MEMPHIS, Tenn. - July 28, 2016 - (BUSINESS WIRE) - ServiceMaster Global Holdings, Inc. (NYSE: SERV), a leading provider of essential residential and commercial services, today announced unaudited second-quarter 2016 results. The company reported a year-over-year revenue increase of 4 percent driven primarily by organic growth at American Home Shield (“AHS”) and the impact of acquiring Alterra Pest Control, LLC (“Alterra”) in November 2015.
Second-quarter 2016 net income was $16 million, or $0.11 per share, versus $67 million, or $0.49 per share, in the same period in 2015. Second-quarter 2016 net income includes a charge of $88 million due to a tentative settlement of a fumigation related matter and an insurance reserve adjustment of $23 million, and second-quarter 2015 net income includes a $14 million loss on extinguishment of debt.
Second-quarter 2016 adjusted net income was $93 million, or $0.67 per share, versus $82 million, or $0.60 per share, for the same period in 2015.
Second-quarter 2016 Adjusted EBITDA was $203 million, a year-over-year increase of $12 million, or 6 percent, primarily driven by an $11 million increase in Adjusted EBITDA at Terminix. For the company as a whole, the Adjusted EBITDA increase this quarter reflects an increase of $21 million from the conversion of higher revenue, partially offset by an increase of approximately $6 million in technology costs, primarily investments related to the ServSmartSM initiative, and a $3 million reduction in investment income.
Rob Gillette, ServiceMaster’s chief executive officer, noted: “Our businesses remain strong. Our margins continue to improve as we continue to streamline operations, convert our Merry Maids branches to franchises and realize the benefits of operating leverage. This positions us well for future growth as we continue to invest in marketing, our ServSmart platform and build on our brand awareness.”
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A reconciliation of both Adjusted net income and Adjusted EBITDA to net income, as well as a reconciliation of free cash flow to net cash provided from operating activities from continuing operations, are set forth below in this press release.
Terminix reported a 5 percent year-over-year revenue increase in the second-quarter of 2016, driven primarily by the impact of the Alterra acquisition in November 2015 and organic growth in pest control revenue. Adjusted EBITDA increased 11 percent, or $11 million, versus prior year, primarily driven by $10 million from the conversion of higher revenue and $5 million of other cost reductions, offset, in part, by a $4 million increase in technology costs.
American Home Shield reported an 8 percent year-over-year revenue increase in the second-quarter of 2016 driven by the growth in the number of home warranties and price increases. Adjusted EBITDA increased 1 percent, or $1 million, versus prior year, primarily reflecting a $13 million increase from the conversion of higher revenue, offset, in part, by a $4 million increase in contractor claim costs, a $3 million increase in sales/marketing costs, a $2 million increase in technology costs and a $3 million reduction in investment income.
The Franchise Services Group reported a 17 percent year-over-year revenue decrease in the second-quarter of 2016 primarily reflecting the conversion of certain company-owned Merry Maids branches to franchises. Adjusted EBITDA decreased 5 percent, or $1 million, versus prior year, primarily reflecting the flow-through effect of lower revenue and the branch conversions, offset, in part, by cost reduction initiatives.
For the six months ended June 30, 2016, net cash provided from operating activities from continuing operations increased to $244 million from $220 million for the six months ended June 30, 2015.
Net cash used for investing activities from continuing operations was $154 million for the six months ended June 30, 2016 compared to $20 million for the six months ended June 30, 2015. During the six months ended June 30, 2016, we posted cash of $95 million, in lieu of letters of credit, as collateral under our automobile, general liability and workers’ compensation insurance program.
Net cash used for financing activities from continuing operations was $45 million for the six months ended June 30, 2016 compared to $223 million for the six months ended June 30, 2015. During the six months ended June 30, 2015, we borrowed an incremental $178 million and redeemed $390 million in aggregate principal amount of the former 8% 2020 Notes.
Free cash flow(3) was $212 million for the six months ended June 30, 2016 compared to $224 million for the six months ended June 30, 2015.
On July 21, 2016, the company entered into a superseding plea agreement in connection with the investigation initiated by the United States Department of Justice related to the U.S. Virgin Islands matter. Under the terms of the superseding plea agreement we have agreed to pay fines, community service and government costs up to $10 million (same aggregate amount as previously disclosed) as recommended by the parties, but have agreed to monetary ranges for the fines and community service, giving the court discretion at sentencing. The superseding plea agreement is subject to the approval of the court at a hearing scheduled for August 25, 2016 and, if approved will resolve the federal criminal consequences associated with the DOJ investigation.
The company is also reporting that it has reached a tentative settlement agreement to settle all civil claims of the affected family related to the U.S. Virgin Islands matter. We expect that, under the terms of the proposed settlement agreement, in addition to the amounts that the company’s insurance carriers have agreed to pay to the family pursuant to our general liability insurance policies, we will pay $87 million. The company had previously paid $3 million related to these claims.
The company made a $23 million adjustment to accrued self-insured claims related to automobile, general liability and workers’ compensation risks. The adjustment is based on the company’s detailed annual assessment of this actuarially determined accrual, which the company completes in the second quarter of each year. This adjustment relates to coverage periods of 2015 and prior.
On February 23, 2016, the company’s board of directors authorized a three-year share repurchase program, under which the company may purchase up to $300 million of outstanding shares of common stock. During the second-quarter, the company purchased 461,174 shares of common stock at an average price paid per share of $36.04.
On July 15, 2016, the company announced two new members elected to its board of directors, naming Jerri DeVard, most recently chief marketing officer of ADT Corporation, and John Corness, formerly a human resources executive with Polaris Industries and GE.
Revenue is expected to range from $2,730 million to $2,760 million, or an increase of 5 percent to 6 percent compared to 2015. Adjusted EBITDA is expected to range from $675 million to $690 million, or an increase of 9 percent to 11 percent compared to 2015. Reconciliation for the forward-looking 2016 Adjusted EBITDA outlook is not being provided as the company does not currently have sufficient data to accurately estimate the variables and individual adjustments for such reconciliation.
The company will discuss its second-quarter 2016 operating results during a conference call at 8 a.m. central time (9 a.m. eastern time) today, July 28, 2016. To participate on the conference call, interested parties should call 888.225.2695 (or international participants, 303.223.4364). 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 27, 2016. To access the replay of this call, please call 800.633.8284 and enter reservation number 21815362 (international participants: 402.977.9140, reservation number 21815362). You may also review the webcast on the company’s investor relations home page.
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 warranties), AmeriSpec (home inspections), Furniture Medic (furniture and cabinet 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.
This press release contains forward-looking statements and cautionary statements, including 2016 revenue and Adjusted EBITDA outlook and the statements relating to the U.S. Virgin Islands matter. Some of the 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. 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; 401(k) Plan corrective contribution; 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.
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 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 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 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; gain on sale of Merry Maids branches; non-cash impairment of software and other related costs; loss from discontinued operations, net of income taxes; provision for income taxes; loss on extinguishment of debt; interest expense; and other non-operating expenses. 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 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; loss from discontinued operations, net of income taxes; loss on extinguishment of debt; other expense; and the tax impact of the aforementioned adjustments. 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 (i) net cash provided from operating activities from continuing operations before: call premium paid on retirement of debt; (ii) less property additions.
(4) Corporate includes The ServiceMaster Acceptance Company Limited Partnership (SMAC) and the unallocated expenses of our headquarters function.
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The following table presents reconciliations of Adjusted Net Income to Net Income for the periods presented.
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The following table presents reconciliations of Free Cash Flow to Net Cash Provided from Operating Activities from Continuing Operations.
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The following table presents reconciliations of Adjusted EBITDA to Net Income for the periods presented.
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Terminix Segment
Revenue by service line is as follows:
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(1) Termite renewal revenue comprised 48 percent and 47 percent of total revenue from Termite and Other Services for the second-quarter of 2016 and 2015, respectively.
American Home Shield Segment
The table below presents selected operating metrics related to renewable customer counts and customer retention.
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(1) As of June 30, 2016, excluding the OneGuard Home Warranties (“OneGuard”) accounts acquired on June 27, 2016, the growth in home warranties was 7 percent, and, excluding all OneGuard accounts, the customer retention rate for our American Home Shield segment was 75 percent.
Franchise Services Group Segment
Revenue by service line is as follows:
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SOURCE ServiceMaster Global Holdings, Inc.
James Shields
ServiceMaster Global Holdings, Inc.
Investor Relations:
901-597-6839
James.Shields@servicemaster.com
Peter Tosches
ServiceMaster Global Holdings, Inc.
Media Relations
901-597-8449
Peter.Tosches@servicemaster.com
ServiceMaster Global Holdings, Inc. is a provider of essential residential and commercial services.