TERMINIX GLOBAL HOLDINGS, INC.

(TMX)
  Report
Real-time Estimate Cboe BZX  -  05/24 10:54:17 am EDT
42.40 USD   -1.05%
05/09Terminix to Sell Pest Management Businesses in UK, Norway Ahead of Rentokil Merger Completion
MT
05/09SHAREHOLDER INVESTIGATION : Halper Sadeh LLP Investigates TMX, FLMN, SAVE, MTOR
PR
05/09TERMINIX GLOBAL HOLDINGS INC : Other Events, Financial Statements and Exhibits (form 8-K)
AQ
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector news

TERMINIX GLOBAL HOLDINGS INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/06/2022 | 04:07pm EDT
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and related notes included in Item 1
of this Quarterly Report on Form 10-Q. The following discussion may contain
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to these
differences include those factors discussed below and elsewhere in this report,
particularly in "-Information Regarding Forward-Looking Statements."

Overview


Our core services include residential and commercial termite and pest management
under the following brands: Terminix, Copesan, Assured Environments, Gregory,
McCloud and Nomor. Our operations for the periods presented in this report are
organized into one reportable segment, our pest management and termite business.

COVID-19


Since March 11, 2020, when the World Health Organization designated COVID-19 as
a global pandemic, we have experienced increased demand in our residential pest
management and termite and home services service lines as customers are spending
more time at home. We have also experienced disruptions in our business,
primarily in the commercial pest management service line, driven by temporary
business closures and service postponements, and in our product sales and other
service line. We expect the commercial pest market to continue to stabilize to
more normalized growth levels into 2022.

Over the course of 2021, we experienced an increase in medical expenses and
short-term disability claims related to COVID-19 infections in our workforce,
which we expect to continue in the short-term, and we have experienced increased
turnover and labor shortages as a result of the pandemic. We continue to focus
on initiatives to ensure the safety and productivity of our teammates, including
personal protective equipment and safety policies and measures for field
teammates, and technology to facilitate remote working, with most back-office
and all customer care center teammates continuing to work remotely and field
support teammates working remotely where possible. We continue to evaluate the
benefits, opportunities and risks identified from our remote working experiences
to sustain and identify ways to reduce ongoing operating costs while balancing
operational performance.

Refer to Results of Operations below for further discussion of the impact of COVID-19 on our business.

Proposed Acquisition by Rentokil


On December 13, 2021, we entered into the Merger Agreement with Rentokil, Bidco,
Merger Sub I and Merger Sub II. Under the Merger Agreement, at the Effective
Time, each share of our common stock, par value $0.01 per share, issued and
outstanding immediately prior to the Effective Time (other than certain excluded
shares as described in the Merger Agreement) will be converted into the right to
receive either:

?a number of American depositary shares of Rentokil (each representing a
beneficial interest in five ordinary shares of Rentokil) equal to (A) 1.0619
plus (B) the quotient of $11.00 and the volume weighted average price (measured
in U.S. dollars) of Rentokil American depositary shares (measured using the
volume weighted average price of Rentokil ordinary shares as a proxy) for the
trading day that is two trading days prior to the Effective Time (or such other
date as may be mutually agreed to by Rentokil and the Company); or

?an amount in cash, without interest, and in USD equal to the sum of (A) the Per
Share Cash Amount plus (B) the product of the Exchange Ratio and the Rentokil
ADS Price,



in each case at the election of the holder of such share of our common stock,
subject to certain allocation and proration provisions of the Merger Agreement.
Immediately following such conversion, our shares of common stock will be
automatically cancelled and cease to exist. The aggregate Cash Consideration and
the aggregate Stock Consideration that will be issued in the Mergers will not
vary as a result of individual election preferences.

The respective obligations of the Company and Rentokil to consummate the Mergers
are subject to the satisfaction or waiver of a number of conditions, including,
among others the adoption of the Merger Agreement by the Company's stockholders
and the approval of the Mergers contemplated by the Merger Agreement and other
related matters by Rentokil's shareholders.

As announced on March 15, 2022, the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired, thereby completing
the necessary antitrust process in the US. A number of other conditions remain
to be satisfied, including obtaining approval by the Company's and Rentokil's
shareholders, and the registration of ADSs with the U.S. Securities and Exchange
Commission and their listing on the New York Stock Exchange. With good progress
being made on satisfying the remaining conditions, both parties continue to be
on track to complete the transaction in the second half of 2022, with a target
completion date towards the end of the third quarter.

                                       21

--------------------------------------------------------------------------------

Table of Contents


In conjunction with the proposed Mergers, the parties have agreed that the
Company may provide up to $20 million of cash retention awards (the "Retention
Pool") to Terminix teammates. The retention awards are designed to retain and
incentivize the Terminix team as it executes the 2022 operating plan, achieves
the consummation of the merger and assists with the integration of the combined
company after closing of the transaction. Half of the Retention Pool has been
allocated specifically to customer-facing, field operations teammates, and the
remainder has been allocated to key back-office teammates.

As the Company prepares for the proposed acquisition, it will incur additional
expenses unrelated to ongoing operations, including professional fees for legal
and banking services and retention awards among other items.  These will be
classified as restructuring expenses and excluded from ongoing operations in
order to aid period to period comparability.

Key Business Metrics


We focus on a variety of indicators and key operating and financial metrics to
monitor the financial condition and performance of the continuing operations of
our business. These metrics include:

?revenue,

?operating expenses,

?net income,

?earnings per share,

?Adjusted EBITDA,

?free cash flow

?organic revenue growth, and

?customer retention.

To the extent applicable, these measures are evaluated with and without impairment, restructuring and other charges that management believes are not indicative of the earnings capabilities of our business. We also focus on measures designed to monitor cash flow, including net cash provided from operating activities from continuing operations and free cash flow.


Revenue. Our revenue results are primarily a function of the volume and pricing
of the services and products provided to our customers by our business as well
as the mix of services and products provided across our business. The volume of
our revenue is impacted by new unit sales, the retention of our existing
customers and acquisitions. We serve both residential and commercial customers,
principally in the U.S. We expect to continue our tuck-in acquisition program
and to periodically evaluate other strategic acquisitions. As of March 31, 2022,
approximately 94 percent of our revenue was generated by sales in the United
States.

Operating Expenses. In addition to the impact of changes in our revenue results,
our operating results are affected by, among other things, the level of our
operating expenses. A number of our operating expenses are subject to
inflationary pressures, such as fuel, chemicals, wages and salaries, teammate
benefits and health care, vehicles, personal protective equipment,
self-insurance costs and other insurance premiums, as well as various regulatory
compliance costs.

Net Income and Earnings Per Share. Basic earnings (loss) per share is computed
by dividing net income (loss) by the weighted-average number of shares of common
stock outstanding. Diluted earnings (loss) per share is computed by dividing net
income (loss) by the weighted-average number of shares of common stock
outstanding during the period, increased to include the number of shares of
common stock that would have been outstanding had potential dilutive shares of
common stock been issued. The dilutive effect of stock options and RSUs are
reflected in diluted earnings per share by applying the treasury stock method.

Adjusted EBITDA. We evaluate performance based primarily on Adjusted EBITDA. We
define Adjusted EBITDA as net income (loss) before: depreciation and
amortization expense; amortization of cloud-based software, acquisition-related
costs (adjustments); Mobile Bay Formosan termite settlement; termite damage
claims reserve adjustment; non-cash stock-based compensation expense;
restructuring and other charges; goodwill impairment charges; fumigation related
matters; realized (gain) loss on investment in frontdoor, inc.; net earnings
(loss) from discontinued operations; provision (benefit) for income taxes; loss
on extinguishment of debt; and interest expense. We believe Adjusted EBITDA is
useful for investors, analysts and other interested parties as it facilitates
company-to-company operating performance comparisons by excluding potential
differences caused by variations in capital structures, taxation, the age and
book depreciation of facilities and equipment, restructuring initiatives,
consulting agreements, acquisition activities and equity-based, long-term
incentive plans. Our definition of Adjusted EBITDA may not be calculated or
comparable to similarly titled measures of other companies.

                                       22

--------------------------------------------------------------------------------

Table of Contents

A reconciliation of Net income to Adjusted EBITDA for the three months ended March 31, 2022 and 2021 was as follows:

                                                Three Months Ended
                                                     March 31,

(In millions)                                 2022                 2021
Net Income                                 $       19              $  27
Depreciation and amortization expense              28                 28
Acquisition-related costs                           -                  1
Non-cash stock-based compensation expense           6                  6
Restructuring and other charges                    19                  6
Provision for income taxes                          3                 11
Interest expense                                   11                 12
Adjusted EBITDA                            $       86              $  90


Free Cash Flow. Free Cash Flow means net cash provided from operating activities
from continuing operations, less property additions. We believe Free Cash Flow
is useful as a supplemental measure of our liquidity. We use Free Cash Flow to
facilitate company-to-company cash flow comparisons by removing payments for
property additions, which may vary from company-to-company for reasons unrelated
to operating performance.

Organic Revenue Growth. We use organic revenue growth to track performance,
including the impacts of sales, pricing, new service offerings, customer
retention and other growth initiatives. Organic revenue growth excludes revenue
from acquired customers for 12 months following the acquisition date. We believe
organic revenue growth is useful for investors, analysts and other invested
parties as it facilitates company-to-company performance comparisons by
excluding the impact of acquisitions on revenue growth. See Revenue below for a
reconciliation of revenue growth to organic revenue growth.

Customer Retention. Customer retention is used to track the retention of our
renewable customers and is calculated on a rolling, 12-month basis in order to
avoid seasonal anomalies.

Seasonality

We have seasonality in our business, which drives fluctuations in revenue and
Adjusted EBITDA for interim periods. In 2021, revenue and Adjusted EBITDA by
quarter was recognized as follows:

                  Q1    Q2    Q3    Q4
Revenue          23 %  27 %  26 %  24 %
Adjusted EBITDA  23 %  32 %  26 %  19 %

Effect of Weather Conditions


The demand for our services and our results of operations are also affected by
weather conditions, including the seasonal nature of our termite and pest
management services. Weather conditions which have a potentially unfavorable
impact to our business include cooler temperatures or droughts which can impede
the development of termite swarms and lead to lower demand for our termite
control services. Weather conditions which have a potentially favorable impact
to our business include mild winters which can lead to higher demand for termite
and pest management services.

                                       23

--------------------------------------------------------------------------------

Table of Contents

Results of Operations


The following tables shows the results of operations from continuing operations
for the three months ended March 31, 2022 and 2021, which reflects the results
of acquired businesses from the relevant acquisition dates.

                                               Three Months Ended        Increase
                                                    March 31,           (Decrease)         % of Revenue
(In millions)                                    2022        2021     2022 vs. 2021      2022         2021
Revenue                                       $       496   $   471             5  %     100  %        100 %
Cost of services rendered and products sold           296       270            10         60            57
Selling and administrative expenses                   138       137             1         28            29
Amortization expense                                   10        10             5          2             2
Acquisition-related costs                               -         1             *          -             -
Restructuring and other charges                        19         6             *          4             1
Interest expense                                       11        12           (3)          2             2
Interest and net investment income                      1       (1)             *          0             -
Income before Income Taxes                             21        37             *          4             8
Provision for income taxes                              3        11             *          1             2
Equity in earnings of joint ventures                    1         -             *          -             -
Net Income                                    $        19   $    27             *          4  %          6 %

________________________________

* not meaningful
?

                                       24

--------------------------------------------------------------------------------

Table of Contents

Revenue

Three months ended March 31, 2022 Compared to Three months ended March 31, 2021


We reported revenue of $496 million and $471 million for the three months ended
March 31, 2022 and 2021, respectively. Revenue by service line was as follows:

                                  Three Months Ended
                                      March 31,
(In millions)                   2022                2021     Growth      Organic        Acquired
Residential Pest Management  $       175            $ 166  $  9   5 %  $   7    4 %  $   2      1 %
Commercial Pest Management           132              129     3   2 %    (1)  (1) %      5      4 %
Termite and Home Services            171              162    10   6 %      9    6 %      -      - %
Sales of Products and Other           18               15     3  18 %      3   18 %      -      - %
Total revenue                $       496            $ 471  $ 25   5 %  $  18    4 %  $   6      1 %

Revenue growth was $25 million year over year, or five percent, including one percent from acquisitions.


Residential pest management revenue growth was five percent, reflecting organic
revenue growth of four percent. Organic revenue growth was driven by higher
mosquito and bedbug sales volume, improved trailing 12-month customer retention
rates and improved price realization. Residential pest management revenue also
increased one percent from acquisitions completed in the last 12 months.

Commercial pest management revenue growth was two percent. The organic revenue
decline of one percent was driven by a reduction in one-time services driven by
lapping more than $1 million of disinfection revenue in the prior year,
partially offset by improved price realization. International pest revenue was
negatively impacted by over $1 million of foreign currency. Excluding the impact
of foreign currency and disinfection revenue, commercial pest organic growth
would have been approximately two percent. Commercial pest management revenue
also increased four percent from acquisitions completed in the last 12 months.

Termite organic revenue growth was six percent. Termite completions increased 13
percent, driven by sales of our new monthly pay tiered termite product. Home
services, which are managed as a component of our termite line of business and
include wildlife exclusion, crawl space encapsulation and attic insulation,
revenue growth was 19 percent, primarily as a result of improved cross selling
to existing customers. Termite renewals decreased one percent, due to lower
volume, partially offset by improved price realization.

In the three months ended March 31, 2022, termite renewal revenue comprised 48
percent of total termite revenue, while the remainder consisted of termite new
unit revenue. Termite activity is unpredictable in its nature. Factors that can
impact termite activity include conducive weather conditions and consumer
awareness of termite swarms.

Sales of products and other revenue growth was 18 percent due to increased chemical demand as we lap the impacts of COVID-19 on three months ended March 31, 2021 revenue.

Cost of Services Rendered and Products Sold

We reported cost of services rendered and products sold of $296 million and $270 million for the three months ended March 31, 2022 and 2021, respectively.


For the three months ended March 31, 2022 compared to March 31, 2021, cost of
services rendered and products sold increased ten percent. The increase is
largely attributable to the flow through from $25 million of higher revenue.
Investments in labor increased $4 million, primarily due to higher trainee costs
as we increase our workforce for peak season. Vehicle fuel increased $2 million
year over year, driven by higher fuel prices. Termite damage claims expenses
increased $3 million due to higher litigated claims counts in the Mobile Bay
Area as well as higher cost per Non-Litigated Claims due, in part, to
inflationary pressure on building materials and contractor costs. Investments in
service staffing levels and training in the call center also increased.

Selling and Administrative Expenses

The following table provides a summary of selling and administrative expenses for the three months ended March 31, 2022 and 2021:


                                                Three Months Ended
                                                    March 31,
(In millions)                                 2022                2021
Selling and marketing expenses             $        58            $  59
General and administrative expenses                 80               78
Total Selling and administrative expenses  $       138            $ 137


Selling and marketing expenses were relatively flat in the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

                                       25

--------------------------------------------------------------------------------

Table of Contents


General and administrative costs were up $2 million in the three months ended
March 31, 2022 compared to the three months ended March 31, 2021, due to
increased travel costs due to the easing of COVID-19 travel restrictions as well
as investments in sales staffing levels and training in the call center.

Amortization Expense

Amortization expense was $10 million for both the three months ended March 31, 2022 and 2021.


Acquisition-Related Costs

Acquisition-related costs were $1 million for the three months ended March 31, 2021.

Restructuring and Other Charges


We incurred restructuring and other charges of approximately $19 million and $6
million in the three months ended March 31, 2022 and 2021, respectively.
Restructuring Charges for the three months ended March 31, 2022 primarily
included costs related to our proposed acquisition by Rentokil and a $9 million
impairment of our Memphis headquarters lease. Restructuring charges for the
three months ended March 31, 2021 included severance and costs to simplify our
back-office and align administrative functions as a singularly focused pest
management company following the sale of the ServiceMaster Brands Divestiture
Group.

Interest Expense

Interest expense was $11 million and $12 million in the three months ended March 31, 2022 and 2021, respectively.

Interest and Net Investment Income

Interest and net investment income is comprised primarily of net investment gains from equity investments and interest income on other cash balances. Interest and net investment income was $1 million for the three months ended March 31, 2021.


Income before Income Taxes

Income before income taxes was $21 million for the three months ended March 31,
2022 compared to income before income taxes of $37 million for the three months
ended March 31, 2021. The change in income before income taxes primarily
reflects increased Restructuring and Other Charges.

Provision for Income Taxes


The effective tax rate on net income was 14.2 percent and 28.5 percent for the
three months ended March 31, 2022 and 2021, respectively. The effective tax rate
net income for the three months ended March 31, 2022, was favorably impacted by
the release of a state reserve that was recorded discretely in the quarter.

Net Income


Net income was $19 million for the three months ended March 31, 2022, compared
to a net income of $27 million for the three months ended March 31, 2021, which
was primarily driven by a $16 million decrease in Income before Income Taxes
offset by a decrease in Provision for Income Taxes of $8 million.

Adjusted EBITDA


The following table provides a summary of changes in Adjusted EBITDA for the
three months ended March 31, 2022 compared to the three months ended March 31,
2021:

(In millions)
Three Months Ended March 31, 2021         $  90
Revenue conversion                           13
Investments in labor                        (6)
Vehicle fuel                                (2)
Termite damage claims                       (3)
Terminix Way investments                    (1)
Investments in call center/sales/service    (3)
Travel                                      (1)
Other                                       (1)

Three Months Ended March 31, 2022 $ 86

                                       26

--------------------------------------------------------------------------------

Table of Contents


Investments in labor increased $6 million, primarily due to higher trainee
headcount and talent acquisition expense as we increase our workforce for peak
season. Vehicle fuel increased $2 million year over year, driven by higher fuel
prices. Termite damage claims expenses increased $3 million due to higher
litigated claims counts in the Mobile Bay Area as well as higher cost per
Non-Litigated Claim due, in part, to inflationary pressure on building materials
and contractor costs. Investments in Terminix Way increased $1 million as we
continue to roll-out enhanced onboarding, training and technology to our
technicians. Investments in staffing levels and training in both sales and
service in our call center increased. Travel expenses increased $1 million due
to the easing of COVID-19 travel restrictions.

Termite Damage Claims

A summary of Litigated Claims and Non-Litigated Claims for the three months ended March 31, 2022 and 2021 was as follows:

                                                        Litigated Claims                     Non-Litigated Claims
                                              Mobile Bay      All Other               Mobile Bay    All Other
                                                 Area          Regions       Total       Area        Regions      Total
Outstanding claims as of December 31, 2020              49             16        65           258          846     1,104
New claims filed                                         7              5        12            89          529       618
Claims resolved                                        (9)            (2)      (11)         (144)        (630)     (774)
Outstanding claims as of March 31, 2021                 47             19        66           203          745       948

Outstanding claims as of December 31, 2021              58             26        84           169          737       906
New claims filed                                        10              5        15            80          436       516
Claims resolved                                        (7)            (3)      (10)         (120)        (551)     (671)
Outstanding claims as of March 31, 2022                 61             28        89           129          622       751


Litigated Claims exclude a number of claims in which the only material issue in
dispute is the actual amount of repair costs, which are simpler to resolve and
less volatile ("Non-Complex Litigated Claims"). The financial impacts of these
Non-Complex Litigated Claims are included in the summary of Litigated and
Non-Litigated Reserve Activity below and are not material to our financial
condition or the results of our operations.

A summary of Litigated Claims and Non-Litigated Claims reserve activity for the three months ended March 31, 2022 and 2021 is as follows:


                                                      Litigated Claims                       Non-Litigated Claims
                                           Mobile Bay        All Other                Mobile Bay     All Other
(In millions)                                 Area            Regions      Total         Area         Regions      Total
Reserve as of December 31, 2020           $         35      $        13   $     47   $         14   $        11   $    25
Expense                                              3                2          5              3             6        10
Payments                                           (6)              (1)        (7)            (5)           (6)      (11)
Reserves as of March 31, 2021                       32               13         45             12            11        24

Reserve as of December 31, 2021           $         36      $        14   $     50   $          8   $        14   $    22
Expense                                              5                3          8              3             7        10
Payments                                           (4)              (2)        (6)            (4)           (7)      (11)
Reserves as of March 31, 2022                       36               16         52              8            13        21


In addition, our results of operations for the three months ended March 31, 2022
and 2021 include charges for legal fees associated with Litigated Claims of $1
million and $1 million, respectively.

Free Cash Flow


Free Cash Flow is not a measurement of our financial performance or liquidity
under GAAP and does not purport to be an alternative to net cash provided from
operating activities from continuing operations or any other performance or
liquidity measures derived in accordance with GAAP. Free Cash Flow means net
cash provided from operating activities, less property additions. Free Cash Flow
has limitations as an analytical tool and should not be considered in isolation
or as a substitute for analyzing our results as reported under GAAP. Other
companies in our industries may calculate Free Cash Flow or similarly titled
non-GAAP financial measures differently, limiting its usefulness as a
comparative measure.

                                       27

--------------------------------------------------------------------------------

Table of Contents


We believe Free Cash Flow is useful as a supplemental measure of our liquidity.
We use Free Cash Flow to facilitate company-to-company cash flow comparisons by
removing payments for property additions, which may vary from company-to-company
for reasons unrelated to operating performance.

The following table reconciles net cash provided from operating activities, which we consider to be the most directly comparable GAAP measure, to Free Cash Flow using data derived from our unaudited condensed consolidated financial statements for the periods indicated:

                                                                Three Months Ended
                                                                     March 31,
(In millions)                                                    2022         2021
Net Cash Provided from Operating Activities from Continuing
Operations                                                    $        69   $      75
Property additions                                                    (7)         (6)
Free Cash Flow                                                $        62   $      69


                                       28

--------------------------------------------------------------------------------

Table of Contents

Liquidity and Capital Resources

Liquidity


A portion of our liquidity needs are due to service requirements on our
indebtedness. The Credit Facilities contain covenants that limit or restrict our
ability, including the ability of certain of our subsidiaries, to incur
additional indebtedness, repurchase debt, incur liens, sell assets, make certain
payments (including dividends) and enter into transactions with affiliates. As
of March 31, 2022, we were in compliance with the covenants under the agreements
that were in effect on such date.

Our ongoing liquidity needs are expected to be funded by cash on hand, net cash
provided by operating activities and, as required, borrowings under the Credit
Facilities. As of March 31, 2022, we had $518 million of immediate liquidity,
which consisted of available cash and cash equivalents and available borrowings
under our Existing Revolving Credit Facility.

At March 31, 2022, there were $22 million of letters of credit outstanding and
$348 million of available borrowing capacity under the Revolving Credit
Facility. The letters of credit are posted to satisfy collateral requirements
under our automobile, general liability and workers' compensation insurance
program and fuel swap contracts. We also have $89 million of cash collateral
under our automobile, general liability and workers' compensation insurance
program that is included as Restricted cash on the unaudited Condensed
Consolidated Statements of Financial Position as of March 31, 2022. We may from
time to time change the amount of cash or marketable securities used to satisfy
collateral requirements under our automobile, general liability and workers'
compensation insurance program. The amount of cash or marketable securities
utilized to satisfy these collateral requirements will depend on the relative
cost of the issuance of letters of credit under the new Revolving Credit
Facility and our cash position. Any change in cash or marketable securities used
as collateral would result in a corresponding change in our available borrowing
capacity under the new Revolving Credit Facility.

On September 25, 2020, our board of directors approved a three-year $400 million
share repurchase program, which funds were exhausted in the third quarter of
2021. On September 21, 2021, our board of directors approved a new three-year
$400 million share repurchase program. Under the share repurchase program, the
Company may repurchase shares in accordance with all applicable securities laws
and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934,
as amended. As of March 31, 2022, we had $253 million of authority remaining
under this program. Given the proposed acquisition by Rentokil, we do not intend
to repurchase any shares of our common stock for the foreseeable future.

Under the terms of our fuel swap contracts, we are required to post collateral
in the event the fair value of the contracts exceeds a certain agreed upon
liability level and in other circumstances required by the agreement with the
counterparty. As of March 31, 2022 the estimated fair value of our fuel swap
contracts was a net asset of $6 million, and we had posted $2 million in letters
of credit as collateral under our fuel hedging program. The continued use of
letters of credit for this purpose in the future could limit our ability to post
letters of credit for other purposes and could limit our borrowing availability
under the Revolving Credit Facility. However, we do not expect the fair value of
the outstanding fuel swap contracts to materially impact our financial position
or liquidity.

We may from time to time repurchase or otherwise retire or extend our debt
and/or take other steps to reduce our debt or otherwise improve our financial
position, results of operations or cash flows. These actions may include open
market debt repurchases, negotiated repurchases, other retirements of
outstanding debt and/or opportunistic refinancing of debt. The amount of debt
that may be repurchased or otherwise retired or refinanced, if any, will depend
on market conditions, trading levels of our debt, our cash position, compliance
with debt covenants and other considerations.

Capital Resources

Fleet and Equipment Financing Arrangements


Our Fleet Agreement allows us to obtain fleet vehicles through a leasing
program, among other things. We expect to fulfill substantially all of our
vehicle fleet needs through the leasing program under the Fleet Agreement. For
the three months ended March 31, 2022, we acquired $10 million of vehicles
through the leasing program under the Fleet Agreement. All leases under the
Fleet Agreement are finance leases for accounting purposes. The lease rental
payments include an interest component calculated using a variable rate based on
one-month LIBOR plus other contractual adjustments and a borrowing margin
ranging from 1.25 percent to 2.45 percent. We have no minimum commitment for the
number of vehicles to be obtained under the Fleet Agreement.

We anticipate new lease financings, including the Fleet Agreement and
incremental leasing programs, for the full year 2022 will range from $70 million
to $80 million. We expect to fulfill all our ongoing vehicle fleet needs through
vehicle finance leases.

Other Capital Requirements

We anticipate capital expenditures for the full year 2022 will range from
$30 million to $40 million, reflecting ongoing technology projects and recurring
capital needs. We incurred $7 million of such costs in the three months ended
March 31, 2022.

                                       29

--------------------------------------------------------------------------------

Table of Contents

Limitations on Distributions and Dividends by Subsidiaries


We are a holding company, and as such have no independent operations or material
assets other than ownership of equity interests in our subsidiaries. We depend
on our subsidiaries to distribute funds to us so that we may pay obligations and
expenses, including satisfying obligations with respect to indebtedness. The
ability of our subsidiaries to make distributions and dividends to us depends on
their operating results, cash requirements and financial condition and general
business conditions, as well as restrictions under the laws of our subsidiaries'
jurisdictions.

The agreements governing the Credit Facilities may restrict the ability of our
subsidiaries to pay dividends, make loans or otherwise transfer assets to us.
Further, our subsidiaries are permitted under the terms of the Credit Facilities
and other indebtedness to incur additional indebtedness that may restrict or
prohibit the making of distributions, the payment of dividends or the making of
loans by such subsidiaries to us.

We consider the earnings in our non-U.S. subsidiaries to be indefinitely
reinvested and, accordingly, recorded no deferred income taxes. While
undistributed foreign earnings are no longer taxable under U.S. tax principles,
actual repatriation from our non-U.S. subsidiaries could still be subject to
additional foreign withholding taxes and U.S. state taxes.

Cash Flows


Cash flows from operating, investing and financing activities, as reflected in
the accompanying unaudited Condensed Consolidated Statements of Cash Flows, are
summarized in the following table.

                                                Three Months Ended
                                                    March 31,
(In millions)                                  2022             2021
Net cash provided from (used for):
Operating activities                        $       69         $    75
Investing activities                              (40)            (26)
Financing activities                                16           (180)
Discontinued operations                              9               -

Cash increase (decrease) during the period $ 54 $ (131)

Operating Activities


Net cash provided from operating activities decreased $6 million to $69 million
for the three months ended March 31, 2022 compared to $75 million for the three
months ended March 31, 2021.

Net cash provided from operating activities for the three months ended March 31,
2022 comprised $75 million in earnings adjusted for non-cash charges and a $7
million decrease in cash required for working capital (an $11 million decrease
excluding the working capital impact of accrued interest and taxes), offset, in
part, by $14 million in payments related to restructuring and other charges and
fumigation related matters. For the three months ended March 31, 2022, working
capital requirements were favorably impacted by seasonal activity and the timing
of interest and income tax payments.

Net cash provided from operating activities for the three months ended March 31,
2021 comprised $81 million in earnings adjusted for non-cash charges offset, in
part, by a $3 million increase in cash required for working capital (a $4
million increase excluding the working capital impact of accrued interest and
taxes and $3 million in payments related to restructuring and other charges and
acquisition-related costs. For the three months ended March 31, 2021, working
capital requirements were unfavorably impacted by the deferral of payroll and
income tax payments under the Coronavirus Aid, Relief, and Economic Security
("CARES") Act in 2020 and an increase in prepaid and other current assets. We
deferred approximately $30 million of payroll taxes under the CARES Act in 2020
and paid 50 percent of the payroll deferral in 2021.

Investing Activities

Net cash used for investing activities was $40 million for the three months ended March 31, 2022, compared to $26 million for the three months ended March 31, 2021.


No cash was paid for business acquisitions for the three months ended March 31,
2022, compared to $22 million in cash paid for business acquisitions for the
three months ended March 31, 2021. We expect to continue our tuck-in acquisition
program and to periodically evaluate other strategic acquisitions.

In the three months ended March 31, 2022, the Company initiated a series of
transactions to restructure its joint ventures in China. The Company contributed
$31 million of cash to effect the restructuring during the three months ended
March 31, 2022, which is reflected in other investing in the Condensed
Consolidated Statements of Cash Flows. Upon completion of subsequent
transactions in 2022, the Company expects to record a gain on sale of a portion
of its interest in the joint ventures.

Capital expenditures were $7 million and $6 million for the three months ended
March 31, 2022 and 2021, respectively, and included recurring capital needs, and
information technology projects.

                                       30

--------------------------------------------------------------------------------

Table of Contents


Cash flows used for notes receivable, net, for the three months ended March 31,
2022 were $3 million. Cash flows received for notes receivable, net, for the
three months ended March 31, 2021 totaled $2 million.

Financing Activities


Net cash provided by financing activities was $16 million for the three months
ended March 31, 2022 compared to net cash used for financing activities of $180
million for the three months ended March 31, 2021.

During the three months ended March 31, 2022, we received $1 million from the
issuance of common stock through the exercise of stock options. In addition, we
borrowed $80 million on our Revolving Credit Facility and repaid $65 million of
debt. During the three months ended March 31, 2021, we repurchased $169 million
of common stock and received $4 million from the issuance of common stock
through the exercise of stock options. In addition, we repaid $15 million of
debt.

Mobile Bay Formosan Termite Settlement


In November 2020, the Company entered into the Settlement with the Office of the
AL AG and other Alabama state regulators, primarily related to our termite
renewal pricing changes we made in our branches in the Mobile Bay Area in 2019
and certain other termite inspection and treatment practices regarding the
control of Formosan termites in that area that allegedly violated the ADTPA. The
Settlement provides for: immediate remediation measures to be provided directly
to current and former customers in the Mobile Bay Area, including refunds of
certain price increases, rebates to certain former customers, the establishment
of a $25 million consumer fund and a related receiver to oversee our compliance
with these commitments and to act as an arbitrator for certain Non-litigated
Claims; the reimbursement of certain investigative and monitoring costs incurred
by the AL AG's office and the Department of Agriculture and Industries; and a
university endowment intended to support termite and pest management research
with an emphasis on Formosan termite research. The Company has also agreed to
pay the state of Alabama $19 million.

Pursuant to the Settlement, we have also agreed to provide the opportunity to
reinstate service for certain customers who canceled their services during
specified timeframes as well as the retreatment of certain customer premises and
a commitment to certain specified response and remediation timeframes for future
termite damage claims. We do not expect the financial impact of these remedies
to have a material impact on our prospective results of operations or cash
flows.

In the fourth quarter of 2020, the Company funded the $25 million consumer fund,
from which certain monetary liabilities from settlements of, or judgments in,
the covered Settlement are paid by the fund's receiver. The amount in the
consumer fund is held in escrow by the receiver and is classified as a deposit
within Prepaid expenses and other assets and with an offsetting liability
recorded within Accrued liabilities - Other on the Consolidated Statements of
Financial Position. In the second quarter of 2021, the Company recorded an
increase in expense related to the settlement of $4 million due to a higher than
anticipated customer participation rate. No adjustments were made in the first
quarter of 2022. The fund's receiver paid a total of $ 10 million from escrow
through the first quarter of 2022.

Information Regarding Forward-Looking Statements


This report contains forward-looking statements and cautionary statements.
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. These forward-looking
statements also include, but are not limited to statements regarding our
intentions, beliefs, assumptions or current expectations concerning, among other
things, financial position; results of operations; cash flows; prospects; impact
from COVID-19; the proposed acquisition by Rentokil; growth strategies or
expectations; the continuation of acquisitions, including the integration of any
acquired company and risks relating to any such acquired company; fuel prices;
attraction and retention of key teammates; the impact of fuel swaps; the
valuation of marketable securities; estimates of accruals for self-insured
claims related to workers' compensation, auto and general liability risks;
expected termite damage claims costs; estimates of future payments under
operating and finance leases; estimates on current and deferred tax provisions;
the outcome (by judgment or settlement) and costs of legal or administrative
proceedings, including, without limitation, collective, representative or class
action litigation; and the impact of prevailing economic conditions.

                                       31

--------------------------------------------------------------------------------

Table of Contents


Forward-looking statements are subject to known and unknown risks and
uncertainties, many of which may be beyond our control. 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 report. In addition, even if our results of operations, financial condition
and cash flows, and the development of the market segments in which we operate,
are consistent with the forward-looking statements contained in this report,
those results or developments may not be indicative of results or developments
in subsequent periods. A number of important factors, including, without
limitation, the risks and uncertainties discussed in "Risk Factors" in our 2021
Form 10-K and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" above could cause actual results and outcomes to
differ from those reflected in the forward-looking statements. Additional
factors that could cause actual results and outcomes to differ from those
reflected in forward-looking statements include, without limitation:

?risks and uncertainties related to the proposed acquisition of the Company by Rentokil, including stockholder approvals, challenges to the proposed acquisition, business operational uncertainties and potential loss of key teammates;

?implementation of Mobile Bay termite Settlement remediation measures to current and former customers, including refunds of certain price increases and the establishment of the consumer fund intended to settle future Non-Litigated Claims for termite damage;


?the validity of the Mobile Bay termite Settlement's preclusivity provision
related to future litigated termite damage claims of fraud, misrepresentation,
deceit, suppression of material facts or fraudulent concealment arising out of
any act, occurrence or transaction related to our Formosan termite business
practices in the Mobile Bay Area;

?any financial impact from the COVID-19 pandemic, including a global recession
or a recession in the U.S., credit and capital markets volatility and an
economic or financial crisis, or otherwise, which could affect our financial
performance or operations, the health of our teammates or the health and
operations of our customers;

?weakening general economic conditions, especially as they may affect unemployment and consumer confidence or discretionary spending levels, all of which could impact the demand for our services;

?the impact of reserves attributable to pending Litigated Claims and Non-Litigated Claims for termite damages;


?lawsuits, enforcement actions and other claims by third parties or governmental
authorities, including the lawsuit brought by the State of Mississippi related
to our termite inspection and treatment practices;

?compliance with, or violation of, environmental, health and safety laws and regulations;


?cyber security breaches, disruptions or failures in our information technology
systems and our failure to protect the security of personal information about
our customers and teammates;

?our ability to attract and retain key teammates, including our ability to attract, retain and maintain positive relations with trained workers and third-party contractors;

?adverse weather conditions;

?our ability to generate the significant amount of cash needed to fund our operations and service our debt obligations;

?our ability to successfully implement our business strategies;

?increase in prices for fuel and raw materials, and in minimum wage levels;

?changes in the source and intensity of competition in our segments;

?our franchisees, subcontractors, third-party distributors and vendors taking actions that harm our business;

?changes in our services or products;

?our ability to protect our intellectual property and other material proprietary rights;

?negative reputational and financial impacts resulting from future acquisitions or strategic transactions;

?laws and governmental regulations increasing our legal and regulatory expenses;

?increases in interest rates increasing the cost of servicing our substantial indebtedness;

?increased borrowing costs due to lowering or withdrawal of the ratings, outlook or watch assigned to our debt securities;

?restrictions contained in our debt agreements;

?the effects of our indebtedness and the limitations contained in the agreements governing such indebtedness; and

?other factors described in this report and from time to time in documents that we file with the SEC.


You should read this report completely and with the understanding that actual
future results may be materially different from expectations. All
forward-looking statements made in this report are qualified by these cautionary
statements. These forward-looking statements are made only as of the date of
this report, and we do not undertake any obligation, other than as may be
required by law, to update or revise any forward-looking or cautionary
statements to reflect changes in assumptions, the occurrence of events,
unanticipated or otherwise, and changes in future operating results over time or
otherwise.

                                       32

--------------------------------------------------------------------------------

Table of Contents

Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

                                       33

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses

All news about TERMINIX GLOBAL HOLDINGS, INC.
05/09Terminix to Sell Pest Management Businesses in UK, Norway Ahead of Rentokil Merger Comp..
MT
05/09SHAREHOLDER INVESTIGATION : Halper Sadeh LLP Investigates TMX, FLMN, SAVE, MTOR
PR
05/09TERMINIX GLOBAL HOLDINGS INC : Other Events, Financial Statements and Exhibits (form 8-K)
AQ
05/09Terminix Moves a Step Closer to Completing the Rentokil Merger, Announces Agreement to ..
BU
05/06TERMINIX GLOBAL HOLDINGS INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITI..
AQ
05/05TERMINIX INVESTOR ALERT BY THE FORME : Kahn Swick & Foti, LLC Investigates Adequacy of Pri..
BU
05/05TRANSCRIPT : Terminix Global Holdings, Inc., Q1 2022 Earnings Call, May 05, 2022
CI
05/05Terminix Global Holdings Q1 Adjusted Earnings, Revenue Gain
MT
05/05Earnings Flash (TMX) TERMINIX GLOBAL HOLDINGS Reports Q1 Revenue $496M, vs. Street Est ..
MT
05/05Earnings Flash (TMX) TERMINIX GLOBAL HOLDINGS Posts Q1 EPS $0.35, vs. Street Est of $0...
MT
More news
Analyst Recommendations on TERMINIX GLOBAL HOLDINGS, INC.
More recommendations