Ladies and gentlemen, welcome to ServiceMaster's Third Quarter 2016 Earnings Conference Call. Today's call is being recorded and broadcasted on the Internet. Beginning today's call is Jim Shields, ServiceMaster's Vice President of Investor Relations and Treasurer. And he will introduce the other speakers on the call. At this time, we’ll begin today's call. Please go ahead, Mr. Shields.

Thank you, Cathy. Good morning and thank you for joining our third quarter 2016 earnings conference call. Today, you will hear from ServiceMaster's Chief Executive Officer, Rob Gillette, and Chief Financial Officer, Alan Haughie. For those of you who haven't had a chance to download the investor presentation from our Web site, I’ll walk you through the agenda items shown on Slide 2. Rob will lead off by providing some opening remarks and then provide a summary of our third quarter consolidated financial results. Alan will then review our performance by segment, provide more details of our consolidated results. Rob will then provide summary comments before opening the call to your questions. Before we begin, I'd like to remind you that throughout today's call, management may make forward-looking statements to assist you in understanding the Company's strategies and operating performance. As stated on Slide 3, all forward-looking statements are subject to the forward-looking statement legends contained in our public filings with the Securities and Exchange Commission. These forward-looking statements are not guarantees of performance and are subject to the risk factors contained in our public filings that may cause actual results to vary materially from those contemplated in the forward-looking statements. Information discussed on today's call speaks only as of today October 25, 2016. The Company undertakes no obligation to update any information discussed on today’s call. This morning, ServiceMaster issued a press release, filed with the SEC on Form 8-K, highlighted our third quarter 2016 financial results. And we have posted a related presentation, both of which can be found on the Investor Relations section of our web site. We will reference certain non-GAAP financial measures throughout today’s call, we have included definitions of these terms in our press release, which is available on our web site. We have also included reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures in our press release and presentation in order to better assist you in understanding our financial performance. All references on the call to EBITDA are to adjusted EBITDA as defined in our press release. I’ll now turn the call over to ServiceMaster’s CEO, Rob Gillette for opening comments. Rob?

All right. Thanks Jim. And thanks to all of you for joining our today. Before I get into the financials and results for the quarter I want to speak to you about some of the recent changes we’ve made at Terminix. On August 15 I assumed responsibility for leading the Terminix business. As I mentioned in the past, our efforts are focused on improving the customers’ experience, from the time they began the search for a service provider to the time they take for those services. By assuming leadership of Terminix, my goal is to better align our overall resources to accomplish its objectives. Over the past several years Terminix has embarked upon numerous operational initiatives, including the consolidation of branches in some geographies, establishing shared service centers, streamlining processes and implementing a centralized call center operation. As a result of theses efforts, we have greatly improved our profitability and expanded on our industry-leading margins. As we move forward we want to capitalize on each accomplishment by accelerating our top line growth. During my first two months as the leader of Terminix, I have focused most of my time and effort on how best to accomplish this task and have had the opportunity to spend time in the field talking with our technicians, and sales and branch leadership. Terminix is a great brand, it has a tremendous history and has highly motivated and dedicated employees who take great pride in what they do to serve our customers. As we move forward we’ll capitalize on these strength to position the company to acquire more customers, continuously improve our service quality and communication, and attain higher retention rates in growth in the business. The goal is to improve while simultaneously leveraging the economies of scale inherent with a Terminix business model. The…

Thanks Rob, good morning everybody. Let us turn now to Slide 5. As Rob mentioned, this morning we announced the refinancing of our $2.4 billion Term Loan B due 2021 and our $300 revolving credit facility. We are seeking to refinance our Term Loan B with a new $1.5 billion Term Loan B, due 2023 and $1 billion of unsecured debt, expected to mature in 2024. Our existing $300 million revolving credit facility will be refinanced with a similar sized revolving facility during 2021. By refinancing our current loan and facility this time, we anticipate reducing our weighted average cost of debt, extending our maturities on average by post of three years, diversifying the maturity schedule of our debt and increasing our flexibility to raise capital in the future. In addition to extending our maturities, through this transaction we plan to increase the ratio of our fix to debt to our floating rate debt from approximately 40% to close to 75%, thereby protecting us from our potential future rate and interest rates. And we have to close the transaction in early November. Turning now to Slide 6, on Terminix’s third quarter performance. Terminix revenue increased year-over-year by $24 million, or 6%, roughly $8 million or 2.2% which was organic and $16 million or 4.2% which was driven by acquisitions mostly Alterra. Conversion of revenue to profit was very healthy, with $10 million of additional gross profit generated from this $24 million of additional revenue. Terminix EBITDA increased by $10 million this quarter, but as we can plainly see the improvement came from the $10 million of increased gross profit with a net $3 million reduction in SG&A, offset by $3 million of additional year-over-year technology costs. Since our first quarter we are reporting very healthy 42% conversion of incremental revenue…

Okay thanks Alan, we had a good quarter and have identified significant opportunity to improve our Terminix business and focus the team on the critical few priorities that will make us successful. By simplifying our focus to delivering for customers being on time, right the first time with a great attitude, I am confident we can drive growth in the future. Our continued growth of American Home Shield demonstrates that customers see significant value in the services we provide. We continue to build around it and grow the market for home warranty products and services. We have made a successful transition in the Franchise Services Group, by moving to a franchise-only model in Merry Maid, while simultaneously improving our EBITDA margins. We have the free cash flow to continue to invest in technology and to acquire companies that expand our product offerings and customer base, which provides new sales opportunities for all of our businesses. We feel good about the progress, we’ve made and the opportunity we have going forward. Thank you for investing our company, I look forward to sharing our progress with you in the future. I will now turn it over to Jim for a question and answer session. Jim?

Thanks Rob, as a reminder during the question-and-answer session, we encourage you to have any questions that you may have, but please note that guidance is limited to the outlook that we have provided in our press release and in the webcast presentation. Cathy I would like to open it up to questions now.

[Operator Instructions] One moment for the first question. And our first question comes from the line of Toni Kaplan with Morgan Stanley. Please proceed with your question.

Hi, good morning.

Good morning Toni.

You mentioned the increased investment in Terminex in the fourth quarter to help drive the customer experience, just wondering how long, these investments should last? Will it only be fourth quarter or would you expect to continue to invest in 2017, as well?

I think from my perspective, we said investments will occur over the next six months or so. So really into the first quarter with the overall go forward means you have flattish margins over the next 18 months. So we carry over a lot of it’s training a lot of it is I'd mentioned putting people in the field we want to make sure they are all trained and are able to help and assist the filed and get them out and working with our technicians and customers. So expect it to continue for the next six months or so and then will maintain kind of the level margin.

Terrific. And then can you talk about pricing in the Terminix business? How did that trend this quarter and did you see similar trends across termite and pests and pricing?

I’ll say this one no the behavior of our pricing strategy is actually different in fact in Terminix past yes, has good pricing, expect the majority of the organic increase is price in the pest side. With termite particularly the core termite completions partner is driving an increased flow of potential future when your customers we have a modest price increase which is proving highly effective and bringing in customers that we would otherwise simply knowhow given that a completion event is a one-time event.

Thanks a lot.

And the next question comes from the line of Andy Wittmann with Robert W. Baird & Company. Please proceed with your question.

Thanks. Alan, for you, in American HomeShield, you talked about some of the systems that you've recently put in place to give you little bit better visibility, I think you called it, into contractor costs. I was hoping you can give us just a little bit more detail on some of those initiatives and how they will help you manage those contracts or costs better.

Yes, sure. I mean, the most important thing is to make sure that as we have grow it into new areas, new regions that we have, let’s say a pipeline. And so, it’s like a normal supply management exercise of constantly ensuring that you have an adequate supply of new contractors that were ensuring have adequate insurance that are – adequately qualified. So, the most important point is making sure that the pipeline is full and that we have constantly trying to promote contractors help from, let’s call it the less preferred funnel through to the ultimate, which is the most preferred contractors, again the closest volume of work. So that the real changes for us has been more, more closely monitoring this on a daily and weekly basis as opposed to monthly and making sure that we don’t have any, let’s call it, supply gas. And it’s really is the case because there are pockets and regions, as you can image, around the nation that move at different rates and establishing a closer relationship between our growth pattern in a given municipality and linking that with our ability to add and promote contractors as well as manage the volumes we expect give to those contractors. So, it’s essentially linking our revenue growth on a far more micro level by municipality with contractor capacity.

Thank you. That’s a helpful color. And then I wanted to ask my follow up on your refinancing activities. Can you give us a sense, I know obviously it hasn’t been the price, but clearly you’ve got a vision for what this is going to be. Can you give us may be a minimum saving that you expect or may be a range of savings that you expect from all the refinancing that you will be conducting here?

No, it’s a bit early. It’s a good question, Andy, and I wish I could answer it, but I think it’s a bit too early.

Okay, thank you.

And our next question comes from the line of George Tong with Piper Jaffray. Please proceed with your question.

Hi, thanks. Good morning.

Good morning.

You have discussed the role of ServSmart and technology in improving service quality in Terminix. Can you elaborate on additional actions we’re taking to drive improved organic revenue growth trend in the segment?

Hi, George, it’s Rob. Really it’s more about focusing on fundamentals in general. So adding back people who can help deal with scheduling changes locally and have a point of contact in the individual branches in general truly focusing on on-time delivery and ensuring that we have discipline in meeting customer commitments. So I think we will help significantly and then I think most importantly how we respond when things don’t go as planned and how we can address customers’ concerns. And that will help by having someone in the field and then the authority to communicate. So one of the things that the iPhone give the team the feel, there’s the ability to communicate easily, directly with the customers and our branch, people and personnel, which is not something that it really have today. So there is an ability to digitally link and communicate customer to tech customer to our inside service people and then our inside service people to the tech. So all those things will contribute to our growth and retention and then doing a great job for customers, so there’s no real replacement for that.

Got it. You have indicated you now expect flat margins in Terminix over the next 18 months, elevated investment spending over the next six months. Can you elaborate on what that implies for the cadence of margin performance over the next several quarters and longer term why you believe incremental margin to return the 35%?

I mean, we’re not giving out 2017 guidance yet, George, but the implication – question is a fair one that I will deal with. Yes, so we will see lower – at this point in time, I expect we will see lower margins in Terminix that the prior year for first half of 2017, but for the full year I expect to see margins at this point in time flat to 2016 in total. That’s our current expectation. We are still developing our funds obviously, but that’s how we see it evolving at the moment.

Great. And then longer-term confidence around the 35% target?

Yeah, I mean, remember the business still remains very, very scalable and the underlying business model is highly effective with very high variable margins I think as Rob addressed. We need to go to a period of investment, which is essentially reallocating resource in training. So the majority of that expense, we expect to be temporary.

All right, and then lastly, could you discuss what you're incremental margin targets are for American Home Shield and if you anticipate making any increased marketing investments in order to sustain high single-digit organic revenue growth?

Good question. Again, moving on to 2017, at this point in time, I expect to see an increase in overall margin for American Home Shield. We have a number of tailwinds that I hope will come through in Q1 and Q3 in 2017. But at this point in time, thanks for the question; it’s a bit too early for me to comment on the marketing trends. We have Marvin Davis, our new CMO, and so until we have finalized our plans for 2017, it’s too early for me to say what the specific marketing expectation.

Very helpful thank you.

And our next question comes from the line of Anj Singh from Credit Suisse. Please proceed with your question.

Hi this Anj Singh from Credit Suisse, Rob I wanted to follow up on some of your commentary on Terminix, I guess could you help us size what is the amount of incremental investment you are baking into that business over the next 18 months and do you have any perspective on perhaps when you may see the results in organic growth for that segment. Perhaps what is your aspiration for organic growth once these initiatives or improvements have taken hold. And lastly how long do you plan to have to direct responsibilities for Terminix.

Good question lot of them there, but in terms of the longer term and total costs I mean I am not in a position to address that. I think it is more incremental and as I said specific to training and making sure that we do a good job of hiring and recruiting the right people. So I mean a big part of growing Terminix is that we need the people in place to both sell and service the business. So without having that right kind of challenge and attitude in place and fully staffed its hard to grow. So I think that's one right, that's one of the thing, if we want to truly focus on. So to do that, we may add some incremental numbers of people and then invest in training to ensure the effectiveness of those people, but also make sure that we don't end up behind the curve in terms of total ability to serve customers whether it’s with technicians in total or with the sales people in general. So that's another investment that we're making in the business. But I think many of the other things that we talked about are really kind of changing priorities and focus I think we might have gotten a little bit distracted by all the multiple number of things that were being asked especially administratively. So by reducing that workload and allowing the guys to focus on the core products and services that we provide I think it will help them immensely and then having the marketing team as well as the people in the field truly focused on improving the service levels and specifically retention on the first year pest customers, because that's the kind of what its all about in terms of sustaining that position in one-year, two years and beyond or after the second year then they renew incredibly well, right. So that is kind of our focus as a business and I will expect we could equal the growth of the industry and now hopefully on the longer term do better than that based on the services that we provide.

Okay, got it. And as a follow-up for Alan, I just want to go over the commentary on Alterra and make sure I understood that correctly. What is the impact that we should be anticipating in 1Q, 2017 as you integrate Alterra's backend, should there be a margin improvement there or is that better growth through more confident cost sell, I just want to make sure I got what you were trying to tell?

Oh yes. The objective of talking about that was that we are hoping to have an opportunity to cross sell, which is something that we have to see in the numbers right now. We do mind Alterra is a mega tuck-in so fundamentally we’ve gone through this first year and we have a new set of many first year customers. And we will see a tail off in the number of customers in 2017 versus 2016 and we’re hopping to offset that with cross-selling opportunity to those same customers. Now I wasn’t implying that there was going to be a cost of integration I think there.

Okay, appreciate it, thank you.

Thank you.

We have time for one more question and it comes from the line of Gary Bisbee with RBC. Please proceed with your question.

This is Jay Hanna on for Gary this morning. I was hoping can you give a little more color on the balance in organic revenue in termite? And may be a little bit more to identify the deceleration in organic revenue of pest?

Yes sure. From a termite perspective so I was talking about completion revenue of $69 million paid. As I said termite revenue piece of that dollar revenue which is core termite completions of slight year-over-year. So we actually had virtually all of the increase this quarter, driven by the innovation services. So that’s pretty good. It’s been a while since we actually reported a meaningful increase in the innovation services year-over-year. Some of the core termite completion revenue is flat is entirely in keeping with the strategy in the key business and discussing for the last three quarters in terms of increased volume, lower price generating an increased base of yield customers. That’s the fundamental point there. Our organic pest growth of 1%, as I said on the call it’s mostly pricing. The core was a slight drop in let’s call it a core contracted pest services has been our trend with good performance on lot of the one off services that we provide.

Okay got it.

Yes the pest revenue organic growth is mainly priced.

So there was no bounce from any weather related issues?

No, those were [indiscernible] now, no.

Okay, thank you.

Thank you.

Thanks everybody for your participation in today’s conference call and webcast. As a reminder, a replay of the call will be available on our Web site in about one hour from now. Again thank you. We look forward to speaking with you. Take care.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day.