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25.02.2021, 13:00

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Americas, Service Provider News, Pest Control, Investors

Terminix has reported strong revenue growth for the fourth-quarter of 2020, and adjusted its Full-Year 2021 revenue forecast to between US $2,025 and US $2,050, in unaudited accounts released today.

 

For the fourth quarter of 2020, the Company reported a revenue increase of four percent to $460 million. Net income was $490 million, or $3.71 per share, driven by the gain from the sale of ServiceMaster Brands. Adjusted EBITDA(1) for the quarter increased $13 million, or 24 percent, to $68 million, and Adjusted Net Income(2) increased $18 million to $28 million, or $0.21 per share.

 

For the year ended 2020, the Company reported a revenue increase of eight percent to $1,961 million. Net income increased $423 million to $551 million, primarily driven by the gain from the sale of ServiceMaster Brands. Adjusted EBITDA for the full year increased $32 million, or 10 percent, to $345 million and Adjusted Net Income increased $18 million, or 16 percent, to $126 million.

 

Announcing the results, CEO, Brett Ponton, said:

"Successful execution of our strategic initiatives enabled us to deliver a strong year at Terminix

 

"Organic revenue growth was highlighted by strong performance in termite services and residential pest, while the commercial pest business continued to improve sequentially in the fourth quarter. Profit margin expansion was driven by productivity improvements including gains in teammate and customer retention.

 

"As we look to 2021, we are excited about the opportunities ahead as a singularly focused pest management company. We remain focused on driving growth and profitability by capitalizing on our industry-leading brand and improving operational capabilities in the core fundamentals of service delivery. Key investments to improve procedures, training and technology will increase consistency from branch-to-branch and teammate-to-teammate and further enhance both the teammate and customer experience. Ultimately, our work this year will strengthen the foundation needed to further advance our vision of being the preferred pest management provider in the eyes of our customers, our teammates and the communities we serve."

 

Consolidated Performance

 

 

Three Months Ended December 31,

 

Year Ended December 31,

$ millions

 

2020

 

2019

 

B/(W)

 

2020

 

2019

 

B/(W)

Revenue

 

$

460

 

 

 

$

441

 

 

 

$

19

 

 

 

$

1,961

 

 

 

$

1,819

 

 

 

$

142

 

 

YoY growth

 

 

 

 

 

 

 

 

 

 

4

 

%

 

 

 

 

 

 

 

 

 

 

8

 

%

Gross Margin

 

 

180

 

 

 

 

162

 

 

 

 

18

 

 

 

 

806

 

 

 

 

750

 

 

 

 

56

 

 

% of revenue

 

 

39.1

 

%

 

 

36.7

 

%

 

 

2.4

 

pts

 

 

41.1

 

%

 

 

41.2

 

%

 

 

(0.1

)

pts

SG&A

 

 

(136

)

 

 

 

(130

)

 

 

 

(6

)

 

 

 

(559

)

 

 

 

(527

)

 

 

 

(31

)

 

% of revenue

 

 

29.6

 

%

 

 

29.4

 

%

 

 

(0.2

)

pts

 

 

28.5

 

%

 

 

29.0

 

%

 

 

0.5

 

pts

(Loss) Income from Continuing Operations before Income Taxes

 

 

(9

)

 

 

 

(60

)

 

 

 

51

 

 

 

 

41

 

 

 

 

64

 

 

 

 

(24

)

 

% of revenue

 

 

(2.0

)

%

 

 

(13.7

)

%

 

 

11.7

 

pts

 

 

2.1

 

%

 

 

3.5

 

%

 

 

(1.5

)

pts

Net Income (Loss)

 

 

490

 

 

 

 

(26

)

 

 

 

516

 

 

 

 

551

 

 

 

 

128

 

 

 

 

423

 

 

% of revenue

 

 

106.7

 

%

 

 

(5.9

)

%

 

 

112.6

 

pts

 

 

28.1

 

%

 

 

7.0

 

%

 

 

21.0

 

pts

Adjusted Net Income(2)

 

 

28

 

 

 

 

10

 

 

 

 

18

 

 

 

 

126

 

 

 

 

108

 

 

 

 

18

 

 

% of revenue

 

 

6.1

 

%

 

 

2.3

 

%

 

 

3.8

 

pts

 

 

6.4

 

%

 

 

6.0

 

%

 

 

0.5

 

pts

Adjusted EBITDA(1)

 

 

68

 

 

 

 

55

 

 

 

 

13

 

 

 

 

345

 

 

 

 

313

 

 

 

 

32

 

 

% of revenue

 

 

14.8

 

%

 

 

12.5

 

%

 

 

2.4

 

pts

 

 

17.6

 

%

 

 

17.2

 

%

 

 

0.4

 

pts

Net Cash (Used for) Provided from Operating Activities from Continuing Operations

 

 

(13

)

 

 

 

12

 

 

 

 

(25

)

 

 

 

198

 

 

 

 

164

 

 

 

 

33

 

 

Free Cash Flow(3)

 

 

(19

)

 

 

 

6

 

 

 

 

(25

)

 

 

 

172

 

 

 

 

139

 

 

 

 

33

 

 

 

Reconciliations of net income (loss) to Adjusted Net Income and Adjusted EBITDA, as well as a reconciliation of Net Cash (Used for) Provided from Operating Activities from Continuing Operations to Free Cash Flow, are set forth below in this press release.


Fourth-Quarter Performance

Revenue

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

2020

 

2019

 

Growth

 

Organic

 

Acquired

Residential Pest Management

 

$

172

 

$

165

 

$

7

 

 

5

 

%

 

$

6

 

 

4

 

%

 

$

2

 

1

%

Commercial Pest Management

 

 

111

 

 

111

 

 

 

 

 

%

 

 

(2

)

 

(1

)

%

 

 

2

 

1

%

Termite and Home Services

 

 

131

 

 

124

 

 

7

 

 

6

 

%

 

 

7

 

 

5

 

%

 

 

 

%

European Pest Management

 

 

23

 

 

18

 

 

5

 

 

29

 

%

 

 

4

 

 

24

 

%

 

 

1

 

5

%

Sales of Products and Other

 

 

22

 

 

24

 

 

(1

)

 

(5

)

%

 

 

(1

)

 

(5

)

%

 

 

 

%

Total Revenue

 

$

460

 

$

441

 

$

19

 

 

4

 

%

 

$

14

 

 

3

 

%

 

$

5

 

1

%

 

The company reported four percent year-over-year revenue growth and three percent organic revenue growth(4) in the fourth quarter of 2020. Termite and home services organic revenue growth was five percent, including 14 percent growth in renewable core termite completions driven by sales of our monthly pay tiered termite product. Residential pest organic revenue growth of four percent reflected retention gains, new sales growth and pricing realization that were partially offset by lower summer sales units and one-time bed bug services. European pest revenue was up 24 percent organically, including 10 percent from foreign currency translation, driven by strong growth in Norway, Sweden and the United Kingdom. Commercial pest organic revenue declined one percent year-over-year and improved approximately 200 basis points sequentially from the third quarter. The commercial pest organic revenue decline was driven by impacts from the ongoing pandemic including lower sales of non-recurring services and service postponements due to both temporary and permanent business closures.

 

Adjusted EBITDA

Terminix Adjusted EBITDA was $68 million for the fourth quarter, a year-over-year increase of $13 million. The impact on Adjusted EBITDA from higher revenue was $8 million. Direct, indirect and general and administrative cost reductions in the quarter amounted to approximately $18 million. These gains were partially offset by higher incentive compensation expense of $10 million, including over $1 million for a one-time special bonus to all front-line employees in recognition of their dedication to serving customers during unprecedented pandemic conditions. Termite damage claims expense was up $3 million year-over-year, primarily related to the completion of the mitigation program in the Mobile Bay area.


Sale of ServiceMaster Brands

On October 1, 2020, we completed the sale of the ServiceMaster Brands business for $1,541 million to RW Purchaser LLC, an affiliate of investment funds managed by Roark Capital Management LLC, resulting in a gain of $494 million, net of income taxes. A portion of the proceeds was used to retire all of the $750 million aggregate principal amount of our 5.125% Notes due 2024. The remaining proceeds net of taxes and debt retirement costs are reflected in available cash. ServiceMaster Brands is classified as discontinued operations for all periods presented.


Liquidity, Free Cash Flow and Leverage

The Company ended the fourth quarter with $615 million in available cash and access to $377 million under its revolving credit facility for total liquidity of $992 million. Year-to-date free cash flow from continuing operations was $172 million, with a free cash flow to Adjusted EBITDA conversion rate of 50 percent. Free cash flow was negatively impacted by $49 million in payments in conjunction with the settlement with the Alabama Attorney General, as previously announced on November 5, 2020.


Full-Year 2021 Outlook

 

 

 

(In millions)

 

Low

 

High

Revenue

 

$

2,025

 

$

2,050

Growth Rate

 

 

3%

 

 

4%

Adjusted EBITDA

 

$

365

 

$

380

Margin

 

 

18.0%

 

 

18.5%

 

For the full year 2021, the Company expects commercial pest will continue the gradual positive trends seen over the last several months as the economy continues to reopen, with the back half of the year improving as COVID-19 impacts are lapped. Organic growth in residential pest will be partially offset by lower year-over-year summer sales revenue in the first quarter due to fewer unit sales in 2020 and the continued lower trends in bed bug services due to reduced travel during the pandemic. Continued demand is expected in termite completions due to the new monthly pay product and strong growth in home services. Termite renewal revenue will be reduced by between $8 and $10 million in 2021 due to a change in the timing of revenue recognition from our move to a monthly subscription-based model.

 

Anticipated Adjusted EBITDA for 2021 reflects the impact of revenue growth and reduced termite damage claims expense as completion of the $10 million termite mitigation plan in the Mobile Bay area is lapped. Cost headwinds during the year related to increased training and lost productivity from the roll out of our new technology platform are expected, as well as increased travel expense and the lapping of strong employee retention gains. The cost of 2021 initiatives and investments in operational capabilities are expected to be funded through cost structure simplification as the Company evolves to a leaner focused pest management company.

 

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

 

A reconciliation of the forward looking full-year 2021 Adjusted EBITDA outlook to net income is not being provided, as the Company does not currently have sufficient data to accurately estimate the variables and individual adjustments for such reconciliation.


Fourth-Quarter and Full-Year 2020 Earnings Conference Call

The Company will hold a conference call to discuss its financial and operating results at 8 a.m. central time (9 a.m. eastern time) on Thursday, February 25, 2021.

 

The Company invites all interested parties to join Chief Executive Officer Brett Ponton, current Chief Financial Officer Tony DiLucente, Executive Vice President and incoming Chief Financial Officer Bob Riesbeck, and Vice President of Investor Relations and Treasurer Jesse Jenkins for an update on the Company's operational performance and financial results for the fourth quarter and full year ended December 31, 2020. Participants may join this conference call by dialing 800.920.5526 (or international participants, +1.212.231.2914). Additionally, the conference call will be available via webcast. A slide presentation highlighting the Company’s results will also be available. To participate via webcast and view the presentation, visit the Company’s new investor relations home page at investors.terminix.com.

 

The call will be available for replay until March 27, 2021. To access the replay of this call, please call 800.633.8284 and enter reservation number 21990560 (international participants: +1.402.977.9140, reservation number 21990560). The webcast will also be available on the Company’s investor relations home page.

 

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