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 unaudited full-year and fourth-quarter 2019 results.

For the full year 2019, the Company reported a year-over-year revenue increase of nine percent to $2,077 million with net income of $128 million, or $0.94 per share. Adjusted EBITDA(1) for the year was $417 million. Adjusted net income(2) improved 41 percent in 2019 to $184 million, or $1.35 per share, versus $130 million, or $0.95 per share in the 2018.

For the quarter ended December 31, 2019, the Company reported a year-over-year revenue increase of 11 percent to $507 million with a net loss of $26 million, or $0.19 per share. Net income was negatively impacted by an increase in our reserves of $40 million, net of tax, for termite damage claims expense for Litigated(3) and Non-Litigated(4) Claims in the quarter. Adjusted EBITDA for the quarter of $80 million was approximately flat with prior year. Adjusted net income improved 12 percent to $30 million, or $0.22 per share.

“Both the Terminix and ServiceMaster Brands segments delivered strong progress against our 2019 strategic initiatives,” said ServiceMaster Chairman and interim CEO Naren Gursahaney. “As we announced in January, we are conducting a strategic review of our ServiceMaster Brands business, including a possible sale of the business. This decision reflects our emphasis on driving long-term shareholder value.”

“At Terminix, solid full-year gains in net promoter scores and retention led to 2.6 percent organic revenue growth, meeting increased guidance estimates. We are continuing our progress transforming the Terminix business, and improved prioritization and alignment across the business on our key strategic priorities will drive continued retention improvements and margin expansion in 2020. We remain laser-focused on the termite business, including the execution of our termite damage claims mitigation program that will better protect our customers and manage our risks. I am encouraged by our progress and remain convinced we are on the right path towards delivering sustainable, profitable growth at or above industry levels.”

As further described in the “Termite Damage Claims” section below, the Company has completed a detailed statistical analysis of historical termite damage claims activity and potential future exposure. Between 2020 and 2024 the Company expects total termite damage claims expense of approximately $230 million, compared to actual expense of $230 million incurred between 2015 and 2019. Beginning in 2025 the Company expects termite damage claim expense to return to historical levels of four to five percent of termite and home service revenue.

Consolidated Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

$ millions

 

2019

 

2018

 

B/(W)

 

2019

 

2018

 

B/(W)

Revenue

 

$

507

 

 

$

457

 

 

$

50

 

 

$

2,077

 

 

$

1,900

 

 

$

177

 

YoY growth

 

 

 

 

 

 

 

 

11.0

%

 

 

 

 

 

 

 

 

9.3

%

Gross Margin

 

 

198

 

 

 

192

 

 

 

6

 

 

 

899

 

 

 

860

 

 

 

39

 

% of revenue

 

 

39.0

%

 

 

42.0

%

 

 

(3.0

)pts

 

 

43.3

%

 

 

45.2

%

 

 

(2.0

)pts

SG&A

 

 

(142

)

 

 

(138

)

 

 

(5

)

 

 

(578

)

 

 

(555

)

 

 

(23

)

% of revenue

 

 

28.0

%

 

 

30.1

%

 

 

2.1

pts

 

 

27.9

%

 

 

29.2

%

 

 

1.4

pts

(Loss) Income from Continuing Operations before Income Taxes

 

 

(38

)

 

 

(233

)

 

 

195

 

 

 

156

 

 

 

(126

)

 

 

282

 

% of revenue

 

 

(7.5

)%

 

 

(51.0

)%

 

 

43.5

pts

 

 

7.5

%

 

 

(6.6

)%

 

 

14.1

pts

Net (Loss) Income

 

 

(26

)

 

 

(248

)

 

 

222

 

 

 

128

 

 

 

(41

)

 

 

169

 

% of revenue

 

 

(5.1

)%

 

 

(54.3

)%

 

 

49.2

pts

 

 

6.2

%

 

 

(2.2

)%

 

 

8.3

pts

Adjusted Net Income(2)

 

 

30

 

 

 

26

 

 

 

3

 

 

 

184

 

 

 

130

 

 

 

54

 

% of revenue

 

 

5.9

%

 

 

5.8

%

 

 

0.1

pts

 

 

8.9

%

 

 

6.8

%

 

 

2.0

pts

Adjusted EBITDA(1)

 

 

80

 

 

 

80

 

 

 

(1

)

 

 

417

 

 

 

398

 

 

 

19

 

% of revenue

 

 

15.7

%

 

 

17.6

%

 

 

(1.8

)pts

 

 

20.1

%

 

 

20.9

%

 

 

(0.8

)pts

Net Cash Provided from Operating Activities from Continuing Operations

 

 

32

 

 

 

24

 

 

 

8

 

 

 

245

 

 

 

229

 

 

 

16

 

Free Cash Flow(5)

 

 

25

 

 

 

17

 

 

 

8

 

 

 

216

 

 

 

187

 

 

 

29

 

 
   

Segment Performance

   

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2019

 

Year Ended December 31, 2019

 

 

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

 

$

423

 

$

27

 

 

$

58

 

 

$

2

 

 

$

1,798

 

$

143

 

 

$

319

 

 

$

(14

)

YoY growth / % of revenue

 

 

 

 

 

6.8

%

 

 

13.7

%

 

 

(0.4

)pts

 

 

 

 

 

8.6

%

 

 

17.7

%

 

 

(2.4

)pts

ServiceMaster Brands

 

 

66

 

 

5

 

 

 

22

 

 

 

 

 

257

 

 

13

 

 

 

92

 

 

 

3

 

YoY growth / % of revenue

 

 

 

 

 

8.4

%

 

 

33.6

%

 

 

(2.3

)pts

 

 

 

 

 

5.1

%

 

 

35.7

%

 

 

(0.7

)pts

Corporate and Other Operations(6)

 

 

18

 

 

18

 

 

 

 

 

 

(3.1

)

 

 

22

 

 

21

 

 

 

7

 

 

 

(2)

 

Costs historically allocated to American Home Shield

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33

 

Total

 

$

507

 

$

50

 

 

$

80

 

 

$

(1

)

 

$

2,077

 

$

177

 

 

$

417

 

 

$

19

 

YoY growth / % of revenue

 

 

 

 

 

11.0

%

 

 

15.7

%

 

 

(1.8

)pts

 

 

 

 

 

9.3

%

 

 

20.1

%

 

 

(0.8

)pts

Reconciliations of net (loss) 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 eight percent year-over-year total revenue growth and one percent organic revenue growth in the fourth quarter of 2019, excluding the impact of our divested fumigation channel. Organic revenue growth of four percent in residential pest control was driven by strong pricing realization and volume growth in mosquito services. Organic revenue growth of two percent in commercial pest control was driven by year-over-year gains in retention, partially offset by lower one-time sales. Organic revenue decline of two percent in termite and home services was driven by the year-over-year impact of a one-time acceleration of revenue in the fourth quarter of 2018 to conform our accounting method for a small sub-set of our customers to those adopted under ASC 606. Acquisition revenue growth of seven percent, primarily in the commercial pest service line, was principally driven by the October 2019 McCloud Services and Gregory Pest Solutions acquisitions.

Terminix Adjusted EBITDA was $58 million for the fourth quarter, a year-over-year increase of $2 million. Higher organic revenue contributed $1 million while higher revenue from inorganic growth contributed $5 million. Terminix had year-over-year cost increases of $4 million for termite damage claims, $4 million in technician labor driven by accelerated hiring in advance of the 2020 peak season, $4 million of additional sales and marketing to drive growth, $3 million of other investments in growth, and $2 million from outsourcing fumigation services. These costs were offset by savings of $5 million in sourcing productivity, and a $9 million reduction in incentive compensation driven by our 2019 financial performance.

ServiceMaster Brands

ServiceMaster Brands reported an eight percent year-over-year revenue increase in the fourth quarter of 2019. Adjusted EBITDA of $22 million in the fourth quarter was roughly flat to prior year.

Corporate and Other Operations

Corporate and Other Operations includes our pest control operations in Europe, and our financing subsidiary. Corporate and Other Operations reported $18 million in revenue in the fourth quarter, consisting primarily of contributions from the recent acquisitions of Nomor Holdings AB and Terminix UK. Negligible Adjusted EBITDA in the quarter included contributions from Nomor operations in Sweden and Norway, offset by expenses incurred at Terminix UK as part of our ongoing efforts to separate the business from its former owner’s systems and processes.

Other Matters

Termite Damage Claims

The Company announced today the acceleration of its comprehensive termite damage claims mitigation program designed to increase protection for customers in high risk areas and limit our future exposure to termite damage claims. The $10 million investment will include enhanced reinspection, leverage advanced tools and procedures, increase the size of our quality assurance teams and target a full supplemental treatment program, focusing on the approximately 15,000 customers in the Mobile Bay Area(7) during 2020. The Company has completed approximately 2,500 supplemental treatments and is currently staffing and training additional treatment technicians to support the acceleration of supplemental treatments throughout the remainder of the year.

During the fourth quarter, the Company retained a third-party actuarial and economic advisor to examine the previous 10 years of damage claims history in order to assist the Company in estimating potential future exposure. The third-party used specific attributes of our termite customer base and historical claims data, in order to build a model to estimate total potential exposure. During the five-year period from 2015-2019, the Company incurred approximately $230 million in total termite damage claims expense. The results of this study established an expectation of $230 million in total termite damage claims expense for the years 2020 to 2024, before returning to historical levels of approximately four to five percent of termite and home services revenue.

We have historically determined that we had adequate information to assess probability of loss and a reasonable estimate of the range of loss for Litigated Claims only after the completion of discovery for each individual case, which is often more than a year after the case is filed. In 2019, we experienced an increase in the numbers of Litigated Claims and in early 2020, we completed a detailed statistical analysis of our recent termite damage claims history and case results. As a result, we have concluded that, given a statistically meaningful population of outstanding Litigated Claims and sufficient history of resolving claims with similar attributes, we are able to calculate an initial “best” estimate of the outcome for most of our Litigated Claims based on variables known at the time each case is filed. For the pending Litigated Claims for which we were previously not able to estimate a range of loss under our prior estimation technique, we have recorded a change in estimate of our reserve in the amount of $45 million in the year ended December 31, 2019.

We have also utilized this statistical analysis to evaluate warranty reserves for Non-Litigated Claims. The resulting estimation technique projects the cost to settle Non-Litigated Claims considering both the expected geographic distribution of current and future claims and their relative cost to settle. Based on this review we have recorded a change in estimate related to our reserve for Non-Litigated Claims in the amount of $8 million in the year ended December 31, 2019.

Free Cash Flow

Free cash flow was $216 million for the full-year 2019, compared to $187 million for the full-year 2018. The $29 million improvement was driven primarily by lower property additions compared to prior year and a decrease in cash interest as a result of debt reductions in first three quarters of the year and debt rate improvement in the fourth quarter of 2019. For 2019, free cash flow to Adjusted EBITDA conversion was 52 percent.

ServiceMaster Brands Strategic Alternatives Review

On January 21, 2020, we announced that we are exploring strategic alternatives relating to ServiceMaster Brands, including the potential sale of the business. Beginning with our quarterly report on Form 10-Q for the period ending March 31, 2020, the ServiceMaster Brands segment will be classified as held for sale and reported in discontinued operations.

Full-Year 2020 Outlook

The Company expects full-year 2020 continuing operations revenue to range from $1,980 million to $2,000 million, or an increase of between nine and 10 percent compared to 2019. Organic revenue growth at Terminix is expected to range from three to four percent. Revenue from Terminix acquisitions closed prior to February 27, 2020 is expected to contribute approximately $60 million. European pest operations are expected to contribute approximately $75 million in revenue.

Full-year 2020 Adjusted EBITDA is expected between $320 million and $335 million. Organic incremental margins are expected to be approximately 25 percent, offset by $10 million in incremental termite damage claims expense, $10 million for the acceleration of the termite damage claims mitigation program, and $5 million in the first quarter in additional expenses from the outsourcing of our divested fumigation services business. Adjusted EBITDA contributions, primarily from commercial acquisitions, are expected in the mid-to-high teens margin range, while our European pest operations are expected to contribute low-to-mid teens margins, as the Company optimizes and separates Terminix UK from its former owner’s systems and processes. EBITDA margins will be pressured in the first quarter of 2020, due to the impact of fumigation outsourcing, and timing of cost optimization in our European businesses.

The Company expects termite damage claims related costs of $70 million, including costs for the termite damage claims mitigation program as well as increased Litigated and Non-Litigated Claims expense primarily relating to Formosan termite activity in the Mobile Bay Area of the country.

The timing and frequency of new litigated case filings is difficult to predict. The guidance represents the Company’s best estimate of litigated case filings, but actual pace and volume could differ.

Guidance excludes any potential financial impact from the outcome of the review of strategic alternatives for ServiceMaster Brands.

A reconciliation of the forward-looking 2020 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.

Full-year and Fourth-Quarter 2019 Earnings Conference Call

The Company will hold a conference call to discuss its full-year and fourth-quarter 2019 financial and operating results at 8 a.m. central time (9 a.m. Eastern time) on Thursday, February 27, 2020.

Participants may join this conference call by dialing 877.308.9611 (or international participants, +1.303.223.0120). 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 March 28, 2020. To access the replay of this call, please call 800.633.8284 and enter reservation number 21950664 (international participants: +1.402.977.9140, reservation number 21950664). 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 2020 revenue, organic revenue growth, Adjusted EBITDA, incremental margin outlook and projections, and expected termite damage claims costs. 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: the possibility that the review of strategic alternatives for our ServiceMaster Brands businesses will not result in a transaction or that the anticipated benefits will not be realized, and the diversion of management time and other business disruption during the period of the review; the impact of reserves attributable to pending Litigated and Non-Litigated Claims; 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.

_______________________________________________

(#) Retention, cancel rate and net promoter scores in the termite revenue channel exclude the impact of customer attrition in the Mobile Bay Area.

(1) Adjusted EBITDA is defined as net (loss) income before: depreciation and amortization expense; acquisition-related costs; termite damage claims reserve adjustment; fumigation related matters; non-cash stock-based compensation expense; restructuring and other charges; (gain) loss on investment in frontdoor, inc.; (loss) gain from discontinued operations, net of income taxes; (benefit) provision for income taxes; loss on extinguishment of debt; 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 (loss) income before: amortization expense; fumigation related matters; restructuring and other charges; acquisition-related costs; termite damage claims reserve adjustment; (gain) loss on investment in frontdoor, inc.; (loss) gain from discontinued operations, net of income taxes; loss on extinguishment of debt; 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.

(3) Litigated Claims are defined as circumstances when we do not reach an agreement with a customer to remediate termite damage and that customer initiates litigation or arbitration proceedings.

(4) Non-Litigated Claims are defined as circumstances when a customer notifies us that they have experienced termite damage and we reach an agreement to remediate that damage.

(5) 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.

(6) Corporate and Other Operations includes our pest control operations in Europe, our financing subsidiary and the unallocated expenses of our headquarters functions.

(7) Mobile Bay Area refers to our Terminix branches in Mobile, Alabama and Gulf Shores, Alabama, which comprise all of our customers in the area.

 
 
 
 

SERVICEMASTER GLOBAL HOLDINGS, INC.
Consolidated Statements of Operations and Comprehensive Income
(In millions, except per share data)

 

 

 

Three Months Ended

 

Year Ended

 

 

December 31,

 

December 31,

 

 

2019

 

2018

 

2019

 

2018

Revenue

 

$

507

 

 

$

457

 

 

$

2,077

 

 

$

1,900

 

Cost of services rendered and products sold

 

 

309

 

 

 

265

 

 

 

1,178

 

 

 

1,041

 

Selling and administrative expenses

 

 

142

 

 

 

138

 

 

 

578

 

 

 

555

 

Amortization expense

 

 

10

 

 

 

4

 

 

 

29

 

 

 

18

 

Acquisition-related costs

 

 

4

 

 

 

3

 

 

 

17

 

 

 

5

 

Termite damage claims reserve adjustment

 

 

53

 

 

 

 

 

 

53

 

 

 

 

Fumigation related matters

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Restructuring and other charges

 

 

2

 

 

 

4

 

 

 

17

 

 

 

17

 

Loss (gain) on investment in frontdoor, inc.

 

 

 

 

 

249

 

 

 

(40

)

 

 

249

 

Interest expense

 

 

23

 

 

 

25

 

 

 

87

 

 

 

133

 

Interest and net investment income

 

 

(1

)

 

 

(2

)

 

 

(6

)

 

 

(5

)

Loss on extinguishment of debt

 

 

1

 

 

 

 

 

 

8

 

 

 

10

 

(Loss) Income from Continuing Operations before Income Taxes

 

 

(38

)

 

 

(233

)

 

 

156

 

 

 

(126

)

(Benefit) provision for income taxes

 

 

(12

)

 

 

4

 

 

 

27

 

 

 

37

 

(Loss) Income from Continuing Operations

 

 

(25

)

 

 

(237

)

 

 

129

 

 

 

(163

)

(Loss) gain from discontinued operations, net of income taxes

 

 

 

 

 

(11

)

 

 

(1

)

 

 

122

 

Net (Loss) Income

 

$

(26

)

 

$

(248

)

 

$

128

 

 

$

(41

)

Total Comprehensive (Loss) Income

 

$

(9

)

 

$

(266

)

 

$

132

 

 

$

(44

)

Weighted-average common shares outstanding - Basic

 

 

135.6

 

 

 

135.7

 

 

 

135.8

 

 

 

135.5

 

Weighted-average common shares outstanding - Diluted

 

 

135.6

 

 

 

135.7

 

 

 

136.2

 

 

 

135.5

 

Basic (Loss) Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income from Continuing Operations

 

$

(0.19

)

 

$

(1.75

)

 

$

0.95

 

 

$

(1.20

)

(Loss) gain from discontinued operations, net of income taxes

 

 

(0.00

)

 

 

(0.08

)

 

 

(0.01

)

 

 

0.90

 

Net (Loss) Income

 

 

(0.19

)

 

 

(1.83

)

 

 

0.94

 

 

 

(0.30

)

Diluted (Loss) Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income from Continuing Operations

 

$

(0.19

)

 

$

(1.75

)

 

$

0.95

 

 

$

(1.20

)

(Loss) gain from discontinued operations, net of income taxes

 

 

(0.00

)

 

 

(0.08

)

 

 

(0.01

)

 

 

0.90

 

Net (Loss) Income

 

 

(0.19

)

 

 

(1.83

)

 

 

0.94

 

 

 

(0.30

)

 
 
 
 
 

SERVICEMASTER GLOBAL HOLDINGS, INC.
Consolidated Statements of Financial Position
(In millions, except share data)

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

December 31,

 

December 31,

 

 

2019

 

2018

Assets:

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

280

 

 

$

224

 

Investment in frontdoor, inc.

 

 

 

 

 

445

 

Receivables, less allowances of $24 and $21, respectively

 

 

218

 

 

 

186

 

Inventories

 

 

48

 

 

 

45

 

Prepaid expenses and other assets

 

 

83

 

 

 

61

 

Total Current Assets

 

 

629

 

 

 

962

 

Other Assets:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

212

 

 

 

201

 

Operating lease right-of-use assets

 

 

97

 

 

 

 

Goodwill

 

 

2,279

 

 

 

1,956

 

Intangible assets, primarily trade names, service marks and trademarks, net

 

 

1,791

 

 

 

1,588

 

Restricted cash

 

 

89

 

 

 

89

 

Notes receivable

 

 

45

 

 

 

43

 

Long-term marketable securities

 

 

13

 

 

 

21

 

Deferred customer acquisition costs

 

 

95

 

 

 

77

 

Other assets

 

 

73

 

 

 

87

 

Total Assets

 

$

5,322

 

 

$

5,023

 

Liabilities and Stockholders' Equity:

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

104

 

 

$

89

 

Accrued liabilities:

 

 

 

 

 

 

 

 

Payroll and related expenses

 

 

59

 

 

 

60

 

Self-insured claims and related expenses

 

 

72

 

 

 

58

 

Accrued interest payable

 

 

16

 

 

 

14

 

Other

 

 

105

 

 

 

61

 

Deferred revenue

 

 

111

 

 

 

95

 

Current portion of lease liability

 

 

20

 

 

 

 

Current portion of long-term debt

 

 

70

 

 

 

49

 

Total Current Liabilities

 

 

557

 

 

 

425

 

Long-Term Debt

 

 

1,668

 

 

 

1,727

 

Other Long-Term Liabilities:

 

 

 

 

 

 

 

 

Deferred taxes

 

 

501

 

 

 

484

 

Other long-term obligations, primarily self-insured claims

 

 

164

 

 

 

182

 

Long-term lease liability

 

 

111

 

 

 

 

Total Other Long-Term Liabilities

 

 

776

 

 

 

666

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Common stock $0.01 par value (authorized 2,000,000,000 shares with 147,872,959 shares issued and 135,408,054 shares outstanding at December 31, 2019, and 147,209,928 shares issued and 135,687,558 outstanding at December 31, 2018)

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

2,334

 

 

 

2,309

 

Retained earnings (accumulated deficit)

 

 

291

 

 

 

156

 

Accumulated other comprehensive income

 

 

9

 

 

 

5

 

Less common stock held in treasury, at cost (12,464,905 shares at December 31, 2019, and 11,522,370 shares at December 31, 2018)

 

 

(313

)

 

 

(267

)

Total Stockholders' Equity

 

 

2,322

 

 

 

2,204

 

Total Liabilities and Stockholders' Equity

 

$

5,322

 

 

$

5,023

 

 
 
 
 
 

SERVICEMASTER GLOBAL HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In millions)

 

 

Year Ended December 31,

 

2019

 

2018

Cash and Cash Equivalents and Restricted Cash at Beginning of Period

$

313

 

 

$

563

 

Cash Flows from Operating Activities from Continuing Operations:

 

 

 

 

 

 

 

Net Income (Loss)

 

128

 

 

 

(41

)

Adjustments to reconcile net loss to net cash provided from operating activities:

 

 

 

 

 

 

 

Loss (gain) from discontinued operations, net of income taxes

 

1

 

 

 

(122

)

Depreciation expense

 

75

 

 

 

73

 

Amortization expense

 

29

 

 

 

18

 

Amortization of debt issuance costs

 

3

 

 

 

4

 

Amortization of lease right-of-use assets

 

19

 

 

 

 

Fumigation related matters

 

 

 

 

3

 

Payments on fumigation related matters

 

(2

)

 

 

(2

)

Termite damage claims reserve adjustment

 

53

 

 

 

 

(Gain) loss on investment in frontdoor, inc.

 

(40

)

 

 

249

 

Loss on extinguishment of debt

 

8

 

 

 

10

 

Deferred income tax provision

 

9

 

 

 

8

 

Stock-based compensation expense

 

15

 

 

 

14

 

Gain on sales of marketable securities

 

(1

)

 

 

(1

)

Restructuring and other charges

 

17

 

 

 

17

 

Payments related to restructuring and other charges

 

(20

)

 

 

(15

)

Acquisition-related costs

 

17

 

 

 

5

 

Payments for acquisition-related costs

 

(15

)

 

 

(3

)

Other

 

(23

)

 

 

(2

)

Change in working capital, net of acquisitions:

 

 

 

 

 

 

 

Receivables

 

(7

)

 

 

(6

)

Inventories and other current assets

 

(14

)

 

 

(6

)

Accounts payable

 

 

 

 

(2

)

Deferred revenue

 

 

 

 

(2

)

Accrued liabilities

 

(3

)

 

 

12

 

Accrued interest payable

 

2

 

 

 

(1

)

Current income taxes

 

(7

)

 

 

17

 

Net Cash Provided from Operating Activities from Continuing Operations

 

245

 

 

 

229

 

Cash Flows from Investing Activities from Continuing Operations:

 

 

 

 

 

 

 

Property additions

 

(28

)

 

 

(49

)

Government grant fundings for property additions

 

 

 

 

7

 

Sale of equipment and other assets

 

1

 

 

 

2

 

Business acquisitions, net of cash acquired

 

(513

)

 

 

(191

)

Sales and maturities of available-for-sale securities

 

9

 

 

 

 

Origination of notes receivables

 

(102

)

 

 

(120

)

Collections on notes receivables

 

118

 

 

 

100

 

Other investments

 

 

 

 

1

 

Net Cash Used for Investing Activities from Continuing Operations

 

(516

)

 

 

(250

)

Cash Flows from Financing Activities from Continuing Operations:

 

 

 

 

 

 

 

Borrowings of debt

 

1,470

 

 

 

1,000

 

Payments of debt

 

(1,095

)

 

 

(1,114

)

Discount paid on issuance of debt

 

(1

)

 

 

 

Debt issuance costs paid

 

(10

)

 

 

 

Contribution to frontdoor, inc.

 

 

 

 

(242

)

Repurchase of common stock

 

(47

)

 

 

 

Issuance of common stock

 

10

 

 

 

7

 

Net Cash Used for Financing Activities from Continuing Operations

 

327

 

 

 

(350

)

 
 
 
 
 

SERVICEMASTER GLOBAL HOLDINGS, INC.
Consolidated Statements of Cash Flows (Continued)
(In millions)

 

 

Year Ended December 31,

 

2019

 

2018

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

Cash provided from operating activities

 

(2

)

 

 

146

 

Cash used for investing activities

 

 

 

 

(1

)

Cash used for financing activities

 

 

 

 

(24

)

Net Cash Used for Discontinued Operations

 

(2

)

 

 

121

 

Effect of Exchange Rate Changes on Cash

 

1

 

 

 

(1

)

Cash Increase (Decrease) During the Period

 

55

 

 

 

(250

)

Cash and Cash Equivalents and Restricted Cash at End of Period

$

368

 

 

$

313

 
       
       

The following table presents reconciliations of net (loss) income to Adjusted net income.

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

 

December 31,

 

December 31,

(In millions, except per share data)

 

2019

 

2018

 

2019

 

2018

Net (Loss) income

 

$

(26

)

 

$

(248

)

 

$

128

 

 

$

(41

)

Amortization expense

 

 

10

 

 

 

4

 

 

 

29

 

 

 

18

 

Acquisition-related costs

 

 

4

 

 

 

3

 

 

 

17

 

 

 

5

 

Termite damage claims reserve adjustment

 

 

53

 

 

 

 

 

 

53

 

 

 

 

Fumigation related matters

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Restructuring and other charges

 

 

2

 

 

 

4

 

 

 

17

 

 

 

17

 

Loss (gain) on investment in frontdoor, inc.

 

 

 

 

 

249

 

 

 

(40

)

 

 

249

 

Loss (gain) from discontinued operations, net of income taxes

 

 

 

 

 

11

 

 

 

1

 

 

 

(122

)

Loss on extinguishment of debt

 

 

1

 

 

 

 

 

 

8

 

 

 

10

 

Tax impact of adjustments

 

 

(17

)

 

 

(3

)

 

 

(29

)

 

 

(14

)

Impact of tax law change on deferred taxes

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Adjusted Net Income

 

$

30

 

 

$

26

 

 

$

184

 

 

$

130

 

Weighted average diluted common shares outstanding

 

 

135.9

 

 

 

136.2

 

 

 

136.2

 

 

 

136.1

 

Adjusted earnings per share

 

$

0.22

 

 

$

0.19

 

 

$

1.35

 

 

$

0.95

 

 
 

The following table presents reconciliations of net cash provided from operating activities from continuing operations to free cash flow.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

 

December 31,

 

December 31,

(In millions)

 

2019

 

2018

 

2019

 

2018

Net Cash Provided from Operating Activities from Continuing Operations

 

$

32

 

 

$

24

 

 

$

245

 

 

$

229

 

Property additions and Government grant fundings for property additions

 

 

(7

)

 

 

(7

)

 

 

(28

)

 

 

(41

)

Free Cash Flow

 

$

25

 

 

$

17

 

 

$

216

 

 

$

187

 

 
 

The following table presents reconciliations of net (loss) income to Adjusted EBITDA.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

 

December 31,

 

December 31,

(In millions)

 

2019

 

2018

 

2019

 

2018

Net (Loss) income

 

$

(26

)

 

$

(248

)

 

$

128

 

 

$

(41

)

Depreciation and amortization expense

 

 

30

 

 

 

24

 

 

 

104

 

 

 

91

 

Acquisition-related costs

 

 

4

 

 

 

3

 

 

 

17

 

 

 

5

 

Termite damage claims reserve adjustment

 

 

53

 

 

 

 

 

 

53

 

 

 

 

Fumigation related matters

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Non-cash stock-based compensation expense

 

 

3

 

 

 

5

 

 

 

15

 

 

 

14

 

Restructuring and other charges

 

 

2

 

 

 

4

 

 

 

17

 

 

 

17

 

Loss (gain) on investment in frontdoor, inc.

 

 

 

 

 

249

 

 

 

(40

)

 

 

249

 

Loss (gain) from discontinued operations, net of income taxes

 

 

 

 

 

11

 

 

 

1

 

 

 

(122

)

(Benefit) provision for income taxes

 

 

(12

)

 

 

4

 

 

 

27

 

 

 

37

 

Loss on extinguishment of debt

 

 

1

 

 

 

 

 

 

8

 

 

 

10

 

Interest expense

 

 

23

 

 

 

25

 

 

 

87

 

 

 

133

 

Adjusted EBITDA

 

$

80

 

 

$

80

 

 

$

417

 

 

$

398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminix

 

$

58

 

 

$

56

 

 

$

319

 

 

$

333

 

ServiceMaster Brands

 

 

22

 

 

 

22

 

 

 

92

 

 

 

89

 

Corporate and Other Operations

 

 

 

 

 

3

 

 

 

7

 

 

 

9

 

Costs historically allocated to American Home Shield

 

 

 

 

 

 

 

 

 

 

 

(33

)

Adjusted EBITDA

 

$

80

 

 

$

80

 

 

$

417

 

 

$

398

 

         
         
         

 

       

Terminix Segment

         

Revenue by service line is as follows:

         

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

2019

 

2018

 

Growth

 

Acquired

 

Organic

Residential Pest Control

 

$

169

 

$

161

 

$

8

 

 

5

%

 

$

3

 

2

%

 

$

6

 

 

4

%

Commercial Pest Control

 

 

106

 

 

84

 

 

22

 

 

26

%

 

 

20

 

24

%

 

 

2

 

 

2

%

Termite and Home Services

 

 

117

 

 

117

 

 

(1

)

 

(1

)%

 

 

2

 

2

%

 

 

(3

)

 

(2

)%

Other

 

 

24

 

 

23

 

 

 

 

2

%

 

 

2

 

10

%

 

 

(2

)

 

(9

)%

 

 

 

416

 

 

386

 

$

30

 

 

8

%

 

$

27

 

7

%

 

$

3

 

 

1

%

Fumigation

 

 

8

 

 

11

 

 

(3

)

 

(28

)%

 

 

 

%

 

 

(3

)

 

(28

)%

Total Revenue

 

$

423

 

$

396

 

$

27

 

 

7

%

 

$

27

 

7

%

 

$

 

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

2019

 

2018

 

Growth

 

Acquired

 

Organic

Residential Pest Control

 

$

704

 

$

645

 

$

59

 

 

9

%

 

$

34

 

5

%

 

$

26

 

 

4

%

Commercial Pest Control

 

 

399

 

 

327

 

 

72

 

 

22

%

 

 

67

 

21

%

 

 

4

 

 

1

%

Termite and Home Services

 

 

567

 

 

549

 

 

18

 

 

3

%

 

 

8

 

1

%

 

 

10

 

 

2

%

Other

 

 

88

 

 

84

 

 

4

 

 

5

%

 

 

2

 

3

%

 

 

2

 

 

2

%

 

 

$

1,758

 

$

1,605

 

$

153

 

 

10

%

 

$

112

 

7

%

 

$

41

 

 

3

%

Fumigation

 

 

40

 

 

50

 

 

(10

)

 

(20

)%

 

 

 

%

 

 

(10

)

 

(20

)%

Total Revenue

 

$

1,798

 

$

1,655

 

$

143

 

 

9

%

 

$

112

 

7

%

 

$

32

 

 

2

%

 
 
 

ServiceMaster Brands Segment

 

Revenue by service line is as follows:

 

 

 

 

 

% of Revenue

 

 

 

% of Revenue

 

 

Three Months Ended

 

Three Months Ended

 

Year Ended

 

Year Ended

 

 

December 31,

 

December 31,

 

December 31,

 

December 31,

(In millions)

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

Royalty Fees

 

$

32

 

$

33

 

49

%

 

54

%

 

$

133

 

$

132

 

52

%

 

54

%

Commercial Cleaning and other National Accounts

 

 

19

 

 

17

 

28

%

 

27

%

 

 

73

 

 

65

 

28

%

 

26

%

Sales of Products

 

 

4

 

 

4

 

7

%

 

7

%

 

 

14

 

 

16

 

6

%

 

6

%

Other

 

 

11

 

 

7

 

16

%

 

11

%

 

 

36

 

 

32

 

14

%

 

13

%

Total revenue

 

$

66

 

$

61

 

100

%

 

100

%

 

$

257

 

$

244

 

100

%

 

100

%