Thursday, April 27, 2017 7:00 am EDT
MEMPHIS, Tenn. - April 27, 2017 - (BUSINESS WIRE) - ServiceMaster Global Holdings, Inc. (NYSE: SERV), a leading provider of essential residential and commercial services, today announced unaudited first-quarter 2017 results. The company reported a year-over-year revenue increase of 6 percent driven primarily by organic growth at American Home Shield (“AHS”) and the impact of acquiring OneGuard Home Warranties (“OneGuard”) in June 2016 and Landmark Home Warranty (“Landmark”) in November 2016.
First-quarter 2017 net income was $39 million, or $0.29 per share, versus $39 million, or $0.28 per share, in the same period in 2016.
First-quarter 2017 Adjusted EBITDA was $134 million, a year-over-year increase of $7 million, or 6 percent, primarily driven by an increase in Adjusted EBITDA of $12 million at AHS.
First-quarter 2017 adjusted net income was $46 million, or $0.34 per share, versus $47 million, or $0.34 per share, for the same period in 2016.
Rob Gillette, ServiceMaster’s chief executive officer, noted: “ServiceMaster delivered a good quarter to start 2017. At AHS, organic growth and the contribution from 2016 acquisitions drove strong revenue and Adjusted EBITDA growth again this quarter. At Terminix, our operating performance was in line with our expectation for revenue and Adjusted EBITDA growth as we continue to invest in improving our service delivery and customer service experience. We are confident the operational changes we are making will improve customer retention and result in solid growth in the future.”
Consolidated Performance
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Segment Performance
Revenue and Adjusted EBITDA for each reportable segment and Corporate were as follows:
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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 reported comparable revenue in the first-quarter of 2017 compared to the first-quarter of 2016, primarily driven by an increase in core termite, wildlife exclusion and attic insulation sales, offset, in part, by the expected decline in revenue associated with Alterra Pest Control, LLC (“Alterra”). Adjusted EBITDA decreased 14 percent, or $13 million, versus prior year, primarily reflecting a $5 million increase in production labor costs associated with the company’s effort to improve safety, customer service and retention, a $4 million increase in damage claims and a $7 million increase in sales and marketing costs, offset, in part, by $2 million from the conversion of higher revenue and a $1 million decrease in fuel costs.
American Home Shield reported a 17 percent year-over-year revenue increase in the first-quarter of 2017 driven by an increase in new unit sales, improved price realization and the impact of the OneGuard and Landmark acquisitions in June and November 2016, respectively. AHS’s organic revenue growth was 8 percent in the first-quarter versus prior year. For the quarter, Adjusted EBITDA increased 63 percent, or $12 million, versus prior year, primarily reflecting a $10 million increase from the conversion of higher organic revenue, $3 million associated with the OneGuard and Landmark acquisitions and a $1 million decrease in other costs, offset, in part, by a $2 million increase in contractor claims costs. The increase in contractor claims costs was driven by normal inflationary pressure on the underlying costs of repairs.
The Franchise Services Group reported a 2 percent year-over-year revenue increase in the first-quarter of 2017 primarily driven by higher fee revenue, offset, in part, by the impact of converting company-owned Merry Maids branches to franchises. Adjusted EBITDA increased 17 percent, or $3 million, versus prior year, primarily reflecting the conversion of higher fee revenue.
For the three months ended March 31, 2017, net cash provided from operating activities from continuing operations increased to $126 million from $106 million for the three months ended March 31, 2016.
Net cash used for investing activities from continuing operations was $31 million for the three months ended March 31, 2017 compared to $15 million for the three months ended March 31, 2016.
Net cash used for financing activities from continuing operations was $60 million for the three months ended March 31, 2017 compared to $17 million for the three months ended March 31, 2016. In the three months ended March 31, 2017, we used $51 million to purchase 1.3 million shares of company stock.
Free cash flow(3) was $109 million for the three months ended March 31, 2017 compared to $89 million for the three months ended March 31, 2016.
As previously disclosed, on January 20, 2017, the company entered into a plea agreement in connection with the investigation initiated by the United States Department of Justice (DOJ) related to the U.S. Virgin Islands matter. Under the terms of the plea agreement we have agreed to pay fines, community service and government costs totaling up to $10 million. On March 23, 2017, we pled guilty to four misdemeanor charges. A sentencing hearing before the court is scheduled for July 27, 2017. The plea agreement is non-binding on the court. It is possible that the court could use its discretion to impose fines or other terms different than those in the plea agreement. If the plea agreement is approved by the court, it will resolve the federal criminal consequences associated with the DOJ investigation.
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 first-quarter 2017, the company purchased 1,338,426 shares of common stock at an average price paid per share of $38.04 for a total of $51 million. As of March 31, 2017, we have repurchased $111 million of outstanding shares under this program.
The company continues to expect full-year 2017 revenue to range from $2,885 million to $2,915 million, or an increase of between 5 percent and 6 percent compared to 2016. Full-year 2017 Adjusted EBITDA is anticipated to range from $700 million to $715 million, or an increase of 5 percent to 7 percent compared to 2016. Our 2017 outlook excludes the impact of potential acquisitions.
A reconciliation of the forward-looking 2017 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.
The company will discuss its first-quarter 2017 financial and operating results during a conference call at 8 a.m. central time (9 a.m. eastern time) today, April 27, 2017. To participate on the conference call, interested parties should call 800.926.9871 (or international participants, 212-231-2905). 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 May 27, 2017. To access the replay of this call, please call 800.633.8284 and enter reservation number 21850245 (international participants: 402.977.9140, reservation number 21850245). 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 2017 revenue and Adjusted EBITDA outlook and approval of the U.S. Virgin Islands new plea agreement. 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, 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 and liquidity performance 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.
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(1) Adjusted EBITDA is defined as net income before: depreciation and amortization expense; fumigation related matters; non-cash stock-based compensation expense; restructuring charges; gain on sale of Merry Maids branches; non-cash impairment of software and other related costs; income from discontinued operations, net of income taxes; provision for income taxes; 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 income before: amortization expense; fumigation related matters; restructuring charges; gain on sale of Merry Maids branches; impairment of software and other related costs; income from discontinued operations, net of income taxes; 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 net cash provided from operating activities from continuing operations 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 net income to adjusted net income.
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The following table presents reconciliations of net cash provided from operating activities from continuing operations to free cash flow.
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The following table presents reconciliations of net income to Adjusted EBITDA.
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Terminix Segment
Revenue by service line is as follows:
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American Home Shield Segment
The table below presents selected operating metrics related to renewable customer counts and customer retention.
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Franchise Services Group Segment
Revenue by service line is as follows:
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Brian Turcotte
ServiceMaster Global Holdings, Inc.
Investor Relations
901-597-3282
Brian.Turcotte@servicemaster.com
Peter Tosches
ServiceMaster Global Holdings, Inc.
Media Relations
901-597-8449
Peter.Tosches@servicemaster.com
SOURCE ServiceMaster Global Holdings, Inc.
ServiceMaster Global Holdings, Inc. is a provider of essential residential and commercial services.