Rollins Inc (ROL) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Rollins, Inc., fourth-quarter 2008 conference call. (Operator Instructions). This conference is being recorded today, Wednesday, January 28, 2009. I would now like to turn the conference over to Marilyn Meek with Financial Relations Board. Please go ahead, ma'am.

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 212-827-3777. We will send you a release and make sure you are on the Company's distribution list.

There will be a replay of the call which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1-800-405-2236 with a pass code of 111[2]4781. Additionally, the call is being webcast over www. viavid.com (sic - see press release), and a replay will be available for 90 days.

On the line with me today are Gary Rollins, President and Chief Executive Officer; and Harry Cynkus, Chief Financial Officer and Treasurer. Management will make some opening remarks, and then we'll open up the line to your questions. Gary, would you like to begin?

Yes. Thank you, Marilyn. Good morning, and thank all of you for joining our fourth-quarter and year-end 2008 conference call. Harry will read our forward-looking statement and disclaimer, and then we will begin.

Thanks, Gary. Our earnings release discusses our business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that may be made on this call, excluding historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially from any statements we make today. Please refer to today's press release and our SEC filings, including the risk factor section on Form 10-K for the year ended December 31, 2007 for more information on the risk factors that could cause actual results to differ.

Thank you, Harry. In what has been a most turbulent year business-wise, I'm gratified to report that we achieved any increase in revenues and profitability for both our fourth quarter and the full year. In fact, we reached a milestone in our Company's history having recorded a little over $1 billion in revenues for 2008.

We also reported our 11th consecutive quarter of improved earnings results. Revenues for the quarter grew 14.9% and less than 1%, excluding HomeTeam's contribution. I will expand on that in a few minutes.

For the full year revenues increased 14%. Excluding HomeTeam's revenues for the year, we increased 3%.

While we normally do not address our Canadian operations in detail, I believe it's important to discuss it this quarter. We continued to enjoy steady organic growth in Orkin PCO Services. However, the volatility of the exchange rate this last quarter clouds the picture of our consolidated revenue.

Specifically, PCO Services enjoyed over 5% real growth this quarter. However, as a result of a nearly 20% decline in the Canadian dollar in the fourth quarter, our reported Canadian revenues declined 14.1%. This lowered Rollins's overall revenue growth.

Looking at total revenue excluding HomeTeam and our Canadian currency hit, we experienced 1.6% growth.

Our residential pest control service offering including HomeTeam grew almost 29% for the quarter, while termite increased 19.5%. Excluding HomeTeam, both of these service lines declined slightly, growth-wise, compared to last quarter. Harry will provide more detail shortly.

Liens in new sales slowed in October and November across all business lines compared to the same period a year ago, but we saw an increase in sales in December in all categories, though not enough to make up for the previous two months -- clearly, an indication that unlike retail or other business dependent on consumer spending, our business does not appear to be changing dramatically at this point.

For another validation of how our business is holding up, we also looked back and compared our fourth-quarter sales with sales in the fourth quarter of '06, which was a strong year as well. What we found was sales this year were up in all categories from the fourth quarter of '06.

Looking forward, while January is not a big month for new sales, we seeing thus far sales increases. In areas of the country that are reasonably warm, residential pest control sales were up, and areas experiencing extreme cold and snow have sales decreases. But for the near term we see no significant fall-off in our business. As I said in the past, our business historically has been influenced more by weather than by other factors.

We also took a look back at how well we did during the last significant recession during 1981 to 1983 and found that Orkin's business grew at a rate around 5%. The past doesn't guarantee the future, and a lot has occurred since 1983, but this information does appear to validate why we feel Rollins is recession-resistant.

For the quarter our net income improved 5.2%, and we had a EBITDA increase of 28.4%. The gap between the two increase amounts is our HomeTeam acquisition amortization.

For the year net income increased 6.5%, and we had a 13.5% in increase EBITDA, results that we are proud of to have in this economically challenging period.

Taking a closer look at our results for the quarter and the full year, a major contributor to our growth was HomeTeam, which you will recall was acquired in April this year. They have exceeded our expectations in both revenue growth and improved margins. HomeTeam also has one of the highest customer retention rates in the industry, attributed to their very high customer satisfaction ratings.

For those of you that might be new to our story or were not on our third-quarter conference call and may be concerned about HomeTeam's exposure to the home building sector, I would like to take a moment to reiterate HomeTeam's revenue make up.

Their base consists of two sources -- one, new construction or builders new home installation revenue, which makes up less than 10% of their total revenue; and the remaining 90% representing recurring revenue from servicing their residential customers. This service consists of conventional pest control and termite treatments just like Orkin does along with our "tubes in the wall" recurring residential pest defense service.

The smaller piece of their business, builder revenue, is an important piece however, as it is a source of new, potential "tubes in the wall" customers. In total, we expect builder revenue to be flat next year. We do have some upside from new national builders that hadn't been a customer due to Centex's former ownership.

It doesn't appear that last year's level of builder sales will make up for the normal attrition of customers. As a result, HomeTeam's revenue will be off -- but only 2% to 3% -- in '09.

Additionally, HomeTeam is pursuing small acquisitions to add route density and improve margins. The strategic value of this acquisition is best exhibited by the position they hold in their markets. At a time when home construction has declined, HomeTeam achieved an all-time record in this year of 20% market share in the almost 40 markets in which they operate. Or to put it another way, 20% of all new homes constructed in these markets have "tubes in the wall" pest defense systems waiting to be serviced regularly by HomeTeam and only HomeTeam. We're very pleased with the results of this operation and this acquisition.

Other previous acquisitions such as PCO Services, Western Pest Services, Industrial Fumigant, and our most recent acquisition -- Crane Pest Control -- all represent successes of our strategic plan to grow our commercial business.

As we've stated in the past, this service line has higher customer retention, higher average prices, and enjoys higher technician productivity.

Our commercial customers and prospects have strict federal, state, and local regulations with which they must comply. And they look to us in helping to ensure they meet these meet these requirements. Pest control is essential to commercial business, and we are North America's largest provider.

The current economic environment appears to be providing a pickup in acquisition prospects. And our strong free cash flow gives us the opportunity to purchase leading companies such as Crane Pest Control, which was announced earlier this month.

Crane is a leading provider of advanced pest management and primarily commercial, serving Northern California and the Reno/Tahoe basin. Glen Rollins had been in conversations with this company's owner for a number of years, and we are very happy that Hal Stein and his team decided to join Rollins. Hal is a well-recognized industry leader, a highly respected individual, and a former -- past-President of the national Pest Management Association.

During the quarter we also made two smaller acquisitions and service both residential and commercial customers.

Internationally we announced that Orkin established a franchise in the State of Kuwait. This latest franchise expands Orkin's presence in the Middle East to five franchises. And now we have a total of 11 international franchises worldwide.

One of the key factors in our Company's success is the expensive training that we provide our employees to ensure they achieve their goals and that we continue to provide our residential and commercial customers with the safest and most effective pest control and termite services available. Our commitment to this effort resulted in Rollins being named by Training magazine for the 7th year in a row as one of the top 125 companies that excel in human capital development.

We have always been conscious of controlling our costs. However, we know now more than ever that it's important to keep a even closer eye on our expense structure in what will likely be a slow growth situation. We've taken steps to reduce our operating costs, and this effort has taken place in both our home office and field operations.

One area that has the ability to contribute positively this year is reduced fuel expenses compared to 2008. The run-up in fuel cost earlier in the year forced us to be better managers of this expense. So we should doubly benefit with the current cost of gasoline.

We look to reduce costs further as we identify new opportunities, and conditions dictate. At the same time, we will continue to work hard as a team to ensure that we provide the best-in-class pest service while taking this opportunity to build market share. We think that we have excellent potential in both of these areas.

While we do not minimize the current economic crisis -- and no doubt 2009 will be a challenging year for Rollins -- however, we are guardedly optimistic and look for improved results on the top and bottom lines.

I will now turn the call over to Harry, who will discuss our financials in greater detail.

Thank you, Gary. We continue to receive inquiries asking, is your business really recession-resistant? As you can see from our earnings release earlier this morning, we are producing results that are counter to the vast number of public companies reporting.

While revenue growth has slowed, earnings remain strong. And for the year we produced the highest revenue and profit in the Company's history, while generating strong cash flows -- probably the best indicator of the business's health.

Someone told me this quarter that zero growth in sales and earnings is equivalent to an old plus-20. Well, we did better than zero, but it sure doesn't feel like any plus-20. As Gary said, our December, which was a killer for most businesses, was the best month, improvement-wise, in our quarter. We just wish it was a bigger month.

Let's review the quarter's details. Revenue or fourth quarter grew 14.9%. Revenues totaled $248 million compared to $216 million for the fourth quarter last year. Net income for the quarter is $12.6 million as compared to $11.9 million last year, a 5.2% improvement, while diluted earnings per share this quarter is $0.13, an 8.3% improvement over the $0.12 reported last year in the fourth quarter.

Another important measure, earnings before interest, taxes, depreciation, and amortization -- EBITDA -- was $30.9 million, increasing 28.4% over the fourth quarter last year. EBITDA grew faster than net income due to $1.9 million of amortization of intangibles relating to this year's HomeTeam acquisition. I think of EBITDA improvement as a result of acquisition amortization a little different than capital intensive companies with high depreciation constantly having to reinvest their cash for plant and equipment.

HomeTeam Pest Defense contributed revenues of $31.7 million for the quarter and $98.9 million year to date. Excluding the impact of HomeTeam, revenue increased 0.2% in the quarter and 3% year to date.

As Gary has already mentioned, the nearly 20% drop in the Canadian dollar in the fourth quarter negatively impacted our total revenue growth. Looking just at our US domestic revenue -- excluding both the impact of HomeTeam, which was wasn't in last year's results, and our Canadian operations, which represent approximately 7% of our revenues -- for the quarter total revenue was 1.6% growth versus 1.9% last quarter on the same basis.

Growth is slowing but not precipitously like so many other businesses today.

Let's talk about the business lines starting with the fastest-growing part of our business this year. Commercial pest control represented 40% of our business this year. Substantially all of pest control business we serviced in Canada is commercial. This quarter on a constant dollar basis, Orkin Canada grew over 5%. But in converting it to US dollars, its contribution to our consolidated results was an unfavorable 14.1% decrease, and as a result dampened our overall commercial revenue growth to a 1.8% increase.

To draw a clearer picture of the health of our commercial business, we need to separate the impact of Canada and just look at our domestic commercial business over the last four quarters working backwards -- 5.7% growth this quarter, 5.7% last quarter, 7.2% Q2, and 6.4% Q1. For the full-year 2008, our US commercial revenue grew 6.6% versus US growth in 2007 of 5.5%.

Commercial customer retention declined slightly in the quarter, less than 0.2% in our monthly cancellations, and put us basically unchanged for the full year, equal to last year's record-best retention rate -- further testimony to the best-in-class service we are providing to our customers.

I would like to add that we have yet to lose any significant number of commercial accounts as a result of the economy. Due to the regulatory consequences of a business having pest problems, it doesn't make much sense to cancel or switch providers if we're doing a good job.

Our residential pest control service now represents around 41% of the business, and for the first time in a long time, declined slightly, less than 1% excluding HomeTeam's contribution. Slowing a little over 8% from last quarter's growth, it brings the year-to-date growth to less than 1%.

With HomeTeam, residential pest control grew almost 29% in the fourth quarter compared to the prior quarter -- prior-year quarter. Orkin saw an 8% decrease in leads during the quarter. Historically we see some weakening in residential demand during downturns, but the quarter was impacted by bad weather as well. And quite frankly, it's impossible to determine the impact of the economy versus the weather. Retention declined slightly in the quarter, less than 0.2% in our monthly cancellations.

Lastly, let's talk about our termite service revenue, which now represents around 18% of our business and grew 19.5% as a result of the acquisition of HomeTeam. However, excluding HomeTeam's contribution, our previously existing business declined in the quarter less than 2%, similar to last quarter.

Termite work is a much larger dollar purchase. Given the consumer sentiment, this portion of our business has held up surprisingly well, all things considered. Cancellation rate was basically flat in the quarter and has actually improved ever so slightly for the full year. We have new sales and service programs identified that we think can reverse this industry-wide malaise.

Gross margins for the quarter improved 70 basis points to 46.4% for the fourth quarter versus 45.7% in the prior year. Excluding the impact of HomeTeam's higher cost of services, margins improved 130 basis points due primarily to a 92 basis improvement in cost of risk. We closed out the year at Orkin with a 40-plus-percent reduction in paid termite claims.

We did get some relief in fleet costs this year in that -- or this quarter in that they were flat to the prior year for the first time all year.

Depreciation and amortization expense for the fourth quarter totaled $9.1 million with amortization of intangibles at $5.2 million and depreciation at $3.9 million. Amortization increased $1.9 million in the quarter, an increase of 58% due to the almost $90 million assigned to customer contracts and other intangible assets as part of the HomeTeam acquisition.

I point this out each quarter, as investors new to Rollins sometimes overlook it. The amortization of intangibles represents a significant non-cash charge to the P&L. Under GAAP we write off the fair value assigned to customer contracts acquired in acquisitions over their economic life. In 2008 total amortization of intangible expense was $19.2 million and will increase to nearly $22 million in 2009, reflecting a full year of HomeTeam's results and other acquisitions made late in '09 -- '08. Based upon our fully diluted shares outstanding, it was a non-cash after-tax charge of $0.12 this year and $0.14 to GAAP EPS in 2009.

Sales, general and administrative expenses for the fourth quarter ended December 31, 2008 increased $9.5 million, or 12.7%, to 33.9% of revenues from 34.6% last year. $8.4 million of the dollar increase was due to the addition of HomeTeam.

Sales, general and administrative expenses excluding the impact of HomeTeam as a percent of revenues increased 40 basis points due to sales, salary investment, accrued severance costs related to home office reductions, and increase in bad debt expense. The increase was partially offset by a decrease in costs related to reduced summer sales programs.

Gary has already mentioned the continuing contribution of HomeTeam, and I wish to echo how they have exceeded our expectations, particularly in improving their margins. Even with the large write-off of intangibles, the acquisition expenses, and interest expense on the debt to fund the purchase, HomeTeam was accretive on a GAAP basis in its first year. They have moved aggressively to adopt our risk management and other cost-saving programs, substantially reducing their historical insurance and other costs and hence improving margins.

Rollins continues to be financially solid. We generated $75.9 million in free cash flow, cash provided from operations less CapEx, this year representing 7.4% of revenue. Rather than using our strong cash flow to recapitalize the banking system this quarter, we were able to reinvest some funds toward our number-one priority, acquisitions, by acquiring the leading commercial pest control company servicing northern California in the Reno/Tahoe basin, Crane Pest Control. Crane is a very profitable operation and will contribute nearly $11 million in annual revenues in 2009.

We also returned money to our shareholders this quarter by repurchasing 835,300 shares of common stock at an [average] weighted price of $15.57 per share, bringing the total share repurchases for 2008 to nearly 1.4 million shares.

Over the last four years, the Company has bought back 7.7 million shares adjusted for stock splits. We have approximately 4.6 million of additional shares that can be purchased under previously approved programs by the Board of Directors.

We recognize that with short-term treasure release, treasuries currently yield near 0%. In the economic growth likely to remain sub-par, dividend coverage and safety is even more important to investors. Our Board feels confident of our continuing and consistent strong cash -- free cash flow, and as a result the Board of Directors approved a 12% increase in the Company's quarterly dividend yesterday.

The increased regular quarterly dividend of $0.07 per share will be payable March 10 to stockholders of record at the close of business, February 10, 2009. On an annual basis, the dividend payout increases from $0.25 per share to $0.28. This marks the seventh consecutive year the Board has increased the Company's dividend 12% or greater.

As we enter 2009 we are cautiously optimistic. Our business model has held up well in prior recessions and appears to have weathered most of this year's economic storm. We look forward to the increasing contributions from our acquisitions. We will keep a close eye on our operating expenses, and enjoy the relief from last year's high fuel charges for at least a little while.

As always, I look forward to spring when the warm weather returns and its pest control demand, and we can get a clearer picture of what the year holds for us. Keeping pests in their place is our only business. If we can help you, keep us in mind -- 1-800-800-ORKIN.

I will now turn the call back over to Gary.

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

(Operator Instructions). Jamie Clement, Sidoti & Company.

Harry, I'm not sure I saw this in the release, and I don't recall your mentioning it in your prepared remarks. What was CapEx all-in for 2008? Do you have an approximate number?

Including CapEx from acquisitions, that was right around $16 million.

And is -- a rough guess for what 2009 might look like?

I would give you a range right now of $14 to $18 million.

Okay. So, similar. All right.

Similar.

Thank you. And Gary, you spent a little bit of time talking about the franchise program earlier in your prepared remarks. Can you talk a little bit about the differentiation between your strategy within North America versus outside of North America -- and obviously you mentioned Kuwait. I was just curious for your thoughts.

Well, it's quite a bit different. In the United States or North America, we only will select proven pest control operators as franchisees. Most typical these are Orkin alumni. We've always -- before the franchise program -- lost six or seven managers because they just wanted to go into business for themselves and pursue their entrepreneurial spirit, and so we have a pretty good stream of franchisees. And as a result, they are familiar with Orkin, they keep their uniform, they keep the decals on -- their own vehicles, etc. So it's a very smooth transition.

And we also have a kind of a guaranteed buy-back situation at different milestone dates of seven years, 10 years, something of that nature. They are required to sell their business to us at a predetermined price. And this really works well for both sides, because quite often these people are -- by the time they get into the program -- are in their 50s or early '60s, and they are really looking for an exit to the business as well, and they've got a guaranteed purchaser.

This represents I guess about 32 -- they do about $32 million. We add a couple each year. They pay us a 6% royalty and subsidize some other things like advertising and training.

The domestic -- I mean, the international deal is quite different in that we are looking for successful business people in these foreign locations, typically people that are in service-related industries -- the janitorial, the cleaning business, route delivery type businesses. Recently one, I think the Turkey franchisee, was in the snack food delivery business. People that kind of understand getting a service person to the right place at the right time.

And of course we take our money. We're not copartners. On the startups they are given fixed amounts that they have to pay us, and then after they mature, they get more on a percentage basis.

I appreciate that, and I will get back in the queue.

Clint Fendley, Davenport & Company.

First question. The pension accrual on the balance sheet. Any thoughts, Harry, as to the timing and amount of any potential cash contributions here?

We have been contributing $5 million a year for each of the last several years. We're working with our actuary now to determine clearly what the requirements would be in '09. We went from a actuarially over-funded status to about 86%-funded status. And we need to make some long-term decisions in terms of closing that gap. The government's laws have changed in terms of requirements. We do still have some credits available.

So I can say the contribution won't be less than $5 million. That's clear. Whether we will need to increase it to $10 million hasn't been determined. It will take probably at least (technical difficulty) $5 million, and I don't know how much more. But it shouldn't be dramatic in terms of a demand on our free cash flow.

That's helpful. And then I may have missed it, but the DSOs for the quarter -- were there any notable changes there?

No. The -- I don't have it right handy, but it's less than -- I think we actually had decreases in some of the operations, but in the largest operation, Orkin, it was up less than a day.

Great. And then the final question. Any idea as to the EPS benefit that we might have for 2009 if the fuel prices stayed at this level for the entire year?

Stay at this level. Boy, that's a -- that's going out on a limb, as volatile as it has been. But if -- oh, boy. Let me -- in terms of EPS now, it -- I can give you a range because I -- I wish I could tell you what fuel is going to do, but anywhere from $0.03 to $0.07 impact. It's -- I just don't feel comfortable projecting fuel prices. A lot of people lost a lot of money last year.

Understood. Thank you. And good job in a very difficult climate here.

(Operator Instructions). Garo Norian, BlackRock.

I just wanted to ask a little bit more about the acquisitions environment. And it sounds like there's certainly an increased amount of conversations, perhaps, going on. And I wanted to get a sense of -- as far as prices paid, how does that compare today versus maybe 12 months ago or over a longer period of history?

Well, you know the fuel cost earlier -- climb early in the year I think startled a lot of operators and had them kind of take a harder look about whether they need -- if this was the time to sell or not. We saw a kind of an uptick at that point. And of course from an economic point of view, there is nothing that really has taken place that has been favorable.

So I think there's definitely a lot more people. We're getting more inquiries. I think we have proven ourselves to be the acquirer of choice because we really are not heavy-handed with a company that -- the companies that we acquire. So we've got great references when they contact Western -- or even as recently as HomeTeam. So we're very optimistic. We think that there's a lot of people that -- this is just kind of the push that they need to make the sell decision.

Price-wise, I think prices have gone down. Some of the people that were spending money -- in our determination, fairly loosely -- are really no longer pursuing acquisitions. We pretty much held to our guns and didn't feel like we could chase some of the amounts that were being paid. So I really think that we pretty much are in a good position that -- to really buy some of these businesses that are very good value.

Great. And just historically, what kind of multiples have you guys paid?

The business is kind of funny, because typically it's been sold on a multiple of revenue. You know, there is quite a bit of owner takeout, and in some of these smaller companies, in multiples of revenue have been kind of the way the businesses have been placed.

Our models are far more sophisticated than that. We really look at what's going to happen to the business after we own it, and so there's a lot of things that really kind of determine our values -- how profitable it is at the time, what are some of the expenses that are going to disappear when the person sells. And so I think you could convert that if you wanted to kind of back into the percentage of revenue, that could be probably anywhere from $0.80 to maybe $1.10.

But typically, historically, once you restate them out to the EBITDA, it's six to seven times EBITDA, and obviously there's variations in that.

Patrick Stowe, Priority Capital.

I just wanted to clarify -- did you say that termite claims were down 40% year over year?

That's correct.

Does that make it about $7.5 million for the year?

Yes.

Any idea what the provision for '09 on that will be? Just looking back in 2006, that was a $17 million charge. So obviously, it's dropped significantly.

Yes. And the provision should match pretty close in '09, we expect, to claim levels. And we're hoping that -- and working to reduce the number of claims in '09 from '08. I don't think we'll -- can expect another 40% reduction. But by the same token, the number of new claims last year was down significantly from the year before. The number of open claims was down as well. So we think the number should continue to trend down, but (multiple speakers)

We can't keep that pace.

Certainly not at -- we can't keep that pace up.

I mean, is it just an issue to where the old termite applications aren't really as much of an issue any more? What are the trends driving that really?

I think the largest trend is at -- back in the late '90s we went from lifetime repair contracts to term contracts, and we have been able to do a good job in matching the efficacy of the contract and term of the contract. And as a result, we're seeing a reduction. In addition, based on a lot of actuarial work that we did is we built a matrix, so we're much more -- much smarter in matching the risks that we're willing to assume. We know what home-type constructions are problematic and what not. So it's a lot of work over the years that has all contributed to the trend.

Well, I appreciate the color. And good luck to you.

(Operator Instructions).

Okay. Well, thank you all for joining today's call and your interest in Rollins. We look forward to (multiple speakers)

We have a late question (multiple speakers)

Would you like to take the question, sir?

Yes, sure.

[Tom Wynn], Deutsche Bank.

Two quick ones. How do your contracts work if a restaurant has a chain and they close a few units? Do you get revenue per store, or does the contract stay the same?

We would lose the revenue that went with the stores that closed. I like it your way, though. That would be better, but we can't get them to stand for that.

And then, I've listened to a lot of conference calls where a lot of management has talked about how bad the economy is, and they are going line by line through their costs trying to reduce them. And I understand in your business how to contractually set up and how regulations require your services in some cases. But have any businesses come back to you -- not trying to cancel or anything like that, but just trying to ask for a better price?

Oh, sure. Typically, national accounts do. We have a little bit of room in that we can -- if it's a non-food type of account that has no food sales or service or whatever, we can make some adjustments sometimes with the service frequency, because you can certainly -- under some circumstances if they have no pests and we've remedied their past problems, then we sometimes can look at -- if they're a twice-a-month customer, sometimes we can reduce that to once a month.

But we're not involved in any price reductions or anything of that nature. It's just taken a long time to get our prices up, and so we're pretty firm about holding the line.

Andrew Mahony, Green Arrow.

I actually just have one question. Can you quantify what earnings per share accretion was from the HomeTeam acquisition in 2008?

No. We typically don't break out the earnings of our various operating divisions. But it was, as we mentioned, mildly accretive.

Okay. And cost synergies should accelerate in 2009 for that one property, the acquisition?

Yes. We -- as we said on some previous calls, we set out a four-year plan and model that we believed we could bring their margins up to -- equal to what the margins in our other operating businesses are, excluding the impact of the intangibles. And they're operating well ahead of schedule, and we believe we have opportunities to further improve their margins.

There are no further questions at this time. I would like to turn it back to Management for any closing comments.

Well, thank you again for joining our call and your interest in Rollins. We look forward to your participation on our next quarter's call. Thank you.

Thank you. Ladies and gentlemen, this does conclude the Rollins, Inc., fourth-quarter 2008 conference call. If you would like to listen to a replay of today's conference, you can dial 303-590-3000 or you can dial 1-800-405-2236 and enter access code 11124781 followed by the pound sign. We thank you for your participation. You may now disconnect.