Rollins Inc (ROL) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rollins Incorporated fourth quarter 2012 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, a conference will be open for questions.

(Operator Instructions)

This conference is being recorded today, January 23, 2013. I would now like to turn the conference over to Marilynn Meek. Please go ahead.

Thank you. By now you should have all receive 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 lists. 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 1-800-406-7325 with the passcode 458-8006. 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, President and Chief Executive Officer and Harry Cynkus, Senior Vice President, 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 fourth quarter and year end 2012 conference call. Harry 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, 2011 for more information on the risk factors that could cause actual results to differ.

Thank you, Harry. I'm extremely pleased to report that our Company achieved record revenues and profits for both the fourth quarter and our full year, marking our 15th consecutive year of increasing revenues and operating profits. Revenue for the fourth quarter rose 6% to $306.4 million, and net income increased 6.1% to $22.9 million with all of our brands and services contributing to these results. Revenue for the full year was $1.271 billion, and net income grew to $111.3 million. EBITDA exceeded $200 million for the first time in our history, coming in at almost $260 million -- excuse me, $216 million.

Our ability to achieve record results is due to the commitment and effort of our more than 10,000 employees that work every day to achieve improvements in all we do. The progress that we made in 2012 reflects on the momentum gained in adding new customers while improving our service and retention. For the quarter, we continued to experience strong demand for our services with residential pest control up 8.7%, commercial rose 4.9% and termite revenue grew 3.6%. We are particularly pleased with the growth that we experienced in each of these service lines.

As reported throughout the year, we continue to see a growing interest in our bedbug services. Company-wide, this business grew by nearly one-third year over year. We are amazed at how the business has grown over the last four years. From a service that we didn't even separately track in 2009 to representing over 3% of our revenues for approximately $45 million. We continue to experience strong commercial demand for bedbug services. However, it's not just a commercial problem. Homeowners are becoming more exposed and aware of this pest, as we saw tremendous growth in residential bedbugs services, which was up approximately 60% this past year.

Mosquito, another one of our ancillary services, although a relatively small part of our revenues, is also helping to build our business and our brands. Both of these services provide us the opportunity to gain new customers that potentially can benefit from all of our services. We look forward to these two areas continuing with strong year-over-year growth.

To digress for a moment, I want to thank everyone for joining our call an hour earlier than usual. We needed to make this change in order for Harry and me to get to our annual company-wide leadership conference being held here in Atlanta. It kicks off today and will run for the balance of the week. All of our North American top leaders will be in attendance. The theme for this year's meeting is World-Class Customer Service, Raising the Bar through Leadership. In addition to participation by Rollins corporate department heads, region managers and above will have the opportunity to hear from a number of executives from other companies that are recognized for consistently delivering excellent service. We feel that there is much that we can learn from outsiders who, like ourselves, are dedicated to providing excellent service.

The main goal of this meeting is to further inform and inspire the leadership at Rollins to raise the bar in terms of the level of customer service that we deliver every day, everywhere. At our conference, we will be building on our Company-wide customer promise that I discussed last quarter. I believe it bears repeating since this promise contributed greatly to the progress that we made in customer satisfaction and retention last year. Specifically, we promise to provide our customers with a professional specialist who is respectful, delivers effective responsible treatments, shares information, and promptly responds to service requests. This focus has paid great dividends already.

Well, they say the proof of the pudding is in the eating, and improving customer satisfaction is paying off as confirmed by our most recent customer satisfaction surveys. Recent results show an improvement in our net promoter scores of 5 percentage points over our 2011 score when our customers are asked if they are extremely likely or very likely to recommend our service. As you would expect, we also saw a drop in the percent of dissatisfied customers. Keep in mind that this feedback, good or bad, goes directly back to the branch that services that customer. This element of accountability creates corrective action where needed and also enables our field locations to strive harder to get bragging rights among their peers.

Our technological initiatives are continuing to play a major role in improving both customer and employee satisfaction and retention. Throughout 2012, we launched a number of technological projects to help us accomplish our business strategy. By the way, since 2011 we have implemented 12 major technological initiatives. We completed several this past year and have added some new ones for the new year. To highlight a few, we launched a suite of advanced customer sales, Internet, and cross center software to increase our lead conversion rate.

We introduced a new cross center platform that now links all Rollins call centers together while reducing the time it takes to turn an Internet lead into an outbound sales call. We implemented state-of-the-art outbound predictive dialing for calling our web-based leads. This system has improved the sales agent's productivity and close ratio substantially. The appropriate Rollins pest-control brand name now shows up on prospective customers' caller ID when we return their call. This helps to ensure those interested in our services to pick up the phone.

We replaced our satellite-based training system with a web-based employee training network. It can be utilized by our employees and franchises worldwide. Our automated onboarding employee process now engages and guides new hires from day one, getting every new employee's first day experience off to a good start.

It's not just the major contributions, those that we tend to talk about, but also smaller ones that are making us a better Company and employer. This past year we implemented our wheels fleet management system, which has provided 24/7 vehicle maintenance support. Better pricing on our purchasing of vehicles, improved management tools, and proven programs directed to reduce our fleet expense. We enter 2013 with plans to further the advancement of our branch operating system service suite, which we believe will be one of our most beneficial and far-reaching initiatives in our history.

Eight branches went live last year, and we are off to a good start this year having converted eight traditional branches. These were part of a fourth-quarter acquisition. We are particularly pleased with this last effort as they demonstrated our ability to bring on multiple branches at the same time. We expect to add several more pilot branches in the first quarter and to significantly ramp up the rollout of additional branches during the year. Our goal is to have Orkin 100% completed in 18 months. When this happens, service suite will be in more than 400 branches Company-wide.

We are fully conscious no matter how good our past performance, that there are many areas in which we can improve our business, and one area that we will be focusing on this year is improvement in our procurement practices. We believe that there is significant opportunities in this area. We are teaming with the re-boost of [Puritivepay] software, which is a best of breed product, as well as Novasys Technologies to provide strategic sourcing. We believe that this team approach will help us to achieve the highest standard in sourcing results. Our goal is to significantly reduce the cost of everything that we buy, and we believe that there is a multi-million dollar opportunity in this regard.

We'll also be taking a look at our commercial service pricing and price increase. You may recall that we worked with a Boston consulting group in 2008 on our residential pricing practices. We have asked them back to take a look at our commercial business, and we are already encouraged by the preliminary findings.

We are proud that this past year we were recognized the largest pest control company in North America, if not the world. Apart from that, we have 57 domestic franchises and 22 international franchises. We are, frankly amazed how many people abroad are familiar with the Orkin brand and want to be affiliated with it. We don't take any of this for granted, however; as I have said many times in the past, we know that we have to maintain the trust and loyalty of our customers and our employees every day. These commitments are the stronghold of our business. All of us here at Rollins are extremely excited about our opportunities for the new year as we continue to grow and improve our business for the benefit of our customers, employees and shareholders. Harry?

Thank you, Gary. Good morning. Thank you for joining us on the call. It's always a pleasure to get another record year in the books. With this call, I think we can officially say 2012 is complete. We should take some time now to bask in the joy for another successful year. But don't worry, it won't be a long celebration. Actually, as long as it takes for us to drive from here over to the conference center and make sure our management team is focused on making 2013 an even better year.

Let's talk about the results. It was an interesting quarter with a number of challenges, which I will touch on. Revenue was strong and with nearly 80% of our revenue being recurring, bodes well for next year. Today we reported revenue of $306.4 million, representing 6% revenue growth. Net income increased 6.1% to $22.9 million, or $0.16 per diluted share compared to 200 -- excuse me, compared to $21.6 million, or $0.15 per diluted share for the same period in 2011. Year-to-date revenue is a $1.271 billion, a 5.5% increase. Net income for the full year has increased 10.5% to $111.3 million, with EBITDA coming in at nearly $216 million.

Let's talk more specifics about revenue. We saw revenue growth across all brands, all service lines, and possibly all bug groups. Most certainly, bedbugs. Our residential pest-control continues to shine growing 8.7% for the quarter and making up almost 41% of our business. That's the nice part of recurring revenue.

We have a substantial increase in customers on our books as of December 31 waiting for their service this year. The fourth quarter is not a big lead quarter. The lead growth is growth. The quarter got off to a great start with a nice warm-up double-digit lead growth, but then we had some rocky times up in the Northeast. One of those challenges I referred to as Hurricane Sandy in October, hitting New Jersey, New York, and Connecticut. Don't know what each part played, but when you combine a cooler and stormy December in many parts of the country, the other storm in the halls of Congress, our cutbacks in advertising spend, December experienced a first month of reduced leads in some time. Fortunately, December isn't a big lead month, and it looks like leads are coming back in January.

Gary has already touched on are improving customer satisfaction scores, and for the year, they translated into improved retention rates, not just for our residential pest-control, but across all service lines. Being the largest commercial pest control company in the world, and with 42% of our revenue being commercial pest control, it's good to see it regaining its momentum. After watching the growth rate waning over the last couple of years, we are pleased to see it pick up now for two consecutive quarters, growing 4.9% this quarter, 5% when excluding fumigations.

Our termite and ancillary services grew 3.6% and represents almost 17% of revenue. While seasonally influenced, half of this revenue is recurring in nature coming from year-round monitoring and through annual renewal fees recognized ratably over the course of the year. The fourth quarter ended strong, and I have to thank HomeTeam. Their penetration in the new home construction market is paying dividends.

Gary has already given you the numbers on bedbugs, but I would like to point out those who might have missed Orkin's January 15 press release announcing Chicago replaced Cincinnati as our number 1 bedbug city, Cincinnati falling to fourth. Washington Richmond moved up a spot to seventh with New York following a spot to 10th. Don't take much solace if your city lost standing on the list; regardless, everyone still had more bedbugs than the year before.

Gross margin for the quarter declined 90 basis points to 46.8% for the fourth quarter versus 47.7% in the prior year. There were a number of factors impacting us, someone one-offs, some execution, some just the nature of business. On execution, we lost 30 basis points due to productivity. What has been a strong year for adding new customers and result of test to handle that business continued strong, as I mentioned, through October. When business dropped back like it does at this point each year, we just didn't react as quickly in some areas as we should have. Factor in a hurricane in the quarter, and you get the picture.

We self-insure for most of our casualty costs. Auto, general liability, and workers compensation have been experiencing higher costs all year, but they turned ugly this last quarter. Unfortunately, we lost one of our technicians in a tragic vehicle accident through no fault of his own. This, coupled with four other severe claims resulted in over a $3 million increase in our incurred losses. As a result, our insurance reserves had to be adjusted. Like other challenges, with the rising costs we face, we have identified steps, programs and processes to tackle this challenge and improve our performance. We had good experience on termite claims, but it wasn't enough to mitigate the increase in casualty.

On a positive note, though it still cost us probably incrementally over $0.5 million in the quarter, we experienced firsthand the homebuilder confidence in the market building more single-family homes, which is near its seven-year high. Since we have owned HomeTeam, this is the first time we saw installs of their tubes in the wall Taexx system actually increase in the fourth quarter. Homebuilders are usually reluctant to start new homes late in the year; not this year. Starts surged, and we saw a 55% increase over last year with over 17,000 installations making it the biggest quarter since we have owned HomeTeam.

Lastly, some other one-time costs totaling another $0.5 million coming from fees and other costs related to two acquisitions closed out in the quarter, as well as a new five-year revolver. Appreciation and amortization expense for the quarter increased slightly $132,000, totaling $9.8 million. Depreciation was $3.8 million with capital expenditures for the year totaling $19 million. The larger piece of the depreciation and amortization number is the amortization of acquired customer contracts totaling $6 million for the quarter and $23.4 million for the full year. This represents a significant after-tax charge of $0.10 this year.

When we do pest control company acquisitions, there are seldom any significant hard assets on the balance sheet. As a result, most of the valuation ends up being classified as intangibles and customer contracts. We currently have $142 million of intangibles from acquisitions on our balance sheet. With current amortization running approximately $23 million a year, we will have a few more years of this expense flowing through the P&L. We see little risk in possible impairment charges. All of the businesses we have acquired have grown as we continue to write down the value of the customer contracts recognized at the time of the acquisition while expensing fully the cost of all new customer acquisitions.

Sales, general, and administrative expenses increased $4.1 million, or 4.4% to 31.9% of revenues, decreasing from 32.3% of revenue. The impact of the higher casualty expense, as well as pension on SG&A was offset by a 60 basis improvement in admin and sales salaries. In addition, we have broken out separately on the P&L the cost for terminating the [Waltham] salary pension plan, taking a settlement loss which resulted in a $1 million charge to the P&L. I have learned the only thing worse than running a pension plan is terminating one.

The tax rate for the quarter came in at 34.6%, and we were able to utilize some of our state NOLs. The year-to-date provision for income taxes came in at 37.0%. I really don't see anyone coming to their senses and Washington, and regrettably would expect the rate to turn back up next year.

We continue to build on our solid foundation, investing a strong balance sheet and cash flows, Rollins is financially strong. EBITDA reached $216 million. A five-year, $175 million year revolving credit agreement was expiring soon, and we renegotiated -- negotiated a new four-year agreement that can be extended an additional year to replace it. Unfortunately, the easy credit base of 2008 when we entered into our last agreement has ended. However, we don't feel all that bad about our new $175 million revolver that is priced at LIBOR plus 75 points.

With our strong cash flow this year, we continue to reinvest in the business. The number 1 priority for our cash continues to be reinvesting the business we know best, pest control and only pest control. We funded our $19 million of capital expenditures and invested $25 million on acquisitions this year. In the fourth quarter of this year, effective October 1, we acquired eight North Florida locations from Hewlett Environmental Services based in West Palm Beach, Florida, and we closed on December 31 BBB Pest Control that operates in Orange County, California. These two acquisitions will contribute over $12 million in revenues to Rollins Inc. next year.

With cash to spare, we returned $80 million to our shareholders through both our stock buyback and dividend programs in 2012. We bought back nearly 800,000 shares of our common stock and have authorization to purchase for an additional 5.3 million shares. Included in the dividends paid for the year was a special one-time dividend of $0.12 per share, which was paid in December and totaled $17.2 million. Speaking of dividends, I'd be remiss not to mention that yesterday our Board of Directors increased the quarterly dividend 12.5% to $0.09 per share per quarter. This marks now the 11th consecutive year that the dividend has been increased a minimum of 12%.

Lastly, and most importantly, before I turn the call back to Gary, let me express our appreciation and thanks to all of the Rollins, Orkin, HomeTeam, Western, IFC, TruTech and Crane Associates whose hard work and dedication contributed to these record results. We also thank our customers, suppliers, and shareholders for their continued support. With that, I will now turn the call back to Gary.

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

Thank you.

(Operator Instructions)

Our first question is from the line of Jamie Clement with Sidoti.

Gary, Harry, good morning.

Good morning.

Looking out over the next couple months, I -- Gary -- excuse me. You all benefited from extremely favorable weather conditions, and I recall that your termite business was up, I believe, 10.5% in the first quarter of last year. Would you -- obviously, weather is totally unpredictable, but if you were to see a 5% or a 6% decline in your termite business just as a result of the timing of weather, that wouldn't be something you would be overly concerned about, would it?

No. In my 45 years, I've never seen a lead increase like we experienced the first quarter of last year. It was just a perfect phenomenon. We do have some programs that I think will contribute that we didn't have really in place extensively last year, and that is our EDS sales management software that we developed, which really enables us to look over really our sales performance, our proposal performance, and really gives us quick data and quick insight as to what the salesmen are doing. And we have seen the momentum pick up, I think that contributed to our last quarter in the year of termites, and that's just going to continue to pay dividends. If you can identify salesmen in trouble and help him, you avoid the turnover and of course, you improve your productivity. We are suspecting -- or expecting that that will help us.

And we've gotten better selling ancillary services, like our DryZone and some of the other products. The salesmen are not going to want to take a pay cut. And what we have experienced in the past is when leads slow down, they work harder to create them. But to your first question, I, certainly -- even with all of that, it's going to be a tough quarter from a termite sales point of view.

Probably the toughest two quarters. We've taken a lot of -- try to take seasonality out of the business with 42% of the business being commercial. That gives us a solid base to build on. But you still have a lot on the residential side of the business and the termite side of the business. It is impacted somewhat by weather, and we see our revenues decline in the fourth quarter and you wait for it to come back down in Q1.

I think the last year -- to put it in perspective, in Q1 half of our profit is made in March. You hold on January and February and you are hoping for an early spring. The revenue differential between January and March I think last year was $10 million a month. When you add $10 million onto mostly, a lot of your cost is in place and fixed, gives you a lot of leverage to the bottom line. So, last year it was wonderful, warmest February and March in 117 years. The termite business got moved forward into the first quarter. Let's hope for an early spring again this year.

Okay. But even if you don't get it, you will still get termite activity in April, I would imagine, right?

They reproduce and swarm, and they will be back.

Of course. Can you touch a little bit on the acquisition pipeline?

Last year was an interesting year. Similar to what we saw four years ago when there was concern over capital gains break. A lot of people come to the table who want to price the business. We have had -- we were successful with two acquisitions in the fourth quarter. Like I mentioned, we will add about $12 million in revenues next year. We had a few others that we were hoping to get to the finish line that didn't quite get there. I think sellers remorse.

We've put in place a program to, I guess we call it a finder's bonus, a plan for our region managers to get a little more active and bring forward -- build relationships and bring forward more opportunities to us. So, we are working actively, but it takes a willing seller to come to the table. But it's the number 1 priority for our cash. So, we will keep banging the drums and try to find some good pest-control companies to add.

Okay, as always, thank you very much for your time.

Thank you.

Thank you. Our next question is from a line of Joe Box with KeyBanc Capital Markets.

Good morning, guys.

Good morning, Joe.

Just wanted to follow-up on the deals. Can you maybe talk about the business mix of the companies that you bought? Maybe give us a little bit of commentary on the margin profile and if you expect the deals to be accretive.

And we always expect the deals to be accretive. It sometimes takes a little while to get out of the chute and running. You have some start up costs, conversion costs, whatnot. The acquisition that came on October 1 was primarily residential business. I think the -- about 60%, 70% was residential, 35% I think was termite. The acquisition we closed 12/31 was a little over 50% I think will be commercial, and the balance residential with very little termite. We expect -- from a EBITDA standpoint, they are always accretive, generate a lot of cash. A lot of times it comes down to how much of the ask purchase price you have to assign to the intangibles and how much that write off will be. But we expect those margins in both those acquisitions to come up pretty good -- quickly to what our margins run through the business. Probably a little better.

I think in the Florida acquisition, they were in some markets. They didn't have a big position in some of their markets, which were the same markets we didn't have a big position in. So, by combining the operations of the two, we get a good sized presence in the marketplace and reduce some of the brick and mortar costs. I would think our Florida acquisition within the year should have above-average margins for us. The Florida -- not Florida, the California acquisitions in the great market of Orange County, long established 40-plus year company. Great customer retention. The average customer -- I remember when internal audit was out doing a due diligence, I think the average age of the customer that happened to be in their sample that they were looking at was over 10 years. You love it when you have long-lived customers. It makes for great recurring revenue and predictability of business.

None of these acquisitions are identical. Some of them -- one of them we really have a lot of the administrative costs that we can take out because they pretty much have a manual service tracking system. We know that we can make a big in-road as far as that's concerned. Often we look at revenue per vehicle. We can see that some of them have too many vehicles.

Most of them have not been very aggressive with their pricing. We think that we understand pricing well. And depending on the time of year that you acquire the company, you may or may not be able to initiate a price increase. We certainly don't do that in the wintertime. And so we've got a process that we go through when we do our models as to which one of these margins that we think that we can move. And as I mentioned earlier, they all vary somewhat.

Sure, excellent, that's good color. Maybe changing gears a little bit. Can you talk about commercial environment? One, are you seeing any uptick in terms of services being added by your customers, or two, are you starting to see the pricing environment improve from some of your competitors? I guess I'm just trying to understand what the main driver is behind some of the improvement in growth.

I think the biggest driver that you have is the effectiveness of your sales force. And we have this -- what is it called -- [Biswee], thank you Harry. So, we are able to have an application that we can share with the customer to show what's going on in his kitchen for instance, if it's a restaurant or a loading area, and really sit down and customize a presentation for that particular location and that particular type of customer. And we've now got it located or rolled out, I think, in all of the US. Some, I think Western was the last one to be converted. So, we are seeing a nice part -- one of the big contributors to our good quarter in commercial was the fact that our salesmen are more successful in closing. To me, we've got a lot of opportunity in improving the number of calls that they make, and I think that this Biswee will make them more effective as far as their closure is concerned.

I think we are learning. We mentioned in Gary's comment bringing on a Boston consulting group to work with us on the commercial side. They are tearing apart of all of the data and looking for the [anomaly]. But we are learning a lot about exactly what happened in the field, how they're pricing, how they should be pricing. I think that bodes well for us. I think we will get smarter on the pricing side, and that will help us. Typically, our price increase on commercial -- both residential and commercial -- come June, July. We don't see anything other than opportunities in the environment. Right now I think it's execution, and I think we will add -- be able to add something on the pricing side. Getting a little smarter on how we go to market.

Perfect. Thanks. And I apologize if I didn't catch this all earlier. Harry, can you maybe just sum up what the total cost headwind was in the quarter that might not be recurring going forward?

I think the productivity will change. We are going to bring that back in line. I think the 30 basis points we lost there will probably be a little high in January, February. But it will come back in line with business in March. The self-insurance, we took 100 basis point hit there. We are projecting that to come back in line, but we need to make sure we have safe drivers in safe work environments.

The experience we had this year was very unusually outside the norm for us. That's an area we had bring costs down for seven consecutive years. So the HomeTeam, I think we are going to continue to see hits on the HomeTeam side because we are hoping more and more houses get -- come out of the ground. But that's a good thing because those 60,000 installations we did this year will be a lot of new customers coming aboard next year which offsets some of it. The $0.5 million in the revolver and acquisition costs, that definitely is one time as well. We think our margins will come back to where they were historically, and we have opportunities to certainly improve on that.

Okay, and maybe I can ask it a little bit of it different way as well. If you look at incremental operating margins, they've averaged 36% over the last four quarters. Obviously, it came in at 4% this quarter, which was down for a number of the reasons that you just alluded to. Do you see incrementals maybe snapping back to that more normalized range, or do you think that they might be somewhat subdued over the next couple of quarters?

I don't believe they will be subdued with the programs we have in place.

That's all I have. Thanks, guys.

Thank you.

Thank you.

(Operator Instructions)

I do have a question from the line of Clinton Fendley from Davenport & Company.

Thank you. Good morning, gentlemen. Sorry if this has already been asked. I got disconnected a couple times. I'm wondering what the longer-term implications are for the huge uptick that we saw in the HomeTeam installation. Just based on your pipeline of activity and the current low inventories for housing, what is your outlook for this business this year?

We expect it to continue to grow. I think last quarter we were projecting, I'm thinking 60,000 installs next year and ended up hitting that this year. Based on contracts and homes and things in the pipeline, it easily could be 65,000 and if housing doesn't turn down, it could hit 70,000. We might add an additional 5,000, 10,000 more installs next year over this year, but the good news is that higher level of installs will start turning into recurring revenue as those homes are completed and sold and we get the -- sell that homeowner on activating the best defense system.

Do you think it's possible, given the installs that we had last year and what you're expecting in the coming year, could that result in potentially a residential growth rate that result in potentially a residential growth rate that could accelerate, maybe to a level of, say, 10% or more as a result of the high level of activity that we're now seeing?

Well, the HomeTeam, $150 million-odd out of $1.2 billion, so we certainly see their growth accelerating to 9%, could hit 10% next year. I think they're sand bagging in their projection, but they won't admit they could do 10% next year. So, that will certainly trickle down and affect our overall growth rate, but we need a lot of leads coming in, a lot of continued success, marketing's got some tricks up their sleeve. So, we certainly would like to see that residential business continue to accelerate.

We know that their model works because prior to the recession we could get a sense of what happens when these homes are sold. And it's just kind of like priming the pump. The housing starts has really been kind of dismal, they've picked up, they're running at a good pace now. And ultimately, these houses will be sold and they'll start contributing to the profitability. So, I think that we're expecting a good year from HomeTeam this year.

Last question, could you guys remind me, I know that shortly after you bought this business that you were very optimistic about expanding your relationships with a lot of other builders. Just remind me on where you stand on that today?

Well, we've added, since we've acquired them, we've added Toll Brothers, and what was the one --

They do business with the, I think 20 out of 20 of the top builders in the United States today and have expanded their relationships with -- and gotten further penetration into those accounts. They've signed a national agreement. Then we talked about the last quarter, quarter before with Lennar that's going to add several thousand homes next year. They had a wonderful relationship with Centex because they were owned by Centex, but Centex then got sold, bought by Pulte. And we've expanded that relationship.

Because Pulte wouldn't buy from us --

It was D.R. Horton.

One of the largest wouldn't buy for us when we were -- when Centex owned the company. As soon as Centex sold the company we've expanded that relationship. Our people have done well. One thing that should contribute is during this lull, we lowered our prices quite a bit to just try to get as much volume as we could to offset our overhead. And as the housing starts have returned, then our rates have gone up. Any more questions? Well, thank you for joining us today. We look forward to the new year --

Excuse me, sir, we do actually have a follow-up from Joe Box.

We noticed that you didn't put out a buyback press release before the earnings release, and it doesn't look like you guys bought back much in the way of 4Q. Just for our own modeling purposes, where are you guys in the market so far in 1Q? And maybe can you give us a sense of what your current share count might be?

The current share count outstanding is right around 146 million. We didn't put out a press release for fourth quarter because we didn't have anything to report. We weren't in the market in the fourth quarter. We'll let you know what we buy in the first quarter when it's over. We've always been an opportunist when it comes to purchasing the shares. We don't have a budget for the quarter. We have authorization for over 5 million shares if the market gives us the opportunity to buy shares. Sometimes I think of ourselves as second specialist in the stock, but if we see a good opportunity to buy back stock, we will.

Right. And that 146 million, was that as of December 31 or was that as of --

That was December 31.

And then maybe just a follow up on your commentary earlier from leads. I think you said that leads were actually down in December.

Yes, the were up double digits in October, November slowed a little, December we actually had a decrease, but we had a net increase in the quarter, but was a small increase.

And if you have to have a lead decrease, that's the month to have it.

Right. I think -- it's certainly explainable why it would be softer in December. I think you have said so far it's looking better in January. Has it snapped back to double-digit growth, or is January just too weak of a lead generation month?

January is a small month as well, but January 1, first week in January was pretty cold, got a little warm, got cold again today. The leads were up in the 5%, 6% neighborhood, but it's still -- we're I guess two-thirds through the month, but March makes the quarter, not January.

Right. But everything you are seeing right now is suggestive of lead growth being strong once we see maybe more normalized weather.

We certainly believe so.

Okay. Great. Thanks for the color there.

Think you. And we have no further questions at this time.

Okay. Again, thanks for joining us. We are dedicated and hard at making 2013 another successful year for the Company. And with that, I guess, Harry, you and I need to go. Thanks again for joining.

I'll be available for a little while for questions if there's any follow-up questions, but be heading down to Georgia Tech here shortly.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, this concludes the Rollins Incorporated fourth quarter 2012 earnings conference call. We'd like to thank you for your participation, you may now disconnect.