American Home Shield 2015 Annual Report Download - page 51

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following information should be read in conjunction with Item 6 “Selected Financial Data” and the consolidated
financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. The following discussion may contain
forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those
discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors
discussed below and elsewhere in this report, particularly in “—Information Regarding Forward-Looking Statements” and “Risk
Factors.”
Overview
Our core services include termite and pest control, home warranties, disaster restoration, janitorial, residential cleaning,
furniture repair and home inspection under the following leading brands: Terminix, American Home Shield, ServiceMaster Restore,
ServiceMaster Clean, Merry Maids, Furniture Medic and AmeriSpec. Our operations for the periods presented in this report are
organized into three reportable segments: Terminix, American Home Shield and Franchise Services Group.
Management Change
On September 22, 2015, our board of directors appointed Mark J. Barry as our Chief Marketing & Strategy Officer. Prior to
his promotion, Mr. Barry served as Group President, American Home Shield & Franchise Services Group. In connection with Mr.
Barry’s new role, our board of directors appointed Timothy M. Haynes as President, American Home Shield and Jamie Smith as
Senior Vice President & Chief Information Officer. Mr. Haynes previously served as Senior Vice President & Chief Information
Officer, and Mr. Smith previously served as Vice President reporting to Mr. Haynes in the IT function. In their new roles, Messrs.
Barry, Haynes and Smith will report directly to Robert J. Gillette, our Chief Executive Officer. Also in connection with the
management changes, Martin Wick, who is serving as President, Franchise Services Group, will now report directly to Mr. Gillette.
He reported to Mr. Barry in his former position.
Key Business Metrics
We focus on a variety of indicators and key operating and financial metrics to monitor the financial condition and
performance of the continuing operations of our businesses. These metrics include:
revenue,
operating expenses,
Adjusted EBITDA,
net income (loss),
earnings (loss) per share,
customer retention rates, and
customer counts growth.
To the extent applicable, these measures are evaluated with and without impairment, restructuring and other charges that
management believes are not indicative of the earnings capabilities of our businesses. We also focus on measures designed to optimize
cash flow, including the management of working capital and capital expenditures.
Revenue. Our revenue results are primarily a function of the volume and pricing of the services and products provided to our
customers by our businesses as well as the mix of services and products provided across our businesses. The volume of our revenue in
Terminix and American Home Shield, and in our company-owned branches in the Franchise Services Group, is impacted by new unit
sales, the retention of our existing customers and tuck-in acquisitions. We expect to continue our tuck-in acquisition program at
Terminix and to periodically evaluate other strategic acquisitions. Revenue results in the remainder of our Franchise Services Group
are driven principally by royalty fees earned from our franchisees. We serve both residential and commercial customers, principally in
the United States. In 2015, approximately 98 percent of our revenue was generated by sales in the United States.
Operating Expenses. In addition to the impact of changes in our revenue results, our operating results are affected by, among
other things, the level of our operating expenses. A number of our operating expenses are subject to inflationary pressures, such as
fuel, chemicals, raw materials, wages and salaries, employee benefits and health care, vehicles, contractor costs, self-insurance costs
and other insurance premiums, as well as various regulatory compliance costs.
We have historically hedged a significant portion of our annual fuel consumption. Fuel costs for 2015, after the impact of the
hedges and after adjusting for the impact of year-over-year changes in the number of gallons used, decreased $5 million compared to
2014 and were comparable for 2014 compared to 2013. Based upon current Department of Energy fuel price forecasts, as well as
hedges we have executed to date for 2016, we project that fuel prices will decrease our fuel costs for 2016 by approximately $6
million compared to 2015.
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