Rollins Inc (ROL) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Rollins, Inc. first quarter 2013 earnings conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation the conference will be open for your questions. (Operator Instructions). Today's conference is being recorded April 24th, 2013. I would now like to turn the conference over to Marilynn Meek. Please go ahead.

Thank you. By now you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact our office at 212-827-3746. And we will send you a release, and make sure you are on the Company's distribution list.

There will be a replay of the call which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1-800-406-7325 with the passcode 4612026. 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?

Thank you Marilynn, and good morning. We appreciate all of you joining us for our first quarter 2013 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 in 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, 2012,for more information and the risk factors that could cause actual results to differ.

Let me now turn the call over to Gary, our CEO and recently-promoted Vice Chairman of the Board.

Thank you, Harry. Mother Nature was a fickle lady during our first quarter. Last year, 2012, she gave us the warmest three months in the US for over 100 years, which contributed to record revenues and profits. This year, she handed us the coldest with the greatest snowfall quarter in two decades. In spite of those obstacles, however, we continue to grow our revenues, and this was accomplished primarily through the recurring revenue that we built over the course of last year. For Rollins that type of revenue is the gift that keeps on giving.

Revenue for the quarter increased 3.5% to almost $300 million, and net income was $23.2 million just slightly above last year's net income of $23.1 million. The impact of the weather was felt in leads all across our service lines, particularly termite and residential pest. While pest control was down double-digits from last year's record, what I find encouraging is that our residential pest leads were up nearly 15% over 2011, which was a more typical first quarter.

The good news is that spring is here, and with the weather now warming up the pests are moving, and the phones are ringing. Weather aside our sales and marketing efforts continued to be an important and powerful influence in creating greater awareness for our family of brands, while contributing to the growth of the Company. Orkin's new marketing programs and advertising further establishes Orkin as the pest control expert. You may be aware that Ottawa Orkin founded Orkin in 1901 when he was just 14. One of his first jobs was to rid a family's barn of rats. And even back then he took a scientific approach to accomplish this. From the barn attic he studied how the rats moved, what they ate, and how they functioned in order to figure out how to eliminate them. He understood to dispatch a pest, you had to think like the pest.

Over the years Orkin Exterminating expanded geographically, and developed expertise regarding other pests, such as ants, cockroaches, termites, and bed bugs. Yes, bed bugs were even present back then. This growth was accomplished by perfecting the same scientific logic to eliminate a pest, you have to think like a pest. In the 1950s Orkin stepped up its marketing efforts introducing Otto the Orkin man, in the form of a singing spray can. During that time, television viewers saw the Company's first TV commercials. Later in the 1980s, the icon debuted as a human face exterminator robot. And in the late 1990s, he appeared as an animated robot. It is noteworthy, however, that the Orkin man never really addressed the scientific approach we have always followed in controlling pests.

With the launching of our new ad campaign this month, we now have a marketing strategy that focuses on our greatest asset, the Orkin man. Our advertising communicates what he is doing, and the lengths that he will go to solve your pest problems. The mission of our new campaign which is fully-integrated from online to television and radio, is to make consumers aware that Orkin is the leader in providing solutions based on science. Not just for any home, but for your home. And that we are continually developing new ways to responsibly control pests with a specific plan for each customer's home or business.

This year just about every prospect or customer touch point has been addressed to showcase the Orkin man and the lengths that he goes to every day to solve our customers' pest control problems. Like Otto Orkin we continue to be the pest control industry's innovators by staying on the cutting edge of science and technology, while we provide our Best-in-Class pest services.

A good example of groundbreaking industry technology in another area was accomplished through our recently launched HomeSuite iPad application or app. HomeSuite is now used by residential sales inspectors to enable them to better describe the need for, and the service we will be delivering to our customers,specifically, to their home. There are three features under the HomeSuite app that we refer to as present, meet, and inspect.

The first present enables to us show a prospect the full array of residential offerings, be it pest control, termite treatments, bed bug, or any of our ancillary services. The inspector is able to customize the presentation to the prospect's needs with actual photos of their home, that is then used to describe the exact service that will be provided. The second feature meet, enables the customer to see in advance specifically who will be servicing their home and who in our office they will be speaking with over the phone.

Our meet application allows our representative to present our employees faces to the customer with photos of their technician, and the branch's administrative staff. And the last feature is inspect, which I think is even more amazing. This routine allows the inspector to graph the customer's home, document pest activity, and illustrate a customized treatment program all on the iPad. After reviewing this material with the customer, a written proposal can be mailed to them in a PDF format.

Early results from the use of our HomeSuite app shows that sales closure is improving, as well as obtaining increases in our ancillary sales. These would be moisture control, insulation, et cetera. By the way, this is very important in our fourth and first quarters when pest activity is low, and creative sales are so important.

We are presently in the process of rolling out BizSuite, which follows the same HomeSuite fundamentals, but is adapted for the commercial prospect and our account managers. Orkin is the first national pest control company to use proprietary iPad applications as a sales tool, and we believe that this will give us a great competitive advantage. Training also plays a significant role in differentiating our Company. Our culture of continued improvement challenges us to constantly upgrade our training for all of our employees, and our franchisees' employees.

These investments resulted in again for the 11th year in a row being recognized by Training Magazine as a Top 125 training company. This distinction is based on programs tied to meeting business objectives with the best training practices and outstanding training initiatives. We appreciate all of those in our Company who work so diligently in helping to make our Company the best trained in the pest control industry, and among most companies in any industry. This achievement provides a direct benefit to our customers as well as our employees.

The Company's stability and success in many regards are the result of exceptional leaders. We enjoy a cadre of talent that most frequently comes from within our own ranks. We were therefore extremely pleased when in late January the Board of Directors elected John Wilson President and Chief Operating Officer of Rollins, Inc. Further, yesterday John was elected to the Rollins Board of Directors at our Company's Annual Shareholder Meeting.

John has been at Rollins for 17 years and first worked as an Orkin technician and sales inspector while in college. During his career he has become fully indoctrinated in our Company, and has successfully held many positions, including that of an Orkin branch and region manager, as well as President of the Commercial Division, President of the Southeast Division, and most recently since 2009 had the responsibility as President of Orkin USA.

Additionally in January Gene Iarocci was promoted to President of Orkin North America. Gene has been with us for 10 years, and came to us with a great deal of multi unit management experience within a number of service and manufacturing industries, including Union Carbide, where he worked for 24 years. Since joining our Company he has served as Region Manager, division Vice President, President of Orkin's Atlantic Division, and most recently working closely with me as Vice President of Corporate Administration. Gene has also been an officer of Rollins since 2011. We are extremely fortunate to have both John and Gene assume greater leadership roles in our Company.

We are making good progress on the initiatives that we discussed on our last call, including ServiceSuite, where we now have 27 branches in pilot. We continue to fine tune this CRM and operating system to ensure a successful national rollout. With these last improvements we should have an extraordinary branch operating system that all brands can benefit from. We plan to start a full Orkin rollout beginning in the fourth quarter. As I stated earlier, spring has sprung, the phones are ringing, and we are very excited about the prospects for the balance of 2013, and we are committed to achieve our goals for this year.

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

Thank you, Gary. Bye, bye winter skies, hello yellow sun and pollen-filled days. Spring is here. That is what the people say. Don't just ask me, call the Orkin call center.

It was a long time coming this year, and after gloating last year, I can now sympathize with last year's winter clothing retailers. Numbers aren't as pretty as last year's first quarter, but you one of the strengths of our business is that 2012's recurring revenue came through for us.

Looking at the numbers, the Company reported first quarter revenues of $299.7 million. An increase of 3.5% over the prior year first quarter revenue of $289.5 million. We experienced that growth across all of our family of brands but one, which was off 2/10 of 1%. Overall net income increased 4/10 of 1% to $23.2 million, compared to $23.1 million, with EPS flat to last year at $0.16 per diluted share.

Fortunately, unlike retail or many other businesses, we are not reliant on what business walks in the door each quarter. Our business model can be better described as subscription-like model, while we never like to lose a customer, unfortunately it does happen. Sometimes they move. Sometimes it is related to service. Sometimes for price. And in the case of our residential customers, because we have done our job well no pests. In order to grow those customers need to be replaced,around 6% of our residential customer base and 3% of our commercial customer base each quarter.

Fortunately, we added recurrent customers throughout last year building on our base. Unfortunately, this quarter with spring coming later, our anticipated leads didn't occur as planned and our demand slowed. With typical first quarter weather and the contribution of a marketing group, we expect to see the internet light up and the phones to ring off the hook. Last March we saw organic traffic to our websites substantially exceed any previous month by over 100,000 visits. This quarter, it just didn't happen. While we see a significant decrease, or saw a significant decrease in leads, sales and starts, I wouldn't call our results totally disappointing, as we enjoyed improved closure and pricing, and most importantly, we also saw improved customer satisfaction, a key indicator of the long-term health of our Company.

April is not over, but early results are encouraging. Orkin's brand is becoming only more valuable in the digital era. Usually I talk next about whatever line is our bright spot,usually residential or pest control. Although termite had a decrease 1/10 of 1%, I feel it qualifies as this quarter's bright spot. They were running up against last year's unbelievable first quarter revenue growth of 10.5%, and nearlyequaled that revenue despite a 20-plus percent decrease in leads.

Our upgraded new series of HomeSuite iPAD applications for our sales inspectors that Gary spoke about, really showed its worth resulting in improved closure percent, and improved price realization. Our Termite Sales Group deserve an atta' boy. Add in the nice increase in ancillary sales, HomeTeam's is growing pretreat business, and the recurring revenue that comes from our Termite renewals, and it totals a quarter surprisingly nearly as strong as a year ago.

Commercial pest control which makes up 42% of our business had a respectable 3.7% increase. Our national accounts group had success with the addition of our hometown airline Delta, as well as further penetration and location expansion in a number of current existing national accounts. Our residential pest control business which makes up almost 40% of our business, had nearly 27,000 less calls in the first quarter this year. But thanks to the recurring revenue base built over last year still grew 5.4%. The residential business is the most pest problem dependent, and as a potential customer usually waits until they have a sighting, then with our top of mind awareness think of Orkin and reach out to us. Fortunately, in this environment not all of our brands are as dependent on leads.

HomeTeam's business is driven by new home construction. While it was reported that one gauge of confidence among home builders fell in April for a third month of decline, hitting the lowest levels in six months, you couldn't tell it by our business with builders. In fact, our new home starts were up nearly 35% in the first quarter totaling over 17,000, representing the biggest installation quarter in over four years, and April appears even stronger. While it hurts our margins in the short-term, it is the driver for HomeTeam's future growth and profitability.

Installs don't drive revenue significantly, however, they do drive costs. Systems are installed while a house is being framed, there remains a lot of work before that home is finished and sold. As a result, there is significant delay between installation and activation of the built in pest control defense system by the new homeowner. We are only now beginning to see the gains from the early 2012 HomeTeam's installed growth, which helped increase overall their revenues up 8.6% this quarter. For those interested in our bed bug business, it was up 16.9% to $10.1 million. We expect that growth to accelerate as well with the arrival of spring.

Gross margin for the quarter declined 70 basis points to 48.1% for the first quarter versus 48.8% in the prior year. The decrease in operating margin was due to not achieving our planned revenue per employee, as we staffed up for spring that was late. Additionally we had increase in material and supply costs related to an increase in HomeTeam tubes in the wall installs, as well as increase in ancillary product materials.

Depreciation & Amortization expense for the quarter increased slightly $127,000 totaling $9.9 million. Depreciation was $3.7 million, and amortization of intangibles was $6.2 million. For the full year amortization of intangibles typically from the value assigned to customer contracts acquired in an acquisition, will represent a significant aftertax noncash charge of $0.11 this year.

Sales, General & Administrative expenses for the first quarter increased $4.3 million or 4.5% to 33.1% of revenues, increasing from 32.8% last year. The increase in margin percent is due to professional services related to our commercial pricing initiative, increase in costs associated with the implementation of our new branch operating system,and higher advertising expense as we have launched our new advertising campaign.

Tax rate for the quarter came in favorably at 34% for the quarter, as we were able to resolve some tax uncertainties. I expect it to return to around 37.5% for the remainder of the year.

Our balance sheet remains strong. Rollins ended the quarter with $82 million in cash, and no debt. Our working capital remained negative despite our strong cash position, as we continue to have more customers prepay us for services, $96.3 million in current unearned revenue than those who owe us for current services,$65.6 million in trade receivables. What a great business.

One last piece of news I am excited to let everyone know, that Rollins' Chief Operating Officer, John Wilson, participated in the CBS reality show, Undercover Boss. The series follows executives as they go undercover to work anonymously with their Company's front line employees and gives them the chance to learn more about their Company firsthand. The episode will air Friday, May 3rd at 8 PM Eastern Standard Time on CBS. I hope you all will tune in to watch.

Before I turn the call back to Gary, let me express our appreciation and thank all of the Rollins, Orkin, Orkin Canada, HomeTeam, Western, IFC, Trutech, Crane Associates, and others, whose hard work and dedication contributed to a hard fought quarter, and will be contributing to another record year. We also thank our customers, suppliers, and shareholders for their continued support. I will echo Gary's comment, spring has arrived. The phones are ringing. And we are have very excited about our prospects for the balance of 2013.

With that, I will now turn the call back to Gary.

Thank you, Harry. And by the way, I didn't know you were an aspiring poet. We are now ready to open the call for any questions you that you might have.

Thank you. (Operator Instructions). Our first question comes from the line of Joe Box with KeyBanc Capital Markets. Please go ahead.

Good morning guys, this is actually [Andy Divas] filling in for Joe.

Good morning, Andy.

Good morning. Obviously you called out the weather impact on the year-over-year numbers, Harry you went through kind of the growth cadence by business. Just looking to maybe get a little more granularity on what didn't materialize as you guys had expected kind of where that was, and maybe if you could just discuss leads a bit more, how they have picked up since the lower December you called out last quarter, and maybe the cadence on new customer starts year-to-date?Any color there would help.

You broke up there on the end of the question. I am not quite sure the last part of the question.

Just basically how going forward, how going forward leads have trended since the lower December? And then maybe the cadence of new customer starts thatyou have seen if any in the quarter?

Well, as I think, Gary and I both alluded to, the leads were down in the first quarter 20-plus percent. Last year the weather got real hot starting in February, the tulips were out, and the pests were moving about. So while I don't think it is a trend of less interest, because I think the takeaway, the interesting thing when you compare the leads this year to 2011's first quarter where the weather was not as, still not as bad as this year's but certainly far from what we saw in 2012, the leads were up 15% over what they were two years ago. So I think our top of mind awareness, our marketing activities, our digital strategy are working. Everything is in place to, the weather now is back. We have spring. We have a new advertising campaign. So we are excited as to our potential going forward.

Joe, let me add to that. For those that have followed the Company a long time, we don't talk about the weather. The only reason we talked about the weather last year was because it was so phenomenal. I mean it was the best weather in 100 years. We had, what a 26% increase in leads,I mean it was just unbelievable. And the only reason we brought it up this year are is, we knew we weren't going to repeat that kind of lift but we didn't expect the worst weather in two decades. So going forward, we don't want to talk about the weather. We want to talk about our business. So you are not going to hear any more about the weather.

Sure. And I am ultimately just trying to determine whether this was more of a delay due to that weather. If there is anything else in there that could impact results going forward?

No, we feel pretty good. April so far we have recovered from the drop. And we have got a couple of weeks left. We think that we are going have a good April. And the spring drives you a little bit crazy because it moves around typically 30 days one way or another. So we have got the people hired. We have got them equipped. As John Wilson told me yesterday, they are well rested because they didn't have a lot to do the first quarter. So we think that we have got the plans in place to have a good year.

That is good color there. And then maybe just switching over to the cost side. Last quarter Harry you gave us kind of a specific breakout of the different impacts. Looking at this quarter, can you maybe just, one, sort of specifically talk about the productivity headwind in the quarter, and how that compared to I believe the 30 basis points last quarter? And then two, maybe did the other headwinds abate as you had expected, particularly the insurance adjustments we had?

Yes, and I don't have that in front of me. We staff up in the spring that came late so our productivity suffered. I would have to go back and look.

We had deterioration in the payroll, we had deterioration--

It was probably in the neighborhood of 20 to 30 basis points.

In administration, I mean well,

on CSP. And on the insurance, with three months certainly doesn't make a year. The number of claims is running below last year. We haven't seen the severity that we had last year, so at this three months into the year we are keeping our fingers crossed. We are pushing out a lot of initiatives and raising consciousness in the field, and trying to make it more and more a part of safety consciousness at top of mind. So we are seeing some early favorable results, but it doesn't take too many bad accidents to set you back.

We also could add that we have three divisions now that is on the safety incentive program. And the first one was southeast and as a result of the success that we had there, we rolled it out to two more, and I would expect by the end of the year that we will have the whole all of Orkin on it, and I think Western is on it as well. So we are not just hoping, we have programs in place or in the wings that we think will make a difference.

Sure. And I guess just to put that plainly, I mean I think with incremental margins this quarter were actually a bit negative. Basically just trying to parse out if you think that the revenue impact from the spring hitting in 2Q will pull the leverage back up, or if you think it will take more time for that to play out with some of these metrics?

The revenue comes, the labor is in place, that will take care of itself. We will have our typical price increase program goes into place in June. We have been working with Boston Consulting Group on the commercial side of the business that we hope to see a little positive impact from that as well. So I think that the first quarter was a fluke. I mean we would expect to return to our stride this quarter.

Okay.

Thank you.

I am sorry. No, go ahead.

I said thank you. You sound like you have one last question.

I did. I was going to use your segue there with the Boston Consulting study. I know that was underway last quarter, and still a bit early maybe, but any initial takeaways you guys can share, and any anticipated difference in pricing as we sort of near that June/July timeframe?

We are in the final stretch of, we have tested some of the things that they have suggested. Went out in February and March, so we are just now getting some of those results back and analyzing that. So it is really too early to say with any assurances, here it is what the impact will be. But we haven't done a project with BCG that hasn't been successful. I don't want to go out on a limb and say it is going to add X, Y or Z, but they will very well earn their keep, and we will get a nice return on that professional services cost that we are incurring.

Sure. Sure. That is fair. And I guess just nothing then that we should anticipate at this time for sort of the middle of the year?

No.

No.

Okay. Great. Well, that is all for me. Thanks, guys.

Thanks.

Thank you. Our next question comes from the line of Clint Fendley with Davenport. Please go ahead.

Thank you. Good morning, Gary and Harry.

Good morning.

Good morning, Clint.

Also enjoyed the poetry there, Harry. Thank you.

Don't encourage him.

I won't give up my day job just yet.

I wondered if you guys could maybe share the pricing and volume trends that you experienced during the quarter, and I am wondering you talked about your prepayment plan, if there is any incentive to maybe move the customers over to that because of a better pricing maybe that you are seeing on the prepayment side?

We always encourage our customers to either prepay, or to leave their credit card with us. We went from I think seven, eight years ago with no credit card numbers.

To auto pay.

To auto pay where today it is in excess I believe of 40% of our customers.

And this is typically the residential pest control customers.

Days sales outstanding on my residential customers at Orkin is right around 14 or 15 days, because a lot of them pay me upon service. And the customers who pay by credit card tend to stay and take a few extra services, so we continue to try to encourage people to either pay in advance or pay with their credit card. Pricing trends, we saw you like I said, in what is still I think characterized by a lot of industries in the first quarter seeing consumer resistance and what not, we haven't seen that in terms of pricing. We got a few percentage price realization, average price is going up. I think some of that is better sales presentations from the home inspectors.

I think HomeSuite has helped because we are selling more combination jobs, where we are doing termite treatments in conjunction with moisture control or insulation, so the average job price has gone up nicely in Termite.

We would hope that this commercial project that we are doing with BCG will raise our commercial prices. Did not see any in our testing of price increases, did not any see any elasticity problems. We will have a more sophisticated price increase program this year. I mean we are the leaders. We make no bones about it. We charge more than the rest of the industry, but we are worth it.

Any color just on how April is shaping up so far? And obviously we have seen everything get off to a slow start this year. Last year we had sort of a pull forward at the Q1. Could we see the reverse in Q2?

No, I it think April started off a little slow. It has certainly picked up momentum. I don't think the phone is ringing off the hook out quite yet out in Denver. I saw my Atlanta Braves got snowed out two days ago, and I think their day game yesterday was 23 degrees, 27 degrees for a baseball game, and I think the Mets got snowed out in Minneapolis as well. So spring hasn't come everywhere, but when I checked yesterday we are running, we made up the early deficit and are starting to run ahead. So we will keep our fingers going. I think the new advertising campaign is kicking in. We are getting a lot of play, and getting good feedback on that and I hope John Wilson --

I think John Wilson is going to help us some, too. I think that is one of the most heavily viewed shows on the reality show on television.

Could be. So we haven't seen any --

And we will have the Orkin diamond prominently displayed throughout the whole.

One hour show.

Episode.

I will definitely have to watch for that. Harry, on the tax rate should be back to roughly the 37% then in Q2?

Yes.

Okay. And then last question just a little bit of maybe a left field kind of a question, but I have seen a few news reports here that at least on the East Coast, from the Carolinas kind of up through New York as the return of the cicadas, which I guess happens every 17 years, and creates kind of an invasion of bugs. Is there anything you guys or any services you have provided in the past for that, or is it pretty much you just have to grin and bear until these things go away? Wondering if there is any kind of one-time bump?

It is certainly going to make people more insect aware. It can't hurt, but we don't do any agricultural pest control. The fact that you have got that many bugs in the air certainly can't hurt us.

Sounds like we are about to get the payback for the slow start that we have seen. Thanks, guys.

Thank you.

Thank you. (Operator Instructions). Our next question comes from the line of Jamie Clement with Sidoti & Company. Please go ahead.

Gary, Harry, good morning.

Good morning.

Good morning.

I am not sure whether this kind of thing is trackable or not, but you as you look back at the first quarter of 2012 and the tremendous lead generations that you had and obviously lead closure, has there been any difference in terms of retention rate a year later with that group versus what you have just seen over the last, pick however number of years?In other words, if abnormal weather phenomenon caused more customers to sign up have they stuck with you?In.

Yes, our retention, we watch our retention very closely. I mean we will have lapped those that we sold in the first quarter. Our retention continues to improve, and as I think I mentioned or Harry mentioned about the customer service surveys, I mean we have really been working on improving our survey, I mean our service and measuring our service. So I think that we have got programs in place but the great thing is we have 400 locations, so when you get a big surge of leads like that, it is not like it all falls in Florida or north Georgia, or whatever. We have got a lot of people and a lot of branches that can assimilate that business, and so those customers got as good of first service as customers that were sold throughout the year.

But to answer, it is not unusual to see a pickup in lost customers in that first year when you have an influx of new you customers, because those are the most the difficult to retain. Those are the ones you want to become lifetime customers. We did see a small, our retention numbers on the residential side were up a little. We didn't quite retain as much. It wasn't a significant difference. On the commercial side, we saw our best retention it might have set a record.

The termite we saw the best retention.

In Termite, we saw a great retention.

Even pest control Harry was like a tenth of one percent.

I mean that is not a significant, I wouldn't view that as a statistically meaningful number at all. Just a follow-up kind of on seasonality if you all could give us a reminder, my recollection is that typically you all have a strong March or a strong April, rarely the two are strong at the same time, and rarely the two are weak he at the same time. Is that a fair assessment of history here?

That is correct.

That is correct.

Okay. And then so from a lead generation perspective, I would assume you would expect the metrics to improve, whether it is not by the end of the week certainly as you move into early May? Is that accurate? What is that?

When the is season really starts breaking the momentum picks up, and typically May is better than April, and June is better than May. I mean it just rolls through the spring, rolls into the summer, and then wanes off in the fall and winter.

Okay. Thank you all very much for your time and final question, Gary, acquisition pipeline. I know it is always hard to pry good companies away from owners, but some of those owners aren't necessarily getting any younger, and maybe thinking about estate planning, and that sort of thing. Can you give us kind of an update on how you view the market place?

One the things, we are having a big meeting the first of May, Harry.

Yes.

Where we bringing our leaders in and talking about acquisitions, and measuring how well we have done with the acquisitions that we have completed. One of the things that we are doing this year that is a first for us is that we are putting incentives, offering incentives to our region managers and branch managers, to identify acquisition candidates, and participate in the courting process. And we have never done that before. So we are hopeful that will be beneficial, and for most pest control companies I mean this first quarter was a disaster.

Right.

We always look at that with mixed emotions. We hate it for ourselves, but sometimes that is the turning point of people that say well, maybe now is the time for me to hang it up, or call Orkin, or whatever. It will be interesting to see what the outcome is going to be at this first quarter, as it relates to our acquisition activity.

Let me, just a follow-up. And I am sorry to keep asking follow-ups here. Obviously who the top 50 firms are, and I am just wondering whether your success with GPS tracking, and some of the way you manage your technicians and that sort of thing has maybe filtered down to what had been, maybe smaller companies five or six years ago, but generally speaking the industry has done pretty well. Based on your comment about in incenting some of your branch managers and that kind of thing, are there businesses that are maybe outside of the top 50 that you think would be more, you would be more likely to be interested in today than maybe you would have been five or six years ago?

I think so. One of the things that we are doing better is that we are looking at strategic area of the country. And certainly a small acquisition might be extremely important in an area where we have a branch that is say, doing $1 million, and to add another million dollars really changes the branch margins dramatically.

Okay.

And there are areas of the country that we are more interested in than others based on our penetration, and based on the potential. I think we are being more selective as to where to fish.

Okay.

And I think that is going be a beneficial as far as the year is concerned.

And I guess my perception is that there are a lot of folks in the industry that have tried to borrow pages out of your playbook, that may have prevented historically you being interested in smaller acquisitions, where now they are run in such a way where the culture might be more consistent with yours?

I think we have got the best track record of any major acquirer.

No doubt about that.

We hold on to the employees, and we hold on to the customers, and I think we are the acquirer of choice.

I would not disagree. Thank you all for your time as always.

Thank you.

Thank you. I am showing no further questions in the queue at this time. I would like to turn the conference back to management for any final remarks.

Thank you for joining us today. We look forward to the second quarter call, and we will continue to work hard to continue to grow and improve our business. Thanks again.

Ladies and gentlemen, this concludes our conference for today. If you would like to listen to a replay of today's call, you may do so by dialing 1-800-406-7325 or 303-590-3030, and entering the access code of 4612026 followed by the pound sign. Thank you for your participation. You may now disconnect.