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Edited Transcript of ROL earnings conference call or presentation 24-Apr-19 2:00pm GMT

Q1 2019 Rollins Inc Earnings Call

Atlanta May 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Rollins Inc earnings conference call or presentation Wednesday, April 24, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gary W. Rollins

Rollins, Inc. - Vice Chairman & CEO

* John F. Wilson

Rollins, Inc. - President, COO & Director

* Paul Edward Northen

Rollins, Inc. - Senior VP, CFO & Treasurer

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Conference Call Participants

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* Christopher Paul McGinnis

Sidoti & Company, LLC - Special Situations Equity Analyst

* James Martin Clement

The Buckingham Research Group Incorporated - Analyst

* Michael Edward Hoffman

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research

* Sean Michael Kennedy

Instinet, LLC, Research Division - Research Analyst

* Timothy Michael Mulrooney

William Blair & Company L.L.C., Research Division - Analyst

* Marilynn Meek

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Presentation

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Operator [1]

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Good day, and welcome to the Rollins, Inc. First Quarter 2019 Earnings Conference Call. Today's conference is being recorded. (Operator Instructions)

I would now like to introduce your host for today's call, Marilynn Meek. Ms. Meek, you may begin.

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Marilynn Meek, [2]

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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 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1 (888) 203-1112, with the passcode 2305197. 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 and presenting are Gary Rollins, Rollins' Vice Chairman and Chief Executive Officer; John Wilson, Rollins' President and Chief Operating Officer; and Eddie Northen, Senior Vice President, Chief Financial Officer and Treasurer. Management will make some opening remarks, and then we'll open the line for your questions.

Gary, would you like to begin?

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Gary W. Rollins, Rollins, Inc. - Vice Chairman & CEO [3]

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Yes. Thank you, Marilynn, and good morning. We appreciate all of you joining us for our first quarter 2019 conference call. Eddie will read our forward-looking statement and disclaimer and then we'll begin.

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [4]

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Our earnings release discusses our business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that have been made on 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 Factors section of our Form 10-K for the year ended December 31, 2018 for more information and the risk factors that could cause actual results to differ.

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Gary W. Rollins, Rollins, Inc. - Vice Chairman & CEO [5]

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Thank you, Eddie. As most of you know, our first quarter is a transitional quarter that leads into our higher-demand pest season. Although we rarely talk about the impact of weather on the business, this year, Mother Nature was particularly unkind, unleashing what some referred to as the polar vortex, delivering some of the coldest temperatures to parts of the country in over 2 decades.

But as we say around here, "Spring always comes, sometimes it's earlier, sometimes it's later." We much prefer earlier, however. But it always comes and with it comes higher pest activity.

This pest activity can be measured by our digital and phone lead flow. March and early April confirmed that spring is arriving and service demand and sales will begin to increase significantly. The good news is that we have already added to and trained our seasonal staff to meet this increasing demand. Although we were hampered with the coldest first quarter in the past several years, we had many important operational successes. These were the result of our previous investments that will benefit our employees and customers. This quarter, we achieved major improvements in both employee and customer retention.

Our new technologies developed to improve our service delivery through our customer routing and scheduling, and as you recall, we enhanced our 401(k) and other benefits. These actions are both paying dividends, and I'll explain further in a minute. Revenues for the quarter grew 5% to $429.1 million compared to $408.7 million for the first quarter of 2018. Net income was $44.2 million or $0.14 per diluted share compared to $48.5 million or $0.15 per diluted share in the first quarter last year.

Eddie will provide greater details on these results. Looking at our business lines in the quarter, residential pest control grew 4.9%, commercial pest control rose 4.6% and termite and ancillary was up 4.8%. Regrettably, our increased employee staffing cost, additional vehicle expense and other season-related expenses grew faster than our revenue. As promised, I wanted to take a minute to elaborate on our enhanced 401(k) plan and other improved employee benefits I referred to earlier.

As a service company, we have long recognized that our employees are our most important asset. And last year, as a result of the opportunity provided by the Tax Cuts & Jobs Act, we elected to provide our employees with better benefits that would have a long-term positive effect for them and their families and our company.

One of the most important benefits we selected to help achieve these goals was Rollins increasing their employee match to our 401(k) program. Prior to January 1, 2018, we matched employee contributions 50% on up to 6% of their contribution. We now match 100% on the first 3% of their contribution and 50% for the contributions up to 6%. The response to this benefit change has far exceeded our expectations, with many more employees now enrolled in the 401(k) program for the first time and many increasing their contribution to the plan.

As a result, we now have a higher percentage of employees participating in our plan. The incremental cost is approximately $1 million a quarter. However, this confirms to our employees that we are investing more in their future. We believe that it also indicates that their confidence in the future of Rollins and the promise it has for them and their families. Other benefits, we also doubled the number of college scholarships, increased paid time-off and provided company stock to many selected tenured employees.

Any day we are anticipating regulatory clearance for our acquisition of Clark Pest Control, a leading pest management company located in Lodi, California. Clark is the nation's eighth largest pest management company according to PCT magazine.

The company operates in 26 locations. It serves residents and businesses throughout California and Northwest Nevada. Clark has a history of excellent service and a very loyal customer base. We are thrilled to have them join our team and are confident that Clark will continue to grow and be a major contributor to Rollins. This acquisition is the largest in our company's history to date. Let me now turn the call over to John.

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John F. Wilson, Rollins, Inc. - President, COO & Director [6]

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Thank you, Gary. While our first quarter results were not what we expected, we have reasons to celebrate and most of that centers around our team members. Gary has already recapped the highlights of our employee benefit enhancements, so I thought it important to share how these improvements are helping our operations.

For the Orkin brand alone, we saw a 33% improvement in our most important metric, employee retention. This meant that we separated from Orkin 224 fewer people. This saves time spent searching for replacement team members as well as dollars spent for training those new hires. We also saw similar employee retention improvements in nearly every other one of our brands in what we all know is a very tough labor market.

During the quarter, we were also pleased to announce that Rollins and Northwest pest control has been awarded a 2019 Top Workplaces award by The Atlanta Journal-Constitution. This marked the third consecutive year for Rollins having been honored for this award and the seventh year -- seventh consecutive year for Northwest's recognition. Rollins ranked 16th in the large business category and Northwest ranked 20th in the list of midsize companies. This honor is based solely on employee satisfaction and engagement feedback gathered through a third-party survey. The survey measures several aspects of workplace culture including alignment, execution, leadership and connection and more than 4,300 Metro Atlanta companies participated in this program and 80,000 of their employees were surveyed about their workplace experience.

Many thanks go to our leadership team who deserve the credit for Rollins achieving this honor. We were also pleased that Rollins was recognized again this year by Training Magazine as one of the top 125 training organizations in the world. This marks the 14th time since 2003 that either Rollins or Orkin has achieved this honor, and we still rank as the only pest management company to have received this acknowledgment.

As we have said many times in the past, the training experience our employees receive is vitally important to their retention and a successful launch to their careers. It is important to us to know that they know that they have a future at our company, not just a job.

Over the past year, Rollins introduced quite a few new or enhanced curriculum for employees, improvements in our residential and commercial service processes, leadership development, multiunit leadership development and customer service, to name a few.

Jerry Gahlhoff, President of Rollins Specialty Brands and VP of Human Resources, sums it up well: "Rollins believes its employees are at the core of developing relationships with customers and employee training is a critical component of ensuring we are well-equipped to support and serve those customers." Gary just noted how excited we are to have Clark join our Rollins family. For those of you who may not be aware, our previous acquisition -- largest acquisition was HomeTeam, more than a decade ago. At the time of that acquisition, they were the fourth largest pest control company in the U.S.

Over the years, HomeTeam has continued to thrive, growing to 52 branches and over 1,700 team members, quite a growth accomplishment by any standard. From a financial perspective, HomeTeam performs extremely well. Over the past 5 years, HomeTeam's revenue has grown nearly 8% on average, faster than both the industry and for Rollins in total.

Additionally, operating improvements -- operating profits have grown at a faster rate than Rollins overall and their customer base is growing faster as well. HomeTeam currently provides services to 18 of the top 20 homebuilders and is the #1 pest control company servicing homebuilders across the nation. They have installed the Taexx Pest Management system in more than 1 million homes.

HomeTeam has also been recognized for the quality of its work, having been the recipient of the highly-coveted David Weekley Partners of Choice quality award for the past several years. HomeTeam performs thousands of services for David Weekley Homes in the 13 cities where it conducts business, and these awards are a testimony to HomeTeam's focus on providing top-notch quality and exceptional service to its business partners.

HomeTeam is just one example of the fine companies that we have added to our family of brands over the years. Thank you all for your time, and I will turn the call over to Eddie.

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [7]

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Thank you, John. The extreme weather and late spring, coupled with several onetime items, contributed to uncharacteristic results for the first quarter. We were well-staffed to provide our best-in-class service. Between a much publicized polar vortex and the substantial rain in all of California and the Midwest, pest demand did not materialize in a normal fashion. For example, there was several days in February that were impacted with snow in unlikely places like Pasadena and Las Vegas.

January was a good month, February a difficult -- a very difficult month and March was a more normal month. Even with late snow in many areas of the country, we see April is off to a favorable start. For the quarter, all of our service lines showed growth and keys to the quarter included impacts of extreme weather patterns, continued improvements in both employee and customer retention and as mentioned, several onetime items that impacted bottom line profitability.

Looking at the numbers, the first quarter revenues of $429.1 million was an increase of 5% over the prior year's first quarter revenue of $408.7 million. Income before income taxes decreased 5.3% to $56.1 million from $59.2 million in 2018.

Expense grew faster than revenue as we prepared for the spring season that was delayed this year. This impacted most of our subsequent financial metrics as well. Net income fell 8.9% to $44.2 million, and earnings per share decreased 6.7% to $0.14 per diluted share compared to $0.15 per diluted share in the first quarter of 2018. EBITDA was $72.5 million, down 4.9% over Q1 of 2018. As we move forward, we will speak more to EBITDA as we add Clark and more customer amortization to the Rollins family of brands.

Let's take a look at the onetime items that impacted the quarter. A normal quarter may see one of these items and not be a material impact. But as several of these were coupled with weather-related lower pest demand, this affected our overall gross margin. The material items were: $775,000 of professional services expense was incurred to work through the unexpected Federal Trade Commission process for the Clark acquisition. Moving forward, we expect to have an additional $250,000 in expense in Q2.

Contractors involved with the FASB leasing accounting change impacted Q1 by $335,000 and will impact future quarters by a similar amount. With the growth of our international operations, coupled by the strong U.S. dollar against foreign currency, the difference year-over-year was $1.3 million. Our tax rate in 2019 of 21% compared to 18% last year impacted the bottom line by over $1 million.

And the last item to note is the increase in 401(k) and stock equity vesting. While we had not planned to see any material difference year-over-year, we were very pleased to see more employees participating at a higher rate based on the popularity of the enhanced benefits that Gary mentioned. 372 additional employees began participating in our 401(k) program, bringing our participation rate up to 95.8% in 2019.

Additionally, the overall contribution per person increased as well. These items impacted both CSP and SG&A for the quarter. The combination of the 401(k) increase and the vesting of equity awards granted last year impacted the quarter by an additional $1.5 million.

As Gary mentioned, we are very excited about the pending acquisition of Clark. And last quarter, John spent some time sharing what he and Jerry learned while visiting employees of this great company. For the first time in my tenure at Rollins, the bankers are very happy with us.

We will be taking out a $250 million term loan tied to LIBOR, using our credit line for $100 million and using cash for the remainder of the purchases. I say purchases because we will complete 2 separate transactions to close the deal. We will first close on the real estate portion of the owned Clark properties, which equated to about 21 properties, and then close on the pest business portion of Clark. We will begin paying these loans back as early as July of this year, with an intent to have all loans paid off within the next 2 years.

As I mentioned last quarter, Clark is very profitable. But with the depreciation, goodwill amortization and loan interest, Clark will not add to EPS in year 1, but will be generating significant additional cash flow. Once the valuation is complete, we will be able to share more specifics of the financial impact. But we know that amortization of customer contracts will increase our overall amortization between 25% and 35% year-over-year in 2019. We will share more related to the anticipated impact of this deal on our total Rollins results moving forward.

Let's take a look through the Rollins revenue by service line for the first quarter. As discussed earlier, our total revenue increase of 5% that included 1.1% from several acquisitions and the remaining 3.9% was from pricing and organic growth. In total, residential pest control, which made up 40% of our revenue, was up 4.9%. Commercial pest control, which made up 40% of our revenue, was up 4.6%. And termite and ancillary services, which made up approximately 19% of our revenue, was up 4.8%.

Both residential pest control and termite were most impacted by the severe weather. Again, total revenue less acquisitions was up 3.9%. And from that, residential pest control was up 4.5%, commercial increased -- commercial pest control increased 2.5%, and termite and ancillary grew 4.3%.

In total, gross margin was down slightly to 49.4% from 49.6% prior year's quarter. The quarter experienced an increase in administrative salaries as we amortized the employee-restricted share grants provided last year. Additionally, fleet expenses were up as leased vehicle expenses were higher as well as increases in contractor expense associated with the new lease accounting pronouncement that I mentioned in my opening.

Depreciation and amortization expenses for the quarter decreased $200,000 to $16.7 million, a decrease of 1.4%. Depreciation increased $400,000 due to acquisitions and equipment purchases, while amortization of intangible assets decreased $600,000 due to the full amortization of customer contracts from several acquisitions. These numbers will change substantially once we complete the acquisition of Clark.

Sales, general and administrative expenses for the first quarter increased $13 million or 10.3% to $139.5 million or 10.3% (sic) [32.5%] of revenues, up 1.6 percentage points from $126.5 million or 30.9% of revenues for the first quarter of 2019. The increase in the percent of revenue is primarily due to the increases in administrative salaries, which were up due to amortization of restricted share grants from 2018, sales salaries as sales increased during the period and personnel-related expenses related to the employee 401(k) match that I discussed.

Additionally, there were increases in professional services related to contractors used to update the leases for the new accounting standard. As for our cash position, for the period ending March 31, 2019, we spent $7 million on acquisitions compared to $43.2 million the same period last year, which did include OPC.

We paid $34.3 million on dividends and had $6.5 million of capital expenditures, which was up 5.7% from 2018, primarily related to planned IT upgrades, such as our BOSS Canada rollout. We ended the period with $116.6 million in cash, of which $60.5 million is held by our foreign subsidiaries.

Yesterday, the Board of Directors declared a regular cash dividend of $0.105 per share that will be paid on June 10, 2019, to stockholders of record at the close of business May 10, 2019. The cash dividend is a 12.9% increase over the prior year. This marks the 17th consecutive year the board has increased our dividend by a minimum of 12%.

Before I wrap up, I do want to remind you that we made the decision to derisk our pension and move it off of our books about 12 months ago. We are on schedule for this to finalize in the third quarter. At that time, we will have a significant onetime noncash accounting charge related to the finalization of this process.

I will share more details in Q2 as we get closer to the end of this process. Gary, I'll turn the call back over to you.

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Gary W. Rollins, Rollins, Inc. - Vice Chairman & CEO [8]

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Thank you, Eddie. Well, we're happy to take your questions at this time.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question from Sean Kennedy with Nomura.

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Sean Michael Kennedy, Instinet, LLC, Research Division - Research Analyst [2]

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So I had a question about the operating margins this quarter. I know Eddie touched on it, but even adding back the $3 million of add-backs that you called out on the press release, it's still getting back to around 14% operating margin. So I was wondering if you could maybe detail some of the other pressures, and then see -- and describe whether they are recurring or just onetime?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [3]

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Yes. I would point you back to the softness of the quarter from a weather perspective, the softness of demand based on the weather. Revenues did not come in as we would typically anticipate, because of the slowness of the spring season, which caused some of that as well. We don't necessarily have that particularly quantified. We're well-staffed across the board, but those -- but that staffing, without the revenue that's there, is going to put some pressure on that as well.

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Sean Michael Kennedy, Instinet, LLC, Research Division - Research Analyst [4]

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Got it. And then one follow-up question on commercial was a little weaker than expected, was that due to weather? Or is there anything else to call out there?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [5]

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You know, I think if you look at that from kind of a roller-coaster perspective, if you look at it over the last 4 years, you'll see commercial growing faster, then you'll see it a little bit slower, then you'll see faster and a little bit slower. I think we just had a quarter that was a little bit off from what we've seen in some of the previous years. If you look back in '18 and even '17, we had some pretty strong commercial numbers that we saw.

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Operator [6]

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(Operator Instructions) We'll take our next question from Michael Hoffman with Stifel.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [7]

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In the fourth quarter, you gave us guidance about the tax rate for the year at 26%. How do I think about the cadence of that tax playing out for the remainder of the year, given the 21% in 1Q?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [8]

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Yes. So we will get to around that 26% for the full year. 2018 was similar in fashion, where Q1 was the lowest tax rate that we had for the year, and then the subsequent quarters, 2, 3 and 4, brought us back to that total number. So I would anticipate a cadence, based on everything we know right now, it would be similar in nature to that. And of course, last year, the tax rate was at 18% with some extraordinary items that impacted that, and the tax rate this year, 21%, lower than the full 26%, but still again higher than last year. But we believe that the subsequent quarters should level that out for the full year to 26%.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [9]

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Okay. And then the revenue shortfall, have you quantified for yourself how much was -- a branch was closed, we couldn't do this service, versus we didn't get a new customer and so you understand -- maybe that the branch was closed and you didn't get the work done, but it's going to get done, how much is that number that shows up in 2Q?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [10]

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Yes. We've not taken the time to go through and break that down. That -- it's really going to be demand that is pent up. And as Gary talked about earlier, we've seen the leads and the phones ringing much more aggressively and it's stuff that we'll see in the upcoming months. As I mentioned, April is off to a good start for us and as that warm weather comes, that demand will come through.

The good news is that John and his team are well-prepared and they are well-staffed, well-trained, ready to go for that.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [11]

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Right. And may I squeeze one other in? What's your borrowing cost so we can do our own analysis of when we get Clark closed and all that and figure out what's going to happen on the balance sheet?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [12]

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Yes. So we do want just one follow-up, but we will have the term loan tied to LIBOR and then the credit line will be slightly higher than that. But once we finish and close, we'll give you some more details on that.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [13]

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LIBOR plus what?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [14]

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What -- we'll give you more when we close.

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Operator [15]

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We'll take our next question from Tim Mulrooney with William Blair.

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Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [16]

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Yes, so Sean and Mike each asked the question, I'm just going to try to ask it one more time. How much did weather impact your top line results in the first quarter?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [17]

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Well, we don't like to say the word weather, and Gary kind of opened with that. It's the reality. As good as we are at being involved with that and as far as the different quarters are concerned, Mother Nature still does her thing. And in this case, it was by far the coldest that we've seen in several years. We staffed as appropriate for a relative normal year. And in -- like an example that I gave, Pasadena is snowing, Las Vegas is snowing. There was more rain in Los Angeles and in Southern California than there was in Seattle during the first quarter. So it's just anomalies that just occurred that we're not accustomed to. When it rains every day in Southern California, we can't do termite work. We can't do a lot of pest work that we can't do in those types of situations. And then when it's snowing in places or polar vortex cold in Chicago, where it's minus 20, we're not digging trenches for termites when it's minus 20 degrees. So we don't have a number that's going to quantify that. It's just very different than what we've seen in the past several years. And Gary has done this longer than any of us, so I don't know, maybe you can put some more color on that?

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Gary W. Rollins, Rollins, Inc. - Vice Chairman & CEO [18]

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Yes, I mean I'm not. (inaudible) I mean it's painful when it's the first quarter. But the good news is, is if you had to stumble, this is the one to do it on, because of the size of the quarter. But I'd like to add one thing, we spent a lot of time developing our bonus plans for our managers and leaders. And our plans are settled quarterly and -- but they also have an annual kicker, so our people get back in the game. I mean so you can have a bad quarter but still pull it out, and that's been very helpful. So we don't have anybody depressed or suicidal. It's just a matter of a bad situation, and it's very difficult to just determine the impact of not being -- get to the customers and not having the leads, which is an important part of our business. I mean I would really imagine that even a mathematical genius would have a hard time trying to figure that out.

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Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [19]

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Yes, that makes sense. Just my other one, Eddie, you said April is off to a good start, right?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [20]

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That's correct.

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Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [21]

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So if I'm looking at the second quarter, which I know is a critical period for you guys, could weather potentially be a tailwind this year? Am I remembering correctly that last year had a delayed spring pest season?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [22]

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Well, the -- I'll ask John to weigh in on this as well, but the thing that I would add is whenever there is extreme moisture, once that dries up, it creates a significant demand on the pest side. And warmer weather are good for us as long as the wet dries up enough for pests to proliferate. So I would say that we would have opportunities, especially in those areas that had significant rain or other moisture, whether it's snow, in the first quarter. We'll see the benefits of that trailing, I would say, this quarter and the following.

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John F. Wilson, Rollins, Inc. - President, COO & Director [23]

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Yes, I think all of those things, Tim, I mean we're seeing a pent-up demand. We had a $1 million day in our call center, which handles residential pest sales for us on Monday. We hadn't had one of those this early in April since 2017. So plenty of pent-up demand, our teams are well-prepared to handle that. I think it'll be a much better quarter for us, no doubt.

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [24]

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Tim, the encouraging part to me, which John talked about during his part of the call, the employee retention, a significant improvement, which has helped us with our customer retention, a significant improvement. So now we go into this pent-up demand time period with higher employee retention, well-trained technicians. We're going to be ready to rock 'n' roll with the demand that is there. So that's the encouraging part to me is how well-prepared we are for what's about to happen or what's happening right now.

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Operator [25]

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We will take our next question from Chris McGinnis with Sidoti Capital.

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Christopher Paul McGinnis, Sidoti & Company, LLC - Special Situations Equity Analyst [26]

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Just maybe to follow up on that. Does that pent-up demand put stress at all on the system? Can you maybe just highlight that, how better positioned you might be, given the kind of the weaker trends in Q1?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [27]

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Well, for me, you don't have a situation where we're going to have to hire additional new people and have then trained as the demand continues to increase. With the employee retention, again, that John talked about and that we've had, we have the productivity and the efficiency already in the network that will enable us to be able to, I believe -- I strongly believe to be able to digest it easily. So it's not that demand is increasing and we're having to add new staff and having to train them and get them up to speed. These people are already on the payroll, they're already trained, they are ready to go. And I think we'll be more efficient than what we maybe would be if we were still adding people during the time period.

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Gary W. Rollins, Rollins, Inc. - Vice Chairman & CEO [28]

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I'd like to add one thing, Eddie, which is also important about the retention. Although you do save on the search and the training, you also save as far as management time. And I think that's an important consideration because it takes a certain amount of management time to go through that sourcing and training and energy during the training. So they'll have more time to really work on our businesses forward.

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Christopher Paul McGinnis, Sidoti & Company, LLC - Special Situations Equity Analyst [29]

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And then just a lot of acquisitions in 2018. Can you maybe just talk about how those businesses are trending versus maybe, you want to just call it the legacy business, as well in the quarter?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [30]

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Yes, from an acquisition perspective, once a year we have a summit to come together to go through all the acquisitions we've had for the previous years. So we track those on a monthly basis to make sure that we are seeing the benefits that we should see. At this point in time, we're very happy. If you look outside of just the Orkin U.S. operation, you look at our Specialty Brands and our international operations, for Q1, they performed very well for us, and we don't -- we're not going to break anything out, we're not going to give any specifics of anything. But they performed very well for us. And in some cases those were newer acquisitions: OPC, newer acquisition; Northwest, newer acquisition. We've increased our footprint in the U.K., Singapore last year, newer acquisition, that have all performed very well for us. And I think seeing those has helped the overall distribution of what we have as far as revenue and profitability. So I think overall, we're in a good spot, and I think in a great spot as far as growth for the future.

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Operator [31]

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(Operator Instructions) We'll take our next question from James Clement with Buckingham Research.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [32]

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Can you hear me?

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Gary W. Rollins, Rollins, Inc. - Vice Chairman & CEO [33]

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Yes.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [34]

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I wanted to ask you, I saw -- I don't know how long it's been on TV, but I saw one of the Orkin commercials featuring like the baby nursery. I kind of thought that was a little bit different in terms of tone than some of your other ad campaigns in the years past, which were a little bit more outrageous, whether it's a guy wearing a bug costume and holding a pizza box and that kind of thing. Any intent behind sort of the change in vibe there?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [35]

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Well, I think we were trying to -- and I'll let John help out with this, but I think the intent was to pull in all of the different support that we give to our customers. And I think if you look at the many different types of ads that are out there, we talk about lots of different scenarios where our customers need our help and our support. And for me, the most favorite one is the female technician that is part of the family. And they show her in the house, they show her helping with the kids homework and they show her making breakfast and stuff. They just consider her to be a part of their family, an extension of their family. And I think that's more of what we're trying to get to, is how supportive we are with people's lifestyle. And by creating a safe pest-free environment and by creating an environment on the outside of a home that are pest-free and that are mosquito-free, enable people to live their lives in a different way. And having Orkin be a part of that I think is really what -- part of what it was that we were trying to create.

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John F. Wilson, Rollins, Inc. - President, COO & Director [36]

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Yes, Jamie, and I would add, so the messaging is all about pest control as an ongoing necessity as opposed to an emergency type of situation. To your point about the big bug holding the pizza box, that's sort of...

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [37]

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Which I loved, by the way. I absolutely love that, just so you know.

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John F. Wilson, Rollins, Inc. - President, COO & Director [38]

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No doubt, but it was really about -- the messaging was about only calling us when you have a need, right? Whereas now, the messaging is about in order to maintain a healthy and happy lifestyle, pest control is kind of a necessity as opposed to that only call when you have a need. So that's kind of the messaging. And then the other piece of the new advertising is it's attention-getting. I mean I was in a hotel in Chicago and I had the television on the news channel and all of a sudden, the television kind of went silent and after a few seconds, I looked up and then it was one of our ads and then it was the one with all of the adults on the back deck having a party. And they we're talking in muffled tones, which by and large, there wasn't much sound coming from that commercial. And so it called me to look up to see what was going on and about the time I looked up, the ad was ending and the Orkin logo showed up. And so in a lot of clutter, we're trying to get -- grab people's attention with that move. And it's -- I think it will pay off for us, it's proven successful early on. We've gotten some really good reviews on it.

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Gary W. Rollins, Rollins, Inc. - Vice Chairman & CEO [39]

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I think if I might add one thing. We do a lot of testing. And so there'll be several creative initiatives that were stopped or discontinued and we select what we feel is going to be the best one for this. You're watching television or the commercials, or cable or whatever, you can just see a similar situation with major advertisers. They are just looking to grab the audience and deliver their message, but if you can't grab them, it doesn't matter what your message is. So we're hopeful and time will tell.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [40]

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I appreciate that. Eddie, real quick, your comments around the range of growth in intangible amortization. Were you getting us back to the fact that you're only talking about 8 months of 2019? Or were you -- didn't mean on like an annualized basis?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [41]

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So that would be the impact -- once we made the acquisition, that will be the impact, that will be the range of the impact on a quarterly basis.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [42]

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Okay, so like a year-over-year basis?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [43]

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Correct.

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Operator [44]

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Our next question will come from Michael Hoffman with Stifel.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [45]

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You gave a bunch of data, which the phone was breaking up, unfortunately, so I didn't know whether it was -- you gave the growth rates. I think you gave us the totals, the 4.9%, 4.6%, 4.8%. The next group, was that organic, the 4.5%, 2.5% and 4.3%, res, comm and termite?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [46]

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That is correct.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [47]

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Okay, I couldn't -- the phones were breaking up, unfortunately. So inside that 4.5% and all those numbers, because of the weather and the disruptions, is virtually all of that retained business and add-on services plus price versus new customer adds?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [48]

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Well, we'll have new customer adds in certain parts of the country. I think the majority will come from the categories that you mentioned. But there are -- there's certain parts of the country that were less impacted by the weather than others. I mean if you look at the Midwest, they were probably the most impacted, then I would probably say California is were -- kind of followed that. But there were other areas of the country that were less impacted and we would have new customer growth that would come from there.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [49]

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And that's why you're saying that retention across all 3 businesses improved year-over-year, because -- in each of the biz segments, because you're, part of getting the number, the organic growth number you were, you had to improve the quality of the retention, too, right, given the disruption in new leads?

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [50]

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That's right.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [51]

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Okay, that's what I was trying to get at.

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Paul Edward Northen, Rollins, Inc. - Senior VP, CFO & Treasurer [52]

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Yes, so the -- so we, again, we believe that the tie between the improvement in the employee retention, again, that John talked about, is always a great correlation for us on customer retention, and we've seen that now a couple of quarters in a row, where we've seen pretty healthy improvement.

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Operator [53]

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I will now turn the call back over to our speakers.

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Gary W. Rollins, Rollins, Inc. - Vice Chairman & CEO [54]

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Okay. Thank you for joining us today. We appreciate your interest in our company, and look forward to updating you on our progress in the second quarter call. Thanks, again.

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Operator [55]

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Ladies and gentlemen, thank you for joining today's conference call. The call has now concluded. Please disconnect your lines and have a great day.