Good day, and welcome to the Rollins, Inc. Third Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, all participants are in a listen-only mode. Later we’ll 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 of 6530216. 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; Rollins’ President and Chief Operating Officer, John Wilson; and Eddie Northen, Vice President and 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, Marilynn, and good morning. We appreciate all of you joining us for our third quarter 2016 conference call. Eddie will read out our forward-looking statement 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 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, 2015 for more information and the risk factors that could cause actual results to differ.

Thank you, Eddie. We are pleased to report that we maintained our pace of generating record revenue and earnings results. The third quarter marked our 42nd quarter of improvement. Revenue grew 6.1% to approximately $424 million, compared to almost $400 million in last year's third quarter. Income before taxes increased 10.4% to approximately $80 million, compared to $72.4 million for the third quarter of 2015. Net income rose 10.2% to $49.7 million, or $0.23 per diluted share, compared to net income of $45 million, or $0.21 per diluted share, for the same period last year. Revenues for the first nine months increased 5.8% to $1.2 billion, compared to $1.1 billion for the same period last year. Net income rose 7.4% to approximately $129.4 million, with earnings per share of $0.59 per diluted share, compared to $120.4 million, or $0.55 per diluted share for the prior period. All of our business lines experienced good growth during the quarter with residential pest control up 7%; commercial pest control grew 4.9%; while termite increased 7.2%. Eddie will provide more detail on these numbers in a few minutes. Last month we are privilege to have hosted Rollins Analyst Day at the New York Stock Exchange. It was a wonderful day for members of our senior management team to interact with analysts and investors that follow Rollins. Nine key members of our team enjoyed sharing their fields of expertise and providing greater depth on what is occurring in their area of responsibility. We feel that all involved gained significantly from this experience. It was hard to believe that year-end is rapidly approaching and reflecting on this in our meeting in New York, I’m once again reminded of what a great company we have, great customers and great employees. I realized that I'm a little biased…

Thank you, Gary. I would also like to say thank you to those of you that were able to spend some time with us at our recent Investor Day in New York City. The time enabled us to highlight our greatest asset, our people. On September 20, we introduced our top executives to a group of investors and leading analysts at the New York Stock Exchange. While tests the bed bug sniffing dog almost stole the show, we were able to share the depth and breadth of our management team that is helping to lead this great company. I recently attended a luncheon where a local university professor gave an economic update that shared that as a nation, we are in the 88th month of the economic expansion, and Rollins has exceeded that record of growth with our equivalent of 126 month of growth and improved earnings results. We had a solid 6.1% revenue growth and return to our historical double-digit net income growth at 10.2%. I also want to express my thanks to our IT team for an incredible job rolling out arguably, the most complex project in our company's history. Each of our service line showed sustained growth and key to the quarter included continued strong residential termite and ancillary revenue gains, the largest commercial gain in the past seven quarters and enhanced margin expansion even with the cost for the completion of the Orkin BOSS rollout. Looking at the numbers, the company reported third quarter revenues of $424 million, again an increase of 6.1% over the prior-year's third quarter revenue of $399.7 million. While we do have lumpiness in our quarters, as we had discussed, our nine-month revenue growth is the best in the past five years. For the quarter, income before income taxes increased 10.4% to…

Thank you, Eddie. Mary, John and I will be happy to answer any questions that you all might have.

[Operator Instructions]. And we'll take our first question from Joan Tong with Sidoti & Company. Your line is open.

Hi Gary, Eddie and John. How are you guys?

Good morning.

Doing well.

Good. I have a bunch of questions here. First off, just want to ask about the BOSS system. Thank you for all the update in terms of the operating improvement metrics. It's really helpful. And with the BOSS system implementation completed and you are now focusing in enhancing functionality and then also like Virtual Route Management looks really encouraging. So I'm just wondering like going into next year, how should we think about any incremental spending in technology, if there is any?

Yes, so Joan thanks for that. As we talked when we were at the Analyst Day, our anticipation at this point in time is to return to the historical norm that we’ve seen. On that day the graph that we showed went back to 2008 and showed our much higher capital expenditures spend when we opened up our call center. And then that graph kind of fast-forwarded through time. You saw kind of the historical norm of capital expenditure spend. Then you saw a spike obviously in 2015 and ‘16 with the BOSS rollout. And we anticipate it returning back to that historical norm. And again as we move forward and if we see anything that's going to be material in nature, we will communicate that ahead of time as far as anything that would deviate from that historical norm.

Okay. Got it. And then for the Virtual Route Management, you talked about that functionality actually improve or optimize 50% of the route. Is there a reason why the rest is not being optimized or you’re just kind of still in the middle of rolling that out to all your Orkin brands?

Yes, so we've gone through the training for all the Orkin brands and now it's a matter of having this become part of the daily routine of what they go through and do. So each branch we are going through and as follow-up training is needed then will continue to do that to make sure that we are maximizing opportunities as quickly as we can. Just like with anything, you have very early adopters and you have others that take a little bit more time to be able to make a change. So this is a relatively material change in the life of a branch where we are having to have routes that are adjusted and changed. And probably most importantly, we have to make sure that we have all of the customer-related service times that need to be locked in that all of those are accounted for. So we want to make sure that as we are going through and we are optimizing that all of that is taken care of. And I think we've had good improvement since the beginning to get over the 50% number and we'll continue to move that forward.

Joan, we also have the ability to know whose is using and who is not. But the great thing is the excitement that the branches are going through is that we haven't had to poke anybody, but do have the ability to know where we stand in every branch.

Got it. I see. Thanks for the update. And maybe you guys can talk a little bit about the lead activities or the operating metrics? And if I recall correctly in the second quarter there was some sort of softness in the lead generation on lead closure, and just want to see if that has improved? And also I have follow-up on Critter Control.

Okay. So Joan if it’s okay, we'll answer this one and then we’ll move on and let someone else get in the queue and please come back into the queue if that's okay with you. But as far as lead generation is concerned, all of our different areas, our termite control, our commercial and our residential, all are a little bit different states, but they are all in the single digits as far as our lead control to low-double digits. So we see lead enhancements continuing to be healthy in all of the different areas and we'll see - we think that we’ll see sales that will continue to move along based on that as well.

[Operator Instructions]. We’ll go next to Sean Kennedy with Nomura. Your line is open.

Hi, good morning guys.

Good morning.

Good morning, Sean.

I was wondering if you could give an update on the size in terms of the revenue of HomeTeam, and also it's grown at install base about little over 10% since ‘07. I was wondering if you could sort of moving trends recently, if it’s accelerating or decelerating from that number?

Yes, so Sean we don't break out the size of HomeTeam at this point in time. We continue to see very positive trends and on previous calls I've given some specifics both the installation improvements as well as the actual revenue improvements. We see HomeTeam growing regularly faster than our total company growth rates, so that's a very positive thing for us. And as we continue to improve on the installations, as Gary mentioned in his remarks, it just gives us that many more opportunities to be able to have potential new customers through time. So all good things from HomeTeam and we’ll continue intermittently giving updates as far as specifics are concerned, but nothing really noticeable to necessarily report outside of the good results that we’ve talked about in previous calls.

Got it. And are you able to give the active customer count?

We are not.

Okay, great. Thanks guys. Great quarter.

Okay. Thank you.

[Operator Instructions]. And we'll pause for a moment to allow further questions to queue.

No more questions?

We do have a follow-up from Joan Tong with Sidoti & Company. Your line is open.

Hi. Yes, the follow-up is regarding Critter Control. It seems like it’s a very nice growth area, and then Gary you touched on that a little bit on your prepared remarks. Can you just like remind us the economics in terms of the benefits of folding that back in or buying back the Critter Control franchisees, and also when you're reaching out to those franchisees just want to see what type of feedback you got from those proposal?

Well, the well-run Critter Control branches have certainly good margins. I mean some of them are better than some of our pest control margins. It's really a great fit for us. Critter Control was the number one brand in the market. We've already seeing big jumps in leads when we updated their internet coverage. They've not been very aggressive in that way and we can benefit from what we've learned from our pest control side. So we are excited. I mean, we - these folks have really never had a buyer per se. The guy that found Critter Control really all he wanted was to have franchises, so I think they have approximately 200.

For the franchise?

Yes.

So about 200.

Yes, so there is 200 franchises, so it's not insignificant. We just think it's a great fit and we also know how to do it. I mean with our Trutech operation, we've had a very good success. And so this is not really getting into something that we are not familiar with. So we're very optimistic about it.

Yes, so Joan since we bought some of those back where, I guess, we're little low over 100 now as far as the total franchises are concerned after we bought some of these back. And of course we bought the master franchise or we had the royalty fees that we were receiving. And to Gary's point, now in these key markets we're able to roll that brand name and the customer base into our existing wildlife operations and we are able to see some very good opportunities by combining those efforts together. And it took us a little while. We purchased them I think February of last year, and we’ve worked through all the economics of it to make sure that we started this correctly when we started the buyback. So it took us almost 10 months before we bought the first one back, so we wanted to make sure that it was done correctly in the right markets for the right price. So now that we have that down, we've been able to go through and get that process started and it's been very positive results for us so far.

Thank you.

Thank you, Joan.

And this does conclude our Q&A for today. I'd like to turn the call back to our presenters for any closing remarks.

Well, thank you for joining us today and we look forward to sharing our fourth quarter and year-end results on our next call.