- Third-quarter revenue of $528 million, an increase of seven
percent
- Net Income of $25 million, or $0.19 per share
- Adjusted EBITDA of $97 million, up $2 million from prior
year
- Full-year 2019 guidance adjusted for recent acquisitions and
third-quarter performance
- Terminix organic revenue growth expected between 2.5 and 3
percent
- Revenue increased to between $2,070 and $2,085
million
- Adjusted EBITDA expected between $415 and $425
million
- Matthew Stevenson, president of Terminix Residential,
leaving the company
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 preliminary revenue, net income, Adjusted
net income(1) and Adjusted EBITDA(2) for the third-quarter 2019 and
an update to its full-year 2019 outlook. Additionally, the company
announced the departure of Matthew Stevenson, president of Terminix
Residential. The company plans to release its full third-quarter
2019 financial results and hold a conference call to discuss those
results on Tuesday, November 5, 2019.
Preliminary Third-Quarter Results
The company expects to report revenue of $528 million for the
third quarter, or a year-over-year increase of seven percent,
driven primarily by six percent growth at Terminix, including two
percent organic revenue growth.
The company expects to report third-quarter 2019 net income of
$25 million, or $0.19 per share, versus $71 million, or $0.52 per
share, in the same period in 2018. The prior period benefited from
a $53 million gain from discontinued operations as a result of the
American Home Shield spin-off. Third-quarter 2019 Adjusted net
income is expected to be $42 million, or $0.31 per share, versus
$32 million, or $0.24 per share, for the same period in 2018. The
company expects to report Adjusted EBITDA of $97 million for the
quarter, versus $95 million for the same period in the prior year.
Both Adjusted EBITDA and Adjusted net income, in the third quarter
of 2018, include $11 million of costs historically allocated to
American Home Shield. Reconciliations of both Adjusted net income
and Adjusted EBITDA to net income are set forth below in this press
release.
“While I am disappointed in our third-quarter profitability, I
remain encouraged with the meaningful progress we continue to make
on our plan to further strengthen the service delivery model in our
Terminix business segment,” said ServiceMaster CEO Nik Varty. “This
progress was demonstrated by our two percent organic growth in
Terminix despite a challenging prior year comparison and the
continued improvement in retention rates in Terminix Commercial. As
we move into the next phase of our transformation strategy, we will
continue to make strategic investments necessary for a solid
foundation, while sharpening our focus on operational excellence
and productivity initiatives that will drive sustainable margin
expansion in the years to come.”
“Overall, we are actively addressing the issues that impacted
profitability this quarter, including the significant impacts from
the timing of legacy issues. We look forward to continuing to
execute on our strategy and take the actions required to drive
long-term sustainable profitability and growth.”
Segment Performance
Revenue and Adjusted EBITDA for each reportable segment and
Corporate and Other Operations were as follows:
Three Months Ended September
30,
Nine Months Ended September
30,
Revenue
Adjusted EBITDA
Revenue
Adjusted EBITDA
$ millions
2019
B/(W) vs. PY
2019
B/(W) vs. PY
2019
B/(W) vs. PY
2019
B/(W) vs. PY
Terminix
$
461
$
26
$
72
$
(9)
$
1,375
$
116
$
261
$
(16)
YoY growth / % of revenue
6
%
15.7
%
(2.9)
pts
9.2
%
19
%
(3.1)
pts
ServiceMaster Brands
63
3
22
2
191
7
70
2
YoY growth / % of revenue
5
%
35.4
%
0.7
pts
4.0
%
36
%
(0.1)
pts
Corporate and Other
Operations(3)
4
4
3
(2)
4
3
7
1
Costs historically allocated to
American Home Shield
—
—
—
11
—
—
—
33
Total
$
528
$
32
$
97
$
2
$
1,570
$
127
$
337
$
20
YoY growth / % of revenue
7
%
18.4
%
(0.8)
pts
8.8
%
21.5
%
(0.5)
pts
Terminix Performance
Terminix Adjusted EBITDA is expected to be $72 million for the
third quarter, or a year-over-year decrease of 11 percent. Terminix
invested $6 million in growth and had additional costs of $4
million in spin-related dis-synergies, $4 million from outsourcing
fumigation services, and $2 million in termite damage claims
arising primarily from Formosan termite activity, an aggressive
invasive termite species. These costs were partially offset by $2
million from organic revenue conversion, as well as $4 million in
Adjusted EBITDA contribution from acquisitions.
The $6 million increase in investments in growth contains $2
million from increased sales and marketing, $2 million from
investments related to the Salesforce operating system
implementation, as well as $2 million from investments to optimize
our commercial pest business and to transform our operating model.
The company was also impacted by $4 million in spin-related
dis-synergies. The $4 million in reduced fumigation margin is
driven by the outsourcing of fumigation completion services.
The increase in termite damage claims includes the resolution of
a single $2 million termite damage claim from 2016. Termite damage
claims can take years to fully settle, and timing can be difficult
to forecast. Assuming the continuation of recent trends, the
company expects higher claims costs to continue in the short-term
due to increased claims activity. Formosan termite activity has
been increasing over the last few years, however due to a number of
climatic and environmental factors it remains largely concentrated
in the Mobile, Alabama area of the country, which represents less
than one percent of Terminix revenue. Starting in 2018, the company
initiated mitigating actions to limit our future exposure,
including third party claims management, reinforcement of effective
processes, improved documentation, and a change in pricing
structure. We have undertaken several other operational changes
over the last 18 months and are confident that we can continue to
manage the impact of termite damage claims within our projected
long-term 30 percent incremental margins.
Terminix Leadership Change
ServiceMaster also announced today that Matt Stevenson,
president of Terminix Residential, is leaving the Company and a
search is underway for a successor. In the interim period, until a
successor is named, Terminix Residential’s seasoned and experienced
operational leadership team will report directly to CEO Nik
Varty.
“I would like to thank Matt Stevenson for his contribution to
our Terminix Residential business over the last two years,” said
Nik Varty, CEO of ServiceMaster. “We drove higher NPS scores,
improved safety and customer retention and remain confident that we
have significant potential to further improve our operational
excellence by continuing our culture transformation and driving an
improved customer experience.”
Recent Acquisitions
On October 7, 2019 the company closed on McCloud Services based
in Elgin, Illinois. This fourth-generation pest control company
founded in 1904, and one of the largest Copesan partners, is an
industry leader in the growing food service vertical of commercial
pest control and provides additional capabilities to our commercial
pest management business.
On October 10, 2019 the company closed on another Copesan
partner, Gregory Pest Solutions, based in Greenville, South
Carolina. Founded in 1972 by Phil and Sara Gregory and growing to
span 11 states across the Southeast, the company adds additional
capabilities in multi-family housing.
Refinancing
The company intends to refinance approximately $171 million of
debt outstanding under its existing Term Loan B due 2023, $120
million outstanding under its existing revolving credit agreement
due 2021, as well as $150 million from a recent short-term
borrowing entered on October 4, 2019. The company anticipates
refinancing the approximately $441 million in debt with the
proceeds of a new $600 million Term Loan B due 2026, and a $400
million revolving credit facility due 2024. The cash balance at the
end of the third quarter was $140 million. Proceeds from the
refinancing will also be used to pay related fees and expenses of
the refinancing. The proposed refinancing is subject to market
conditions, and there can be no assurances that the proposed
refinancing will be completed.
Full-Year 2019 Outlook
The company has increased full-year 2019 revenue guidance to
range from $2,070 million to $2,085 million, or an increase of
approximately 10 percent compared to 2018 (previously expected
between $2,045 million and $2,060 million). Organic revenue growth
at Terminix is expected to range from 2.5 to 3 percent. The
increase to revenue guidance is driven primarily by the recently
announced acquisitions at Terminix Commercial and internationally.
Acquisition revenue for the full year 2019 is expected to be
approximately $130 million. ServiceMaster Brands will continue to
focus on driving growth in commercial cleaning national accounts
and is expected to increase revenue in the mid-single digits.
Full-year 2019 Adjusted EBITDA guidance is now expected between
$415 million and $425 million (previously expected between $435
million and $445 million). The movement in Adjusted EBITDA guidance
includes an approximately $5 million increase from acquisitions,
$10 million reduction from the impact of termite damage claims
which are difficult to forecast due to timing unpredictability, $5
million reduction from additional investments in growth and $10
million from targeted revenue reductions principally in the Mobile,
Alabama area and the impact of outsourcing our fumigation
services.
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.
Third-Quarter 2019 Earnings Conference Call
The company will hold a conference call to discuss its
third-quarter 2019 financial and operating results at 8 a.m.
central time (9 a.m. Eastern time) on Tuesday, November 5,
2019.
Participants may join this conference call by dialing
888.225.8168 (or international participants, +1.303.223.4362).
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 December 5, 2019. To
access the replay of this call, please call 800.633.8284 and enter
reservation number 21931830 (international participants:
+1.402.977.9140, reservation number 21931830). 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), Nomor (European pest control),
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, organic revenue
growth, Adjusted EBITDA and incremental margin outlook and
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; 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 net income is defined as net income before:
amortization expense; fumigation related matters; restructuring and
other charges; acquisition-related costs; realized (gain) on
investment in frontdoor, inc.; (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.
(2) Adjusted EBITDA is defined as net income before: (gain) loss
from discontinued operations, net of income taxes; provision for
income taxes; interest expense; depreciation and amortization
expense; acquisition-related costs; fumigation related matters;
non-cash stock-based compensation expense; restructuring and other
charges; loss on extinguishment of debt; and realized (gain) on
investment in frontdoor, inc. The company’s definition of Adjusted
EBITDA may not be comparable to similarly titled measures of other
companies.
(3) Corporate and Other Operations includes our pest control
operations in Europe, our financing subsidiary and our headquarters
functions.
The following table presents reconciliations of net income to
Adjusted net income.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(In millions)
2019
2018
2019
2018
Net Income
$
25
$
71
$
154
$
207
Amortization expense
7
6
19
14
Acquisition-related costs
8
1
12
2
Fumigation related matters
—
1
—
1
Restructuring and other charges
5
1
15
13
Realized (gain) on investment in
frontdoor, inc.
—
—
(40
)
—
(Gain) loss from discontinued operations,
net of income taxes
—
(53
)
1
(133
)
Loss on extinguishment of debt
—
10
6
10
Tax impact of adjustments
(5
)
(3
)
(12
)
(9
)
Adjusted Net Income
$
42
$
32
$
154
$
105
Weighted-average diluted common shares
outstanding
136.5
136.0
136.5
135.8
Earnings per share
$
0.19
$
0.52
$
1.13
$
1.52
Adjusted earnings per share
$
0.31
$
0.24
$
1.13
$
0.77
The following table presents reconciliations of net income to
Adjusted EBITDA.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(In millions)
2019
2018
2019
2018
Net income
$
25
$
71
$
154
$
207
Depreciation and amortization expense
26
24
74
68
Acquisition-related costs
8
1
12
2
Fumigation related matters
—
1
—
1
Non-cash stock-based compensation
expense
3
2
12
10
Restructuring and other charges
5
1
15
13
Realized (gain) on investment in
frontdoor, inc.
—
—
(40
)
—
(Gain) loss from discontinued operations,
net of income taxes
—
(53
)
1
(133
)
Provision for income taxes
9
7
39
32
Loss on extinguishment of debt
—
10
6
10
Interest expense
19
33
64
107
Adjusted EBITDA
$
97
$
95
$
337
$
317
Terminix
$
72
$
81
$
261
$
277
ServiceMaster Brands
22
21
70
67
Corporate and Other Operations
3
4
7
6
Costs historically allocated to American
Home Shield
—
(11
)
—
(33
)
Adjusted EBITDA
$
97
$
95
$
337
$
317
Terminix Segment
Revenue by service line is as follows:
Three Months Ended
September 30,
(In millions)
2019
2018
Growth
Acquired
Organic
Residential Pest Control
$
189
$
178
$
11
6
%
$
7
4
%
$
4
2
%
Commercial Pest Control
105
93
12
13
%
11
12
%
1
1
%
Termite and Home Services
133
129
4
3
%
2
1
%
2
2
%
Other
24
22
2
8
%
—
—
%
2
8
%
$
450
$
421
$
29
7
%
$
20
5
%
$
9
2
%
Fumigation
11
14
(3)
(22)
%
—
—
%
(3)
(22)
%
Total revenue
$
461
$
436
$
26
6
%
$
20
5
%
$
6
1
%
Organic revenue growth of two percent in residential pest
control was driven by strong pricing realization offsetting
flattish year-over-year daily cancel rates. Organic revenue growth
of one percent in commercial pest control was driven by strong
year-over-year gains in retention offsetting slower new unit sales.
Organic revenue growth of two percent in termite and home services
was driven by strong pricing realization in termite completions and
new units in home services, more than offsetting a reduction in
termite renewals driven partially by managed reductions from price
increases in the Formosan termite market of Mobile, Alabama.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191022005446/en/
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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