Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Rollins Inc. Third Quarter 2012 Earnings Conference Call. During today’s presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions] Conference is being recorded today Wednesday, October 24, 2012. At this time, I’d like to turn the conference over to Marilyn Meek [ph]. Please go ahead, ma’am.

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 pass code 4568454. Additionally, the call is being webcast at www.viavid.com and a replay will be available for 90 days. On the line with me today are Gary Rollins, President and Chief Executive Officer; and Harry Cynkus, Senior Vice President, Chief Financial Officer and Treasurer. Management will make some opening remarks, and then we will open up the line for your questions. Gary, would you like to begin?

Yes. Thank you, Marilyn [ph], and good morning. We appreciate all of you joining us for our third quarter 2012 conference call. Harry will read our forward-looking statement disclaimer, and then we’ll begin.

Our earnings release discusses our business outlook can contain certain forward-looking statement. These particular forward-looking statement 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 risk may differ materially from any statements 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, 2011 for more information on the risk factors that could cause actual results to differ.

Thank you, Harry. I’m pleased to report that following a very strong first half, we continue to post solid performance in our third quarter. Revenue for the quarter rose 5% to $340 million, and net income increased to approximately 10% to $32 million, with all of our brands and service lines contributing to our growth. Residential pest control had a 7.5% increase. Commercial pest control posted a 4.3% increase, excluding fumigation. This was the third consecutive quarter of increased revenue growth for commercial, and the best quarters for commercial in a while. Termite was up 1.8%. We have from time-to-time over the past few years talked about our ability to grow our business in all types of economic environments. At the forefront of this capability is the makeup and balance of our revenues, which come from different sources at different times through the year. Although, our company’s concentration is all under the pest control umbrella, there are multifacets to this business. Residential pest services, commercial pest services, which consist of local and national accounts. Termite control, new construction termite treatments, new home tubes in the wall, fumigation, ancillary services and so on. Another strength of the company is our geographic diversity, which is accomplished through our over 400 branches located from coast-to-coast. For those of you on the call know, one never experiences the best, or the worst weather all the time. For example, this summer the drought in the Midwest dampened our growth opportunity there. A drought typically translates to a increase in pest pressure and prospect demand. More than offsetting the Midwest handicap, we had other areas of the country which have done very well weather wise and business wise. Although, you can never plan precisely or anticipate all the business ups and down, it’s very beneficial to…

Thank, Gary. Good morning, and thank you all for joining us on the call. I don’t think that Gary left me with much to cover. Well, maybe a few financial facts. Today, we reported revenue of $340.2 million, representing 5% revenue growth. Net income increased 9.5% to $32.2 million, or $0.22 per diluted share, compared to $29.4 million, or $0.20 per diluted share for the same period in 2011. Year-to-date revenue is $964.5 million, a 5.3% increase, while net income increased to 11.8% to $88.4 million. EBITDA totaled $170.6 million, while EPS has increased 11.1% to $0.60 per diluted share. We continue to maintain our solid momentum, and seeing no significant changes to the fundamentals that drive our business, lead, pricing, closure and customer and employee retention. All working together to position us well for the remainder of this year, and a great stepping stone for next year. Let’s get deeper into the results. This year we have seen revenue growth across all brands and all service line. Another strength of this company is its recurring revenue model, nearly 80% of our revenue is recurring. The beauty of a recurring revenue is, it recurs and continues to recur not unlike a magazine subscription, that stability of that recurring revenue, is the driver and consistency of our performance. Life’s a lot easier when you just need to replace 20% of your non-recurring revenue each period. Leads, sales, closures, pricing are all levers to work in replacing that 20%. But it’s equally important to constantly work and improving customer satisfaction. And that drives your retention on the other 80%, and that determines your long-term success. Let me first address what’s happening with that 80% base of recurring revenue. First, as Gary has already mentioned, we have continued to see improvements in our…

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

[Operator Instructions] Our first question is from the line of Clint Fendley of Davenport & Company.

I joined the call little bit late, so I apologize. But I wondered if you update us on the HomeTeam growth that you are seeing there in the quarter?

Yes, HomeTeam was our second fastest brand in terms of growth. Their revenue numbers were up in excess of 7%. What was really encouraging the growth in their installs with builders. Builder installs this year are up 30% over last year. Total installs will exceed 50,000 this year. They feel with the growth they’re seeing confidence. Between the builders and the buyers, they are expecting to see additional strong growth next year. We signed a national agreement there with one of the top home builders, Lennar, for now, which will give us additional development as well. So short-term, it has some pressure on their margin, but long-term, we’re really excited for those $50,000 plus this year, will translate into more than 30,000, 35,000 customers next year.

So is the growth in the install here reflective of just the increased relationships that you guys have been able to establish post the acquisition here a couple of years ago?

I think certainly we work on the relationship, we’re probably dealing with less builders today than we were in 2008. A lot of very small builders that forced out of the business in the economic downturn, but I think building is coming back.

The statistics have indicated, we’ve seen a stronger surge in new home construction within the last 6 years. We are coming from a lower base, but it’s certainly encouraging and as Harry indicated, the way that works is kind of like planting a garden. As we do those, you really don’t generate social revenue to any extent build the new home, homeowners buys the house and activates the system.

Right. And also the longer-term I mean, is it going to be a challenge maintaining this growth rate with HomeTeam, I guess under a sort of the dual brand structure that you guys have or are they just the main Orkin franchise competing in a completely really different space from HomeTeam?

Orkin never has really done new home construction to any significance. So I mean, you may have a branch here or there that does pretty well, but not mainly extend in fact, that was the thing that appealed the most of us about HomeTeam. And plus they have the Tubes In The Wall system which Orkin doesn't have. So, HomeTeam has by far the strongest brand in that whole new construction area, and we don’t really feel like Orkin is a threat or vice versa.

Okay, thank you. I guess switching gears here kind of last question. On the new software cost, I mean, is that something that we would expect to be capitalized then. Is it going to be a much of an expense on those items and can you just help frame how we should be thinking about those costs as we move forward with the implementation here?

Yes. Well, the numbers that I gave you the $1.5 million to $2 million a quarter is something we think that is the non-recurring implementation cost. So that it’s not the-- does not include depreciation, doesn't includes the cost to capitalize. And when we believe once we get halfway through the implementation, the savings that we will be getting from the productivity improvement and the benefits of the system starts to offset that additional running costs that ultimately fully rolls off, rolled out those costs will go away. Now, we’re hoping to complete the piloting in the first quarter and start ramping up the implementation that in the second and third quarters. So we'll have to consider our branches carefully because we'll be in season and probably won’t hit our stride until late in the year in terms of big press on implementing the software.

Thank you. Our next question comes from the line of Jamie Clement with Sidoti & Company.

You all have owned HomeTeam through a real rough housing stretch and obviously, now it seems like things are going to be getting better. Can you talk a little bit or remind us, because I think the last time this was brought up and perhaps when you made the acquisition, can you just talk a little bit about the economics of actually serving a customer once they’ve turned on the system, once they’re in the house, they bought it, and have become a HomeTeam customer, like in other words, approximately how many homes can a technician serves, how many tubes customers can a technician serve in a day versus a traditional pest control technician?

The really nice to think about HomeTeam is, when they sell to the builder, it’s not an option in the house, okay. They go to the builders as a item that goes in all of the houses with the development. So if there is a 30-home development, all 30 homes will have Tubes In The Wall, if it's 2,000 home is that development, all 2,000 homes will have it. With their capture rate as being as high as it is, so once that development gets built out, you put a technician in there to service the homes, but again remember, you don’t have to go in the house do an outside service then you unlock the port on the outside of the box and service it. So the productivity is wonderful. We walk house to house in the development, sometimes don’t leave the development for a week. We do let them go home and have dinner and sleep. So great productivity that are wonderful and we’ll help their margins.

We also have another thing Jamie is our retention is better than conventional pest control.

Okay. And that’s just simply that it’s actually is the system, I don’t know if there is upside sort of to conclude one way to the other, but I mean are there actually having the tubes in the wall actually is that a superior way to control pests?

Well, in some areas it is, because you’re getting back behind the walls certainly and to add to Harry’s comment, I mean if the customer's having a problem inside, if they have mice or they have a rodent infestation that needs additional supplemental service and we go inside. We do what’s necessary to take care of the problem. But I think the biggest reason that the retention is better is that you’re not interrupting their lifestyle. I mean that the family member doesn’t have to be home, it’s much like lawn care to that extent. So you’re not at inconvenience in any regard and then if they do have a particular problem that the conventional application is not taking care of and certainly we do whatever is necessary to take care of the problem.

And the other thing too is, that homeowners bought a house and bought it with a pest control defense system and it’s not unlike buying a house with build-in vacuum cleaner or alarm system or sprinkler system. You bought something and you value it and you utilize it and to the extent and with regards to pest control defense system, your locked into getting serviced by HomeTeam with only Hometeam. So homeowners have a vested interest more so than on a regular service.

Okay. Changing gears if I may, in terms of your lead generation, is that still trending in the direction of the Internet? I was wondering if Gary or Harry, you might comment on mobile and whether that’s an area where you’re starting to increasingly generate customers?

Yes, to respond to the first observation, yeah, the Internet is really kind of the workhorse as of late and which has been well-timed because conventional media just, it’s not doing what it use to do. But we feel get a lot of leads from the Yellow Pages and from our TV advertising et cetera. But I think we continued, internet now has passed what I would consider the conventional phone leads. The second problem or part of that deal was, we are getting very much involved in this whole mobile area. And it’s really amazing what we are seeing in some of these app applications as far as our HomeSuite and, that technology is even kind of leapfrogged the conventional development of software for iPad’s et cetera.

So, the application and we do have run ads on mobile phones, we have a big button call us and it connects right to us. I don’t have any breakdown as to internet leads versus mobile. I haven't seen that. But I know, we can identify the type of phone that these are calls' coming in on. An Apple phone lead seems to work a lot better than a Metro PCS lead. But I haven’t seen any specific numbers broken down one to the other.

[Operator Instructions] Next question is from the line of Joe Box with KeyBanc Capital Markets.

Question for you on your special dividend, which looks like it may have been in place of a buyback for the quarter, I’m just curious would this really a tax uncertainty-based decision, or could you potentially be changing your capital allocation policy at all?

We are not changing our capital allocation policy at all, it wasn’t in place of a stock buyback. We’ve always been a opportunist buyer on the stock. It was pretty strong in the fourth quarter. We didn’t see on the days we aren't the blackout, we didn’t see the opportunity to pick up shares at a discount. So it’s not unusual to see a quarter or 2 that we don’t buy shares but we’re always looking for that opportunity. In terms of, I think everyone is aware taxes are changing next year or so, how clear and in what direction, I guess will be determined in about 30 days. But we certainly have some built up cash. We got great cash generation ability going forward and the board thought it would be nice to gift back to our loyal shareholders to return some capital to them. And they will review the dividend policy as they do every year in January and make an evaluation separate on what the dividend should be going forward.

Great, I appreciate the call there. With respect to the 8 branches where you rolled out the ServiceSuite, can you just give us some of the preliminary results from the system in terms of maybe where you’re seeing some productivity savings and then maybe also highlight some initiatives where you’re starting to see the most success, versus some of the biggest challenges.

It’s kind of a mixed bag really. When you take a branch and put in a new operating system, the first I guess priority is survival, because things are different and things are not working exactly right and they're having to understand new reports and new operating procedures et cetera. So I wouldn’t really think that we could look back and say, that we’ve really seen great gains in the year in productivity, of retention, because of just the commotion that you have when you’re doing these things. You know they say what is it a pioneer, that’s the guy that gives the most arrows and I think that these new branches have certainly have had a more difficult time than the next 8 branches will have. The interesting thing that held truth from the very beginning is that field really likes the system. I mean at no time have they ever said we want to go back on Focus please, stop, et cetera, et cetera, because their routines that they can see the benefit from even though they’ve had some kinks. So all along is the things that one of the factors that have kept us so encouraged is that they can see the benefits. Now, it's not manifested itself yet as far as the bottom line is concerned but we’d have every confidence that they will.

I think we concentrated up to now on the challenges. It’s easy to find the challenges but I think we said something in the last quarter, we see that on the residential side of the business, business is really working really well. On the commercial side that’s where we have some challenge, we need some, add some not as robust as to meet some of the demanding challenges we have in our larger commercial accounts and during this hiatus that’s where the work has been spent. And one of the other challenges, we didn't get the billing quite right. Some of the pre-billing wasn't going out way it used to. We've seen some growth in AR as a result and we're fixing the billing issues as well. So that’s why we have a few more branches to pilot because we would like to give them a more robust version of the software to really be able to have a good branch to measure against. And I think that the first 8 have proven to us the concept works, the software is robust, it adds a lot of things that we want very field friendly, user friendly, but we need to fix the kinks to really measure, exactly how well it’s performing, but it's got a lot of potential.

Got you. And just a follow-up on one of the earlier questions from HomeTeam, if you were to look at the potential trajectory for new housing build and the installs that would be implied there and if you were to pick up your 30,000 customers that you guys are forecasting for next year. What type of revenue growth does that imply for HomeTeam in 2013?

Well, the - good question. Trajectory on growth. I’d be the last person to give you an accurate projection what building activities are going to happen next year-- that consumer confidence stays high, mortgage rates stay low. We saw 30% increase in installs this year, is it 30% next year, is it 3%. We certainly think it that will be more than 3%, but we don’t expect to see a 30% on top of this year. Throw a dart at the wall, pick a number or look at someone who had more knowledge and can predict the housing starts next year that than I can. Their revenue gain as I mentioned they had 7% revenue growth this year. We would expect that to continue and accelerate next year by single-digit.

You can need to keep in mind that half of their business, or more than half of their business is conventional pest control.

60% actually.

So we are talking about half, and as Harry said, there is a lot of unknowns, but I would expect that we will be in a high single digit.

Okay, that’s a great color. Harry, can you just remind me if there is a headwind at all to top line from having 2 fewer work days and would that potentially create a benefit on the margin just from putting in less cost?

The headwind from less work days on our recurring pest control you get that in. I mean you know, you have to do so many service visits in the month and you get in there. What we find on the non-recurring, we have less days, we have 2 less days to do termite completions. So we have 2 less days to-- So you'll see some headwinds in the revenue that you will get back in the month, when you get a couple of extra days. So it affects us on the margins could cost us something on the revenue side few .10s of a point maybe.

Last question for me and then I will turn it over. It looks like you guys opened 4 International franchises so far year-to-date. Can you just refresh us on, what the pipeline looks like there and maybe what the current revenues are, that are generated by the franchises versus the revenues that you are currently getting?

We comment international first or...

Just International.

We’re very excited, I would expect that we’re going to be adding 4 to 6 international franchisees this next year, it could be more. China is very exciting, we’ve just come back from Beijing. We have a lot of interest in China. We’ve been able to kind of piggy back on sister company, our all service companies contacts in China. So we’re pretty excited about that. We are planning to add a person to our franchise team to concentrate in South America. We’ve added our first South American franchise in Chile, so we think that that could be very productive. We have just recently been advised that our United Europe immigrants has gotten one part of the contract that they’ve been working on which is a multimillion dollar pest control contract. So we’re very excited and optimistic about our international franchise. Domestically, we have now about approximately 60, close to 60 maybe more. And the exciting part of that is the acquisition provision, but again I mean we like the idea of royalty income from our franchises, but really what we wanted to do is to grow these $1 million to $2 million businesses kind of off of the balance sheet if you would, and being able to exercise our purchase right and really kind of speed up our growth in a secondary market. It will take 10, 15 years for us to ever really get to it. So I think that this year we’ve got a couple of those just the way the chronology works. But a couple of those were come up for purchase and certainly be a contributors as far as the company is concerned.

Thank you. And I’m showing no further questions at this time. I’d like to turn the conference back over to management for any closing remarks.

We’ll thank you again for joining us. We appreciate your interest and your attendance and we look forward to reporting back at the conclusion of a year on our fourth quarter. Thank you.

Thank you, sir. Ladies and gentlemen, if you’d like to listen to the replay of today’s conference, please dial 1-800-406-7325 or 303-590-3030 using the access code of 4568454 followed by the pound key. This does conclude the Rollins, Inc. third quarter 2012 earnings conference call. We’d like to thank you all very much for your participation, and you may now disconnect.