Rollins Inc (ROL) 2016 Q1 法說會逐字稿

Good morning and welcome to the Rollins, Inc. first-quarter 2016 earnings conference call. Today's call is being recorded. (Operator Instructions). I would now like to introduce your host for today's call, Marilynn Meek. Ms. Meek, you may begin.

Thank you, Tony. By now you should all have received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact our office at 212-827-3746, and we will send you a release and make sure you are on the Company's distribution list. There will be a replay of the call which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1-888-203-1112, with the passcode 7012944. 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, Vice Chairman and Chief Operating Officer, and Eddie Northen, 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 2016 conference call. Eddie will read our forward-looking statement and disclaimer and then we will begin.

Our earnings release discusses our business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that have been made on the call, excluding historical facts, 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 filings, including the risk factors section of our Form 10-K for the year ended December 31, 2015, for more information on the risk factors that could cause actual results to differ.

Thank you, Eddie. We are pleased to have posted solid results for the quarter, which represents our 40th consecutive quarter of improved revenue and earnings. For the quarter, revenue grew 6.6% to approximately $352.7 million, compared to $330.9 million in last year's first quarter. Income before income taxes rose 9.8% to $51.2 million, compared to $46.6 million last year. Net income rose 5.4% to $31.9 million or $0.15 per diluted share, compared to net income of $30.3 million or $0.14 per diluted share. I would like to point out that net income for 2016 did not include a favorable nonrecurring tax adjustment present in the 2015 net income figure.

All of our business lines experienced good growth during the quarter, with residential pest control up 7.6%, commercial pest control grew 4.7%, and termite rose 7.4% for the quarter. This was the best performance in that area in quite some time. Eddie will provide more details on these numbers in a few minutes.

As we've stated in the past, strategic acquisitions continue to be an important component in our initiatives to further grow our businesses. And we are pleased to have closed seven acquisitions in North America this quarter as well as one in Australia. The acquisitions we made across the US add to our primary service lines: residential and commercial pest control and termite. Two companies were located in Southern California, one in Washington state, two in Texas, one in Florida, and another in Georgia. Our nationwide branch network provides great merger opportunities with a dispersed geographical group like this.

As announced in March, we were pleased to have continued our expansion in Australia with the acquisition of Murray Pest Control, which is based in Adelaide, Australia. This company provides traditional residential, commercial, and termite service offerings through a mix of company-owned and franchised operations. This purchase will also give us an opportunity to learn firsthand about Australian franchising.

On our last call we mentioned the nine working international franchises that we had established at the end of 2015. This quarter we expanded our presence in central Asia with the addition of a new franchise in the Republic of Kazakhstan. One of the investments that we are making in our international expansion plan is the hosting of an annual summit meeting for our franchises from Europe, Central and South America, the Middle East, India, and South Korea. This conference provides an opportunity for franchisees in these countries to share successes and to benefit from marketing and sales training, among other topics which help improve their businesses.

These meetings have proven to be so valuable that we will be hosting our first summit meeting for franchise owners in the Asia-Pacific region next month in Xiamen, China. Closer to home, we were pleased to have posted here in Atlanta at our Rollins Learning Center a delegation of 22 representatives from the Chinese Pest Control Association, which included the President of the Federation of Asian and Ocean Pest Managers Association. We scheduled this event a day following their attendance at the National Pest Management Association's Pest World Conference in Nashville.

The participants were anxious to improve their knowledge of the US pest control market. They spent a day at the Center, where they were involved in both classroom instruction and hands-on activities. The delegation received a variety of presentations on specific topics and information, including advertising, Internet management, marketing, and technical subjects. They also heard from several other Rollins departments -- fleet, IT, purchasing, and so forth -- which cover the role that each has in our business. This proved to be a great experience for all concerned and we look forward to hosting visitors from other pest control associations from around the world. These events provide us an excellent networking opportunity.

HomeTeam continues to garner business and recognition from its home builder partners. For the fifth consecutive year, HomeTeam received the David Weekley Homes Partners of Choice award. HomeTeam Has been a builder partner with David Weekley for 10 years and was one of the only eight companies to receive an A quality rating last year. They also are the only pest control company ever to receive this award.

In addition to this national recognition, several of HomeTeam's regional operations have also received honors and awards. The company's Fayetteville, North Carolina, team earned the McKee Home Quality Vendor award. This coveted award goes to the top five McKee Home vendors. Additionally, HomeTeam San Antonio branches received the Pulte Top Performer award for their outstanding service. All of these Company teams are to be congratulated.

Recognition within our organization doesn't stop with HomeTeam. At the National Pest Management Association Annual Conference, Dr. Ron Harrison of our Company was recognized as a winner of the 2015 PCT Syngenta Crown Leadership award. This award spotlights individuals who have contributed positively to the growth and development of the structural pest control industry, as well as established ties with fellow business leaders, civic groups, and customers.

Ron certainly fits all of that criteria more and is very deserving of this important award. Ron serves as Rollins' Technical Services Director. He joined us in 1998 and was instrumental in planning and constructing the Rollins Learning Center. Additionally, he helped develop our curriculums for service, sales, and management courses and oversaw introduction of this training to the field. Ron was involved in bringing distance-learning programs to more than 400 working branches. Additionally, Ron works closely with industry regulatory agencies, the academic community, vendors, and the media.

Last month, based on his customer service excellence, Waltham Services' Peter Gorman was named by [PC Magazine] as Commercial Technician of the Year. This award is sponsored by BASF Pest Control Solutions and recognizes pest, termite, and commercial technicians who offer the very best service in the industry. I'd like to thank Ron and Peter for their contributions to our Company and our industry.

On our last call, the Zika virus had just raised its ugly head and was beginning to gain attention through the US media. In the three months since then the concern about Zika has intensified. As an example, the CDC stated a couple of weeks ago, everything that we look at with this virus seems to be a bit scarier than we initially thought. And as summer approaches officials are warning that mosquito eradication efforts, lab tests, and vaccine research may not be able to quickly catch up. The most recent CDC report shows 346 cases of Zika have been confirmed in the United States. They recognize that the species of mosquitoes transmitting the virus are present in all or part of 30 states, not just the 12, as originally indicated.

Educating the public is an important part of containing the spread of this virus. We invite you to visit our mosquitoes page or visit Mosquitoes 101 infographic on the Orkin.com section of our website. The information contained there is designed to educate the public about the Zika virus and provide steps protect one from mosquito bites. Speaking of our website, I'd like to thank everyone in the Company involved in the recent upgrade of the Rollins sites. Our sites now contain expanded information on Rollins, Orkin, and our specialty brands. And for those of you who utilize the investor section, we've added a significant amount of information that we believe will give you a more complete insight into our operations.

We're off to a good start for the year and we look forward to discussing our progress with you through the year. I'll now turn the call over to Eddie, who will provide you with details on our first-quarter financials and further insights into our initiatives. Eddie?

Thank you, Gary. Record-setting revenue growth was a key to our 40th consecutive quarter of improved revenue and earnings results. Behind the record-setting results are well executed, targeted marketing initiatives and the performance of our operators. As well, we've pushed forward successfully on our BOSS system rollout during a very busy time in many parts of our business.

We once again had a very strong performance in the first quarter, with all service lines showing significant continued growth. Keys to the quarter included robust revenue gains, accelerated cadence of acquisitions, less currency headwinds, that were offset by higher year-over-year BOSS, our new CRM system expense, and limited savings from fuel. A one-time 2015 tax event impacted the net income increases this quarter.

Looking at the numbers, the Company reported first-quarter revenues of $352.7 million, an increase of 6.6% over the prior year's first quarter revenue of $331 million. Our sales and marketing teams continue to do an outstanding job in our balanced growth. For the quarter, income before income taxes increased 9.8% to $51.2 million, but in the first quarter 2015 we had a large beneficial adjustment that reduced the effective tax rate that we did not have in the first quarter of 2016.

Also, our foreign taxes were a bit higher than last year, due to the growth in our foreign operations. As a result, net income increased 5.4% to $31.1 million, with earnings per share up 7.1% to $0.15 versus $0.14 per diluted share last year in the first quarter. Tax credits are nicer when you get them than when you have to explain than a year later.

Our investment in BOSS and the associated implementation and depreciation costs, as planned, nearly doubled year-over-year. The BOSS implementation expense will begin to subside towards the end of Q2 and become virtually eliminated towards the end of Q3. We will continue to have our full depreciation moving forward. In addition, our branch operations staffing has been pushed forward in the year with the increased demand that we have seen early in the season. One example, while on a smaller base, is the increased requests for mosquito service, particularly driven by the well-publicized concerns around Zika.

As Gary mentioned, we recently purchased our first Critter Control franchises and we will be incorporating this incredible brand name into our existing Trutech operating model. Whether it's a need for the removal of raccoons, bats, or those cute little squirrels that make their way into your home, both Critter Control and Trutech have seen very good double-digit growth for some time, and the combination of the number one and number two brands in the industry will give us great momentum for growth into the future in the wildlife control category.

The combination of these groups moving forward will provide greater efficiency, positive growth opportunities for the brand, and an enhanced career path for Trutech employees, as they will be able to stay with Trutech or venture into their own new Critter Control franchise territory in currently targeted markets.

Let's take a look through the revenue by service line. Our total revenue increase of 6.6% included approximately 7% underlying sales and pricing growth and 0.4% contribution from acquisitions, offset by a currency headwind of approximately 0.8%. Residential pest control was up a tremendous 7.6%, commercial pest control up 4.7%, and termite up an impressive 7.4%. Our previously announced Q1 acquisitions were feathered in during the quarter, and Critter Control was the only major acquisition that was included in our numbers for the quarter.

Our sales teams continue to gain momentum with improvements in the area of commercial pest control, residential pest control, termite, and national accounts. Our national accounts teams had some nice wins, and pricing in all areas continues to be strong. Again for the quarter, when we pick out the impact of foreign currency, residential, which makes up 41% of our revenue, grew 7.5%. Commercial pest control, which is 41% of our revenue, was up 4.6%. And termite, which makes up 17% of our revenue, was up 6.7%.

As I have mentioned to many of you over the past month, today we will be providing a more detailed update as to where we are with BOSS, share some lessons learned, and our expectations for the future. Where we are today; as previously mentioned, we have advanced our rollout and now plan to be complete with Orkin by Q3 of this year and are currently 80% deployed. This means that we have over 4,700 iPhones in the hands of our service technicians as of April. This decision impacted our profit growth for the quarter but is setting us up for longer-term enhanced profitability sooner.

Lessons learned; at this point in time, we have four regions that have been on BOSS for over a year and we've had a chance to compare quarter-over-quarter results for those branches before the rollout and after. While these results are not seen in all regions, we saw a reduction in administrative overtime by over 20%; customer pest control retention increased by over 7%, with more attention spent on the customer and less on administrative tasks; miles per stop decreased by over 10%, with the help of turn-by-turn directions given to the technicians; and a greater than 20% improvement in pest control bad debt as the administrative group was more able to concentrate on this important area of cash flow. Overall, the results are very encouraging and we look forward to assessing these and other areas into the future. Please realize that these are high points and not branch-wide accomplishments.

As you would expect, our vision for the future with BOSS is very bright. Because of the BOSS conversion, our call center lead management system, called Contact 360, is now embedded, and we have all the benefits of technician scheduling of customer appointments by our call center sales team. Our sales force productivity will be enhanced with their system integration into BOSS. Our sales force will now have full visibility to their entire customer base and access by vertical or by geography.

Today, if a salesperson has time between appointments, in most cases they are cold calling because they do not have visibility to their customer base. With this integration into BOSS, the same salesperson will be able to search their existing customer base in a given geographic area and take the opportunity to thank their customers for their business and inquire what other services we could provide. If a customer now just has standard pest control, there could be a need for other service. This will be a much more efficient process that will enable the sales force to take their excellent results to the next level.

On the cost and customer service side, the possibility exists for improving administrative efficiency in some branches from an hours worked perspective. Additionally, we think that there is the opportunity to focus our branch administrative team's attention more on the customer service and the customer experience, rather than just the historical clerical items.

Another of our benefits is that BOSS is enabling us to take our first step in routing, and routing the technicians more efficiently. On previous calls we have mentioned the virtual route management, or VRM, and how this can help with our routing capabilities once implemented. For example, in a few of our Midwest regions we've started the rollout, and the limited results have been extremely positive. Our first step is simply taking the work that is scheduled for the day and routing path in the most efficient or optimized way, keeping in mind all customer-specific needs and working around them.

Based on our initial branch rollout, we have the possibility of reducing miles by 10% to 15%, which frees up valuable time for our technician to ensure they are better meeting service commitments and providing more time to start new customer business, which in the springtime and summer is at a premium. None of these sales improvements, productivity gains, routing enhancements or, most importantly, customer experience enhancements could be possible without this successful rollout. We are on pace for the 200 to 300 basis point improvement in the execution of these revenue, cost, and customer improvements, and excited about the impact BOSS will have on our business.

In total, gross margin for the quarter improved to 49.6% versus 49.2% in the prior year. The margin for the quarter benefited from lower personnel-related expenses as group insurance premium claims are down year-over-year, lower fleet costs due to a decrease in fuel price, and service salaries as a percent of revenue with better productivity. The margin decreases were partially offset by increased materials and supply usage as we enter our busy season.

Depreciation and amortization expense for the first quarter increased 8%, totaling $11.6 million. Depreciation was $5.4 million, increasing $803,000, with most of that increase related to our new BOSS system. Amortization was $6.3 million, which increased $56,000 due to the addition of Critter Control customer contracts that will be amortized over seven years.

Sales, general and administrative expenses for the quarter increased $6.7 million or 6.3%. That's slightly improved to last year at 31.8% of revenues. Our reduction in the area of bad debt and ongoing cost containment programs were offset by higher seasonal sales salaries needed for the increased volume and increased administrative salaries due to the accelerated BOSS implementation. Including our accelerated BOSS expense, income before income tax was up 9.8% in the quarter and net income was up 5.4% when comparing to the favorable tax rate in 2015.

Our balance sheet remains strong as we continue to look for more opportunities to reinvest in our business through technology and acquisitions. For the quarter, we spent over $21 million on acquisitions. With the addition of select Critter Control franchises and other pest control opportunities, our pipeline for M&A is full for the remainder of 2016.

We had $9 million for capital expenditure for the quarter and had $131 million in cash, along with no debt. Last night the Board of Directors declared a regular cash dividend of $0.10 per share that will be paid on June 10, 2016, to stockholders of record at the close of business May 10, 2016. The cash dividend is a 25% increase over the prior year's dividend. This marks the 14th consecutive year the Board has increased our dividend by 12% or greater.

We're off to an incredible start to the year and look forward to solidifying our technology improvements, support an improved customer experience, coupled with productivity enhancements in the coming quarters. I will now turn the call back to Gary.

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

(Operator Instructions) Joe Box, KeyBanc Capital Markets.

In 4Q, you guys actually quantified what the BOSS impact was for the year. I think you said it was a $0.05 drag on 2015. And I apologize if I missed it in the quarter, but can you maybe just quantify what the BOSS implementation was just so we can get a sense of where it is once it abates post-3Q?

Yes. So for the quarter with the implementation costs, if you're asking about the part that's going to go away, the implementation cost was a little bit less than a penny. And if you remember back on the Q4 call, we talked about what we felt like the impact would be for 2016 as well.

Right. It was expected to be somewhat similar.

Right. That's right.

Okay. And then I guess to that same vein, Eddie, you gave some nice stats on the BOSS system so far. I wanted to ask about lead conversion in particular. Are you seeing much better conversion with the ability to plan for your routes better and show up on site in less time? How does that compare for the locations that have been converted versus the ones that haven't?

When we take a look at customer retention and we're going to -- I think we look at that early and compare that also -- those results also with the improvements we see from the revenue gain. The pest control retention has been better. Pre- and post.

So we know that by being at the right customer's location on the right day at the right time is giving that better customer experience, which for us is most important thing that we know is going to enable us to be able to continue to retain customers at a higher rate.

And Eddie, if I could add one thing. The BOSS also gives them more time, which in addition to improving their scheduling, it also gives them an opportunity to spend more time with the customer.

Just so I'm clear, are you saying that retention is the same on the back end with existing customers. And you are also comparing it to, you know, once a lead comes in, somebody needs some level of service and they are a new customer and you are able to convert that lead into a customer. Is that commonly referred to as retention?

Joe, when I was talking about retention, I'm talking about the percent of customers that stay with us on an annual basis. So what we did is we compared the same branch locations in the same regions before they went on BOSS and then after they went on BOSS. And those are the improvements that I was talking about.

So we saw a 10% improvement in the retention. So customers are retaining and staying with us at a higher rate for the regions that are on BOSS.

You know, that's what I thought. I guess I was more curious on the front end of the calculation. If you are getting 100 leads, are you now converting 80, whereas before, you were converting 70?

And ultimately what I'm trying to understand is has that resulted in a step-up in terms of the organic growth that you saw this quarter? Are there some other factors there, like weather, that might have driven that step-up?

Warmer is always better for us, Joe. You know that. That's always a good thing. So we are seeing things move on both sides. We are seeing improvement on the BOSS side and we are seeing improvement as far as our marketing efforts and our sales efforts are concerned as well.

Okay. I'll hop back in queue. Thank you, guys.

Denny Galindo, Morgan Stanley.

Thanks for taking my questions. I wanted to delve in a little bit into the termite strength. It's been good for two quarters now, almost like the Q4 strength carried into this quarter.

Is anything different happening there? Are you gaining share? Is the weather just supporting that? Any other color you could give on termite would be helpful.

Yes, Denny. Termite has been stronger for the last couple of quarters. As we've talked in previous quarters, some of that we see is cyclical. A difference of a few warmer weeks in one quarter versus another quarter can help drive the numbers one way or another.

But our sales group is doing a good job with that. And they are continuing to grow their sales and they are able to close at a higher rate. They've made adjustments. If you were back on the call maybe three quarters ago or two quarters ago, we made some slight adjustments to the organization of the sales group. They are doing a better job use of the technology, which is enabling us to be able to close at a better rate.

So HomeSuite is the technology that our sales group uses. So really, we have a better opportunity to put a better product in front of the customer to be able to sell. So before using this technology and before using HomeSuite, it was a salesperson that was trying to verbalize what the needs were to the customer.

And now with the HomeSuite, it gives a great visual of where the issues are, where the concerns are, and it's enabling our sales folks to be able to improve their closure rate with the use of the HomeSuite.

And it was something that we rolled out. We rolled the technology out knowing that it was a good technology. And just kind of assumed that everybody would look at it and know it's a good technology and use it. And when we went back and looked, we saw that it wasn't being used at the rate that we would've anticipated. And when we went through and did some follow-up training, the sales folks clearly understand the benefits of it and we have seen improved sales because of that.

Is there any difference in pricing or like a mix of bait versus liquid or anything like that that HomeSuite is allowing you to kind of focus on more by having that product out there?

No, HomeSuite is really not going one way or another with that. That's really just enabling us to be able to sell. And then wherever we are in the country and whatever the needs are as far as the customer, you know, that's when the decision is made as far as going one way or another as far as bait or liquid or something else like that.

You know, the use of the technology has been, again, has been good. We are retaining our sales team at a higher rate than we have in previous quarters as well. So I think the combination of all those things are continuing to give us good momentum when it comes to the sales team.

Just one last thing. In last quarter, one of the things that we talked about was our ability to be able to help on the finance side for customers. And we have our own in-house financing that we use just purely from a sales perspective. And we're finding that the sales group is using it at a higher rate and that's helping them to close more sales and enabling us to continue to grow at a faster pace than what we've grown at in previous quarters.

Okay, that's helpful. One other one on mosquito. I've heard some people talk about mosquito could eventually be as big as pest or termite. And you've kind of mentioned the Zika virus.

But maybe you could give us some details on your mosquito offering, how it's different than competitors, how the business model is a little bit different? Is it more frequent visits or less frequent? That sort of thing. And then any kind of outlook you have on how big you think that could get this year.

Again, it's a small base for us. It's growing rapidly. And of course with the well-publicized media on Zika and other diseases prior to that is it's giving people a reason to call on the mosquito.

But it's not something that we go -- we typically would lead with. It's something that in a lot of cases, we have existing pest control customers that would use this as another service that they would use from us. I talked about our -- the use of the BOSS information by our sales group. That's a great example.

So we may have a customer that's an existing pest-control customer. We call on them and make contact with them and then we are able to go and sell another service at that point in time.

From a frequency perspective, you know, it's going to be in most cases a once-every-other-month type of service. And for us, it's good because if a customer has pest control and then wants to add on the mosquito, then that's a very good thing for us from a productivity perspective.

I'd like to add to that. Although the frequency of -- the number of times that you service is typically five or six, depending on the market. But there is clearly a mosquito season. And as wintertime approaches and late fall and you don't have mosquitoes, so this is not a 12-month type of service offering.

So I think to your initial question about is it going to be like termite or conventional residential pest control, because of that limitation, you know the response to that would be no.

Okay. Thanks for taking my questions.

(Operator Instructions) Dan Dolev, Nomura.

Thanks for taking my question. Just to return to termite. So has the swarm picked up in the spring? It wasn't clear to me.

I don't think we used the word swarm, but springtime is definitely a better time when it comes for termites. And it has been warmer in a lot of parts of the country. So you know, there's definitely demand that's out there for it.

But I think the other things, Dan, that we just talked about I think are key parts of it. I think the technology piece, the HomeSuite, has made a difference. Retaining of our sales folks has made a difference, and the ability to be able to finance to close those leads has also made a difference. I think when you compare those and a nice warm springtime in a lot of areas, that's what helped us out.

Can you provide some more color on the very strong acceleration in the residential side, despite the toughening compares? What has been driving that? Thank you.

Residential, again, from the sales perspective has again gone very well. Pricing has been good. And you know, the targeted marketing efforts have really given us a chance to be able to know exactly what markets that we want to spend our time and our energies on and have paid back dividends for us.

So again, when you kind of combine some of those different things and what our marketing group has learned over the last probably four to six quarters and they've put in place over the last three to four quarters, we are really seeing the fruits of that, especially on the residential side.

Is that sort of a run rate we should be thinking about?

You know, I don't know that we can ever say exactly what it is. If you look back over the last three years, you've seen the ebbs and flows of the commercial and the residential. 2013, we saw in our residential growing at a faster rate. And then in 2014, you saw it slow down some; a little bit of cyclicality. You saw commercial growing at a faster rate.

And then in 2015 you saw it reverse again and you saw residential growing faster. And we are seeing the same thing as we move into 2016.

Got it. Thanks, guys.

Jamie Clement, Macquarie.

Gary, I think I might be in need of a little wildlife control industry 101, if you could indulge me. It strikes me as being an incredibly fragmented industry, you know, perhaps other than Critter Control and Trutech.

How fast has this market been growing in your opinion? Let's say over the last five or 10 years, how fast do you think you all can grow it?

And the last question would be with respect to the Critter Control franchises that are still out there, when you bought Critter Control, did you acquire the right to purchase those at certain intervals? At pre-negotiated multiples of whatever earnings they are doing? Can you just give us a little bit more info on the marketplace?

To give you a fair answer, we don't know. This is the first time that this opportunity has come along to these Critter Control franchises. The franchisor that we successfully purchased never had an interest in buying franchises.

His whole play was that he wanted to add franchises. He didn't want to operate.

And I think that as a result, there wasn't much of a market for these folks to sell. So in the range of the acquisitions, there's some very large locations and there's some very small ones.

Our situation is we are trying to look where we have a Trutech operation, where we have merger opportunities. That would be the first priority. But you know, if a big one came along and we didn't have a Trutech operation, we certainly would want to acquire that, too. So we are just getting our toe in the water, so to speak.

But I think, as I told Eddie the other day, I said the jungle drums were beating. With us acquiring two of these, there is no doubt that the interest that's going to exist and permeate is going to be dramatic because now they have a buyer.

And the other good thing about it is we're not getting into typically a bidding contest. We don't have, you know, like pest control, where you got three other potential buyers waiting in the wings. So I don't mean to duck the questions. I mean, I just --

Not at all.

We'll know more next quarter than we know this quarter. The other positive is that we know this business. This isn't like us kind of getting into something that we are not familiar with. Trutech is the number two brand and the number two -- although, they are a distant number two, you know we just -- we have a wonderful opportunity here. Unlike anything that has come along since I've been around.

Jamie, this is Eddie. So I have something else to add to that. The growth rate has been a good double-digit growth rate in this category for us. And you know, removal of the animals is a piece of that.

It also opens up a great opportunity for us to take a next step with our customers and that is to do exclusion work. So it's one thing to have bats in your attic and to come and have those bats that are removed. And then it's a whole other service for us to provide to be able to close that attic off so that bats cannot go back into that attic. And that's a whole separate service for us.

But going and removing of the animal to start with opens up that opportunity for us to be able to now do that additional service.

And some of the markets you also have, depending on the pest, you also have an extended protection plan opportunity, much like the people with the washing machines and ovens and so forth that -- there is some pests you can exclude; there are some pests that you can't exclude. So we are able to offer an ongoing program, or at least certainly a program that could go into the second year, before they can extend their protection at a discount.

Gary, in a -- not a particularly big market, but kind of a mid-tier sort of market or maybe even a little bit smaller than that, who are the folks that are actually competing with you all? I've been having a problem trying to figure that out.

I mean, is it somebody calls up another local pest control operator and says, hey, can you fix this? And the guy just gives it a shot and quotes them a price? I'm trying to figure out who you are competing with.

Jamie, I think most of those folks are going to be the one-offs. You are going to have an individual person or two people in close markets. There will be some of our pest control competitors that will have those folks as well.

We have -- you know, in roughly half of our Orkin branches around the US, we have individuals that have a skill set to be able to do this as well. So that's kind of the way that we've done it. And other -- other pest control companies have the same type of thing. They will have kind of hit and miss. They'll have somebody that has the skill set, because it is a different skill set to be able to do that.

Can I add something?

Yes.

The other markets that don't have that expertise, Orkin expertise, then they give those leads to someone. And now that we've got this Critter Control link, then certainly we can generate revenue as far as these Critter Control branches are concerned. So there's a lot of different synergy there.

I think Eddie makes a good point. You know, the pests have been there. The critters have been there for some time. But some of our branches have just been reluctant to get into that part of the industry. And I think that's what we learned about Trutech is when you had that specialization -- it wasn't secondary with Trutech. It was primary. And we saw how well it grew and the customer satisfaction rates were incredible.

If you've got a possum in your attic, and you have a wife like mine, you are going to do something about it. And so you have a highly motivated customer. It's almost like customers with fleas. They don't want to know much about what it costs. They want to know when can you do it. So that's a pretty dramatic situation as far as a motivated purchaser.

Okay. Eddie, just one follow-up question to some of the ones you were taking a few minutes ago. The new financing option that you are giving to some of your new termite customers, clearly it's been popular, it sounds like.

Roughly what percent of new termite customers are opting for financing? I don't need an exact number, but just sort of rough ballpark.

10% to 20%.

Okay. Now -- and so you all -- I'm just -- I just want to make sure I'm clear on the accounting. So for a customer that chooses financing, you guys obviously incur the cost. And you book the revenue as well I would assume or are you booking the revenue over the payment period?

So we are booking the revenue when the job is complete.

Okay. Okay.

Let me just make sure I'm clarifying this on this piece. The only reason we have this in place is to help with the sales process and to give that option for that.

And so what we have in place [on that close] is basically 90 days same as cash for those that would qualify for that to be able to help with getting that sale booked. And this is a piece that has helped us over the last probably three quarters. We've moved that in the right direction to be able to help with that.

Okay. Thank you very much as always for your time.

Joan Tong, Sidoti & Company.

So questions regarding -- again, going back to the BOSS system. I just want to make sure I get it right. The spending on this system this quarter compared to the same quarter last year, was there an increase or it's about the same?

Joan, it was an increase. Our implementation expenses were much higher. We were implementing now our Pacific division. So West Coast, California, Hawaii; all of -- higher travel expenses, higher implementation costs. And again, we are doing it at a faster pace. So we have increased the number that we are implementing at the same time. So the implementation cost has been higher.

Okay. So the implementation cost for this quarter is higher than the same quarter last year. And I think you mentioned about a penny. Am I correct?

That's correct.

Okay, got it. I see. And then, you know, now is 80% of the branches, of the Orkin branches, is implemented integrated with BOSS. So I'm just wondering for this quarter, did you actually -- the margin expansion that we were seeing, the 40 basis point expansion, would you characterize that you actually have some sort of benefits, like, you know -- or quantify what type of benefits you actually get from BOSS for this quarter?

We are going to have some small benefits I think that we will see. You know, we talked about a few of the things that we've recognized as far as improvement before and post-BOSS implementation. The reduction of overtime. We are keeping customers at a better rate. Our stops per mile have improved, which of course would mean less gas -- less fuel for us and different things like that.

So I think it was a sprinkling of what we are seeing as far as some of the benefits. But again, we have a very small percent of our total branches in regions that we've rolled out that are now moving to the point of being mature.

So as we move through the next few quarters is when we will start seeing more of those becoming mature. And we'll see more of an impact we think on that margin at that point in time.

Right, right, right. And then you mentioned that by the end of the third quarter, we are going to see everything said and done 100% implemented on the Orkin brand. So we should be able to see some sort of spending etch down a little bit. Is it the right way to think about it? Maybe in the fourth quarter, we can see like spending come down slightly?

Based on everything that we know right now, we are going -- the implementation costs will be reduced or eliminated at that point in time. Of course, depreciation, once we are fully rolled out, will be slightly higher than where we are right now.

And we haven't finalized what our next steps are going to be with the system related to any of our independent brands. So we are still assessing what if anything that we are going to do with that. And once we get to a point of making that final decision, we will communicate that as well.

We are basically going through and taking a look to see from a return perspective does it makes sense to spend the additional dollars to make adjustments to be able to implement it with the other independent brands. So we are going through that assessment. But at this point in time, we've not made it a final decision on what we are going to do with that.

Right. And then in terms of routing and scheduling, you mentioned there the plain vanilla routing and scheduling module. And then maybe a mobile [bust] system or module later on. And is this still in the works or you guys are pretty happy about what you have right now and you just kind of want to see how it goes before you move on to the next level?

The more robust model is absolutely still on the table. However, we are very happy with the opportunities that we are going to have with the virtual route management. So we know that we are going to be spending the next two quarters getting that rolled out, getting people trained, getting our measurements in place to be able to see it.

But I got to tell you: it's been extremely, extremely well received by the branch management, the branch technicians. You know, having the flexibility of being able to spend more time with the customers, having the ability to be able to ensure that the technician is not having to change their appointments with existing customers. Because the days that are planned out is being received extremely well.

So we are going to move forward with maximizing our opportunities with the virtual route management, while in the background we are still looking at the more robust option as we move forward in time.

Okay, great. Thank you. And then let's move on to HomeTeam. I think Gary, you mentioned a couple of things about HomeTeam. I'm just wondering like how fast is HomeTeam is growing right now. Then the profitability of that eco-division.

And then also with housing slowdown a little bit -- housing starts slowdown a little bit in the first quarter, just want to see if there's any impact on HomeTeam, especially on the installation side. Thank you.

Joan, all of the categories you just mentioned we are not seeing any impact as of right now with anything housing-related. Their growth rates on the top line and the bottom line as well as the housing -- the new installs are all moving forward very well. They are moving forward in the low to midteens. So we are continuing to see good improvements with HomeTeam.

Okay. And then I have a final question regarding competition. Obviously, you want to have your largest share competitors, foreign competitors, have extended footprints in the US. And it's the second quarter into it.

I'm just wondering is there any change in competitive landscape? Have you seen them being a little bit more aggressive on -- in terms of pricing?

I don't know that we've really seen that. Our pricing for Q1 was strong across all of the service lines. You know, it was one of the pieces that our sales group was able to be very successful with.

I think the thing to remember when it comes to the other competitors that were out there is before they moved to the new company that they are with now, we still competed against them before that. And so we are still competing just like we did with them before. So we really don't see any issues from a pricing perspective there, and we've been very pleased with how that's helped us with our overall sales growth.

Thank you, guys.

Thank you. And it appears we have no further questions at this time.

Okay, that's it. No more questions. Okay, I'd like to thank you for joining us today. Eddie and I look forward to the next quarter and we'll continue to work hard to grow and improve our business. And I would suspect that we'll know more about BOSS with another quarter under our belt. So thanks again.

Thank you. This does conclude today's conference. You may disconnect and have a great day.