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ServiceMaster Global Holdings, Inc. Reports Second-Quarter 2017 Financial Results

MEMPHIS, Tenn.--(BUSINESS WIRE)--ServiceMaster Global Holdings, Inc. (NYSE: SERV), a leading provider of essential residential and commercial services, today announced unaudited second-quarter 2017 results. The company reported a year-over-year revenue increase of 8 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, as well as nearly 3 percent organic growth at Terminix.

Second-quarter 2017 net income was $85 million, or $0.63 per share, versus $16 million, or $0.11 per share, in the same period in 2016.

Second-quarter 2017 Adjusted EBITDA was $210 million, a year-over-year increase of $7 million, or 3 percent, primarily driven by an increase in Adjusted EBITDA of $11 million at AHS.

Second-quarter 2017 adjusted net income was $93 million, or $0.69 per share, versus $93 million, or $0.67 per share, for the same period in 2016.

As previously announced on Wednesday, July 26, ServiceMaster intends to separate its American Home Shield business from its Terminix and Franchise Services Group businesses. The Company also announced the appointment of Nikhil Varty as chief executive officer of ServiceMaster and as a member of the board, effective immediately.

Tony DiLucente, ServiceMaster’s chief financial officer, noted: “ServiceMaster delivered solid organic revenue growth in the second quarter. At AHS, organic growth and the contribution from 2016 acquisitions drove strong revenue and Adjusted EBITDA growth again this quarter. At Terminix, the business delivered nearly 3 percent organic growth with some continued margin pressure as we increased investment in improving our sales and service delivery.”

Consolidated Performance

Three Months Ended June 30, Six Months Ended June 30,
$ millions 2017 2016 B/(W) 2017 2016 B/(W)
Revenue $ 807 $ 747 $ 60 $ 1,450 $ 1,355 $ 94
YoY growth 8.0

%

7.0

%

Gross Margin 392 368 24 689 652 37
% of revenue 48.6 % 49.2 % (0.7 ) pts 47.5 % 48.1 % (0.6 ) pts
SG&A (206 ) (187 ) (19 ) (392 ) (360 ) (32 )
% of revenue 25.5 % 25.0 % (0.5 ) pts 27.1 % 26.6 % (0.5 ) pts
Income from Continuing Operations before Income Taxes 137 23 114 199 85 114
% of revenue 17.0 % 3.0 % 14.0 pts 13.7 % 6.2 % 7.5 pts
Net Income 85 16 69 124 54 70
% of revenue 10.5 % 2.1 % 8.4 pts 8.5 % 4.0 % 4.5 pts
Adjusted Net Income(2) 93 93 138 140 (1 )
% of revenue 11.5 % 12.4 % (0.9 ) pts 9.5 % 10.3 % (0.8 ) pts
Adjusted EBITDA(1) 210 203 7 343 330 13
% of revenue 26.0 % 27.1 % (1.2 ) pts 23.7 % 24.4 % (0.7 ) pts
Net Cash Provided from Operating Activities from Continuing Operations 133 138 (4 ) 260 244 16
Free Cash Flow(3) 117 123 (7 ) 225 212 13

Segment Performance

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

Three Months Ended June 30, Six Months Ended June 30,
Revenue Adjusted EBITDA Revenue Adjusted EBITDA
$ millions 2017 B/(W) vs. PY 2017 B/(W) vs. PY 2017 B/(W) vs. PY 2017 B/(W) vs. PY
Terminix $ 428 $ 14 $ 105 $ (7 ) $ 794 $ 16 $ 186 $ (20 )
YoY growth / % of revenue 3.4 % 24.5 % (2.6 ) pts 2.0 % 23.5 % (3.1 ) pts
American Home Shield 326 43 82 11 553 76 113 23
YoY growth / % of revenue 15.3 % 25.3 % pts 16.0 % 20.4 % 1.5 pts
Franchise Services Group 52 2 22 3 102 3 43 6
YoY growth / % of revenue 4.8 % 41.6 % 3.8 pts 2.7 % 42.4 % 5.2 pts
Corporate(4) 1 1 1 4
Total $ 807 $ 60 $ 210 $ 7 $ 1,450 $ 94 $ 343 $ 13
YoY growth / % of revenue 8.0 % 26.0 % (1.2 ) pts 7.0 % 23.7 % (0.7 ) 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 a 3 percent year-over-year revenue increase in the second quarter of 2017 driven by an increase in core termite control, termite renewals, wildlife exclusion, core pest control and mosquito sales, offset, in part, by the expected decline in revenue associated with prior acquisition of Alterra Pest Control (“Alterra”). Adjusted EBITDA decreased 7 percent, or $7 million, versus prior year, primarily reflecting a $3 million increase in production labor costs associated with the company’s effort to improve safety, customer service and retention, a $2 million increase in termite damage claims, a $1 million increase in insurance costs, a $4 million increase in sales and marketing costs and a $4 million increase in other costs, offset, in part, by $8 million from the conversion of higher revenue.

American Home Shield

American Home Shield reported a 15 percent year-over-year revenue increase in the second quarter of 2017 driven by an increase in new unit sales, improved price realization and the impact of the OneGuard and Landmark acquisitions. AHS’s organic revenue growth was 8 percent in the second quarter versus prior year. For the quarter, Adjusted EBITDA increased 15 percent, or $11 million, versus prior year, primarily reflecting a $9 million increase from the conversion of higher organic revenue, $5 million associated with the OneGuard and Landmark acquisitions, a $2 million decrease in sales and marketing costs and a $2 million contribution from price, net of inflation, offset, in part, by a $4 million increase in call center costs and the lapping of prior-year investment gains of $3 million. The increase in call center service costs was driven by an investment to further improve customer service levels.

Franchise Services Group

The Franchise Services Group reported a 5 percent year-over-year revenue increase in the second 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 15 percent, or $3 million, versus prior year, primarily reflecting the conversion of higher fee revenue.

Cash Flow

For the six months ended June 30, 2017, net cash provided from operating activities from continuing operations increased to $260 million from $244 million for the six months ended June 30, 2016.

Net cash used for investing activities from continuing operations was $56 million for the six months ended June 30, 2017 compared to $58 million for the six months ended June 30, 2016.

Net cash used for financing activities from continuing operations was $124 million for the six months ended June 30, 2017 compared to $45 million for the six months ended June 30, 2016. In the six months ended June 30, 2017, we used $85 million to purchase 2.2 million shares of company stock compared to $17 million to purchase 461 thousand shares in the prior year period. Additionally, we used $17 million in the second quarter of 2017 to purchase a portion of our 7.25% notes maturing in 2038.

Free cash flow(3) was $225 million for the six months ended June 30, 2017 compared to $212 million for the six months ended June 30, 2016.

Other Matters

Fumigation Related Matters

As previously disclosed, on January 20, 2017, the company entered into a plea agreement in connection with the investigation...


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