Good day and welcome to the Rollins, Inc. Fourth Quarter 2017 Earnings Conference Call. Today’s conference 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 passcode 6022650. Additionally, the call is being webcast at www.viavid.com and a replay will be available for 90 days. On the line with me today and presenting are Gary Rollins, Rollins Vice Chairman and Chief Executive Officer; John Wilson, Rollins’ President and Chief Operating Officer; and Eddie Northen, Vice President and 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 fourth quarter and 2017 conference call. Eddie 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 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, 2016 for more information and the risk factors that could cause actual results to differ.

Thank you, Eddie. For the quarter revenue grew 7.5% to $414.7 million, compared to $385.6 million for the same period last year. Income before taxes rose 30.5% to $68.5 million, compared to $52.5 million for the fourth quarter of 2016. As a result of the new Tax Act net income declined 11.2% to $33.7 million or $0.15 per diluted share, compared to $38 million or $0.17 per diluted share for the same quarter last year. However, without these significant tax related items net income increase 19.2% and earnings per share were up 23.5% to $0.21. Revenues for the full year grew 6.4% to $1.673 billion compared to $1.573 billion for the same period last year. Net income increased 7% to $179.1 million with earnings per share of $0.82 per diluted share, compared to net income of $167.4 million or $0.77 per diluted share for the prior period. Again, without the significant tax-related items for the year, net income was a $190.7 million, up 13.9% with earnings per share of $0.87, up 13%. Eddie will review in a few minutes the specifics on the negative impact of the Tax Act to our financials for the past quarter. All of our business lines experienced good growth in the quarter with residential up 6.9%, commercial pest control grew 5% and termite and ancillary rose 15.6%. In summary, 2017 was an excellent year for our company as we continue to execute our strategic plans and goals. These are initiated to our culture of continuous improvement in all we do. We remain committed to service improvement and employee development and are accomplishing both. In the past year, we had 12 international franchises to our network as we continue to increase our presence around the world; we also advanced our acquisition strategy having added Northwest Exterminating which was discussed in our last call in several small tuck-in acquisitions. We greatly improved our routing and scheduling capabilities resulting from the implementation of BOSS and its virtual route management features. John will elaborate on this shortly. Those of you are familiar with our company know that we recognize there's always room for improvement in all we do. We will continue to raise the bar in 2018 and look forward to taking our company to the next level. I’d like now to turn the call over to John Wilson, our Rollins’ COO and President.

Thank you, Gary. We are pleased to report the BOSS, our branch operating system, moved to full implementation for Orkin in 2017. And with this system in place we’re able to add the virtual route management software that has began to improve our technicians routing and scheduling of their customers. Many of the homes are technicians service are made of double income households, and as a result those customers expect reasonable and accurate arrival windows to accommodate their busy schedules. It is essential that our technicians are where they are supposed to be when they are supposed to be there. Scheduling is one the toughest tasks our people face due to constant and daily changes as new customers begin service or existing customers request an additional service or an appointment change. With the aid of this routing and scheduling tool we can improve delivery of our services to our customers by being there when they expect and want us to be. At the same time we are better able to build the most efficient schedules for our daily service. Further, this routing and scheduling tool has improved our miles driven which helps to offset any increase in fuel prices and vehicle-related costs. Our results today show reduction of average miles per stock by half mile. This may not sound like much until you multiply that by the more than 880,000 unique customer visits we perform each month. The 440,000 miles save both reduces wear and tear on our vehicles and saves our technicians thousands of hours of drive time. This effort also contributes to reduced accidents and lower employee turnover. But most importantly it improve our customer experience through better on-time service performance and living up to our promise of being there when we say we will be there. We…

Thank you, John. We ended the year on a positive note with good growth in revenue and earnings in both pest control and termite. While the second half of the year had its challenges, we produce record-setting revenue, income and earnings per share. 2017 was a great transition year related to technology as John mentioned and has created a platform for continued improvement at Oregon as well as our other brands. With the signing of the Tax Cut and Jobs Act law, our tax provision went through some robust Q4 changes. As mentioned in our press release, we will review our numbers from the GAAP and non-GAAP perspective for this quarter and for the full year of 2017. Fourth quarter 2017 and full year 2017 results reflect the estimated negative impact of the enactment of the TCJA, which resulted in an $11.6 million charge of which $8 million was from transition tax on foreign earnings, $2.9 million was from deferred tax asset and 700,000 was from changes in tax on stock compensation or $0.06 per diluted share decrease in net income. Net income and diluted earnings per share excluding significant items are non-GAAP financial measures. For the quarter, all of our service line showed growth and key to the quarter included a significant one-time tax event, fastest growth rate since 2008 and strong international growth and profitability in all countries. Looking at the numbers the company reported fourth quarter revenue of $414.7 billion, an increase of 7.5% of the prior year's fourth quarter revenue of $385.6 million. Income before income taxes increased 30.5% to $68.5 million from $52.5 million in 2060. In 2016 we had a one-time expense items $9 billion related to our changes in our Canadian tax company. Net income was $33.7 million, down 11.2% from $38 million…

Thank you, Eddie. We are happy to take your questions at this time.

Thank you. [Operator Instructions]. And we will take our first question from David Polansky with Lowell, Blake & Associates.

Good morning, guys. Thanks for taking my question. Hello.

Yes. Hello.

Hi. Can you hear me?

Yes. Good morning, Dave.

Good morning. Thanks for taking the question. I was wondering if you guys were seeing any pickup during the quarter from the natural disasters from Q3. And if there’s any flow-through from that?

Well, we know that from Q3 to Q4 we had a lot more of our customers that were up and running or had their personal situation that improved during Q4. For those that were impacted by Hurricanes and things like that when a home is either destroyed in a worst-case scenario or is greatly impacted, they’re going to met our services, that’s not going to be something that’s a priority to them. To add those recovery efforts that continued, we continue to see more for our customers coming back to us in Q4.

All right. Great. Thank you.

And we’ll take our next question from Joe Box with KeyBanc Capital Markets.

Hey. Good morning, guys.

Good morning.

So incremental margins came in a little bit better than where they were at last quarter, but at 24% that was just a little bit below what we were thinking. Can you maybe just talk about if there was a sort of residual hurricane impact or carryover there? Or so it just be a mix factor related to taking in more termite business?

Yes. Joe, I think we were pretty much done with the hurricane impacts. I would say in Q4 it wasn’t really a prime situation from a weather perspective immediately a lot of areas that were shutdown and I think that impacted some things that we had to go above and beyond from a cost perspective in some areas because of that weather. And I think there was a little bit impact with that, but I'm not sure that we know exactly what the total amount that would be as far as the number that you were thinking that would be.

I mean, I guess, was there anything else in the numbers that would have cause the incremental margin to maybe a little bit light versus high 20s, low 30s?

There was nothing else this material

Okay. And again, I know its not your practice to give guidance, but I guess, in an effort to get everybody on the same page for 1Q, should we think about the tax rate going to the mid 20s in 1Q, and then we should exclude the additional tailwind from share-based comp. What do you think that should all be lumped into together?

I think for the full year 2018 we’re going to be in the mid-20s and I think Q1 will be slightly better than that because of the share-based compensation.

Do you have a sense what the share comp could be? Maybe as a percent or as a dollar value to give us a sense or no?

I don’t have that calculated. I’m sure we can go back and look at the impact that we have for 2017. We know what’s our historic rate was for 2017 and then the impact we saw in Q1 from that. I just don’t have that in front of me, Joe.

Okay. I’m sorry, just one more quick one if you don’t mind. Can you maybe just talk about where cash taxes were in 2017 and what your expectation is then for cash tax in 2018?

Again, we don’t have anything broken out on that as far as any specifics are concerned. The only specifics that we’ve gone through and we’ve looked at has to do with our deferred tax, our foreign assets and with our pension, those are the only things that we’ve broken out specifically. So I’d have to get back you with any other specifics on that.

Okay.

[Operator Instructions]. And we’ll take our next question from Sean Kennedy with Nomura Instinet.

Good morning, Sean.

Good morning, gentlemen. Good morning. Thanks for taking my question. On termite growth, 8% growth ex M&A is certainly impressive and I’ve noticed that it's been accelerating about 100 bps per year the past few years. Is there anything strategically that management is doing to accelerate that growth overtime? Have the catalysts been success at HomeTeam?

Yes. HomeTeam is going to be a part of that, Sean. But John has got some thoughts on that as well.

Yes, Sean. Certainly termite has been accelerating, much of it is been related to our ancillary offerings. Termite demand in our industry for traditional termite services has been down over recent years, but we’ve added to our line, our people -- in a real effort originally that’s keep them busy and more productivity in the off seasons. But as termite demand has slowed it certainly helped us in the other seasons – other quarters as well, but that’s been a huge part of it. Our ancillary offerings is really what's sort of driving some of that.

And could you call out a few of your, I guess, leading offerings?

Sean, could you say it again, I was I was interrupting, sorry about that.

Sorry. No, I was just asking, could you maybe call out a couple of your leading ancillary offerings. Is that an example?

Yes. So something like installation in a home that has pest offerings in it that helps you reduce the pest opportunity is an example something there. But termite as we’ve talked about its not growing as fast as pest control is. But it still growing for us, but to John’s point we have these other items that are also able to keep some of our termite folks more productive as they are out. So they’re able to out beat the part of termite job and also have opportunities in some of these other areas as well.

Okay, great. Thanks guys.

Does that help?

Yes, definitely.

Great. Thanks.

[Operator Instructions].

Rollins are excited about the opportunities for 2018 and we very much appreciate your interesting in our company and look forward to updating you on our progress throughout the year. Thank you.

This concludes today’s call. Thank you for your participation. You may now disconnect.