American Home Shield 2015 Annual Report Download - page 52

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After adjusting for the impact of year-over-year changes in the number of covered employees, health care and related costs
for 2015 were comparable compared to 2014 while costs in 2014 increased $3 million compared to 2013. We expect our health care
costs in 2016 to remain comparable to 2015.
Adjusted EBITDA. We evaluate performance and allocate resources based primarily on Adjusted EBITDA. We define
Adjusted EBITDA as net income (loss) before: income (loss) from discontinued operations, net of income taxes; provision (benefit)
for income taxes; loss on extinguishment of debt; interest expense; depreciation and amortization expense; 401(k) Plan corrective
contribution; non-cash impairment of software and other related costs; non-cash impairment of property and equipment; non-cash
stock-based compensation expense; restructuring charges; gain on sale of Merry Maids branches; management and consulting fees;
consulting agreement termination fees; and other non-operating expenses. We believe Adjusted EBITDA is useful for investors,
analysts and other interested parties as it facilitates company-to-company operating performance comparisons by excluding potential
differences caused by variations in capital structures, taxation, the age and book depreciation of facilities and equipment, restructuring
initiatives, consulting agreements and equity-based, long-term incentive plans.
Net Income (Loss) and Earnings (Loss) Per Share.Basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted-average number of shares of common stock outstanding. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period, increased to
include the number of shares of common stock that would have been outstanding had potential dilutive shares of common stock been
issued. The dilutive effect of stock options and RSUs are reflected in diluted net income (loss) per share by applying the treasury stock
method. The presentation of net income (loss) and earnings (loss) per share provides GAAP measures of performance which are useful
for investors, analysts and other interested parties in company-to-company operating performance comparisons.
Customer Retention Rates and Customer Counts Growth. We report our customer retention rates and growth in customer
counts for our two largest revenue generating businesses in order to track the performance of those businesses. Customer counts
represent our recurring customer base, which includes customers with active contracts for recurring services and excludes customers
who purchased a service we consider non-recurring. At Terminix, recurring services are primarily delivered on an annual, quarterly or
monthly frequency. Retention rates are calculated as the ratio of ending customer counts to the sum of beginning customer counts,
new sales and acquired accounts for the applicable period. These measures are presented on a rolling, 12-month basis in order to avoid
seasonal anomalies. See “—Segment Review.”
Seasonality
We have seasonality in our business, which drives fluctuations in revenue and Adjusted EBITDA for interim periods. In
2015, approximately 22 percent, 28 percent, 27 percent and 23 percent of our revenue and approximately 21 percent, 31 percent,
28 percent and 20 percent of our Adjusted EBITDA was recognized in the first, second, third and fourth quarters, respectively.
Effect of Weather Conditions
The demand for our services and our results of operations are also affected by weather conditions, including the seasonal
nature of our termite and pest control services, home inspection services and disaster restoration services. Weather conditions which
have a potentially unfavorable impact to our business include cooler temperatures or droughts which can impede the development of
termite swarms and lead to lower demand for our termite control services; severe winter storms which can impact our residential
cleaning business if we cannot travel to service locations due to hazardous road conditions; and extreme temperatures which can lead
to an increase in service requests related to household systems. Weather conditions which have a potentially favorable impact to our
business include mild winters which can lead to higher demand for termite and pest control services; mild winters or summers which
can lead to lower household systems claim frequency; and severe storms which can lead to an increase in demand for disaster
restoration services.
Secondary Public Offerings
On February 4, 2015, our registration statement on Form S-1 was declared effective by the SEC for a secondary offering of
our common stock. We registered on behalf of certain stockholders the offering and sale of 25,000,000 shares of common stock and an
additional 3,750,000 shares of common stock sold to the underwriters pursuant to an option to purchase additional shares. On
February 10, 2015, the selling stockholders completed the offering of 25,000,000 shares of common stock at a price of $29.50 per
share. On February 13, 2015, the selling stockholders completed the offering of an additional 3,750,000 shares of common stock at a
price of $29.50 per share pursuant to the underwriters’ option to purchase additional shares.
On May 27, 2015, our registration statement on Form S-1 was declared effective by the SEC for a secondary offering of our
common stock. We registered on behalf of certain stockholders the offering and sale of 20,000,000 shares of common stock and an
additional 3,000,000 shares of common stock sold to the underwriters pursuant to an option to purchase additional shares. On June 2,
2015, the selling stockholders completed the offering of 20,000,000 shares of common stock at a price of $34.00 per share. On June
12, 2015, the selling stockholders completed the offering of an additional 3,000,000 shares of common stock at a price of $34.00 per
share pursuant to the underwriters’ option to purchase additional shares.
On November 5, 2015, our shelf registration statement on Form S-3 was automatically declared effective by the SEC for a
secondary offering of our common stock. We registered on behalf of certain stockholders the offering and sale of 28,961,763 shares of
50 2015 Annual Report