American Home Shield 2015 Annual Report Download - page 27

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commercial services, respectively, and 91 percent and nine percent of revenue from termite and other services was related to
residential and commercial services, respectively.
Approximately 80 percent of our revenue comes from customers who enter into contracts with the option to renew
annually. Typically, termite services require an initial inspection and the installation of a protective liquid barrier or baited traps
surrounding the home. As part of the contract, the customer is provided a guarantee that protects against damage resulting from
termite infestation. After the first year, a customer has the option to renew the contact at a significantly reduced cost that
extends the guarantee. Consequently, revenue generated from a renewal customer is less then revenue generated from a first-
year termite customer.
We believe that the strength of the Terminix brand, along with our history of providing a high level of consistent service,
allows us to enjoy a competitive advantage in attracting, retaining and growing our customer base. We believe our investments in
systems and processes, such as routing and scheduling optimization, robust reporting capabilities and mobile customer management
solutions, enable us to deliver a higher level of customer service when compared to smaller regional and local competitors.
Our focus on attracting and retaining customers begins with our associates in the field, who interact with our customers every
day. Our associates bring a strong level of passion and commitment to the Terminix brand, as evidenced by the 11-year and 7-year
average tenure of our branch managers and technicians, respectively. Our field organization is supported by dedicated customer
service and call center personnel. Our culture of continuous improvement drives an intense focus on the quality of the services
delivered, which we believe produces high levels of customer satisfaction and, ultimately, customer retention and referrals.
The Terminix national branch structure includes approximately 300 company-owned locations and approximately
25 franchise agreements, which serve approximately 2.8 million customers in 46 states and the District of Columbia. Terminix’s over
8,000 employees made a daily average of 50,000 visits to residential and commercial customer locations during 2015. Terminix also
provides termite and pest control services through subsidiaries in Canada, Mexico, the Caribbean and Central America, as well as a
joint venture in India. In addition, licensees of Terminix provide these services in Japan, China, South Korea, Southeast Asia, Central
America, the Caribbean and the Middle East. In 2015, substantially all Terminix revenue was generated in the United States, with
approximately two percent derived from international markets, with a presence in a total of 21 countries outside the United States
through subsidiaries, a joint venture and licensing arrangements. Franchise fees from Terminix franchisees represented less than one
percent of Terminix revenue in 2015. We estimate that customer-level revenue for this segment was approximately $1,700 million for
the year ended December 31, 2015. Customer-level revenue represents the total of our estimate of sales generated by our franchisees,
a portion of which is included in our reported revenue from royalty fees, and sales generated by our company-owned operations.
Terminix Competitive Strengths
#1 market position and #1 recognized brand in U.S. termite and pest control services
Track record of high customer retention
Passionate and committed associates focused on delivering superior customer service
Expansive scale and deep market presence across a national footprint
Effective multi-channel customer acquisition strategy
History of innovation leadership and introducing new products and services
American Home Shield
American Home Shield founded the home warranty industry in 1971 and remains the leading provider of home warranty
plans for household systems and appliances in the United States, with approximately 42 percent market share, as measured by
revenue. We estimate American Home Shield to be approximately four times larger than its nearest competitors, as measured by
revenue. We believe that, as the market leader, American Home Shield can drive increasing use of home warranties given the low
industry household penetration of approximately four percent.
American Home Shield provides home warranty plans that cover the repair or replacement of up to 21 major household
systems and appliances, including electrical, plumbing, central heating and air conditioning (HVAC) systems, water heaters,
refrigerators, dishwashers and ovens/cook tops. Our warranty plans are generally structured as one-year contracts with annual renewal
options and, as a result, a significant portion of our revenue base in this segment is recurring. For the year ended December 31, 2015,
65 percent of American Home Shield revenue was derived from existing contract renewals (of which 64 percent was from the
direct-to-consumer channel and 36 percent was from the home resale channel), while 20 percent and 15 percent were derived from
sales made in conjunction with existing home resale transactions and direct-to-consumer sales, respectively. In total, approximately 56
percent of our revenue base represents customers in the direct-to-consumer sales market. We estimate that our share of the new sales
market for contracts written in connection with existing home resales and direct-to-consumer sales in 2015 was 25 percent and 50
percent, respectively.
We believe that we have one of the largest contractor networks in the United States, comprised of more than 11,000
independent home service contractor firms. We carefully screen our contractors and closely monitor their performance based on a
number of criteria, including through feedback from customer satisfaction surveys. On an annual basis, our contractors respond to
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