Good day, and welcome to the Voiland, Inc. Third Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, all participants are in a listen only mode. Later, we'll be conducting a question and answer session and instructions will be given at that time.
I would like to now introduce your host for today's call, Marilyn Meek. Ms. Meek, you may begin.
Thank you, Stephanie. 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 1, 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 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1-eight eighty eight-two 203-eleven twelve with the passcode 2,143,746.
Additionally, the call is being webcast at www.viovid.com and a replay will be available for 90 days. On the line with me today and presenting are Gary Rollins, Vice Chairman and Chief Executive Officer John Wilson, Rollins' President and Chief Operating Officer and Eddie Northam, Senior Vice President, Chief Financial Officer and Treasurer. Management will make some opening remarks and then we'll open the line for your questions. Gary, would you like to begin?
Yes, Marilyn. Thank you and good morning. We appreciate all of you joining us for our Q3 2018 conference call. Eddie will read our forward looking statement and disclaimer and then we'll begin.
Our earnings release discuss 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 ks for the year ended December 31, 2017 for more information and the risk factors that could cause actual results to differ.
Thank you, Eddie. While we are very pleased to report our 50th consecutive quarter of improved revenue and earnings, Revenues for the quarter grew 8.3 percent to $487,800,000 compared to 400 and $50,400,000 for the same period last year. Net income increased 29.6 percent to 52,900,000 dollars or $0.31 per diluted share compared to $51,400,000 or $0.24 per diluted share for the same quarter last year. Revenues for the 1st 9 months rose 9.3 percent to $1,376,000,000 compared to $1,259,000,000 for the same period last year. Net income increased 24.3% to approximately $180,700,000 with earnings per diluted share of $0.83 compared to 105,400,000
dollars or
$0.67 per diluted share for the same period last year. We experienced good growth in all of our business lines in the quarter with residential up 9.2%, commercial pest control rose 5.7%, and termite and ancillary grew 11%. Eddie will provide greater detail on our financial results in a few moments. On August 10, we were privileged to celebrate a historic milestone for Rollins, the 50th anniversary of our company's trading on the New York Stock Exchange. The anniversary was significant in both a business and personal level.
To celebrate the occasion, our Chairman, Randall Rollins and Lead Director, Henry Tippey, rang the closing bell and in doing so made history at the Exchange. They hold the distinction of being the only 2 directors present for our company's initial listing and its 50th anniversary on the New York Stock Exchange. We're fortunate to have their contribution and leadership for that period as well. As many of you know, we've also hosted an Analyst Day as well as an exhibit in Experience Square in front of the Stock Exchange. This exhibit showcased historical items from our Rollins Heritage Center, such as a World War II era horse drawn wagon and a bicycle that Orkin technicians used to provide service when gasoline was rationed.
We also displayed our current trucks from the various brands like Western,
Waffen,
Critter Control, HomeTeam, Northwest and Orkin that are used today. In addition, we unveiled some of our new field technology that we're rolling out and provided more detail on this suite, our commercial iPad application.
We're proud of our
heritage and the achievements that we've made over the past 50 years. Since acquiring Orkin in 1964, we have grown from a few U. S. Operations to a premier global consumer commercial services company with more than 700 operations in 57 countries. In the early 90s, recognizing how good Orkin and the pest control industry were, Rollins narrowed its focus on pest control and sold all of our non pest control businesses.
We then began to open new Orkin branches, created Orkin franchises, both domestic and international, and initiated an acquisition strategy, all of which remains the same today. Our goal was also to purchase other leading pest control companies, which at the time started with the acquiring of PCO Services, which is now Orkin Canada and Canada's largest pest control company. This purchase would be followed by Western, Waffen and the 2,008 HomeTeam Pest Defense, which at the time was the 4th largest pest control company in the United States. These were followed by many others, all of which we were able to grow and improve. Other acquired international companies followed in Australia, the United Kingdom and recently Singapore.
During this time, we also realized that there were segments of the pest control industry in the U. S. That would complement our growth strategy. We added to our portfolio industrial fumigation, the largest commercial pest control fumigation company in the United States, TruTech and later acquiring the master franchisor of the best known U. S.
Wildlife brand, Criticontrol. By the way, today, we are the country's largest wildlife control company. Our acquisition strategy has continued most recently with the purchase of Northwest Exterminating and Kentucky's OPC Pest Control Company. None of these successes would have been possible without our people who have been the central part of Rollins' past and present accomplishments. I never go tired of saying and recognizing that our employees are our company's most precious asset.
Our team's dedication and experience shape not only who we are today, but will direct what we do in the future. We have a tremendous opportunity to improve all of our existing businesses, while at the same time expanding our global footprint through new locations and acquisitions. Let me now turn the call over to
John. Thank you, Gary. As you all know, in September, 2 of the large hurricanes hit the U. S. Mainland.
Hurricane Florence in the middle of the month came ashore near Wrightsville Beach, North Carolina. The storm stalled and most of the damage there was done by flooding. Hurricane Michael was a larger Category 4 storm that destroyed Mexico Beach and parts of Panama City Beach, Florida. I'm happy to report that all of our team members are accounted for and our office facilities came through mostly okay. Hurricane Michael was the most impactful as it relates to our team.
I know of 4 families that have lost everything and at least 6 others with significant loss due to this storm. I spoke with our Orkin region manager for that area on Thursday. He was on-site and working to help both our team and their customers get back on the feet. Of course, we have also engaged our Rollins employee relief fund team in support of these folks and others. You may recall on our 2nd quarter conference call, I discussed the tight labor market and how competition for employees was impacting us.
At that time, our brands were handling it fairly well. Since then, with the unemployment rate having declined to 3.7% in September, we are experiencing some hiring pressures. We still maintain high retention rates for our industry, but it has become even more important for our people to recruit for new talent consistently in order to maintain a viable pipeline of new team member candidates. As Gary just mentioned, we regard our employees as our most important asset and we continue to assess and act upon what
is working, what we need
to do to adjust and any additional steps we can take to ensure we remain the employer of choice. A good step directed toward retaining our employees was the decision to share a portion of the U. S. Tax savings in the form of stock grants and an improved 401 match for our U. S.-based employees.
To further support our hiring efforts, we have beefed
up our recruiting initiatives and we'll be rolling out our first ever human resource or HRIS system in 2019. Our President of Specialty Brands and Human Resources, Jerry Galo, is the executive sponsor and leads this initiative. This will enable us to better track training, performance and career development for all employees around the globe in one seamless location.
One of the groups that
will benefit greatly from this would be our current and future leaders as people development is an important part of this effort. Our focus on hiring veterans and females continues to provide significant opportunity to add talent. Our industry has not historically attracted many females and we can't afford to ignore nearly half the population when considering this talent source. Plus, we know they make excellent employees. As we continue to grow, add new branches and split existing ones in all our brands as well as make acquisitions, our efforts with talent acquisition and management development enables us to continue to prepare for that growth.
We know talented people have choices and we want the Rollins brands to be a leading contender for that talent. As is reflected in our Q3 results, we are continuing to experience good organic growth across our business service lines, including growth in our termite and ancillary services. One of the areas of emphasis in 2018 has been the growth of our mosquito service. While on a relatively low base, we have grown this service line over 30% in Q3 year to date. This service line expansion has been largely driven by increased concern and raised public awareness around disease borne issues related to mosquitoes, including Zika and West Nile and other diseases are a major contributor to this growth as customers come to us seeking answers to this threat.
We believe the growth rate of our mosquito business can and will continue strongly for many years to come. We have the largest residential based customers in the industry and this is a straightforward cross sell offering for many of our customers from someone they already trust. In fact, this is the service our customers get their highest customer satisfaction rating. From an efficiency standpoint, it is also when we can have the same technician that performed the pest control service also do the mosquito service at the same time. We recognize that customers must have a way to know all of the pest and wildlife services that we offer and our marketing group does a great job of getting that message to those customers.
As you are aware, there are a wide variety of ways consumers use to make their decisions. Our digital marketing team and their efforts continue to differentiate us from our competition. Probably and maybe most importantly from a connectivity standpoint is providing to our customers platform that works best for them. Only a few short years ago, mobile made up less than 25% of our consumer connection and now that number is over 70%. Our priority is to design mobile first in anything that we do.
More recently, we have done a better job of proactively supporting our customers' needs and concerns through our online reputation management effort. Customers today want to communicate issues and share compliments more readily. So we have responded in a variety of ways, mostly through the various online forums, resolving those customer issues and in many cases turning a potentially damaging situation into a positive because of how quickly and efficiently things are handled. Long before social media, we referred to those events as a golden opportunity to satisfy and strengthen the customer relationship. As you all know in business, things change rapidly and that change moves us forward.
Advancing our technology effort helps with that as getting our service rep to the right place at the right time is critical to improving the satisfaction of our customers. Technology is the platform for our customers to find us, but it is also key to the success of our employee support and the resulting customer experience. I will now turn the call over to Eddie.
Thank you, John. We are fortunate to be in an industry that is minimally impacted by trade talk or tariffs, but is also not strongly tied to interest rates or fluctuating oil prices. While we do have our own challenges, such as continued talent acquisition and development, as John mentioned, and evolving our offerings for a changing consumer base via technology enhancements, we do tackle these requirements on a daily basis. I mentioned this as we had multiple opportunities to celebrate both the past and the present of Rollins during the quarter. In addition to the celebration that Gary mentioned of our 50th anniversary on the New York Stock Exchange, we also had the opportunity to celebrate 1 year with Northwest Exterminating, which I will talk about in more detail and the acquisition of Bardwolf Pest Care in the country of Singapore.
These celebrations show the historic development of our company as the leader in the pest control industry and our ability to find and acquire top notch U. S. And international companies continues. For the quarter, all of our service lines showed significant growth and keys to the quarter included entry into Singapore with the acquisition of Ardwilp Pest Care, as I just mentioned, profit gains through increased recurring revenue from previous quarters and cost increases from fleet expense increase, which was impacted by lease costs and an increase in fuel price per gallon. Looking at the numbers, the 3rd quarter revenues of 487,700,000 was an increase of 8.3 percent over the prior year's Q3 revenue of 450,400,000 dollars 2017 Q3 included 2 months of Northwest revenue.
Income before income taxes increased 8.9% to $89,900,000 from $82,600,000 in 2017. We are beginning to reap the benefits as anticipated from the historically high recurring revenue growth that we saw in Q2. Net income rose 29.6 percent to $66,600,000 and earnings per share increased 29.2 percent to $0.31 per diluted share compared to $0.24 per diluted share in the Q3 of 2017. As we have discussed over the past few quarters, there were 2 unusual items that affected the profit numbers compared to historic prior quarters as they will for the remainder of 2018. The first was the enhanced employee benefits, which impact the 3rd quarter EPS by a penny.
As a reminder and as John just mentioned, we improved our 401 match and provided one time stock grants to many of our U. S.-based employees. These enhancements continue to be received very positively by our employees. Additionally, the significant number of recent acquisitions increased our amortization of intangible assets for the quarter by 17.8%. Over the past 5 years, our average increase of amortization of intangible assets year over year has been 9.5%.
Compared to last year, the significant increase also impacted the earnings per share by just over 0.5 $0.01 and like our benefits enhancements, we believe is tremendous investment for our future. Moving forward, we will begin reporting EBITDA since that will be a more meaningful measurement at this time. For Q3, EBITDA was $106,700,000 up 10.2% over 2017. One of the key acquisitions that has caused the increase in amortization of intangibles is Northwest Exterminating. On August 1 this year, we celebrated our 1 year anniversary with Northwest and it has been a great year.
Financially, Northwest continues to grow revenue at levels significantly better than our overall Rollins average. Their unique advertising, which features the pesky mouse that many of you were able to meet at our recent Analyst Day, combined with their incredible service execution enables them to continue to gain market share. One of the great byproducts of acquiring good quality companies is the fact that we learn from them and we are also able to share things that we learned from other Rollins companies in the past. An example of this is Northwest has grown their business with the Green Elite program. This industry leading service offering combines green solutions for pests, mosquito and termite for those customers that prefer this type of treatment.
These unique offerings have been shared with our other specialty brands to consider based on their geography and needs. One of the benefits that Northwest has obtained during the past year has been access to our talented IT group. Recent negotiations have enabled our Rollins IT group to upgrade NorthWest CRM and receive a healthy cost savings. This is one area of margin improvement that helps Northwest and all of us. When addressing our company's geographic footprint, we have found opportunities to combine our Northwest business with other of our company's brands to streamline the customer offerings and become more efficient.
We will continue to see these types of opportunities as our companies continue to grow. Let's take a look through the revenue by service lines for the Q3. As discussed earlier, our total revenue increase of 8.3% included and included 3.2% from several acquisitions and the remaining 5.1% was from pricing and organic growth. In total, residential pest control, which made up 42% of our revenue, was up 9.2%. Commercial pest control, which made up 38% of our revenue, was up 5.7% and termite and ancillary services, which made up approximately 20% of our revenue, was up 11%.
Both residential and the termite segment benefited from Northwest and OPC acquisitions. Again, total revenue left acquisitions was up 5.1% and from that, residential was up 6.7%, commercial increased 2.5% and termite improved by 6.5%. The residential growth rate is the fastest since Q1 2017 and was positively impacted by the mosquito growth that John mentioned. In total, gross margin for the quarter was 51.6%, up from 51.4% prior year's quarter. The quarter benefited from improved efficiency in routing and scheduling technology as stops per mile improved by over 5% in September, even as we have lapped our routing and scheduling efforts from a year ago.
This helped alleviate the increased fleet expenses that we saw for the quarter. Fleet expenses increased $1,800,000 or 10.7 percent for the quarter, driven by higher price per gallon costs and increased lease vehicle expense. Personnel related costs were up due to the 401 plan match and the stock grants that we announced earlier. Depreciation and amortization expenses for the 3rd quarter increased $2,600,000 to 16,900,000 dollars an increase of 17.8%. Depreciation increased $900,000 due to acquisitions and equipment purchases, while amortization of intangible assets increased $1,700,000 due to amortization of customer contracts included in several acquisitions.
Sales, general and administrative expenses for the 3rd quarter increased $10,100,000 or 7.5 percent to $145,100,000 or 29.7 percent of revenues, down 3 tenths of a percentage point from $134,900,000 or 30 percent of revenues for the Q3 of 2017. The decrease in the percent of revenue is due to lower administrative salaries and sales salaries, which increased slower than revenue as well as lower advertising as a percent of revenue and reduced professional expenses as we wrap up various projects.
As for our cash
position, for the period ending September 30, 2018, we spent $77,700,000 on acquisitions compared to $127,900,000 the same period last year as we continue to find good quality pest control companies and continue to buy back Critter Control franchises. We also had $91,700,000 on dividends, an increase of 22%. We had $19,600,000 of CapEx, which was up 14.1 percent from 2017, primarily from planned IT investments such as our BOSS Canada rollout and the NorthWest acquisition. We ended the period with $118,700,000 in cash, of which $53,600,000 is held by our foreign subsidiaries. Last night, the Board of Directors approved a 3 for 2 stock split of the company's common shares.
The split will be affected by issuing 1 additional share of common stock for every 2 shares of common stock held. The additional shares will be distributed on December 10, 2018 to shareholders of record at the close of business on November 9, 2018. Fractional share amounts resulting from the split will be paid to shareholders in cash. In addition, the Board declared a regular quarterly cash dividend of $0.14 per share plus a special year end dividend of $0.14 per share, both payable December 10, 2018 to shareholders of record at the close of business November 9, 2018. Dividends will be paid on pre split shares.
Before I turn the call back over to Gary, I'd like to thank those of you that made the time to join us
for our
50th New York Stock Exchange event. We truly enjoyed spending time with you and hope that you found value in the time spent with our team. Gary, I'll turn the call back to you.
Thanks, Gary. Well, we're happy to take your questions at this time.
Our first question comes from Michael Hoffman with Stifel.
Hi. Thank you all for taking the questions. When we think about the organic growth and you shared a little bit of this with us in prior quarters, how we should think about margin pressure from you add new customers, they're not profitable initially, then they get incrementally increasingly more profitable. So can you frame your organic growth? How much was new customer versus outright price?
And also talk about where we are in renewals or retention because those are the 2 sort of points of leverage into the margins going forward?
Yes, Michael, thanks for the question. So we don't break out the specifics of the price and the new customer by quarter. We just we'll kind of talk about that at a high level. I will tell you that retention we had a really good retention quarter. John and team continue to make improvements in the area of reducing cancel customers.
The service level continues to be improved and I think that, as well as the communication we have through our technology is helping to make that overall customer experience better. So retention definitely a positive for us. We continue to add new customers and our pricing has probably stayed relatively intact with what we have seen in previous quarters, somewhere between that 1% and 1% in the 2% range.
Okay. And when you frame retention good, did it get better in 3Q versus a year ago or 2Q? It did.
I mean, so It did get better.
And we have incremental improvements in our retention over the last probably 8 quarters now, but Q3 was took a little bit of a better positive step there for us. Both
for year end Q on Q. So it
was a sequential improvement as well as year over year?
Correct.
Okay. And then ASC 842, given that you lease lots of equipment, how do we think about what that means to the business model from us modeling in 2019? What are the things that you should be telling us to think about today?
So we don't have any numbers at this point in time to share with everyone. We have leases of vehicles. We have leases of facilities. And we also have some other outlying leases such as things like uniforms and different things like that. So we're still working through that process.
We'll be prepared as we're moving forward in future calls. At this time, we don't anticipate there being anything materially different. But as we have more information, we'll share that with you.
Okay. And then one last question just
on the organic growth. So I Mike, let someone else take a question. And if you could, we'll get you back into the queue. Okay. Thank you.
Thank you. Our next question comes from James Fleming with Buckingham Research.
Good morning, gentlemen. Good morning, Walter. Good morning. Good morning. Good morning.
Thank you. I was having some technical difficulties on a prior call earlier. Gary, it seems to me, I mean, I just reading some industry stuff, it seems like the pace of merger activity among even smaller players in the industry, just local players, seems to me to have accelerated. Does that have any ramifications on your acquisition strategy going forward? And what do you think might be explaining some of that?
I mean, is some of it just demographic like people just getting ready to retire? Doesn't have those 2nd year or 3rd generation to take over the business? What's going on there?
Well, I think the last case is certainly there that you have aging owners and in some cases with no air that's really particularly interested in the business. I think that's one of the motivations. There's a lot of interest and activity in the acquisition area. There's some of the international companies are realizing what a good market that North American is. And that's probably accelerated some of our efforts in energy.
But the great thing is, is the last couple of deals that we made, we were the only suitor because of the reputation that we have in absorbing these new companies versus the other guys. In fact, one of the things that we do is give them the phone numbers and say, call these other acquired companies and see if they're happy or not. So we just kind of stepped on the gas a little bit. And in particular though, I mean, we don't want just anything. It's foolish to buy a very low price company when one of the things that drives our success is the fact that we charge good rates for the business that we do.
So we have to find the right individual, the right company and we're working hard at it.
Okay. Thanks very much for the color. John, I think you were the one making the comments around unemployment rate being low and recruiting and all that kind of stuff. I think you mentioned your retention rate among technicians is still very high. How has your message in recruiting changed over the years?
I mean, how do you convince a millennial that the pest control industry is the right one for them?
Jamie, that's a great question that we're always working on. I don't know how you would answer that as far as millennials go. I mean that is the largest group that we hire today. So we're still continuing we are continuing to attract a good many of them. So our retention is slightly off.
It's a little pressure. We just have to turn over a lot of rocks and keep looking harder and harder.
Okay. Okay. Fair enough. Thank you all very much for your time as always.
Thanks Jamie.
Thank you. Our next question comes from Chris McGinnis with Sidoti and Company.
Good morning. Thanks for taking my questions. Nice quarter. Can you maybe just talk a little bit more about the growth in mosquito? Maybe how penetrated
that is throughout the network itself? And it sounds like you feel pretty confident going forward with the strength of growth. Maybe just a little bit
more around that, why at that rate or at a pretty high rate?
Yes. Chris, thanks. This is Eddie. So we have offered the Mosquito product for several years, but it has not been one that we really had put a lot of time and effort into from a coordinated basis on the marketing and the operations side. And so those that were kind of on the forefront were out there trying to work and win the mosquito business.
But now that we have marketing that has really put a good push on, the operators are on the same page. 2018, we saw a really good first step forward. We saw it in several of our brands, Orkin Northwest, HomeTeam, as well as other brands that were out there that had good growth. And I think that we will continue to see that as we have seen this momentum start in 2018. I think we will continue to see this as we move forward in time.
John, I don't know if you have anything else you want to add as far as that's concerned?
I do. Our technicians have always we've always relied on them offering that service for our customers as opposed to advertising. Eddie touched on that. And so penetration has been not that great in many markets, but probably Northeast is where we started with it first. And so that's probably the greatest as well as Southeast.
So those are the two areas to answer your question about what's our market penetration. We just have a ton of opportunity both still in those two markets as well as elsewhere.
I think the health risk has also created greater demand. I think you read about these articles almost every other week that there has been more mosquito related health problems. We don't really see that. Even the CDC has not given us any attention or assurance that that's going to change. I think it will we think it will just continue to pick up.
Plus the customers are highly satisfied with this service. I mean, we're really giving them their backyard back if they can barbecue and enjoy a better lifestyle when the mosquitoes are not keeping them in the house.
Okay. Appreciate that color. And then one other question, just on the organic growth rate and the new customer wins. Do you have any color in terms of were they with a customer beforehand or do they not have a solution prior to you coming in? Can you just
maybe give a little color on that offhand? Thank you. Yes, Chris. So this is Eddie. So we will have some of both.
We'll have share of wallet and a piece of that could be exactly what we were just talking about with the Mosquito. So they're an existing pest control customer of ours. We cross sell them mosquito and so we pick up new revenue at that point in time. But we also are incrementally taking some market share. I talked about that specifically in Northwest and the gains that they are seeing in the markets that they are in.
But we are seeing that with some of our other companies as well. So both, I think it's really both that are going on for us.
Great. Thanks for taking my questions. Good luck in Q4.
Thank you.
Thank you. Our next question comes from Sean Kennedy with Nomura.
Hi. Good morning, everyone.
Good morning.
So I
have two quick questions. The first, could you comment on the deceleration in commercials that that have anything to do with the hurricanes or just in general?
Yes. So, I don't think we know if it's impacted by the hurricanes. The second hurricane would have probably been more impacted in the current quarter. The Q3 that we had this year, we are comping the biggest growth that we had in 2017 of 8 quarters. So I would say that's a little bit of it.
And then we are also going to always have a little bit of lumpiness kind of in between the quarters as well. When you look at the full year, it's absolutely in line with what we've seen over the previous probably 3 years now.
Okay, great. And then I was also wondering if you could comment on the recent revenue trends for HomeTeam, especially if you've seen any near term deceleration due to a recent slowing in housing economic data? Thank you.
We've not seen any slowing at all with HomeTeam. They have over 1,000,000 customers that we put the or they put the TAEH system in. So even if housing does slow, which of course we know it will at some point in time, they have a database to be able to go and win new customers even without new homes being built. So they are constantly working on that. They also have a very robust mosquito business.
And then also
the termite business that we
have talked about before, the pre treating for the termites as well as the recurring termite service. So the KX is what they are known for and they are a big thing that they do, but they also have other revenues that they have been very successful with. Great. Thank you and congrats on the quarter. Yes.
Thank you for that.
Thank you. Our next question comes from Tim Mulrooney with William Blair.
Good morning, everybody. Good morning.
Can you give us a quick update on your tech initiative? Where are you at in terms of deployment of VRM, Orkin 2.0 and maybe the BOS system in Orkin Canada? Yes. So I guess we can start with the last one first. The BOSS system in Orkin Canada, they are on track for us to be able to see something early 2019.
So we have gone through the development, going through the adjustments that need to be made for currency, for frequency of services, for some different service lines. But we feel like we will be able to see something rolled out pretty well early 2019, which means we should be able to see some type of benefits towards the end of 2019 for Canada. As far as the other initiatives are concerned, we continue to test and roll out the new visibility that we are going to have for our customers that we talked about when we were at the Stock Exchange Analyst Day. We're continuing to get good feedback from customers with that that are feeling better about the communication that we're giving them and kind of giving them a better overall customer experience. Virtual route management, I talked a little bit about the improvements that we saw in September having to do with our miles.
That's even after lapping this over another year. So over 5% gain in September alone on top of what we've seen in the previous year. So all the initiatives continue to move forward well. The IT team is staying on top of the request from the operations side to make sure that we are using BOS most efficiently and most effectively. I think on average, the IT group gets and implements 100 small upgrades on a monthly basis.
So they're constantly just fine tuning and tweaking it just to make it a little bit better and a little bit easier to use and a little bit more customer friendly for us. So, continued positive momentum in those areas. Got it. Thank you. Moving on, maybe one more.
Eddie, a lot of service related industries are highlighting higher labor costs and lower labor availability as key issues to consider, particularly when forecasting margins. So maybe can you just remind us what your total labor costs are as a percentage of sales? And maybe what has been the increase in labor costs this year? Or maybe how much do you quantify how much it's pressured gross margins in the quarter? Just any other detail?
Yes. I will say it's not enough for us to highlight that as a headwind. Yes. Okay. So it's really it's kind of stayed intact based on our revenue growth overall.
And as you know, a lot of our operations are working kind of on a productivity basis. So it makes more sense for them to use this technology that we have in place for them to be more efficient to drive less and to be
able to work more and
they're getting a little bit of a benefit or they're getting the benefit of that from the pay perspective when they get an opportunity to do more jobs. So we're really not seeing that as a headwind at this point, but we'll continue to manage that. The thing that we got to make sure that we're staying ahead of is retaining the employees best we can because of course there are costs that are related to hiring to finding and hiring new employees. But again, it's not something that we would have even listed out as a top 3 or 4 item on any of our cost related areas. John, I'll add to that, please.
One of the reasons that we increased our benefits, people hold benefits certainly equal if not higher than compensation or their pay take home pay. So we've made a pretty big move as far as improving the 401 and scholarships and stock to our North American employees, which we think will make a big difference both in recruiting and retaining our employees. The other thing that we're proud of is how well the stock's done. We have about what 80%, 85% to 90% of
our employees are in the
401 from there. So when the stock goes up, their assets go up and their retirement benefits go up. So we think we've got a lot of things working for us some of the others really don't. It was amazing how few people really took the tax money and spent it invested it with their employees. Right.
Yes. Good points, Gary. Thank you for that
color and thank you, Eddie. I'll hop back in the queue.
Thank you.
Thank you. Our next question comes from Paul Finelli with Gabelli Research.
Good morning. Good morning.
So on the Q2 call, you called out some higher start up costs associated with the growth in recurring revenue. Has that trend continued in Q3 or have those sort of recurring revenues started to mature at all?
Yes. So we did see if you take a look at the income before taxes and the income after, you'll see we had a little bit of an acceleration compared to Q2 and the year to date numbers. So we are seeing some of the benefit from the historically high Q2 recurring revenue growth that we saw. But we did see recurring revenue growth in Q3 grow at a higher than average rate. So we're continuing to see positive in that area, again, not to the same degree we saw in Q2.
So we saw a little bit of benefits that have of the maturity of that that have started. And our anticipation would be we will continue to see that as we move into Q4 and as we move into next year.
Okay. Great. Thanks. And then just as a follow-up, you discussed sort of the continued trends with the BOSS systems and VRM being able to offset some fuel costs, I think you said 5% of improve in mileage. Can you give any color around how much of increase in leasing costs and fuel costs that has been able to offset?
So we haven't broken that out. Out. It did not offset 100% of it. We had our price per gallon was up 0 point 5 $6 dollars year over year, which is a significant increase. So it did not offset that, but it offset more than half of it, I will say that.
Okay. That's helpful. All right. Thank you. Thanks.
Thank you. We do have a follow-up question from Michael Hoffman with Stifel.
So I would like to follow-up on one of the questions that was asked earlier on this margin. You were investing margin in growth, but and that we saw that compression in the first half. We're starting to see some margin expansion in the second half. How do you frame how we should see the end of the year? Do we end up flat with a slightly positive bias in EBITDA?
Or does this accelerate? I'm trying to just understand where we gained some of this operating leverage as you benefit from some of the growth.
Michael, I think flat to slightly positive is what we'll see as we finish out the year. And then I think as we go into 2019, we'll see a little bit more acceleration from that. The time that we see the benefits from this recurring revenue is after the 3rd or 4th service. So, based on service frequency that the customer has, will depend on when we will see the benefits from that. So, again, historically high growth rates in Q2.
If you look at it every other month for a customer, you can do the math as far as when we would really see the benefits. And then again in Q3, like I just mentioned, we saw above average recurring revenue growth, which we will see positive improvements from as we move forward as well.
Okay. And then tying that margin story to your 401 investment, the intention was you do it in 2018 at that level and then it stays at that level in 2019. So I should be I get a benefit of that into 2019 all else being equal?
Yes, that's correct. Yes, the stock options as well. So stock options were a one time event. But incrementally, you are right, we will have already lapped that on the 401. Right.
And did we calculate it correct, it's about 60 basis points of pressure ROAR margin was the benefit of that? I think it was a little bit more than that. I don't have that number on the top of my head. We can take a look and see what that is.
Okay. And one last one. Thank you for your patience.
Where are you able
to use technology in the things like bait traps, things like that where you're at to help this labor leverage thing, particularly in commercial, where instead of having to look at all 25 bait traps, you only have to look at the 4 that something went in and chewed on
the bait. And that where are
we in the progress in bringing technology to bear there to help drive labor utilization, helping hiring issues
as well as people? Yes. Michael, we'll take this as the last call for you I'm sorry, the last question for you. We continue to look at the opportunities from a technology perspective. We continue to look at all the different opportunities that are out there.
We have tested, I believe, probably every single opportunity that's out there. We want to make sure that we are understanding what the best opportunities are. This is still a human business at the same time. Making sure that we have the right connection with our customers is an extremely important part. So we are going to continue to make sure that we understand what technology benefits exist and where that would make sense, we will go through and we will put those in place.
Okay. Yes, we really only have the most opportunity where we have the BOS operating system and we don't have that in all places as well. But we will be positioned when and if there is a need from a market perspective to be able to put that in place. Thank you.
Thank you. Our next question comes from James Clements with Buckingham Research.
Yes. Thanks for the follow-up time. Eddie, my recollection is excluding the noise from the Tax Cuts and Jobs Act in the Q4 of last year, your Q4 of last year, my recollection was very, very strong. Is there anything we need to think about as we model the Q4 from a year over year perspective that hasn't come out on the call yet?
I don't believe there's anything that hasn't come out on the call. I think the last question where we just talked about the recurring revenue and where we'll see the improvements on the profitability side, I think we'll continue to see that help us in Q4 and moving into next year. I think based on everything we know right now, those are probably the most impactful items. We still don't have a full view of everything from the hurricane. We don't anticipate it being anything material based on what we know right now.
All right. Terrific. Thanks very much for the extra time. I appreciate it.
Thanks, Jamie.
Our next
I think maybe you said this in the
prepared remarks, but how many companies
have you acquired year to date? And what was the total cash paid? The number 34, I'm looking to see if we have the number here. I don't think we said the number of companies, but we're going to take Dollars. We can take a look real quick in dollars we do have.
I believe it's 77,000,000
dollars $77,000,000
That's right. Yes. So $77,000,000 this year. It was $127,000,000 last year because we had Northwest that we purchased last year. So $77,000,000 so far this year.
And we will take a look to see if we have the company. But of course that will be made available once we have our 10 Q available. The number of companies will be available. You know what, I will just wait for the 10 Q. Thanks guys.
Congrats on that quarter. Yes. Thank you for that. Appreciate it. Thanks.
All right.
Thank you. There are no additional questions at this time.
Okay. Well, thank you all for joining us today. We appreciate your interest in our company and we look forward to reporting our 4th quarter and year end results in January.
Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect.