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Rollins, Inc. (NYSE:ROL)

Q2 2013 Earnings Call

July 24, 2013 10:00 AM ET

Executives

Marilyn Meek – IR

Gary Rollins – Vice Chairman and CEO

Harry Cynkus – SVP, CFO and Treasurer

Analysts

Sean Kim – RBC Capital Markets

Joe Box – KeyBanc Capital Markets

Jamie Clement – Sidoti & Company

Dan Dolev – Jefferies

Operator

Good day ladies and gentlemen and thank you for standing by. Welcome to Rollins Inc. Second 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). This conference is being recorded today Wednesday, July 24, 2013.

And 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 4628395. 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 is Gary Rollins, Vice Chairman 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 second quarter 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 other statements that have been made in this call, excluding historical facts, are subject to a number of risks and uncertainties 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 Factor 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.

Gary Rollins

Thank you, Harry. We are pleased with the solid increases that we made in growing our revenues and our profitability for the quarter in six months. As you may recall this year started off slower than last year due to the reversal in weather patterns; extremely cold and snowy in the first quarter of this year versus record setting warm weather in the first quarter last year. The spring finally came a little bit later and pest activity is increasing.

Revenue for the quarter increased 4.8% to approximately 351 million and net income increased 8.7% to 36 million. Revenues for the first six months rose 4.2% to 650 million and net income increased 5.3% to 59 million. The increasing demand for our services was reflected first in residential pest control which was up 5.8% for the quarter, while commercial, excluding fumigation rose 4.4% and termite revenues increased 5.1%.

As I mentioned on our last call we’ve been working with a Boston consulting group and studying our commercial pest control rate cards and our commercial price increase program. Based on their modeling we were able to identify segments that were inappropriately priced and in some case we identified existing accounts they should have been receiving more aggressive price increases. As a result on June 1st when we rolled out our annual commercial price increase program we were able to address more customers than last year and process price increases more in-line with the customers’ market sector, early results have been promising.

One of the most valuable assets is clearly the Orkin brand. We might have a pristine balance sheet but if you want to know why our company has achieved so much of what it has, it has a lot to do with the Orkin name. And we see the power and benefit of this brand in so many ways. A good example of that power was when we were selected recently to do an Undercover Boss segment. John Wilson, our company’s President and COO was featured working with four randomly selected Orkin technicians on the CBS Emmy award winning show which aired May 3rd.

As you can imagine only world recognized companies have been selected to participate in this series. The four technicians and locations were picked by the producers of the program, exemplified the quality of our people and the service we provide everyday as well as illustrating the confidence our customers have in us and the personal relationships we build. Keep in mind that we had no voice and/or control over their selection of our employees.

Orkin showcased on Undercover Boss could almost be regarded as a one hour complimentary infomercial. The reactions of the viewers and our employees have been tremendous. The program generated an audience of 7.2 million viewers and helped break virtually all of our previous web traffic records. As an example in the week leading up to the show’s promotion and the day following the broadcast we experienced the most Google searches for Orkin in any week over the past two years.

Furthermore our human resource teams as a result were kept extremely busy. The day after the segment ran the number of visits to our Orkin career’s web page increased fivefold, from 500 to 2,500. In the next the number of people taking time to complete the application online with Orkin increased over 70%. Since one of our female technicians was featured on the show the female candidates applying for a position jumped nearly 40%. This was terrific as we want more and more women to join our company. We are anxiously waiting for a re-run of Undercover Boss.

On our last call I spent time describing some of our new marketing programs and the new Orkin advertising campaign directed towards establishing Orkin as the pest control expert. We specifically focused on the Orkin man and his knowledge of pest and the science based approach utilized as soft [inaudible]. This theme has been the focal point of this year’s advertising digital presence in our supporting marketing program. We are pleased to report that we’re already seeing higher levels of brand awareness from the campaign versus our campaign versus last year.

Copy test for those of you not familiar with the term is a market research technique that determines in advance an ad’s effectiveness based on consumer responses, feedback and behavior. The results of these tests confirm that our new campaign would be highly effective in making Orkin top of mind when consumers experience pest control problems. Our new advertising is targeted to grow our market share and our customer base.

As a result of this positive response we will be increasing our advertising spend in the second half of this year. As we continue to expand our commercial business we began rolling out Biz Suite application for account managers and commercial prospects. It follows the same fundamentals as our residential Homesuite app which I talked about last quarter. It permits us to show our prospect pictures via a laptop or an iPad of what our inspection of their property uncovered while describing a full array of our commercial offerings.

The app allows the sales inspector to go out to the customers’ facility, document test activity and illustrate a customized treatment program. Additionally our commercial customers will be able to see in advance who will be servicing their facility as well as who they will be speaking with in our office. We are very excited about this tool helping to improve closure and the average dollars sold by our sales people.

Shifting gears I am sure most of you have seen the statistics of the improving residential home sales. This has had a direct bearing on how the Rollins and HomeTeam are benefiting in this regard. We are very pleased with HomeTeam’s first quarter when installs were up nearly 35%, but the second quarter topped that with installs year-over-year being up better than 48%. This resulted in making it a record quarter for installations, the best since we acquired then in 2009. Harry will discuss the impact of this surge on our financials later.

We are also proud that HomeTeam received for the third consecutive year, The Partners of Choice Award from the prominent national home builder David Weekley Home. HomeTeam earned an A rating for service in David Weekley’s national trading partner survey. We are only pest management company to ever receive this well respected award and one of only eight suppliers to earn an A rating this year. Congratulations go out to HomeTeam.

Let me give you an update on our CRM branch operating system initiative, first since we last talked we have added to our I team a senior level leader with substantial industry experience in this type of system development and implementation. We are already seeing improvements in our pace and programming quality. Our new system is currently being tested and operated in a number of different environments, from working branches to administrative centers as well as two of our recent acquisitions.

In conjunction with this new CRM branch operating system we began piloting this month the use of iOS or iPhone technology in our residential branch application. This device will take the place of handhelds. The technicians love this change as it simplifies their day. Its application is expected to reduce the project capital cost by over $5 million initially and reduce the ongoing cost of ownership by $2 million a year when rolled out companywide. There will be some delay in the project resulting from switching to iPhones instead handhelds but the long term benefits make it worthwhile. We anticipate having an extraordinary branch operating system that will benefit all of our branches.

We are back on track to meet our goals for 2013. Furthermore we remain committed to the continuous improvement of our businesses. I feel very fortunate that we have assembled a team across our company that shares the same commitment. I now turn the call over to Harry.

Harry Cynkus

Thank you, Gary. Good morning and thank you for joining us on the call. Since spring has now sprung we don’t need to talk about the weather and with my poetry not earning many accolades last quarter it might be best that I just talk about the numbers.

Second quarter revenues were 350.8 million representing 4.8% revenue growth, enjoying good sequential growth across our three service lines, more about that in a minute. Net income increased 8.7% to 36 million or $0.25 per diluted share compared to 33.1 million or $0.23 per diluted share for the same period last year.

For the first six months of 2013 revenues rose 4.2% to 650.5 million compared to 624.3 million last year. Net income for the first six months of 2013 was 59.2 million or $0.40 per diluted compared to the same period last year, representing a year-to-date 5.3% increase in diluted earnings per share.

The fundamentals that drive our business remain positive. Pest control lead growth strengthened over the course of the quarter, while termite lead showed good improvement as well. We saw positive improvement in closure while pricing held steady. Retention is running good as we expect. Clearly we continue our positive momentum within the key drivers of our business. As Gary has said before we are pleased.

Last quarter we ran our annual price increase test which showed little change in the elasticity and as a result, as Gary shared in June, Orkin implemented its traditional annual price increase program for eligible residential and commercial customers. HomeTeam’s price increase program rolls out in July. Both will begin to more favorably impact us in the third quarter. Price increase eligibility is determined based on age of customer, variance in price to current rate charge and contract terms. This year we had a smaller pool of residential customers eligible but a larger pool of commercial. Overall the price increase program increased revenues somewhat six-tenths of 1% in the quarter.

Let’s talk about the service lines that make up our business, starting with residential pest control which represented nearly 41% of our revenue and improved 5.8% this quarter, growing sequentially from 5.4% in the first quarter. We are pleased with this momentum and feeling that our advertising will help strengthen lead growth over the course of the year.

When I talk about our commercial business in the past I sometimes distinguished with and without fumigation. For those new to the company the reason being while the fumigation business is a small portion of our overall business, less than 2.5% and makes up less than 7% of our commercial pest control business the revenue can fluctuation greatly from quarter-to-quarter. Food manufacturing and process fumigations are not necessarily scheduled to occur at the same time from year-to-year. This fluctuation in the business can distort the quarter-to-quarter comparison.

For example this quarter our total commercial pest control improved 3.6%, down slightly from the first quarter’s 3.7%. However when you exclude fumigation from the calculation our basic pest control – our basic commercial pest control grew 4.4% a nice improvement from 3.7% in the first quarter.

This paints a completely different picture of the health of our commercial business. The fumigation portion of our commercial business didn’t perform well in this quarter, down 7% or about $1.5 million. Some of this business we got earlier in the year and some will fall in the next quarter. As a result when the fumigation portion of our commercial business distorts the view of the commercial business I will mention it and when it doesn’t I won’t.

The last service line termite came back strong in the quarter as we expected with a late spring rather than termite swarming as they did last year in February and March, they waited till it got warmer. They are not fools and they did it in good fashion this quarter. Our termite business which makes up for approximately 19% of our revenues was up 5.1%.

For those that waiting anxiously to learn about our bed bug business it was up double digits to 12.1 million for the quarter, with residential outpacing commercial in growth both in dollars and percent. This overall growth was the slowest we have seen although still very healthy. Stay tuned bed bugs have not gone away.

Gross margin for the quarter decreased 10 basis points to 50.3% for the second quarter versus 50.4% in the prior year, due to nearly $800,000 impact from the increase in HomeTeam’s labor and material supply cost related to the substantial increase in TAEXX Tubes in the Wall installed as well as small decrease in overall productivity. Overall the company was up staffed in advance for what turned to be a late spring.

While the large growth in HomeTeam installs nearly 22,000 this quarter versus almost 15,000 last year hurts our margins in the short-term it’s a driver for HomeTeam’s future growth recurring revenue and profitability. Installs don’t drive revenue significantly however they do drive cost. We view this loss of installation as customer acquisition cost and it’s a reasonable one at that. We chose to be conservative and don’t defer or capitalize it on the balance sheet expensing it as it incurs.

Depreciation and amortization expense for the quarter increased slightly, 155,000 totaling 9.8 million. Depreciation was 3.7 million and amortization of intangibles was 6.1 million. For the full year amortization of intangibles typically from value assigned to customer contracts acquiring acquisition will represent a significant after tax non-cash charge of $0.11 this year.

Sales, general administrative expenses for the second quarter increased 3.5 million or 3.3% to 31.2% of revenues which was favorable from 31.7% for the second quarter last year. The decrease in cost as a percentage of revenues was driven by our ability to leverage our administrative and sales salaries along with reduction in bad debt expenses. These savings more than offset increases in professional services related to our commercial pricing initiative as well as higher advertising expense related our new advertising campaign.

The tax rate for the quarter came in favorably at 37.2% for the quarter as we were able to resolve the last of our known state tax issues are expected to return to around 37.6% for the remainder of the year. We continue to operate from a solid foundation. We have confidence in our fundamentals. The company is performing well, the balance sheet is strong. As always our first priority for our remarkable cash generation capabilities remain investing in what we know best. Pest control and only pest control.

At the same time we recognize our responsibility to our shareholders. Yesterday the company declared its regular quarterly cash dividend of $0.09 per share. Earlier this month we announced the company repurchased 172,589 shares at a weighted average price of $24.41 per share. In total 5,125,000 additional shares may be purchased under the share repurchase program.

With the year half over we are pleased, just never satisfied and well positioned for a great 2013. I look forward to talking to you next quarter. Let me express our continuing appreciation to all the Rollin’s associates whose hard work is behind our outstanding result. We’re likewise are most appreciative of our customer to make everything we do possible. Thank you for your time and interest.

With that I will now turn the call back over to Gary.

Gary Rollins

Thank you, Harry. We are now ready to open the call for any questions that you might have.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question comes from the line of Sean Kim with RBC Capital Markets. Please go ahead.

Sean Kim – RBC Capital Markets

Hi, thanks. I have a few questions. First of all on the commercial side with the new pricing, can you quantify what sort of positive impact on growth you will see in the coming quarters what you just implemented in June? And secondly on in terms of HomeTeam I think new home starts are running at close to about $1 million this year. And I think in the past you said you are expecting at least 70,000 installations this year, just about high single to may be 10% penetration.

How do you – are you trying to drive penetration higher than what’s your strategy there? And lastly on the balance sheet I think you basically have no debt and your cash balance is basically at an all-time high. What’s your plan this year in terms of where you deploy capital, are you looking to accelerate buybacks or are you waiting for more acquisitions? Thanks.

Gary Rollins

Okay. Let me start with HomeTeam. HomeTeam has about I remember the numbers from last year about almost 25% penetration in the market that there in 50 markets across the U.S. While our plan is to concentrate in those markets, the issues is when we look at additional markets it’s not necessarily as warm climate. There is not much pest pressure and based on their experience as they’ve moved North it hasn’t worked as well for them as the sectors that they are in.

So right now they deal with all of the large U.S. builders about I think the number was over 40% of their installs so far this year come from the three largest U.S builders. And I think the trend that’s happening in the home building industry for example most of the land has been bought up by the larger home builders, the smaller independent home builders they are having trouble getting financing.

And the model seems to be changing where, very likely the larger builders are going to be even more dominant than they have been in the past. So our relationships with and having natural agreements with those the largest U.S. builders should help HomeTeam in the 50 markets they are in.

Let’s see other question was plans for capital. Yeah, you are right we have a lot of cash I think when did the quarter was over $19 million in cash and no debt. Our first priority has been for many number of years to find and buy other leading regional and smaller pest control companies we continue to have discussions, build relationships. And we would love to do more pest control acquisition so unfortunately it often is a life changing event that finally brings them to the table. But we’ll continue…for that we’ll continue to be our number one priority.

In terms of utilizing that cash if we can’t make acquisitions we review our dividend policy each year in the January Board meeting. And I am sure they will, we have a nice track record I think it’s so many years now 11 consecutive years we’ve increased the dividend minimum of 12.5%. Last year we did have a special dividend.

And stock buyback we bought back – we would have love to buy more shares. We only bought back about 178,000 shares this past quarter. Average price we bought was under $25 and the stock went up late in the quarter and we slowed down our purchases. So we’ll continue working, what’s worked for us with the cash.

Lastly the positive impact in commercial. The price increase was about $0.06 or 1%, little we gathered a little over $2 million from the pricing action in June. Some of our customers are monthly some every other month so we’ll see how it falls in July plus we’ll get the added benefit from HomeTeam which price increase doesn’t go into effect in July.

So the ultimate impact is also is you have to look at what the retention is and the accounts and what not. So it’s kind of hard at this point to project but it should be better than I would think $6 million in total but that’s both commercial and residential and I don’t have the breakdown handy but commercial was more weighted commercial than it was residential this year. I hope that all helps.

Sean Kim – RBC Capital Markets

Great, thanks. Thank you for taking all my questions.

Operator

And our next question comes from the line of Joe Box with KeyBanc Capital Markets. Please go ahead.

Joe Box – KeyBanc Capital Markets

Hey good morning, guys.

Gary Rollins

Good morning, Joe.

Joe Box – KeyBanc Capital Markets

Harry just for the record, big pan [inaudible].

Harry Cynkus

I told him about that.

Joe Box – KeyBanc Capital Markets

Little disappointed, but look forward to hearing what we get on 3Q.

Gary Rollins

Okay, we will work on it.

Joe Box – KeyBanc Capital Markets

Great. So I know you guys don’t want to talk about weather and I certainly respect that but obviously it negatively impacted leads in 1Q and there probably was some unfavorable weather comps in the early part of 2Q. I guess I am just curious if you could maybe run through how lead growth trended per month last quarter?

Harry Cynkus

On the residential side, June was – I start with April and you are right I remember the Atlanta Braves out in Colorado playing a day game the first week in April and the temperature I think was a record 23 or 24 degrees. So definitely spring came mid-April and come mid-April the phones start ringing. We sell some overall some modest lead growth in April and each month April to May, May to June we saw better lead growth and ended up with strong lead growth in June and July is trending well.

So how much is weather, how is our new advertising I think at this point it’s no longer weather, it’s the case of brand recognition I think Gary talked about – I don’t think a lot of people after watching Undercover Boss ran out and bought pest control but did plant the thought in their mind 30 days, 60 days when they see that cockroach or the ants, they’re going to have a very favorable impression and should have a right impression as to the great service that Orkin provide.

Termite starts swarming in April and we saw consistent strong lead growth April, May and June in termite. And in commercial our commercial team is they that’s not so much a lead driven business. We changed management less than a year ago in our national account commercial sales team and they seem to be reinvigorated and we are getting some good traction there. So we feel good about our prospects for the rest of the year here.

Joe Box – KeyBanc Capital Markets

Okay. That’s good directional kind of commentary by month. Can you maybe just give us the year-over-year change. If my memory serves right I think leads were actually down 20% in 1Q, do you have what that comparable number was in 2Q?

Harry Cynkus

Yeah, they weren’t down quite 20, I don’t think it was but in the first quarter, yeah, the second quarter it approach double-digit lead growth, I don’t have that data right here.

Joe Box – KeyBanc Capital Markets

Okay, perfect. So basically you saw kind of snap back.

Harry Cynkus

Oh, yeah.

Gary Rollins

And the good thing is that if you’re going to have a down quarter, you want the first quarter to be down. It’s just the size of the quarter. So as Harry said we are very encouraged with our advertising and the interest that it’s creating. We have the weight of keep up with the data as far as our Internet hits and we can really kind of back cast as far as looking at the generic Google information to see really if is it the season or the advertising.

So we will be able to – I wish we can determine that as we go but we will able to determine what have the biggest impact.

Joe Box – KeyBanc Capital Markets

Okay, thanks. Just a high level question on your longer term top line growth rate, if you go back it looks like revenue growth peaked at around 6% back in 2011. We have seen it moderate over the last couple years kind of into the high 4% range. Obviously this is a strong number given where the macros stand. But I am just curious with HomeTeam coming on nicely and potentially an opportunity to structurally change how you commercially price to your customers, do you think that that implies a reacceleration in top-line growth, are we looking at kind of a stabilization of top-line growth in this high 4% range?

Harry Cynkus

Well I can tell you we are not satisfied being less than 5%. So I think a fair answer would be yes. I mean we certainly think that the HomeTeam ramp up is going to contribute, but there is a lag time, the house has to be completed after we do our install, it has to be sold. And then we are contacting the customers for capture.

So it’s like kind of planting a garden. But there clearly they are going to be making a bigger contribution going forward. And it’s going to be very interesting to see the result of our commercial price increase and this rate – projects. So I mean we are working on different areas to try to increase the growth rate.

Joe Box – KeyBanc Capital Markets

So bottom line it might be somewhat conservative to assume that growth kind of hangs around this, mid to high 4% range.

Harry Cynkus

Yeah.

Joe Box – KeyBanc Capital Markets

Okay, great. That’s good color. And then just one clarification on the prior question regarding pricing, did I hear you right that so far you have only generated 6 million of incremental pricing. Doesn’t it typically come in much better than that, can you just…

Harry Cynkus

That was the impact on one month.

Joe Box – KeyBanc Capital Markets

On one month.

Harry Cynkus

Yeah. It wasn’t 6 million it was six-tenths of 1%, it was $2 million and that was one month.

Joe Box – KeyBanc Capital Markets

Okay. So when you net it out I know it’s still early and you don’t have the retention. Net-net do you think that pricing is going to end up shaping out better than last year flat to last year, maybe even down a little?

Harry Cynkus

It’s better than last year.

Joe Box – KeyBanc Capital Markets

And is that only a function of what you are doing on the commercial front or not?

Harry Cynkus

It is commercial because as I mentioned there were last residential customer is falling into a pool of eligible customers. So the commercial – the residential price increase dollars were quite down 14%-15% from last year but it was more than made up for by the commercial side.

Gary Rollins

Well you also have a factor that the average commercial customer pays more than the average residential customer. So when you increase both up 4% you are going to get a larger dollar figure of the commercial account.

Joe Box – KeyBanc Capital Markets

Perfect. That’s a great clarification. Thanks guys have a good day.

Operator

Thank you. Our next question comes from the line of Jamie Clement with Sidoti. Please go ahead.

Jamie Clement – Sidoti & Company

Gary, Harry good morning.

Gary Rollins

Good morning.

Jamie Clement – Sidoti & Company

I am just curious, and I understand that for competitive reason you can’t go into everything but as you all – you talked about your residential price your annual residential price increase sort of the methodology and how you thought of that overtime and how that process evolved. How similar as you evaluated the commercial market for price increases, how similar was that methodology to the residential market or was it complete out difference between apples and oranges, and is there any additional color you can give in terms of the pressure point if you will that you and your consults looked out in the commercial market that maybe you wouldn’t have looked at in the residential market?

Gary Rollins

Yeah, I would say it is different. The residential, we look at what our closure rate is by market which tells us how we are doing competitively we see closure in Tuscan is substantially less than what we are getting up the road in Phoenix it might say we were getting ahead of ourselves or behind or whatever. On the commercial we took a different tack and one other thing we were able to do this year is to actually calculate our labor cost or our profitability down to an account level.

So we were able to identify accounts we are losing money on. And then when you figure out you are losing money you have to then look at why you are losing money, is it because something we are doing that we are not doing a good job in solving the customers issue and we have a lot of call backs that don’t generate any revenue or it was just price [bar] that we thought – and so on the commercial, commercial is all about recapturing your labor. And so what we spend a lot of time doing is looking at that relationship as to what the revenue per labor hour was and are we being paid for the work we are doing at a fair return on it.

So it was a much more in-depth look on the commercial side and a different approach versus residential.

Jamie Clement – Sidoti & Company

I must say that is very helpful. And Gary or Harry whoever wants to handle this question, for years we would have assume to see higher rates of revenue growth in your commercial business, just as a result of market dynamics and how fast the market was growing, now you have a more robust housing market which is favorably impacting residential business.

As we look out over the next, let’s say four to six quarters should we sort of view it as a toss-up on a quarter-to-quarter basis as to which you think would post the higher revenue growth number?

Gary Rollins

I would expect it percentage wise that the commercial revenue will be growing faster.

Jamie Clement – Sidoti & Company

Okay.

Gary Rollins

And I think that some of the things that we are doing with our rate cards and as Harry explained with our making sure that our accounts are priced properly I think is going to give us a boost as far as our revenue is concerned and we have been fortunate in a national account area that we have ramped up our sales force and our success rate there. So I really think that commercial will be growing faster than residential. We will take residential and…

Jamie Clement – Sidoti & Company

Yeah no, absolute, I was not asking the question there was no motive behind the question other than you are throwing a stronger housing market it will be interesting to see that will happen with the numbers.

Gary Rollins

In the HomeTeam have off quarters, there is no doubt about that and sometimes the homes are completed in 90 days, sometimes are completed in six months I mean it just depends on there is a lot of variables but we have a pretty good model I mean we know what it was doing when we bought it and we know when it was when the garden kind of came to fruition we know what happens then and the rate of growth is greater than any that they have ever experienced. So it’s going to be interesting to see how that plays out.

Harry Cynkus

And on the commercial side I saw last week we just sold a substantial national account up in Canada that represents $2 million in annual revenue. So the sales team is selling.

Jamie Clement – Sidoti & Company

Okay. Very, very good and Harry I think I would be remiss without just commenting that during that cold stretch of April your outfield just upped and hit 12 home runs, it was only hit $0.04. Take care, thanks a lot for the time.

Operator

(Operator Instructions). Our next question comes from the line of Dan Dolev with Jefferies. Please go ahead.

Dan Dolev – Jefferies

Hey thanks for taking my question. I just want to talk about the big picture marketing plan that you had. It seems like just a few years ago you were spending about 4.1% of your sales and marketing and that’s down to about 3.8%. I think some of your like a key competitor of yours spend about 5% of their sales on advertising. So I am just curious Gary you mentioned the marketing spend increasing to eight. How should we think about the percent of sales and marketing longer term over the next year or two? And are you worried about being out spent by your key competitors? Any color on that would be great. Thank you.

Gary Rollins

Well, I am not worried about the competitors, maybe I should be, but I am not. I think if we look at our advertising very carefully we have the ability as I mentioned earlier to relate that to really the weather or the seasonality. We can look at demand surges and relate that to what we are experiencing and frankly we believe that we will be increasing our spend this year based on the early results that we are seeing from our advertising.

So I would think that we would be spending a greater percentage on advertising this year, but we found that in the past you can’t spend yourself rich. There is a point of diminishing returns, you can’t stretch your season, you can’t make your season start earlier and you just got to be careful that you are getting a return as far as what you are spending.

Dan Dolev – Jefferies

Got it. Thank you, appreciate it.

Operator

And I am showing no further questions at this time. Please continue.

Gary Rollins

Okay. Well thank you for joining us today. We look forward to the next quarter and we will continue to work hard to grow and improve our business. Thank you again.

Operator

Ladies and gentlemen this does conclude our conference for today. If you would like to listen to a replay of today’s conference please dial 303-590-3030 or 1800-406-7325 with access code 4628395. Thank you for your participation. You may now disconnect.

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Source: Rollins, Inc. (ROL) CEO Discusses Q2 2013 Results - Earnings Call Transcript
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