Greetings, and welcome to Rollins, Inc.'s first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Calabrese.
Thank you, Bart. 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're 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 844-512-2921 with the passcode 13717965. 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 and presenting is Gary Rollins, Chairman and Chief Executive Officer. John Wilson, Rollins Vice Chairman. Jerry Gahlhoff, Jr., President and Chief Operating Officer. Eddie Northen, Senior Vice President, Chief Financial Officer, and Treasurer, and Julie Bimmerman, Vice President, Finance and Investor Relations.
Management will make some opening remarks, and then we'll open the line for your questions. Gary, would you like to begin?
Yes. Thank you, Joe, and good morning. We appreciate all of you joining us for our first quarter 2021 conference call. Julie will read our forward-looking statement and disclaimer, and then we'll begin.
Thank you, Gary. Our earnings release discusses our business outlook and contains certain forward-looking statements. These particular forward-looking statements, and all other statements that have been made on this call, excluding historical facts, are subject to a number of risks and uncertainties, and actual risks may differ materially from any statement we make today. Please refer to today's press release and our SEC filings, including the Risk Factors section of our Form 10-K for the year ended December 31st, 2020, for more information and the risk factors that could cause actual results to differ.
Thank you, Julie. I'd like to start by taking a moment on behalf of our board, our entire team, and myself to recognize Henry Tippie for everything he's done for our organization over the last 68 years. As many of you are aware, Mr. Tippie recently retired from our board, leaving behind an incredible legacy of leadership and service to Rollins, its employees, and customers. Henry's financial knowledge and guidance helped shape Rollins to become the world's best and largest pest control company. During his distinguished career, not only was Henry our longest-serving CFO, through a period of over 17 years, he was the architect of Rollins' purchase of Orkin in 1964. Incidentally, this is considered to be the country's first-ever leveraged buyout and was studied for years at the Harvard Business School.
Henry, along with Randall Rollins, our Chairman at the time, were the only two Rollins directors present during our initial stock exchange listing in 1968, and again on our 50th -year New York Stock Exchange Anniversary. Additionally, in recognition of his broader impact on the business world, the New York Stock Exchange inducted Henry in 2018 into their exclusive Wall of Innovators. Randall Rollins was inducted as well. Rollins would not be the company it is today without Henry's numerous contributions. On behalf of the entire Rollins family of employees, thank you, Henry. We will continue to honor your legacy and the example of hard work and dedication that you provided. I'd also like to acknowledge Lee Crump's recent retirement from Rollins as Chief Information Officer. Throughout his 12-year career with Rollins, Lee helped guide the company through several important technology advancements while building a fantastic IT team.
He selected and developed a team to not only improve the company's performance presently but also prevail well into our future. We wish Lee all the best in his retirement. He's earned it. In the end, it all comes down to the many positive contributions our employees continue to make every day. They have risen again to the occasion, going above and beyond what they've ever accomplished before. We're grateful for their extraordinary dedication and adaptability during the past year. They truly are our most valuable asset. While we faced many challenges over the past year, we continue to successfully improve our operations, and we are greatly encouraged by our first-quarter performance. I think we are benefiting from our technology investments and overall business momentum and are looking forward to another successful year. Let me now turn the call over to John.
Thank you. Good morning, everyone. As Gary mentioned, we are pleased with our first quarter results. Revenue grew 9.8% to $535.6 million, compared to $487.9 million for the same quarter in 2020. Net income rose to $92.6 million or $0.19 per diluted share, compared to $43.3 million or $0.09 per diluted share for the first quarter of last year. Eddie will review the GAAP and non-GAAP results shortly, as there was one adjustment impacting our financials. It is not just the results we are pleased with, but the trends we are seeing in the business, highlighted by strong performance in our residential and termite service lines, growing 14.9% and 12.2%, respectively. Further, our commercial business has improved every single quarter during 2020 and continued its steady progress once again this quarter, reaching 2.9% growth over the first quarter of 2020.
Next, I too would like to acknowledge the notable impact Mr. Tippie has made, not only on our company, but with me as well. I am grateful and greatly appreciative of his many years of leadership as part of our management team and as a Board Member. While it's never easy to follow in the footsteps of someone who made that type of impact, we are pleased with the distinguished executives that have agreed to join our Board of Directors over the past several months. Many of you may recall that we have enhanced an already experienced and strong board with the recent additions of Jerry Nix, Susan Bell, Patrick Gunning, and Harry Cynkus. They each bring a wealth of knowledge and diverse experience in many different areas that we believe will make us stronger as a company moving forward.
We have also recently announced the appointment of several new Committee Chairs and Committee Designations. Jerry Nix was appointed as our new Lead Director and was selected to chair our Compensation Committee, as well as chair our Nominating and Governance Committee. He is also now serving as a member on our Audit Committee and will be joining our Chairman, Gary Rollins, on our Executive Committee. Additionally, Susan Bell was selected to chair our Rollins Audit Committee and to chair our Diversity Committees. Patrick Gunning was also appointed to be a member of our Audit Committee. As Gary just mentioned, Lee Crump has contributed significantly to Rollins' success during his tenure, and we wish him the very best as he retires. Succeeding Lee as our new Chief Information Officer is Thomas Tesh.
While we have spent the last six months working to ensure a seamless transition, Thomas has been a key part of the Rollins family since 2012, previously serving as the Vice President of Information Technology. Thomas is extremely qualified, having led our technology improvement journey through several major rollouts over the years. We believe his deep experience and solid track record make him uniquely qualified for this important position. Now, let me turn the call over to Jerry, who will provide more details on our businesses.
Thanks, John, and good morning, everybody. The first -quarter business environment was extremely solid across all of our business lines, and our total revenue, less significant acquisitions, grew 7.9% over the first quarter of 2020, as both our residential and termite segments presented double-digit growth of 12.8% and 11.2%, respectively. These growth levels have exceeded anything we've recently experienced. Commercial ex-fume revenue and less significant acquisitions presented positive growth for the first time since the first quarter of 2020. This segment has enjoyed sequential improvement since last April, reaching 1.3% growth over the first quarter of 2020. Our team's continued dedication in serving our commercial customers and their recovery has been outstanding. We're pleased with the steady progress achieved over the past 12 months in this segment.
Turning to our mosquito service, as families spend more time outdoors recreationally and with the continued threat of mosquito-borne disease, we're realizing significant growth in this segment of our business. For the quarter, our mosquito revenue experienced growth of over 30%. The strength of our termite business remains solid, and we expect continued growth in the future. Looking deeper at our results, we continue to attract customers to all of our services and brands. We're particularly pleased with our international performance in the U.K. and Australia. Domestically, Northwest Exterminating, which joined the Rollins family in 2017, continues to realize strong growth in the Southeastern U.S. HomeTeam has continued their consistent high growth levels as they capitalize on a thriving residential home construction industry. Similar to last quarter, we experienced tremendous growth in wildlife service offerings through our Trutech and Critter Control brands.
Also, we continued to selectively purchase Critter Control franchises and combine them with our growing wholly-owned wildlife operations. Operationally, we remain focused on ensuring our residential and commercial customers receive the highest quality of services. As part of our approach in 2015, we began the rollout of a new branch operating system, BOSS, at our largest brand, Orkin U.S. During 2020, we successfully deployed BOSS in two additional brands, Orkin Canada and Western Pest Services. With this new system in place, we are able to add virtual route management software to improve our routing and scheduling processes. Even though we're still in the early stages, for Orkin Canada, we've achieved routing improvements of over 20% at this time. Over the next few years, we expect additional improvements as the system gains maturity within these brands.
Looking ahead, we remain committed to investing in implementing technology improvements to other brands in order to improve operational efficiencies, as well as enhance our customers' trust by continuing to deliver a worthwhile experience. Overall, we are pleased with the progress we've made during the first quarter, and as the economy continues to recover, we're encouraged about our prospects for further improvements for the rest of 2021. Now let me turn the call over to Eddie to discuss our financials.
Thank you, Jerry. I too have greatly benefited from Mr. Tippie's vast experience, wisdom, and knowledge. His guidance on cost containment, mergers and acquisitions, and managing the balance sheet have been invaluable to me. The results of this quarter are in part a testament to his steady guidance throughout his 68-year involvement with the company. For the quarter, our residential pest control, commercial pest control, termite, and ancillary service lines showed growth. Keys to the quarter included cost containment across all major categories throughout the organization, overall good weather conditions that helped with demand, and customer retention rates improving across the board. As John referenced, I will be reporting both GAAP and non-GAAP financials for the quarter, which were positively impacted by our gain on the sale of several of our Clark properties.
As a reminder, when we purchased the initial Clark business in 2019, we bought their pest control and distribution businesses and their owned properties. Real estate is not a core competency of ours; we decided to make the properties available to the market and secure branch leases. The first group that sold netted a $31 million gain included in our numbers this quarter. Looking at the numbers, the first quarter revenues of $535.6 million increased 9.8% over the prior year's first quarter revenue of $487.9 million. Our GAAP income before income taxes was $119.9 million, or 116.3% above 2020. Our GAAP net income was $92.6 million, up 114.1% compared to 2020. Our GAAP earnings per share were $0.19 per diluted share.
When removing the positive impact of the property gain on the sale of $31 million, our non-GAAP income before income taxes was $88.8 million compared to $55.4 million in 2020, or up 60.3%. Our non-GAAP net income was $69.8 million, up 61.2% compared to Q1 of 2020. This surge in customer demand again tested our new technology to see how we would be able to handle higher levels of both existing and new customer starts. As we move from what we would call Stage 2 - Stage 3 of our five-stage routing and scheduling transformation, our latest changes have enabled our technicians to continue to improve the efficiency of their day and give the customer a better experience. Specifically, our latest updates are helping to maximize our ability to be proactive with our customers instead of reactive.
Our operations support has added the use of a planning board, which enables them in real time to adjust for openings in the technician's schedule. If a customer needs to reschedule service for some reason and that opens up a time slot during the day, our support group is quickly able to fill that slot with a new customer or to support the changing needs of an existing customer. This enables our technicians to be more efficient and our customers to have a better experience with their service needs. These changes positively impacted our margins and our customer retention rates for the quarter. Let's take a look through the Rollins revenue by service line for the first quarter. Our total revenue increase of 9.8% included 1.9% from significant acquisitions, and the remaining 7.9% was from pricing and new customer growth.
In total, residential pest control, which made up 44% of our revenue, was up 14.9%, and commercial, excluding fumigation pest control, which made up 35% of our revenue, was up 3.6%. Termite and ancillary services, which made up approximately 20% of our revenue, were up 12.2%. As Jerry mentioned, our wildlife service continued to see strong double-digit growth. Total revenue less significant acquisitions were up 7.9%, and from that, residential was up 12.8%, commercial ex-fumigation increased 1.3%, and termite and ancillary grew by 11.2%. Our residential business continues to perform well, and our commercial pest control business has seen steady improvements each month since April of 2020. We anticipate a continued steady improvement in our commercial pest control business for the remainder of 2021. In total, gross margins increased to 51.2% from 49.5% in the prior year's quarter.
The quarter was positively impacted by lower service salary expense, as well as a lower fleet expense through continued improvements from our routing and scheduling efficiencies. Depreciation and amortization expenses for the quarter increased $2 million - $23.6 million, an increase of 9.3%. Depreciation increased $920,000 due to acquisitions and planned IT upgrades, while amortization of intangible assets increased $1.1 million due to several acquisitions, including McCall Service in December 2020. Sales , general, and administrative expenses for the first quarter increased $4.3 million, or 2.8%, to $162.2 million, or 30.3% of revenues. This was down 6.5% compared to 2020, and the quarter produced savings in administrative salaries and benefits and travel and telephone from better negotiated contracts. There's been a lot of inflation discussion related to the economy and what impact companies are seeing or will see as we move through 2021.
At this point, we do not see major inflation exposure that would materially impact our margins. As you probably know, payroll, fleet, and materials and supplies are our largest three expense areas. At this time, payroll margins are mainly improving due to enhanced technology and efficiency. Our fleet has been positively impacted by lower fuel costs and a mid-single-digit percentage reduction in our miles driven. Finally, our materials and supply costs are lower as a percentage of revenue, even with our continued PPE use by our customer-facing employees. As for our cash for the period ended March 31st, 2021, we spent $17 million on acquisitions compared to $47.6 million during the same period last year. We paid $39.4 million on dividends and had $7.8 million of CapEx, which was slightly higher compared to 2020.
We ended the period with $117.3 million in cash, of which $71.3 million is held by our foreign subsidiaries. Yesterday, the Board of Directors approved a regular cash dividend of $0.08 per share that will be paid on June 10th, 2021, to stockholders of record at the close of business on May 10th, 2021. Gary, I'll turn the call back over to you.
Thank you, Eddie. We're happy to take your questions at this time.
At this time, we'll be conducting a question and answer session. Please ask one question and one follow-up question, and then re-queue for additional questions. If you would like to ask a question now, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question today is from Tim Mulrooney of William Blair. Please proceed with your question.
Good morning, everybody.
Morning.
Morning.
You had a really strong year last year on the residential side. I think one of the big questions on everyone's mind is how that might translate to organic growth in 2021. You've got some difficult comparisons coming up over the next several quarters in residential pest, but, as I sit back, I'm thinking, then again, we're still largely in a work -from-home environment, and I have to think that a lot of the accounts that you signed up last year are probably now finally turning profitable after the third or fourth visit. Taking all that into account, I'm just curious how you're thinking about the residential side of the business as we continue to emerge from this pandemic.
Tim, this is Eddie. We're seeing continued good demand. I mentioned in my prepared remarks we did have overall good weather in the first quarter. Don't know what that'll look like as we move throughout the remainder of the year. I think one of the things that we're seeing, and I think we're all living this in real time, is we're seeing more of this hybrid work environment. It's not only people necessarily working from home; they're not only working from the office, but we're seeing more of this hybrid environment, which we believe is still going to have some upsides that are going to create that demand that we've seen as we move through 2020. You see the numbers here.
Our lead generation as we go into Q2 is still very strong for us, and that's starting to lap some of those numbers that you already talked about. I don't know that any of us know exactly what this will look like as the entire year plays out. I think there are things that are positive for us, to be able to continue to see demand as we're moving forward.
Okay. Thanks, Eddie. Appreciate those comments. Good color on the lead generation. If I could pivot, I think it was Jerry that was talking about the technology that you're implementing, BOSS or Orkin Canada. I know that's not news; I'm not sure I heard about Western before. I'm just curious if you could give us an update on maybe your technology rollout plans this year. Are there any other "specialty brands" that you're planning to roll out BOSS or VRM to? Any incremental, I guess, technology investments to keep in mind as we model out your expenses for 2021?
I'll answer and then let Jerry follow up from there. Orkin, we're a little bit further down the path as far as getting things moving more towards maturity. We've added Western to that queue. They're moving down the path of maturity. We'll take a pause at this point in time and make sure that we work through it and that we get the benefits from those two units or those two brands before we were to make a decision on anything else. We would let you know ahead of time if there was going to be anything significant to change our CapEx as a percent of revenue or anything else like that. I would say from a modeling standpoint, within the historic range of what we've seen over the last few years is what our plans are right now.
If we make a decision to change that, we'll let you know what we know about that moving forward.
One thing I'd add to that, Eddie. There are technology improvements when we buy another company because typically they don't have the best phone systems, they're not paying the best rates for communications, and there are some products available within the industry that, in some cases, are upgrades from what they currently have. Although BOSS is certainly important, it's going to be critical to our future. We are able to help these newly acquired companies with something short of BOSS. Of course, that'll be on their plate in the future. Does that help, Tim?
Very helpful. Thank you.
Yep. Thank you.
The next question is from Mario Cortellacci of Jefferies. Please proceed with your question.
Hi, everyone. Thanks for the time. I actually just wanted to ask about organic growth. You guys are using the significant acquisitions verbiage when you're referring to, I guess, organic growth now. Are you able to provide what organic growth looks like, less all acquisitions in Resi, commercial, and termite?
Yeah, thanks for that question. We didn't mean to add confusion here. This is the same way that we've measured it every quarter, probably for the last 15 years. We were just trying to give a little bit of clarity around that part. If we were to acquire, or when we acquire, a small tuck-in acquisition of, let's just say, five technicians, we acquire them on a Thursday. On a Monday, they have new uniforms, they're in new vehicles, and they're embedded into that Orkin branch. We really don't have a way for that very small piece to be able to parse that out. This is, again, the same way that we've looked at it every quarter, again, at least for the last 15 years. We really don't look at it because it's such an insignificant number from that perspective.
Just, maybe a follow-up to that. With those types of acquisitions, are those like $1 million in revenue or like $500,000? Is it that insignificant that it's not even worth mentioning?
That's absolutely correct.
Yeah. Again, we didn't mean to add confusion to this by the wording that we have here. Again, this is the same way we've looked at it throughout time, and nothing else would be a part of it that would be materially significant at all.
Okay, great. Thanks for clarifying. My follow-up would be on the labor market. You guys actually said that you're seeing labor efficiencies and you're seeing, I guess, maybe savings there or coming in better than expected. I think commentary from other companies is that they're seeing difficulty in hiring new labor, essentially competing with the government for people looking for jobs with stimulus and unemployment checks. Are you seeing anything similar to that within your new hires? We've also heard that, I guess, smaller pest companies are even offering bonuses to new hires if they sign and then they work for the first 30 days or 60 days or whatever it is; they'll get an additional bonus for staying with them. Are you doing something similar, or is that really not in the cards for you?
When we have demand levels that we've seen this quarter, and even if you go back to last quarter, that are significantly higher than what we would see on average in any times, it would always be a challenge to ensure that we're finding, hiring, and retaining the right employees. The good news for us, then I'll move to specifically your question. The good news for us is as our technology continues to mature on the routing and scheduling part, it enables us to automatically be more efficient.
During my prepared remarks, I talked about, let's just say, a technician that maybe went out with nine stops in a day, and then at 10:00 A.M. someone called and said, Well, they're not going to be available and not be home at 2:00 P.M. In our old world, that two o'clock slot basically would have gone empty, and the technician would not have had anything to do. In this new world, the branch can see that in real-time. Our call center can see that in real-time. Now when we have a new customer, we can slot a new customer into that time slot. It's enabling us to continue to be more efficient with that, which is helping with that demand, with the new customer, and also being able to move that existing customer as well.
With all that being said, with these demand levels, we are absolutely having issues being able to go through and make sure that we're finding and hiring the folks that we need to be able to keep the business moving forward. HR group and the operations groups are doing a tremendous job with that. It is a battle with the other companies that are out there that are offering some of the things that you've talked about.
This is Jerry. John and I recently had a meeting with branch managers in the field at Orkin about your number one job, or your number one priority as a branch leader, which is recruiting and building your team. We put a high emphasis That's first and foremost.
The most important thing you can do. We place a lot of emphasis and have good processes and procedures behind that. As Eddie said, it is getting tougher. We do offer referral bonuses. There are a lot of activities on friend and family referrals for new employees, things along those lines, that also incentivize people if they get referred and they stay longer. We pay referral bonuses over time and things along those lines. We take advantage of everything that we can get our hands on to help keep a competitive advantage in the search for talent.
Again, this is nothing that's new. It might be a little bit more heightened at this moment right here, but this is nothing new for us in the service industry. Just in my time period that I've been here, in six years, this is something that we're constantly focused on. John set the tone as far as the importance of that. Jerry set the tone as far as the importance of that over time. We've been able to be successful with that, and we'll find ways to continue to be successful with it as we're moving forward as well.
The other piece of the staffing situation is retention. We have created, in Orkin and in the West and in Canada, a better job. It was very frustrating for that pest control tech to have that cancellation that Eddie just described and really not begin to unravel the day's route. Now we have the tools that we can move a customer to that slot, a new customer to that slot, typically. He doesn't have or she doesn't have that frustration of, how am I going to get through? How am I going to get it done? This has created a mess that ratchets all the way down through the day, et cetera. It's going to be interesting to see what this does to retention. It has to make a better job for the pest control technician in those areas that have BOSS.
Great. Thank you so much.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question is from Michael Hoffman of Stifel. Please proceed with your question.
Thank you very much. I met Henry Tippie almost at the very beginning of my career, 33 years ago, when I was covering Rollins Environmental. He gave me sage advice then, which I have always followed in my modeling. I wish him the best of luck.
Thanks for sharing, Michael.
With regard to the conversation about growth, I get you're not doing anything different in the language of significant, but double-digit or very high single-digit organic growth in residential relative to the underlying market growth is phenomenal. What are you doing differently that you're producing that type of organic growth versus anybody else in the business? You're clearly gaining share in your well-run company. What are you doing differently, do you think, that allows you to still gain share, even if the comps have to come down because they were so strong last year? What are you doing different?
Michael, I think that's a very intuitive question to ask. Trust me, as we've gone through this time of these higher demand levels, we've continued to really drill down into that to get a better understanding . I talked again in my prepared remarks. We did have good weather ; we're up against that that created it. I think the Essential Worker status and the seriousness that we took with that, especially as the pandemic started, to me, I think, is one of the things that separated us, for sure in the service industry, and I would say separated us Pest Control Industry as well. We already had a very professional technician. As we've talked about previously, we invested in PPE very early on.
When you combine that with that trusted person that you already have, we believe that that separates us potentially from others that are out there. We've all had people in different service industries that maybe showed up to do some sort of work that looked disheveled and didn't look professional, and they could have been the best person to be able to do that job that you would hope for. The impression didn't come across positively. We believe that our technicians across the board in all of our brands come across professionally, and we believe that Essential Worker status really translated into a trusted brand. As people have felt more comfortable opening their homes over this last, I'll say, three, four, or five months, we believe that's translated more into a trusted brand, a trusted name. I'm open to them coming into my home.
It's really been a reflection of this demand that we've seen, that we've been able to go through and grow our business with. We think that those are a few things. When you couple that with these continued enhancements in the routing and scheduling and how our communication with our customers continues to improve, we believe those are things that continue to separate us from the competition that's out there, enabling us to win on high demand and to retain it at a high rate.
Okay. Fair enough. You all updated your corporate presentation recently. By the way, it was a nice change. I have to admit, it took me a moment to realize I was clicking through a book, just trying to make it rotate a different way. You put in there about a $12 billion Domestic Market, and yet the major trade associations are defining it as $9.6 billion, growing a little bit less than 3% last year. Can you bridge the gap between your market size and PCT's market size?
Michael, I'll have to get those numbers from you. I'm sure we'll get a chance to talk to you probably later today or tomorrow. Let us talk to our Marketing Group, and let's see what we can do to help out with the difference between those two.
Okay. That'd be very helpful. Thank you.
Yeah. Thanks.
There are no additional questions at this time. I would like to turn the call back to management for closing remarks.
Okay. Well, thank you for joining us today. We're optimistic about Rollins' opportunities ahead and appreciate your interest in our company. We look forward to updating you next quarter on our progress. Thanks again.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.