Rollins, Inc. (ROL) Q4 2019 Earnings Report, Transcript and Summary

Good day, and welcome to the Rollins, Inc. Fourth Quarter 2019 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, Marilyn Meek. Ms. Meek, you may begin.

Thank you, Cassidy. 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 1421446. 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, Senior Vice President, Chief Financial Officer and Treasurer. Management will make some opening remarks and then we will open the line for your questions. Gary, would you like to begin.

Yes, Marilyn, thank you, and good morning. We appreciate all of you joining us for our fourth quarter 2019 conference call. Eddie will read 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 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 ended December 31, 2018 for more information and the risk factors that could cause actual results to differ.

Thank you, Eddie. Revenues for the fourth quarter grew 13.8% to $506 million compared to $444.6 million for the same quarter in 2018. Net income was approximately $50.8 million or $0.16 per diluted share compared to $51 million or $0.16 per diluted share for the fourth quarter of last year. Revenues for the full-year increased 10.6% to $2.015 billion compared to $1.822 billion for 2018. We are all pleased that we broke the $2 billion milestone. Net income for the full-year was $203.3 million with earnings per share of $0.62. This compared to net income of $231.7 million or $0.71 per diluted share last year. Net income this year was negatively impacted by $50 million one-time charge for closing down our pension plan and a casualty reserve increase. Eddie will address these charges further in a few minutes. We continue to experience good solid growth in all of our business lines for the quarter, with residential up 16.5%, commercial, excluding fumigation, rose 9.8%; and termite and ancillary services grew 16.1%. During the fourth quarter a question that we heard on a regular basis from investors was, what is your exposure to termite damage claims. I thought this might be a good time to provide some history and background on our termite claims and the service initiatives that were implemented over many years of treating and protecting structures of termite infestations and damage. As background, Chlordane was used as a pesticide in the United States from 1948 to 1988, 40 years. Among its numerous uses, Chlordane was a very effective termiticide to control against termite infestations in homes and other structures. In fact, from 1983 to 1988, Chlordane use was narrowed to only control termites. In 1988, all approved uses of Chlordane in the United States were canceled. Orkin had stopped treating for Chlordane with - a year before. It is noteworthy that, prior to this action, our Company negotiated an agreement between the Velsicol Chemical Company, the manufacturer and the EPA, where Velsicol to voluntarily stop manufacturing Chlordane and that it not be banned, they both agreed. This helped Orkin and the industry to avoid a potential law suit stampede like the asbestos situation. In the mid-'90s, the state of the post-Chlordane termite world was daunting. The replacement chemicals didn't work as well as Chlordane. However, the new termiticide that had been so positively promoted by the manufacturers and endorsed by the EPA failed miserably. This failure happened within a very short period of time. Termites returned to our customers' home as well as other pest control companies' customers' homes with a vengeance. Orkin, which at one time led the industry with its lifetime repair guarantees, was suddenly faced with a major business challenge. There were millions of dollars in repair costs now appearing due to termite damage along with corresponding retreatment obligations. In 1996, Orkin took a very important step and began a proactive retreatment program with a better new product targeting all the homes that had previously been treated with the ineffective termite product. Simply, we wanted to curtail the termite damage before it occurred, and provide our customers the protection they deserve. We put our customers first at the cost of more than a $100 million. Our lifetime guarantees will replace the three to five retreatment guarantees depending on the area of country and the type of home construction. Our 1996 P&L resulted - reflected Orkin's retreatment efforts and Orkin's revenues increased 1%, while operating income and profit margins decreased 50%. The decrease in termite revenues, termite claims, and retreatment expense negatively impact our financial results. Incidentally, we are all proud to work for a Company that made this forward-looking investment to protect our customers, our brand, and reputation. 1997, the following year, we set up a $117 million reserve fund to cover the escalating cost of termite claims. We knew we had to make these extra efforts and made the conscious decision to provide free retreatments and promptly pay for any termite damage repairs that occur. While the short-term costs were extremely painful, they appropriately protected our reputation and balance sheet. This turning point always caused us - also caused us to make further enhancements in termite treating training, the utilization of flow meters to measure the volume of termiticide applied, and the use of foam as a chemical carrying agent in difficult-to-treat structures. We created a national termite swarm school to service technicians attended annually before each termite treating season. We created a termite quality audit and compliance team to visit our branches to ensure our treating specs and procedures were being followed. We also required our managers to do a quality inspection on all completed termite treatments. All of these actions still exist today. I could go on and on with more than a dozen other initiatives that we took over the following years to ensure we provided the industry's best termite treatments. All of these actions have reduced our termite reserve and other related costs tremendously. I will now turn the call over to John for more insight on our termite war and other areas of business.

Thank you, Gary. As Gary just noted, by the mid-'90s, it was clear the replacement chemicals didn't work as well as Chlordane in the treatment of termites. In the three years prior to 1995, Orkin's termite damage claims averaged around $3 million per year. Over the next couple of years, the claims expense multiplied in dramatic fashion. By 1997 and for several years thereafter, termite damage claims exceeded $20 million a year. Decisions were made by our leadership team to improve process, training, and treatment protocols. These new processes were then developed by our technical services group, led by industry icon Paul Hardy, and many other members of our team. This approach allowed our operations to focus on meeting all obligations to their customers. The Companywide quality assurance program Orkin put into place during that time concentrated solely on termite issues and helped us to get out in front of this accelerating termite issue. We also addressed the Formosan termite at that time, which has made recent headlines, as they were already a growing concern. In other words, our quality assurance team as well as many other actions taken served over time to de-risk our termite service business. As a result of these many actions and activities, we have seen a steady decline in claims and retreatments from year-to-year. It is easy to put your finger on the many things mentioned that we changed. What is not so easy to put a finger on is the cultural change that had to occur with our field teams. It was painful, it was hard and it was costly from both a financial and human capital standpoint, and it also took a long time, but it was worth it in the long run. In more recent years, as we have continued to work on this issue, we have experienced further reductions in termite damage claims. The average amount of each claim has fallen from the highest seen in the early to middle part of the 2000s. For 2019, Rollins experienced historically low termite claim volumes and termite claims expenses were below 1% of termite revenues for the full-year. This is the direct result of the many quality control programs leadership initiated. We certainly appreciate your concerns around termite damage claims and we never take anything for granted. We take our responsibility to our termite customer seriously and hope that we have now given you enough information to understand our experience better. So let's turn the page on that topic and talk about something else for a minute. As most of you know, we got off to a slow start last year. We are certainly prepared to do everything we can to not repeat that performance. Pursuant to that, in early January, we concluded a week-long regional manager leadership meeting in Atlanta. We had over 100 of our leaders in from around the world for this event. This meeting focused on, among several priorities, improving our safety culture and practices, the customer experience, etc. But maybe most important of all, we were focused on lessons learned from a year ago and what not to do to repeat those mistakes. It is said that the best learned lessons are the hardest. And after this last year, I believe that to be true. We came away from this meeting energized, that our teams were ready and up to the challenge, and pretty darn glad to put 2019 behind them. Thank you, and I will now turn the call back over to Eddie.

Thanks, John. Before I begin my review of the financial numbers for the quarter, I want to recognize the solid results that our operations produced during the second half of the year. After mother nature deviated from her normal path in Q1 and Q2, the weather pattern turned more normal and the results of our operations produced record revenue growth in the quarter, strong double-digit EBITDA growth, and continued improvements in both employee and customer retention. Specifically, our Orkin employee retention increased 1.8 percentage points and our commercial service line improved the most of all three service lines for retention year-over-year. Consistency and experienced management matters. I also hope that the details that both Gary and John shared related to our termite service will put to rest any concerns that you have about the recent termite discussions in our industry. For the quarter, we had strong revenue growth and items that impacted the quarter were, rising accident and insurance expense that reduced the Q4 results by a $0.01, depreciation increase related to the final stages of the BOSS rollout in Canada, and a very successful pilot of the next phase of routing and scheduling journey. In addition to reporting our Q4 and full-year numbers, my focus today will be to share the non-operational event that impacted our Q4 results, specifically casualty and insurance related to accidents and injuries. Lastly, I will give you some insight on some items that have 2020 already off to a great start. First, I will go through the results. Looking at the numbers, the fourth quarter revenues of $506 million, was an increase of 13.8% over the prior year's fourth quarter revenue of $444.6 million. Income before income taxes was $72 million or 0.008% above 2018. Net income was $50.8 million, down 0.004% compared to 2018 and impacted by a higher tax rate in the quarter due to the pension adjustment in Q3. Our GAAP earnings per share were $0.16 per diluted share and EBITDA was $97.1 million and rose 10.5% compared to 2018. When looking at the full-year 2019 numbers, keep in mind that the almost $50 million pension adjustment that was made in Q3 to transition our pension off of the Rollins books. For the year, we are calling out the pension adjustment, Clark acquisition expense, and currency for our non-GAAP results. For the full-year, revenue was $2.015 billion, an increase of 10.6% over the prior year's 12-month revenue of $1.822 billion. Income before income taxes decreased 16% to $261.2 million from $310.7 million in 2018. Net income fell 12.2% to $203.3 million and earnings per share were $0.62, down 12.7% from 2018 numbers of $0.71. EBITDA was $349.2 million, down 7.5% compared to 2018. Without the pension adjustment, our non-GAAP income before income tax was up 0.001% to $311.1 million compared to $310.7 million in 2018. Our net income was down 0.008% to $229.9 million and earnings per share were $0.70 per diluted share, down from $0.71 per diluted share in 2018. Adjusted EBITDA, including our Q3 pension loss, was $399.1 million, up 5.8%. Our Companywide focus on personal safety since 2016 has created reductions in our casualty reserve in the last few years. However, the combination of additional Clark vehicles and properties and substantially higher premium rates experienced within the industry caused our casualty reserve for accidents and injuries to increase over 5% in 2019 and impacted the quarter by roughly a $0.01. As John shared with you earlier, we reviewed these opportunities extensively at our recent annual leadership kickoff meeting and have good initiatives to reduce the frequency and severity of our automotive and workers' compensation claims. As we continue to refresh our automotive fleet, a growing percentage of our vehicles have enhanced safety features and when coupled with our enhanced training, will result in better injury and accident outcomes moving forward. Safety is becoming an ingrained value at Rollins and we will see the benefits of this as we move forward in 2020. We will share more of this journey in future quarters. As we discussed last quarter, our operational efficiency and customer experience continued to improve with ongoing updates to our routing and scheduling. I am pleased to share some details with regards to the next step in our journey. First, beginning back in 2015, we rolled out our branch operating system or CRM called BOSS. And in stages, improved our technicians' routing and scheduling. At the time, we stated that we would see a 200 basis points to 300 basis points margin improvement with these changes. And as you probably know, we exceeded that amount over the next several years. We have successfully piloted our next phase of routing and scheduling, which will include the level customer loading of the pest control technicians jobs based on customer demand, but keeping in mind customer needs. On top of the over 4 million miles that we have reduced in the last few years, we will see accelerating mileage reduction, which will equate to margin improvement of another 150 basis points to 250 basis points over the next two to three years. This step is phase two of a robust four phase routing and scheduling initiative that will drive improved efficiency for years to come. Let's take a look through the Rollins revenue by service line for the fourth quarter. Our total revenue increase of 13.8% included 8.1% from Clark and other acquisitions and the remaining 5.7% was from pricing and organic growth. In total, residential pest control, which made up 43% of our revenue, was up 16.5%, commercial pest control, ex-fumigation, which made up 38% of our revenue was up 9.8%, and termite and ancillary services, which made up approximately 19% of our revenue, was up 16.1%. Again, total revenue less acquisitions was up 5.7%. From that, residential was up 6%, commercial, ex-fumigation, increased 3.6%, and termite and ancillary grew by 8.7%. There are two items that I would like to note. First, the continued growth of our mosquito program at over 30% rate has more than offset the slowdown in our one-time bed bug business and helped our residential product with continued strong growth. And second, we experienced the fastest termite and ancillary growth in the past six years. In total, gross margin reduced to 49.7% from 50.2% in the prior year's quarter. The quarter experienced expense increases in several categories, mostly driven by Clark in the categories of service salaries, administrative salaries, and personnel-related for our 401-K match. Additionally, insurance and claims were up substantially as discussed earlier. Removing the impact of Clark, gross margin improved to 50.6% in 2019, compared to 50.2% in 2018. Depreciation and amortization expenses for the quarter increased $6 million to $22.6 million, an increase of 35.8%. Depreciation increased $2.7 million due to acquisitions and equipment purchases as mentioned earlier, while amortization of intangible assets increased $3.3 million, due to the amortization of customer contracts from several large acquisitions. Our depreciation in Q1 of 2020 will be slightly higher as we finalize the BOSS rollout in Canada and move to the next phase of our routing and scheduling journey as discussed earlier. Sales, general and administrative expenses for the fourth quarter increased $19 million or 14% to $154.8 million or 30.6% of revenues, up 0.001% from $135.8 million or 30.5% of revenues for the fourth quarter of 2018. The increase in the percent of revenues is primarily due to insurance and claims and acquisitions, particularly advertising spend for Clark that was not in our 2018 number. Before I review our cash position, I want to update the state of our current cash flow. As I mentioned on the Q3 call, we have accelerated our free cash flow by over $40 million for the year, which compares to an average of around $20 million over the past five years. Not only do we see benefits to our cash flow related to the acquisition of Clark Pest Control, but we will also see some residual improvements from our pension transition. As for our cash position, for the period ended December 31, 2019 we spent $430.6 million on acquisitions compared to $76.8 million at the same period last year. We paid $153.8 million on dividends and had $27.1 million of CapEx, which were both flat to 2018. We ended the period with $94.3 million in cash, of which $74.1 million is held by our foreign subsidiaries. Yesterday, the Board of Directors declared a regular cash dividend of $0.12 per share that will be paid on March 10, 2020 to stockholders of record at the close of business February 10, 2020. The cash dividend is a 14.3% increase over the prior year's quarterly dividend. This marks the 18th consecutive year the Board has increased our dividend by a minimum of 12%. Gary, I will turn the call back over to you.

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

Thank you. [Operator Instructions] Our first question comes from Mario Cortellacci of Jefferies.

Hi, thanks for the time. So, I think, I just wanted to get a sense for what the current multiples you're seeing in the M&A market. I mean, I think, a larger competitor of yours is not going to be doing deals for a, while and - or at least they are going to be less aggressive on what they are going to be paying. I just wanted to see if that is impacting your planning for 2020. And, if multiples do remain off peak in 2020, should we expect another outsized year? Maybe not a year as large as 2019, but could 2020 be another above-average type of year?

Yeah. So, Mario, I will just say that, yeah, I mean, there is no question that within the industry - that several within the industry have paid above historic rates. We did have the largest acquisition in our Company's history, which obviously from a multiple perspective was a little bit higher than what we paid historically, but we have not deviated from the average acquisition that we have. We have not deviated from our normal history, which has been somewhere between 1.25 times and 1.75 times annual revenue. And it really comes down to the selection of that seller and then making the decision of what it is that they are trying to accomplish. If that seller is just trying to get the largest dollar that they can out there, there are competitors in the market that, as you stated, have paid higher multiples. We have been very diligent with that and I think We have made some great selection. And, John is really more involved in that on a day-to-day basis and I don't know if you have something else - you would like to add to that.

No, I don't know that I have much, but I would say, 2019 would be really rather hard to top. And I can only think that they will go down from there. I don't know, it is anybody's guess as to how much, but we want to maintain discipline in our approach, and - but then be willing to go a little extra mile when it is a really solid Company.

Great. And then, just a quick question on your connected technology and just wondering if you can give us a sense of how many of your customers are using technology, or how many locations connected technology is already at? And, I guess, where that fits into your technology road map overall? I just didn't know how big or how fast you wanted that to be longer term.

We have been testing connected technology for several years now. We have our technology, our IT group as well as our technical support group, are constantly testing all the technology and of course, as I'm sure you can assume, it is changing rapidly. We have test customers that are using different products. At this point in time, we are not in a position to make any sort of material change to what we are doing today. We feel very prepared that if and when there is an industry shift or change or a customer need, we are ready to be able to respond to that. But I think, at this point in time, we are just continuing doing what we are doing from a service perspective and we would supplement it, as appropriate from there.

Eddie, I would like to add. One advantage I think that we have is that several of our brands are using different software. So, we are really in a position to monitor the successes and the features that exist and, of course, as always, to use the best product. We will be converting BOSS and Western next year. At this point, it is certainly the superior of everything that is out there, but I think it is worthwhile that we can watch carefully when other products are available.

And, every time - and to add to that, every time we do that, it gives us the ability to be able to link in any connected technology in a more efficient manner, but I think we have some really smart people on our team that are looking at this, both from the technology and the technical support side and I feel very confident where we are at this point.

Great. Thank you.

Our next question comes from Jamie Clement of Buckingham Research.

Hey, guys, although it is early in earnings season, it seems like some of the industries out there that advertise heavily and I have got sort of restaurant chains in mind, have discussed with investors on their calls that with elections in front of us that there might be a little bit of margin pressure from increasing in - increase in advertising and marketing costs. I don't recall that being called out as much four years ago. Is that something that you have your eyes on or did it impact you four years ago or can you just tweak your mix and really have it not be that much of an issue?

Kevin Smith is our CMO and he has been up against this hurdle, not specifically the one you're talking about with the election, but he has been up against this hurdle with potential for rising costs in this area for the last several years. Digital marketing - we shifted to digital marketing tremendously over the last six years. And as everyone knows, the cost in those areas continue to escalate. But Kevin's budget for advertising has not changed over that time period as far as a percent to revenue. So he and his team have done a tremendous job just figuring out how do we still create the number of leads that we need by the different service lines, using the different opportunities that are out there. Some of that is going to be things like advertising on billboards, some of it is going to be commercial advertising, some of it is going to be through digital, but he uses that total bucket and goes through and figures out a way to be able to create that demand that we need in order to be able to grow our business. And I don't see this 2020 year being any different for the results that you will be able to go through and create.

Okay, great, Eddie, and just one final thing. The strong termite numbers that you reported for the quarter and obviously they have been very good for the last couple of years. During the quarter and kind of bigger picture, looking back over the last year or two, has there been a disproportionate level of growth internationally in your termite reported segment versus domestically or are they both pretty consistent? And, I'm just thinking about climate differences in places like Australia and that kind of thing.

Yeah, we don't break things out by geographic areas, but I will just say, in general, We have not seen any sort of specific area that is been tremendously different. We have - our folks have done a great job growing this product across all of our markets. Within the U.S., We have done a tremendous job using our closing tools that we have, our in-house financing has been a big push and a big piece of that, our sales folks have done a tremendous job. And, we camped out on this for a while with Gary and John talking about the quality of the service. And people talk and when the quality of the service is what it is and we have great outcomes, then we get an opportunity to have word of mouth and we get a chance to continue to cross sell, knowing we had the largest residential set of customers that are out there. We get a chance to cross sell our pest control or our termite into our pest control customers.

Thank you all very much for your time as always.

Thanks, Jamie.

Our next question comes from Tim Mulrooney of William Blair.

Gary, thank you for the great history lesson on the termite business. That was very informative. And, John, for the termite damage claims, you said claims expenses were below 1% of revenue for the full-year. Is that 1% of total revenue or 1% of termite revenue?

No, it is 1% of termite revenue.

All right. I just wanted to make sure. That is what I thought, but I wanted to make sure. And, John, while I got you, can you also just talk about what you plan to do differently this year to prepare for the spring pest season? What were the primary takeaways from your recent meeting with business leaders or at least one that you can share with us publicly?

Yeah, I think the single biggest thing would be to delay our stub staffing for the seasonality of our business to more of a just-in-time approach. That is a tricky tightrope to walk in a tough labor market, but that is what our field operators are really focused on doing this year.

Okay. Thank you, guys.

Thank you. Our next question comes from Brian Butler of Stifel.

Okay, great. I was hoping, could you give a little bit of color on maybe on organic growth heading into 2020? I mean, it was strong in the back half of 2019. Is that pace sustainable or is there some things out there that could put some pressure on that?

We don't know of anything right now that would put pressure on it. I mean, it is early in the year to be celebrating. January has been a much better month than it was a year ago. But you know, but you never know what mother nature is going to do as we move forward in time. You never know what storms might look like. In 2017, we had two back-to-back storms, the two largest storms in our country's history, that negatively impacted things. So there are lot of variables that will come into play, but given everything that we know today, we believe that we are off to a good start and we have no reason to believe that we won't have a really good year from an organic growth perspective. With the growth of our mosquito product now for the third year, as I mentioned during my prepared remarks, we continue to see great opportunity with that particular product as a cross-sell opportunity. We talked about our termite being able to grow as far as a cross-sell opportunity, We have been able to do that. So I think there are lot of very positive things that are going on. Pricing is still very rational and we are able to see price increase. So we feel very good about 2020 from an organic growth perspective.

And I think it is important to share that this was the most disappointing year We have had for 22 years. So we think that it was an anomaly. I have never seen so many one-time charges in my experience, Eddie.

Noticed that.

And, but seriously, I mean, We have learned from this past year, I think John hit it on the head. I think we got too ambitious, too soon. You can't make the season and we had some disappointments due to mother nature. But I'm a believer of taking our mistakes and learning from them and benefiting from them. And we had a very powerful leaders conference. Our people are optimistic. And with the technology that we are enlisting, we think we are going to have a good year.

Okay, that is very helpful. And then one last one. On the cost, you had pointed out a higher cost around Clark in the service salaries, is that limited to 2019? Or should we think about those costs really kind of continuing forward into 2020?

Well, the purchase was closed May 1. So by May 1, we will be lapping at that point in time, but it will be new until then.

Our next question comes from Seth Weber of RBC Capital Markets.

Just to follow -- just following up on that last question. Just to make sure I'm understanding this, the insurance claims issue, does that continue to be an overhang in next year or is this kind of - do you feel like you have isolated it here in the fourth quarter? Does that become - until you install the new technology on the new vehicles, a better training and whatnot, do you expect to see this elevated level into next year? And sorry for the clarification.

Appreciate you asking that question. We do not continue to see an issue as we move forward. We believe that this was a little bit of an anomaly from the two items that I pointed out. The industry for the first time in several years, insurance rates increased dramatically. Some commercial groups would have strong double-digits, that they would talk about. Our increase in our casualty in total was about 5%. And I think a piece of that was managing our automotive claims year-over-year. But we feel as though, with the enhancements that we are going to have from a technology perspective, with the vehicles, as well as the continued training that we will see positive results that come from that. When you take a look at our total claims in the automotive side, again those are down. So we know that that will pay dividends as we move forward in time.

Okay. And is it possible to displace out how much that impacted gross margin in the quarter on the just the insurance portion of that?

I don't know that number off the top of my head. I'm sure that we have that in our breakout, but I don't know that number off the top of my head.

Okay. And just on the...

It was worth a $0.01 to us in total for our earnings. So you can...

Right.

You could get kind of a rough idea from that perspective.

Okay. And then just, when you talked about the expected, I think it was 150 basis points to 200 basis points of additional margin improvement over the next several years from some of the new initiatives and things. I guess is that off of a kind of the current level? Is that off of the pre-Clark margin? I'm just, I just want to make sure I understand what the baseline is for that compare. Thanks.

Well, once Clark lapse, we will have less of a negative comparison from that. So you could really look at it from the pre-Clark levels and say this is going to enhance our overall operations as we are moving forward by the 150 basis points to 250 basis points.

Okay. And, sorry, what was the timing on that?

Next two to three years.

Two to three. Okay. That is all I had. Thank you very much.

Thanks.

[Operator Instructions] We have a follow-up question from Tim Mulrooney of William Blair.

Hey, thank you for taking my follow-up question. Eddie, I saw that you guys used cash to pay down debt a little bit more in the fourth quarter. Can you remind me what your capital allocation plans are for 2020 with respect to debt pay down? I am trying to get a handle on how much cash you would have left over after that for M&A and dividends?

Well, that is our number one priority and it is - the fact that we have some debt right now will not keep us out of the market, if the right opportunity comes and the right valuation. But we will keep that as our number one priority to find and acquire good quality pest control companies. If they come about, then we will continue to use our cash to be able to move forward with that. Number two priority, we just announced that we were able to increase our dividend, and then from there we will pay down our debt. So if there are good quality opportunities that come to market and it makes sense to us, we are going to continue to move forward just like we have over the last several years. If that were to slow down some, then we will be a little bit more aggressive paying that debt down. So that is kind of where we stand with that.

Got you. Thanks for the clarification.

Yeah, absolutely.

And at this time, we have no further questions in queue.

Well, thank you all for joining us today. We are very optimistic about our Company's opportunities going forward. And appreciate your interest in our Company. We look forward to updating you on our progress on our first quarter call. Thanks, again.

Thank you. Ladies and gentlemen, this concludes this teleconference. You may now disconnect.