Rollins, Inc. (ROL) Q3 2015 Earnings Report, Transcript and Summary

Good morning. And welcome to the Rollins Incorporated Third Quarter 2015 Earnings Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session, and instructions will be given at that time. [Operator Instructions] I would now like to introduce your host for today's call, Marilynn Meek. Ms. Meek, you may begin.

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 (888) 203-1112 with the pass code 212739. 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, Vice Chairman and Chief Executive Officer; and Eddie Northen, 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, Marilynn, and good morning. We appreciate all of you joining us for our third quarter 2015 conference call. Eddie will read our forward-looking statements and disclaimer and then we will 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 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 end December 31, 2014, for more information and the risk factors that could cause actual results to differ.

Thank you, Eddie. Well, three quarters of the year under our belt and we are appreciative of what we have been able to accomplish this year. We posted record revenues and profit for both the quarter and the nine-month period. For the quarter revenue grew 3.5% to almost $400 million or $399.7 million, compared to $384.9 million in last year's third quarter. Income before taxes rose 9.9% to $72.4 million, with earnings per share growing 10.5% to $0.21 per diluted share, compared to net income of $41.1 million, or $0.19 per diluted share for the same quarter last year. Revenues for the first nine months rose 5.2% to $1.12 billion, compared to a $1.68 million for the same quarter last year. Net income increased 11.7% to $120.4 million with EPS of $0.55 per diluted share, compared to $107.7 million, or $0.49 per diluted share for the prior year period. All of our business units experienced growth during the quarter, with residential pest control up 6.2%, commercial pest control grew 1.5% and termite rose 1.1%. If you remove Canada and Australia from this equation, commercial rose 4.7%, residential 6.6% and termite 1.9%. Eddie will provide more information on these results, including the negative impact that foreign currency had and our acquisitions had on our results. The acquisitions that we've made over the past several years are continuing to contribute to our growth and profitability. Speaking of which I just like to take a moment to point out one acquisition in particular, PermaTreat, which we made in August 2014, which is personally close to us. Joe Wilson, PermaTreat’s former owner and CEO was recent -- by the why recently marked his 50th year in pest control, began his career at Orkin in 1965. Joe relates that he and his wife were expecting their first child and he was looking for a company that provided a company car and we did. This was good fortune for both of us. He came on board as one of Orkin’s first management trainees and in less than a year, at age 21 became the branch manager in Portsmouth, Virginia. In 1977 he ultimately rose to Division Vice President of the Midwest. Joe recalls that he moved nine times in his first 18 years with Orkin. He quickly adopted our company values and culture with the dedication for hard work all of which according to Joe has served him well throughout his life. During all of these years in building PermaTreat, he stayed in touch with us and his career came full circle when it came time for him to sell his company. He considered Rollins, first and only. Joe represents a number of alumni that have returned home when they sold their business. Needless to say some acquisitions are a long time in making. Few have taken this long however. We are pleased that Joe came back and thank him for that he has done to make a positive contribution not only to our company but to the industry as well. In an industry that has been male-dominated for so many years, we are continuing to make inroads and our initiative to increase the recruiting, hiring, development and retaining of female employees across all of our brands. One good example of this effort is a diverse group of eight female employees at HomeTeam. They are working towards supporting and developing women through customized programs that are designed to assist career advancement. After year of employment, women at HomeTeam may apply for this training program through the women's leadership council, where they work with mentors to meet individual needs and goals. Additionally, we are tracking our success in female recruiting in all of our divisions and brands. While we accomplished our success in a number of ways training both technicians and managers across the Board is key and is a priority for us. Every year we challenge ourselves to take our employee training to a higher level. We are committed to provide our employees with greater position knowledge, while improving their ability to provide comprehensive pest control solutions that will better meet our customers’ expectations. This dedication has resulted in Rollins being selected by Training Magazine for 13 consecutive years as one of the top 125 training companies in America. At Rollins, we're consistently working to demonstrate leadership and stewardship within our industry. This spring, we were pleased to host a first of its kind three-day fumigation workshop for government and regulatory officials at our Atlanta learning center. Attendees included officials from the EPA, Environmental Protection Agency, the Association of Structural Pest Control Regulatory Officials or ASPCRO and the National Pest Management Associates. The workshop provide Rollins an opportunity to demonstrate our expertise and professionalism by completing four different types of live fumigation. We were able to position ourselves as a technical resource and leader in the industry. Following the workshop, a representative of the EPA wrote, the EPA team was overwhelmingly impressed with the quality of the workshop. Being able to have the course at the Rollins facility really gave us the opportunity to better understand the different types of fumigation as well as all the planning that goes into each event. We also received a letter from the Association of Structural Pest Control Regulatory Officials saying it is through this type of co-operative training that we can make positive strides in our efforts to assure that regulations adopted are practical, enforceable and based on realistic understanding of the true challenges and risk of pesticide application. Much of our success is the result of holding ourselves accountable but diligently evaluating ourselves. One such effort is reflected in our operational support group, a companywide team that reviews our products, practices and techniques to ensure that they're effective, environmentally thoughtful and responsible. In many of our service offerings, termite control, commercial and residential pest control, the products that we use are carefully assessed and were appropriate are tested in conjunction with the Departments of Entomology, at leading universities, including Texas A&M, Purdue University, the University of Georgia, the University of Florida and others. We’re also attentive to staying abreast of new and emerging pest-related issue. In this regard, we benefit from our relationships with various universities in the earlier named agencies to help us objectively develop the best treatment methods for our services. In the quarter, Gregory Mark Beavers join Rollins as the Managing Director of Technical Services. Mark is responsible for our company’s technical support that I’ve referred to earlier as well as safety guidance for all of our Rollins pest control brands. He is a captain in the U.S. Navy with more than 29 years of dedicated service to our country. Mark served as a global public health and pest management profession and maybe entomologist. He has had significant U.S. and international leadership and management experience both as a scientist and a vector control specialist. Mark has published more than 30 scientific, technical and non-technical articles and delivered more than 50 pest-related presentations around the world. Mark earned his bachelor's degree in biology from James Madison University, his Masters degree in entomology from the University of Florida and his doctorate in entomology from the University of Kentucky. We're excited to have him onboard and he is already making great contributions. As we move closer to 2016, we continue to work on our training programs collaborating with our industry partners in education and product development and working hard to maintain our standing as best-in-class in services provided to our customers. The year is flying by and the next time we speak will be in 2016. We are gratified to what we and almost 12,000 employees around the world have accomplished and look forward to discussing our year-end results with you in January. I will now turn the call over to Ed. Eddie?

Thank you, Gary. By most accounts, July was the hottest month on record and our pest control business felt the impact. With a very strong start in July, August and September moderated some. Unfortunately they can't all be as good as July. For those of you that have followed our story through the years, you know, the acquisitions are a critical component to our continued growth. Our PermaTreat acquisition that Gary just mentioned, as well as our Australian Statewide and All Pest acquisition are all performing well. We're feeling the currency impact of the Australian currency exchange as they continue to grow. Before I move on, I want to assure you that we’re committed to continuing to use our balance sheet to grow through acquisitions and the pest control and wildlife areas with companies that are a good cultural fit and are available at a price level that will provide shareholder value. Recently in the market, there've been acquisitions to push the historical multiples above levels that we feel would not be beneficial to our shareholders and the company. We will remain active but judicious in our assessment of the opportunities in the market. This same discipline has created a very long track record of sustained healthy growth as opposed to short-term revenue spikes. We had another good performance in the third quarter with all service lines showing continued growth. Keys to the quarter included strong residential growth, continued cost discipline by our operations teams, currency headwinds and slower growth from acquisitions. Looking at the numbers, the company reported third quarter revenues of $400 million, an increase of 3.9% over the prior year’s first quarter’s revenue of $385 million. We experienced that growth across all of our families’ brand as measured in constant currency. Net income increased 9.5% to $45 million compared to $41.1 million with earnings per share up 7.5% to $0.21 versus $0.19 per diluted share last year in the third quarter. Let’s take a look through the revenue by service line. Our total revenue increase of 3.9%, included approximately 4.8% underlying sales growth and 0.7% contribution from acquisition, which was reduced by currency headwind of approximately 1.5%. Residential pest control was up an impressive 6.2%, Commercial pest control up 1.5% and Termite up 1.1%. Our acquisition of Statewide has lapsed. PermaTreat was included for one month and our most recent acquisition, Critter Control was for full quarter. Put all that together and it means our business excluding currency, excluding acquisition were 4.8% for the quarter. Again, for the quarter, Residential, which made up 44% of our revenue, grew 6.2% excluding acquisition 6%. Termite which made up 16% of our revenue was up 1.1% excluding acquisition 0.3%. And commercial pest control, which is 40% of our revenue was up 1.5%, excluding acquisition 1.3%. Commercial was again heavily impacted by the weak Canadian and Australian dollars as most of our business in these countries is commercial. Even with the slower quarter in termite, our year-to-date sales growth of 4.3% is in line with our growth rates from 2014 and 2013 at 2.6% and 4.5% respectively. When you view the domestic business excluding acquisitions and taken the currency into consideration, our residential revenue grew 6.4%. Termite revenue was up 1% and commercial pest control was up 4.4% with commercial sales lagging the strong residential growth rate. Our recent realignment of our marketing and sales programs produced the strongest quarter of the year in the areas of leads received, leads sold and leads closure percentage. This will produce enhanced results in the coming quarters. HomeTeam had another great quarter with improvements in their Taexx margins of 2.2% and improved pricing by 3%, which resulted in new Taexx activation dollars up by 14.7%. In total, gross margin for the quarter improved to 51.1 for the third quarter versus 50.9 in the prior year. The margin for the quarter benefited from lower fleet costs due to a decrease in fuel prices and lower materials and supply costs, offset by service salaries for our busiest quarter of the year and an increase in personnel related costs due to increased healthcare costs. Depreciation and amortization expense for the third quarter increased 2.5%, totaling $11.2 million. Depreciation was $4.9 million, increasing $672,000, with most of that increase related to our new branch operating system, BOSS. Amortization of intangibles was $6.2 million, which decreased nearly a $1 million as some of the older 8 to 10 year-old and older acquisitions have become fully amortized. For the full year, amortization of the intangibles, which is typically from the value assigned to acquire customer contracts, will represent a significant after-tax non-cash charge of approximately $0.07 to $0.08 this year. When we do pest control acquisitions, they are sold of any significant hard assets on the balance sheet. And as a result, most of the valuation ends up being classified as the customer contracts, goodwill and other intangible assets. We currently carry $96 million of these dollars from acquisitions on our balance sheet. With additional acquisitions ongoing in the future and current amortization running approximately $27 million a year, we will have more than a few years of this expense flowing through the P&L. For an update, we see little risk of possible impairment charges. All of the businesses we have acquired have grown as we continue to write-down the value of the customer contracts recognized at the time of acquisition, while fully expensing the cost of any new customer acquisitions. As for BOSS, the deployment continues forward positively. At the end of the quarter, we were 41% deployed for the Orkin brand. By design, we deployed at a slower rate until we got through the heavy pest season. In order to achieve desired, improved results, we have decided to deploy at a slightly faster rate, which will include the heavy pest season of 2016. Sales, general and administrative expenses for the quarter decreased 2.7% to 30.5% of revenues. The decrease in costs and percent of revenue were impacted due to a reduction in bad debt, reduced gas costs, lower professional services and lower administrative salaries as a percent of revenue. This is partially offset by higher sales, salaries and personnel related expenses, as well as insurance expense as auto claims have increased. Income before income taxes was up 9.9% in the quarter. We had reversal of the deferred tax liability that brought our tax rate down to 37.8%, which resulted in net income that was up 9.5%. We expect our tax rate to return to potentially 38% next quarter. Our balance sheet remained strong and we continue to look for more opportunities to reinvest in our business. Year-to-date, we have spend over $31 million on acquisitions and continue to look for opportunities in the pest and wildlife areas. We had $28.6 million of capital expenditures and have a $134 million in cash, along with no debt. As you may remember from our Q2 call, I mentioned three priority areas that I had identified, which included the customer experience, international growth and routing and scheduling of our technicians. We are pleased with our continued franchise expansion and earlier this month, we expanded our presence in Central America with the establishment of a franchise in El Salvador. Regarding the first and last items, we've taken several steps to identify ways to improve our customer experience to better achieve, having the correct technician servicing the right customer on the right day at the right time. We believe that this is one of our keys to our industry-leading retention rates. Over the past several months, we've been testing a routing and scheduling software provider as a BOSS partner. Unfortunately, their products would not work for us as promised. We will take these learnings and we continue to pursue the right technology solution to enhance our customers’ experience and improve our route efficiency. We are currently evaluating two additional alternative partners for routing and scheduling. We look forward to having a good 2015. And I'll now turn the call back over to Gary.

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

[Operator Instructions] We will take our first question from James Clement from Macquarie. Your line is open.

All right. Gary, Eddie. Thanks so much for taking my questions.

Good morning.

Sure. Good morning.

So first question, the comment that you made about accelerating the branch operating system rollout plan into 2016, it sounds like -- to me it sounds like that’s a function of having another year under your belt here and having it go pretty well. Is there anything we need to be aware of from a cost perspective as we look at more sort of the heavy seasonal season to 2016, or is there going to be increased costs as a result of that or is it not really anything that we need to worry about?

James, it’s actually going to be the opposite of that. We actually learned as we went through the rollout during 2015. But as we begin the rollout and then we stop the rollout during the middle of the year and then picked it back up, there were actually additional costs doing it that way. So, we are going to take those learnings into 2016. And the operations’ folks have agreed to let us continue to deploy, which is actually going to reduce the costs that we would have anticipated that we would have had for the rollout for the remainder of the Orkin brand.

Okay. Very good. And Gary, if I can ask one a follow-up from some of your prepared remarks. You mentioned some of the workshop that you had with some of the federal agencies and some of the industry trade groups and that sort of thing. Has that become a more important piece of how you look to manage the business in the wake of how the regulatory environment is kind of gotten much more strict, let’s say on steady base over the last 10 to 20 years?

I don’t really think. I think we’ve gotten better at it but I think it’s always been our priority for us. I mean, every opportunity that we have to put on training session with these folks, we have act in order. In fact, the previous one that we did was on termite tree and we had the APAP there. I think we had some of the CVCP over there. So, we attained their conventions. This is especially Escrow, which is the state regulatory group. We monitor the visits that our region managers make to the local state regulatory people. We want to have a very good relationship. So, I don’t think -- I think as I said, I think we’ve gotten better but I think we’ve always had a priority as far as our relationships with those people.

And then the last question and thanks very much for taking it is. Comments on the routing and scheduling system, if my memory serves me correctly and I could certainly be wrong here, I can’t remember, was it code name Orion, the system a number of years ago that was tried on routing and scheduling. Are there any similarities to kind of this particular process and the process, the experience you had a number of years ago, because both of them had seemed like there was some cautious optimism and now it seems like kind of back to square one again?

Well, Jamie, I can’t speak to the Orion, I can speak to what I have learned from gathering information as we’ve been taking this new project on. And I know that there were functionality that concerns with the Orion. With the latest review that we’ve had, with the latest vendor part of it was cost and part of it was the capabilities that they would have in order to be able to do it, I’d call dynamic routing and not being able to fulfill the need that I think we would want to have for a long term.

Okay.

So we know that there are other vendors and other options that are out there. We just wondered on this call to give you an update because this is one of the things that we've identified that we’re going to tackle and we’re going to be successful as we move forward. But we have had a little bit of a setback, but we’re all in agreement that it’s the right step to take these learnings and to move on as we’re evaluating these other vendors.

Terrific. Thank you both very much for your time.

Jamie I can add about the Orion situation. Eddie have a good excuse, I don’t have one. In fact, it was my watch. We didn't have the right architecture. We really had learned from our mistakes. We didn't have the capacity to really handle all of our locations and this was very painful for us. And I think one of the advantage is you know what do they say fail early. I think I read that quote from the new Walmart guy and I think that that’s probably what we’ve taken that approach as far as this other vendor was concerned. We just didn't try to rationalize why it wouldn’t work in or why said one thing or whatever, we just likely better spend their time finding the right partner.

Follow-up there, Gary. I mean, I can almost make an argument that you’re actually better off not having gone further down the Orion path because as I understand it based on the technology that's available today that wasn’t unavailable a number of years ago, knowing you all, you would probably be looking to upgrade that thing now anyway, wouldn’t you?

Well, I think you’re right. I think the technology and the costs, I mean it’s just like iPhone for instance. Then there was not -- and no one had even considered having a small, handheld phone device if you could log your services and transmit directly into the system. So you’re nice to say this I have a hard time saying it was a blessing, but I think in retrospect, just the capacity that we have in communications now is so much greater and less costly. So definitely they have been good things that have taken place during this period between Orion and BOSS.

Yeah. I appreciate the time as always.

And maybe Jamie maybe one last thing to close this out is that Orion was a multiyear project and our latest endeavor here has been an assessment for the last couple of months. So I just want to put that in the context as we’ve gone through this assessment process to determine what the next steps can it should be. So we’re not way down the path with this.

That’s very fair. And I am sorry if the implication of my question was connecting the two that way.

No, it wasn’t, I just wanted to put that into perspective.

Great. Thank you all.

Thank you.

Our next question is from Joan Tong from Sidoti and Company. Your line is open.

Good morning, Gary and Eddie, how are you?

Good. How are you?

Good morning, Joan.

Very good. So Gary based on your prepared remark, I mean thank you for reminding us that Rollins is a people business. So, you take care of the employees and the employees take care of your customers. So you and I have spoken about it before, like during the recession you'd pick up a bunch of very good people helping you. And I am just wondering if when the economy continues to improve, do you have run into any issues in terms of attracting more talent going forward?

Well, I think we spent this period identifying an address of the female recruiting efforts and all and that comes to another area. So I think we realized that it wouldn’t going to be the same employment situation and so we really took a proactive step to say this is two areas that we really need to have more of these employees and just like managing sales people, we take numbers every month. We want to know who is moving the needle and who isn’t moving the needle. And so I really think that we identified the opportunities that will keep us from having a fall back as far as our recruitment is concerned.

Thank you for the answer. And then in terms of your residential business, obviously it has been very strong growing at that 6%, 7% rate. And then also the lead generation closure, all the metrics looks pretty good. From what I understand is like you probably are going to be running into a pretty difficult comparison, because last year around this time we have seen like meaningful improvement in terms of that growth rate on the lead closure and lead generation. I am just wondering, this type of growth rate is going to be sustainable going forward, and what's really causing like any further improvement?

I think that we have some things that have not matured yet for us as far as our HomeSuite and BizSuite proprietary software that we’ve developed for iPads. I think we’ve continued to improve that product. We are looking at our internal sales management software versus going outside and checking kind of the best in the class outside sources. I think that marketing still tells me that they have got a couple rabbits in the hat. I would like to tell you that there is no problem with this. There is a always a challenge, but I think like the recruiting situation and I think we’ve been working on tools that will help us maintain this momentum.

Joan, this is Eddie. So I don’t know if you had a chance to look, but September a year ago was the strongest September on record for Rollins. So the comp with that obviously caused some headwinds for us for Q3. I don’t know that we have that same issue when we take a look at the Q4 from 2014. And like I mentioned, when you take a look at the leads that you mentioned as well, those are showing significant improvements comparing the same time period to last year. So Gary’s point, it’s never going to be easy or always going to have the headwinds, but I think these are couple of indicators that show kind of moving in the right direction.

Okay. That’s fair. And then in terms of the cost side, any extra items like additional costs that you have spent this quarter related to the BOSS system, the evaluating of the scheduling module? And also how much is the fuel cost benefit for this quarter?

So for the three questions, so BOSS, our costs are in line with where we had anticipated that we would be for the year. There’s nothing it’s been extraordinary there from that perspective. The routing and scheduling, there really are or no cost that have been a part of that, it’s really all been taking our data, putting it into a system to look and see what the output would be. We've had management time, but nothing else is really kind of outside of that that is concerned. And we’re closer to being able to give some more information as far as the benefits from BOSS. As you may remember, our first branch that went on was right at a year ago in October. So we feel for Q1 that we’ll be able to share what we've seen as far as the benefits are concerned. But we feel good about the overall system to the point of wanting to continue to roll this out sooner next year rather than taken that summertime period off. So we’ll be ready to share some more information with that soon.

Joan, I think one thing is, we just gotten better. As the system has matured, there are enhancements that we convert every month. Our training knowledge is gotten better. I mean, we understand our help desk has gotten better. We have few questions. We have fewer inquiries. But as you would expect, we’ve learned from our mistakes and I think that we’ll have an opportunity that the more mature BOSS branches will be able to contribute to the cost of the second phase of rollout.

Okay. And then just follow up on the gasoline price is being like cheaper this year and it seems like that benefits done a roll off at the end of 2015. Just can you give us an update like in terms of how much cost benefits like year-over-year during the third quarter you got from the low gasoline prices?

So during the third quarter, we have roughly between 650,000 to 800,000 gallons. We had a savings of a little less than a dollar, that's being kind of inline with what we've seen. We’re seeing gas prices as we’re seeing across the country continue to take down slightly. So we're still continue to see a little bit of gain, but to your point not the same gain that we would have seen year-over-year when we take a look at all of ‘15.

Okay. All right. Thank you so much.

Thanks, Joan.

Our next question is from Sean Egan from KeyBanc Capital Markets. Your line is open.

Hey. Good morning, gentlemen.

Good morning.

Good morning, Sean.

I had a quick question for you on Australia. Is there any more color you can give us regarding that market just given their macroeconomic softening which is obviously balanced by a pretty strong housing market? So I'm just curious since you're focused on the commercial side, what you’ve seen in any additional details you can give us?

Well, Sean, thanks for your question. I’m sure if it’s a good or bad to have economic down cycles. I would say that when you're earlier on in the process of building a business like we are in Australia, I would say, it would be better for it to happen earlier rather than later. And I say that because the operations have done a tremendous job rightsizing the overall operation support that we have in place there. We kind of inherited with some of the companies that we bought. But as we’ve gone through and we taken a look at where the revenue levels have been, we’ve been able to go through and make some really good decisions that it had help right-size the cost structure there that I believe is going to have us really be lien as we continue to have opportunities to be able to add additional revenues with potential future acquisitions. So we're just working through what we have at this point in time and continuing to make things better as we’re continuing to right-size from a cost perspective.

Got you. And then forgive me if I missed it but last quarter you called out bed bug is particularly strong. And I was wondering if you could share anything regarding that line of business this time around?

Bed bugs for the quarter were up about $1.9 million, up about 9.3%, little bit slower than what we've seen in the couple of the previous quarters, but the overall still a really strong year.

Got you. Thanks. And then my last question is just kind of systematic big picture here. When you guys look at the U.S. market and we see a lower proportion of homeowners and a greater renter population? How does that impact the way that you're kind of going about planning for your residential business if at all?

Well, it’s squarely on the mind of our Chief Marketing Officer, Kevin Smith. He has put together plans for what he feels the multifamily unit look like as we move forward in time. At this point in time demand is as you know has not been dampened on the residential side, but we do know that as we move into the future that household formations possibly will look different. And taken a look at that is as total units, is that a total unit and a commercial property or the individual units that are condos or apartments or something else like that, is what we’re going through and we’re working through. We have some of that business right now on both sides. I mean we have apartment buildings and complexes in condo units that are commercial properties for us or commercial business for us. And then we have other individuals that were contacted if for whatever reason their building does not provide the support. So we see that advancing. I think to your question. I think we see that population advancing and our marketing group has that on their radar to be able to make sure that we are adjusting our marketing and adjust our operational effectiveness with that.

Okay. Great. Thank you. That’s all for me.

Thanks, John.

[Operator Instructions] Our next question is from Denny Galindo from Morgan Stanley. Your line is open.

Good morning. Thanks for taking my question.

Hey, good morning, Denny.

Yeah. I wanted to dive in a little bit more to the regional differences you’re seeing. Your numbers are better when you exclude Canada and the international acquisitions and a lot of that was from currency. But did you see any softness in other and like energy states like Texas or were there any regional kind of weaknesses in the numbers this quarter or strengths as well?

Yeah. So let’s stick to the Canada and the Australia. You're exactly right with what you said as far as the currency. The other thing that we see there is that in those areas the predominant of our business is commercial and not residential. So we’re seeing more of an impact in those areas that impacted our overall commercial numbers. As far as the United States are concerned, we really don't have anything that’s material that we would talk about in any particular area. We would just really kind of talk about Canada and Australia when it come to those two areas.

Okay. That’s helpful. And then I also I wanted to delve into termite as well. So you kind of cut this a lot of different ways. But it looks the growth there did decelerate a little bit in the most comparable quarter-to-quarter analysis. So could you provide any color there is whether you're seeing fewer customers, any changes in pricing, any color on the mix of renewals versus new customers. Is there any more color on that termite number?

I’ll go back to what I said as far as the total numbers are concerned. I mean you are right about the quarter and the quarter is definitely slower than what we have been in a few previous quarters. But quarter-to-quarter, year-to-year, the cycles are just different. And when you take a look at it in total, we’re right on pace for our overall growth rate when you look at it in comparison to the previous two years. In Q1, we had an 8% growth rate for termite. If you look at that same quarter in 2014, it was one-tenth of a percent. So it just way different sometimes quarter-to-quarter, year-to-year, based on what the nature decides to go through and have the bugs do what they do.

If I can add one thing, we do a lot of benchmarking with our competitors. We've developed good relationships to kind of get industry knowledge. Certainly, we wanted to build up good relationships as far as future acquisition prospects. But termite business overall has just not been strong as it had been historically. And there’s two schools of thought, one says the termite sides are better, the other one says that it’s mother nature. If I had to vote, I’d say it’s mother nature. I think its just one of those cycles. I don’t sense that the termite sides are better than chlordane was with some of the other products. But it is out there and what we have to do is work in the areas that we can control and that’s retention and pricing. In those areas, and just hope that Mother Nature responds. So if we were just asked, I would really be concerned and regrettably its kind of industry wide situation.

And Denny, to Gary’s points, we see this overall a termite growing at a slower rate than what we see in the pest control area. And we just go through and look and see what it is that we can do as far as growing, taking market share, and we’ve taken whatever smaller amount of new customers that are out there. So we can do. That’s the reason why I think the growth rate still being in line still point to the fact that even in a slower growing area such as termite, we are still getting a healthy market share.

Okay, that's great. That was a lot of detail there. The last one is kind of a big picture question. You mentioned in your prepared comments about a competitor that had been coming into the market and paying very high multiples, which we noticed as well. But I wondered if you could talk about how they might impact the industry especially in the commercial piece? It does seem like that a recent acquisition they’ve made and there global operation that there are a little bit more focused on a bundled product then you guys are, some of the other guys in industry. So, I wonder if you could talk about the strength and weaknesses of a bundled product versus a more focused product. And how you see that that impact in industry overall?

So Denny, when you say bundled product, once you have to find that for me.

Okay. Providing other services this to a commercial customer besides this pest control looking at like, auditing or other types of services that might be interested?

Right. Are you talking about add-on services?

I think you talking about like other things. So when competitor may go and do hand washing so the different thing like that.

Exactly, yes.

So, Denny, what all I say to that is that, we are a number one in pest control. We are number one in residential and commercial pest control. We are number two in termite. Those are the areas that we have concentrated on. And while other companies have different models that they feel will -- that they can go through and cross-sell, our philosophy is that we’re going to be a pest control in wild life and we are going to be the best at that which we feel is so absolutely we are. We are not going to dilute what is that we do. We are going to provide the best possible customer service, which is going to enable us to have that the leading retention rates in the industry. And while the other models have their pros and cons, our philosophy is this is the lane that we stay in, we are the best at it and we are just going to continue to find ways to get better.

Any thoughts on how this new competitor could impact things either positively or negatively?

I don’t think, it’s not competitor.

Well not new but more aggressive I guess.

Well, I’ve not seen this before waste management team in the industry about I don’t know 25 years ago, 30 years ago, and really started overspending for pest control companies. And putting together they are going to try to do a rollup and they had systems that didn't talk to each other. No two companies exactly running their business in the same way. And so we saw that that was a different situation, a different model. They became so discouraged they ended up selling it to service master at that time. I think there's always a situation that an individual that doesn’t follow the industry very well looks at some of these multiples and thinks that their company is worth those same multiples. And I think that that’s certainly not a positive. But we saw Sears come into the business. They hit the wall, waste management did that we tried to stay fairly close to these folks as far as how their acquisition is doing. And frankly, we haven't seen anything that really was remarkable. And I think we’ve got a lot of good opportunities on the wildlife area, very pleased with Critter Control, very pleased with the TruTech. So we are prepared to shift our emphasis if we need to do that and we just have to wait and see what happens.

Denny, one of the advantages that we have at Rollins is that we have Gary and his brother Randall that have been in the industry for 40 to 50 plus years.

This is plenty.

We are going to call it an advantage on this call since the call we’re being recorded. And they seem to cycle, they seem to Gary’s point, they seem companies come into the market potentially overpay and what’s happened in the end. And really what the final measurement is going to be is what are the quality, what’s the quality of the service they provide. Our quality of service is going to be the best in the industry. So the question is somebody else is coming in to try to do that with an acquisition. Can they keep that same quality of service or enhance that quality of service to point of being able to keep there customers. That's really what they will come down to and do it at an affordable price. But with discipline that the Rollins has had throughout the years, the recipe has absolutely worked to be able to add on at the right price and they continued to grow the business.

I think another thing is this my experience has shown me is there is quite of bit commotion when this happens. Among the people, I think the employees in these organizations is sidetracked with the changes and so forth and I think that if we do offer opportunities, one as it may give you an opportunity to strengthen some of your pains. But the other thing it does well while they are trying to take their pause and figure out what's going on, they can’t be concentrating as hard on the fundamentals as they had been and they need to be.

Thanks, guys. Thanks a lot of great background. And I was wondering if there could be opportunity, as well as it sounds like there could be some share gain opportunities in the future.

Yes. We appreciate it. Thanks, Denny.

And we have no additional questions at this time.

Okay. I hope that’s a good sign. But as I said the years, this is slipping away and I just want you all to know that we not diluted that we are going to be working hard right up to the finish line to improve our business and improve our growth and continue to be successful. So we look forward to sharing with you how we finished in January. Thank you for your interest.

That will end the call. Thank you.

This does conclude today's program. You may now disconnect at any time.