Good day ladies and gentlemen, thank you for standing by. Welcome to the Rollins Inc. Fourth Quarter 2012 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, January 23, 2013. I would now like to turn the conference over to Marilyn Meek. Please go ahead.

Thank you. By now you should have all received a copy of the press release, however if anyone is missing a copy and then like to receive one, please contact our office at 212-827-3746 and we will send you a release and make sure you are on the company’s distribution list. There will be a replay of the call which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1 (800) 406-7325 with the pass code 4588006. Additionally, the call is being webcast at www.viavid.com and a replay will be available for 90 days. On the line with me today are, Gary Rollins, President and Chief Executive Officer and Harry Cynkus, Senior Vice President, Chief Financial Officer and Treasurer. Management will make some opening remarks and then we’ll open up the line for your questions. Gary, would you like to begin?

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

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 results may differ materially from any statements 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, 2011 for more information in the risk factors that could cause actual results to differ.

Thank you, Harry. I’m extremely pleased to report that our company achieved record revenues and profits for both the fourth quarter and our full year, marking our 15th consecutive year of increasing revenues and operating profits. Revenue for the fourth quarter rose 6% to $306.4 million and net income increased 6.1% to $22.9 million with all of our brands and services contributing to these results. Revenue for the full year was $1.271 billion and net income grew to $111.3 million. EBITDA, exceeded $200 million for the first time in our history coming in at almost $260 million, excuse me, $216 million. Our ability to achieve record results is due to the commitment and effort of our more than 10,000 employees that work every day to achieve improvements in all we do. The progress we made in 2012 reflects the momentum gained in adding new customers while improving our service and retention. For the quarter, we continued to experience strong demand for our services with residential pest control up 8.7%, commercial rose 4.9% and termite revenue grew 3.6%. We’re particularly pleased with the growth that we experienced in each of these service lines. As reported throughout the year, we continued to see a growing interest in our bed bug services. Companywide, this business grew by nearly one-third year-over-year. We’re amazed in how this business has grown over the last four years, on a service that we didn’t even separately track in 2009, to representing over 3% of our revenues, or approximately $45 million. We continued to experience strong commercial demand for bed bug services. However, it’s not just a commercial problem. Homeowners are becoming more exposed and aware of this pest as we saw a tremendous growth in residential bed bug services, which was up approximately 60% this past year. Mosquito,…

Thank you, Gary. Good morning. Thank you for joining us on the call. It’s always a pleasure to get another record year in the books. With this call, I think we can officially say 2012 is complete. We should take some time now to bask in the joy for another successful year. But don’t worry, it won’t be a long celebration, actually as long as it takes us to drive from here over to the conference center and make sure our management team is focused on making 2013 an even better year. Let’s talk about the results. It was an interesting quarter with a number of challenges which I will touch on. Revenue was strong and with nearly 80% of our revenue being recurring, bodes well for next year. Today, we reported revenue of $306.4 million representing 6% revenue growth. Net income increased 6.1% to $22.9 million or $0.16 per diluted share compared to $21.6 million or $0.15 per diluted share for the same period in 2011. Year-to-date revenue is $1.271 billion, 5.5% increase. Net income for the full year has increased 10.5% to $111.3 million with EBITDA coming in at nearly $216 million. Let’s talk more specific about revenue. We saw revenue growth across all brands, all service lines and possibly all bug groups, well certainly bed bugs. Our residential pest control continues to shine, growing 8.7% for the quarter and making up almost 41% of our business. That’s a nice part of recurring revenue. We have a substantial increase in customers on our books as of December 31 waiting for their service this year. The fourth quarter is not a big lead quarter, but lead growth is growth. The quarter got off to a great start with a nice warm up double-digit lead growth, but then we hit…

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

Thank you. (Operator Instructions) Our first question is from the line of James Clement with Sidoti.

Looking out over the next of couple of months, Gary, you all benefited from extremely favorable weather conditions and I recall that your termite business was up, I believe, 10.5% in the first quarter of last year. If, would you -- obviously weather is totally unpredictable, but I mean if you were to see a 5% or 6% decline in your termite business just the result of the timing of weather, I mean that wouldn’t be something you would be overly concerned about would it?

No. In my 45 years I’ve never seen of a lead increase like we experienced in first quarter of last year. I mean it was just a perfect phenomenon. We do have some programs that I think will contribute that we didn’t have really in place extensive last year and that is our EDS sales management software that we developed which really enables us to look over really our sales performance, our proposal performance and really gives us quick data and quick insight as to what the salesmen are doing. And we’ve seen the momentum pick up, I think that contributed to our last quarter in the year of termites and that’s just going to continue to pay dividends. If you can identify a salesman in trouble and help him, you avoid the turnover and of course you improve your productivity. So we’re suspecting or expecting that that will help us and we’ve gotten better selling ancillary services like our Dry Zone and some of the other products. So the salesmen are not going to want to take a pay cut, and what we’ve experienced in the past is when leads slow down, they work harder to create them. But to your first question, I certainly even with all that, it’s going to be a tough quarter from a termite sales point of view.

Probably the toughest two quarters, we’ve taken a lot of season -- try to take seasonality out of the business with 42% of the business being commercial that gives us a solid base to build on, but you still have a lot on residential side of the businesses and with termite side of business, its impacted somewhat by weather and we see our revenues decline in the fourth quarter and you wait for it to come back on in Q1. I think last year, to put it in perspective, in Q1, half of our profit is made in March. So you hold on, January and February and you’re hoping for an early spring. The revenue differential between January and March, I think last year was $10 million at the month. So when you add $10 million on to mostly larger costs are in place and fixed, gives you a lot of leverage to the bottom line. So last year it was wonderful, warmest February and March in 117 years, the termite business got moved forward into the first quarter, let’s hope for an early spring again this year.

Okay. But even if you get it you’ll still get termite activity in April, I would imagine right.

They reproduce and swarm and they will be back.

Of course. Can you touch a little bit on the acquisition pipeline?

The last year was an interesting year, similar to what we saw four years ago. When there is concern over capital gains rate, lot of people come to table and they want to price the business. We had, we were successful with two acquisitions in the fourth quarter like I mentioned we’ll add about $12 million in revenues next year. We had a few others that we were hoping to get to the finish line, didn’t quite get there, some, I think sellers remorse. We put in place a program to, I guess, we call it a finders bonus plan for our region managers who get a little more active in bringing forward -- build relationships and bring forward more opportunities to us. So we’re actively but it takes a willing seller to come to the table. It’s the number one priority for our cash, so we’ll keep banging the drums and try to find some good pest control companies to add.

Okay. As always, thank you very much for your time.

Our next question is from the line of Joe Box with KeyBanc Capital Markets.

Just wanted to follow up on the deals, can you maybe talk about the business mix of the companies that you bought? Maybe just a little bit of commentary on the margin profile and if you expect the deals to be accretive.

We always expect the deals to be accretive. It sometimes takes a little while to get out of the chute running. You have some startup costs, conversion costs and what not. The acquisition that came on October 1 was primarily residential business. Trying to think the -- about 60%, 70% was residential, 35% I think its termite. The acquisition we closed 12/31 was little over 50% I think will be commercial and the balance residential with very little termite. We expect that, although from an EBITDA standpoint they’re always accretive. Generate a lot of cash, a lot of times it comes down to how much of the purchase price you have to sign to the intangibles and how much that write-off will be, but we expect those margins in both those acquisitions to come up pretty quickly to what our margins run through the business, probably little better. I think in the Florida acquisition, they were in some markets, they didn’t have a big position in some of their markets which was the same markets we didn’t have a big position in. So by combining the operations of the two, we get a good size presence in a marketplace and reduce some of the brick-and-motor cost. So I would think our Florida acquisition within the year should have above average margins for us. The Florida, not Florida, the California acquisition is in a great market, Orange County, long established 40 plus year company, great customer retention. The average customer, when I was in internal audit, was doing due diligence, I think the average age of the customer that happened to be in their sample that they were looking at was over 10 years. So you love it when you have long lived customers, to make for great recurring revenue and predictability of business.

Joe, none of these acquisitions are identical. Some of them, one of them we really have a lot of the administrative costs that we can take out, because they pretty much have a manual service tracking system. And so we know that we can make a big in-road as far as that’s concerned. Often we look at revenue per vehicle. We can see that some of them have too many vehicles; most of them have not been very aggressive with their pricing. We think that we understand pricing well and depending on the time of the year that you acquire the company, you may or may not be able to initiate a price increase, we certainly don’t do that in the winter time. And so we kind of have a process that we go through when we do our models as to which one of these margins that we think that we can move and as I mentioned earlier, they all vary somewhat.

Sure. Excellent, that’s good color. Maybe changing gears a little bit, could you talk about the commercial environment, one, are you seeing any uptick in terms of services being added by your customers or two, are you starting to see the pricing environment improve from some of your competitors. I guess I’m just trying to understand what the main driver is behind some of the improvement in growth.

I think the biggest driver that you have is the effectiveness of your sales force. And we have this biz -- what was it called…

Bizweek?

Bizweek, thank you Harry. So we’re able to have an application that we can share with the customer to show what’s going on in this kitchen, for instance if it’s a restaurant or loading area and really sit down and customize a presentation for that particular location and that particular type of customer. And we’ve now got it located, rolled out I think in all of the U.S.. Some -- I think Western was the last one to be converted. And so we’re seeing a nice part, one of the big contributors to our good quarter in commercial was the fact that our salesmen are more successful in closing them. So to me, we’ve got a lot of opportunity in improving the number of calls that they make and I think this Bizweek will make them more effective as far as their closure is concerned.

I think we’re learning, we mentioned in Gary’s comments bringing on Boston Consulting Group to work with us on the commercial side. They’re tearing apart all the data and looking for the anomalies, but we’re learning a lot about exactly happened in the field, how they’re pricing, how they should be pricing. So I think that bodes well for us, I think we’ll get smarter on the pricing side and that’ll help us typically our price increase on commercial, well both residential and commercial come June or July. So we don’t see anything other than opportunities in the environment. So right now I think its execution and I think we’ll add, be able to add something on the pricing side, getting smarter on how we go to market.

Perfect, thanks. And I apologize if I didn’t catch this earlier. Harry, can you maybe just sum up what the total cost headwind was in the quarter that might not be recurring going forward?

Well, I think the productivity will change. I mean we’re going to bring that back in line, so I think the 30 basis points we lost there, we’ll probably be a little high in January, February and it’ll come back in line with the business in March. The self-insurance, we took 100 basis points to hit there. We’re projecting that to come back in line, but we need to make sure we have safe drivers and safe work environments. The experience we have this year was very unusually outside the norm for us. So that’s an area we had bringing cost down for seven consecutive years. So the HomeTeam, I think we’re going to continue to see hits on the HomeTeam side because we’re open more and more houses get -- come out of the ground, but that’s a good thing because those 60,000 installations we did this year will be at lot of new customers coming on board next year which offsets some of it. The $0.5 million in the revolver and acquisition costs that’s definitely is one-time as well. So we think our margins will come back to where they were historically and we have opportunities to certainly improve on that.

Okay. And maybe I can ask it a little bit of a different way as well. If you look at incremental operating margins, they’ve averaged about 36% over the last four quarters. Obviously it came in at 4% this quarter, which was down for a number of the reasons that you just alluded to. Do you see incremental maybe snapping back to that more normalized range or do you think that there might be somewhat subdued over the next couple of quarters?

I don’t believe there’ll be subdued with the programs we have in place.

Great. That’s all I have. Thanks guys.

(Operator Instructions) We do have a question from the line of Clint Fendley with Davenport and Company.

Sorry if this has already been asked. I got disconnected a couple of times. So I’m wondering what the longer term implications are for the huge uptick that we saw in the HomeTeam installations? Just based on your pipeline of activity and the current low inventories for housing, what is your outlook for this business this year?

We expect it to continue to grow. I think last quarter, we were projecting and thinking 60,000 installed next year and ended up hitting that this year. Based on contracts and homes and the things in the pipeline, it easily could be 65,000 and if housing doesn’t turn down, could hit 70,000. So we might add additional 5,000, 10,000 more installs next year over this year, but the good news is that higher level of installs will start turning into recurring revenue as those homes are completed, sold and we get to sell that homeowner on activating his pest defense system.

Do you think it’s possible given the installs that we had last year and what you’re expecting in the coming year, could that result in potentially a residential growth rate that could accelerate maybe to a level, say 10% or more as a result of the high level of activity that we’re now seeing?

Well, the HomeTeam is $150 million odd out of our $1.2 billion. So we certainly see their growth accelerating to 9%, can they hit 10% next year? I think they’re sandbagging in their projection. They won’t admit they could do 10% next year. So that will certainly trickle down and affect our overall growth rate, but we need a lot of leads coming in and lot of continued success marketing steps and tricks up their sleeve. So we certainly would like to see that the residential business continue to accelerate.

We know that our model works because prior to the recession, we could get a sense of what happens when these homes are sold and it’s just kind of like finding the pump. I mean the housing starts, it really been kind of dismal, they picked up. They’re running at a good pace now. And ultimately these houses will be sold and they’ll start contributing to the profitability. So I mean I think they were expecting a good year from HomeTeam’s this year.

Last question. Could you guys remind me, I know that shortly after you bought this business that you were very optimistic about expanding your relationships with a lot of other builders, I mean just remind me on where you stand on that today?

Well we’ve added -- since we’ve acquired them, we’ve added Toll Brothers and what was the one on…

They do business with the, I think 20 out of 20 of the top builders in United States today. And have expanded their relationships with and gotten further penetration into those accounts. So they just signed a national agreement, I think we talked that last quarter, quarter before with Lennar that’s going to add several thousand homes next year. They had a wonderful relationship with Semtex, because they were owned by Semtex, but Semtex then got sold, bought by Pulte and we expanded that relationship.

Because Pulte wouldn’t buy from us.

No, it was Pierre Gordon that wasn’t.

One of the large firms wouldn’t buy from when we were, when Semtex owned the company. As soon as Semtex we sold the company, yes, we’ve expanded that relationship. So our people have done well. One thing that should contribute is during this lull, we lowered our prices quite a bit just try to get as much volume as we could to offset our overhead. And as the housing starts to return, then our rates have gone up. Any more questions? Okay well thank you for joining us today. We look forward to the new year.

Excuse me sir. We do actually have a follow up from Joe Box from KeyBanc Capital Markets.

Hey sorry guys, got it in. We noticed that you didn’t put out a buyback press release before the earnings release. And it doesn’t look like you guys bought back much in a way of 4Q. I guess just for our own modeling purposes, where are you guys in the market so far in 1Q and maybe can you give us a sense of what your current share count might be?

Well the current share count outstanding is right around 146 million. We didn’t put out a press release for 4Q because we didn’t have anything to report. We weren’t in the market in the fourth quarter. We’ll let you know what we buy in the first quarter when it’s over. We’ve always been opportunists when it comes to purchasing the shares, so yes we don’t have a budget for the quarter. We have authorization for over 5 million shares and if the market gives us an opportunity to buy the shares and sometimes I think ourselves as specialists in the stock, but if we see a good opportunity in buyback stock, we will.

Right. And that 146 million was that as of December 31st or was that as of some numbers?

That was December 31.

And then maybe just one follow-up on your commentary earlier from leads. So I think you said that leads were actually down in December…

Yes, they were up double-digits in October, November slowed a little, December we actually had a decrease but we had a net increase in the quarter but that was a small increase overall.

And if you have to have a lead decrease that’s the month to have.

Right, right. I think I mean it’s certainly explainable why it would be softer in December and I think you’ve said so far it’s looking better in January. Has it snapped back to double-digit growth or is January just too weak of a lead generation month?

January is a smaller month as well, but January, first week of January was pretty cold, got a little warm, got cold again today, but the leads were up in the 5%, 6% neighborhood, but it’s still…. We’re, I guess, two-thirds through the month, but March makes the quarter and not January.

Right, right. But everything that you’re seeing right now is suggest of a lead growth being strong once we see maybe normalized weather.

We certainly believe so.

Okay, great. Thanks for the color there.

And we have no further questions at this time.

Okay. Well again thanks for joining us. We’re dedicated hard to making 2013 another successful year for the company and with that I guess, Harry, you and I need to go.

Need to go.

Well thanks again for joining us.

I’ll be available for a little while for questions if there is any follow-up questions, but we’ll be heading down to Georgia Teach here shortly. Thank you.

Thank you. Ladies and gentlemen this concludes the Rollins Inc. Fourth Quarter 2012 Earnings Conference Call. I would like to thank you for your participation. You may now disconnect.