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1
——
Second-Quarter 2018 Earnings
Webcast
July 31, 2018
2
Cautionary Statements
Safe Harbor Statement
This presentation contains “forward-looking statements,” including 2018 revenue and Adjusted EBITDA outlook, organic revenue
growth projections, as well as statements with respect to the potential separation of AHS from ServiceMaster and the distribution
of AHS shares to ServiceMaster shareholders, that are based on management’s beliefs and assumptions and on information
currently available to management. Most forward-looking statements contain words that identify them as forward-looking, such as
“anticipates,” “believes,” “continues,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,”
“projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms that relate to future events. Forward-
looking statements involve known and unknown risks, uncertainties and other factors that may cause ServiceMaster’s actual
results, performance or achievements to be materially different from any projected results, performance or achievements
expressed or implied by the forward-looking statements. Forward-looking statements represent the beliefs and assumptions of
ServiceMaster only as of the date of this presentation and ServiceMaster undertakes no obligation to update or revise publicly any
such forward-looking statements, whether as a result of new information, future events or otherwise. As such, ServiceMaster’s
future results may vary from any expectations or goals expressed in, or implied by, the forward-looking statements included in this
presentation, possibly to a material degree. ServiceMaster cannot assure you that the assumptions made in preparing any of the
forward-looking statements will prove accurate or that any long-term financial or operational goals and targets will be realized. For
a discussion of some of the important factors that could cause ServiceMaster’s results to differ materially from those expressed in,
or implied by, the forward-looking statements included in this presentation, investors should refer to the disclosure contained
under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 and our other filings
with the SEC.
Note to Non-GAAP Financial Measures
This presentation contains certain non-GAAP financial measures. Non-GAAP measures should not be considered as an
alternative to GAAP financial measures. Non-GAAP measures may not be calculated or comparable to similarly titled measures of
other companies. See non-GAAP reconciliations below in this presentation for a reconciliation of these measures to the most
directly comparable GAAP financial measures. Adjusted EBITDA, adjusted net income, adjusted earnings per share and free cash
flow are not measurements of the Company’s financial performance under GAAP and should not be considered as an alternative
to net income, net cash provided by operating activities from continuing operations or any other performance or liquidity measures
derived in accordance with GAAP. Management uses these non-GAAP financial measures to facilitate operating performance and
liquidity comparisons, as applicable, from period to period. We believe these non-GAAP financial measures are useful for
investors, analysts and other interested parties as they facilitate company-to-company operating performance and liquidity
comparisons, as applicable, by excluding potential differences caused by variations in capital structures, taxation, the age and
book depreciation of facilities and equipment, restructuring initiatives and equity-based, long-term incentive plans.
3
Agenda
Q2 2018 Highlights
American Home Shield Separation Update
Progress on Terminix Business Transformation
Q2 2018 Financial Summary and Segment Results
Full-Year 2018 Outlook
Nik Varty
Chief Executive Officer
Tony DiLucente
Chief Financial Officer
Jesse Jenkins
Sr. Dir. IR & Treasury
4
Q2 2018 Highlights
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.2Adjusted earnings per share (EPS) is calculated as adjusted net income divided by the diluted share counts of 135.8M shares and 135.0M shares for second
quarter 2018 and 2017, respectively.3Free 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.
5
American Home Shield Separation Update
Q3’18
1Dis-synergies are incremental costs to stand up American Home Shield as a free-standing, public company and the stranded costs remaining at ServiceMaster
post spin
6
Progress on Terminix Business Transformation
Empowering our technicians and upgrading Commercial capabilities
Implement disciplined, Lean Six Sigma
approach
Rebuild a strong commercial business
Reinforce accountability
Empower our technicians to deliver an
exceptional customer experience
Build a strong leadership team
7
Rebuilding a Strong Commercial Business
• Driving synergies from Copesan
and other acquisitions
• Leveraging world-class service
capabilities from Copesan and
other partners
• Systematically incorporating those
service capabilities into Terminix
owned branches
• Strong efforts by national accounts
team and solid integration plan
continue to drive high retention
rates for Copesan customers
8
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.2Adjusted earnings per share (EPS) is calculated as adjusted net income divided by the diluted share counts of 135.8M shares and135.0M shares for the second
quarter of 2018 and 2017, respectively.
•
•
•
•
($ millions, except EPS) Q2 2018 Q2 2017
Revenue 874$ 807$ 67$ 8%
Adjusted EBITDA1
208$ 210$ (2)$ (1)%
Margin 23.8% 26.0%
Adjusted Net Income1
108$ 93$ 15$ 16%
Margin 12.3% 11.5%
Adjusted EPS1,2 0.79$ 0.69$ 0.11$ 16%
Variance
Q2 Consolidated Financial Summary
9
$105
6
(4)
$1097 3 2
(5)(5)
Q2'17 RevenueConversion
Chemicals& Materials
Bad DebtExpense
AcquisitionSG&A
Sales &Marketing
AccountingRule
Change2
Other Q2'18
Q2 Financial Results
Adjusted EBITDA ($M)
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions. 2 Adoption of ASC 606 on January 1st 2018, impacts timing on recognition of certain sales costs.
• Revenue growth of 6% driven primarily by the
Copesan acquisition, termite completions,
wildlife exclusion and attic insulation
• Adjusted EBITDA growth primarily due to
revenue conversion ($7M) and business
productivity initiatives ($5M)
• Higher selling and administrative expenses
from acquisitions ($5M)
• Slight gain in net sales & marketing including a
timing benefit due to an accounting rule
change2 ($6M) offset by sales and marketing
investments to drive organic growth ($5M).
($ millions) Q2 2018 Q2 2017
Revenue 456$ 428$ 27$ 6%
Gross Profit 206$ 196$ 10$ 5%
Margin 45.2% 45.8%
Adjusted EBITDA1
109$ 105$ 4$ 4%
Margin 24.0% 24.5%
Variance
Business Productivity
New image needed
10
$ millions
•
•
Q2 Revenue Growth by Channel
$93 $84
$229
$96 $81
$254
Termite Completions &Other Services
Termite Renewals Pest Control Services Other
Q2 2017 Q2 2018
11
Q2 Financial Results
$82$73
19
(22) (3) (2) (2)
Q2'17 Org. RevenueConversion
ClaimsCosts
Sales &Marketing
Call CenterCosts
Other Q2'18
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
Adjusted EBITDA ($M)
• Organic revenue growth of 9% largely driven by new and
renewal units and price
• $22M contract claims costs increase:
- $12M of adverse claims development from prior
periods related to higher appliance replacement
versus repair rates
- $4M of higher appliance replacement versus repair
rate in Q2
- $3M of normal claims costs inflation
- $3M of higher claims incidence due to hot weather
• Increase in sales and marketing costs to drive direct-to-
consumer unit growth
• Increase in customer care center costs to deliver a new
level of customer experience
($ millions) Q2 2018 Q2 2017
Revenue 355$ 326$ 29$ 9%
Gross Profit 159$ 163$ (4)$ (2)%
Margin 44.8% 49.9%
Adjusted EBITDA1
73$ 82$ (10)$ (12)%
Margin 20.6% 25.3%
Variance
12
AHS Claims Costs Issue
• Appliance replacement rates accelerating above historical levels
• Parts availability is becoming an increasingly complex issue
• AHS taking decisive actions to address claims costs issue:
- People: strong leadership driving accountability
- Pricing: reflecting replacement rate increases, dynamic pricing
- Process/Visibility: daily visibility of operational trends
- Cost Containment: renegotiating appliance contractor agreements
Higher appliance replacement rates from prior periods $(12) $(6)
Higher appliance replacement rates in 2018 (4) (12)
Normal inflation (3) -
Higher incidence rates due to weather (3) (3)
Total margin impact $(22) $(21)
13
$22$24
3
(1)
Q2'17 Revenue Conversion G&A Costs Q2'18
FSG Q2 Financial Results
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions. 2FSG recognized $4 million of national advertising fund contributions
as revenue pursuant to Company’s adoption of a new accounting rule regarding revenue recognition on January 1, 2018.
Adjusted EBITDA ($M) • Revenue growth driven by higher royalty fees
including increases in commercial and fire disaster
restoration services ($3M), higher janitorial national
accounts revenue ($4M) and the revenue
recognition accounting rule2 change ($4M)
• Higher Adjusted EBITDA due to increased
revenue, partially offset by an increase in G&A
costs
• Lower Adjusted EBITDA margin due to a higher
mix of janitorial national accounts revenue as well
as the revenue recognition accounting rule change
($ millions) Q2 2018 Q2 2017
Revenue 64$ 52$ 11$ 21%
Gross Profit 40$ 32$ 7$ 22%
Margin 62.3% 62.0%
Adjusted EBITDA1
24$ 22$ 2$ 9%
Margin 37.4% 41.6%
Variance
14
Q2 Consolidated Results
$ millions, except per share data
2018 2017 B/(W)
Revenue $ 874 $ 807 $ 67
YoY Growth 8%
Gross Profit 407 392 15
% of revenue 46.5% 48.6% -2 pts
Selling and administrative expenses (225) (206) (19)
% of revenue 25.7% 25.5% -0.2 pts
Amortization expense (7) (7) —
Fumigation related matters — (1) 1
Restructuring charges — (1) 1
American Home Shield spin-off charges (8) — (8)
Interest expense (37) (38) —
Interest and net investment income 1 1 —
Loss on extinguishment of debt — (3) 3
Income from Continuing Operations before Income Taxes 130 137 (7)
Provision for income taxes (34) (52) 18
Income from Continuing Operations 96 85 11
Gain from discontinued operations, net of income taxes — — —
Net Income $ 96 $ 85 $ 11
Weighted-average diluted common shares outstanding 135.8 135.0
Diluted Earnings Per Share $ 0.71 $ 0.63 $ 0.08
Adjusted Net Income1 $ 108 $ 93 $ 15
Adjusted EBITDA1 $ 208 $ 210 $ (2)
Adjusted Earnings Per Share1 $ 0.79 $ 0.69 $ 0.11
Second Quarter
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
15
Cash Flow
$ millions
Net Income $ 96 $ 85 $ 136 $ 124
Depreciation and amortization expense 28 25 53 51
Working capital, excluding impact of accrued interest and taxes 9 1 41 28
Fumigation related matters charges, net of payments — 1 — 1
Loss on extinguishment of debt — 3 — 3
Working capital impact of accrued interest and taxes 5 10 20 36
Deferred income tax provision 8 (2) 10 (2)
Stock-based compensation expense 4 4 8 9
Restructuring charges, net of payments (4) — 4 —
American Home Shield spin-off charges, net of payments 4 — 8 —
Other non-cash expenditure add-backs (12) 6 (1) 12
Net Cash Provided from Operating Activities $ 138 $ 133 $ 279 $ 260
Property additions, net of Government grant fundings for
property additions (19) (17) (42) (34)
Free Cash Flow $ 119 $ 117 $ 238 $ 225
2018 2017
Second Quarter June YTD
2018 2017
16
Full-Year 2018 Outlook1
1 WholeCo 2018 outlook assumes AHS remains with ServiceMaster for full year. For WholeCo, RemainCo and SpinCo, the FY 2018 outlook excludes the impact of
any future potential acquisitions.2 Full-year 2018 outlook includes spin-related dis-synergy costs of approximately $4 million for RemainCo and approximately $5 million for SpinCo.
(In millions)
Revenue $ 1,875 $ 1,890 $ 1,250 $ 1,270 $ 3,125 $ 3,160 Growth Rate 7% 8% 8% 10% 7% 9%
Adjusted EBITDA $ 425 $ 435 $ 245 $ 255 $ 670 $ 690 Growth Rate 2% 4% (6)% (2)% (1)% 2%
Margin 23% 23% 20% 20% 21% 22%
Full-Year 2018 Outlook (including Spin dis-synergies2)
WholeCo
Low HighHigh
RemainCo SpinCo
LowHighLow
(In millions)
Revenue $ 1,875 $ 1,890 $ 1,250 $ 1,270 $ 3,125 $ 3,160 Growth Rate 7% 8% 8% 10% 7% 9%
Adjusted EBITDA $ 430 $ 440 $ 250 $ 260 $ 680 $ 700 Growth Rate 3% 5% (4)% 0% 0% 3%
Margin 23% 23% 20% 20% 22% 22%
Full-Year 2018 Outlook (excluding Spin dis-synergies)
WholeCoRemainCo SpinCo
HighLow High Low High Low
17
Full-Year 2018 Outlook Detail
1 FSG recognizing approximately $14 million of national advertising fund contributions as revenue pursuant to Company’s adoption of a new accounting
rule regarding revenue recognition on January 1, 2018.
18
Appendix
19
Non-GAAP Reconciliation Definitions
Adjusted EBITDA is defined as net income before: depreciation and amortization
expense; 401(k) Plan corrective contribution; fumigation related matters; insurance
reserve adjustment; non-cash stock-based compensation expense; restructuring
charges; American Home Shield spin-off charges; non-cash impairment of software and
other related costs; (gain) loss from discontinued operations, net of income taxes;
provision for income taxes; loss on extinguishment of debt and interest expense.
Adjusted net income is defined as net income before: amortization expense; 401(k)
Plan corrective contribution; fumigation related matters; restructuring charges; American
Home Shield spin-off charges; impairment of software and other related costs; (gain)
loss from discontinued operations, net of income taxes; loss on extinguishment of debt;
and the tax impact of the aforementioned adjustments and the impact of tax law change
on deferred taxes.
Adjusted earnings per share is calculated as adjusted net income divided by the
weighted-average diluted common shares outstanding.
Free Cash Flow is defined as net cash provided from operating activities from
continuing operations; less property additions, net of government grant fundings for
property additions.
20
Q2 Net Income to Adjusted EBITDA and Adjusted Net Income Reconciliations$ millions, except per share data
Net Income $ 96 $ 85
Depreciation and amortization expense 28 25
Fumigation related matters — 1
Non-cash stock-based compensation expense 4 4
Restructuring charges — 1
American Home Shield spin-off charges 8 —
Provision for income taxes 34 52
Loss on extinguishment of debt — 3
Interest expense 37 38
Adjusted EBITDA $ 208 $ 210
Terminix $ 109 $ 105
American Home Shield 73 82
Franchise Services Group 24 22
Corporate 2 —
Adjusted EBITDA $ 208 $ 210
Net Income $ 96 $ 85
Amortization expense 7 7
Fumigation related matters — 1
Restructuring charges — 1
American Home Shield spin-off charges 8 —
Loss on extinguishment of debt — 3
Tax impact of adjustments (4) (4)
Adjusted Net Income $ 108 $ 93
Weighted-average diluted common shares outstanding 135.8 135.0
Adjusted Earnings Per Share $ 0.79 $ 0.69
Second Quarter
2018 2017
21
$ millions, except per share data
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
2018 2017 B/(W)
Revenue $ 1,549 $ 1,450 $ 100
YoY Growth 7%
Gross Profit 720 689 32
% of revenue 46.5% 47.5% -1 pts
Selling and administrative expenses (422) (392) (30)
% of revenue 27.3% 27.1% -0.2 pts
Amortization expense (12) (14) 1
Fumigation related matters — (2) 2
Impairment of software and other related costs — (2) 2
Restructuring charges (12) (3) (9)
American Home Shield spin-off charges (15) — (15)
Interest expense (75) (75) —
Interest and net investment income 2 1 —
Loss on extinguishment of debt — (3) 3
Income from Continuing Operations before Income Taxes 185 199 (14)
Provision for income taxes (48) (76) 27
Income from Continuing Operations 137 123 13
Gain from discontinued operations, net of income taxes — 1 (1)
Net Income $ 136 $ 124 $ 13
Weighted-average diluted common shares outstanding 135.7 135.5
Diluted Earnings Per Share $ 1.00 $ 0.91 $ 0.09
Adjusted Net Income1 $ 167 $ 138 $ 29
Adjusted EBITDA1 $ 349 $ 343 $ 5
Adjusted EPS1 $ 1.23 $ 1.02 $ 0.21
June YTD
June YTD Consolidated Results
22
June YTD Net Income to Adjusted EBITDA and Adjusted Net Income Reconciliations$ millions, except per share data
Net Income $ 136 $ 124
Depreciation and amortization expense 53 51
Fumigation related matters — 2
Non-cash stock-based compensation expense 8 9
Restructuring charges 12 3
American Home Shield spin-off charges 15 —
Non-cash impairment of software and other related costs — 2
Income from discontinued operations, net of income taxes — (1)
Provision for income taxes 48 76
Loss on extinguishment of debt — 3
Interest expense 75 75
Adjusted EBITDA $ 349 $ 343
Terminix $ 195 $ 186
American Home Shield 105 113
Franchise Services Group 46 43
Corporate 1 1
Adjusted EBITDA $ 349 $ 343
Net Income $ 136 $ 124
Amortization expense 12 14
Fumigation related matters — 2
Restructuring charges 12 3
American Home Shield spin-off charges 15 —
Impairment of software and other related costs — 2
Income from discontinued operations, net of income taxes — (1)
Loss on extinguishment of debt — 3
Tax impact of adjustments (9) (9)
Adjusted Net Income $ 167 $ 138
Weighted-average diluted common shares outstanding 135.7 135.5
Adjusted Earnings Per Share $ 1.23 $ 1.02
June YTD
2018 2017
23
Q2 and June YTD Adjusted EBITDA Bridge to Adjusted Net Income
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
$ millions
Adjusted EBITDA1 $ 208 $ (2)
Excluded from Adj. EBITDA / Included in Adj. Net Income
Stock-based compensation (4) —
Interest expense (37) —
Depreciation (21) (2)
Provision for income taxes (38) 19
Adjusted Net Income1 $ 108 $ 15
Adjusted EBITDA1 $ 349 $ 5
Excluded from Adj. EBITDA / Included in Adj. Net Income
Stock-based compensation (8) —
Interest expense (75) —
Depreciation (40) (3)
Provision for income taxes (58) 27
Adjusted Net Income1$ 167 $ 29
YTD
2018 B/(W) PY
Second Quarter
2018 B/(W) PY