Good morning, everyone. Welcome to the Rollins, Inc. second quarter 2015 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'll be conducting a question-and-answer session, and instructions will be given at that time. If you should require assistance at any time, please press star followed by zero on your touch-tone phone, and an operator will assist you. 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. If anyone is missing a copy and would like to receive one, please contact our office at 212-827-3746. 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 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. Then we'll open up the line for your questions. Gary, would you like to begin?
Yes. Thank you, Marilynn. Good morning. We appreciate all of you joining us for our second quarter 2015 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 this call, excluding historical facts, are subject to a number of risks and uncertainties. Actual risks may differ materially from any statement we make today. Please refer to today's press release and our SEC filing, 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, pardon me for being repetitive, but we're 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 grew 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 of this year, our growth was even greater. There's no question that bed bugs continue to be a major pest worldwide.
Recently, I was referred to a book that was written in 1932, where the author cited numerous fears in the Austro-Hungarian Empire, where he said the civilized Austrian was menaced there by bears and wolves and even more dreadful monsters such as lice and bed bugs. 8-plus decades later, that same fear remains. Most recently, it has been fueled by articles in the press, such as the one that states that bed bugs could spread the deadly heart-damaging Chagas disease. The consensus among researchers is that it's very unlikely that bed bugs will be responsible for transmitting serious diseases to humans. However, the reality is, according to information shared at the summit, that social and psychological issues arise when people experience bed bugs at home. Compounding this problem, unfortunately, doctors can't tell the difference between a mosquito bite and a bed bug bite.
Given these dynamics, among others, we expect our bed bug business, along with our mosquito business, to experience continued growth. HomeTeam also enjoyed very good growth in the quarter. With dollars and installs up 26% and revenues from new customers, those who have activated their systems, up 21%. As HomeTeam continues to grow with new customers, they're also finding ways to become more efficient. 3 years ago, HomeTeam introduced their PestPac customer portal, which customers can utilize to prepay or autopay for their services. As of June 30th, over 40% of all HomeTeam customers were on some type of prepay or autopay program. With these payments hitting the bank two to three days faster than by mail and no debit entry is required by our employees, HomeTeam's receivables have improved significantly.
As most of you are aware, we are continually investing in our business to ensure we remain the world's largest and best pest control company. As noted in the past, our marketing efforts play an important role in helping us to achieve and attract the most desirable customers. Last year, you may recall, among other marketing initiatives, we gave our website a facelift. Our objective was to better educate consumers while demonstrating Orkin's outstanding ability to handle all types of pest and pest control-related problems. We also began exploring opportunities to expand our presence with a different audience via YouTube, with a goal of gaining views and engagement and driving consumers to our website. Based on the success achieved from this outreach, we have upped our game, so to speak.
This year, we have a series of how-to videos entitled "At Home with the Orkin Man." This can be found on YouTube's playlist. To give you an idea of the market potential these present, searches related to how-tos on YouTube are growing 70% year-over-year, and more than 100 million hours of how-to content has been watched in North America alone as of June this year. Nearly one in three millennials say that they have purchased a product as a result of watching a how-to video, and 91% of smartphone users turn to their devices for ideas while completing a task. I'm guessing that most of you on the call at one time or another may have been interested in learning about one of these video topics.
How to protect your home from rats, how to remove a wasp nest, how to remove ticks, how to get rid of mosquitoes, how to identify bedbugs, or how to inspect for termites. These subjects were selected based on our research to align with high-search-volume do-it-yourself. This is our effort to help people with their pest control problems while making Orkin readily available should they decide to utilize an expert. We're also very excited about this campaign and believe it will not only create goodwill for our Orkin brand, but also, as I mentioned, to help create consideration for Orkin should the viewer seek an alternative. These how-to videos will also help support our position as the authority in pest control. One of the biggest components in making Rollins what it is, has been, and will continue to be in the future, our company's culture.
We know it's a word that's tossed around quite a bit these days and can be defined as a blend of values, beliefs, priorities, and commitments that companies develop over time. Here, the cornerstone of our culture, and it's ingrained in our mission statement, is to be the world's best service company. We're committed to that objective and will always be driven in that regard. Last year, we concluded a culture survey of approximately 3,000 long-term field employees or culture keepers, as we've defined them. They know our company well and are well-qualified to provide their views about Rollins' culture. We then compared these results with the results of a separate survey of our company's leadership and found incredible alignment. This alignment, when asked what was important to the company from top to bottom, speaks volumes to how integrated, cohesive, and resilient our culture is.
We felt that that was pretty amazing when you consider our size and geographic reach. Another important part of our culture is our dedication to continuous improvement. As we've discussed previously, we're always looking to improve our service to the benefit of our customers, as well as to improve our operating efficiencies. To that end, we routinely dedicate resources to study and identify opportunities to accelerate our growth and profitability. Later this year, we look forward to sharing with you more information on some of these initiatives that are directed to improve our company. Following 10 years in the making, on June 4th, we had the grand opening of the Rollins Heritage Center here in Atlanta.
A dream of ours, and certainly one on my bucket list, was to have a place our employees could be proud of. A facility that would house all the important documents and memorabilia that speak to Rollins, Inc.'s history of over 100 years collectively. Among the many documents and memorabilia are newspaper clippings from old Orkin advertisements from the '40s, letters from satisfied customers dating back to the 1900s, the last Ford Ranger truck off the production line, which is a gift from Ford Motor Company, and also displayed is a replica of Orkin's official uniform from the '40s, as well as a reproduction of an Orkin wagon used to deliver services during World War II when gasoline and vehicles were rationed. I could go on and on, will just say, if you find yourself in Atlanta in the future, we would welcome you to visit our center.
You can also visit the Rollins Learning Center at the same time, as it adjoins the Heritage Center. As a service company, we must be focused on the success and well-being of our employees. As an example, we're pleased to announce that Rollins has set up a nonprofit organization to help our employees in crisis. At one time or another, countless members of our employees have been affected by natural disasters, including hurricanes, flooding, as well as other personal disasters such as losses due to fire, medical bills, or other family emergencies. Employees may also contribute to the fund. However, it's not necessary to contribute in order to apply for a grant. Our President, John Wilson, summed up our intent well saying, "This is a great way to show your support and help fellow employees.
We all care about each other, and this foundation allows us to express that." Operationally, we continue to expand our roster of international franchises. This quarter, we were pleased to have expanded our presence in China with the establishment of a new franchise in China's capital city, Beijing. Orkin now has four franchises in China and 39 in total throughout the world. It's been an exciting, busy, and rewarding first half of the year for all of us. We're all looking forward to sharing with you the next quarters, and I'd like to send a well-deserved thank you to all of our associates around the globe who make our success possible. I'll now turn the call over to Eddie for an update on our financials.
For those of you that might be tired of talking about geopolitics, the only grease 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 was asked numerous times, and I've 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.
Keys to the quarter included strong residential growth and continued cost discipline by our operations teams. 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 pest control was up an impressive 7.8%, which is the best growth since 2012. Commercial pest control up 4.6%, termite was up 3.9%. With operations in Canada and Australia, the strong dollar was once again not our friend. The currency impact caused over a 1% decline on company growth, there was no currency hedging offset. On the other side of this, our acquisitions made over the last year, Statewide and PermaTreat, and our most recent acquisition, Critter Control, contributed 1.4%. Put all of that together, it means that our business, excluding currency, excluding acquisitions, grew 5.7% versus 4.6% in Q1. As for the impressive residential pest control gains, we definitely had favorable weather in certain parts of the country compared to last year.
In addition, our sales staffing and productivity continues to be improved, and our marketing group is seeing traction, matching media delivery to customer opportunities. Our residential customer base has grown 21 consecutive quarters, that's quite an impressive growth story. Again for the quarter, residential, which makes up 41% of our revenue, grew 7.8%, excluding acquisition, 7%. Termite, that makes up 17% of our revenue, was up 3.9%, excluding acquisition, 1.5%. Commercial pest control, which is 42% of our revenue, was up 4.6%, excluding acquisition, 4%. Commercial was again heavily impacted by the weak Canadian and Australian dollars, as most of our business in these countries is commercial. If you just look at our commercial business, excluding acquisition, it grew 4%, which does include a significant lift from fumigation. Fumigation had its best growth quarter in the last five years, up 16.6%.
It would not be an earnings call without highlighting the continued growth in bed bug revenue. We enjoyed a growth of 18.5% in the second quarter, or $17 million. Again, staying with our residential growth theme, the residential bed bug business grew 27% for the quarter, which was very encouraging. For those of you that travel, make sure you check out our How to Identify Bed Bugs video on YouTube that Gary mentioned earlier. Here in Atlanta, as in much of the country, summer is in full swing. In total, leads received, leads sold, and percent of leads closed all continue to trend in the right direction, which bodes well for the future. HomeTeam had another great quarter with improvement in their Taexx tubes in the wall margin and improved pricing, which resulted in new Taexx activation dollars up 21%.
In total, gross margin for the quarter improved to 51.5% for the second quarter versus 50.6% in the prior year. The quarter benefited from improved service salary with lower fleet costs due to the drop in fuel, while maintaining good cost controls across most expense categories, including materials and supplies. Depreciation and amortization for the second quarter increased $637,000, totaling $11.2 million. Depreciation was $4.8 million, increasing $1 million, with most of that increase related to our new branch BOSS operating system. Amortization of intangibles was $6.5 million, which decreased nearly $365,000, as some of the older 8 to 10-year-old acquisitions have become fully amortized. For the full year, amortization of intangibles, which is typically from the value assigned to acquired customer contracts, will represent a significant after-tax non-cash charge of approximately $0.07-$0.08 this year. As for BOSS, the deployment continues positively forward.
At the end of the quarter, we were 38% deployed for the Orkin brand. With pest business ramping up in the summer, by design, we are deploying at a slower rate until the fall. On a recent field visit, I was able to see the latest system release, a service manager check-in dashboard. This dashboard will give real-time online display of all service technician status and progress on their scheduled services throughout the day. When we have the opportunity for a new customer same-day start, we're allowed better efficiency in assigning the sale to the appropriate technician. Sales, general, and administrative expense for the second quarter increased $7.9 million or 7.1% to 30.2% of revenue, increasing from 30% for the second quarter last year.
The increase is due to higher sales salaries, which were driven by increased sales related to payroll expense due to acquisitions such as PermaTreat and professional fees related to procurement and acquisitions. Income before income tax was up 10.1% in the quarter. We had a few minor one-time tax items that brought our tax rate down to 37.7%. We expect the tax rate to return to 38% next quarter. All of this resulted in a net income that was up 10.3%. Our balance sheet remains strong as we continue to look for more opportunities to reinvest in our business. Year to date, we've spent over $30 million on acquisitions and continue to look for opportunities in the pest and wildlife areas. We had $18 million of capital expenditures and had $109.7 million in cash along with no debt.
With my first three months in the job under my belt, I'm more encouraged than ever on the strength of Rollins and our business model and the management team as we continue to achieve our growth and profitability. During my visits over the past months, I've been asked about my vision for the future of the company, and briefly, here are a few of my thoughts. First and foremost, don't mess with what is working. We have a great balance of customer interaction and efficiency. Ensuring the customer has a great experience is a key to the industry-leading retention rates. This is constantly in our sights. Second, related to the first, and based on my prior work experience, there is opportunity in the area of customer routing and scheduling.
We want to find the right way to continue to enhance the customer experience by being at the right customer home or business at the right time always. Lastly would be opportunity outside the U.S. Our international operations and international franchisees are doing a tremendous job. I had a chance to meet with some of our international franchisees a few weeks ago, and they are very hungry to grow, and by country, have great plans to do so. As I wrap up, I would like to take a quick moment to thank all of those great individuals that have helped me to transition into this new role. From our Rollins operations groups, to the non-operating support groups, to the business associates, which include investors and analysts that have all stepped forward to lend their support, I truly say thank you.
I will now turn the call back over to Gary.
Thank you, Eddie. Well, we're ready now to open the call for any questions that you might have.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypads. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that's star one, if you'd like to ask a question. We'll take our first question from Joe Box with KeyBank Capital Markets.
Hey, good morning, guys.
Good morning, Joe.
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're in line with the current growth rates. I think we've seen growth from Q1 to Q2 across all of the different products. I think we've seen similar improvements from previous quarters for all three of the categories.
Within leads sold and leads generated?
Right.
Okay.
Right.
Got you.
Yeah. I'm talking about for all three of those categories.
Okay, perfect. Then you both alluded to sales and productivity improvement. Do you guys have a sense of what portion of revenue growth that you're seeing tends to be more market share gain-oriented versus just end market growth in pest control?
Well, we think that we're growing faster than the industry. There's not a lot of market data in our industry that would be current or quarterly. In looking at other businesses through our acquisition activities, attending these summits, reading the trade publications, we believe that we're growing faster in all of the elements. We think that we've made investments that other people or other companies are really not have the same opportunity in doing, and that's had a lot to do with it. As I mentioned earlier, we're just not happy with where we are. We want to do better. We just keep pushing in every direction or every way that we know to.
Yeah, Joe, 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 Google Search under the pest control topic, then look to see what % of that that we win, and we feel to Gary's suggestion, that we're winning more of those than potentially the others that are out there.
I think that this is important because we really need to know is our internet work contributing positively, and is our advertising contributing positively. One of the great things that the 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, Mother Nature, we think, is making a contribution. You got to be careful that you're not giving yourself too much credit. In our analysis, we are growing faster than that barometer.
Right. Okay. I appreciate that color. Last one for me. 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 maybe any targets that you're willing to put out?
Yeah. Joe, I don't think we're 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, had them in town and had a chance to meet with them. They're very happy with the way that the integration is going. I'm not sure that you're ever going to have every franchisee that's always going to be happy. 17 of the 18 that were in the room were extremely positive. They're happy with what they're getting from a marketing support. They're happy with what they're getting from the back office support that we've been able to give them. That's a little bit of the synergy that I think that we're going to be able to see in the shorter term is going to be that.
We'll continue to spend time with them, I think that's going to help us as we're moving forward and as we kind of develop our overall wildlife strategy.
Joe, I think it's 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. 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. We're 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?
Yeah, we're sharing leads. As you know, we're in a lot of markets. Orkin's in a lot of markets that Trutech's not in. I think that's one of the big benefits that this acquisition is providing these franchisees. Yes, we're providing those leads, and I think that fosters a sense of cooperation, and they're in a position really to help Orkin with leads because they're not taking care of all the pest control or bed bugs, and there's many areas in pest control that they don't really address.
Great. Thanks for the color.
Next, we'll go to Dan Dolev with Jefferies.
Hi, thanks for taking my question. Two questions, one on revenue and one on long-term opportunities. On the residential side, seems like a very nice acceleration. Is 7% sort of the new run rate? If yes, why?
Yeah. Dan, this is Eddie. I'm not sure if that's a 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 feels 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. I'm not sure if we know what that new run rate is going to be. The weather was good around most of the country, as we know. 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. What happened in termite? 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 an 8% growth, which was a very positive number, and if you look back again over the previous years, and you kind of look at the two quarters together, you kind of see numbers that are in line or maybe even slightly better than what we've seen in the last couple of years. We could've had the end of March be a little bit stronger, whereas in previous years, those last couple of weeks of March could've pushed into April and made a difference. I think if you take a look at the first quarter and you move into the second, you'll see numbers that are relatively in line with what we've seen.
Okay. One more quick one. Any color on this year's price increase? You usually take pricing.
Are you just looking for color on it?
Yeah, some color on what is the impact, what's going on with the price increases this year?
Yeah. 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've seen in the past. The ZIP+4 continues to give us opportunity to make sure that we are selling and sticking in the right areas. Our analytics group that we've 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 the ZIP+4 perspective. That's where we've seen improvements.
Got it. All right, I'll get back in the queue.
Thank you.
I have more questions, but I can ask later. Thank you.
Thank you.
Thanks.
Next, we'll go to Jamie Clement with Macquarie.
Gary, Eddie, good morning.
Good morning.
Good morning.
Couple of random questions. Obviously, the 7% number in residential was the number that most got 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 things that kind of popped out on the page that impressed you?
Well, as I told you on previous calls, I hate to talk about weather because we can't control it. We did have good weather.
We're continuing to really work hard, as I shared earlier, with 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. 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 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. There's just a lot of components. It's really hard to quantify that this one's 50% or this one's 25%.
No, 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, if any, really at all, on the installation of the Taexx tubes into the wall. 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, yeah. I think we've increased it. 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 that 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. We've also identified some contractors that we really have deemed not to be profitable. I think that we've improved our margins in that regard.
Okay
I think the builders do see value. 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. 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 and 850, the price per gallon's going to be a little bit more than that.
Okay. Got it.
Okay.
Many thanks.
Yep.
Thank you.
Yep. Thank you.
Once again, that's star one to ask a question. We'll next go to Joan Tong with Wedbush Securities & Co.
Hi, Gary and Eddie. How are you?
Good. How are you doing?
Good. Good morning, Joan.
Good morning. A couple of questions here. Obviously, the residential segment is very, very strong. I'm just wondering, with the upside surprise on the top line, we would have seen a better margin expansion or carry forward down to the bottom line, we haven't seen that. Last quarter, 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?
Yeah, Joan. We had a little bit of a one-time expense. 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. Anything else that we had were really just one-time events.
Okay. The lower gas prices benefit on a year-over-year comparison, how much is the benefit for the quarter?
The benefit for the quarter for fuel will be somewhere around two and a half million.
Okay. Thank you. Let's talk about your commercial business. It was a little bit light last quarter, still very good results. You're talking about 4% growth in the first quarter. It seems like you stepped up a little bit with growth at around 6% in the second quarter. We know that one of your major competitors keeps talking about maybe putting more efforts in the commercial business. Have you seen any change in competitive landscape and definitely the uptick of this quarter showing that there's some improvement there. 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 % on revenue, was mostly in the commercial area. Most of our business that we have in Canada and Australia is commercial business. We feel as though the numbers could have even been a little bit better. We feel as though the use of the Biz Suite by our national accounts group is helping to be able to maybe differentiate a little bit from a sales perspective, and they're able to use their information that they have to be able to lock customers in as we're growing on the commercial side.
I think it's kind of the combination of those two things that are helping us continue to move the commercial forward.
Any change in competitive landscape?
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. If you 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're running into Rentokil or Ecolab or so forth. It's kind of hard to really weigh that. 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. Those things are kind of lumpy. It takes quite a few months to make progress in that area because of the sales cycle. I don't hear our people really talking about one or two specific competitors that's really giving them a hard time.
That's good. Thanks for the update. Regarding HomeTeam, I believe Jamie Clement asked the questions regarding HomeTeam, the profitability level. Have we seen any improvement? I'm just wondering, is the HomeTeam segment profitability actually on par, in line with the Residential Segment as a whole?
Joan, I don't know if we can have a direct correlation with Residential and Home. HomeTeam's profitability continues to move forward. Gary talked a little bit about the builder side. We have the consumer side that's continuing to grow. The new activations increased 21% year-over-year. When we take that growth, and now we have improved and enhanced profitability and growth on the revenue side with the builders, HomeTeam continues to perform really well.
We're continuing to benefit from some of the reorganization that we had at midyear.
That's right.
Where we had some consolidation and improved the efficiency of our field operation.
Okay. Finally, can you update on your M&A pipeline? Going forward, would that be more domestic focus, or you still maybe trying to add on to your Australian platform that you have mentioned in the past is one of the very attractive area. Given the local economy there with the oil prices come down, it's not exactly maybe the right time to put more resources in that space. Maybe your M&A effort would be more refocused back to the domestic market. Thank you.
Joan, I don't know that we're necessarily focused in one area or another. I think we're looking for the best opportunity wherever it is, I don't think we would be taking anybody out of the pipeline as far as any of the countries that we're in. 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. Of course, as we've talked about on previous calls, there are many, many opportunities, obviously, here in the U.S. that we'll continue to look at. We're looking for the right company that's at the right price. Unfortunately for us, some of our competitors are paying dollars that are way above market rates.
We want to continue to be involved with opportunities, I think we're going to make sure that we stay logical as far as what we're 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're paying the right amount so that we can make sure that we're either accretive or we're able to improve in a short term with any sort of acquisition.
Okay, thank you.
Thank you.
As a final reminder, that's star one if you'd like to ask a question. We'll go back to Dan Dolev with Jefferies.
Hey, thanks. Two more questions. You mentioned that you're not seeing your competitors so much, or your big competitors, you're more seeing the local guys. 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? If not, I guess, why not?
Yeah, Dan, we're really about the recurring revenue. 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 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're out trying to chase. 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're able to keep the revenue stream moving forward. We would not turn away from an opportunity of a one-time, but it's not something that we're out seeking. We're out seeking customers to be able to get them in for the long term.
Got it. One last question. In your remarks, Eddie, you mentioned the three things that you're looking forward to, your CFO vision, so to say, and one of them was the opportunity to improve routing and scheduling. I know when you guys are talking usually about 2 to 300 basis points 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 that would look like. My intuition would be that there's probably something else that's there. I just don't know what else that that would look like at this point. I've 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. I think getting more involved with that is going to help me to be able to answer that question better in coming quarters. BOSS in the short term is going to help us incrementally, and then we'll 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 I don't think Einstein could figure out really when you took all of those individual components to exactly what the outcome's going to be. 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's going to be.
Understood. Very helpful. Thank you.
Thank you.
Thanks, Dan.
It looks like we have no further questions at this time. I'd like to turn it back over to management for any additional or closing remarks.
Okay. Thank you for joining us today. We appreciate it. Eddie and I look forward to next quarter. We'll continue to work hard to grow and improve our business. Thanks again.
That does conclude today's call. We thank everyone again