Terminix Global Holdings Inc (TMX) 2010 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the ServiceMaster Company's first quarter 2010 earnings conference call. Today's call is being recorded and broadcast on the Internet. Beginning today's call is Marty Ketelaar, ServiceMaster's Vice President of Investor Relations and Assistant Treasurer. Mr. Ketelaar will introduce the other speakers on the call. As a reminder, during the question-and-answer session, please limit yourself to one follow-up question. At this time we'll begin today's call. Please go ahead Mr. Ketelaar.

Good morning and thanks for joining us for first quarter 2010 earnings conference call. Joining me for today's call is ServiceMaster's Chief Executive Officer, Pat Spainhour; Chief Financial Officer, Steve Martin; Treasurer, Mark Peterson; and Controller David Martin. We'll make some prepared remarks and then address your questions during the question-and-answer session.

Before we begin this morning, we would like to remind you that throughout today's call, Management may make forward-looking statements to assist you in understanding the Company's strategies and operating performance. All forward-looking statements are subject to the forward-looking statement legend contained in our recent filed Form 10-Q and Form 8-K. These forward-looking statements are not guarantees of performance and are subject to risk factors contained in our public filings that may cause actual results to vary materially from those contemplated in the forward-looking statements. Information discussed on today's call speaks only as of May 20, 2010. And any any rebroadcast or distribution of information presented on today's call after such date is not intended and will be not construed add updating or confirming such information. The ServiceMaster Company undertakes no obligation to update any information discussed on today's call.

ServiceMaster recently filed its Form 10-Q, as well as 8-K, containing additional financial disclosures that we believe will enhance your understanding of our financial and operating results. We may reference throughout today's call non-GAAP financial measures such as adjusted EBITDA, comparable operating performance and operating performance, which factor in adjustments related to such things as purchase accounting adjustments, restructuring expenses and non-cash option and stock-based compensation expense, among others. We have included in our 10-Q and Form 8-K, available on our website, definitions of these terms as well as the relevant reconciliations to the most appropriate GAAP financial measures in order to assist you in better understanding our financial performance.

During the question-and-answer session we encourage you to ask any questions you may have. Due to our disclosure policy and legal requirements, we are limited in our ability to hold follow-up conversations with our public side investors and as such, we request that you please ask any questions during this public forum. I'll now turn the call over to Pat Spainhour for any opening comments. Pat?

Good morning, everyone. I appreciate you taking the time to join us this morning for our first quarter earnings call. As I'm sure you saw, Mother Nature didn't offer us much help in the first quarter. Heavy rains in the northeast, snow storms in Mid-Atlantic states and unusually cold weather in the southeast negatively impacted our ability to service our customers. Our first quarter results show the effects of the slow start to the season, particularly at TruGreen, but we started to see some modest improvement at the end of the March. In a a few minutes, Steve Martin will provide you with more details about out first quarter performance and what we've been seeing in the marketplace, but first let me share a brief summary of our financial results.

Through March 31, the Company reported operating revenue of $639 million, down about 1% compared to the first quarter of 2009. Operating performance for the quarter was $80 million, down from $91 million over the same period in 2009. Much of that drop was due to the performance of TruGreen, which already had staffed up for the season, but was forced to delay production in the first quarter because of weather-related issues. As a result of the delay, both our first quarter costs and the revenues normally associated with that production were negatively impacted. The good news is that customer counts were up over 3% of TruGreen as of the end of first quarter and we expect to begin making up for the delayed start during the second quarter.

Also, we ended the first quarter in an economic climate that is much more stable than the one we experienced in 2009, or even in 2008. The fundamentals of our business are stronger than they've been in recent years. Because of the hard work we did last year to firm up our retention rates in maintaining customer counts, we're in a much better position this year to take any advantage of any tick up associated with higher consumer confidence and higher home sales. As evidence of this, during the first quarter of 2010, our largest three businesses, Terminix, TruGreen, and American Home Shield, grew their customer base by more than 83,000 accounts, compared to a decline of 36,000 customers during the first three months of 2009. As a result, our total customer base for these three businesses as of the end of first quarter was over 103,000 accounts higher than at the same point a year ago.

As I said earlier, the biggest difference between this year and last year is we're operating in a more stable business environment. Last year, with all the uncertainty around the economy, in addition to sluggish housing and credit markets and unemployment rising toward double digits, consumers were reluctant to spend. So far this year, even with some uncertainty remaining in the marketplace, consumers appear more willing to make the commitment to buy our services. But even if the economy improves this year, we can't simply expect to ride the wave and expect breakthrough growth. To get a real long-term lift, we're focusing on areas that will drive continued improvements in retention and in selling more services to our existing customer base.

Adding new customers has historically been a strength for us. That fact, in each of the last four years, we've added enough new customers to grow our business -- to grow our customer base at our three biggest businesses by approximately 35% each year. But the challenge is keeping those new customers. Turning those transactions into relationships and customers into clients. Just by keeping more of our customers on the books, we can accelerate our growth faster than any other single initiative currently in our strategic plan.

One of the reasons for our optimism is that our retention strategies have been working. In the first quarter, customer retention in TruGreen was up 430 basis points to 70.6%. In Terminix, retention among our pest control customers was up 110 basis points to 79%, and termite remains strong at 85.9%. In American Home Shield, retention rose 230 basis points to 64.5%. Customer accounts were up by 3% each in TruGreen and American Home Shield. In Terminix, pest control accounts were up 1% in termites, they were down only slightly in a market that has been contracting for several years.

Experience shows that new growth generally occurs after existing customers decide that our service offering is one they can't live without. That's why we've challenged all of our businesses to continue to emphasize customer experiences that exceed expectations; from the sales process to the service delivery, to billing and account management. Several of these efforts are already well underway. Such as centralizing many of the tasks formally done in TruGreen branches into dedicated customer contact centers and providing improved truck routing and hand-held technology in Terminix. We're also improving contractor communications in America Home Shield to help enhance our relationship with more than 10,000 contractors who serve as a critical touch point for our AHS customers.

As we continue the journey toward one Company made up of many great brands, we've made a commitment to make the ServiceMaster culture a top priority in 2010. Each of us is accountable to the ServiceMaster commitment, a set of core values built on the foundation of honoring God in all that we do. These values continue to guide our relationship with associates, customers, suppliers and our communities. And I believe this commitment can truly be a competitive advantage that will fuel our growth and propel our Company to long-term success.

Four years into our transformation, I can assure you that the entire team at ServiceMaster is committed to improving service delivery, enhancing the customer experience, and reaching new customers in a way that we believe will drive sustainable growth in our Company. I'm looking forward to updating you on the progress and reporting our second quarter results on the next call. Now, I'll turn the call over to Steve Martin, who will discuss our financial and operating results in greater detail.

Thanks, Pat. Although our first quarter financial performance is lower than last year's result, we feel much better with the quality of business this quarter compared to a year ago.

As you'll recall, in early 2009, we saw the need to begin offering discounts in order to retain customers. So far in the first quarter of 2010, we have not seen as much of a need to offer discounts. Additionally, retention rates in several of our key businesses have increased and our customer counts are up, both key indicators used to evaluate our performance. It's also important to remember that our first quarter operating results are often impacted by weather and typically represent less than 20% of our full-year operating revenues and operating performance. For these reasons, you should not use our first quarter performance as a predictor of what subsequent quarters or full-year 2010 results will look like.

Now, let me recap our first quarter results. For the quarter, operating revenues decreased 1% to $639 million compared to $646 million a year ago. As Pat mentioned, revenues in some of our businesses were negatively impacted by weather-related issues. Cost of goods sold during the first quarter of 2010 was $403 million or 63% of operating revenues, compared to $394 million or 61% in the first quarter of 2009. This increase primarily reflects decreased labor efficiency at TruGreen and increased home service contract claims at AHS, both driven by the adverse winter conditions in many parts of country, as well as increased provisions for legal matters at Terminix. This was partially offset by lower termite claims, fertilizer-, fuel- and fleet-related costs.

SG&A expense in the first quarter of 2010 was $183.9 million, or 28.8% of revenues, Compared to $173.8 million or 26.9% a year ago. This increase primarily reflects the impact of investments in the neighborhood selling channel at TruGreen, an increase incentive compensation, as well as higher consultant and management fees with our equity sponsors. Our operating performance, as set forth in the 8-K, was $80 million, compared to $91 million a year ago, driven principally by the weather impact on TruGreen lawn care.

Net cash used for operating activities was $29.5 million, and was comprised of a $42.2 million increase in cash required for working capital, and $4 million in cash payments related to restructuring charges, offset in part by $16.7 million in earnings adjusted for non-cash charges. The increase in working capital requirements for the three months ended March 31, 2010, was driven primarily by seasonal activity, incentive compensation payments related to 2009 performance, and the timing of interest payments on our permanent notes.

Lastly, our liquidity profile remains strong. Cash and short-term and long-term securities totaled $340 million of which $285 million is associated with regulatory and other requirements. We also have $500 million of capacity under our revolving credit facility, and $22 million of capacity under our accounts receivables securitization facility.

Now, let's talk about the segment results. At TruGreen lawn care, first quarter operating revenues were $124 million, a decline of nearly 8% from first quarter 2009. Unfavorable weather conditions adversely impacted the timing of service delivery in almost all areas of the country. On a positive note, customer accounts are 3.3% higher than last year's levels. Driven by a 430-basis-point increase in the trailing 12 months retention rate to 70.6%.

We also saw improved results generated in our neighborhood selling channel, largely offsetting declines in other marketing channels. Those factors, in addition to the need for less discounting compared to last year, are the primarily reasons we feel good about the quality of the business at TruGreen lawn care.

Our operating performance was a loss of $11.1 million compared to income of $2.2 million in the first quarter of 2009. Again, the performance at TruGreen was attributable to the revenue decline and decreased labor efficiency associated with weather-related production delays and investments in our neighborhood selling channel. This was partially offset by lower fuel and fertilizer costs.

Turning to TruGreen land care. Revenues decreased 12% to $59 million while operating are performance decreased to $4.5 million, compared to $8.4 million a year ago, driven by the impact of business conditions in 2009. First quarter base maintenance revenues declined nearly 13%, and first quarter enhancement revenues declined by 18%, impacted by contract cancellations and pricing concessions granted throughout 2009 in order to offset the impact of the difficult economic environment.

At Terminix, revenues increased 3% to $271 million in the first quarter, compared to 2009. Operating performance was $65.9 million, in line with last year, reflecting, among other things, favorable termite damage claim trends and lower fuel costs, offset by increased provisions for certain legal matters. Revenues at Terminix reflected increased sales of products, as well as modest growth in pest and termite completion services, offset by a small decline in termite renewal revenues Growth in pest revenue of 1.8% was due to improved price realization and higher customer counts. The higher customer counts resulted from 110-basis-point improvement in pest retention rates, which ended the quarter at 79%. Termite renewal revenue declined 0.6%, driven by 40-basis-point decline in customer retention to 85.9%. Termite completion revenues increased 1.5% due to increased average price on new treatments, as well as higher units told.

At American Home Shield, revenues were $133 million, up 1.8% compared to first quarter 2009. This increase, which was largely due to improved price realization and increased customer counts. Customer count growth was driven by an increase in new unit sales and a 230 basis-point improvement in customer retention rates, up to 64.5%.

Operating performance for the quarter improved more than 50% to $16.7 million, compared to $11 million a year ago, due to lower impairments in the investment portfolio. This was partially offset by higher contract claim costs.

Lastly, at ServiceMaster Clean, revenues increased nearly 7% to $32.3 million, compared to $30.2 million in 2009. Trends in revenue reflect improved product sales, franchisees and an increase in other franchise revenues. This revenue increase led to a 6% increase in operating performance to $14.4 million, compared to $13.5 million a year ago.

While the poor weather negatively impacted our revenues and operating performance in the first quarter, we are pleased with the increased quality of our customer base. We should benefit from higher customer counts as we enter the two most productive quarters of the year.I'll look forward to providing you an update lon our progress later this summer when we report our second quarter results. That concludes our prepared remarks, and at this time wed' d be happy to answer any questions you may have. Operator?

Thank you. (Operator Instructions). And our first question comes from the line of Todd Harkrider from Goldman Sachs. Please proceed with your question.

Yes. Thanks for taking my question. But to get a little bit more granular on lawn care, which I appreciate your additional color in the opening comments, but can you maybe talk about some of the parameters of what's feasible and what might not be feasible this year when it comes to earnings if weather continues to play in your favor for the rest of the year? Thanks.

Well we certainly can't talk about the balance of the year, but this is a -- somewhat of a normal situation within any outdoor business, but in particular a fertilization business where you literally can't get to the ground if there's snow on it, or if there's a significant amount of rain or rain falling, and that's what we experienced in the first quarter. But that being said, the really good news is, in the first quarter, we had, we had the production, the contracts on the books to deliver the number that we had out there, which would -- compared favorably to the end of the year -- I mean to last year.

We feel very good assuming no other major weather things that we'll be able to call back over the next several months here, a lot of that production, and as you know, all of you know, that revenue on lawn care statement is only gets there when we produce it. The fact that we've sold the business, and as Steve mentioned and I mentioned, we have an a count ahead of last year already, the momentum there to drive that number is certainly there. But we're certainly not going to sit back and not attack the make up of that work as we go forward, and it's only a function of good weather.

So in terms of other impacts from that weather, we, obviously, I think made the right decisions in delaying some Internet marketing, direct mail pieces that would have typically gone out in the early part of the first quarter that nobody's a going to want to make a decision to buy a lawn care service when there's snow on the ground. And so we delayed that, and that created some of the earnings issues relative to not being able to deliver the customers on a timely basis that we expected to. But at the same time, we geared up for the quarter, as if the weather was going to be a normal three-month spread there, and so we have to bring labor in, we have to train labor, so we were handcuffed with the labor, but the inability to get out and produce it . So that was also an impact from an earnings perspective.

But we feel good about the business, the metrics were there, for the quarter the accounts are up, driven by new strategies where we invested last year in neighborhood selling and that really -- we increased last year in total about 38% over the prior year and we're up again in the first quarter in neighborhood selling, which has helped to offset some of the timing in the direct mail marketing that we did. So it is a combination, it's not just the weather keeping us from being produce, but it's the labor on in anticipation of doing the production, we can't do the production. We've got the labor, if we lose the labor then we may not be able to get back out there.

So we just try to manage through this minefield of weather, and I think we've come out pretty good on the other side of this, with the ability now to go back and capture the new account growth that we did generate in the first quarter and optimize

All right. I guess what I was trying to get to in a sense, like, if weather plays in your favor and you're able to get down all the applications for the year, could you call back all the earnings loss in the first quarter so we could possibly still be able to see the operating performance on lawn care to be maybe possibly even flat for the year if you can get all the applicants down?

Again. Again we can't speak the earnings implications for the balance of the year, but our intention is to produce as much we possibly can and to call back as much of that work that's already sold on our books and ready to go.

And we do -- another thing I'll add to that Pat, we do have detailed plans in place over the coming two quarters, the primary production season, to make up that production.

Got you. Okay. I appreciate it. And then onto retention rates. I think pest control is at, at least a two-year high and AHS could be at least a ten-year high, as far as as my model goes, as least, if I'm looking a at it right. Is that accurate and do you think you'll have more pressure from growing from here, or how should we look at retention rates, because it seems like you're doing a great job of growing those.

Obviously retention rate is a big deal. When you consider, as I said in my opening comment, that in fact over the last four years we've added an average of 35% new accounts each year against the beginning balance, we can sell this business, it's just holding onto the customers. And so part of, a big part of our transformation over these last four years has been focused on retention. You mentioned a ten-year high for American Home Shield, I've got to believe the lawn care number is probably an 86-year high, or however old the Company is, 62-year high, to be in excess of 70% on an annualized run rate basis through the first quarter. But it's a major focus.

It's the easiest way to grow this business, quite honestly, relative to our customer acquisition cost by going out and bringing in new customers, and each one of the Company's you mentioned Terminix, American Home Shield, and TruGreen are significantly focused on how to do it better, and how to turn these customers from transactions into clients, Based on the relationships. It's all about the customer service experience, and that's where our focus is. And it's working. It's happening.

Got you. And I guess, to stay on the retention rate theme one more time. On the termite side, I think it's the first time you went positive in a while. Do you contribute that just to the better macro or just better retention efforts out of your part or if it's really too hard to drive down to that level and if you think you'll actually stay positive sequentially throughout the year?

Well, I think termite is in rarified air in terms of retention rate over the last five years, and it hasn't -- the volatility there has not been near as significant as it has been in our other discretionary businesses. And the fact that it is where it is -- I mean, we are focused on termite retention just like we are on lawn care retention. How do we take that 85% and turn that into a 90% retention rate? So we feel like there's opportunity in all of our brands, but termite in particular, to move that retention rate up over time, and again it's getting our full attention, our full focus.

Got you. Okay. I appreciate it. Good look with the rest of the season.

Thank you.

Thanks, Todd

Our next question come from the line of Yilma Abebe from JPMorgan. Please proceed with your question.

Thank you, good morning.

Good morning.

I hate to go back to the weather question, but is there a way for you to quantify for us the impact of the weather in the quarter? Either with revenues, operating performance?

Well, just to give you a feel for it right now, we think the impact on earnings is probably half weather-related, maybe slightly more than half, but the investments we put in neighborhood marketing and other drivers of the business is the other piece of that. So weather accounts for about half the shortfall in earnings and weather accounts for about 100% of the shortfall from a revenue perspective.

Okay. Great. That's helpful. And ServiceMaster Clean, it looks like it was a good quarter. Is it the Company focusing on that business, is there something the Company's doing that's different than n prior periods that that would explain the uptick in earnings here?

Well, I think ServiceMaster Clean, it's one of those businesses that, boy, you hope it's not needed because there's always a disaster involved, in terms of our disaster restoration business. And as weather impacted lawn care negatively, weather impacted ServiceMaster Clean positively. And we haven't even dealt with all the weather that's out there from a ServiceMaster Clean perspective, but we've got enough uptick simply because of what's going on in the world in that business.

We are running a pretty good shop over there, as well as a very efficient organization, and so a little bit of revenue goes a long way to moving the bottom line. And the total business, janitorial is a big piece of that business. It's not unlike land care in that it's in the commercial market and, to the degree that commercial players are cutting back on budgets in everything, ServiceMaster Clean has felt that impact as well, but given the strength of our disaster restoration business and our furniture medic business and AmeriSpec, small franchisees, but they considerable positively to it. We've got four great service lines there to really propel this business, but the DR side of it is where we'll continue probably to get the bigger gains at this point.

Thank you. That's all I had.

Our next question comes from the line of Matt Leach with Barclays Capital. Please proceed with your question.

Good morning, thanks for taking my question. Just a couple questions, again back on the weather issue. Could you guys specifically talk about -- I know you mentioned most all geographies were impacted, but specifically what weather events and where you saw the most pain from weather, in which geographies?

Your breaking up a little bit. Could you repeat that question? You didn't come through that clearly.

Sure, I was just saying in terms of weather, where specifically did you feel the most impact from -- negative impact from weather.

Got you.

And what events were driving it?

All right. And really throughout the quarter, but we had significantly heavy reigns in the northeast. We had snow storms in the Mid-Atlantic states. Significantly cold weather in the southeast. And, and it was -- and you always have that, but this year, it's the breadth of it that we had, and really January, out of the gate, there wasn't a lot of relief in these areas.

It wasn't but a month ago that we had a 6- or 7-inch snow storm in Denver that impacted our ability to get out in that particular region, but --and just a week ago, two weeks ago here, we're based in Memphis, and that whole weather system that came through here, all the way through the northeast really, you can't go out and work if, in fact, you're going to be walking on the grass and spraying, if in fact rain's coming down. Primarily in those areas, well, there's pockets, there's always pockets, and we plan for some weather as we build our budgets for the year, but this was just an extraordinary year relative to down days.

Great. In terms of -- you mentioned that March you saw some modest improvement. Is that due to anticipating warm weather and specifically have those trends you saw in the beginning of the year January and February, have those started to reverse going into the second quarter?

What we're seeing at the tail-end of March was just a return to normal spring conditions, and that is what we're seeing throughout the bulk of spring. You always have pockets of weather here and there, but feel good about the weather conditions now, and it's been a good spring.

Great. Thanks, guys.

Thank you.

Our next question comes from the line of Jeff Kobylarz with Stone Harbor. Please proceed with your question.

Good morning. I was curious about -- I think I heard you say that you have 103,000 greater customers year-over-year; is that correct? In your three biggest businesses?

Yes.

Okay. And could you say what percentage increase that 103,000 represents, roughly?

It's about a point and a half, 1.5% more.

Okay. Fine. And you did say that the environment is he a bit better for -- I guess for pricing. You don't have to discount as much this year as last year, and is there anything you could say about average pricing that you have out there on the market? Just what the change has been year-over-year? If you can't for competitive reasons, I understand -- but if you can, say, give any color about that, that would be helpful.

Well the biggest color we could give you is our rate card pricing that we have out there throughout the Company. We haven't received any push back or any pressure on our ability to sell those prices through. And that's a good sign.

If you remember last year, we had significant discounting, both on selling and in trying to keep customers. Customers who wanted to cancel. And in the first quarter, we're back to the normal way that we operate from a pricing perspective as we have in the past. Which was a great home run for us. We didn't know what to expect going into this new year, but the fact that it appears to be much more stable, our pricing is not an issue in the marketplace, and part of the customers over and above last year is coming from some new sales, it's not just cancellation reductions. So, but we're selling through at a higher rate at our prices without discounting.

We're getting modest price increases on the new sales throughout our services, on the residential side. Commercial is still tough. And termite is still tough, it's a tough overall termite market, holistically. But the other core services, we're getting modest increases on the new sales year-over-year.

Right. Okay. And I didn't realize that the termite industry or category that it's been a decline, can you explain that? And does that have anything to do with termite swarm season, just what the swarm has been over the last couple years? Has it been just not favorable for your business or what are the drivers behind that?

Well, the swarm certainly hasn't been swarming the way it was in the last ten years over the last three or four years, but Terminix has been able to capture market share gains despite that during that period of time through our product, though other creative ways that we go out and drive the business. But that marketplace has declined probably in excess of 4% to 5% over the last several years, but if you go back and look at the history of our business, we've been flat to growing year-over-year, which means we're taking share away as this market comes down.

Okay. Any general outlook for this year's termite season? The swarm, can you tell just what the outlook is for that?

In terms of the opportunity out there, it's probably comparable. We're coming close to the end of "the real termite season" at this point in time. Pest picks up in mid-June and that will be the carry-forward for the balance of the year. So we're very comfortable with our termite business in the quarter, and felt very good about how well we were received in not knowing what to expect out there.

Okay. Very good. All right then, just lastly, the lawn care restructuring that you did in the second half of last year, have you seen any benefit, has that shown up in this first quarter results?

Sure. I mean, the key part of the restructuring, number one, was to get the right core competencies and the right jobs out there; number two to create a situation where the span of control for the people we expect to drive the field business is doable, and those two things along, having the right talent and the right jobs and spans of control, just allow a better management oversight of the business as we go through time.

The other big piece of that, which will be a continued working process, is how to standardize everything that we do so that we can truly operate as a brand out there. Steve Donly and the team have done an excellent job, and we see the differences between top quartile branches in fourth quartile branches getting less and less in all the key metrics out there, so yes it's working extremely well. We're proud of what we've seen so far in the first quarter.

All right. Thanks very much.

(Operator Instructions). And our next question comes from the line of Marianne Manzolillo with Angelo Gordon. Please proceed with your question.

Hi, couple more questions regarding the lawn care business. So if a customer of yours signs up for a full program where they get five or six applications per year, and perhaps the first application was scheduled for this first quarter, and if the weather gets in the way, do you catch up there and perform that application later, and is the pricing that you get from that customer unaffected by the weather of the first quarter?

Yes, we can catch up. The only place where we wouldn't be able to catch up is where the weather extended for a long period of time, where the timing of the applications would run on top of each other. That being said, in different parts of the country, the applications are for different purposes, and we can co- -- do two applications at one time, whether it's putting grub control or weed killing things down -- I've lost my term I was looking for, but not every application is the same with what we do. And we're doing some of that in terms of the effect, in terms of the customer, in terms of pricing, there's no impact. They're buying the five or six applications for the unique performance of each one of those applications, and whether we do them together or at the space that we like to for route management efficiencies and so on, it's irrelevant. We're putting the right stuff down at -- in appropriate timeframes.

Okay. But if the weather is that uncooperative, the possibility exists that may be the customer would get one less application, perhaps.

That possibility certainly exists and we'll have some of that, no question about it. But when you look at the pockets of the areas of the United States, we're not talking about the whole geography. We're talking about in these pockets where we've had had weather that we may, in fact, have to give in on an application, but it's going to be -- that will be a minuscule issue as opposed to just being total weathered out and not being able to get back out there.

Right and then if you have to have to skip a application, you would make less money from that customer then, you couldn't charge as much then, I'd assume.

Right if we don't put it down, we can't charge them.

Right. And then what percentage of revenues on your lawn care side are represented by customers that that full program, is it like three-quarters or so?

Two-thirds

At least two-thirds, and it could be a little higher.

Okay. So, so in the second quarter as perhaps you play catch-up, would you maybe perhaps benefit from the labor efficiencies that you suffered with from the first quarter, where you had people on board and they really didn't have enough to work to do. Now these same group of people have a lot of work to do from Q2, can you maybe benefit from labor efficiencies?

Well it's a two-edged sword. The fact we paid for labor without production in the first quarter as we go through in making this up, it's going to require a lot of extra days, a lot of over time. And so we're, we're going to be paying somewhat of a premium to get this work done, because there's only so many days in a week, in a month and in a quarter here, that we need to get this stuff done in. So we've got it all built into our month-by-month plan, but if you're looking for a windfall in savings; no, it takes the same amount of labor to do the yard in the second quarter as it did to do the yard in the first quarter.

Right. Right. But that truck coming by may be able to do two applications or something, and perhaps you are saving a tad on --

There will be some of that where we can two applications at one time and that will be somewhat of an offset, but that's not a big piece of --probably in some of the southeast territories, we'll be able to take advantage of some of that.

Got you. And now you're spending on CapEx was down quite a bit this first quarter versus last year, will that continue for the year or will there be catch-up in the remaining quarters?

CapEx is, was down in the quarter, and we do still expect for full-year to be consistent with the guidance we gave earlier in the year. So we're expecting about $55 million to $65 million of capital on non-vehicle spend, and about $50 million to $60 million on vehicles.

Okay. So that's up quite a bit from 2009?

Yes, it is.

Okay. All right. Great. Thank you very much.

Thank you.

Thank you.

Our next question comes from the line of Alan mark with Raven Asset Management. Please proceed with your question.

Yes, this is just more of a housekeeping or an administrative matter. I was just looking at something you've probably covered in previous calls, but in the related party transactions in the 10-Q, it talks about the tripling of the Clayton Dubilier management fees annually, and it also talks about some consulting agreements with various banks that were entered into last year. Again, I apologize if you covered this before. You probably have, but if you could just briefly describe what's going on, is this likely to remain the same, what it is and it has potential to increase again?

Well, that is the management fee we do pay to Clayton Dubilier & Rice and consulting fees with the co-equity sponsors. We have been disclosings those in our filings for a few periods. The -- and it's laid out in there what the amount is for the year, 6 --- a little over $6 million in the management fee and about $1 million, a little over $1 million on the consulting fees.

Right.

And those are annual fees.

Just -- but, yes, I see the number in there. I guess, just the reasons why the management fee went up so much and why you entered into these consulting agreements in last year?

Well, I think we did report this, as well, it was based on a evaluation of the marketplace and what is typically charged by equity sponsors and management fees in similar situations to ours. So it's based on a market evaluation conducted, and adjusted based on that -- on that review.

So initially they were -- I mean, because I don't think the management fees in the private equity business have gone up over the last couple of years for response to companies. Was it -- it started out artificially low or something?

Yes, theirs started out lower than market and now they've moved to market, is a way to think about it.

And the consulting fee is really related to had that, it's not a -- usually there's some consulting agreements, but what you're saying is that really is related to the management fee?

It's very similar, It is pursuant to separate consulting agreements in each case.

But you didn't have those before?

That's correct.

Okay. Okay. Thanks.

Thank you.

There seems to be no further questions at this time. I'll now turn the conference back to you.

I want to thank you all for your participation and the questions that we had, and we look forward to telling you how much we're able to recoup in the second quarter in three months. So thanks a lot. Goodbye.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have the great rest of the day.