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Rollins, Inc. (NYSE:ROL)

Q1 2013 Earnings Call

April 24, 2013 10:00 AM ET

Executives

Marilyn Meek – IR

Gary Rollins – Vice Chairman and CEO

Harry Cynkus – SVP, CFO and Treasurer

Analysts

Andy Davis – KeyBanc Capital Markets

Clint Fendley – Davenport

Jamie Clement – Sidoti & Company

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Rollins Inc First Quarter 2013 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions)

Today conference is being recorded April 24, 2013.

I would now like to turn the conference over to Marilyn Meek. Please go ahead.

Marilyn Meek

Thank you. By now you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one please contact our office at 212-827-3746 and we will send you a release and make sure you are on the company’s distribution list.

There will be a replay of the call which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1-800-406-7325 with the pass code 4612026. Additionally, the call is being webcast at www.viavid.com and a replay will be available for 90 days.

On the line with me today are Gary Rollins, President and Chief Executive Officer and Harry Cynkus, Senior Vice President, Chief Financial Officer and Treasurer. Management will make some opening remarks and then we’ll open up the line for your questions.

Gary, would you like to begin?

Gary Rollins

Yes. Thank you, Marilyn and good morning. We appreciate all of you joining us for our first quarter of 2013 conference call. Harry will read our forward-looking statement and disclaimer and then we’ll begin.

Harry Cynkus

Our earnings release discusses our business outlook and contains certain forward-looking statements. These particular forward-looking statements and all of the statements that have been made in this call, excluding historical facts, are subject to a number of risk and uncertainty and actual risks may differ materially from any statement we make today.

Please refer to today’s press release and our SEC filings including the Risk Factors section of our Form 10-K for the year ended December 31, 2012 for more information and the risk factors that could cause actual results to differ.

Let me now turn the call over to Gary, our CEO and recently promoted Vice Chairman of the Board.

Gary Rollins

Thank you, Harry. Mother nature was a fickle lady during our first quarter. Last year 2012, she gave us the warmest three months in the U.S. for over 100 year, which contributed to recorded revenues and profits. This year, she handed us the coldest with the greatest snowfall quarter in two decades. In spite of those obstacles however, we continue to grow our revenues and this was accomplished primarily through the recurring revenue that we build over the course of last year. For Rollins’ that type of revenue is the gift that keeps on giving.

Revenue for the quarter increased 3.5% to almost $300 million and net income was $23.2 million just slightly above last year’s net income of $23.1 million. The impact of the weather was felt and leads all across our service lines particular termite and residential pest.

While pest control was down double-digits from last year’s record, what I find encouraging is our residential pest leads were up nearly 15% over 2011, which was a more typical first quarter. The good news is that spring is here and with the weather now warming up, the pest removing and the phones ringing.

Weather aside, our sales and marketing efforts continued to be an important and powerful influence in creating greater awareness for our family of brands, while contributing to the growth of the company. Orkin’s new marketing programs and advertising further establishes Orkin as the pest control expert.

You may be aware that Otto Orkin working and founded working in 1901 when he was just 14. One of his first jobs was to rid a family’s barn of rats and even back then he took a scientific approach to accomplish those. From the barn addict he studied how the rats moved, what they eat and how they functioned in order to figure out how to eliminate them.

He understood that to dispatch pest, you had to look think like the pest. Over the years Orkin Exterminating expanded geographically and develop expertise regarding other pests, such as ants, cockroaches, termites and bedbugs. Yes, bedbugs were even present back then. This growth was accomplished by perfecting the same scientific logic to eliminate a pest you have to think like a pest.

In the 1950s Orkin stepped up its marketing efforts introducing Otto, The Orkin Man in the form of singing spray can. During that time, television viewer saw the company’s first TV commercials. Later in the 80s, the icon they viewed as a human faced, exterminator robot. And in the late 90s, he appeared as an animated robot. It’s noteworthy however, that The Orkin Man never really addressed the scientific approach we have always followed in controlling pest.

With the launching of our new ad campaign this month. We now have a marketing strategy that focuses on our greatest asset The Orkin Man. Our advertising communicates what he is doing and the lengths that he’ll go to solve your pest problem. The mission of our new campaign, which is fully integrated from online to television and radio is to make consumers aware that Orkin is the leader in providing solutions based on sign, not just for any home but for your home.

And that we’re continually developing new ways to responsibly control pest with a specific plan for each customer’s home or business. This year just about every prospect or customer touch point has been addressed to showcase The Orkin Man and the lengths that he goes to everyday to solve our customer’s pest control problem. Like Otto Orkin, we continued to be the pest control industry’s innovators by staying on the cutting edge of science and technology while we provide our best-in-class pest services.

A good example of groundbreaking industry technology in another area was accomplished through our recently launched Homesuite iPad application or app. Homesuite is now used by our residential sales inspectors to enable them to better describe the need for and the service we’ll be delivering to our customers specifically to their home.

There are three features under the Homesuite app approximately that we refer to as present, meet and inspect. The first present enables us to show a prospect the full array of our residential offerings. We have pest controls, termite treatments, bedbugs or any of our ancillary services. Inspector is able to customize the presentation to the prospect needs with actual photos of their home it has been used to describe the exact service that will be provided.

The second feature meet enables the customer to see in advance specifically who will be servicing their home and who in our office they will be seeking with on the phone. Our meet application allows our representative to present our employees faces to the customer with photos of their technician and the branches administrative staff.

And the last feature is inspect, which I think is even more amazing this routine allows the inspector to grab the customer’s home document test activity and illustrate a customized treatment program all on the iPad. After reviewing this material with the customer, a written proposal can be mailed to them in a PDF format. Early results from the use of our Homesuite app shows that sales closure is improving as well as the painting increases in our ancillary sales.

These were the moisture control insulation etc. While for, this is very important in our fourth quarter and first quarter when pest activity is low and creative sales are so important. We presently in the process of rolling out BizSuite, which follows the same home suite fundamental, but is adapted for the commercial prospect and our account managers.

Orkin is the first national pest control company to use proprietary iPad applications as sales tool. And we believe that this will give us a great competitive advantage. Training also plays a significant role in differentiating our company. Our culture of continued improvement challenges us to constantly upgrade our training for all of our employees and our franchisees employees.

These investments resulting in again for the 11th year in the row is being recognized by training magazine as a top 125 training companies. This distinction is based on programs tied to meeting business objectives with the best training practices and outstanding training initiatives.

We appreciate all of those in our company who work so diligently and helping to make our company the best trained in the pest control industry and among most companies in any industry.

This achievement provides a direct benefit to our customers as well as our employees. The company stability and success in many regards are the result of exceptional leaders. We enjoy contrary of talent that most frequently comes from within our own ranks. We were therefore extremely pleased when in late January the Board of Directors elected John Wilson, President and Chief Operating Officer of Rollins, Inc. Further yesterday, John was elected to the Rollins Board of Directors at our company’s Annual Shareholder Meeting. John has been at Rollins for 17 years and first worked as an Orkin technician and sales inspector while in college.

During his career he has became fully indoctrinated in our company and has successfully held many positions, including that of an Orkin branch and region manager as well as President of the commercial division, President of the Southeast division and most recently since 2009, had the responsibility as President of Orkin USA.

Additionally in January, Gene Iarocci, was promoted to President of Orkin in North America. Gene has been with us for 10 years and came to us with a great deal of multi-unit management experience within a number of service and manufacturing industries including Union Carbide where he worked for 24 years.

Since joining our company he has served as a region manager division, Vice President, President of Orkin’s Atlantic Division and most recently working closely with me as Vice President of Corporate Administration. Gene has also been in office at Rollins since 2011. We’re extremely fortunate to have both John and Gene assume greater leadership roles in our company.

We’re making good progress on the initiatives that we discussed on our last call including service lead, where we now have 27 branches and pilot. We continued to fine tune this CRM and operating system to ensure a successful national roll out. With these last improvements we should have an extraordinary branch operating system that all brands can benefit from. We plan to start a full Orkin roll out beginning in the fourth quarter. As I stated earlier spring is strong the phone are ringing and we’re very excited about our prospect for the balance of 2013. And we’re committed to achieve our goals for this year.

I’ll now turn the call over to Harry. He will discuss our financials in greater detail.

Harry Cynkus

Thank you, Gary. Bye, bye winter skies, hello yellow sun and pollen filled days, spring is here that’s what people say don’t discuss me call the Orkin call center. It was long time coming this year and after glowing last year I can now sympathize with last year’s winter clothing retailers. The numbers are as pretty as last year’s first quarter but one of the strengths of our business is that 2012’s recurring revenue came through for us.

Looking at the numbers, the company reported first quarter revenues of $299.7 million, an increase of 3.5% over the prior year first quarter revenue of $289.5 million. We experienced that growth across all of our family of brands but one which was up 2.1%.

Overall, net income increased 4.1% to $23.2 million compared to $23.1 million with EPS flat to last year $0.16 per diluted share. Fortunately, unlike retail, our many other businesses we are not reliant on what business walks in the door each quarter. Our business model can be better described as subscription liked model, while we never like to lose the customer, unfortunately it does happen. Sometimes it move, sometime it’s related to service, sometimes for price and then in case of our residential customers because we’ve done our job well, no pass.

In order to grow those customers need to be replaced, around 6% of our residential customer base and 3% of our commercial customer base each quarter. Fortunately, we added recurrent customers throughout last year still began our base. Unfortunately, this quarter was spring coming later, our anticipated leads didn’t occur as planned and our demand slowed.

With typical first quarter weather in the contribution of the marketing group we expect to see the internet light up in the phones to ring off the hook. Last March, we saw organic traffic to our websites substantially exceed any previous month by over 100,000 visits.

This quarter it just didn’t happen. While we see a significant decrease or saw a significant decrease in leads, sales and starts, I wouldn’t call our results totally disappointing as we enjoyed improved closure and pricing and most importantly we also saw improved customer satisfaction, a key indicator of the long-term health of our company.

April is not over, but early results are encouraging. Orkin’s brand is becoming only more valuable in this digital era. Usually I talked next about whatever business allowing is our bright spot usually residential or commercial pest control. Although termite had a decrease one-tenth of 1%, I feel qualified with this quarter’s bright spot. They were running up against last year’s unbelievable first quarter revenue growth of 10.5% and nearly equaled that revenue despite a 20% plus increase in leads.

Our upgraded new series of Homesuite iPad application for our sales inspectors that Gary spoke about really showed its worth, resulting in improved closure percent and improved price realization.

Our termite sales group deserve added and adding the nice increase in ancillary sales, HomeTeam’s growing pretreat business and the recurring revenue that comes from our termite renewals and it totals a quarter surprisingly nearly as strong as a year ago.

Commercial pest control which makes up 42% of our business had a respectable 3.7% increase, our national accounts group had success with the addition of our hometown airline Delta as well as further penetration and location expansion in a number of current existing national accounts.

Our residential pest control business, which makes up almost 40% of our business and nearly 27,000 less calls in the first quarter this year. But thanks to the recurring revenue base built over last year still grew 5.4%. The residential business is the most pest problem dependent and as a potential customer usually waits so they have exciting than with top miner awareness think of Orkin and reach out to us.

Fortunately, in this environment not all of our brands are as dependent and leads. HomeTeam business is driven by new home construction while it was reported that one gauge of confidence among homebuilders fell in April for a third month of decline hitting the lowest levels in six months you couldn’t tell it by our business with builders.

In fact our new home starts were up nearly 35% in the first quarter totaling over 17,000 representing the biggest installation quarter in over four years and April appears even stronger. While it hurts margin in the short term it’s the drive for HomeTeam future growth and profitability, installs don’t drive revenues significantly however they do drive costs. Systems are installed while our house is being trained there remains a lot of work before that home finished and sold.

As a result there is significant delay between installation and activation of the built in pest control defense system by the new homeowner. We only now beginning to see the gains from the early 2012 HomeTeams and saw growth which helped increase overall their revenues up 8.6% this quarter. For those interested in our bed bug business, it was up 16.9% to $10.1 million. We expect that growth to accelerate as well with the arrival of spring.

Gross margin for the quarter declined 70 basis points to 48.1% from the first quarter versus 48.8% in the prior year. The decrease in operating margin was due to not achieving our planned revenue per employee as we stand up for spring that was late. Additionally, we had increase in material supply COGS related to an increase in HomeTeam, Tubes in the Wall installed as well as increase in the ancillary materials.

Depreciation and amortization expense for the quarter increased slightly $127,000 totaling $9.9 million, depreciation was $3.7 million and amortization of intangibles was $6.2 million. For the full year, amortization of intangibles typically from the value with signing to customer contracts acquired in an acquisition will represent a significant after tax non-cash charge of $0.11 a share.

Sales, general and administrative expenses for the first quarter increased $4.3 million or 4.5% to 33.1% of revenues increasing from 32.8% last year. The increase in margin percent is due to professional services related to our commercial pricing initiative, increase in cost associated with the implementation of our new branch operating system and higher advertising expense as we launched our new advertising campaign. Tax rate for the quarter came in favorably at 34% for the quarter as we were able to resolve some tax uncertainties. I expect it to return to around 37.5% for the remainder of the year.

Our balance sheet remains strong Rollins ended the quarter with $82 million in cash and no debt. Our working capital remained negative despite our strong cash position as we continue to have more customers prepay us for services, $96.3 million in current unearned revenue and those who owe us for current services, $65.6 million in trade receivables, what a great business.

One last piece of news I am excited to let everyone know that Rollins, Chief Operating Officer, John Wilson participated in the CBS Reality Show, Undercover Boss. The series follows executives as they go undercover to work anomalously with their company’s front line employees and gives them the chance to learn more about their company first hand. The episode will air Friday May 3, at 8 p.m. Eastern Standard Time on CBS. I hope you all will tune in to watch.

Before I turn the call back to Gary, let me express our appreciation and thank all the Rollins, Orkin, Orkin Canada, HomeTeam, Western, IFC, TruTech, Crane Associates, whose hard work and dedication contributed to a hard quarter and will be contributing to another record year. We also thank our customers, suppliers and shareholders for their continued support. I will echo Gary’s comment, spring has arrived, the phones are ringing and we’re very excited about our prospects for the balance of 2013.

With that, I’ll now turn the call back to Gary.

Gary Rollins

Thank you, Harry and by the way I didn’t know you’re an inspiring Polish. We’re now ready to open the call for any questions that you might have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Joe Box with KeyBanc Capital Markets. Please go ahead.

Andy Davis – KeyBanc Capital Markets

Hey, good morning, guys. This is actually Andy Davis filling in for Joe.

Gary Rollins

Good morning, Andy.

Andy Davis – KeyBanc Capital Markets

Good morning. So, obviously you guys called up the weather impact on the year-over-year numbers and here you went through kind of the growth to the company. Just looking that maybe get a little more granularity on what didn’t materialize that you guys are expected kind of where that was. And maybe if you can just discuss a little bit more how they picked up since the lower December you called out last quarter and maybe the cadence on new customers start to get a date, any color there would help?

Gary Rollins

First, you broke up there Andy and on the question, I’m not quite sure the last part of question?

Andy Davis – KeyBanc Capital Markets

Just basically how going forward how leads have trended since the lower December and then maybe the cadence of new customers start that you’ve seen if any in the quarter?

Harry Cynkus

Well I think Gary and I both alluded to leads were down into the first quarter 20 plus percent, last year the weather got real hot starting in February, the tulips were out and the pest were moving about. So, while the – I don’t think it’s a trend of less interest because I think the takeaway, the interesting thing when you compare the leads this year to 2011 first quarter with weather was not as, still not as bad as this years but certainly far from what we saw in 2012, the leads were up 15% over what they were two years ago.

So, I think on our top of mind the awareness, our marketing activities, our digital strategy are working, everything is in place to the weather is now back, we have spring, we got a new advertising campaign. So, we’re excited as to our potential to import.

Gary Rollins

Yeah, Jim let me add to that. For those who have followed the company a long time, we don’t talk about the weather. The only reason we talked about the weather last year was because it was so phenomenon, I mean it was the best weather in 100 years. We had 26% increase in leaves, I mean it was just unbelievable. And the only reason we brought it up this year as we did we knew we’re going to repeat that kind of lift but we didn’t expect the worst weather in two decades. So, going forward we don’t want to talk about the weather, we want to talk about our business. So, you’re not going hear anymore about the weather.

Andy Davis – KeyBanc Capital Markets

Sure. And I’m ultimately just trying to determine whether this was more of a delay due to that weather, if there is anything else in there that could impact results going forward?

Harry Cynkus

No, we feel pretty good. April so far we’ve recovered from the drop and we’ve got a couple weeks left. So we think that we’re going to have a good April and the spring drives you a little bit crazy because it moved around typically 30 days one way or another. So we’re – we got the people hired, we got them equipped. As John Wilson told me yesterday, they’re well rested because they didn’t have a lot to do the first quarter. So we think that we’ve got the plans in place to have a good year.

Andy Davis – KeyBanc Capital Markets

Sure, that’s good color there. And then maybe just switching over to the cost side. I know last quarter Harry, you gave us kind of a specific breakout, of the different impacts. Looking at this quarter, can you maybe just one, sort of specifically talk about the productivity headwind in the quarter and how that compared to I believe 30 basis points last quarter? And then two, maybe did the other headwind that they as you had expected particularly the insurance adjustments we had?

Harry Cynkus

Yeah and I don’t have that in front of me the, our – we staff up in the spring that came late, so our productivity suffered. I’d have to go back and look – I think the deterioration in service.

Gary Rollins

It’s and probably in the neighborhood of 20 to 30 basis points and administration and well and CSP. And on the insurance with three months certainly doesn’t make a year, the number of claims is running below last year. We haven’t seen the severity that we had last year. So at this three months into the year, we’re keeping our fingers crossed, we’re pushing out a lot of initiatives and raising consciousness in the field and trying to make it more and more part of safety, consciousness at top of mind. So we’re seeing some early favorable results but it doesn’t take too many bad accidents to set your back.

Harry Cynkus

We’re also going to add, we have three divisions now that’s almost safety program, and the first one was the southeast and as a result of the success that we have there, we roll it out to two more and I would expect by the end of the year that we will have the whole, all of working on it and I think western is on it as well. So, we’re not just hoping, we have programs in place or other wins that we think will make a difference.

Andy Davis – KeyBanc Capital Markets

Sure. And I guess just to put that plainly, I mean with, I think your incremental margin for this quarter were actually a bit negative. Basically to trying to part out if you think that the revenue impact from the spring hitting in 2Q will fully the leverage back up or if you think it will take more time for that to play out in some of this metric?

Harry Cynkus

The revenue comes, the labors in place that will take care of itself. We’ll have our difficult price increased program goes in place in June. We’ve been working with Boston Consulting Group and the commercial side of business that we hope to see a little positive impact from that as well. So, I think that the first quarter was a full convenient. I think we would expect a return to our strength this quarter.

Andy Davis – KeyBanc Capital Markets

Okay and I’m sorry.

Harry Cynkus

No, very good, thank you.

Andy Davis – KeyBanc Capital Markets

Yeah.

Gary Rollins

One last question.

Andy Davis – KeyBanc Capital Markets

I did, I was going to actually use your segue there with the Boston Consulting study. I know that was underway last quarter and should start bit early maybe but any initial takeaways you guys can share in any anticipated difference in pricing as we sort of near that June July timeframe?

Gary Rollins

Well, we’re at the final stretch now. We have tested some of the things that they’ve suggested well, in February and March. So we’re just now getting some of those results back and analyzing that. So it’s really too early to say with any assurances here is what the impact will be but we haven’t done a project with BCG that hasn’t been successful. So I don’t want to go out and let me say it’s going to add X, Y or Z, but they will pretty well run on that, they’re keeping will get a nice return on that professional services cost that we’re incurring.

Andy Davis – KeyBanc Capital Markets

Sure, sure, that’s fair and I guess just nothing then that we should anticipate at this time for sort of the middle of year?

Gary Rollins

No.

Harry Cynkus

No.

Andy Davis – KeyBanc Capital Markets

Okay, great. Well, that is all for me. Thanks guys.

Gary Rollins

Thanks.

Operator

Thank you. Our next question comes from the line of Clint Fendley with Davenport. Please go ahead.

Clint Fendley – Davenport

Thank you. Good morning, Gary and Harry.

Gary Rollins

Good morning.

Harry Cynkus

Good morning Clint.

Clint Fendley – Davenport

Also enjoyed the poetry there Harry, thank you.

Gary Rollins

That was encouraging.

Harry Cynkus

I don’t give up my days up.

Clint Fendley – Davenport

I wondered if you guys can maybe share the pricing and volume trends that you experienced during the quarter. And I am wondering, you talked about your prepayment plan if there is any incentive to maybe move the customers over to that because of a better pricing, maybe that you are seeing on the prepayment side?

Harry Cynkus

We always encourage our customers to either prepay or leave their credit card with us and we went from which I think seven, eight years ago with no credit card numbers and to auto-pay we’re today in excess I believe of 40% of our customers.

Gary Rollins

This is typically the residential pest control customer. And my day sales outstanding on my residential customers in Orkin, is right around 14 to 15 days because a lot of them pay me upon service. And customers who pay by credit card tend to stay and take a few extra services. So we continue try to encourage people to either pay in advance or pay with their credit card.

Pricing trends, we saw like I said on a, what is still I think characterized by a lot of industries in the first quarter seeing consumer resistance and what not. We haven’t seen that in terms of pricing. We got a few percentage price realization average prices is going up, I think some of that is better sales presentations from the home inspectors, home sweeps as the problems we had. We are selling more combination jobs, like we’re doing termite treatments in conjunction with moisture control or insulations or the average job price is going up nicely in termite.

We would hope that this commercial project that we’re doing BCG will raise commercial prices. Did not see any in our testing price increases, did not see any elasticity problems. We’ll have a more sophisticated price increase program this year, so you know we I mean we’re the leaders we make no bones about it. I mean we charge more than the rest of the industry but we’re worth it.

Clint Fendley – Davenport

Any color just on how April was shaping up so far and obviously we’ve seen everything get off to a slow start this year. Last year we had sort of a pull forward into Q1 could we see the reverse in Q2?

Gary Rollins

No I think no, April started off a little slow and certainly picked up momentum. I don’t think the phone is ringing off the hook out quite get out in December I saw my land got snowed out two days ago and I think they’re digging, yesterday was 23 degrees, 27 degrees for baseball game.

And I think the match got snowed out in Minneapolis as well. So spring hasn’t come everywhere, but when I checked yesterday we’re running – we made up the early deficit and starting to run ahead. So we’ll keep our fingers going I think the new advertising campaign is kicking in. We’re getting a lot of play and getting good feedback on that. And I hope John Wilson.

Harry Cynkus

John Wilson is going to help us on this too I think that’s one of the most heavily viewed shows on the reality show on television. Could be so, we haven’t seen any customer..

Gary Rollins

We will Orkin diamond permanently displayed throughout the whole one hour or so.

Clint Fendley – Davenport

I’ll definitely have to watch for that. Harry on the tax rate should we be back to roughly the 37% in Q2?

Gary Rollins

Yeah.

Clint Fendley – Davenport

Okay. And then last question it’s a little bit of different kind of question but I’ve seen a few new reports here that at least on the East Coast from the Carolina’s kind of up through New York is a, the return of the cicadas which I guess happens every 17 years and creates kind of an invasion above, is there anything you guys or any services you have provided in the past for that or is it pretty much you just have to grin and bear it until the things go away, just wondering if there is any kind of one-time above from that?

Gary Rollins

Well, it certainly going to make people more insect-aware. I mean it can hurt but we don’t do any agricultural pest control.

Clint Fendley – Davenport

Okay.

Gary Rollins

The fact that you’ve got that many bugs in the air certainly came earlier.

Clint Fendley – Davenport

Sounds like we’re about to get the pay back for the slow start that we’ve seen. Anyway, thanks, guys.

Gary Rollins

Thank you.

Operator

Thank you. (Operator Instructions) And our next question comes from the line of Jamie Clement with Sidoti & Company. Please go ahead.

Jamie Clement – Sidoti & Company

Hi. Gary, Harry, good morning.

Gary Rollins

Good morning.

Harry Cynkus

Good morning.

Jamie Clement – Sidoti & Company

I’m not sure whether this kind of thing is trackable or not but as you look back at the first quarter of 2012 and the tremendous lead generation that had and obviously lead closure, has there been any difference in terms of retention rate a year later with that group versus what you’ve just seen over the last peak hour over number of years? In other words, if abnormal weather phenomenon caused more customers to sign up, have they stuck with you?

Gary Rollins

Yeah, our retention, we watch our retention very closely. I mean those we will have lacked, those that we sold in the first quarter. So, our retention continues to improve and is – I mentioned or Harry mentioned about the customer service surveys, I mean we really have been working on improving our survey, I mean our service and measurement, our service.

So I think that we’ve got programs in place, but the great thing is we have 400 locations, so when you get a big surge of lead like that it’s not like it all falls in Florida or North Georgia or whatever. So we’ve got a lot of people, a lot of branches that can assimilate that business. And so those customers got as good a first service as customers that were sold throughout the year.

Harry Cynkus

But the answer – it’s not unusual to see a pickup in lost customers in that first year when you have influx of new customers because those are the most difficult to retain.

Jamie Clement – Sidoti & Company

Right.

Harry Cynkus

Those are ones who want to become lifetime customers. We did see a small, our retention numbers on the residential side, were up a little. We didn’t quite retain as much it wasn’t any significant difference. On the commercial side, we saw our best retention and might have been its on regular termite.

Gary Rollins

And in termite we saw a great retention. But even pest control Harry was like 10 upon one.

Harry Cynkus

Yeah it was, I mean it was.

Gary Rollins

Yeah I think that’s not significant – I wouldn’t view that as a specifically meaningful number at all.

Jamie Clement – Sidoti & Company

And just a follow-up kind of seasonality and just, if you guys can just if you all can give us a reminder, my recollection is that typically, you all have strong March or a strong April. Rarely the two are strong at the same time and rarely the two are strong at the same time, and rarely are the two are weak at the same time, is that a fair assessment of history here?

Gary Rollins

That’s correct.

Jamie Clement – Sidoti & Company

Okay. And then so from a lead generation perspective, you would expect – I would assume you would expect that the metrics to improve, whether it’s not by the end of the week certainly as you move into early May, is that...

Gary Rollins

When the season really starts breaking the momentum picks up and typically May is better than April and June is better than May. I mean it just rolls through the spring rolls into the summer and then waves off in the following winter.

Jamie Clement – Sidoti & Company

Okay. Thank you all very much for your time and final question Gary, acquisition pipeline, I know it’s always hard to pry good companies away from owners but some of those owners aren’t necessarily getting any younger and maybe thinking about a state planning in that sort of thing. So can you give us kind of an update on view of the marketplace?

Gary Rollins

One of the things, we’re having a big meeting on the 1st of May here where we bringing our leaders in and talking about acquisitions and measuring how well we’ve done with the acquisitions that we have completed. One of the things that we’re doing this year that is first for us is that we’re putting incentives, offering incentives to our region managers and branch managers to identify acquisition candidates and participate in the coating process and we’ve never done that before. So we’re hopeful that that will be beneficial. And for most pest control companies, I mean this first quarter was a disaster.

Jamie Clement – Sidoti & Company

Right.

Gary Rollins

So, we’re always going to look at that – with mixed emotions we hate it for ourselves, but sometimes that’s a turning point of people that may or may be now is the time for me to hang it up or call Orkin or whatever. So it will be interesting to see what the outcome is going to be in this first quarter as it relates to our acquisition activity.

Jamie Clement – Sidoti & Company

Yeah, just a follow-up and I’m sorry to keep asking follow-ups here. But obviously you know who the top 50 firms are and I’m just – I’m wondering whether your success with GPS tracking and some of the way you managed your technicians and that sort of things has may be filtered down to what has been may be smaller company five or six years ago, but generally speaking the industry has done pretty well.

So based on your comment about in sending some of your branch managers and that kind of things are there businesses that or may be outside of the top 50 that you think would be more – you’d be more likely to be interested in today than may be you would have been five or six years ago?

Harry Cynkus

I think so, one of the things that we’re doing better, is that we’re looking at strategic areas of the country. And certainly a small acquisition might be extremely important in an area where we have a branch that say, doing $1 million and to add another $1 million really changes the branch margins dramatically.

Jamie Clement – Sidoti & Company

Okay.

Gary Rollins

In those areas in the country that we’re more interested in than others based on our penetration and based on the potential. So I think we’ve been more, are being more selective as to where to fish and I think that that’s going to be a beneficial as far as the year is concerned.

Jamie Clement – Sidoti & Company

And I guess my perception is that there are a lot of folks in the industry that are trying to borrow pages at your play book that may have prevented historically you being interested in smaller acquisitions, where now they’re running such a way where the culture might be more consistent with yours?

Gary Rollins

Well, I think we’ve got the best track record of ending with major quality I mean....

Jamie Clement – Sidoti & Company

Yeah, no doubt.

Harry Cynkus

We hold on to the employees, we hold on to the customers.

Jamie Clement – Sidoti & Company

Right.

Harry Cynkus

And I think we are the acquirer of choice.

Jamie Clement – Sidoti & Company

I would not disagree. Thank you all for your time as always.

Gary Rollins

Thank you.

Operator

Thank you. I am showing no further questions in the queue at this time. I’d like to turn the conference back to manager for any final remarks.

Gary Rollins

Okay, well, thank you for joining us today. We look forward to the second quarter call and we’ll continue to work hard to continue to grow and improve our business. Thanks again.

Operator

Ladies and gentlemen, this concludes our conference for today. If you’d like to listen to a replay of today’s call you may do so by dialing 1800-406-7325 or 303-590-3030 and entering the access code of 4612026 followed by the pound sign. Thank you for your participation. You may now disconnect.

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