Rollins Q4 2007 Earnings Call Transcript

|
 |  About: Rollins Inc. (ROL)
by: SA Transcripts

Rollins, Inc. (NYSE:ROL)

Q4 2007 Earnings Call

January 23, 2008 10:00 am ET

Executives

Susan Garland - Investor Relations

Gary W. Rollins - President, Chief Executive Officer, Chief Operating Officer and Director

Harry J. Cynkus - Chief Financial Officer and Treasurer

Analysts

Clint Fendley - Davenport

James Clement - Sidoti & Company

Patrick Stowe - Priority Capital

Operator

Ladies and gentlemen, good morning. Welcome to the Rollins fourth quarter conference call. (Operator Instructions) I would now like to turn the conference over to Susan Garland. Please go ahead, Madam.

Susan Garland

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 212-827-3777. We will send you the 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 1-800-405-2236, pass code 11106089. Additionally, the call is being webcast over www.viavid.com and a replay will be available for 90 days.

On the line with us today are Gary Rollins, President and Chief Executive Officer; and Harry Cynkus, Chief Financial Officer and Treasurer. Management will make some opening remarks and then we’ll open up the lines for questions. Gary, would you like to begin?

Gary W. Rollins

Yes. Thank you, Susan. Good morning and thank you all for joining our fourth quarter and year-end 2007 conference call. Harry will read our forward-looking statement disclaimer and then we’ll begin.

Harry J. Cynkus

Thank you, Gary. Our earnings release discusses our business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that may be made on this call excluding historical facts are subject to a number of risks and uncertainties and actual results 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 on Form 10-K for the year ended December 31, 2006, for more information on the risk factors that could cause actual results to differ.

Gary W. Rollins

We were pleased with our fourth quarter results and record performance for the full year. As stated in our news release, this was the tenth consecutive year of improved financial results and we remain optimistic about our future. Revenues for the quarter increased 5.5% and 4.2% for the full year. This growth was a result of the momentum of our sales and marketing programs.

Our commercial pest control segment had a particularly strong year with our commercial sales team delivering our best overall results and the best year-over-year improvement in the history of the company. For the fourth quarter, commercial pest control sales were up 25% and up almost 14% for the full year. National account sales were equally impressive with a 45% increase over last year and up 16% for the year.

It should be noted that a good portion of the sales that were made in the fourth quarter are just now beginning to produce revenue in the first quarter of ’08. As an example, we have almost 3,500 new individual store locations for three national accounts that are now scheduled to start service in February.

I would like to voice my appreciation and acknowledgement to the members of our commercial sales team for such a terrific year and we are looking forward to an even better ’08.

Our specific industry concentration and excellent service performance are enabling us to increase new contract pricing. In 2007, we increased our average new commercial sales price by over 15%. Our average contract for our commercial customers has increased almost 23% over the past two years.

The maturation of our commercial and national account sales force, bolstered by greater experience and savvy, have likewise generated improvement in our average sales per employee.

As you can see, we are pretty pleased with this business segment.

Let me now turn to our other two service offerings, residential pest control and termite control. As many of you are aware, these units earlier were negatively impacted by the drought conditions in most of the country during the first half of ’07. We were fortunate, however, that our investment in web marketing helped offset our fall-off in conventional advertising leads. I’ll comment more on this in a few minutes.

We overcame this handicap and saw an increase in demand in both residential and termite services late in the season that carried through until the end of the year.

Another point concerning our termite business is there was significant reduction in termite claims and related expenses this past year. The number of paid claims for the year was down over $5 million and we ended this year with 26% fewer open claims than last year.

To put our claims in perspective, you need to keep in mind that less than one-half of 1% of our customers filed a claim in ’07 and those that did, close to 100% have been resolved to their complete satisfaction. Fewer claims, happier customers.

The revenue growth we enjoyed in all three lines of our business just mentioned is attributable in part to our national Orkin customer service center, or OCSC. We established this in ’06. Their role in part is to receive and sell the majority of our residential pest control leads and help us acquire and forward to our branches the termite control leads. We expect OCSC to contribute even greater to our growth this year as we

improve in both of these areas.

We are also pleased to have significant improvements in customer retention in commercial pest control and termite control. Residential pest control was flat.

Now let me expand on my earlier Internet marketing comments. During ’07, we continued to build upon the investment that we made in this area the previous year. This strategy is allowing us to use our size and national branch network to a competitive advantage. We expect our number of prospects for both residential and commercial web leads to increase even further in the new year.

Most importantly, we are continuing to learn how to better attract these prospects and convert an even higher percentage of those web leads into new customers.

To help us achieve these objectives, we’ve engaged a new search agency last month, 360I, to help us make it easier for customers to access Orkin. At the same time, we engaged in a new yellow page agency, YPM, to assist in improving our marketing in this area and to help us find new customers at a lower cost per customer.

Last year we determined that we needed to improve how we advertise and promote the Orkin brand in conventional media -- radio, TV, cable, et cetera, and subsequently hired The Richards Group of Dallas, Texas, as our agency of record.

We felt we needed to do a better job of communicating with our prospects and to be more effective in reaching our target audience. We’ve been working with them for the past few months and are very excited about our new partner and the work that they are doing with their advertisers, which incidentally will begin airing prior to our next conference call.

We are continuing to make progress on our routing and scheduling management system, or Orion, as we’ve named it. We expect to go live at several of our branches early in the second half of this year and we plan to have a completed and field tested system before the year is out. Due to our size, it may take as much as two years for a complete Orion rollout.

As stated on our last call, in preparation for Orion’s implementation, we are currently utilizing Map Point software, an off-shoot of our GPS system, to begin the first phase of route organization. Part of this initiative involves refining and standardizing our customer data, which likewise will be a precursor to our Orion conversion.

We continued to invest in our greatest asset, our people. Last year’s training became available to all employees in the U.S. and some parts of Canada via our Orkin TV satellite network. We also launched what we called our lifetime learning initiative aimed at helping all of our field employees grow and develop throughout their careers.

A top priority this year is to identify specific performance-based training opportunities to help employees develop to their highest potential. We were recognized this month for the sixth year in a row by Training Magazine as one of the top 125 companies that excel in human capital development.

Following on from our women’s leadership conference last fall, we have formed a women’s resource group to further develop initiatives to both recruit more women to Rollins and Orkin and to advance the careers of those presently at the company.

We are always proud of the individuals in our company who receive industry recognition. During ’07, among those distinguished were Paul Hardy Sr., Technical Director, who won the prestigious President’s Award from the National Pest Management Association; William Graves of Orkin's Indianapolis branch was named Termite Technician of the Year by Pest Control Technology Magazine; and our public relations team won the Silver Anvil award from the public relations society of America for its work in publicizing the recent increase in bed bug infestations throughout the U.S.

Overall we are very proud of our accomplishments this past year but remain challenged to improve. The more we accomplish, the more motivated our team is to stretch ourselves to improve our company for the benefit of our customers, employees, and shareholders.

I have mentioned a few objectives and plans we have for this year and we’ll be discussing these and others with you over the next quarters. I hope you can sense that we are extremely excited about our company’s opportunities in 2008.

I will now turn the call over to Harry. Harry.

Harry J. Cynkus

Thank you, Gary. Today we reported that fourth quarter revenue grew 5.5% and thanks primarily to our commercial sales team, this represents our best quarter for growth this year. Revenues totaled $216 million compared to $204.7 million for the fourth quarter last year. Net income for the quarter was $11.9 million as compared to $10.5 million last year, a 13.2% improvement, while diluted earnings per share this quarter is $0.12, a 20% improvement over the $0.10 reported last year in the fourth quarter. For the full year, revenues rose 4.2% to $894.9 million, net income rose 12% to $64.7 million, and diluted earnings per share increased 14.3%.

All EPS calculations are adjusted to reflect the three-for-two stock split that was effective in this quarter.

I’m particularly pleased to expand our discussion on this quarter’s revenue growth and the positive growth in all of our business lines. It’s been difficult to miss all the talk of economic concerns in the headlines these days but we have not seen much of an impact on our business to date. As Gary has previously stated, rats, roaches, and termites don’t read the Wall Street Journal.

But seriously, we are fortunate that pest control historically has been recession resistant.

Let’s start with our commercial pest control, which has been a key strategic focus of ours. This year it represents 44% of our business, though representing almost 46% in the fourth quarter. Excluding commercial fumigations, our commercial revenue grew 10.3%. Let me repeat that -- our commercial revenue excluding fumigations, which is somewhat lumpy, grew 10.3%. That just sounds and feels so good. And including fumigation grew 9.8%.

For some time, we have stated that we felt our commercial pest control offering has the opportunity to not only outpace the residential pest control’s growth rate but approach 10% growth and this quarter’s results certainly validates that statement.

With the continued maturation of our sales force, our average monthly sales for our commercial account managers continues to increase. Fueled by a strong pipeline of sales proposals, we look forward to continuing positive momentum from our commercial pest control business.

Our residential pest control service, which now represents almost 37% of the business, grew 3.4%. Our termite service line also grew. Normally I wouldn’t be bragging about eking out a small, three-tenths of 1% gain in the quarter; however, we believe that industry wide termite business growth may have been significantly negative for the year.

For the quarter, our gross margins improved by 70 basis points. This represented an improvement in gross margin to 45.7% versus 45% last year. Although some progress was made in several areas, the most significant increase in margin is primarily due to continued improvements in the cost of risk. Total insurance, litigation, and claim expense improved 70 margin points. These reductions were due to the success of the company’s loss control programs for both casualty and termite claims, which more than offset an increase in litigation cost in the quarter.

In addition, we experienced improvements in service productivity reflecting the preliminary route optimization that is underway in anticipation of Orion, our permanent routing and scheduling solution. This improvement was offset by greater fleet costs reflecting the higher cost of fuel in the quarter. Keep in mind that major improvements of service productivity will ultimately result in lower fleet expense.

Sales, general and administrative expenses for the fourth quarter ended December 31st increased $5.4 million or 7.8% to 34.6% of revenues from 33.8% for the fourth quarter last year.

Salary expense increased as expected due to the expansion of our staffing in our national call center, along with some higher technology costs related to resulting technology initiatives in this area.

On the favorable side, the company experienced reductions in both bad debt expense and summer sales program costs. Tax rate for the full year was 38.3% versus 39.3% last year due to an increase in our tax exempt interest income and we were able to favorably resolve some state tax issues.

The company continues to generate superior cash flows. Our cash position and balance sheet remain very strong. Cash and cash equivalents this quarter stand at $71.3 million, with practically no debt. We’ve completed the funding of our pension plan with this quarter’s $5 million contribution. Our plan as of 12/31 is now fully funded based in actuarial assumptions. I’m sure a lot of companies would like to be able to make that claim.

Our net cash provided by operating activities for the year totaled $89 million, increasing $3.8 million over last year. We continued to return money and value to our shareholders through our dividend as well as our ongoing stock buy-back programs. Through these two programs, we returned over $62 million to our shareholders this year.

Speaking of dividends, the board of directors in yesterday’s meeting increased the quarterly dividend 25% to $0.0625 per share. This marks now the sixth consecutive year the dividend has been increased a minimum of 20%.

As to stock buy-backs, we’ve purchased 2,373,000 shares in 2007 under our previously approved plan and have authorized an additional million shares to purchase.

Remember, our cash generation will be greater than earnings as nearly half of our depreciation and amortization, or $13.4 million for the year, represents write-offs of intangibles, primarily customer contracts valued at time of acquisition.

This represents a significant non-cash charge to the P&L. Based upon our fully diluted shares outstanding, it represents a non-cash, after tax charge of $0.08 to GAAP EPS this year and next.

Last week we had our 2008 region manager meeting and I don’t remember a prior meeting with this much enthusiasm as voiced this year by our management team. We look forward to report another year of steady and consistent sales and earnings growth as we convert that enthusiasm to execution of our growth and operational strategies.

I will now turn the call back over to Gary.

Gary W. 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) Our first question comes from Clint Fendley from Davenport. Please go ahead.

Clint Fendley - Davenport

Thank you. Good morning and congratulations on the quarter. Harry, a couple of questions here; first off, given the adjustment in the tax rate for the fourth quarter, how should we think about that rate looking forward into ’08 here?

Harry J. Cynkus

I would expect for the first three quarters of next year to probably see a rate right around 39%, maybe a little less, and then as we -- the states are always the wildcard in that as we go through and true that up. This year we had some favorable results but I don’t think the -- I wouldn’t count on the 38.3 being sustainable but Gary is always --

Gary W. Rollins

I’m glad you asked that question, by the way. It’s one that I ask Harry about every month.

Harry J. Cynkus

We continue to work on it but I’m hoping for tax relief in next year’s congress.

Clint Fendley - Davenport

Okay, and on the pension change from the liability to the half-secure, was there any impact on the P&L from that?

Harry J. Cynkus

No. All of that runs through other comprehensive income and retained earnings.

Clint Fendley - Davenport

Okay, and Harry, on the termite claims, do you have the actual number for the quarter?

Harry J. Cynkus

I don’t have that right handy. I’ll have to get back on that.

Clint Fendley - Davenport

Okay, that’s fine. And I guess Gary, any thoughts on why we’ve seen the negative growth across the industry here? What could be driving that?

Gary W. Rollins

I think the biggest thing is the weather. I hate to give you a weather report but probably 40% or 50% of the country had really drought conditions or severe shortages of rainfall and I think that one of the key learnings here is we always knew that moisture was important, as was evening temperatures, and I think this year was very educational because we really saw exactly how important it was. I mean, we can almost track our conventional leads by the relative rainfall variance throughout the country.

Clint Fendley - Davenport

Okay. Thank you. That’s helpful. Harry, I guess on the cash, we saw the balance come down just a little bit sequentially. Any thoughts on what drove that flux?

Harry J. Cynkus

This quarter there was substantial share repurchase in the fourth quarter. I think it was 566,000 shares at an average price that was over $19, so a lot of that money was returned to shareholders through the share buy-back program.

Clint Fendley - Davenport

Okay. And final question, any thoughts -- obviously a lot of momentum it looks like here on the commercial side as we head into Q1. Just any preliminary thoughts on the quarter.

Gary W. Rollins

Well, we’re optimistic. We certainly don’t do earnings projections, forecasts, but we are optimistic. We think for the reasons that I mentioned that we’ve got a lot of revenue that was generated in the fourth quarter, which is typically unusual historically, or a lot of the sales, rather, will convert to revenue in the first quarter of this year, so -- you know, we hope we’re not foolish. We’re certainly oblivious to the economic uproar but we think that we can control our destiny. We’re certainly in a lot better position than most companies that are really vulnerable to borrowing money and a lot of the factors that take place.

Furthermore, we have never been a company that had a large weighting towards new construction or new homeowners and I guess that’s a good news, bad news. We probably over the year should have done a better job with that but the good news right now is that that’s not going to really impact us like it will contractors and a lot of other pest control companies that have really concentrated on new construction.

Clint Fendley - Davenport

Do you think that that could potentially open up some opportunities for you on the M&A side with some of the regional players here that do have more exposure to the real estate market?

Gary W. Rollins

Well, I’m hopeful that the kind of a down year in the prospect of -- you know, for some competitors may be not an encouraging prospect for ’08 that there will be some motivation as far as selling businesses. You never know but I think that if people have succession plans, estate plans, and you know, kind of look at the prospect of maybe having two disappointing years in a row, that this may give them the motivation to decide that they need to sell their business.

Clint Fendley - Davenport

Thank you.

Operator

Thank you. Our next question comes from James Clement with Sidoti & Company. Please go ahead.

James Clement - Sidoti & Company

Gary, do you -- I don’t know if this number is something that you all disclose but I know you mentioned three large accounts, 3,500 new locations hitting the commercial business in February. Can you give us a rough sense of what the breakdown is in your commercial business between national accounts versus independent local businesses?

Gary W. Rollins

I’d have to give some thought to that.

Harry J. Cynkus

The total commercial business is in the neighborhood of for the year is just under I think $400 million, and our national account business is $30 million to $35 million, so the national account business is less than 10% of our commercial business.

James Clement - Sidoti & Company

But I would also, and this would be the follow-up question, is it seems like you all are extremely pleased with your national account sales team, so I was trying to get a rough sense of is that the area of the commercial business that you think the really super strong growth would be the most sustainable over time.

Gary W. Rollins

The biggest investment that we made was in what I would call local commercial or regional commercial. I mean, we may have added one or two sales men on our national account business.

I think the biggest thing you are seeing in national account is the -- really the service improvements and frankly some of the deterioration in the service among some of the competition because pest problems for national accounts are really a big deal. They just cringe over having a headline or the newscast or something that talks about a pest problem in some of their locations.

So I think it’s the maturation of our national account sales force, I think it’s the fact that some of our competitors have stumbled. Now, the good thing about this business that I commented on, it was all at higher prices than the competitors had it for, so that makes you feel good.

I really have no interest to go in and cut the guys deal and get this based on price.

James Clement - Sidoti & Company

And Gary, the way you guys can accomplish that, is that -- is your feeling on that is just a higher quality of service.

Gary W. Rollins

I think -- exactly. I think, as I mentioned, the consequences of bad service or a cheap deal is just getting so significant and I think when you call on these people, you can tell very quickly in the visit that they are very concerned about keeping their company out of the paper and they are really concerned in getting good quality. More so, I’ve been in the business 40 years. I’ve never really seen the level of concern about not having pests to the extent that they exist today.

James Clement - Sidoti & Company

Okay. Changing gears just a little bit, earlier this year you started talking about it a little bit on the calls and talked about it again here, but Internet leads -- how untapped a resource is that for you? I mean, roughly what percent of your residential business, the new business is now being originated from the Internet? Would you have a rough guess on that?

Harry J. Cynkus

I’m trying to -- I don’t have anything here in front of me. A little over half our business came through our national call center, but that includes calls and Internet. Internet continues to grow at double-digits -- I’m struggling for what the range is right now.

Gary W. Rollins

I would say in a 20% to 30% range. I mean, we can get back with you and get maybe more --

James Clement - Sidoti & Company

That’s okay but it sounds to me like that’s -- I mean, it’s --

Gary W. Rollins

-- is of course when you are just starting, the increases are pretty dramatic from a percent point of view, and the wonderful thing this year was that you heard about a perfect storm. I guess this was a perfect situation because the conventional advertising was just -- which typically is the -- is influenced, you know, by the weather, the pest -- our advertising and our pest pressure, if you would, but we just had the web thing coming on with some of the investments and the changes that we made with our website, the changes that we made at our call center.

I think I’ve mentioned before one of the tricky things is if people source with the web but they don’t want to really conduct business on the web. Now you have to figure out how do you convert a web lead to a phone lead and efficiently? So we think we’ve -- I guess we don’t know what we don’t know, but we think we are smarter than we were two years ago.

James Clement - Sidoti & Company

But it also sounds -- and correct me if I’m wrong -- I mean, it sounds like this is -- you sort of just kind of scratched the surface here and you expect your --

Gary W. Rollins

Well, we think so. We can just see a greater part of our advertising budget going in this regard. Of course, one of the reasons that we increased our staffing at OCSC was to make sure that we handle these leads on a timely basis.

A pest control lead is not something that you can put on a shelf and work on when you get around to it. When people really get motivated because of a pest sighting, or just total frustration because they haven’t been able to fix it themselves, they want to do something and take care of it. So you really have to be responsive when you get these leads.

James Clement - Sidoti & Company

Okay. Thanks very much for your time.

Operator

Our next question comes from Patrick Stowe with Priority Capital. Please go ahead.

Patrick Stowe - Priority Capital

Just a little clarification -- did you say that the claims expense was down $5 million for the year?

Harry J. Cynkus

For the full year.

Patrick Stowe - Priority Capital

For the full year. And do you feel like that’s a pace that can continue? I guess you said the number of clients was down something like 25% at the end of the year, the number of open claims.

Harry J. Cynkus

I certainly won’t sit here today and say we’re going to drop -- we could drop another $5 million in the next 12 months. I think the rate is sustainable, the number of claims in the backlog is down, the number of serious cases I think continues to be addressed.

What we have seen historically in the termite claims, it seems to go in steps. That for a number of years there were 23 million for a couple of years and then you drop down to the $17 million range and we were in $17 million for about three years if you look at history dollars spent.

This year, it took another decrease and some of it is the older customers that we had that were treated with different chemicals in the past become less of our total customer base.

Gary W. Rollins

Yeah, one of the things that, if I can expand on Harry’s comments, I don’t think we’ll be taking this big a bite out of the apple each year but I do think that what we are seeing is really what we’ve done in the past. We put our claims on an early reporting deal, like we do workman’s comp claims, where they have to be called into Atlanta as soon as they are received. There’s a penalty to the branch if that does not happen, so we don’t really have claims lingering out in these branches and I think that was one of the problems that we had in the past, was that they just were not receiving the kind of attention that they needed to receive.

I mean, I think that my expectation is it will continue to decrease but I don’t think it will do so in $5 million clips.

Patrick Stowe - Priority Capital

Right, so I guess -- am I thinking about it correctly if last year it was about a $17.5 million charge, this year it was something like 12.5?

Harry J. Cynkus

That’s correct.

Patrick Stowe - Priority Capital

Okay, and then at some point, I guess you would expect -- I mean, there will always be some base level of claims. You wouldn’t expect that to go to zero over the next 10 years?

Harry J. Cynkus

No, it will never go to zero. I think if you look back at the history of the company, the lowest it was ever was $3 million, but the trends are positive and we have proactive processes in place and we think we’ll continue a favorable trend.

Patrick Stowe - Priority Capital

Okay, that’s helpful. I appreciate the color. And then I know over the last couple of years, you guys have invested in your IT systems, specifically in routing software. Can you give us an update on where you are there and if that’s helping to address the expense structure positively?

Harry J. Cynkus

Well, routing and scheduling will ultimately let us be more productive and efficient. The routing and scheduling initiative has been underway probably longer than we care to talk about it but we are in the final stages here. We’ve introduced it, we brought in a number of key managers, branch managers, region managers, and demoed the system and the capabilities. I think at the last region manager meeting last week, we had four of the region managers who have that desire to be early adopters get up and build enthusiasm and share their experiences to what they see.

So we can’t wait to get it out of the lab and get it live. It’s going through a couple more shakedowns. We have the number of severity one issues is down to a point -- I think we’re working on the final performance tweaking to make sure that when we interface with a customer, we don’t keep them on hold an extended period of time.

So we have a couple more weeks here of testing. We’re running live data. As we mentioned, end of the second quarter, beginning of the third quarter we’ll be live in some branches and begin a full scale implementation before the year is out. It could take us two years to get through the 400 locations.

Gary W. Rollins

I think one of the things that is really noteworthy is this isn’t like changing an accounts receivable system or an inventory system or whatever. I mean, these are customers that are happy. I mean, they are staying with us longer, we successfully service them every month when we’re supposed to, so we really had to be very cautious with this conversion and with this testing and that’s why I guess -- I would suspect that our testing cycle will be twice as long of another system or another type application because we just want to be sure that we don’t end up suffering as a result of this conversion.

Patrick Stowe - Priority Capital

Yeah, no, I certainly understand the importance of it and speaking from a customer’s point of view, I appreciate the benefits of it. I just wanted to make sure I was thinking right about a timeline of returns on that investment and it sounds like we’ll be live at the middle of this year and then cycling into next year, it’s still a little bit out in front of us.

Gary W. Rollins

Right. We’re still -- we haven’t -- I mean, we’re disappointed that we don’t have it in the field. I mean, time is money. We’re disappointed that we continue to have to spend and we don’t have it working for us but we really haven’t lost our enthusiasm as to the positive impact it can have on our business and our bottom line.

Harry J. Cynkus

And part of what we are doing, and we talked about using Map Point to do some route optimization in front of the rollout and we are seeing productivity improvements come from that. And part of this -- it’s really a precursor and it’s part of the change environment, getting people used to doing things different, cleaning up the data, getting used to the thought of optimization from -- so we’re starting -- we saw some productivity improvements in the fourth quarter here with some of the prep work that we’re going into it, so it is kind of exciting to see.

We’re seeing -- and it’s not just in service productivity. We’ll see it in less miles driven, less windshield time, in allowances and accidents. This will affect so many different areas of the business. We’re still excited about it but we still have a lot of other opportunities in the business to improve it.

Patrick Stowe - Priority Capital

All right. I appreciate the color. And then one last one, if I can; did I hear you right that your average pricing on new commercial contracts was up 15% in the quarter?

Harry J. Cynkus

Yes, that’s correct. Now that doesn’t reflect necessarily a price increase. It has more to do -- it’s new contracts and it more has to do I think with the complexity of the customers and the mix of the customer that we are selling more upstream, selling more services than we had in the past. And I think part of that is having a professional sales force being managed and directed, and I think part of it is an outgrowth of what we’ve done in part of our last couple of years, commercial steering project.

One of the things we did is we developed a standard scope of services so that when our sales people did go into an environment they weren’t necessarily familiar with, okay, if I’m going to be in this type of company, here’s at a minimum the service I should provide and it helps them price it properly. And also I think it ultimately results in better retention in customer service because we are doing the service necessary to provide them with a good environment.

Patrick Stowe - Priority Capital

And just on the commercial side, you gave a plus 10.3% number. Is that organic growth for the fourth quarter?

Harry J. Cynkus

Yes.

Patrick Stowe - Priority Capital

And is there any way to break that out between new customer wins versus I guess increased revenue with existing customers?

Harry J. Cynkus

No, we really don’t slice and dice it that finely.

Patrick Stowe - Priority Capital

Okay, the last question I have is I guess you gave me a plus 25 --

Gary W. Rollins

I thought you already had a last question.

Patrick Stowe - Priority Capital

Sorry about that. I appreciate the time. You gave a plus 25% number for the commercial business.

Harry J. Cynkus

I believe that was the increase in sales from the national -- was that the national sales?

Patrick Stowe - Priority Capital

I was just trying to reconcile that with the 10% organic. I didn’t know if there was a --

Harry J. Cynkus

Sales and revenue are two different things. We track sales, that revenue is going to come in over the course of 12 months, and your revenue is your month to month or month to prior quarter change. So when we talk sales, it’s --

Patrick Stowe - Priority Capital

Okay, sales is more of kind of a backlog number, I guess?

Gary W. Rollins

Yeah, or you would sell a contract let’s say for $1,000 -- let’s say $12,000, but you would just get $1,000 a month for the next --

Harry J. Cynkus

Twelve months.

Gary W. Rollins

The next 12 months.

Patrick Stowe - Priority Capital

Okay, I understand. So that --

Gary W. Rollins

So for the first quarter, if we sold it in the last quarter and we started in the first quarter, then you would just get three months of the sale.

Harry J. Cynkus

Yeah, the 25% was comparing sales booked in this quarter versus the same quarter a year --

Patrick Stowe - Priority Capital

Okay, I understand. I appreciate the time and I wish you the best of luck. Thanks.

Operator

(Operator Instructions) We have no further questions at this time. I would like to turn the line back over to management for closing remarks.

Gary W. Rollins

Okay. Well, thank you. I would like to thank all of you for joining us in today’s call and your interest in Rollins and we look forward to you participating on our next call. Have a good day.

Operator

Ladies and gentlemen, this concludes the Rollins fourth quarter conference call. If you would like to listen to a replay of today’s conference, please dial 303-590-3000 or 1-800-405-2236, pass code 11106089. Again, 303-590-3000 or 800-405-2236, pass code 11106089. ACT would like to thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!