American Home Shield 2015 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2015 American Home Shield annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

43
The increase in damage claims was primarily driven by higher claim payments. The decrease in legal expense was driven by
reduced provisions for certain legal matters.
American Home Shield Segment
The American Home Shield segment, which provides home warranties for household systems and appliances, reported an 11
percent increase in revenue and a 15 percent increase in Adjusted EBITDA for the year ended December 31, 2015 compared to the
year ended December 31, 2014. The American Home Shield segment reported a 12 percent increase in revenue and a 23 percent
increase in Adjusted EBITDA for the year ended December 31, 2014 compared to the year ended December 31, 2013.
Revenue
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
The revenue results reflect an increase in new unit sales, improved price realization, a favorable product mix and the impact
of the HSA acquisition (an approximate $10 million increase as a result of the acquisition on February 28, 2014).
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
The revenue results reflect the impact of the HSA acquisition, a favorable product mix and an increase in new unit sales. The
HSA acquisition contributed approximately $56 million in revenue in 2014.
Adjusted EBITDA
The following table provides a summary of changes in the segment’s Adjusted EBITDA:
(In millions)
Year Ended December 31, 2013 $ 145
Impact of change in revenue 46
Contract claims 6
HSA selling and administrative expenses (18)
Marketing costs (10)
Legal (2)
Tax-related reserves (2)
Cost reduction initiatives 7
Technology costs 9
Key executive transition charges 1
Interest and net investment income 1
Other (4)
Year Ended December 31, 2014 $ 179
Im
p
act of chan
g
e in revenue 57
Contract claims (33)
Marketing costs 2
Customer services costs (5)
HSA selling and administrative expenses (4)
Technology costs 2
Incentive compensation 4
Cost reduction initiatives 1
Interest and net investment income 2
Year Ended December 31, 2015 $ 205
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
The increase in contract claims cost was driven by an increase in the average cost per service request associated with
appliance repairs due to greater use of more expensive out-of-network contractors, largely in the fourth quarter, and, to a lesser extent,
by warmer summer temperature in 2015 and general inflation. Extreme temperatures in 2016 could lead to an increase in service
requests related to household systems, resulting in higher claim frequency and costs.
The increase in customer service costs was due to higher labor costs resulting from customer growth. Additionally, we
incurred incremental selling and administrative expenses as a result of the HSA acquisition on February 28, 2014. The decrease in
technology costs was driven by our decision in the first quarter of 2014 to abandon efforts to deploy a new operating system.
In 2015 and 2014, the segment’s Adjusted EBITDA included interest and net investment income from the American Home
Shield investment portfolio of $8 million and $6 million, respectively.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
2015 Annual Report 59