Q2 2020 Servicemaster Global Holdings Inc Earnings Call
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[noise] [noise], ladies and gentlemen, welcome to Servicemasters second quarter 2020 earnings call today's call is being recorded and broadcast on the Internet.
Beginning today's call is Jesse Jenkins, Servicemasters, Vice President of Investor Relations and Treasurer.
I will now turn it over to Mr. Jenkins, who will introduce the other speakers on the call.
Thank you Frank Good morning, and welcome before we begin I'd like to remind you that throughout todays call management may make forward looking statements to assist you in understanding the company's strategies and operating performance as stated on slide two all forward looking statements are subject to the forward looking statement legends contained in our public filings with.
The FCC.
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 todays call speaks only as of today August six 2020 company undertakes no obligation to update any information discussed on todays call.
This morning service measure issued a press release and filed with the FCC on form 8-K, highlighting our unaudited second quarter 2020 financial results. The press release in the related presentation can be found on the Investor Relations section of our web site at Servicemaster Dot com.
We will reference certain non-GAAP financial measures throughout todays call and we've included definitions of these terms in our press release. We've also included reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures in our press release ended the appendix in order to better assist you in understanding our financial performance all references.
Is on the call to EBITDA for two adjusted EBITDA as defined in our press release.
Joining me on todays call or Servicemasters, chairman and interim CEO and Arrangers to honey and our Chief Financial Officer, Tony de listing fee.
Slide three of the presentation posted on the Investor Relations section of our website shows the agenda, we will cover today.
The rain will begin with highlights from the quarter and an update on our strategic priorities and Tony will discuss the results and outlook followed by a kunaev.
I will now turn it over to the Rangers Omni Noreen.
Thanks, Jeff and thank you all for joining our call today I'd like to begin by thanking all of our people and especially our frontline workers for their dedication and commitment to our customers. During this challenging time.
Before I comment on our second quarter performance I want to share a few thoughts from the other press release, we issued this morning.
Very pleased that we've concluded our CEO search process and equally excited to have Brett pumped in joining the servicemaster team as our new CEO.
With the help of our search partner the board was able to conduct a very robust and thorough review of internal and external candidates for this role breadth was at the top of everyone's lift as he has tremendous experience in leading large and distributed organizations.
The strong track record of driving operational excellence to view organic growth and margin improvement.
In a bodies the values of a servant leader, who understands the importance of enabling and empowering our frontline employees. So they can deliver an outstanding customer experience.
Brent as an experienced CEO, who has led both private and public companies deep understanding of service businesses and global operating experience position have well to help us further accelerate progress against our strategic priorities and enhance shareholder value.
I look forward to Brett joining us over the next couple of months and supporting a smooth transition to ensure we continue to build on our strong business momentum.
Turning to slide four I'd like to highlight our strong performance during the second quarter, which underscores the essential nature of the services, we provide and the resilience that provides for our business.
Total revenue grew by $40 million or 8%, including 5% at Terminix.
Organically strong termite and home services completions improved daily cancellation trends in the term next residential business.
And strong pricing realization across the board helped offset the kogut impact on our Terminix commercial business.
Terminix residential grew 3% organically in the quarter with the termite business, leading the way with a 7% year over year increase.
As we will discuss in more detail the terminix residential business was able to more than offset the impact of our decision to suspend and then scaled back our summer sales program.
Our bed bug sales as a result in less travel across the country.
And higher but improving temporary work order postponements relative to covert concerns to ultimately deliver solid organic growth.
Terminix commercial was impacted by Copel 19 related business shutdowns, which were partially offset by strategic pricing initiatives.
As we've already seen in July the economy is starting to reopen and while some uncertainty remains we expect continued improvement in commercial revenue trends during the third quarter.
During the quarter. We also saw strong revenue growth from acquisitions with the addition of Gregory and the cloud to the terminal segment and no more holdings in Sweden, Norway as well as Terminix UK in England in our European Pest operations.
Servicemaster brand saw revenue declined to 4% as a result of cobot impact on residential cleaning and the impact of a mild winter on disaster restoration.
Similar to Terminix commercial servicemaster brands are seeing improving trends in this planning for growth in the third quarter.
From a margin perspective I'm pleased to report, we were able to convert $40 million in topline growth in the $15 million of growth on the bottom line for an incremental margin of just under 40%.
Terminix posted adjusted EBITDA margin of 23.3% in the quarter and improvement of 190 basis points from prior year.
Cost actions taken in second quarter to reduce indirect and DNA expenses combined with labor productivity fueled by better employee retention drove the bottom line improvement.
We also continued to generate considerable cash in our business in the second quarter free cash flow, including Servicemaster brands was $127 million for a conversion rate of 89%.
We ended the second quarter with over $675 million in available liquidity and were able to reduce our net debt leverage ratio by approximately half a turn down to 3.6 times adjusted EBITDA as we continue to progress towards our target of two and a half to three times.
These strong results demonstrate the resiliency of our business and the strength of our response to covert 19.
Despite the operational challenges of an ongoing epidemic pandemic, we saw steady demand for residential pest services as more people stayed home and very strong demand for termite services, driven by our new product launch and termites warm season.
We've been able to overcome initial customer concerns regarding the safety of our services through the new safety protocols and improved communication, resulting in co related work order postponements, improving approximately 80% from April peaks by the end of the quarter.
These new operating procedures also drove better customer retention and increases in net promoter scores across our residential business, which supported optimizing prices for our services.
Commercial pest control business was also able to progressively improve work order postponement rates, enabling them to generate improved organic trends every month in the quarter.
As business continued to reopen in July trends have continued to improve and commercial pest control organic growth was flat compared to prior year as we exited July.
Our long term growth trends of our industry continue and as this quarter suggests we are well positioned to navigate what may come in the second half of this year.
As we move into the back half of the year, we continue to be intently focused on driving our strategic initiatives and feel we can grow profitability throughout the remainder of the year and enter 2021, well position to capitalize on the ample growth opportunities in front of us.
Turning now to our strategic priorities for 2020 on slide five you'll see a slide that looks familiar as we previously discussed when we moved into 2020, we decided to refine our focus on a fewer number of priorities in order to accelerate the impact of our efforts.
In the first half 2020, we've made meaningful progress on each of these strategic priorities and they are driving positive momentum across the business.
Many of our coping response actions aligned well with these priorities further accelerating progress.
First employee turnover has improved year to date across the board labor is the biggest cost driver of our business and after taking a step back and employee retention in 2019, it's nice to see the focus on this area driving improvement in 2020.
Through improved engagement and moving decision, making closer to the customer we've improved technician retention by 8% over prior year.
Better retention allows us to reduce training costs associated with new hires and as technicians become more tenured they become more efficient.
These improvements helped us deliver $5 million of labor productivity in the second quarter, which combined with a better business mixed.
Resulted in meaningful reduction in labor as a percent of revenue.
We're pleased that these productivity gains have favorably impacted customer satisfaction as net promoter scores improved year over year in the second quarter.
While our actions are helping us to drive this improvement we attribute part of the reduction in turnover to the uncertain job market.
As the economy strengthens and alternative employment opportunities improve we will remain focused on continuing to find ways to further engage our people to provide the excellent customer service our customers expect.
Second as we've seen over time employee retention has a direct correlation to customer retention customer attention as a topic. We've been focused on for some time and I'm pleased to report a 15% improvement in daily cancel rates in our terminal X residential service line in the second quarter.
We sell the results of more frequent and robust customer communication protocols in response to coated east customer safety concerns as I mentioned earlier, although they are still higher than last year, we've improved cove and related work order postponements by approximately 80% from the peak in April.
We've also seen better retention results on customers in the first year of their contract.
Typically first your customers turnover at a quicker rate than longer tenured customers and as the new customers. We added in the second quarter flowed through to renewals in 2021, we are well positioned to continue our retention improvement journey.
In commercial pest control retention was impacted by covert related cancellations and small businesses and our strategic focus on enhanced customer pricing to improve profitability of certain underperforming accounts.
Third we were also able to expand profit margins in the second quarter. In addition to the decisive cost actions. We took during the quarter to take out $18 million of indirect and Gionee expenses from the business. During 2020, we also saw the benefits of better employee and customer retention impact on our result.
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In quarter, Terminix, EBITDA margins improved by 190 basis points from prior year with strong incremental margins.
As we look to the rest of 2020, we expect to continue to expand EBITDA margins year over year as we see the benefits of our actions continuing into future periods.
And finally, we're making meaningful progress on revitalizing our termite business.
The heightened focus on the service line, we were able to deliver termite organic growth, 7% and the new unit sales in termite and home service completions, a 14% as we saw positive customer reaction to our new monthly pay tiered offerings.
In the mobile Bay area, we fully staffed our teams and our diligently working our way through supplemental treatments of our entire customer base.
To date, we've completed approximately 6000 supplemental treatments or dual defend conversions net of cancellations. We have approximately 5500 supplemental treatments remaining to perform and we're on pace to complete the mitigation plan within the calendar year.
As we discussed in our previous business update termite damage claims expense in the period was up $8 million year over year in the second quarter.
While litigated claims are running a few cases higher than our original expectation on a year to date basis, we've been able to mitigate the financial impact by continuing to improve the non litigated claims rates and through better overall business performance.
As we've stated in the past the timing of litigated case filings is difficult to predict on a quarter to quarter basis and variations are expected. We remain confident in our overall assessment of the financial impacts of these claims and the actions we are taking to mitigate their impact.
Improvement in these priorities over the first half the year reassures us. The we are on the right track and I am confident that further improvements in the second half of the year will position us well as we enter 2021.
I'll now hand, it over to Tony to discuss second quarter results in third quarter guidance I'll return with some closing comments before our Q and a session Tony.
Thanks to rate today, I'll cover Q2 performance, including the strong free cash flow as well as our outlook for the third quarter.
Turning to slide six let's start with the continuing operations financial summary, I'm going to talk about the Terminix section in more detail later, so let me first cover European pest control and other operations, our European Pest control operations contributed $17 million of revenue and $2 million of EBITDA in the peer.
Ariad highlighted by results for no bar in Sweden, Norway, which delivered mid teens margins are no more business was negatively impacted by government restrictions on businesses and higher seek lead costs due to coated with that said, we see continued strong growth and solid margins in this business post coated.
Team.
Terminix UK solve the most significant revenue impact from government restrictions related to covert 19, which in combination with expected costs for integration and post acquisition system carve outs led to depress margins. Despite the revenue contraction in the European business EBITDA margins held at around.
10% through cost actions taken in response to the pandemic.
As we discussed pre pandemic, we were always planning to ramp EBITDA margins in the European pest business as we made progress on carving out systems and processes in the UK and improved the density by businesses by winning new customers. We remain on track with that plan. Despite the severe.
Back to the pandemic in the UK market.
Continuing operations adjusted EBITDA was also impacted by our move of Servicemaster brands to discontinued operations. There was a $3 million of cost that were previously allocated to the segment that accounting standards requires us to classify within continuing operations.
These costs are general allocations for back office support functions like executive management, accounting and finance human resources and information technology infrastructure to name a few ultimately some smaller portion of these costs will become dis synergies that impact the EBITDA the remaining business upon fine.
Ill separation until that final separation occurs we expect to $3 million per quarter impact to the continuing operations financial statements.
Including Terminix, which will discuss in detail in a moment adjusted EBITDA for continuing operations of $119 million improved $15 billion year over year for a margin of 22.4% in the quarter 130 basis points better than the same period in 2019.
Adjusted net income and adjusted earnings per share reflect the flow through of higher EBITDA in the period.
Turning to slide seven you could see that Terminix revenue growth by channel overall, terminix delivered revenue growth of $22 million or 5% with flat organic revenue growth.
Starting with the termite at home services column on the left side of the chart revenue grew $13 million with 7% organic growth in the quarter.
Breaking down the components of growth further termite renewals were flat to prior year with strong retention improvements year over year.
Termite completions at home services were up 14% in the quarter driven by strong growth in our monthly pay tier termite product in an active swarm season.
The sale of renewable core units made up approximately 60% of a total termite and home services completion revenue in the quarter. This strong growth in renewable units combined with better retention rates bode well for a strong 2021.
As we look to Q3, we continue to see growth in our termite business, but at a more normalized level as seasonal termite demand begins to the way.
Residential pest control was flat in the second quarter tuck in M&A contributed 1% of the growth while organic revenue declined by 1% and the rain discussed work order postponements related to cobot 19 have declined approximately 80% from April peaks and while we're order postponements.
Remain higher than prior year. They continue to improve into July residential pest control was impacted by approximately $3 million from our decision to limit summer sales activity in order to protect both our potential customers and our salespeople from cobot 19.
Residential pest was also impacted by approximately $3 million from lower bed bug revenue as travel restrictions of severely impacted the spread if this past.
These items will continue to affect the rest of the year. If the loss of revenue associated with summer sales units carried over to future quarters and travel is forecasted to be down for the foreseeable future.
Despite these factors demand remained strong for residential services and we saw strong positive organic growth in July and we're planning for organic growth in the third quarter.
Commercial pest control revenue was up 2% versus prior year with M&A growth of 11% more than offsetting organic declines of 9% organic declines were driven by cobot 19 related work order postponements as businesses were forced to close early in the pandemic.
We have seen improvement at business trends as the economy reopens and organic growth rates improved sequentially every month in the quarter. This trend continued into July where we saw flattish organic growth in the month. Despite a slight increase in service postponements on the west coast related to the recent cobot 19 resurgence.
Acquisitions continued to provide significant growth as the onboarding of Gregory and Macleod provide new commercial capabilities and experienced management team store portfolio.
Our product sales division saw considerable growth through the Macleod acquisition, but organically that declined by 9% through lower sales of pest control products, the smaller pest control providers and the decision by larger distributor customers to take down inventory levels in response to covert 19 demand has increased.
Yes for products in July as the economy, reopens and demand for commercial services increase.
Overall, the second quarter saw strong demand on the residential side of the business with organic growth, 3%, including strong growth on our focus area of core termite services commercial past consistently improved off April lows and continues to show positive momentum as the economy reopens.
Moving on to slide nine you can see the EBITDA drivers for the quarter.
Revenue growth added $4 million in the quarter, primarily from M&A as margins improved sequentially in our acquisition is as we continued to drive synergies.
Production labor productivity generated $5 million of higher EBITDA in the quarter.
Year over year, primarily the result of better employee retention, which led to less training and unproductive labor cost in the quarter efficiencies are more tenure technicians and improved labor management processes, while we expect to continue to drive labor efficiencies. They will moderate as we move through the year and need to.
Onboard and train additional technicians.
Vehicle and fuel costs declined $4 million in the quarter through better fleet management and lower fuel prices.
Chemicals and material costs declined by $2 million as the revenue mix impact of higher termite volume more than offset increased spending on personal protective equipment, we expect higher PT cost of roughly half a million dollars per quarter as we obtain the equipment needed to keep our customers and employees.
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General and administrative expenses were down $4 million in the quarter, mostly the result of the previously announced $18 million of 2020 cost actions taken in the second quarter, including reduced travel and other discretionary expense reductions. We expect continued savings in the future periods from these ads.
Actions that are expected to grow to a run rate of $30 million on a full year basis in 2021.
These cost declines were partially offset by an $8 million increase in termite damage claims and mitigation cost in the period.
Total termite damage claims and mitigation expense was approximately $19 million.
Seeks the expenses, primarily driven by activity and Imobile Bay area and is inline with our previous guidance. Our mitigation efforts remain on track and we're making good progress on our supplemental treatment plans to the mobile Bay area.
<unk> expenses for the mitigation program were approximately $2 million in the period.
To date, we've experienced little impact to our mitigation efforts from Cobot 19 and remain on track to complete the program over the course of 2020.
We also saw $2 million of improvement in other categories, the largest of which was slight improvements in total bad debt expense. Despite an increase in provision for commercial customers.
In total adjusted EBITDA margins of 23.3% at Terminix expanded by 190 basis points when compared to the second quarter of 2019, we will continue to see year over year margin expansion into third quarter for the Terminix segment as I'll discuss in more detail on the guidance page.
Moving to slide nine you can see the second quarter and full year simplified cash flow year to date adjusted EBITDA to free cash flow conversion was 81% the second quarter benefited from the cares act through the deferral of both payroll and income taxes the future periods. We also.
Also received a $20 million net operating loss refund from 2015 that posted in the quarter.
Normalizing for these one time items free cash flow conversion would still have been over 65% year to date and improved from prior year as we shift gears to the second half we will again become a cash taxpayer and are expecting a cash tax rate between 12 and 14% for the full year.
We will also have some capex in restructuring cash uses as we work through the Servicemaster brands strategic review process that will impact free cash flow conversion for the full year 2020, we expect free cash flow free cash flow conversion to be at the high end of our original expectations of a.
Approximately 60% and improved over 2019.
Shifting to uses of cash we don't have any significant changes to our capital allocation plans, our net leverage target remains between 2.5 to 3.0 of adjusted EBITDA.
We would expect to continue to reduce debt and could be in EBIT better physician to do so depending on the outcome of the Servicemaster brand strategic review.
We also plan to be active in the M&A market and while we didnt have any meaningful acquisitions in the second quarter, we have several opportunities in the pipeline for the third quarter and beyond.
We were also able to deploy a little over $100 million year to date to our share repurchase program purchasing over 3.7 million shares at 27.
Six four per share.
Through strong cash generation, we were able to improve our net debt leverage ratio by approximately a half a turn to 3.6 times trailing 12 month adjusted EBITDA.
Cash generation remains a strong characteristic of our business and gives us flexibility.
To continue to invest in organic and inorganic opportunities as we move forward.
Moving to slide 10 for the third quarter, we expect continuing operations revenue to grow between six at 11% to between 495 in $515 million.
We expect to expand adjusted EBITDA margins from prior year with totals between 80 and $90 million. The guidance assumes approximately $20 million of revenue from us acquisitions completed during the 12 previous months, primarily in commercial pest service line from Gregory in Macau.
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We also expect revenue from our 2019 European pest control acquisitions to be between 16 million at $18 million in third quarter. The.
The outlook assumes commercial Pat will continue the positive trend we've seen over the last several months as the economy continues to reopen and the residential demand will not be negatively impacted by economic issues associated with the prolong cobot impact.
We expect adjusted EBITDA will be highlighted by improving margins for acquisitions and European pest control.
Margins are also expected to expand year over year at Terminix as second quarter, DNA and indirect cost savings actions continue to flow through the BNL. These gains will be offset by higher year over year cost from termite damage claims in mitigation expenses and $3 million from cost historically Alex.
I wanted to servicemaster brands.
Moving to slide 11, I'd like to touch on Servicemaster brand second quarter performance at our expectations for the third quarter Servicemaster brands reported a year over year revenue decline of 4%.
Revenue increases in commercial cleaning national accounts and owned branch operations were more than offset by a reduction in royalty revenue in the period.
Royalty revenue was negatively impacted by cobot 19 related pressure in Merry maids and by the mild winter and significantly less area wide events than prior year and servicemaster restore servicemaster brands also benefited from increased demand from enhanced cleaning and disinfection services.
Adjusted EBITDA declined $3 million year over year with approximately half a decline attributable to Merry maids and the other half to surface master restore.
For the third quarter, we expect to see improving commercial trends stabilizing demanded Merry maids and improvements in service mastery store, we expect revenue of between 63 and $68 million or flat to 8% growth in adjusted EBITDA between 23 and $27 million.
And with that ill now turn it over to into rain for closing comments, Norway.
Thanks, Tony before I pass it back to just if acumen A. I wanted to provide a quick update on the service Master brand strategic review.
With credit and equity markets recovering to pre coated 19 levels, we've ramped up our activity level associated with our strategic alternative review for our Servicemaster brands business. There continues to be very strong interest in the business and as we saw in our second quarter results and July trends, we're seeing just how resilient this bill.
Mrs. We continue to be committed to pursuing the option the creates the greatest long term value for our shareholder and positions to business for success in the future.
Servicemaster remains in a strong position as we move into an uncertain second half of 2020 by continuing to execute on our strategic priorities, we look forward to growing our business and expanding our year over year profit moderate margins. Despite this uncertainty.
Proud of the diligence and hard work of our teams, especially our customer facing employees. The dedication of our technicians to provide excellent service and improve our service levels. During this time is a testament to their commitment to our customers and the strong leadership of our management team Im confident in our ability to manage through this environment.
And come out stronger in the future.
With that I'll hand, it over to Jesse to lead us through the Q anyway.
Thanks, Ryan with the tubing long. This morning, please limit yourself to a single question. So that we can get to every one of the allotted time, Frank let's open up the line for questions.
Thank you.
If you would like to register a question. Please press star one fall by the four on your telephone.
You will hear at three tone from technology or request. If your question has been answered then you would like to withdraw your registration. Please press star one fall by the three.
One moment please for the first question.
Our first question comes from Toni Kaplan with Morgan Stanley. Please proceed.
Thank you.
I was hoping you could expand a little bit on termite damage claims you mentioned it was running a little bit higher than expected anything areas as fairly large arbitration.
In Alabama last week until I was wondering if there's anything in the latest decisions that change how you're thinking about 10 longer term termite damage claims estimate thank you.
Hi, Tony its new rain I'll go ahead, and take that and the others can kind of chime in as appropriate.
Clearly we did have a ruling last week that was high we think we plan to appeal that rolling we think that theres. Some errors in the judgment there, but again, we feel very good about the trends that we're seeing overall and they are consistent with our expectations. We're seeing nice progress on our mitigation program.
Graham we're seeing nice nice progress on the non litigated claims and feel very good about that we always knew that there was going to be volatility on the litigated claims, especially with the new way we record those we record them at the time of filing so that drives a little bit of volatility there because it's something that's out of control.
So just based on what we're seeing on a year to date basis, nothing has changed versus our original expectation that we talked about back in February as far as the total ring fence exposure that we've discussed.
Our next question comes from Tim Mulrooney with William Blair. Please proceed.
Good morning, I Wonder if you could walk us through how the residential business trended through the quarter. Obviously it looks like April was the low point in June was the high point, but any numbers you can provide would be very helpful and maybe a comment on how that trend carried into July.
Yes, Hey, Tim that it's Tony if you're doing well.
Yes, I mean, I think the big that we saw early on when Cobot 19 hit was an uptick in us some temporary cancellations of service pushing it back.
So we peaked in that particular metric in April since April every month, we've been seeing those temporary cancels declining and getting better.
Through this whole period, our service agreement canceled has actually improved and so our retention is improving in residential so we are progressively getting better in residential every month.
Again, we did make the decision.
The scale back on summer sales.
So that had some impact as well too in the month of July we as we mentioned it in the script, we are seeing continuing improvement so the trend looks good heading into the third quarter.
Our next question comes from Michael Hoffman with Stifel. Please proceed.
Well I guess for one I would ask would be about the normal seasonal pattern.
For the business.
The particular third quarter do I assume a normal seasonal into fourq, you or is there enough.
Then on that the momentum will overcome seasonality.
And if that's the case than the messages Street estimates have to come up.
Yes, Michael this is Tony if you're doing well.
Now any pattern.
Of the seasonality patterns were seeing what's going to be to same as we normally see I mean, you have to factor is obviously the cost actions in the other at the pricing in the other improvements that we may but you will see a similar seasonal pattern in the third quarter that we've seen in prior years.
Our next question comes from Judah Sokel with JP Morgan. Please proceed.
Hi, good morning, I'm going to take another stab at the question I was asked earlier about trends, maybe instead of getting us month by month, perhaps you can just quantify the impact in the quarter just from coded give us a at least an approximate sense. So that we can see that underlying run rate.
And really appreciate how the the fundamental business is doing.
And then going forward. Thanks.
Yes, Thanks, Jude I hope you're doing well.
We saw roughly 6 million dollar impact from two.
I think big events that the coded really influenced number one would be the.
Our actions on summer sales and scaling back that was about 3 million and that we saw another 3 million or so related to bed bug revenue.
In that people are traveling less and so the demand is is lower and we have a pretty big at above.
Portfolio, so that had bigger impact and maybe you would expect.
We also talked about the the work order postponements and so there's some impact perhaps the on that 6 million. So you could get into.
More normalized view of our residential pest control business for the quarter, if you adjust for those items.
Our next question comes from US Seth Weber with RBC capital markets. Please proceed.
Hi, This is only mclaughlin for yourself.
Just going back to the summer sales program did that ever get restarted or is spending for the whole season and any identified any other channels that sort of backfill it's been lost there.
So this isn't randomly yet so we did phased relaunch of that summer sales program really on a geography by geography basis. We are based on where restrictions were opening up to pursue that type of business clearly we've been monitoring customer response, particularly around so for me.
To make sure that Theres no negative reaction there. So it has ramped up but it's still nowhere near what we had last year and frankly, what we had in our plan. So we're continuing to on a measured approach to kind of launch that out as far as other channels, we're always looking at and evaluating new channels through March.
Good.
Digital marketing continues to do well as you may have saw we announced last week a the addition of a new.
Chief Marketing officer, Alex So for our residential business, we're really looking forward to the potential impact that Alex on the marketing team can have on the business. So.
Yes. This this is we're exploring all avenues and looking how we continue to grow this business.
Our next question comes from Andrew Wittmann with Baird. Please proceed.
Great. Thank you and good morning. My question was I guess on slide eight a little bit more here.
The progression of of EBITDA growth I mean, you got leverage on almost every bucket you show here inside of the expected decline in termites, which is.
Obviously very good very refreshing Tony I just thought.
So much of what you did in the quarter, you talked about $80 million, it's going to realize this year $30 million run rate, we knew about some of these things.
But some of this was also driven by furloughs, another kind of what I'd call more temporary staffing adjustments. So could you just talk a little bit about.
The reinstitution of cost that may or may not occur along with improving revenue trends in your business, which which buckets in other words of these.
Might not give as much benefits for the second half of the year as they did here in the quarter.
Yes, Thanks, Andy I hope you're doing well.
We do have a continuous productivity program. We're looking forward, we're continuously looking for new initiatives. So I just wanted to make that point.
But if we go down these categories one by one obviously on the production laborer side.
We've got a lot of great actions, there on employee retention and better labor management. Some of that is due to the fact that we haven't had as much training expense this year and so eventually it will be some moderation.
In that.
Productive you want to call productivity as as we hire more people as we grow but I am pleased with what we've done it with respect to progress and employee retention and are better labor management processes.
As far as the vehicle fuel most of that really is related to better vehicle management, we have new fleet provider, that's helping us and we've had some good progress there, but there is a full part of that fits more based on fuel prices, we hedge most of our fuel to some of it is on edge. So as fuel prices change will be some impact there.
We talked about chemicals and materials that we said that we're going to see about half a million quarter at higher any costs, but we had some offsets this quarter be more because of mix because we did a greater percentage of termites. So there might be some moderation there and that as far as the corporate.
General administrative expenses, that's what we think is sustainable into next year based on all the cost actions. We took early on in the process. So again there'll be some moderation in some of these items, but.
I'd like what we've done another area that we might see some scale back as travel is actually will be beyond the pandemic and although will never go back to the travel of travel rates. We were doing three pandemic, we will be traveling more eventually at some point in time.
Our next question comes from Ian Zaffino with Oppenheimer. Please proceed.
Hi, great. Thank you very much.
Hey, Tony you talked about the pipeline for M&A.
Some of them more color there as far as the trend in multiples were may be the multiples.
Size of pipeline, how it compares to previous periods and also maybe a sizable deals.
Any other colleague that'd be great. Thanks.
Yes, so first off the in the activity was level is very light in the second quarter. They weren't very many larger deals going on and very few.
Small deals in the market.
For obvious reasons, so it's kind of hard to to sustain for sure, but I do think things will eventually he back up.
In the third quarter and beyond that were and I can say that we're definitely going to be a player in that in that market and we're interested in tuck ins and even other types of a capability, adding acquisitions as well or anything you know I think it's just hard to say, it's going to be any meaningful change in margins at the update I think.
Just haven't been enough transactions happening lately. So it's something we'll watch closely clearly the equity markets kind of bouncing back to the level. They have would suggest that that you might see the same rates that we saw pretty pandemic, but we're going to have to watch closely to say, we'll continue to be a disciplined buyer in the market.
Our next question comes from Mario collection with Jefferies. Please proceed.
Hi, Thanks for the time, just wanted to congratulate Brett on the CEO job.
Few questions, though I guess on some of the background and.
I guess, just what kind of experience does he have with servant leadership culture, and obviously you're going through.
Transformation overtime, and I guess, just just kind of what's his experience with with past transformations as well and and what kind of success has had with.
With either.
Helping service companies improve service levels and ramp on organic growth.
Yep, Great question, Mario I mean, clearly is servant leadership mindset and behaviors. It was one of the attractions and really.
We have why a big part of why we decided to move forward with Brett and then appoint him into the CEO role I look to his last job our current job and Monro muffler.
Got a I believe 1200 50 store locations.
So he is very experienced in dealing with distributed organizations in fact normally I talk to people about the complexity. We have with three 350 needless to say I didnt have the have that discussion with Brett. He spends a lot of time out in the field visiting the stores building connections with those frontline people he understands the importance of.
Supporting them and empowering them because that is similar to our business model. Those are the people who are creating and delivering that customer experience I think you've got dramatic tremendous experience at Monroe prior to that at Heartland was a jiffy lube similar kind of model.
And Amco. So he is very familiar with varied distributed organizations and have great experience, there and I would say also both driving growth and margin improvement. He's got an operational excellence mindset. So I think you really brings a lot of table does not have pest control experience and.
The good news for our businesses, we have a lot of people, especially when you get out in the field, who have very long tenured.
Test experiences and breadth to kind of guy who will be out there in the field learning from those people learning the business from they help from the field back so I feel very good about the higher and the impact that Brett will have on the business going forward.
Next question comes from George Tong with Goldman Sachs. Please proceed.
Hi, Thanks, good morning.
To remind here at home services organic growth morning.
So termite and home services organic growth accelerated to 7% in the quarter in a big part of that.
Growth acceleration was driven by new completions can you elaborate on what factors drove the robust improvement in the completions and how you expect this the trend over the remainder of the year.
Yes, Thanks, George I hope you're doing well, yes, we're very pleased with the progress we made in terabyte.
This quarter and as you recall, that's one of the for priority for the business. So thats a keen focus for us.
We had a very successful launch of our new termite tiered monthly pay product and we think that was a big driver of our completions growth.
And on top of that we think it was somewhat of a heavy swarm season. So we think those two factors in combination we're big drivers that a third driver is probably the fact that a lot of people are at home these days and our home services.
Right of the termite.
Product line actually had some growth as well too.
So it was a very it was very very nice to see that kind of growth and the completion side and that's really what drove the overall, 7% organic growth for termite and that bodes well for 2021 and beyond.
So we were pleased to see that.
Our next question comes from Gary Bisbee with Bank of America. Please proceed.
And this is this is Jay Hanna on for Gary today.
So the trend we've seen in the past several quarters has just been.
An uptake in spending sort into growth spurt better organic growth in areas like sales and marketing labor.
We obviously didn't see as much as in Q2. So I was hoping could you comment on how we should sort and expect to see indicate into that spending going forward are we sort of over the hump there.
Yes, Thanks, Jay if you're doing well. This is Tony yes, we were not really on the change in the margins are really driven by cost actions around our direct cost productivity and really focusing in on our cost structure in our indirect costs are GE in a.
We didnt scale back in our investments in growth per se.
So so really to look at it that way, we're still committed to investing in marketing and.
And that we're still doing the salesforce.
Investment so all of that effort still continues we're just doing a better job I think of driving direct cost productivity and as we talked about we've addressed the structure and the done some good things there as well yes. The other thing I would add is we will see some favorability from lower summer sales because the commissions associated with summer sales.
Brett over two years, but as I talked about earlier, we are looking at other channels. So what we can't do there, we'll look to reinvest and other channels that drive equal or better productivity and efficiency bore into summer sales decision was more about health and safety of right not not our commitment to growth. So.
We have taken all the questions for today that does conclude the conference call for today. We thank you for your participation and that's that you. Please disconnect your lines have a great to everyone.
On early.
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