Good morning, and welcome to the Rollins, Inc first quarter 2016 Earnings Conference Call. Today's call is being recorded. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. If you should require assistance at any time, please press the star followed by the 0 on your touch-tone telephone, and an operator will assist you. I'd now like to introduce your host for today's call, Marilyn Meek. Ms. Meek, you may begin.
Thank you, Tony. 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 passcode 7012944. Additionally, the call is being webcast at www.viavid.com, and a replay will be available for 90 days. On the line with me today are Gary Rollins, Vice Chairman and Chief Executive Officer, and Eddie Northen, Vice President, Chief Financial Officer, and Treasurer. Management will make some opening remarks, then we will open up the line for your questions. Gary, would you like to begin?
Yes. Thank you, Marilyn, and good morning. We appreciate all of you joining us for our first quarter 2016 conference call. Eddie will read our forward-looking statement and disclaimer, then we'll begin.
Our earnings release discusses our business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that have been made on the call, excluding historical facts, are subject to a number of risks and uncertainties, and actual risks may differ materially from any 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, 2015, for more information on the risk factors that could cause actual results to differ.
Thank you, Eddie. We are pleased to have posted solid results for the quarter, which represents our 40th consecutive quarter of improved revenue and earnings. For the quarter, revenue grew 6.6% to approximately $352.7 million, compared to $330.9 million in last year's first quarter. Income before income taxes rose 9.8% to $51.2 million, compared to $46.6 million last year. Net income rose 5.4% to $31.9 million or $0.15 per diluted share, compared to net income of $30.3 million or $0.14 per diluted share. I'd like to point out that net income for 2016 did not include a favorable non-recurring tax adjustment present in the 2015 net income figure. All of our business lines experienced good growth during the quarter, with residential pest control up 7.6%, commercial pest control grew 4.7%, and termite rose 7.4% for the quarter.
This was the best performance in that area in quite some time. Eddie will provide more details on these numbers in a few minutes. As we've stated in the past, strategic acquisitions continue to be an important component in our initiatives to further grow our businesses, and we are pleased to have closed seven acquisitions in North America this quarter, as well as one in Australia. The acquisitions we made across the U.S. add to our primary service lines, residential and commercial pest control and termite. Two companies were located in Southern California, one in Washington State, two in Texas, one in Florida, and another in Georgia. Our nationwide branch network provides great merger opportunities with a dispersed geographical group like this. As announced in March, we are pleased to have continued our expansion in Australia with the acquisition of Murray Pest Control, which is based in Adelaide, Australia.
This company provides traditional residential, commercial, and termite service offerings through a mix of company-owned and franchise operations. This purchase will also give us an opportunity to learn firsthand about Australian franchising. On our last call, we mentioned the nine working international franchises that we had established at the end of 2015. This quarter, we expanded our presence in Central Asia with the addition of a new franchise in the Republic of Kazakhstan. One of the investments that we're making in our international expansion plan is the hosting of an annual Summit meeting for our franchises from Europe, Central and South America, the Middle East, India, and South Korea. This conference provides the opportunity for franchisees from these countries to share successes and to benefit from marketing and sales training, among other topics which help improve their businesses.
These meetings have proven to be so valuable that we will be hosting our first Summit meeting for franchise owners in the Asian Pacific region next month in Xiamen, China. Closer to home, we are pleased to have hosted here in Atlanta at our Rollins Learning Center, a delegation of 22 representatives from the Chinese Pest Control Association, which included the president of the Federation of Asian and Oceania Pest Managers Associations. We scheduled this event a day following their attendance at the National Pest Management Association's PestWorld Conference in Nashville. The participants were anxious to improve their knowledge of the U.S. pest control market. They spent a day at the center, where they were involved in both classroom instruction and hands-on activities. The delegation received a variety of presentations on specific topics and information, including advertising, internet management, marketing, and technical subjects.
They also heard from several other Rollins departments, fleet, IT, purchasing, and so forth, which covered the role that each has in our business. This proved to be a great experience for all concerned, and we look forward to hosting visitors from other pest control associations from around the world. These events provide us an excellent networking opportunity. HomeTeam continues to garner business and recognition from its home builder partners. For the fifth consecutive year, HomeTeam received the David Weekley Homes Partners of Choice award. HomeTeam has been a builder partner with David Weekley for 10 years and was one of the only eight companies to receive an A quality rating last year. They also are the only pest control company ever to receive this award. In addition to this national recognition, several of HomeTeam's regional operations have also received honors and awards.
The company's Fayetteville, North Carolina team earned the McKee Homes Quality Vendor award. This covenant award goes to the top five McKee Homes vendors. HomeTeam's San Antonio branches received the Pulte Top Performer award for their outstanding service. All of these company teams are to be congratulated. Recognition within our organization doesn't stop at HomeTeam. At the National Pest Management Association Annual Conference, Dr. Ron Harrison of our company was recognized as a winner of the 2015 PCT/Syngenta Crown Leadership Award. This award spotlights individuals who have contributed positively to the growth and development of the structural pest control industry, as well as established ties with fellow business leaders, civic groups, and customers. Ron certainly fits all of that criteria and more and is very deserving of this important award. Ron serves as Rollins' Technical Services Director.
He joined us in 1998 and was instrumental in planning and constructing the Rollins Learning Center. He helped develop our curriculums for service, sales, and management courses and oversaw introduction of this training to the field. Ron was involved in bringing distance learning programs to more than 400 Orkin branches. Ron works closely with industry regulatory agencies, the academic community, vendors, and the media. Last month, based on his customer service excellence, Waltham Services' Peter Gorman was named by PCT Magazine as Commercial Technician of the Year. This award is sponsored by BASF Pest Control Solutions and recognizes pest, termite, and commercial technicians who offer the very best service in the industry. I'd like to thank Ron and Peter for their contributions to our company and our industry.
On our last call, the Zika virus had just raised its ugly head and was beginning to gain attention through the U.S. media. In the three months since then, the concern about Zika has intensified. As an example, the CDC stated a couple of weeks ago, everything that we look at with this virus seems to be a bit scarier than we initially thought. As summer approaches, officials are warning that mosquito eradication efforts, lab tests, and vaccine research may not be able to quickly catch up. The most recent CDC report shows 346 cases of Zika have been confirmed in the United States. They recognize that the species of mosquitoes transmitting the virus are present in all or part of 30 states, not just the 12 as originally indicated. Educating the public is an important part of containing the spread of this virus.
We invite you to visit our mosquitoes page or visit Mosquitoes 101 infographic on the orkin.com section of our website. The information contained there is designed to educate the public about the Zika virus and provides tips to protect one from mosquito bites. Speaking of our website, I'd like to thank everyone in the company involved in the recent upgrade of the Rollins sites. Our sites now contain expanded information on Rollins, Orkin, and our specialty brands. For those of you who utilize the investor section, we've added a significant amount of information that we believe will give you a more complete insight into our operations. We're off to a good start for the year, we look forward to discussing our progress with you through the year.
I'll now turn the call over to Eddie, who will provide you with details on our first quarter financials and further insights into our initiatives. Eddie?
Thank you, Gary. Record-setting revenue growth was a key to our 40th consecutive quarter of improved revenue and earnings results. Behind the record-setting results are well-executed targeted marketing initiatives and the performance of our operators. As well, we pushed forward successfully on our BOSS system rollout during a very busy time in many parts of our business. We once again had a very strong performance in the first quarter with all service lines showing significant continued growth. Keys to the quarter included robust revenue gains, accelerated cadence of acquisitions, less currency headwinds that were offset by higher year-over-year BOSS, our new CRM system expense, and limited savings from fuel. A one-time 2015 tax event impacted the net income increases this quarter. Looking at the numbers, the company reported first quarter revenues of $352.7 million, an increase of 6.6% over the prior year's first quarter revenue of $331 million.
Our sales and marketing teams continue to do an outstanding job in our balanced growth. For the quarter, income before income taxes increased 9.8% to $51.2 million. In the first quarter of 2015, we had a large beneficial adjustment that reduced the effective tax rate that we did not have in the first quarter of 2016. Also, our foreign taxes were a bit higher than last year due to the growth in our foreign operations. As a result, net income increased 5.4% to $31.9 million, with earnings per share of 7.1% to $0.15 versus $0.14 per diluted share last year in the first quarter. Tax credits are nicer when you get them than when you have to explain them a year later. Our investment in BOSS and the associated implementation and depreciation costs, as planned, nearly doubled year-over-year.
The BOSS implementation expense will begin to subside towards the end of Q2 and become virtually eliminated towards the end of Q3. We will continue to have our full depreciation moving forward. In addition, our branch operation staffing has been pushed forward in the year with the increased demand that we have seen early in the season. One example, while on a smaller base, is the increased request for mosquito service, particularly driven by the well-publicized concerns around Zika. As Gary mentioned, we recently purchased our first Critter Control franchises, and we will be incorporating this incredible brand name into our existing Trutech operating model.
Whether it's a need for the removal of raccoons, bats, or those cute little squirrels that make their way into your home, both Critter Control and Trutech have seen very good double-digit growth for some time, and the combination of the number 1 and number 2 brands in the industry will give us great momentum for growth into the future in the wildlife control category. The combination of these groups moving forward will provide greater efficiency, positive growth opportunities for the brands, and an enhanced career path for Trutech employees as they will be able to stay with Trutech or venture into their own new Critter Control franchise territory in currently targeted markets. Let's take a look through the revenue by service line.
Our total revenue increase of 6.6% included approximately 7% underlying sales and pricing growth and 0.4% contribution from acquisitions, offset by a currency headwind of approximately 0.8% . Residential pest control was up a tremendous 7.6%, commercial pest control up 4.7%, and termite up an impressive 7.4%. Our previously announced Q1 acquisitions were feathered in during the quarter, and Critter Control was the only major acquisition that was included in our numbers for the quarter. Our sales teams continue to gain momentum with improvements in the area of commercial pest control, residential pest control, termite, and national accounts. Our national accounts team had some nice wins and pricing in all areas continues to be strong. For the quarter, when we take out the impact of foreign currency, residential, which makes up 41% of our revenue, grew 7.5%.
Commercial pest control, which is 41% of our revenue, was up 4.6%. Termite, which makes up 17% of our revenue, was up 6.7%. As I have mentioned to many of you over the past months, today, we will be providing a more detailed update as to where we are with BOSS, share some lessons learned, and our expectations for the future. Where we are today. As previously mentioned, we have advanced our rollout and now plan to be complete with Orkin by Q3 of this year and are currently 80% deployed. This means that we have over 4,700 iPhones in the hands of our service technicians as of April. This decision impacted our profit growth for the quarter but is setting us up for longer-term enhanced profitability sooner. Lessons learned.
At this point in time, we have four regions that have been on BOSS for over a year, and we've had a chance to compare quarter-over-quarter results for those branches before the rollout and after. While these results were not seen in all regions, we saw a reduction in administrative overtime by over 20%. Customer pest control retention increased by over 7%, with more attention spent on the customer and less on administrative tasks. Miles per stop decreased by over 10% with the help of turn-by-turn directions given to the technicians, and a greater than 20% improvement in pest control bad debt as the administrative group was more able to concentrate on this important area of cash flow. Overall, the results are very encouraging, and we look forward to assessing these and other areas into the future. Please realize that these are high points and not branch-wide accomplishments.
As you would expect, our vision for the future with BOSS is very bright. Because of the BOSS conversion, our call center lead management system, called Contact 360, is now embedded, and we have all the benefits of technician scheduling of customer appointments by our call center sales agents. Our sales force productivity will be enhanced with their system integration into BOSS. Our sales force will now have full visibility to their entire customer base, can access by vertical or by geography. Today, if a salesperson has time between appointments, in most cases, they are cold calling because they do not have visibility to their customer base. With this integration into BOSS, the same salesperson will be able to search their existing customer base in a given geographic area and take the opportunity to thank their customers for their business and inquire what other services we could provide.
If a customer now just has standard pest control, there could be a need for other services. This will be a much more efficient process that will enable the sales force to take their excellent results to the next level. On the cost and customer service side, the possibility exists for improving administrative efficiency in some branches from an hours worked perspective. Additionally, we think that there is the opportunity to focus our branch administrative team's attention more on the customer service and the customer experience, rather than just the historical clerical items. Another of our benefits is that BOSS is enabling us to take our first step in routing and routing the technicians more efficiently. On previous calls, we've mentioned the virtual route management, or VRM, and how this can help with our routing capabilities once implemented.
For example, in a few of our Midwest regions, we've started the rollout, and the limited results have been extremely positive. Our first step is simply taking the work that is scheduled for the day and routing that in the most efficient or optimized way, keeping in mind all customer-specific needs and working around those. Based on our initial branch rollouts, we have the possibility of reducing miles by 10%-15%, which frees up valuable time for our technicians to ensure they're better meeting service commitments and providing more time to start new customer business, which in the springtime and summer is at a premium. None of these sales improvements, productivity gains, routing enhancements, or most importantly, customer experience enhancements, could be possible without this successful rollout.
We are on pace for the 200-300 basis points improvement with the execution of these revenue, cost, and customer improvements and excited about the impact BOSS will have on our business. In total, gross margin for the quarter improved 49.6% versus 49.2% in the prior year. The margin for the quarter benefited from lower personnel-related expenses as group insurance premium claims are down year-over-year, lower fleet costs due to a decrease in fuel price, and service salaries as a percent of revenue with better productivity. The margin decreases were partially offset by increased materials and supply usage as we enter our busy season. Depreciation and amortization expense for the first quarter increased 8%, totaling $11.6 million. Depreciation was $5.4 million, increasing $803,000, with most of that increase related to our new BOSS system.
Amortization was $6.3 million, which increased $656,000 due to the addition of Critter Control customer contracts that will be amortized over seven years. Sales, general, and administrative expenses for the quarter increased $6.7 million or 6.3% but slightly improved to last year at 31.8% of revenues. A reduction in the area of bad debt and ongoing cost containment programs were offset by higher seasonal sales salaries needed for the increased volumes and increased administrative salaries due to the accelerated BOSS implementation. Including our accelerated BOSS expense, income before income tax was up 9.8% in the quarter, and net income was up 5.4% when comparing to the favorable tax rate in 2015. Our balance sheet remains strong as we continue to look for more opportunities to reinvest in our business through technology and acquisition. For the quarter, we spent over $21 million on acquisitions.
With the addition of select Critter Control franchises and other pest control opportunities, our pipeline for M&A is full for the remainder of 2016. We had $9 million of capital expenditures for the quarter and had $131 million in cash along with no debt. Last night, the board of directors declared a regular cash dividend of $0.10 per share that will be paid on June 10, 2016 stockholders of record at the close of business May 10, 2016. The cash dividend is a 25% increase over the prior year's dividend. This marks the 14th consecutive year the board has increased our dividend by 12% or greater. We're off to an incredible start to the year and look forward to solidifying our technology improvements to support an improved customer experience, coupled with productivity enhancements in the coming quarters. I will now turn the call back to Gary.
Thank you, Eddie. We're now ready to open the call for any questions that you might have.
Thank you. If you would like to ask your question, you may do so by pressing star and then one on your touch-tone telephone. If your question has been answered or you wish to be removed from the queue, simply press the pound key. Again, that is star and one to ask your question. We will take our first question from Joe Box with KeyBanc Capital Markets. Please go ahead. Your line is open.
Hey, good morning, everyone.
Hey, good morning, Joe.
In 4Q, you guys actually quantified what the BOSS impact was for the year. I think you said it was a $0.05 drag on 2015. I apologize if I missed it in the quarter, but can you maybe just quantify what the BOSS implementation was, just so we can get a sense of where it is once it abates post-3Q?
For the quarter, with the implementation costs. If you're asking about the part that's going to go away, the implementation cost was a little bit less than $0.01. If you remember back on the Q4 call, we talked about what we felt like the impact would be for 2016 as well.
Right. It was expected to be somewhat similar.
That's right.
Okay. Then, I guess in that same vein, Eddie, you gave some nice stats on the BOSS system so far. I wanted to ask about lead conversion in particular. Are you seeing much better conversion with the ability to plan for your routes better and show up onsite in less time? How does that compare for the locations that have been converted versus the ones that haven't?
Yeah. When we take a look at customer retention, I think we look at that early and compare those results also with the improvements we've seen from the revenue gains. The pest control retention has been better pre and post. We know that by being at the right customer's location on the right day at the right time is giving that better customer experience, which for us is the most important thing that we know is going to enable us to be able to continue to retain customers at a higher rate.
And Eddie, if I could add one thing. The BOSS also gives them more time, which in addition to improving their scheduling, it also gives them an opportunity to spend more time with the customer.
Just so I'm clear, are you saying that retention is the same on the back end with existing customers and you're also comparing it to once a lead comes in, somebody needs some level of service and they're a new customer, and you're able to convert that lead into a customer. Is that commonly referred to as retention?
Joe, when I was talking about retention, I'm talking about the % of customers that stay with us on an annual basis. What we did is we compared the same branch locations in the same regions before they went on BOSS and then after they went on BOSS, and those are the improvements that I was talking about. We saw [inaudible] the retention. Customers are retaining and staying with us at a higher rate for the regions that are on BOSS.
That's what I thought. I guess I was more curious on the front end of the calculation. If you're getting 100 leads, are you now converting 80, whereas before you were converting 70? Ultimately, what I'm trying to understand is, has that resulted in a step-up in terms of the organic growth that you saw this quarter? Are there some other factors there, like weather, that might have driven that step up?
Warmer's always better for us, Joe. You know that. I mean, that's always a good thing. We're seeing things move on both sides. We're seeing improvement on the BOSS side, we're seeing improvements as far as our marketing efforts and our sales efforts are concerned as well.
Okay. I'll hop back in queue. Thank you, guys.
Thank you.
Thank you. Next, we'll move to Denny Galindo with Morgan Stanley. Please go ahead. Your line is open.
Hi there. Thanks for taking my questions. I wanted to delve in a little bit into the termite strength. It's been good for two quarters now. It looks like the Q4 strength carried into this quarter. Is anything different happening there? Are you gaining share? Is the weather just supporting that? Any other color you could give on termite would be helpful.
Yeah, Denny, termite has been stronger for the last couple of quarters. As we've talked in previous quarters, some of that we see as cyclical. A difference of a few warmer weeks in one quarter versus another quarter can help drive the numbers one way or another. Our sales group is doing a good job with that. They're continuing to grow their sales, and they're able to close at a higher rate. They've made adjustments. If you were back on the call maybe three quarters ago, two quarters ago, we made some slight adjustments to the organization of the sales group. They're doing a better job use of the technology, which is enabling us to be able to close at a better rate. HomeSuite is the technology that our sales group uses.
Really, we have a better opportunity to put a better product in front of the customer to be able to sell. Before using the technology and before using HomeSuite, it was a salesperson that was trying to verbalize what the needs were to the customer. Now with the HomeSuite, it gives a great visual of where the issues are, where the concerns are, and it's enabling our sales folks to be able to improve their closure rate with the use of the HomeSuite. It was something that we rolled out. We rolled the technology out knowing that it was a good technology and just assumed that everybody would look at it and know it's a good technology and use it. When we went back and looked, we saw that it wasn't being used at the rate that we would've anticipated.
When we went through and did some follow-up training, the sales folks clearly understand the benefits of it, and we've seen improved sales because of that.
Is there any difference in pricing or a mix of bait versus liquid or anything like that the HomeSuite is allowing you to focus on more by having that product out there?
No. HomeSuite's really not going one way or another with that. That's really just enabling us to be able to sell and then wherever we are in the country and whatever the needs are as far as the customer, that's when the decision is made as far as going one way or another as far as bait or liquid or something else like that. The use of the technology has been good. We're retaining our sales team at a higher rate than we have in previous quarters as well. I think the combination of all those things are continuing to give us good momentum when it comes to sales fees.
Okay.
Just one last thing. In last quarter, one of the things that we talked about was our ability to be able to help on the financing side for customers. We have our own in-house financing that we use just purely from a sales perspective. We're finding that the sales group is using those at a higher rate, and that's helping them to close more sales and enabling us to continue to grow at a faster pace than what we've grown at in previous quarters.
Okay. That's helpful. One other one on mosquito. I've heard some people talk about mosquito could eventually be as big as pest or termite. You mentioned the Zika, maybe you could give us some details on your mosquito offering, how it's different than competitors, how the business model's a little different. Is it more frequent visits or less frequent, that sort of thing. Any kind of outlook you have on how big you think that could get this year.
Again, it's a small base for us. It's growing rapidly. Of course, with the well-publicized media on Zika and other diseases prior to that, it's giving people a reason to call on the mosquito. It's not something that we typically would lead with. It's something that, in a lot of cases, we have existing pest control customers that would use this as another service that they would use from us. I talked about the use of the BOSS information by our sales group. That's a great example. We may have a customer that's an existing pest control customer. We call on them and make contact with them, we're able to go and sell another service at that point in time. From a frequency perspective, it's going to be, in most cases, a once every other month type of a service.
For us, it's good because if a customer has pest control, wants to add on the mosquito, that's a very good thing for us from a productivity perspective.
I'd like to add to that. Although the frequency of the number of times that you service is typically five or six, depending on the market, there is clearly a mosquito season. As wintertime approaches, late fall, you don't have mosquitoes, this is not a 12-month type of service offering. I think to your initial question about is it going to be like termite or conventional residential pest control, because of that limitation, the response to that would be no.
Okay. Thanks for taking my questions.
Great. Thank you. As a reminder, to ask your question, you can do so by pressing star and one on your touch-tone telephone. Next, we'll move to Dan Dolev with Nomura. Please go ahead. Your line is open.
Thanks for taking my question. Just to return to termites. Has the swarm picked up in the spring? It wasn't clear to me.
I don't think we used the word swarm, the springtime is definitely a better time when it comes for termites. It has been warmer in a lot of parts of the country. There's definitely demand that's out there for it. I think the other things, Dan, that we just talked about, I think are key parts of it. I think the technology piece, the HomeSuite, has made a difference. Retaining of our sales folks has made a difference. The ability to be able to finance to close those leads has also made a difference. I think when you compare those in a nice warm springtime in a lot of areas, that's what's helping us out.
Can you provide some more color on the very strong acceleration in the residential side, despite the toughening compares? What has been driving that? Thank you.
Yeah. The targeted marketing efforts have really given us a chance to be able to know exactly what markets that we want to spend our time and our energies on, and it paid back dividends for us. Again, when you combine some of those different things and what our marketing group has learned over the last probably 4-6 quarters, and they've put in place over the last 3-4 quarters, we're really seeing the fruits of that, especially on the residential side.
Is that sort of a run rate we should be thinking about?
I don't know that we can ever say exactly what it is. If you look back over the last three years, you've seen the ebbs and flows of the commercial and the residential. 2013, we saw our residential growing at a faster rate. Then in 2014, you saw it slow down some, a little bit of cyclicality. You saw commercial growing at a faster rate. In 2015, you saw it reverse again, and you saw residential growing faster. We're seeing the same thing as we move into 2016.
Got it. Thanks, guys.
Thank you. Next, we'll move to Jamie Clement with Macquarie. Please go ahead. Your line is open.
Gary, Eddie, good morning.
Good morning.
Gary, I think I might be in need of a little wildlife control industry 101, if you could indulge me. It strikes me as being an incredibly fragmented industry, perhaps other than Critter Control and Trutech. How fast has this market been growing, in your opinion, let's say over the last five or 10 years? How fast do you think you all can grow it? Last question would be, with respect to the Critter Control franchises that are still out there, when you bought Critter Control, did you acquire the right to purchase those at certain intervals at prenegotiated multiples of whatever earnings they're doing? Can you just give us a little bit more info on the marketplace?
Well, to give you a fair answer, we don't know.
Okay.
This is the first time that this opportunity has come along to these Critter Control franchises.
The franchisor that we successfully purchased never had an interest in buying franchises. His whole play was that he wanted to add franchises.
He didn't want to operate them. I think that as a result, there wasn't much of a
for these folks to sell. In the range of the acquisitions, there's some very large locations, and there's some very small ones.
Our situation is we're trying to look where we have a Trutech operation, where we have merger opportunities. That'd be the first priority.
If a big one came along and we didn't have a Trutech operation, we certainly would want to acquire that, too. We're just getting our toe in the water, so to speak.
Got it.
I think, as I told Eddie the other day, I said, "The jungle drums are beating." With us acquiring two of these, there's no doubt that the interest that's going to exist and permeate is going to be dramatic because now they have a buyer.
Right.
The other good thing about it is we're not getting into, typically, a bidding contest.
We don't have like pest control where you got three other potential buyers waiting in the wings. I don't mean to duck the questions.
Not at all.
We'll know more next quarter than we know this quarter.
Sure.
The other positive is that we know this business. This isn't like us getting into something that we're not familiar with. Trutech is the number two brand, and the number two, although they're a distant number two. We have a wonderful opportunity here, unlike anything that has come along since I've been around.
Jamie, this is Eddie.
Yeah.
just something else to add to that. The growth rate has been a good double-digit growth rate in this category for us. removal of the animal is a piece of that.
it also opens up a great opportunity for us to take a next step with our customers, and that is to do exclusion work. it's one thing to have bats in your attic and to come and have those bats that are removed. it's a whole other service for us to provide to be able to close that attic off so that bats cannot go back into that attic.
Right.
that's a whole separate service for us. the going and removing of the animal to start with opens up that opportunity for us to be able to now do that additional service.
in some of the markets you also have, depending on the pest, you also have an extended protection plan opportunity, much like the people with the washing machines and ovens and so forth. There's some pests you can exclude, there's some pests that you can't exclude.
We're able to offer an ongoing program, or at least certainly a program that could go into the second year, where they can extend their protection at a discount.
Gary, in a not a particularly big market, but kind of a mid-tier sort of market or maybe even a little bit smaller than that, who are the folks that are actually competing with you all? I've been having a problem trying to figure that out. Is it somebody calls up another local pest control operator and says, "Hey, can you fix this?" The guy just gives it a shot and quotes him a price. I'm trying to figure out who you're competing with.
Jamie, I think most of those folks are going to be the one-offs. You're going to have an individual person or two people.
In those markets. There will be some of our pest control competitors that will have those folks as well. In roughly half of our Orkin branches around the U.S., we have individuals that have the skill set to be able to do this as well.
Okay.
That's the way that we've done it. Other pest control companies have the same type of thing. They'll have hit-and-miss. They'll have somebody that has the skill set, because it is a different skill set to be able to do that.
Can I add something?
Yeah.
The other markets that don't have that expertise, Orkin expertise, then they give those leads to someone.
Now that we've got this Critter Control link, then certainly we can generate revenue as far as these Critter Control branches are concerned. There's a lot of different synergy there. I think Eddie makes a good point. The pests have been there, the critters have been there for some time.
Some of our branches have just been reluctant to get into that part of the industry.
I think that's what we learned about Trutech is when you had that specialization, it wasn't secondary with Trutech, it was primary.
We saw how well it grew, and the customer satisfaction rates were incredible. If you've got a possum in your attic, and you have a wife like mine, you're going to do something about it. So you have a highly motivated customer. It's almost like customers with fleas. They don't want to know much about what it costs. They want to know when can you do it.
Right.
That's a pretty dramatic situation as far as a motivated purchaser.
Okay. Now, Eddie, just one follow-up question to some of the ones you were taking a few minutes ago. The new financing option that you're giving to some of your new termite customers. Clearly, it's been popular, it sounds like. Roughly what % of new termite customers are opting for financing? I don't need an exact number, but just sort of rough ballpark.
10%-20%.
Okay. I just want to make sure I'm clear on the accounting. For a customer that chooses financing, you guys obviously incur the cost. You book the revenue as well, I would assume, or are you booking the revenue over the payment period?
We are booking the revenue when the job is completed.
Okay.
Let me just make sure I'm clarifying this on this piece. The only reason we have this in place is to help with the sales process.
To give that option for that.
Yep.
What we have in place, well, basically a 90-day same as cash for those.
qualify for that to be able to help with getting that sale closed.
This is a piece that has helped us over the last probably three quarters, we've moved that in the right direction to be able to help like that.
Okay. Thank you very much, as always, for your time.
Thank you.
Thank you. Next, we'll move to Joan Tong with Sidoti & Company. Please go ahead, your line is open.
Hey, Gary and Eddie. How are you guys?
Hey, good. Good morning.
Very good. Questions regarding, again, going back to the BOSS system, I just want to make sure I get it right. The spending on the system this quarter compared to the same quarter last year, was that an increase or it's about the same?
Joan, it was an increase. Our implementation expenses were much higher. We're implementing now our Pacific Division, so West Coast, California, Hawaii, all those, higher travel expenses, higher implementation costs. Again, we are doing it at a faster pace. We've increased the number that we are implementing at the same time, so the implementation cost has been higher.
Okay. The implementation cost for this quarter is higher than the same quarter last year. I think you mentioned about $0.01. Am I correct?
That's correct.
Okay, got it. I see. Now it's 80% of the branches or the Orkin branches is implemented with BOSS. I'm just wondering for this quarter, did you actually, the margin expansion that we were seeing, the 40 basis point expansion, would you characterize that you actually have some sort of benefits or quantify what type of benefits you actually get from BOSS, like for this quarter?
We're going to have some small benefits, I think, that we will see. We talked about a few of the things that we've recognized as far as improvements before and post-BOSS implementation, the reduction of overtime. We're keeping customers at a better rate. Our stops per mile have improved, which Of course, would mean less gas, less fuel for it and different things like that. I think there's a sprinkling of what we're seeing as far as some of the benefits. Again, we have a very small percent of our total branches and regions that we've rolled out that are now moving to the point of being mature. As we move through this next two quarters is when we will start seeing more of those becoming mature, and we'll see more of an impact, we think, on that margin at that point in time.
Right. You mentioned that by the end of the third quarter, we're going to see that everything's said and done, it's 100% implemented on all components. We should be able to see some sort of spending to etch down a little bit. Is it the right way to think about it? Maybe in the fourth quarter, we can see spending come down slightly?
Yes. Based on everything that we know right now, the implementation costs will be reduced or eliminated at that point in time. Of course, depreciation, once we're fully rolled out, will be slightly higher than where we are right now. We haven't finalized what our next steps are going to be with the system related to any of our independent brands.
We're still assessing what, if anything, that we're going to do with that. Once we get to a point of making that final decision, we'll communicate that as well. We're basically going through and taking a look to see from a return perspective, does it make sense to just spend the additional dollars to make adjustments to be able to implement it with the other independent brands. We're going through that assessment. At this point in time, we've not made it a final decision on what we're going to do with that.
Right. In terms of routing and scheduling, you mentioned there the plain vanilla routing and scheduling module, and then maybe a more robust system or module later on. Is this still in the works, or you guys are pretty happy about what you have right now, and you just kind of want to see how it goes before you move on to the next level?
Yeah. The more robust model is absolutely still on the table. However, we are very happy with the opportunities that we are going to have with the virtual route management. We know that we're going to be spending the next 2 quarters getting that rolled out, getting people trained, getting our measurements in place to be able to see it. I got to say, it's been extremely well received by the branch management, the branch technicians. Having the flexibility of being able to spend more time with the customers, having the ability to be able to ensure that the technician's not having to change their appointments with existing customers because the days that are planned out is being received extremely well.
We're going to move forward with maximizing our opportunities with the virtual route management, while in the background, we're still looking at the more robust option as we move forward in time.
Okay, great. Thank you. Let's move on to HomeTeam. I think, Gary, you mentioned a couple of things about HomeTeam. I'm just wondering how fast this HomeTeam is growing right now and the profitability of that particular division. With housing slow down a little bit, housing start slow down a little bit in the first quarter, just want to see if there's any impact on HomeTeam, especially on the installation side. Thank you.
Yeah, Joan, all of the categories you just mentioned, we're not seeing any impact as of right now with anything housing related. Their growth rates on the top line, the bottom line, as well as the new installs are all moving forward very well. They're moving forward in the low to mid teens. We're continuing to see good improvements with HomeTeam.
I have a final question regarding competition. Obviously, one of your largest share competitors, foreign competitors, have expanded footprints in the U.S., and it's the second quarter into it. I'm just wondering, is there any change in competitive landscape? Have you seen them being a little bit more aggressive in terms of pricing?
I don't know that we've really seen that. Our pricing for Q1 was strong across all of the service lines. It was one of the pieces that our sales group was able to be very successful with. I think the thing to remember when it comes to the other competitors that were out there is, before they moved to the new company that they're with now, we still competed against them before that. We're still competing just like we did with them before. We really don't see any issues from a pricing perspective there. We've been very pleased with how that's helped us with our overall sales growth.
Thank you, guys.
Thank you. It appears we have no further questions at this time.
Okay. That's it. No more questions.
Okay. I'd like to thank you for joining us today. Eddie and I look forward to the next quarter, we'll continue to work hard to grow and improve our business. I would suspect that we'll know more about BOSS with another quarter under our belt. Thanks again.
Thank you. This does conclude today's conference. You may disconnect and have a great day.