third-quarter 2018 earnings webcast november 6, …...third-quarter 2018 earnings webcast november...

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Third-Quarter 2018 Earnings Webcast

November 6, 2018

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Cautionary Statements

Safe Harbor Statement

This presentation contains “forward-looking statements,” including 2018 revenue and Adjusted EBITDA outlook, organic revenue

growth projections, 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. Forward-looking 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, our Quarterly Report on Form 10-Q for

the quarter ended June 30, 2018, 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.

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Agenda

Q3 2018 Highlights

American Home Shield Spin-Off Completed

Progress on Terminix Business Transformation

Q3 2018 Financial Summary and Segment Results

Full-Year 2018 Outlook

Nik Varty

Chief Executive Officer

Tony DiLucente

Chief Financial Officer

Jesse Jenkins

Treasurer & Sr. Dir. IR

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Q3 2018 Highlights

•

•

•

•

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American Home Shield Spin-Off Completed

Lowered net debt leverage ratio to ~3.6x Adjusted EBITDA

Dec 11

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Progress on Terminix Business Transformation

Empowering our technicians and upgrading Commercial capabilities

Implement disciplined, Lean Six Sigma

approach

Rebuild a strong commercial business

Reinforce accountability

Empower our technicians to deliver an

exceptional customer experience

Build a strong leadership team

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Expanding Commercial Focus on National Accounts

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1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.

•

•

•

•

($ millions) Q3 2018 Q3 2017

Revenue 496$ 450$ 46$ 10%

Gross Profit 218$ 199$ 19$ 9%

Margin 44.0% 44.3%

Adjusted EBITDA1 105$ 104$ 1$ 1%

Margin 21.2% 23.1%

Variance

Q3 Consolidated Financial Summary Excluding AHS

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Terminix Q3 Revenue Growth by Channel

($ millions)

•

o

o

o

+37%

$167 $165

Termite Completions

& Other Services

Termite Renewals

Other Revenue

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Terminix Q3 Financial Results

Adjusted EBITDA ($M)


• Revenue growth driven by organic residential

pest growth from increases in completion and

start rates and higher new unit sales, as well

as the Copesan acquisition

• Business productivity in bad debt expense

($2M) and chemicals and materials ($2M)

savings

• Higher production labor ($4M) from

increased technician incentive and overtime

pay driven by more work orders in the quarter

• Investments in marketing to drive growth

2 Business Productivity includes $2M of Bad Debt Expense Savings and $2M of Chemicals and Material savings

3 Other includes $4M of incentive compensation increases, and $1M increase in termite damage claims, among other items.

($ millions) Q3 2018 Q3 2017

Residential Pest 180$ 162$ 18$ 11%

Commercial Pest 90$ 66$ 24$ 37%

Termite & Other 165$ 167$ (2)$ (1)%

Total Revenue 436$ 395$ 41$ 10%

Gross Profit 179$ 167$ 12$ 7%

Margin 41.0% 42.4%

Adjusted EBITDA1

80$ 82$ (2)$ (3)%

Margin 18.4% 20.9%

Variance

2 3

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FSG Q3 Financial Results

1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions. 2FSG recognized $4 million of national advertising fund contributions

as revenue pursuant to Company’s adoption of a new accounting rule regarding revenue recognition on January 1, 2018.

• Revenue growth driven by 15 percent higher janitorial national accounts revenue

($2M), and an increase from the revenue recognition accounting rule2 change ($4M),

offset by lower royalty fees ($1M) due to the cycling of hurricane events in the same

quarter in 2017

• Lower Adjusted EBITDA driven by a decrease in area wide weather events (in this

case, hurricanes) when compared to the same period of the prior year

($ millions) Q3 2018 Q3 2017

Revenue 60$ 55$ 5$ 9%

Gross Profit 35$ 32$ 3$ 9%

Margin 58.4% 58.2%

Adjusted EBITDA1

21$ 22$ (1)$ (3)%

Margin 34.7% 38.9%

Variance

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Full-Year 2018 Outlook1

1 FY 2018 outlook excludes the impact of any future potential acquisitions and includes spin related dis-synergies.2See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions

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Appendix

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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; non-cash impairment of software and

other related costs; (gain) 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; restructuring charges; American

Home Shield spin-off charges; 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.

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.

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Q3 Consolidated Results Including AHS

$ millions, except per share data

2018 2017 B/(W)

Revenue $ 873 $ 797 $ 77

YoY Growth 10%

Gross Profit 393 377 15

% of revenue 45.0% 47.4% -2.4 pts

Selling and administrative expenses (229) (199) (30)

% of revenue 26.2% 25.0% -1.2 pts

Amortization expense (8) (7) (1)

Fumigation related matters (1) — —

Restructuring charges (1) (14) 13

American Home Shield spin-off charges (8) (7) (1)

Interest expense (40) (38) (2)

Interest and net investment income 3 1 2

Loss on extinguishment of debt (10) (3) (7)

Income from Continuing Operations before Income Taxes 100 114 (14)

Provision for income taxes (29) (34) 5

Income from Continuing Operations 71 80 (10)

Gain from discontinued operations, net of income taxes — — —

Net Income $ 71 $ 80 $ (10)

Weighted-average diluted common shares outstanding 136.0 135.2

Diluted Earnings Per Share $ 0.52 $ 0.59 $ (0.08)

Adjusted Net Income1 $ 91 $ 99 $ (8)

Adjusted EBITDA1 $ 191 $ 200 $ (9)

Adjusted Earnings Per Share1 $ 0.67 $ 0.73 $ (0.06)

Third Quarter


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Cash Flow Including AHS

$ millions

Net Income $ 71 $ 80 $ 207 $ 204

Depreciation and amortization expense 29 26 82 77

Working capital, excluding impact of accrued interest and taxes (34) (50) 7 (22)

Fumigation related matters charges, net of payments — — — 2

Payments on fumigation related matters — — — (2)

Loss on extinguishment of debt 10 3 10 6

Working capital impact of accrued interest and taxes 2 (30) 23 6

Deferred income tax provision 11 29 21 27

Stock-based compensation expense 3 1 11 10

Restructuring charges, net of payments (2) 12 2 12

American Home Shield spin-off charges, net of payments — 4 8 4

Other non-cash expenditure add-backs (4) 5 (5) 16

Net Cash Provided from Operating Activities $ 86 $ 81 $ 365 $ 340

Property additions, net of Government grant fundings for

property additions (11) (14) (52) (48)

Free Cash Flow $ 75 $ 67 $ 313 $ 293

2018 2017

Third Quarter September YTD

2018 2017

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Q3 Net Income to Adjusted EBITDA and Adjusted Net Income Reconciliations Including AHS$ millions, except per share data

Net Income $ 71 $ 80

Depreciation and amortization expense 29 26

401(k) Plan corrective contribution — (4)

Fumigation related matters 1 —

Non-cash stock-based compensation expense 3 1

Restructuring charges 1 14

American Home Shield spin-off charges 8 7

Provision for income taxes 29 34

Loss on extinguishment of debt 10 3

Interest expense 40 38

Adjusted EBITDA $ 191 $ 200

Terminix $ 80 $ 82

American Home Shield 86 96

Franchise Services Group 21 22

Corporate 4 —



Amortization expense 8 7


Fumigation related matters 1 —




Tax impact of adjustments (7) (9)

Adjusted Net Income $ 91 $ 99


Adjusted Earnings Per Share $ 0.67 $ 0.73

Third Quarter

2018 2017

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$ millions, except per share data


2018 2017 B/(W)

Revenue $ 2,422 $ 2,246 $ 176

YoY Growth 8%

Gross Profit 1,113 1,066 47

% of revenue 45.9% 47.5% -1.5 pts

Selling and administrative expenses (651) (592) (60)

% of revenue 26.9% 26.3% -0.5 pts

Amortization expense (20) (20) —

401(k) Plan corrective contribution — 3 (3)

Fumigation related matters (1) (2) 2

Impairment of software and other related costs — (2) 2

Restructuring charges (13) (17) 4

American Home Shield spin-off charges (23) (7) (16)

Interest expense (115) (113) (2)

Interest and net investment income 5 3 2

Loss on extinguishment of debt (10) (6) (4)

Income from Continuing Operations before Income Taxes 285 313 (28)

Provision for income taxes (77) (109) 32

Income from Continuing Operations 207 204 4

Gain from discontinued operations, net of income taxes — 1 (1)

Net Income $ 207 $ 204 $ 3


Diluted Earnings Per Share $ 1.52 $ 1.51 $ 0.02

Adjusted Net Income1 $ 258 $ 238 $ 21

Adjusted EBITDA1 $ 540 $ 543 $ (4)

Adjusted EPS1 $ 1.90 $ 1.75 $ 0.15

September YTD

September YTD Consolidated Results Including AHS

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September YTD Net Income to Adjusted EBITDA and Adjusted Net Income Reconciliations Including AHS$ millions, except per share data


Depreciation and amortization expense 82 77


Fumigation related matters 1 2

Non-cash stock-based compensation expense 11 10



Non-cash impairment of software and other related costs — 2

Income from discontinued operations, net of income taxes — (1)

Provision for income taxes 77 109


Interest expense 115 113


Terminix $ 276 $ 269

American Home Shield 191 209

Franchise Services Group 67 65

Corporate 6 —



Amortization expense 20 20


Fumigation related matters 1 2



Impairment of software and other related costs — 2

Income from discontinued operations, net of income taxes — (1)


Tax impact of adjustments (16) (18)

Adjusted Net Income $ 258 $ 238


Adjusted Earnings Per Share $ 1.90 $ 1.75

Sept YTD

2018 2017

third-quarter 2018 earnings webcast november 6, …...third-quarter 2018 earnings webcast november...

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