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1 — Fourth-Quarter and Full-Year 2017 Earnings Webcast February 27, 2018
1
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Fourth-Quarter and Full-Year 2017
Earnings Webcast
February 27, 2018
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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, 2016, our Quarterly Report
on Form 10-Q for the quarter ended September 30, 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
2017 Highlights
American Home Shield Separation Update
Progress on Terminix Business Transformation
Strategic Growth Priorities
Q4 and FY 2017 Financial Summary and Segment Results
FY 2018 Outlook
Nik Varty
Chief Executive Officer
Tony DiLucente
Chief Financial OfficerBrian Turcotte
VP IR & Treasurer
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2017 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 135.4M shares and 137.3M shares for full-year 2017 and 2016, respectively.
5
American Home Shield Separation Update
May
1
6
Progress on Terminix Business Transformation
Deliver consistently strong revenue & earnings growth
Implement disciplined, Lean Six Sigma
approach
Develop a strong commercial business
Drive accountability
Empower our technicians to deliver an
exceptional customer experience
Build a strong leadership team
7
Developing a strong commercial pest business
•
•
•
–
–
–
–
–
•
–
–
8
Strategic Growth Priorities Update
Leverage relationships with insurance
companies for disaster restoration
Accelerate national accounts growth
Franchise
Services Group
Extend reach & growth beyond core areas
Extend current product offerings
Expand into adjacent markets
Increase market penetration through
world-class service
Achieve world-class customer service
Develop strong commercial business
Execute business transformation
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FY Consolidated Financial Summary
2Adjusted earnings per share (EPS) is calculated as adjusted net income divided by the diluted share counts of 135.4M shares and 137.3M shares for full-year 2017 and 2016, respectively.
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
• Revenue growth of 6% driven primarily by revenue growth of 13% at AHS
and 6% at FSG
• Strong full-year Adjusted EBITDA growth of 18% at AHS and 10% at FSG
was mostly offset by an 11% decline at Terminix, primarily due to business
transformation initiatives
($ millions, except EPS) FY 2017 FY 2016
Revenue 2,912$ 2,746$ 165$ 6%
Adjusted EBITDA1 678$ 667$ 11$ 2%
Margin 23.3% 24.3%
Adjusted Net Income1
286$ 281$ 5$ 2%
Margin 9.8% 10.2%
Adjusted EPS1,2 2.11$ 2.04$ 0.06$ 3%
Variance
10
Q4 Consolidated Financial Summary
2Adjusted earnings per share (EPS) is calculated as adjusted net income divided by the diluted share counts of 135.4M shares and 136.6M shares for the fourth quarter of 2017 and 2016, respectively.
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
• Continued strong organic revenue growth at American Home Shield (AHS)
• Solid revenue growth at Franchise Services Group (FSG)
• Terminix margin compression, as expected, primarily due to business
transformation initiatives
($ millions, except EPS) Q4 2017 Q4 2016
Revenue 666$ 633$ 32$ 5%
Adjusted EBITDA1 135$ 144$ (9)$ (7)%
Margin 20.3% 22.8%
Adjusted Net Income1
48$ 60$ (12)$ (20)%
Margin 7.2% 9.4%
Adjusted EPS1,2 0.35$ 0.44$ (0.08)$ (19)%
Variance
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FY Financial Results
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
($ millions) FY 2017 FY 2016
Revenue 1,541$ 1,524$ 18$ 1%
Gross Profit 663$ 684$ (21)$ (3)%
Margin 43.0% 44.9%
Adjusted EBITDA1
330$ 371$ (41)$ (11)%
Margin 21.4% 24.4%
Variance
$371
(11)
$330
10
(20) (6)
FY'16 RevenueConversion
ProductionLabor
TermiteDamageClaims
VehicleInsurance
Sales &Marketing
Other FY'17
Adjusted EBITDA ($M) • Revenue growth in core termite control,
wildlife exclusion, insulation and mosquito
sales; improved price realization
• Adjusted EBITDA margin compression
─ Primarily due to business transformation
initiatives, including increased production
labor to improve customer experience and
higher sales and marketing expense to
drive organic revenue growth
─ Higher termite damage claims
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Q4 Financial Results
($ millions) Q4 2017 Q4 2016
Revenue 353$ 349$ 4$ 1%
Gross Profit 141$ 144$ (3)$ (2)%
Margin 39.9% 41.1%
Adjusted EBITDA1
62$ 73$ (11)$ (15)%
Margin 17.4% 20.8%
Variance
Adjusted EBITDA ($M)
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
$73$62
1
(1)(8) (2)
Q4'16 RevenueConversion
ProductionLabor
TermiteDamageClaims
VehicleInsurance
Sales &Marketing
Other Q4'17
• Revenue growth driven by core termite,
wildlife exclusion and product sales
• Adjusted EBITDA margin compression
primarily due to business transformation
initiatives
─ Increased sales and marketing expense in
the fourth quarter as projected to drive
future business growth
─ Continued reinvestment in business
capabilities to drive sustainable growth
13
Q4 Revenue Growth by Channel
$ millions
•
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FY Financial Results
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
($ millions) FY 2017 FY 2016
Revenue 1,157$ 1,020$ 137$ 13%
Gross Profit 566$ 496$ 70$ 14%
Margin 49.0% 48.6%
Adjusted EBITDA1
260$ 220$ 40$ 18%
Margin 22.5% 21.5%
Variance
$220
$26047
(8) (5) (6)
FY'16 Org.Revenue
Conversion
ClaimsCosts
Impact ofAquisitions
G&A Sales &Marketing
CustomerServiceCosts
PYInvestment
Gains
FY'17
Adjusted EBITDA ($M) • Organic revenue growth of 8% in 2017
versus prior year
• OneGuard and Landmark acquisitions
contributed 5% revenue growth
• Increased gross margins and Adjusted
EBITDA margins by 30 bps and 90 bps,
respectively
• Investments in sales & marketing to drive
sales growth and customer care centers to
improve service levels
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Strong Revenue Growth and Consistently High Gross Margins
$ millions
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Q4 Financial Results
($ millions) Q4 2017 Q4 2016
Revenue 257$ 234$ 23$ 10%
Gross Profit 120$ 114$ 6$ 5%
Margin 46.7% 49.0%
Adjusted EBITDA1
51$ 50$ 0$ 1%
Margin 19.7% 21.5%
Variance
$50$51
10
(8)(3) (1)
Q4'16 Org.Revenue
Conversion
ClaimsCosts
Impact ofAquisitions
G&A Sales &Marketing
CustomerServiceCosts
Q4'17
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
Adjusted EBITDA ($M) • Organic revenue growth of 8% in the fourth
quarter versus prior year
• Increase in claims cost due primarily to
higher claim cost per incidence and an
increase in incidence rates
• Increased marketing spending to drive
sales growth
• Increase in customer care center costs to
improve customer service levels
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FSG FY Financial Results
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
($ millions) FY 2017 FY 2016
Revenue 212$ 200$ 12$ 6%
Gross Profit 129$ 120$ 9$ 8%
Margin 60.6% 59.7%
Adjusted EBITDA1
87$ 79$ 8$ 10%
Margin 41.0% 39.4%
Variance
$79$878 1
(1)
1
FY'16 RevenueConversion
BranchConversions
Sales &Marketing
Other FY'17
Adjusted EBITDA ($M) • Revenue growth driven by higher royalty
fees related to disaster restoration services
and janitorial national accounts revenue
• Increased gross margins and Adjusted
EBITDA margins by 90 bps and 160 bps,
respectively
• Hurricane- and wildfire-related disaster
restoration royalty fees drove strong year-
over-year revenue and Adjusted EBITDA
performance
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FSG Q4 Financial Results
($ millions) Q4 2017 Q4 2016
Revenue 55$ 50$ 5$ 11%
Gross Profit 32$ 30$ 2$ 7%
Margin 58.9% 60.9%
Adjusted EBITDA1
22$ 21$ 1$ 5%
Margin 40.5% 42.9%
Variance
$21 $222
(1) (1)
Q4'16 RevenueConversion
Sales &Marketing
G&A Q4'17
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
Adjusted EBITDA ($M) • Revenue growth driven by higher royalty
fees related to disaster restoration services
and janitorial national accounts revenue
• Gross margin compression driven by higher
mix of janitorial national accounts revenue
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Q4 Consolidated Results
$ millions, except per share data
2017 2016 B/(W)
Revenue 666$ 633$ 32$
YoY Growth 5%
Gross Profit 294 288 5
% of revenue 44.1% 45.5% -1.4 pts
Selling and administrative expenses (182) (166) (16)
% of revenue 27.3% 26.1% -1.2 pts
Amortization expense (6) (8) 2
401(k) Plan corrective contribution (0) (1) 1
Fumigation related matters (2) (0) (1)
Restructuring charges (10) (4) (6)
Interest expense (38) (38) 0
Interest and net investment income 1 1 0
Loss on extinguishment of debt — (32) 32
Income from Continuing Operations before Income Taxes 57 41 16
Benefit (Provision) for income taxes 249 (9) 258
Income from Continuing Operations 306 31 275
Loss from discontinued operations, net of income taxes (0) (0) 0
Net Income 306$ 31$ 275$
Weighted-average diluted common shares outstanding 135.4 136.6
Diluted Earnings Per Share 2.26$ 0.23$ 2.03$
Adjusted Net Income1 48$ 60$ (12)$
Adjusted EBITDA1 135$ 144$ (9)$
Adjusted Earnings Per Share1 0.35$ 0.44$ (0.08)$
Fourth Quarter
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
Confidential 20Confidential 20
2017 Impact from Tax Reform Legislation
• Deferred tax asset and liability balances are updated in the period of enactment to reflect the new corporate
tax rate of 21% as these deferred items will ultimately be taxed at the reduced rate.
• The majority of our deferred tax liability is related to indefinite-lived intangible assets that arose in connection
with the acquisition of the Company by Clayton, Dubilier & Rice in 2007.
• As the Company is in a net deferred tax liability position, the reduction to the deferred tax liability on the
balance sheet is reflected as a benefit in income taxes from continuing operations.
(in $ millions) (in $ millions)
Pre-Tax Book Income: 370$ Pre-Tax Book Income: 370$
Rate Reconciliation: Rate Reconciliation:
Tax at U.S. Statutory Rate 130 35.0% Tax at U.S. Statutory Rate 130 35.0%
State & Local Tax, net of Federal benefit 13 3.5% State & Local Tax, net of Federal benefit 13 3.5%
Other (10) (2.9)% Other (11) (3.0)%
Tax Reform Rate Change (271) (73.3)%
Annual Effective Tax Rate (139)$ (37.6)% Annual Effective Tax Rate 132$ 35.5%
(in $ millions) (in $ millions)
Pre-Tax Book Income: 57$ Pre-Tax Book Income: 57$
Year-to-Date Tax Expense (Benefit) (139) Year-to-Date Tax Expense 132
Less: Tax Expense in prior quarters 109 Less: Tax Expense in prior quarters 109
Tax Expense (Benefit) (248)$ (433.0)% Tax Expense 22$ 38.9%
With Tax Reform Without Tax Reform
Full Year
Q4
Full Year
Q4
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Q4 and Full Year Cash Flow
$ millions
Net Income $ 306 $ 31 $ 510 $ 155
Depreciation and amortization expense 26 26 103 94
Working capital, excluding impact of accrued interest and taxes 36 15 14 (22)
Fumigation related matters 2 — 4 93
Payments on fumigation related matters (11) — (12) (90)
Insurance reserve adjustment — — — 23
Loss on extinguishment of debt — 32 6 32
Working capital impact of accrued interest and taxes (30) (1) (24) (2)
Deferred income tax provision (253) 9 (226) 22
Stock-based compensation expense 2 3 12 13
Restructuring charges, net of payments (1) 1 15 7
Other (3) (5) 13 1
Net Cash Provided from Operating Activities $ 73 $ 111 $ 413 $ 325
Property additions, net of government grant fundings for property
additions (27) (11) (75) (56)
Free Cash Flow $ 46 $ 100 $ 338 $ 270
Fourth Quarter
2017 2016 2017 2016
Full Year
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Full-Year 2018 Outlook1
1 Outlook assumes AHS remains with ServiceMaster for full year and does not include potential financial impact from acquisitions or projected costs related to AHS separation
targeted for Q3 2018. 2 See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
($ millions) Low High
Revenue 3,015$ 3,045$
Growth Rate 4% 5%
Adjusted EBITDA2
690$ 705$
Growth Rate 2% 4%
Margin 23% 23%
Range
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We Serve, We Care, We Deliver
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Appendix
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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; gain on sale of Merry Maids branches; non-cash impairment of software and
other related costs; (gain) loss from discontinued operations, net of income taxes;
(benefit) 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; insurance reserve adjustment;
restructuring charges; gain on sale of Merry Maids branches; impairment of software
and other related costs; (gain) loss from discontinued operations, net of income taxes;
loss on extinguishment of debt; the tax impact of the aforementioned adjustments and
the impact of the tax law changes 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.
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Q4 Net Income to Adjusted EBITDA and Adjusted Net Income Reconciliations$ millions, except per share data
Net Income $ 306 $ 31
Depreciation and amortization expense 26 26
401(k) Plan corrective contribution — 1
Fumigation related matters 2 —
Non-cash stock-based compensation expense 2 3
Restructuring charges 10 4
(Benefit) Provision for income taxes (249) 9
Loss on extinguishment of debt — 32
Interest expense 38 38
Adjusted EBITDA $ 135 $ 144
Terminix $ 62 $ 73
American Home Shield 51 50
Franchise Services Group 22 21
Corporate 1 —
Adjusted EBITDA $ 135 $ 144
Net Income $ 306 $ 31
Amortization expense 6 8
401(k) Plan corrective contribution — 1
Fumigation related matters 2 —
Restructuring charges 10 4
Loss on extinguishment of debt — 32
Tax impact of adjustments (5) (17)
Impact of tax law change on deferred taxes (271) —
Adjusted Net Income $ 48 $ 60
Weighted-average diluted common shares outstanding 135.4 136.6
Adjusted Earnings Per Share $ 0.35 $ 0.44
Fourth Quarter
2017 2016
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Full Year Net Income to Adjusted EBITDA and Adjusted Net Income Reconciliations$ millions, except per share data
Net Income $ 510 $ 155
Depreciation and amortization expense 103 94
401(k) Plan corrective contribution (3) 2
Fumigation related matters 4 93
Insurance reserve adjustment — 23
Non-cash stock-based compensation expense 12 13
Restructuring charges 34 17
Gain on sale of Merry Maids branches — (2)
Non-cash impairment of software and other related costs 2 1
(Gain) loss from discontinued operations, net of income taxes — 1
(Benefit) Provision for income taxes (139) 85
Loss on extinguishment of debt 6 32
Interest expense 150 153
Adjusted EBITDA $ 678 $ 667
Terminix $ 330 $ 371
American Home Shield 260 220
Franchise Services Group 87 79
Corporate 1 (3)
Adjusted EBITDA $ 678 $ 667
Net Income $ 510 $ 155
Amortization expense 27 33
401(k) Plan corrective contribution (3) 2
Fumigation related matters 4 93
Insurance reserve adjustment — 23
Restructuring charges 34 17
Gain on sale of Merry Maids branches — (2)
Impairment of software and other related costs 2 1
(Gain) loss from discontinued operations, net of income taxes — 1
Loss on extinguishment of debt 6 32
Tax impact of adjustments (23) (73)
Impact of tax law change on deferred taxes (271) —
Adjusted Net Income $ 286 $ 281
Weighted-average diluted common shares outstanding 135.4 137.3
Adjusted Earnings Per Share $ 2.11 $ 2.04
2017 2016
Full Year
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Q4 and Full Year Adjusted EBITDA Bridge to Adjusted Net Income
$ millions
Adjusted EBITDA1 $ 135 $ (9) $ 678 $ 11
Excluded from Adj. EBITDA / Included in Adj. Net Income
Stock-based compensation (2) 1 (12) 1
Interest expense (38) — (150) 3
Depreciation (20) (2) (76) (15)
Provision for income taxes (27) (1) (154) 4
Adjusted Net Income1 $ 48 $ (12) $ 286 $ 4
Fourth Quarter
2017 B/(W) PY 2017 B/(W) PY
Full Year
1See Appendix for Non-GAAP Reconciliations and Non-GAAP Reconciliation Definitions.
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Full Year Consolidated Results
$ millions, except per share data
2017 2016 B/(W)
Revenue 2,912$ 2,746$ 165$
YoY Growth 6%
Gross Profit 1,360 1,298 62
% of revenue 46.7% 47.3% -0.6 pts
Selling and administrative expenses (773) (711) (62)
% of revenue 26.6% 25.9% -0.7 pts
Amortization expense (27) (33) 6
401(k) Plan corrective contribution 3 (2) 5
Fumigation related matters (4) (93) 89
Insurance reserve adjustment — (23) 23
Impairment of software and other related costs (2) (1) (1)
Restructuring charges (34) (17) (17)
Gain on sale of Merry Maids branches (0) 2 (2)
Interest expense (150) (153) 3
Interest and net investment income 4 6 (2)
Loss on extinguishment of debt (6) (32) 26
Income from Continuing Operations before Income Taxes 370 241 128
Benefit (Provision) for income taxes 139 (85) 225
Income from Continuing Operations 509 155 354
Gain (loss) from discontinued operations, net of income taxes 0 (1) 1
Net Income 510$ 155$ 355$
Weighted-average diluted common shares outstanding 135.4 137.3
Diluted Earnings Per Share 3.76$ 1.13$ 2.63$
Adjusted Net Income1 286$ 281$ 5$
Adjusted EBITDA1 678$ 667$ 11$
Adjusted Earnings Per Share1 2.11$ 2.04$ 0.06$
Full Year
