Good morning everyone. Welcome to the Rollin's Incorporated Second Quarter Earnings Conference Call. As a reminder, today's call is being recorded. 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'd now like to introduce your host for today's call Marilynn Meek. Ms. Meek, you may begin.

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 1-888-203-1112 with the pass code 3030827. Additionally, the call is being Webcast at www.viavid.com and a replay will be available for 90 days. On the call with me today are Gary Rollins, Vice Chairman and Chief Executive Officer; and Eddie Northen, Chief Financial Officer and Treasurer. Management will make some opening remarks and then we'll 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 second quarter 2015 conference call. Eddie will read our forward-looking statements and disclaimer and then we will begin.

Our earnings release discusses our business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that have been made on this call excluding historical facts are subject to a number of risks and uncertainties and actual risks may differ materially from any statement we make today. Please refer to today's press release and our SEC filings including the Risk Factors section of our Form 10-K for the year-ended December 31st, 2014 for more information and the risk factors that could cause actual results to differ.

Thank you, Eddie. Before I get started, let me welcome our new CFO, Eddie Northen, to his first quarterly Rollins investor conference call.

Thank you.

I never get tired of saying this, so pardon me for being repetitive; but we are very pleased to have once again, achieved record revenues and profit for both our second quarter and first six months of 2015. For the quarter, revenue grew 6.2% to approximately $392 million, compared to $369 million in last year's second quarter. Net income rose 10.3% to $45 million or $0.21 per diluted share, compared to net income of $40.9 million or $0.19 per diluted share for the same quarter last year. Revenues for the first six months rose 5.9% to $723 million, compared to $682.7 million for the same period of last year. Net income increased 13.1% to approximately $75.4 million with earnings per share of $0.34 per diluted share, compared to $66.6 million or $0.30 per diluted share for the prior year period. In a few minutes, Eddie will provide more details on these numbers. All of our business lines experienced good growth during the quarter, with residential pest control up 7.8%, commercial pest control grew 4.6% and termite rose 3.9%. Our bed bug business has continued to grow and outpaces the industry. At a recent national bed bug summit, it was reported that the industry 7.7% back in 2011, and had maintained a consistent growth rate of 7.3% through 2014. As you may recall, we ended 2014 with record growth of 18% for our bed bug business. In the second quarter this year, our growth was even greater. There's no question that bed bugs continue to be a major test worldwide. Recently, I was referred to a book that was written in 1932, where the author cited numerous fears in the Austrian-Hungarian Empire, where he said the civilized Austrian was menaced there by bears, and wolves and even more dreadful monsters such…

For those of you that might be tired of geopolitics, the only grief that we will mention today is the liquid that needs to be removed in commercial kitchens for a clean, pest free environment. That play on words is my tribute to my friend and mentor Harry Cynkus, who successfully reported this call for 17 years. As Harry has asked numerous times and I have been asked in my short time on board, we continue to struggle to find any direct economic correlation to our quarterly success. Our 6.2% revenue gain was accomplished by our outstanding sales and operations personnel, in the same quarter that the Wall Street Journal wrote the article entitled Retailers Hit by June Swoon. As you all know, retail sales were not robust for Q2. However, we had a strong performance in the second quarter, with all service lines showing impressive growth. Key to the quarter, included strong residential growth and continued cost discipline by our operations team. Looking at the numbers, the company reported first quarter revenues of $392 million, an increase of 6.2% over the prior year's first quarter's revenue of $369 million. We experienced that growth across all of our families of brands, as measured in constant currency. Net income increased 10.3% to $45.1 million compared to $40.9 million, with earnings per share up 10.5% to $0.21 versus $0.19 per diluted share last year in the second quarter. For the first six months of 2015, revenues rose 5.9% to $723 million compared to $682.7 million last year. Net income for the first six months of 2015 was $75.4 million or $0.34 per diluted share, compared to the same period last year, representing a 13.3% increase in diluted earnings per share year-to-date. Let's take a look through the revenue by service line; residential…

Thank you, Eddie. Well we are ready now to open the call for any questions that you might have.

[Operator Instructions]. We will take our first question from Joe Box with KeyBanc Capital Markets.

Hey, good morning, guys.

Good morning Joe.

Eddie, you said earlier that leads sold and leads generated were moving in the right direction. Can you maybe put some more color around those metrics? I'm just curious if that direction suggests an acceleration or a deceleration from current growth rates?

I think we are in line with the current growth rates. I think we have seen growth from Q1 to Q2 across all of the different products. And I think we have seen similar improvements from previous quarters for all three of the categories.

Within leads sold and leads generated?

Right. I am talking about for all three of those categories.

Okay, perfect. And then you both alluded to sales and productivity improvement. Do you guys have a sense of what portion of revenue growth that you are seeing tends to be more market share gain-oriented versus just end market growth in pest control?

Well we think they were growing fast than the industry. There is not a lot of market data in our industry, that would be current or quarterly. But looking at other businesses, through our acquisition activities, attending these summits, reading the trade publications, we believe that we are going faster in all of the elements. We think that we have made investments that other people are not or other companies are really not in the same -- have the same opportunity in doing, and that's had a lot to do with it, and then as I mentioned earlier, we are just not happy with where we are, we want to do better. So we just keep pushing in every direction or every way that we know to.

Joe, this is Eddie. So the only small amount of science that's out there, that our marketing group is able to do, is to take a look at the total search -- total Google search under the pest control topic, and then look to see what percent of that, that we went. And we feel to Gary's thought -- to Gary's suggestion, that we are winning more of those than potentially the others that are out there.

And I think that this is important, because what we really need to know is our internet work contributing positively and there is our advertising contributing positively. One of the great things that Google search does is, give us kind of an overall reflection as far as the industry is doing. If the searches are up in general, then Mother Nature, we think is making a contribution, and you got to be careful that you're not giving yourself too much credit. But in our analysis, we are growing faster than that barometer.

Right. Okay. I appreciate that color. Last one for me, just can you give us an update on the Critter Control integration? Maybe where you're at in that process, if you're starting to see any revenue synergy from the deal, and any of the targets that you're willing to put out?

So Joe, I think I am ready to talk about targets at this point in time. I will tell you that we were able to meet with the advisory board of Critter Control, have been in town and had a chance to meet with them. They are very happy with the way that the integration is going. I am not sure that you are ever going to have every franchisee that's always going to be happy. But 17 of the 18 that were in the room, were extremely positive. They are happy with what they are getting from a marketing support. They are happy with what they are getting from the back office support that we have been able to give them. And that's a little bit of the synergy that I think that we are going to be able to see in the shorter term, its going to be that. So we will continue to spend time with them, and I think that's going to help us as we are moving forward, and as we kind of develop our overall wildlife strategy.

Joe, I think its important that we really don't do too much too quickly. We really need to get to know these people better, and need to really show, as Eddie mentioned, the things that we can do to their benefit. And then I think that will allow us in the future to consider how we handle the TruTech name and expansion and potential purchasing opportunities that we might have with some of the franchises that are interested in selling their business. But we are just trying to be fairly calm and solidify the relationship.

Right, I understand that completely. Are you pushing leads right now from TruTech that they can't perform to Critter Control, or has that not happened yet?

We are sharing leads. I mean we are -- as you know, we are in a lot of markets. Orkin is in a lot of markets that TruTech is not in. And so, I think that's one of the big benefits that this acquisition is providing these franchisees. So yes, we are providing those leads, and I think that fosters a sense of cooperation, and we are in a position really to help Orkin with leads, because they are not taking care of all the pest control or bedbugs and there is many areas in pest control that they don't really address.

Great. Thanks for the color.

And next we will go to Dan Dolev with Jefferies.

Hi. Thanks for taking my question. Two questions, one on revenue and one on opportunities, long-term opportunities; on the residential side, it seems like a very nice acceleration. Is 7% sort of the new run rate? And if yes, why?

So Dan, this is Eddie. I am not sure if that's the new run rate or not. I think if you look back as I said, since 2012, this is the fastest growth quarter that we have had. I think marketing field is very good with their matching of their media to the target audiences, which we feel is helping to be able to move the residential forward. So I am not sure if we know where that new run rate is going to be. The weather was good around most of the country, as we know. I mean, a couple of isolated spots where we had extensive rains and those types of things. But overall, the weather was good, which would always push towards a good residential number for us.

Got it. And what happened in termites? It seems a little bit light. I know the comps were tougher.

You sound like me. Well outside of Gary's comments, Q1, we had a 8% growth which was a very positive number. And if you look back over the previous years and you kind of look at the two quarters together, you kind of see numbers that are in line or may be slightly better than what we have seen in the last couple of years. We could have had the end of March be a little bit stronger, where as in previous years, those first -- last couple of weeks of March could have pushed into April and made a difference. But I think if you take a look at the first quarter and you move into the second, you will see numbers that are relatively in line with what we have seen.

Okay. One more quick one. Any color on this year's price increase? Usually take [ph] pricing.

You just want color on it?

Yeah some color on -- what is the impact, what's going on with the price increases this year?

Yes, elasticity is still good, the testing January/February, then we had March and April testing. All the testing is showing similar results to what we have seen in the past. The [indiscernible] continues to give us opportunity to make sure that we are selling and sticking in the right areas. And our analytics group that we have stood up in this last year, have made a difference in us being able to really know and understand what areas -- where we need to be, especially from zip-plus [ph] perspective, and that's where we have seen improvements.

Got it. All right. I'll get back in the queue. I have more questions that I can ask later. Thank you.

Thanks.

Next, we will go to Jamie Clement with Macquarie.

Gary, Eddie, good morning.

Good morning.

A couple of random questions. You know, obviously the 7% number in residential was the number that most caught my attention. Gary, obviously Mother Nature is a component, housing can be a component, and I'm hoping that perhaps you can give me your thoughts on that. Digital marketing, obviously that's something you've talked about as a success over the last couple of years. As you look at the things that drive your residential business, in a 90-day rearview mirror, what were the things that kind of popped out on the page that impressed you?

Well, you know, as I've told you on previous calls, I hate to talk about weather because we can't control it, but we did have good weather, and we're continuing to really work hard as I shared earlier was our Internet and our mobile marketing. I think that the marketing folks deserve a lot of credit as far as continuing to identify new ways to capture consumers. I think that we have aligned ourselves properly as far as really stressing the educational side. You know, more and more people are shopping on the Internet to help direct their decision-making, and we want to position ourselves that we are the authorities, and we're the first and hopefully the only source that they're looking to when they have a pest problem. I think our BizSuite and HomeSuite products or iPad products that we have for our salespeople, our people are getting more comfortable with them. We're making -- continuing to make enhancements with the field feedback. We have a better product than we had a year ago. I think that that's making a contribution as well. So there's just a lot of components. It's really hard to quantify that this one is 50% or this one is 25%, but --

No, that's very fair. That's very fair. Gary, if I could ask you about HomeTeam, one of the things that Harry had periodically mentioned over time was that -- typically Rollins didn't make a lot of money on -- if any really at all, on the installation of the Taexx tubes into the wall, and that perhaps over time that was something that perhaps the Company could make a little bit of money on; because it certainly was a value add for the builder. Any update on that kind of progress?

Well, yes, I think we've increased it. You know, when the contractors are in trouble, which they went through a pretty rough period of time, you don't really have much of an opportunity to raise your rates. I think what we've been able to do is, now that things are better and housing starts are up and they're doing better, we've been able to slightly increase our rates, as far as our install rates, and we've also identified some contractors that we really have deemed not to be profitable. So I think that we've improved our margins in that regard, and we've been prudent. And I think that builders do see value. You know, very rarely do we ever, if ever lose a builder because they don't think that this is a great value-added feature for them to provide the new purchaser.

Very fair. Thank you. And Eddie, one last question: is my math of about 800,000 gallons at about a $0.90 benefit in terms of fuel year-over-year, is that about right?

We'll say it's a number between 650,000 and 850,000, and the price per gallon is going to be a little bit more than that.

Okay, got it.

Okay.

Many thanks.

Thank you.

Yup, thank you.

[Operator Instructions]. We will next go to Joan Tong with Sidoti and Company.

Hi Gary and Eddie, how are you?

Good, how are you?

Good morning Joan.

Good morning. A couple of questions here. Obviously the residential segment is very, very strong, and I'm just wondering with the upside surprise on the top line, I believe we would have seen better margins expansion carry-forward down to the bottom line, but we haven't seen that. Last quarter, the margin expanded over 100 basis points; this quarter is a little bit light. I'm just wondering, is there anything one-time there that caused your expenses to be a little bit higher this quarter?

Yes, Joan, we had a little bit of one-time expense, and there's nothing that's going to be recurring that's going to cause a degradation in what you've seen in previous quarters. We had a little bit higher advertising cost this quarter that was really just kind of a shift in some dollars from one quarter to another. And then anything else that we had, were really just one-time events.

Okay. And then the gas, lower gas prices benefit on the year-over-year comparison, how much is the benefit for the quarter?

The benefit for the quarter for fuel will be somewhere around $2.5 million.

Okay. Thank you. And then let's talk about your commercial business. It was a little bit light last quarter, still very good results. You know, you're talking about 4% growth in the first quarter. It seems like you stepped up a little bit. We [indiscernible] like around 6% in the second quarter. We know that your competitors, one of your major competitors keeps talking about like you may be putting more effort into the commercial business. Have you seen any change in competitive landscape? And definitely the uptick of this quarter, like showing that, like there's some improvement there, so any color you can share?

Well, I'll share two things with you, Joan. I think, one, we feel as though the commercial could have even been a little bit better. Our foreign exchange difference, which was a little over a full percent on the revenue, was mostly in the commercial area. I mean, most of our business that we had in Canada and Australia is commercial business. So we feel as though the numbers could have been even a little better. But we feel as though the use of the BizSuite by our national accounts group is helping to be able to maybe differentiate a little bit from the sales perspective, and they are able to use their information that they have to be able to lock customers in, as we are growing on the residential -- I'm sorry, on the commercial side. So I think it's kind of the combination of those two things that are helping us continue to move the commercial forward.

And any change in competitive landscape?

Well, if you believe what you read, you would think so because I think that Rentokil and Terminix have spent quite a bit of time talking about their emphasis. But keep in mind, this is a very fragmented business, and more likely than not, we're running into locals and regionals more so than we are running into Rentokil or Ecolab or so forth. So it's kind of hard to really weigh that. You know, our intent is just to go after the business, and I think we did a better job this past quarter as far as our national accounts were concerned, and those things are kind of lumpy. I mean, you really -- you know, it takes quite a few months to really -- to make progress in that area because of the sales cycle. But I don't think -- I don't hear our people really talking about one or two specific competitors that's really giving them a hard time.

Okay. That's good. Thanks for the update. Regarding HomeTeam, I believe Jamie kind of asked the questions regarding HomeTeam's profitability level. Have we seen any improvements? I'm just wondering, is the HomeTeam segment profitability is actually on par or in line with the residential segment as a whole?

Yes, Joan, I'm not sure there's a -- I don't know if we can have a direct correlation with residential and home. HomeTeam's profitability continues to move forward. You know, Gary talked a little bit about the builder side. So we have the consumer side that's continuing to grow. The new activations increased 21% year-over-year. So when we take that growth and now we have improved and enhanced profitability and growth from the revenue side with the builders, HomeTeam continues to perform really well.

And we're continuing to benefit from some of the reorganization that we had at mid-year --

That's right.

Where we had some consolidation and improved the efficiency of our field operation.

Okay. And then finally, can you update on your M&A pipeline? Going forward is that being more like domestic focused, or you are still maybe like you're trying to add on to your Australian platform that you have mentioned in the past as one of the very attractive area? But given the local economy there, with the oil prices coming down, and it's not exactly -- maybe the right time to put more resources in that space? Maybe your M&A efforts would be more refocused back to the domestic market? Thank you.

Yes, Joan, I don't know that we're necessarily focused in one area or another. I think we are looking for the best opportunity wherever it is, and I don't think we would be taking anybody out of the pipeline as far as any of the countries that we are in. You know, if there's a good opportunity in Canada, we would take a look at that. We want to continue to find ways to build out our network in Australia. If there was a right opportunity, we would want to do that. And, of course, as we've talked about on previous calls, there are many, many opportunities obviously here in the US that we'll continue to look at. So we're just, were looking for the right company at the right price. Unfortunately for us, some of our competitors are paying dollars that are way above market rates, and we want to continue to be involved with opportunities. But I think we're going to make sure that we stay logical as far as what we are willing to pay and continue to grow in that manner. That's one of the great things about being here is Gary and group have such a great history as far as seeing how this overall market will react and just making sure that we are paying the right amounts, so that we can make sure that we are either accretive or we are able to improve in a short-term with any sort of acquisition.

Okay. Thank you.

Thank you.

[Operator Instructions]. We will go back to Dan Dolev with Jefferies.

Thanks. Two more questions. You mentioned that you're not seeing your competitors so much or your big competitors are more seeing the local guys. But one of your -- basically your biggest competitor is making a big push into one-off services. Do you offer the same thing? Are you pushing it? If yes, why, and if not, I guess why not?

Dan, we're really about the recurring revenue. You know, lots of people have asked me when I've been out recently about statements that our competitors have made on the one-off revenues. And it's nothing that we would turn away from, and if it's the right one-time revenue, we're going to still go ahead and be a part of that. But that's not something that we are out trying to chase. I mean, 80% recurring revenue, that's part of the success of this model for the long-term. When you keep the customers happy, they continue to come back. They don't leave. And we are able to keep the revenue stream moving forward. So, we would not turn away from an opportunity but one time, and it's not something we are out seeking. We are out seeking customers to be able to get them in for the long term.

Got it. And then one last question; in your remarks, Eddie, you mentioned the three things that you're looking forward to your CFO vision, so to say, one of them was the opportunity to improve routing and scheduling. I know when you guys are talking usually about 200 to 300 basis point improvement from the BOSS system, are you seeing things incremental or an incremental opportunity to improve margins beyond the BOSS system based on your experience at UPS?

I think it's probably too soon to say what it would look like. You know, my intuition would be that there's probably something else is there; I just don't know what else that that would look like at this point. I had a chance to spend, as you know, a lot of time in the operations, had a chance to work with some folks and try to understand a little bit more about what we see right now as far as routing is concerned. But I think getting more involved with that is going to help me to be able to answer that question better in the coming quarters. But BOSS in the short term is going to help us incrementally. Then we will just have to see from there what opportunities, if any, we're going to have after that.

One thing that makes it very difficult at this stage because we don't have, I think we have maybe a third of our branches or 40% of our branches on, is the impact of employee turnover, the impact of customer retention, fleet expense. There's just a number of variables. And, you know, I don't think Einstein could figure out really, when you took all those individual components, to exactly what the outcome is going to be. But the more we do, the more mature these branches are that we've got on BOSS, the better sense that we're going to have as far as what the payback is going to be.

Understood. Very helpful. Thank you.

Thank you.

Thanks Dan.

It looks like we have no further questions at this time. So I'm going to turn it back over to management for any additional or closing remarks.

Okay. Well, thank you for joining us today. We appreciate it, and Eddie and I look forward to next quarter, and we will continue to work hard to grow and improve our business. Thanks again.

And that does conclude today's call. We thank everyone for their participation.