Terminix Global Holdings Inc (TMX) 2015 Q1 法說會逐字稿

Ladies and gentlemen, welcome to ServiceMaster's first-quarter 2015 earnings conference call. Today's call is being recorded, and broadcast 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, Frank. Good morning, and thank you for joining our first-quarter 2015 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 website, I'll walk you through the agenda items shown on slide 1. Rob will lead off by providing a summary of our full-year financial results, and then review our performance by segment. Alan will then review 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 2, 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 risks 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, April 28, 2015. 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 highlighting our first-quarter 2015 financial results. We have posted a related presentation, both of which can be found on the Investor Relations section of our website.

We will reference certain non-GAAP financial measures throughout today's call, and we have included definitions of these terms in our press release, which is available on our website. We have also included reconciliations of the relevant 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 in the figures labeled, as such, therein.

I'll now turn the call over to ServiceMaster CEO, Rob Gillette, for opening comments. Rob?

All right. Thanks, Jim, and good morning to everyone. Thanks for joining us today for our first-quarter 2015 earnings call.

Before I walk you through our financial results, I would like to address the incident that occurred at a US Virgin Island resort serviced by a local Terminix branch. A family of four was seriously injured, and our foremost concern is for the family to make a full recovery. Our thoughts and prayers go out to them.

On March 25, we were informed that the United States Department of Justice initiated a criminal investigation into matters surrounding the incident. We were also informed that the United States Environmental Protection Agency is participating in the investigation, and working with the US Virgin Islands Department of Planning and Natural Resources. We take these things very seriously, and are cooperating fully with all relevant governmental authorities.

Our investigation is currently under way. We place a great priority as a Company on providing safe, convenient, and dependable service to our customers. The incident is tragic, and our utmost concern is for the family and their full recovery.

We appreciate the desire of many of our stakeholders for additional information about the incident, but, due to the ongoing investigation, we will make no further comments at this time. Alan will discuss later how this has been reflected in our financial results for the quarter, and we appreciate your understanding and support.

Okay, now, let me turn to the first-quarter results on slide 3. We had a strong top- and bottom-line growth, as we continue to build customer-focused teams that deliver convenient, on-time, and dependable customer service.

Revenue increased $38 million, or 7%, versus prior year. The increase was driven by the introduction and growth of new services at Terminix; the continued development of the direct-to-consumer channel at our American Home Shield, or AHS business; and the successful acquisition and integration of Home Security of America, or HSA, a home-warranty business that we acquired in February of last year.

In the first quarter, our EBITDA improved $18 million, or 16%, compared to prior year, driven by operating leverage on the increase in revenue, combined with increased improving in productivity. Adjusted net income of $45 million improved $22 million, or 98%, compared to prior year. Adjusted diluted earnings per share of $0.33 increased $0.08 versus prior year. Bear in mind: Diluted shares outstanding increased by 44 million for this quarter compared to last year, largely as a result of the additional shares issued at the time of our IPO, which closed July 1, 2014.

Cash flow was very strong in the first quarter. Pre-tax unlevered free cash flow of $146 million was an increase of $35 million, and represents a very high cash contribution rate of about 110% of EBITDA.

Alan will speak more about cash flow leverage and our use of cash later, but I would like to note that, during the first four months of this year, we redeemed all $390 million of our 8% senior notes. To redeem the notes, we used $215 million of balance sheet cash, and refinanced the remaining $175 million with an incremental term loan B at an effective interest rate of 4.25%. The redemption and corresponding refinancing netted annualized interest savings of $24 million.

Moving to segment performance, slide 4 provides the strong first-quarter results for Terminix. The revenue was $336 million, increasing $16 million or 5% compared to the same period last year. EBITDA for Terminix was $89 million, up $11 million or 14% compared to last year, primarily reflecting the flow-through effect of higher revenue and production labor and overhead cost efficiencies. The EBITDA margin improved 200 basis points year over year.

Slide 5 provides more detail on Terminix's revenue growth by channel. As you can see, we achieved year-over-year growth in revenue of 18% in termite and other services, reflecting the improved pricing, and an increase in the sale of new services, partially offset by a decline in core termite completions. As we mentioned on previous calls, Terminix is broadening its portfolio beyond traditional pest and termite services, and creating growth opportunities by introducing new services such as crawlspace encapsulation, wildlife removal, pest exclusion, and mosquito services.

While we are building a more resilient business model with the diverse offering of new services, we still are focused on growing our traditional termite services. We are continuously evaluating alternative pricing plans to new products, customer buying preferences, and sales channels. With Terminix's strong brand recognition and customer service, we believe we are in position to capture a greater share of the termite market.

We know our revenue was flat to prior year, as improved pricing was offset by a 2% decline in the contracted customer accounts at the end of March. We are focused on increasing our penetration in the traditional termite market. As I mentioned earlier, we continue to evaluate our product offerings to ensure we profitably grow revenue and customers.

Moving to pest control, the 4% increase in revenue reflects improved pricing and an increase in one-time services; in particular, bedbug services -- we saw over a 20% jump in leads this quarter. Although pest control customer count is down slightly, we are pleased with the direction of the business over the past year. One-time sales are increasing, mosquito services are showing traction, and the rollout of new pricing and service plans is being well received by our customers. Product sales were down $2 million this quarter, reflecting timing on our chemical distribution business.

American Home Shield results are shown on page 6. American Home Shield performed well, with a double-digit top- and bottom-line growth for the quarter. First-quarter revenue was $175 million, up 16% compared to prior year.

Revenue associated with the HSA acquisition at the end of February 2014 was $10 million, with the remaining $14 million revenue increase representing organic growth. The organic growth was driven primarily by our investment in marketing to the direct-to-consumer channel.

AHS offers a compelling value proposition that we believe offers homeowners meaningful dollar savings and a peace of mind. As the market leader, we are in position to drive increasing use of home warranties by continuing to invest in marketing, and drive an increase in adoption in the market that is only 3% to 4% penetrated.

During the quarter, AHS continued to experience high customer retention rates. For the first quarter of 2015, customer retention was 74.9%, slightly down from 75.9% from the prior year. This decrease was a result of a mix shift, driven by the HSA acquisition, which is exclusively uses the real estate channel to market its product, and has a significantly lower retention rate in the first-year renewals compared to the consumer channel. Excluding HSA, retention increased to 76% this quarter from 74.5% prior year.

First-quarter EBITDA was $29 million, an increase of $6 million or 28% compared to a year ago. The increase primarily reflects the flow-through effect of higher revenue and operating efficiencies, partly offset by an increase in marketing and non-recurrence of prior-year gains on investments.

We continue to invest in digital media, and explore new and better ways to engage our customers. As such, customer experience is improving, and our costs to acquire and serve customers is falling. In the first quarter of 2015, buying online for our direct-to-consumer channel increased 64% from the prior year, and almost 50% of technicians were dispatched during the automated process this quarter; that's an all-time high. As we continue to automate and learn new ways to engage new customers, we are driving growth and profitability.

The Franchise Services Group's first-quarter results are shown on slide 7. They include revenue of $59 million, a decrease of $1 million compared to prior year, driven primarily by converting the first 10 of the 71 Company-owned Merry Maids branches to franchises. First-quarter adjusted EBITDA increased $1 million, primarily driven by cost-reduction initiatives.

As I mentioned last quarter, 2015 is a year of change at the Franchise Services Group. Although we know it will take time for the new management team to realize results, we are already seeing progress. In addition to converting the first 10 Merry Maids branches to franchises, the new management team has aggressively cut costs, refocused sales resources, and upgraded talent to achieve the market expansion expected of them. They are an important strategy to resize key territories in major markets to maximize coverage, and are beginning to see the pipeline build.

I will now turn it over to Alan, who will review our first-quarter results in more detail, and then speak to our 2015 outlook. Alan?

Thanks, Rob, and good morning, everybody. I will now cover our first-quarter results, as shown on slide 8.

Revenue for the quarter increased 7% or $38 million over the prior year. There was about $23 million, a little over 4%, of organic growth, including pricing. The balance of the revenue increase of $15 million was largely due to acquisition, with HSA acquired at the end of February 2014 representing $10 million, and $5 million from acquisitions within Terminix.

Significantly, American Home Shield grew organically about 9%, largely as a result of the heavy marketing campaign in the second half of last year. Within Terminix, solid performance in the pest business, and continued growth in new services, more than offset a decline in traditional termite revenue, giving Terminix about 3.5 points of organic growth year over year. Gross profit increased by $23 million, of which about $4 million was due to the HSA acquisition, and about $3 million from the Terminix acquisitions.

[Of that 4%], about $16 million of the increased gross profit was largely organic, representing a conversion rate of almost 70% of organic revenue into gross profit; that is, $16 million of incremental margin on $23 million of incremental organic revenue. This operating leverage helped gross margin as a percentage of revenue increase by almost 1 point over last year to 46.9% from 46%.

Selling, general and administrative expenses remained flat year over year and, therefore, fell as a percentage of revenue by 2 points. This flat SG&A does reflect the impact of about $4 million of additional structural SG&A due to the acquisition of HSA, and so it does reflect not only continued operating leverage, but also continued reductions in infrastructure costs of about $4 million. As a reminder, in the first quarter of 2014 we recorded an impairment charge of $48 million on abandonment of a software development project for American Home Shield.

Now, interest expense improved by $15 million over the prior year, largely as a result of the debt reduction effected using the proceeds of the IPO and the balance sheet cash. In broad terms, this reflects $835 million of reduced debt at a blended rate of a little over 6%, given that we took out a combination of 7% and 8% high-yield notes, along with some lower-cost term debt, plus the benefit of one and a half months of reduced interest from the redemption of $190 million of 8% notes for cash in mid-February. Furthermore, we paid down the remaining $200 million of 8% notes on the 1st of April this year, and upsized our term debt by $175 million in doing so. Since this term debt carries a 4.25% rate, we are now running at an annualized interest expense of about $167 million, a little under $42 million per quarter.

Now, this interest phasing is partially offset by $5 million less of investment income than last year. In the first quarter of last year, we sold securities within the AHS investment portfolio, and realized gains of about $5 million, largely to utilize capital losses that would otherwise have expired. Gains and losses on the AHS portfolio are included in the components of AHS and total-Company EBITDA. We made no material changes in the composition of the portfolio in the first quarter of this year, and hence, recorded a much smaller level of income in this first quarter of 2015.

The loss on extinguishment of debt of $13 million has two components: a 6% pre-payment premium for the $119 million of 8% notes of $11 million, and to the write-off of $2 million of previously capitalized debt issuance costs. We will have a similar charge in the second quarter relating to the redemption of the remaining $200 million of these notes, which occurred, as I said, on the 1st of April.

So, as a result of all this, our pre-tax income of $45 million compares to our pre-tax loss of $27 million last year, with the increase essentially being the gross profit improvement of $23 million on the non-recurrence of the software impairment charge from last year of $48 million. As you can see, the permanent savings in interest expense were largely offset in the quarter by the redemption premium.

Our effective tax rate for the quarter is about 38%, helped by a rising pre-tax income and a couple of discrete items too trivial to be worth mentioning, and I currently expect our effective tax rate for the full year to hover around 39%.

First-quarter adjusted net income, which I'll reconcile in a moment, increased by $22 million over the prior year to $45 million. First-quarter EBITDA of $133 million increased by $18 million over the prior year, largely reflecting the improvement in gross profit, partly offset by the lower investment income within American Home Shield.

This is probably the most appropriate point to mention that, in connection with the Virgin Island's incident, we have recorded a charge of $3 million for the quarter, equal to our deductible under our general liability insurance program. This charge is reflected in gross margin, and has not been added back when calculating our adjusted EBITDA.

In other words, our reported EBITDA is lower because of this $3-million charge. However, since the range of any potential criminal or other penalties, or governmental fees, is not currently known, nor is it reasonably estimable, no other reserves have been recorded or charges taken in connection with this matter at this time.

Slide 9 provides two reconciliations. First, we walk our segment performance measure, adjusted EBITDA, down to income from continuing operations. Then, walk the reconciliation back up to adjusted net income.

As a reminder, we exclude all amortization expense -- $12 million for the quarter -- from adjusted net income. And as discussed last quarter, about $9 million of this amortization actually stems from the [definite live in lived] intangibles that were created when the Company was originally taken private in July 2007. These intangibles are nearly fully amortized, and the associated amortization for these items will start to decline in the second half of 2015.

The second-quarter charge will be about $9 million, the same as the first-quarter charge, but the third-quarter charge will be about $3 million, and the fourth-quarter charge will be about $1 million. By definition, this lower amortization will boost US GAAP net income, but not adjusted net income.

Turning to the first-quarter simplified cash-flow statement, which is provided on slide 10, I think this better explains the sources and uses of cash for ServiceMaster. Pre-tax unlevered free cash flow is our preferred measure for the sustainable cash-generative capacity of the Company. That component is shown at the top of the slide.

For the quarter, we generated about $146 million of pre-tax unlevered free cash flow, a $35-million improvement over last year. About half of this improvement came from EBITDA, with the balance from working capital and lower capital investments. So, there's no major theme here other than the opportunity for me to continue to stress that the revenue growth in the quarter clearly did not require any working capital investment, and so this quarter's pre-tax unlevered free cash flow represents 110% of EBITDA, up 13 points from the prior year.

The remainder of the items on this cash flow summary are actual amounts paid, not movements in balance sheet items, but a number of them are worthy of further explanation. Interest payments of $67 million are $25 million better than prior year. This is significantly more than the interest expense savings discussed a moment ago, because our high-yield notes are paid semiannually in February and August. So, in essence, the payments made in the middle of the first quarter are in settlement to the previous six months of interest.

Overall for the year, we will pay about $50 million less cash interest than last year, any further changes in capital structure notwithstanding, with $25 million of this benefit showing up now in the first quarter, and another $25 million of savings showing up in the third quarter. Let me put it another way: Our projected interest payments are roughly $26 million in the second quarter, $54 million in the third quarter, and $24 million in the fourth quarter. When I combine that with the amount paid in the first quarter, we have a total of $171 million for the year, compared to $220 million for the entirety of 2014.

As previously discussed, we will be a federal taxpayer in 2015, but cash tax payments in the first quarter benefit from a deduction related to the exercising of options and are recused, and so remained virtually zero for the quarter.

With respect to acquisition payment, this time last year we paid $32 million for HSA, a fairly sizable acquisition for us. And so, not surprisingly, acquisition payments are lower this year.

Combining these items, we accumulated about $76 million of cash for debt reduction, to which we contributed $135 million of balance sheet cash, and used the resultant $211 million to [attend] debt. To be precise, the debt repayment figure of $211 million reflects the $190 million of 8% note redemption, plus the 6% premium of $11 million, and then about $10 million of regularly scheduled debt repayments. Thus, we ended the quarter with $248 million of cash. Please note that a formal reconciliation from the US GAAP cash flow statement to pre-tax unlevered free cash flow is provided in the appendix and in the press release.

Slide 11 provides an update on our net leverage and interest coverage as of the end of the quarter. Net leverage for the end of the quarter is calculated as gross debt with a face value of about $2.94 billion, less unrestricted cash of about $190 million, so net debt of $2.75 billion, divided by trailing-12-month EBITDA of $575 million. This gives us net leverage of about 4.8 times EBITDA, compared to 7.8 times at the end of 2013, and 5 times at the end of 2014. And using the annualized $42 million per quarter of prospective interest expense that I referenced earlier, our trailing-12-month EBITDA of $575 million is almost 3.5 times our go-forward interest expense.

On slide 12, we are confirming our previously provided range for revenue and our minimum 2015 EBITDA. We are making progress in converting Merry Maids branches to franchisees, and through the first quarter we've converted about $7 million of roughly $60 million of annual branch revenue over to the franchisees. We remain confident in our revenue projection, and that we'll generate at least $610 million of EBITDA for the full-year 2015.

That concludes my comments on ServiceMaster's financial results and outlook. I'll turn the call back over to Rob for closing comments.

All right, thanks, Alan. Just to close, we have a motivated team focused on providing outstanding customer service, with exceptional expertise in each of our businesses. Through our network of employees, franchise owners, contractors and technicians, we are well positioned to be the leading provider of essential residential and commercial services.

In each of the services we provide, whether termite and pest control, HVAC repair, plumbing, disaster restorations, or one of the many other services we provide, we are dedicated to convenient, on-time, dependable and effective service delivery to our customers. By meeting these commitments, we're confident that we will continue to drive both top- and bottom-line growth, and deliver value to our shareholders. I look forward to sharing our performance with you in coming quarters.

Now, I'll turn it over to Jim Shields to start the Q&A. Thanks.

Thanks, Rob. As a reminder, during the question-and-answer session, we encourage you to ask questions that you may have, but please note that guidance is limited outlook we have provided in the press release and webcast presentation. In addition, since the queue is long this morning, please limit yourself to one follow-up question, so that we can get to everyone in the allotted time.

Frank, let's open up the line for questions.

Thank you.

(Operator Instructions)

Our first question comes from the line of George Tong with Piper Jaffray, please proceed

Hi, thanks, good morning. You saw meaningful organic growth in the American Home Shield segment this quarter driven by investments in the direct-to-consumer channel. Can you discuss your outlook for further investments in the DTC sales channel and how this compares with prior investments?

I'll make a comment, and I actually have Mark Barry with me, so I'll let him comment as well. Thanks, George. We'll continue to invest in marketing and look at new and different ways to expand the direct-to-consumer channel. We're looking for opportunities to free up investment to further grow the Business, and we'll continue to do that like we did in 2014.

Mark can comment in terms of his outlook and balance, but we're really happy with the performances business and how well we've been able to grow that channel. Go ahead, Mark

George, we are very happy with our ability to create new accounts and our acquisition costs has actually been trending down a little bit and our renewal rate is going up, meaning we can grow while acquiring fewer accounts. We're getting more and more cost efficient as we go. The bulk of the spend for 2015 is similar to 2014, but we don't currently have the goals that we had in Q4, although if we create that opportunity we are likely to redirect.

That's helpful. As a follow up, can you provide an update on your commercial initiatives within your Terminix segment? And if commercial penetration assumptions are incorporated into guidance, or if it represents upside?

I think everything is incorporated into guidance in general. I think we're really happy with the progress made on the commercial front, and we're continuing to see growth with the current customer and expanding base. As we talked about before, we started, on isolated basis with key customers, refining processes as we enter the markets and Bill has continued to reinforce and add commercial people to that team. It's included in the business outlook that Alan provided, and we're happy with progress.

Great. Thank you.

Thanks.

Our next question comes from the line of Sara Gubins with Bank of America Merrill Lynch, please proceed.

You talked about price increases as being a driver of the revenue growth. Could you help us think about the magnitude?

Yes, sure. It's about 1.5% to 2%, almost across all segments.

Okay, great. And then -- I'm sorry.

No, I was going to say, and bear in mind that because we have a large recurring customer base, those price increases, as I've said before, they're perpetual. It's not as though they work on set anniversaries for the Company, it's really the set anniversary of which the customers contract, as well as when the relationship is renewed.

Great, thanks. Then, with the number of termite clients going down, do you think that you're losing market share or do you think that the market is actually shrinking? Aside from whether what might cause that, if the market is shrinking, what might cause the market growth to improve?

We would say it's flattish in nature. I wouldn't say shrinking, necessarily. I think a lot of the product offerings that we've mentioned in the overview, where we're looking at in targeting new and different ways to serve customers. When we mention contracted customer base it applies to everything that we do, in general. So there isn't a trend towards people wanting to spot services they need versus contracting on an annualized basis. We continue to do that and mentioned that in the text of our comments and we're seeing growth.

We haven't had the swarms I think that we would have expected over the last several years. I would say the good news is we think at least now there's more activity that we see and have more inquiries and leads coming in to the business, so we would anticipate the season would be at least equal to last year and hopefully better.

Thank you.

Our next question comes from the line of Jeff Volshteyn with JPMorgan, please proceed.

Thank you for taking my question. Just to following up on AHS, is there any color that you can give around geographies of where you see incremental growth?

This is Mark Barry. We are investing very heavily in the Southeast right now. Our traditional base is very strong on the West Coast and through Texas and all through the Southern tier of the country. The acquisition of HAS last year, it really strengthened our position in the mid Atlantic and Midwest. We see great opportunities for growing very quickly in Florida, Georgia, Carolinas, Virginia, right now. It's a good spot for us. Households will grow there as well, so it's in the right place at the right time.

That's very helpful. The follow up on the Merry Maids business, as your first 10 locations are converting, what are the unit economics? Are the numbers working out as you expected when we talk about that on the early part of the call?

Again, there hasn't been that much movement yet, a few branches is always well mentioned. But, yes, the economics are -- we're getting the prices that we've been providing for you, and certainly, in terms of taking out the relevant cost, that's also been occurring, too. We're happy with the progress.

Thank you very much.

Our next question comes from the line of Gary Bisbee with RBC Capital Markets, please proceed.

Can you give us an update on just what's the penetration of your network in selling the new services as Terminix? Over what time period do you think you roll out the rest of it? I ask it from the context of, how are you confident in the ability to continue to deliver mid-single digit growth amid what has been a pretty persistent decline, or at least not growth in both pest and termite customers? Thanks.

As a business, it is, I don't have the absolute number, but minuscule. Most of our services, the predominance of our services as we talk about and the innovation have been pretty consistent customer bases that we have, and largely through what we would call creative selling and leads, so our own team going out and evaluating services and talking to customers about what they would like to have done.

We are pretty excited about the opportunity to extend that to just our existing customer base as a beginning opportunity. As more and more customers become knowledgeable about all the other services that we provide, we're confident we can continue to expand that business. I would say also on the mosquito side, we're pretty excited about the business opportunity that's presented by 2015 and the fact that we have a full selling season and the team positioned to go sell that product effectively in the market. We're looking forward to telling you about the growth of that business as well in future.

If you were to see the limited growth in customers and the core historical legacy offerings, is there enough opportunity with these new services you've been talking about to continue to drive the mid-single digit growth say for the next two years, or are we are we more penetrated than that?

Obviously, we're not anywhere near penetrate and we're confident in terms of the growth of the Terminix business and the core business as we always say between the pricing, the general market growth and then our own development and execution with customers to be in that mid-single digit range

Okay, thank you.

(Operator Instructions)

Our next question comes from the line of Paul Hanson with Loomis, Sayles & Company, please proceed.

Thanks for taking the call, and congratulations on the good on the quarter. My question was on capital structure, I'm curious if there's any intentions with the 7% notes that are callable in August?

Yes, good question. We're still considering the optimal path, but the questions are valid. One, and you're right, that's the next tier of high-cost debt that we'll turn our attention to. Little to early to say precisely what we'll do, but we're likely to do something in that regard in August, yes.

All right. Fair enough, thank you.

Our next question comes from the line of Denny Galindo with Morgan Stanley, please proceed.

Hello. I jumped on a little late, so I'm sorry if this has already asked. I was curious if you had seen any impact on your Terminix sales since the Virgin Islands' issue came up? I know it was on the news and on CNN and that sort of thing. Did that affect any of your business here in the US or have you not seen any impact?

I would say that the business, in terms of our growth and what we had planned versus the quarter and where we are, we haven't seen anything that has impacted the business, no.

Okay. That's helpful. Then, just going back to the customer growth, I think you may have addressed this earlier, but how long do you think it will be till we see things like that customer account in pest and Terminix turn positive? Is that something that should happen in the next couple quarters or will it take a little bit longer?

I think it varies from quarter to quarter. I think, was it Q3, we talked about some growth in the pest customer account, but the growing trend for more and more customers wanting soft services and so I think it will bounce around and change somewhat. As we grow in commercial as we'll have a different kind of impact, which you may have one customer with multiple locations. We would expect it to continue to be flattish or some of these changes quarter over quarter, sometimes a slight positive or sometimes a slight negative in contracted customer account.

Lastly on the incremental margins in Terminix, they've been very strong. Was there anything one-time oriented that impacted incremental margins this quarter, or is this just more in the same and more of what you would expect going forward?

I think it's the team did a good job in terms of servicing customers in a high-quality way, reducing costs to serve in terms of what we do everyday and the resources we applied to deliver to customers. That's what the team does. They will continue to work on expanding margins and improving the services we provide, so it's what we do.

Thanks for taking my questions.

Our next question comes from the line of Gary Busby with RBC Capital Markets, please proceed.

One quick follow up. Is the 9% organic growth at American Home Shield, is that a good run rate to think about from here, or what are the factors that could lead that to be different in the next couple of quarters? Thank you.

Gary, from a trajectory standpoint, we anticipate being in that range.

Okay. Thank you.

Mr. Shields, there are no further questions at this time. Please continue with your presentation or closing remarks.

Okay, thank you again for your participation in today's conference call and webcast. As a reminder, a replay of the call will be available on our website in about an hour. We look forward to speaking with you. Thank you.

Thank you.

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, everyone.