Interest expense 25 38 133 150
Interest and net investment income (2) (1) (5) (2)
Loss on extinguishment of debt       10   6
(Loss) Income from Continuing Operations before Income Taxes (233) 8 (126) 99
Provision (benefit) for income taxes 4

(267)

37 (242)
Equity in losses of joint venture        
(Loss) Income from Continuing Operations (237)

276

(163) 341
(Loss) gain from discontinued operations, net of income taxes   (11)  

30

  122   169
Net (Loss) Income $ (248) $ 306 $ (41) $ 510
Total Comprehensive (Loss) Income $ (266) $ 310 $ (44) $ 518
Weighted-average common shares outstanding – Basic 135.7 135.1 135.5 134.4
Weighted-average common shares outstanding – Diluted 135.7 135.4 135.5 135.4
Basic (Loss) Earnings Per Share:
(Loss) Income from Continuing Operations $ (1.75) $

2.04

$ (1.20) $ 2.54
(Loss) gain from discontinued operations, net of income taxes (0.08)

0.22

0.90 1.26
Net (Loss) Income (1.83) 2.26 (0.30) 3.79
Diluted (Loss) Earnings Per Share:
(Loss) Income from Continuing Operations $ (1.75) $

2.04

$ (1.20) $ 2.52
(Loss) gain from discontinued operations, net of income taxes (0.08)

0.22

0.90 1.25
Net (Loss) Income (1.83) 2.26 (0.30) 3.76
   

SERVICEMASTER GLOBAL HOLDINGS, INC.

Consolidated Statements of Financial Position

(In millions, except share data)

 
As of As of

December 31,

December 31,
2018 2017
Assets:
Current Assets:
Cash and cash equivalents $ 224 $ 192
Investment in frontdoor, inc. 445
Receivables, less allowances of $21 and $22, respectively 186 162
Inventories 45 41
Prepaid expenses and other assets 61 88
Deferred customer acquisition costs 18
Current assets of discontinued operations     740
Total Current Assets 962 1,242
Other Assets:
Property and equipment, net 201 202
Goodwill 1,956 1,780
Intangible assets, primarily trade names, service marks and
trademarks, net
1,588 1,526
Restricted cash 89 89
Notes receivable 43 41
Long-term marketable securities 21 21
Deferred customer acquisition costs 77
Other assets 87 67
Long-term assets of discontinued operations     678
Total Assets $ 5,023 $ 5,646
Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable $ 89 $ 82
Accrued liabilities:
Payroll and related expenses 60 56
Self-insured claims and related expenses 58 60
Accrued interest payable 14 14
Other 61 43
Deferred revenue 95 90
Current liabilities of discontinued operations 693
Current portion of long-term debt   49   136
Total Current Liabilities   425   1,174
Long-Term Debt 1,727 2,642
Other Long-Term Liabilities:
Deferred taxes 484 451
Long-term liabilities of discontinued operations 44
Other long-term obligations, primarily self-insured claims   182   168
Total Other Long-Term Liabilities   666   663
Commitments and Contingencies
Stockholders’ Equity:
Common stock $0.01 par value (authorized 2,000,000,000 shares with
147,209,928 shares issued and 135,687,558 shares outstanding at
December 31, 2018, and 146,662,232 shares issued and 135,141,048
outstanding at December 31, 2017)
2 2
Additional paid-in capital 2,309 2,321
Retained earnings (accumulated deficit) 156 (895)
Accumulated other comprehensive loss 5 5
Less common stock held in treasury, at cost (11,522,370 shares at
December 31, 2018, and 11,521,184 shares at December 31, 2017)
  (267)   (267)
Total Stockholders’ Equity   2,204   1,167
Total Liabilities and Stockholders’ Equity $ 5,023 $ 5,646

Contacts

Investor Relations:
Jesse Jenkins
901.597.8259
Jesse.Jenkins@servicemaster.com

Media:
James
Robinson
901.597.7521
James.Robinson@servicemaster.com

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