American Home Shield 2015 Annual Report Download - page 25

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revenue in 2015, served approximately 2.8 million customers. American Home Shield, which accounted for 35 percent of our revenue
in 2015, responded to more than three million service requests from approximately 1.6 million customers. Our diverse customer base
and geographies help to mitigate the effect of adverse market conditions and other risks in any particular geography or customer
segment we serve. We therefore believe the size and scale of our company provide us with added protection from risk relative to our
smaller local and regional competitors.
High-Value Service Offerings Resulting in High Retention and Recurring Revenues. We believe our high annual customer
retention demonstrates the highly valued nature of the services we offer and the high level of execution and customer service that we
provide. Many of our technicians have built long-standing, personal relationships with their customers. We believe these personal
bonds, often forged over decades, help to drive customer loyalty and retention. As a result of our high retention and long-standing
customer relationships, we enjoy significant visibility and stability in our business, and these factors limit the effect of adverse
economic cycles on our revenue base. We experienced these advantages during the most recent economic downturn, when we were
able to grow revenue in each year from 2008 to 2015.
Multi-Channel Marketing Approach Supported by Sophisticated Customer Analytic Modeling Capabilities. Our
multi-channel marketing approach focuses on building the value of our brands and generating revenue by understanding the decisions
customers make at each stage in the purchase of residential and commercial services. The effectiveness of our marketing efforts is
demonstrated by an increase in lead generation and online sales, as well as an improvement in close rates over the last few years. For
example, in our direct-to-consumer channel at American Home Shield, new home warranty lead generation, marketing yield and close
rates have benefited from increased spending on marketing as well as improved digital marketing. We have also been deploying
increasingly sophisticated customer analytics models that allow us to more effectively segment our prospective customers and tailor
campaigns towards them. In addition, we are seeing success with newer ways of reaching and marketing to consumers via content
marketing, promotions and social media channels.
Operational and Customer Service Excellence Driven by Superior People Development. We are constantly focused on
improving customer service. The customer experience is at the foundation of our business model, and we believe that each employee
is an extension of ServiceMaster’s reputation. We employ rigorous hiring and training practices and continuously analyze our
operating metrics to identify potential improvements in service and productivity. Technicians in our Terminix branches have an
average tenure of seven years, creating continuity in customer relationships and ensuring the development of best practices based on
on-the-ground experience. We also provide our field personnel with access to sophisticated data management and mobility tools which
enable them to drive efficiencies, improve customer service and ultimately grow our customer base and profitability.
Resilient Financial Model with Track Record of Consistent Performance.
Solid revenue and Adjusted EBITDA growth through business cycles. Our consolidated revenue and Adjusted EBITDA
compound annual growth rates from 2010 through 2015 were five percent and 12 percent, respectively. We believe that our
strong performance through the recent economic and housing downturns is attributable to the essential nature of our services,
our strong value proposition and our management’s focus on driving results.
Solid margins with attractive operating leverage and productivity improvement initiatives. Our business model enjoys
inherent operating leverage stemming from route density and fixed investments in infrastructure and technology, among other
factors. We have demonstrated our ability to expand our margins through a variety of initiatives, including metric-driven
continuous improvement in our customer call centers, application of consistent process guidelines at the branch level,
leveraging size and scale to improve the sourcing of labor and materials, and driving productivity in centralized services. We
have also deployed mobility solutions and routing and scheduling systems across many of our businesses in order to enhance
overall efficiency and reduce operating costs.
Capital-Light Business Model. Our business model is characterized by strong Adjusted EBITDA margins, negative working
capital and limited capital expenditure requirements. In 2015, 2014 and 2013, our net cash provided from operating activities from
continuing operations was $336 million, $253 million and $208 million, respectively, and our property additions were $40 million,
$35 million and $39 million, respectively. Free Cash Flow was $358 million, $274 million and $169 million in 2015, 2014 and 2013,
respectively. For a reconciliation of Free Cash Flow to net cash provided from operating activities from continuing operations, which
we consider to be the most directly comparable financial measure presented in accordance with accounting principles generally
accepted in the United States of America (“GAAP”), see “Selected Historical Financial Data.”
Experienced Management Team. We have assembled a management team of highly experienced leaders with significant
industry expertise. Our senior leaders have track records of producing profitable growth in a wide variety of industries and economic
conditions. We also believe that we have a deep bench of talent across each of our business units, including long-tenured individuals
with significant expertise and knowledge of the businesses they operate. Our management team is highly focused on execution and
driving growth and profitability across our company. Our compensation structure, including incentive compensation, is tied to key
performance metrics and is designed to incentivize senior management to seek the long-term success of our business.
Our Strategy
Grow Our Customer Base. We are focused on the growth of our businesses through the introduction and delivery of
high-value services to new and existing customers. We drive growth in recurring and new sales via three primary channels:
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