Morgan Stanley Global Consumer & Retail Conference. November 19, 2014

Transcription

1 Morgan Stanley Global Consumer & Retail Conference November 19, 2014

2 Cautionary Statements Safe Harbor Statement This presentation contains forward-looking statements that are based on management s beliefs and assumptions and on information currently available to management. Most forward-looking statements contain words that identify them as forwardlooking, such as anticipates, believes, continues, could, seeks, estimates, expects, intends, may, plans, potential, predicts, projects, should, will, would or similar expressions and the negatives of those terms that relate to future events. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause ServiceMaster s actual results, performance or achievements to be materially different from any projected results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements represent the beliefs and assumptions of ServiceMaster only as of the date of this presentation and ServiceMaster undertakes no obligation to update or revise publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. As such, ServiceMaster s future results may vary from any expectations or goals expressed in, or implied by, the forward-looking statements included in this presentation, possibly to a material degree. ServiceMaster cannot assure you that the assumptions made in preparing any of the forward-looking statements will prove accurate or that any long-term financial or operational goals and targets will be realized. For a discussion of some of the important factors that could cause ServiceMaster s results to differ materially from those expressed in, or implied by, the forwardlooking statements included in this presentation, investors should refer to the disclosure contained under the heading Risk Factors in our Registration Statement (File No ) and our and ServiceMaster s other filings with the SEC. Note to Non-GAAP Financial Measures This presentation contains certain non-gaap financial measures, which are not measures of financial condition or profitability. Non-GAAP measures should not be considered as an alternative to GAAP financial measures. Non-GAAP measures may not be calculated or comparable to similarly titled measures used by other companies. See Non-GAAP reconciliations below in this presentation for a reconciliation of these measures to the most directly comparable GAAP financial measures. Adjusted EBITDA, Adjusted Net Income and Pre-Tax Unlevered 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 or any other performance measures derived in accordance with GAAP or as an alternative to net cash provided by operating activities or any other measures of the company s cash flow or liquidity. We believe these non-gaap financial measures are useful for investors, analysts and other interested parties as it facilitates company-to-company operating and financial condition 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 and equity-based, long-term incentive plans. 1

3 Today s Agenda Investment Highlights Segment Review Financial Performance Alan Haughie Chief Financial Officer Q Financial Summary IPO Overview Summary Q&A Mark Barry Group President, American Home Shield & Franchise Services 2

4 Investment Highlights #1 positions 1 in large, growing markets High-value service offerings resulting in high customer retention and recurring revenues Growth driven by operational excellence and superior customer service Resilient financial model with track record of consistent performance Experienced management team TTM Q Financials Revenue: $2,413m Adj. EBITDA: $532m % margin: 22% 2010 TTM Q Revenue: +4.7% CAGR Adj. EBITDA: +11.5% CAGR % margin: +460 bps Well Positioned for Continued Growth 1 As measured by revenue, including customer-level revenue for businesses with franchises 3

5 Portfolio of Essential Services Reported Revenue 1 by Segment Terminix 56% American Home Shield 34% Franchise Services Group 10% Total Reported Revenue 1 of $2.4 billion Other <1% Portfolio provides risk diversification and expansion opportunities 1 Represents trailing twelve months of revenue as of September 30,

6 Terminix Snapshot Revenue 1 : Customer-Level Revenue 1,2 : $1.3b $1.5b Adjusted EBITDA 1 : $291m Adjusted EBITDA margin 1 : 22% Operate in 47 U.S. states and 19 countries U.S. locations include 285 company-owned branches / 100 franchise branches Large and attractive U.S. market (~$7.2b) Market Share 2,3,4 Others 61% Terminix 20% Rollins 19% Revenue By Service Type 4 Stable demand through recession Leading unaided brand awareness Scale enables investment in technology and processes Proven growth track record and levers to drive future growth Residential Termite 36% Other 5% Commercial Termite 3% Residential Pest 39% Commercial Pest 17% Leading provider of termite and pest control services in the U.S. 1 Represents results for trailing twelve months as of September 30, Represents (i) reported revenue and (ii) revenue earned by franchisees, less (iii) royalty fees 3 As measured on a customer-level revenue basis. Rollins customer-level revenue derived from company filings and management estimates 4 Based on full-year 2013 results 5

7 American Home Shield Snapshot Revenue 1 : $809m Adjusted EBITDA 1 : $175m Adjusted EBITDA margin 1 : 22% Market Share 2,3 3 million service requests 3 Others 41% AHS 42% Significant market leadership: 4 5 times larger than next largest competitor Serves 1.5m customers in 50 states Stable customer retention rates National network of ~11,000 pre-qualified contractor firms Strong partnerships with leading real estate firms Significant direct-to-consumer marketing and lead generation capabilities Old Republic 8% Renewals 69% First American 9% Revenue By Channel 3 Home resales 18% Direct-toconsumer 13% Drives stability of financial results Leading provider of home warranty plans in the U.S. 1 Represents results for trailing twelve months as of September 30, Sources include SEC filings and company estimates 3 Based on full-year 2013 results 6

8 FSG Snapshot Revenue 1 : $250m Customer-Level Revenue 1,2 : $2.4b Adjusted EBITDA 1 : $79m Adjusted EBITDA margin 1 : 32% Revenue By Channel 3 Company-Owned Branches 27% Operate in 50 U.S. states and 15 countries ~4,000 U.S. locations 2 Strong and trusted brands Leading market positions in all brands Royalties 50% Janitorial 10% Attractive value proposition to franchisees Infrastructure and scale to service national accounts Long-standing relationships with majority of top 20 insurance carriers Other 4% Products 9% ~96% of royalty fees are generated by SM Restore, SM Clean and Merry Maids Market-leading residential and commercial services 1 Represents results for trailing twelve months as of September 30, U.S. locations includes franchises and company-owned branches, primarily Merry Maids 3 Based on full-year 2013 results 7

9 Consistent Financial Performance Revenue 10 - TTM Q3 14 CAGR = 4.7% Consistent financial performance through business cycles Grew Adjusted EBITDA at 2.4 times the rate of revenue History of Adjusted EBITDA margin expansion High conversion of Adj. EBITDA to Pre-Tax Unlevered Free Cash Flow 1 Adjusted EBITDA, Adjusted EBITDA margin and Pre-Tax Unlevered FCF through 2013 (and one quarter of the TTM Q amount) do not reflect the annualized benefit of transferring $25m of corporate costs to TruGreen 2 Pre-Tax Unlevered Free Cash Flow means (i) Net Cash Provided from Operating Activities from Continuing Operations before: cash paid for interest expense; call premium paid on retirement of debt; premium received on issuance of debt; cash paid for income taxes, net of refunds; cash paid for restructuring charges; cash paid for management and consulting fees, cash paid for consulting agreement termination fees; cash paid for impairment of software and other related costs; and gain on sales of marketable securities, (ii) less property additions $1,800 Pre-Tax Unlevered FCF 1,2 $ millions $2,031 Adj. EBITDA 1 $ millions $354 17% $2,105 $2,214 $397 $413 $2, TTM Q3 14 CAGR = 11.5% $450 19% 19% 20% 22% TTM 2014 $275 $292 $364 $428 $2, TTM 2014 $532 $493 Adj. EBITDA Margin 1 8

10 Q3 Financial and Segment Summary ($ millions except per share amounts) Q Q Var. Q Segment Results vs. PY Revenue $664 $615 $49 Revenue % Change 8% Adjusted EBITDA 1 Adj. EBITDA 1 $157 $128 $29 Terminix +6% +18% % Change 22% +$19m +$12m % of Revenue 23.7% 20.8% 2.9 pts Adj. Net Income 2 $61 $32 $29 AHS +12% +13% % Change 88% +$26m +$7m % of Revenue 9.2% 5.3% 3.9 pts Adjusted EPS 3 $0.45 $0.35 $0.10 FSG +6% -3% +$4m -$1m Pre-Tax Unlevered Free Cash Flow 4 $121 $85 $36 Other - +$10m Continued Strong Quarterly Performance 1 Adjusted EBITDA and Adjusted EBITDA as a percent of revenue for Q do not reflect the roughly one quarter of the $25m of annual corporate costs transferred to TruGreen commencing in January Adjusted net income is defined by the company as income (loss) from continuing operations before: amortization expense; non-cash impairment of property and equipment; non-cash impairment of software and other related costs; management and consulting fees; consulting agreement termination fees; loss on extinguishment of debt; non-cash restructuring charges; and the tax impact of all of the aforementioned adjustments 3 Adjusted earnings per share is calculated as adjusted net income of $61 million for Q and $32 million for Q divided by the diluted share counts of million and 91.5 million shares, respectively 4 Pre-Tax Unlevered Free Cash Flow is defined (i) Net Cash Provided from Operating Activities from Continuing Operations before: cash paid for interest expense; call premium paid on retirement of debt; premium received on issuance of debt; cash paid for income taxes, net of refunds; cash paid for restructuring charges; cash paid for management and consulting fees; cash paid for consulting agreement termination fees; cash paid for impairment of software and other related costs; and gain on sale of marketable securities, (ii) less property additions 9

11 IPO Overview Closed initial public offering on July 1, 2014 Sold 41.3 million shares Began trading on NYSE (SERV) on June 26, 2014 Share price up 41% since IPO (through 9/15/14) Net IPO proceeds and cash used to reduce debt by $835m Replaced old term loan facilities ($2,187m) with new facility ($1,825m) and extended maturities from 2017 to 2021 Redeemed $473m of 7% and 8% Senior Notes Intend to use cash flows to continue to reduce debt level Cash Flow To Be Used to Reduce Leverage 10

12 Simplified Cash Flow $ millions Cash and Cash Equivalents at Beginning of Period Three Months Ended September 30, Nine Months Ended September 30, 2014 B/(W) 2014 B/(W) $ 528 $ 151 $ 484 $ 66 Adjusted EBITDA Change in working capital (32) (3) (27) (25) Property additions (3) 12 (29) 8 Pre-tax unlevered free cash flow Interest payments Cash taxes Acquisitions Other Refinancing / IPO / Consulting agreement termination Ordinary debt repayment TruGreen contribution / Discontinued operations Cash and Cash Equivalents at End of Period Generated $24m of cash for debt pay down Generated $140m of cash for debt pay down (82) 9 (199) 8 (2) (1) (11) 1 (11) 6 (52) (30) (2) (270) (270) (270) (270) (5) 5 (27) 5 (1) (17) (51) 2 $ 275 $ (76) $ 275 $ (76) Pre-tax unlevered free cash flow / Adjusted EBITDA 77% 11 pts 87% (2) pts 11

13 Summary What we ve accomplished: Added new executives to leadership team in second half of 2013 Completed TruGreen spinoff in January 2014 Completed IPO and refinancing in July 2014 Conducted strategic review with BOD in July 2014 Realigned Franchise Services Group in October 2014 Where we re focused going forward: Terminix growth and conversion AHS direct-to-consumer growth Franchisee development Tuck-in acquisitions and value-added services Process improvement and margin expansion Debt reduction 12

14 Q&A 13

15 Appendix 14

16 September YTD Cash Flows $ millions Nine Months Ended September 30, Net Loss $ (76) $ (489) Loss from discontinued operations, net of income taxes Loss on extinguishment of debt 65 - Call premium paid on retirement of debt (35) - Depreciation and Amortization Impairments 47 - Working capital (27) (2) Other (16) 10 Net Cash Provided from Operating Activities $ 132 $ 127 Cash paid for interest expense Call premium paid on retirement of debt 35 - Cash paid for income taxes, net of refunds Cash paid for restructuring charges 7 7 Cash paid for management and consulting fees 4 5 Cash paid for consulting termination fees 21 - Property additions (29) (38) Other 7 1 Pre-Tax Unlevered Free Cash Flow $ 386 $ 322 Adjusted EBITDA Change in working capital (27) (2) Propery additions (29) (38) Pre-Tax Unlevered Free Cash Flow $ 386 $

17 Reconciliation from Adjusted EBITDA to Income from Continuing Operations to Adjusted Net Income (In millions) Three months ended September 30, Terminix $ 77 $ 65 American Home Shield ServiceMaster Clean Other Operations and Headquarters (1) (11) Adjusted EBITDA $ 157 $ 128 Depreciation and amortization expense (25) (25) Non-cash stock-based compensation expense (2) (2) Restructuring charges (1) (1) Consulting agreement termination fee (21) - Loss on extinguishment of debt (65) - Management and consulting fees - (2) Interest expense (49) (63) Benefit (provision) for income taxes 3 (12) (Loss) Income from Continuing Operations $ (3) $ 23 Amortization expense Consulting agreement termination fee 21 - Loss on extinguishment of debt 65 - Management and consulting fees - 2 Restructuring charges 1 1 Tax impact of adjustments (36) (6) Adjusted Net Income $ 61 $ 32 16

18 Reconciliation from Adjusted EBITDA to Income from Continuing Operations to Adjusted Net Income (In millions) Nine months ended September 30, Terminix $ 248 $ 223 American Home Shield ServiceMaster Clean Other Operations and Headquarters (7) (34) Adjusted EBITDA Depreciation and amortization expense (76) (74) Impairment of software and other related costs (47) - Non-cash stock-based compensation expense (5) (3) Restructuring charges (7) (4) Consulting agreement termination fee (21) - Loss on extinguishment of debt (65) - Management and consulting fees (4) (5) Interest expense (171) (186) Provision for income taxes (26) (43) Income from Continuing Operations $ 22 $ 44 Amortization expense Impairment of software and other related costs 47 - Consulting agreement termination fee 21 - Loss on extinguishment of debt 65 - Management and consulting fees 4 5 Restructuring charges 7 4 Tax impact of adjustments (69) (18) Adjusted Net Income $ 135 $ 73 17

19 Reconciliation of Net (Loss) Income to Adjusted EBITDA TTM Q3 ($ millions) Net Income (Loss) $ (10) $ 46 $ (714) $ (507) $ (95) Reconciliation to Adjusted EBITDA: (Income) loss from discontinued operations, net of income taxes (37) (53) Depreciation expense Amortization expense Non-cash stock-based compensation expense Management and consulting fees Consulting agreement termination fees Non-cash asset impairment of property and equipment Non-cash impairment of software and other related assets Restructuring charges (Benefit) provision for income taxes (32) (6) (8) Interest expense Loss (Gain) on extinguishment of debt Other Total Adjustments , Adjusted EBITDA $ 354 $ 397 $ 413 $ 450 $

20 Reconciliation of Net Cash Provided from Operating Activities from Continuing Operations to Pre-Tax Unlevered FCF TTM Q3 ($ millions) Net Cash Provided from Operating Activities from Continuing Operations $ 38 $ 74 $ 104 $ 208 $ 213 Reconciliation to Pre-Tax Unlevered Free Cash Flow: Cash paid for interest expense Call premium paid on retirement of debt Premium received on issuance of debt - - (3) - - Cash paid for income taxes, net of refunds Cash paid for restructuring charges Cash paid for consulting agreement termination fees Cash paid for management and consulting fees Cash paid for impairment of software and other related assets Gain on sales of marketable securities Property additions (48) (52) (44) (39) (31) Total Adjustments Pre-Tax Unlevered Free Cash Flow $ 275 $ 292 $ 364 $ 428 $ 493 Adjusted EBITDA $ 354 $ 397 $ 413 $ 450 $ 532 Pre-Tax Unlevered Free Cash Flow Conversion 78% 74% 88% 95% 93% 19

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