Rollins Inc (ROL) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Rollins, Inc. first-quarter 2014 earnings conference call. At this time all participants are in a listen-only mode. Later we will be conducting a question-and-answer session and instructions will be given at that time. (Operator Instructions). I would now like to turn the conference over to our host, Ms. 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 pass code 467-8054. 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 is Gary Rollins, Vice Chairman 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 first-quarter 2014 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 fact, are subject to a number of risks and uncertainties and actual risks may differ materially from any statements we make today.

Please refer to today's press release and our SEC filing, including the Risk Factors section of our Form 10-K for the year ended December 31, 2013, for more information and the risk factors that could cause actual results to differ.

Yes, thank you, Harry. Our earnings release discusses our business outlook and contains -- I am pleased to note that, unlike our last call, Harry and I are both in the same room today. As you may recall on our year end visit in late January, we were each at our respective homes due to the snow storm that caught Atlanta off guard.

I'm sure we are all happy that spring has come following two consecutive years of bitter winter for much of North America. Incidentally, this past March was the coldest it had been for over a decade -- 12 years.

A number of people in other areas have weighed in recently on this winter weather and its impact on business, even our new Federal Reserve Chair, Janet Yellen, commented on the issue and said about the harsh winter weather may have had an impact on recent economic data.

Despite what some refer to as the new normal weather pattern, we are pleased to have overcome this negative impact on our business. And we are proud to report another quarter of both improved revenue and profit.

I think a key to our strategy has been to have enough business improvement initiatives in the works so we are not devastated by abnormal weather. We can do something about developing and implementing those programs but nothing about the latter.

Revenue for the quarter grew 4.6%, which was somewhat disappointing, to $313.4 million compared to $299.7 million in the first quarter last year. Net income increased 11.2% to $25.8 million with EPS of $0.18 per diluted share compared to $23.1 million or $0.16 per diluted share for the first quarter of last year.

We are definitely pleased with our conversion of profit improvement from our revenue increase. Our business historically has been built on increasing our recurring revenue. Almost 80% of the revenue we recognize each month is for scheduled services that are on the books as of the first of the month. I like to think of this as the gift that keeps on giving. In a sense we are much like the phone company or cable TV business.

We worked hard last year to continue building our commercial revenue business and we saw the strength this quarter. Of this improvement with its 6.6% growth, as Harry will explain shortly, once you factor out the unfavorable impact of foreign currency exchange, the commercial percent revenue improvement was almost unchanged from last quarter.

Our commercial customers, be it a large national company or a local owned restaurant, can't afford to defer retaining their pest-control services regardless of whether it is a mild or severe winter.

Residential sequential growth slowed similar to what we saw last year. You don't have a lot of new customers coming into the sales funnel in the first quarter, especially with the weather we had. But still residential pest control grew a respectable 3.9%.

The snow and cold weather doesn't kill the termites, but it does drive them deeper in the ground until the temperature warms. As a result termite revenue was almost a breakeven up 0.1%.

On a positive note it was obvious that bedbugs don't care about the outside temperature because it is always warm where they live. Our bedbug business continues to grow and was up 15% for the quarter.

As noted in the past, our strong customer retention provides us with excellent recurring revenue and profits. These two factors coupled with our growing brand recognition have enabled us to expand our business and allowed us to meet our financial objectives from year-to-year. In fact, this quarter represents our 32nd quarter of improved revenue and profitability -- eight years.

We also believe that we have several competitive advantages. By virtue of our size we're able to reach out to existing and potential customers, nationally, locally and internationally through traditional and social media and Internet marketing. Most of our competitors don't benefit in this regard.

Our public relations team is a major contributor to our communications effort and focuses on building our brands. Last year this team's outreach generated approximately 264 million local and national media impressions while positioning our Company as the pest expert. These means, however, are just one piece of our ongoing programs to connect with the customers.

Providing education to the consumer has always been at the forefront of what we do. From the 1950s we have been routinely providing science education by sharing our perspective on insects with young students throughout North America.

Recently we created our new school pest control presentation website which makes it easier for teachers to schedule and track the status of their presentation request. We also continue to partner with the National Science Teachers Organization, NSTA, to promote our Orkin Man school presentation program which has been highly popular and successful.

Last summer we again teamed up with the Center for Disease Control and Prevention and produced a pest-control and prevention tips for mosquitoes and ticks. The sound bites from this effort generated more than 5.3 million media impressions. We have partnered with the CDC since 2004 and look forward to working with them again this year on important projects.

To better build stronger relationships with our customers we're generating a quarterly e-newsletter which informs recipients about Orkin, pest-related illness, year-round pest-control and other pertinent subjects. In 2013 more than 400,000 newsletters were distributed. We're continuing this program again this year.

We believe another competitive advantage that sets our Company apart is our Atlanta Learning Center and Tempo, our internal training and education website.

The ever evolving pest-related training that we provide our employees resulted in us being recognized again by Training magazine for the 12th consecutive year as one of the top training companies in America. This year we have ranked 55 among a group of 125 companies, joining a very select few companies that can say that they have been so recognized with this award for more than a decade.

This training publication indicates that their ranking is determined by assessing a range of qualitative and quantitative factors, including financial investment and employee development, the scope of the development programs and how closely such development efforts are linked to business goals and objectives.

We remain committed to continuous improvement within all of those training metrics and each year we are challenged to take our training up another notch. In the first quarter usage of the Rollins management system consisted of over 42,000 logins and over 100,000 course selections. Our employees are benefiting professionally and most often financially from this commitment to training.

I should also add that Texas A&M University announced during the quarter that Rollins' employees passed the milestone of participation by completing over 10,000 online courses on termite biology and control. Texas A&M has created the industry's best online termite control training courses.

Another area we take very seriously is risk management and specifically the safety of our employees. Recently we have been made aware of the dangers of talking or texting while driving. Some states have a ban on handheld talking or texting and the list is growing.

On most days of the year we have over 8,000 Company vehicles on the road, servicing our customers around the country. Most of the drivers of these vehicles have a Company cell phone and many also have a personal cell phone. We believe that there is nothing so important that it can't wait for one to pull over and stop to make or return a call.

Rollins has therefore adopted this year a total ban on texting or talking on a cell phone while driving a Company car or a personal car while on Company business.

Statistics indicate that distracting driving accidents have increased 100% over the last five years and with cell phone work-related vehicle deaths up over 35,000 individuals in the US annually. We felt that this was an issue that needed to be addressed to ensure the safety of our employees and the public. As you can imagine, it was not necessarily a popular decision initially but, much like enforcing seat belt use, it is the right thing to do.

This year we have created the Rollins Marketplace or what we refer to internally as our procure-to-pay initiative. The objective is to have all of our operations and brands ordering supplies online exclusively through our marketplace. We are already benefiting from improved efficiency and it is helping us to obtain better national contracts and improve pricing, ultimately reducing our cost.

We're continuing to advance our goal of establishing international footprint via franchises and select acquisitions. We were pleased to announce last week an agreement in principle to acquire Statewide Pest Management headquartered in Shepparton, Australia, our second acquisition in that country.

This Company was established in 1997 and provides services to both commercial and residential accounts in the state of Victoria, which includes metropolitan Melbourne and reaches up into the New South Wales area. Statewide will do approximately $5 million in annual revenue and we are expecting to close at the end of this month and are excited to have statewide join our Company.

We also established two new global franchises during the quarter adding to our growing roster of international franchises -- our first in Uruguay and our third in China. We remain committed to adding to both our international and domestic franchises.

This is an exciting time for Rollins and we are expecting to have a good 2014. We have many opportunities to expand and improve our Company and we look forward to sharing our progress with you each quarter. I will now turn the call over to Harry. Harry?

Thank you, Gary. What is it lately with drama in our conference calls? Last quarter snow kept us out of the office for the call; this time my daughter was wheeled into the delivery room about 10 minutes ago. I'm expecting the arrival of a granddaughter any minute; I may need to talk fast.

Looking at the numbers, the Company reported first-quarter revenues of $313.4 million, an increase of 4.6% over the prior year's first-quarter revenue of $299.7 million. We experienced that growth across all of our family of brands but one, not surprisingly one based in the Northeast.

Overall, net income increased 11.2% to $25.8 million compared to $23.2 million with EPS up 12.5% to $0.18 versus $0.16 per diluted share last year in the first quarter. A good start to the New Year in less than ideal conditions.

As Gary has already stressed, it is especially important for us to add recurring revenue customers to our base. I don't want to get into any debates on global warming; however, we did see it in the first quarter again this year. With spring appearing to come later, our anticipated leads did occur as planned with slowed demand.

Fortunately, improved closure percent and higher average price enabled us to overcome the decreases in pest control leads allowing us to achieve a modest growth in sales. Our termite sales team gave us the good old college try, achieved higher closure and higher average price, but could not quite overcome the double-digit decrease in termite lead.

Overall, we continue to see improved customer satisfaction and retention, key indicators of the long-term health of our service.

Strategically, Rollins decided to focus on our commercial pest control business back in the 1990s after selling off all of our non-pest-control businesses -- home security, maid service, lawn care. Today we have become the largest commercial pest control provider in North America representing nearly 43% of our business.

In total commercial pest control grew 6.6% in the first quarter, 7.3% excluding fumigation. Fumigation was off 8.4% in the quarter. That was mostly due to the large grain operators who typically schedule their fumigations over long weekends. Easter this year falls in April versus March last year.

We closed on the Australian Allpest acquisition in late February which contributed some revenue to the quarter; however, it was offset by a significant weaker Canadian dollar this year.

Our residential pest-control business, having long been the cornerstone of our Company and represents almost 39% of our business, had nearly 4,000 less calls in the first quarter this year. But thanks to the recurring revenue base built over the last year, still grew 3.9%. The sequential decrease in growth from the fourth quarter was a drop of 1.9% versus 2.5% last year.

The residential business is the most pest problem dependent as a potential customer usually waits until they have a sighting, picks up the phone or goes to the computer and contacts us. Fortunately not all of our brands are as dependent on leads. Much of HomeTeam's new business is driven by new home construction.

Where the new housing starts slowdown has been widely reported, we are fortunate that we are located in stronger housing markets. It's hard to think a 7.7% growth in installed starts was a slow quarter, but it was far better than industry at large.

We were pleased with our almost 19,000 new installs this quarter. HomeTeam was able to overcome the smaller incremental installs and had some nice margin improvement.

Let's not forget termites, which is the most seasonal of our service lines and represents less than 17% of our business. While 50% of the revenue from this service offering is recurring, i.e., the annual renewal payments, the other 50% is not and weather and the termite reproduction cycle has a definite impact on the annual swarm season.

I'm not an entomologist, but I do know that termites like warm weather to get amorous, grow wings and reproduce. This quarter we saw a large double-digit decrease in leads. But fortunately our termite sales force has some ancillary services inflation dry zone, [etc., to sell].

Termite revenues were up 1/10 of 1% aided by Australia. Without the first-time revenues of termites from Australia our termite revenues actually fell domestically 1.1%. You would have to go back to the first quarter of 2008 to see a more disappointing quarter for termites.

For those interested in our bedbug business, it was up 15% to $11.6 million. 35% of that business today is residential, 65% commercial. Bedbugs do tend to be more active as the year goes, so be on the lookout and remember they have no preference on thread count.

Gross margin for the quarter improved to 48.5% for the first quarter versus 48.1% in the prior year. The quarter benefited from lower fleet costs due to gains on disposal of vehicles and good cost controls across most expense lines. This more than offset some productivity losses as we geared up our termite technicians for a spring that was delayed. Frankly, you can't wait and see what happens in the first quarter before staffing and training.

Depreciation and amortization expense for the quarter increased slightly $320,000 totaling $10.2 million. Depreciation was $3.3 million and amortization of intangibles was $6.9 million. For the full year amortization of intangibles, typically from the value assigned to acquire customer contracts, will represent a significant after-tax non-cash charge of $0.12 this year.

Sales, general, administrative expenses for the first quarter increased $1.5 million or 1.5% to 32.1% of revenues, decreasing from 33.1% from last year. The decrease in cost as a percent of sales is due to reductions made in administrative salaries, reflecting realignment of some of our operations and cost containment programs initiated at the corporate offices late last year.

Income before income taxes was up 17.7% in the quarter, but unfortunately the tax rate for the quarter climbed over last year coming in at 37.7% for the quarter where I expect it to remain for the time being. As a result our net income was up only 11.2%.

Our balance sheet remains strong. Despite our best efforts to reinvest more heavily in our business, spending $53.6 million on acquisition of companies in the quarter, we still ended the quarter with $83 million in cash and no debt. We are confident that there are other great pest-control companies to pursue; the deal pipeline is the strongest we've seen in some time.

Another interesting facet of this business is working capital, which remained negative despite our strong cash position. We continue to have more customers prepay us for services, $98.5 million in current unearned revenue, than those who owe us for current services, $72.7 million in trade receivables. What a great business.

On another note, we were pleased to have been advised last week that Rollins has once again been selected to the Barron's 400 Index. This marks the seventh time we have been chosen to the index since its inception in 1997. According to Barron, only about 6% of all North American publicly listed companies are selected to the Barron's 400 on the basis of their fundamental founding. This underscores the overall strength of our Company's financial results and its bright prospects.

Before I turn the call back to Gary let me express our appreciation and thank you to all our associates and others whose hard work and dedication contributed to a challenging quarter and are committed to producing another record year. We also thank our customers, suppliers and shareholders for their continued support.

Global warming or not, spring has arrived, the phones are ringing and we are very excited about our prospects for the balance of 2014. 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.

(Operator Instructions). Jamie Clement, Sidoti.

Anyway, I wanted to ask about another -- the other new partnership you announced with the CDC, there have been a couple over the years. Mosquitoes obviously were a real problem in this country, particularly with respect to West Nile virus. I think the city of Dallas obviously had a real rough situation last summer.

Are there better protocols in place from a mosquito control perspective that you feel you can offer the public? Or is it a little too early to really comment on that sort of thing and the outcome of any kind of relationship with the CDC?

Jamie, the protocols have not improved or changed to a great degree. I guess the application equipment, the blowers have improved I think which has helped improve productivity. And really the application process. But there is no new wonder chemical that has come out that has drastically changed mosquito control.

But, Gary, I mean would you -- in years past, and I'm going to rely on your experience here, is awareness caused by last summer's mosquito situation, is that something that would tend to help a Company like yours the following year?

Well, I think to some degree, I think you really got the big lift last year. I think what changes, the reason my interpretation of the data is that you have satisfied customers and they tell their neighbor and we are -- we re-up automatically. We assume that last year's customer is going to continue and have a very, very high retention rate of the customers.

But I think it works. I mean, and people talk at parties and so forth that they got their backyard back and I think it is a very effective and beneficial service. I think that is more of -- you are going to have publicity as a result of West Nile virus, but our experience has I think been more just the general knowledge of the consumer and the fact that it really works well.

It is one service; I think it has the highest retention numbers of any of our service offerings. So it -- we have proven to our customers over and over again that we provide a very effective mosquito service. But there is still high skepticism and I think it will make up less than 2% of our business last year, probably under $20 million in revenue or around $20 million in revenue.

And one other good aspect of it is it helps us get pest-control -- ongoing pest-control (multiple speakers).

Sure, free advertising.

Yes, it gives us a nose in the tent, so to speak. And it is the only service that I can ever remember where people will make speeches on your behalf at a neighborhood barbecue, it is just -- the customers just really love it and it works.

They don't like to brag though; we got rid of their bedbugs.

Okay.

They don't tell us much about that.

I will get back in the queue and allow others to ask questions. Thanks very much for your time as always.

(Operator Instructions). Joe Box, KeyBanc Capital Markets.

Good morning, Gary, and congrats, Harry, on the birth of your second grandchild.

Yes, still waiting here for the text, it should be coming soon.

Great, well good for you. Just a question for you on the operating margin. Obviously pretty solid, up 140 basis points year over year. And then up 40 basis points from 1Q 2012, which I know is exceptionally strong. Can you maybe just give us a sense of some of the bigger drivers that were behind the leverage in the quarter?

Yes, and in analyzing it we saw just about every expense item as a percentage of revenue actually decrease a little. I mean we I think put in some good -- have always had good cost controls, but everyone was certainly focused on it in the first quarter with the revenue not coming on with the cold weather. So I think people were conscious about not getting free with their spending.

I think the one that was a little more significant that I mentioned was on the fleet side. Three years ago we switched from being primarily closed end leases to open end leases. And so, we are starting to turn over some of those higher mileage vehicles and, quite frankly, we've had has some nice gains on the sale.

The used small pickup truck market is strong and that probably was the only thing that really popped out noteworthy. And then on our -- going in the opposite direction our termite service wages were high simply because the termite revenue didn't come in and you start adding the people because you have to find them, hire them and train them.

So, we expect -- we will continue to focus on cost containment. And the fleet can be somewhat variable, but more and more vehicles will be coming off open end leases where we will have the opportunity if the market stays strong.

Understood, thanks for that. One last one then I will turn it over. Gary, I think you said earlier that you are a bit disappointed with the revenue growth that you saw in 1Q. I know that this is going to be tough to measure, but is there some way you could try to quantify the weather impact?

And then going forward, did you see a nice snap back as the weather broke? And maybe if you could just give some commentary on where leads are trending by business. If you could give us a sense of that snap back.

The best way and we have tried to chase this weather situation for decades. But I think we have the best impact now and using Google's word searches that you can't see. You have got a relatively stable data and they can tell you how many hits that they had on termites, how many they had on roaches, how many -- you know, the key pests.

And I think that is probably the best way we have of measuring demand. And then it has been very helpful because without some way of trying to determine this you could discontinue a winning advertising campaign or you could stick with a not too effective advertising campaign because you had great weather.

So we are feeling better about using that as a barometer. We used to look at retail sales of aerosols and things like that. The Nielsen had statistics on how well Raid sold and De-Con and those kind of things. But that was kind of certainly there was a big lag time wise with that and compared to the Google approach I think it was just not as effective.

Yes, we have looked at and I don't know how accurate this is, someone -- I heard it in a hallway conversation yesterday. That one of the things as Gary just said is we look at Google searches and use that as a barometer for how we are doing. And I think the number I heard that termite Google searches were down 25% in the first quarter.

We weren't down 25%, so I guess I should feel good about that. But double digit decrease is always hard to overcome. We haven't really put numbers, I can't tell you if it is 1% or 2%, but our revenue would have been better off if the weather was XYZ, but it had an impact.

But the beauty and the strength of this business comes from the recurring revenue. And the business is -- our largest service line is commercial business and the -- if you are a restaurant it doesn't matter if it is January or June, you don't want the cockroach going across the dining room floor.

So I would say from a commercial standpoint maybe there was some specials we didn't do because it was cold, it certainly impacted the fumigation business and that cost us probably half a point. It could have been termite -- it could've been up 2% or 3% instead of down a percent. So it could have added up to 1% to 2%.

Well, and there is one positive about cold weather and that is that the rats move in. And so there is a lot of moving parts in this business and we just try to interpret the data as well as we can. But the rodent calls do go up as it gets colder.

Understood. Thanks, guys, and nice job in a tough weather environment.

(Operator Instructions).

Okay, I don't think we have got any other people that want to ask questions.

I do apologize; I am showing we do have some.

Yes, we do.

Okay.

Jamie Clement, Sidoti.

Gary, I wanted to -- you mentioned new home starts with respect to HomeTeam. Obviously my understanding is that you don't make a heck of a lot of money installing the (inaudible) tubes into the walls, but it is really about fundamentally those homes being sold and moved into and those customers becoming recurring revenue customers.

So how has that process looked as housing construction started in earnest let's say two years ago or so, a lot of this sounds -- some of those homes have been sold, some of them haven't yet. How is that HomeTeam business playing out from a timing perspective and are you pleased?

You know, I think the telling quarters will be Q2, Q3. Last year we did 81,000 new installs spread across during the year. Whether you have installed -- with a system installed, typically when the house is sold it doesn't necessary automatically get turned on just like our regular customers, there usually is an event that will drive them to the phone.

So they didn't see the pest pressure in those homes in the first quarter. I think they are -- I don't have the number in front of me, I want to say their growth in new customers in Q1 might have been about 6%. But last year they -- their installs were up 30%. So we walked -- again we didn't have the past pressure in January, February and March.

So I would -- we would expect to see some very strong new customer acquisition in Q2 and Q3 at HomeTeam. They have a pretty much lock in that customer; if that customer wants pest-control and someone else calls on them they don't have the key to the box. So we are waiting for them, we are reaching out to them and I think it's portends well for HomeTeam so the future with be growing customer base that they have built.

Another good aspect about HomeTeam is the retention is greater of those people that take the pest-control service because they have made an investment, I mean they feel like they own -- and they do, I mean they own the system. So I think that makes a stickier customer and then also the fact that you can apply the materials from the outside and you don't -- if there is not a problem inside it is just more convenient. So this is really a very good customer for us when they do sign up.

Okay, thank you very much for the additional color, I appreciate it.

Sean Kim, RBC Capital Markets.

Two questions. First, over the past few years you have implemented new pricing tools for both the residential and the commercial side. Should we expect anything in terms of new pricing actions this year whether for residential or commercial? And can you quantify what that impact might potentially be?

Well, as we do every year we test pricing in January and February and analyze it in March and April to determine what kind of price increase we may be passing along. The initial results I'm told from this year's test has shown no change in elasticity. So the executive team will be meeting here shortly to determine the actual pricing action that we will take. I am sure there will be a price increase that will be rolled out at some -- in June and July.

The pricing tools on the commercial side have been rolled out. The initial numbers I have seen this first quarter, we have seen improved pricing, average pricing, we haven't really -- I haven't seen any deep dive analytics out of the analytic team as yet. But on a very top-level basis our average price has gone up.

So we are encouraged, that the -- there's no reason why those tools if we use them and keep the discipline in place forcing people to use them, advantage them, that shouldn't yield some stronger results. In fact, I don't see really any -- directionally any change in what we have been able to do historically when it comes to pricing.

One of the things that you have a second facet when you make that new sale and we do at pricing tools that are very helpful, especially commercial wise, especially to the newer employees that it just gives them a better perspective as to how to price properly.

But the other side of the equation is closure. And that works both for the commercial as well as the residential through our call centers. And with a zip plus four we have really have a better way of analyzing the demographics. And in some instances as we get the kind of closure lift that we want you might have a 5% price decrease.

But we have got a wonderful situation with our call center because we can measure closure and average price in all -- I mean it is like a laboratory. We don't have to rely on the data being passed down the lime from 400 branches. So we are very -- we are as excited about closure improvement as we are average price improvement.

And one of the tools -- I'm not sure everyone is aware of it, that we did roll out in the first quarter on the residential side, we have been pricing by ZIP Code, I think now it goes back five, six years. And we took that to the next level where it is ZIP Code Plus Four, so we can drill down into better data by -- within a large ZIP Code the demographics can change pretty dramatically.

So we think we can better price per -- come up with a better price per neighborhood then we have in the past. And I think that could very well be the one of the things that are helping us on our closure, that we are pricing it more accurately to the neighborhood.

You don't like to have an answer that we don't know; it certainly doesn't make me feel very comfortable in my position. But closure is impacted; we know that our use of Homesuite in Bizsuite on our iPads and all is improving closure because we are making a more professional presentation. And especially for new employees, again that it just gives them a roadmap to make a very professional presentation.

So it is kind of hard to decide how much is Homesuite and Bizsuite had to do with closure, how much is better more finite pricing doing to closure. And when I made the comment in the presentation that our idea is to keep coming out with these new programs that we know will make a contribution and not be weather dependent. And I think part of the reason we had such a good quarter was a big lead decrease is that these individual initiatives are working.

All right, thank you, that is really helpful. Just one last question. Regarding acquisition. It seems like the pipeline is building. You just bought two companies in Australia. Can you talk about going forward are you focusing acquisition -- M&A in Australia and the US, where are you focusing on? And when can we sort of see I guess the next wave of acquisitions?

I think the pipeline is strong here in the states as well. Healthcare cost continues to rise for everyone; it certainly has a bigger impact on the regional and smaller pest-control companies and I think they are seeing that and that higher cost comes directly out of that owner's pocket. And they don't necessarily know how to or don't feel they can necessarily pass it along.

But in addition to that I think something else that we are seeing or realizing and feeling is that the larger companies that can take advantage of the Internet are gaining an advantage in that I had someone recently tell me that the business has changed and a lot of the pest-control companies have been in -- are late second-generation companies.

And the way you acquire customers has changed. And the smaller companies and keeping up with social media and Twitter and LinkedIn and search engine optimization and all the other buzzwords and I think they are getting -- some of them are coming to a realization that times have changed and it might be better -- it might be a good time to move on.

So we shall see. But we are encouraged with the number of inquiries and us reaching out and touching people that we might see a pickup in acquisitions here in the states.

I think you make a good point, Harry, Yellow Pages just doesn't do the same job it did five years ago, the conventional media, radio and television, people are buying different, people are shopping differently than they were before. And I think that what happens to these smaller companies is they try to get involved in the Internet and they find out it is very expensive and they don't see a lot of improvement and they leave.

So there is quite a bit of churn in the Internet as far as these small to medium size companies. So I think, Harry, you hit it on the head, things are just different than they were before and it is very difficult for them to compete with social media.

All right, great. Thanks for the color. Thanks both of you.

And I am showing no further questions in the queue. Please continue.

Okay, no more questions. Well, we would like to thank you again for joining us and we are excited about having another good year and we look forward to sharing with you our results next quarter. So, thanks again.

Ladies and gentlemen, that does conclude our conference for today. You may now disconnect.