Q4 2019 Earnings Call
Rollins Inc. fourth quarter 2019 earnings conference call.
This conference is being recorded at this time, all participants are going to listen only mode. Later, we'll be conducting a question and answer session and instructions will be given at that time. If he should require assistance at any time. Please press star falls out this year on year Touchtone phone in the operator bullshit I would now.
To introduce your host for today's call Marilynn, Meek me Sneaky maybe get.
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Your job your dog feel bad Dot com and a replay will be available for 90 days on the line with me today, and presenting or Gary Raws, Rollins, Vice Chairman and Chief Executive Officer, John Wilson, Rollins, President and Chief operating Officer, and Eddie Northen Senior Vice President Chief Financial Officer.
Sure and Treasurer management will make some opening remarks and then we'll open the line for your questions. Gary would you like to began.
Yes, Thank you and good morning.
We appreciate you joining us for our fourth quarter 2019 conference call.
He will read our forward looking statement and disclaimer and 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 had been made on this call. Excluding historical facts are subject to a number of risks and uncertainties.
Actual results may differ materially from any statement, we make today.
Please refer to today's press release and are actually filings, including the risk factor section of our Form 10-K for the year ended December 31st 2018 for more information and the risk factors that could cause actual results to differ.
Thank you Andy.
Revenues for the fourth quarter grew 13.8% to 506 Megan.
Her to 444.6 million for the same quarter in 2018.
Net income was approximately 15.8 million or 16 cents per diluted share compared to 51 million.
Or 16 cents per diluted share.
The fourth quarter last year.
Revenues for the first full year increased 10.6%.
And to be in 15 million.
Fair to 1.8 to 2 billion for 2018.
I'm pleased that we broke the $2 billion milestones.
Net income for the full year was 203.3 million with earnings per share.
62 cents. This compares to net income of 231.7 million.
71 cents per diluted share last year.
Net income this year was negatively impacted by 50 million onetime charge for closing down our pension plan.
And then casualty reserve increase anyone address these charges further in a few minutes.
We continue to experience good solid growth and all of our business lines for the core was residential up 16.5%.
Commercial excluding fumigation rose 9.8%.
And termite and ancillary services grew 16.1 person.
During the fourth quarter a question that we heard on regular basis from investors was what's your exposure to termite damage claims.
That's just not be a good time to provide some history in background on our termite claims and the service initiatives implemented.
Over many years of trading and protecting structures.
Termite infestations and damage.
His background chlordane was used as a pesticide any United States from 1948 the 1988.
40 years.
Bonus numerous uses chlordane was a very effective term I decide to control against termite infestations and homes and others trucks.
In fact from 1983 to 1988 corridor and use was narrowed to only termite charming excuse me only controlled termites.
And 1988, all approved uses of chlordane any United States were cancelled.
Working that stopped treating for coordinating with a year before.
It's noteworthy that prior to this action our company negotiated an agreement between the Velsicol chemical company the manufacturer.
And the P.A.
Corvel, so called a volunteer at least stop manufacturing core thing and that it must be bad.
We both agree.
This helped working in the industry to avoid potential lawsuit stampede like the asbestos situation.
Oh, the mid Ninetys the state of the FICO score named termite World was daunting.
The replacement chemicals didn't work as well as Chlorinate.
However, the new term I decided Ben so positively promoted by the manufacturers and endorsed by the P.A. failed miserably.
Just say your happened within a very short period of time.
Termites return to our customers home as well as other pest control companies customers' homes.
Engines.
Orkin, which at one time led the industry with his lifetime repair.
Guarantees was suddenly faced with a major business challenge.
Millions of dollars and repair cost now appearing due to termite damage along with corresponding retreatment obligations.
1996, Orkin took a very important step and began a proactive retreatment program.
With a better new product targeting all the homes that appraisals previously been treated with the ineffective termite product.
Simply we wanted to curtail the termite damage before to occur and provide our customers and protection they deserve.
We put our customers first into cost of more than $100 million.
A lifetime guarantees will replace the three to five retreatment guarantees depending on the area of country and the type of home construction.
Our 1996 PML resulted.
Reflecting orkins retreatment efforts and Orkins revenues increased 1%.
Operating income and profit margins decreased 50%.
The <expletive> .
Decrease in termite revenues termite claims and Retreatment expense negatively impact our French financial results.
Incidentally were all proud to work for a company that made this forward looking investment to protect our customers our brand and reputation.
1997, the following year, we set up a 117 million dollar Reserve fund.
Cover the escalating cost interline claims.
We knew we had to make these extra efforts and made a conscious decision to provide free retreatments in probably pay for any termite damage repairs has occurred.
Well the short term costs were extremely painful.
Broke whitley protected our reputation and balance sheet.
It's turning point always cost us also caused us to make further enhancements and termite treating training.
The utilization of flow meters to measure the volume of termite aside applied.
And they use of phone is a chemical carrying agents and difficult to treat structures.
We created a national termite swarm school to service technicians intended annually before each termite treating season.
We created a termite quality audit and compliance team to visit our branches to ensure our treating specs in procedures were being fault.
We also required or managers to do a quality inspection on all completed termite treatments.
All of these actions still exist today.
I can go on and all with more than a dozen other initiatives that we took over the following years to ensure we provided the industry's best termite treatments. All of these actions have reduced our termite reserve and other route related costs tremendously.
I'll now turn the call over to John for more insight on our termite war and other areas of business.
Thank you Gary as Gary just noted by the mid Ninetys. It was clear the replacement chemicals didn't work as well as core nine in the treatment of termites.
In the three years prior to 1995, Orkins termite damage claims averaged around $3 million per year.
Over the next couple of years, the claims expense multiply them dramatic fashion.
By 1997 in for several years thereafter, termite damage claims exceeded $20 million a year.
Decisions were made by our leadership team to improve process training and treatment protocols.
These new processes were then development develop our technical services group led by industry icon, Paul Hardy and maybe many others members of our team.
This approach allowed our operations to focus on meeting all obligations to their customers.
The company wide quality assurance program work and put into place during that time concentrated solely on termite issues and helped us to get out in front of this accelerating termite issue.
We also address the for most and termite at that time, which is made recent headlines as they were already a growing concern.
In other words are called the insurance team as well as many other actions taken.
Served over time to de risk our termite services business.
As a result of these many actions and activities we've seen a steady decline in claims and retreatments from year to year.
It is easy to put your finger on the many things mentioned that we changed.
What is not so easy to put it through your own is the cultural change that had to occur when I feel teams.
It was painful it was hard and then was calling from both a financial and human capital standpoint.
And it also took a long time.
It was worth it in the long run.
In more recent years as we've continued to work on this issue we have experienced further reductions and reductions in termite damage claims.
The average amount of each claim has fallen from the high seen in the early to middle part of the two thousands for 2019 Rollins experienced historically low termite claim volumes.
And termite claims expenses were below 1% of termite revenues for the full year.
This is the direct result of the minutes quality control programs leadership initiated.
We certainly appreciate your concerns around termite damage claims and we never take anything for granted.
We take our responsibility termite customer seriously and hope that we have now given you enough information to understand our experience better.
So, let's turn to page on that topic can talk about something else for a minute.
As most of you know we got off to a slow start last year. We're certainly prepared to do everything we can't do not repeat that performance.
Pursuant to that in early January we concluded a week long reach a manager.
Ownership meeting in Atlanta.
We had over 100 of our leaders from around the world for this event.
This meeting focused on among several properties, improving our safety culture and practices.
The customer experience et cetera.
Well, maybe most important of all we were focused on lessons learned from a year ago, and what not to do to repeat those mistakes.
It is said to the best learn lessons or the hardest and that's after this last year I believe that to be true.
We came away from this meeting energize that are teams ready and up to the challenge.
Pretty darn glad to put 2019 behind them.
Thank you and I will now turn call back over to Eddie.
Thanks, John .
Before I begin my review of the financial numbers for the quarter I want to recognize the solid results that are operations produced there during the second half of the year.
After mother nature deviated from her normal path in Q1 in Q2, the weather pattern turned more normal and the results of our operations produced record revenue growth in the quarter strong double digit EBITDA growth and continued improvements in both employee and customer retention.
Typically our orkin employee retention increased 1.8 percentage points and our commercial service line improved the most of all three service lines for retention year over year.
Assistance and experience management matters.
I also halted the details that both Gary and John shared related to our termite service will put to rest any concerns that you have about the recent termite discussions in our industry.
For the quarter, we had strong revenue growth and items that impacted the quarter were rising accident and insurance expense that reduced the Q4 results by a penny.
Depreciation increase related to the final stages of the boss rollout in Canada.
And a very successful pilot of the next phase of routing and scheduling journey.
In addition to reporting our Q4 and full year numbers my focus today will be to share the non operational event that impacted our Q4 results, specifically casualty and insurance related to accidents and injuries.
Lastly, I'll give you some insight on some items that have 2020 already off to a great start.
First I'll go through the results.
Looking at the numbers the fourth quarter revenues of 506 million was an increase of 13.8% over the prior years fourth quarter revenue of 444.6 million.
Income before income taxes was 72 million for eight tenths of a percent above 2018.
Net income was 50.8 million down four tenths of a percent compared to 2018 and impacted by a higher tax rate in the quarter due to the pension adjustment in Q3.
Our GAAP earnings per share were 16 cents per diluted share and EBITDA was 97.1 million and rose 10.5% compared to 2018.
But looking at the full year 2019 numbers keep in mind that the almost $50 million pension adjustment that was made in Q3 to transition our pension off for Rollins books.
For the year, we're calling out the pension adjustment Clark acquisition expense and currency for our non-GAAP results.
For the full year revenue was 2 billion 15 billion, an increase of 10.6% over the prior years 12 month revenue of 1.8 to 2 billion.
Income before income taxes decreased 16% to 261.2 million from 310.7 million in 2018.
Net income fell 12.2% 203.3 million and earnings per share were 62 cents down 12.7% from 2018 numbers of 71 cents.
EBITDA was 349.2 million down 7.5 per cent compared to 2018.
Without the pension adjustment our non-GAAP income before income tax was up 110th of a percent to 311.1 billion compared to 310.7 million in 2018.
Our net income was down eight tenths of a percent 229.9 million an earnings per share were 70 cents per diluted share down from 71 cents per diluted share in 2018.
Adjusted EBITDA, including our Q3 pension loss was 399.1 billion up 5.8%.
Our companywide focus on personal safety since 2016 has created reductions in our casualty reserve in the last few years. However, the combination of additional Clark vehicles and properties and substantially higher premium rates experienced within the industrys caused our casualty reserve for AG.
Accidents and injuries to increase over 5% in 2019 and impacted the quarter by roughly a penny.
As judged as John shared with you earlier, we reviewed these opportunities extensively at our recent annual leadership kick off meeting and have good initiatives to reduce the [laughter].
To reduce the frequency and severity of our automotive and workers compensation claims.
As we continue to refresh our automotive fleet.
Growing percentage of our vehicles have enhanced safety features and with coupled and when coupled with our enhanced training will result in better injury and accident outcomes moving forward.
Safety is becoming an ingrained value at Rollins and we will see the benefits of this as we move forward in 2020.
We will share more of this journey in future quarters.
As we discussed last quarter, our operational efficiency and customer experience continued to improve with ongoing updates to our routing and scheduling.
Im pleased to share some details with regards to the next step in our journey.
First the beginning back in 2015, we rolled out our branch operating system for CRM called boss and in stages improve our technicians routing and scheduling.
At the time, we stated that we would see at 200 to 300 basis points margin improvement with these changes.
And as you probably know we exceeded that amount over the next several years.
We have successfully piloted our next phase of routing and scheduling which will include the level of customer loading up the pest control technicians jobs based on customer demand, but keeping in mind customer needs.
On top of the over 4 million miles that we have reduced in the last few years, we will see accelerating mileage reduction, which will equate to margin improvement of another 150 to 250 basis points over the next two to three years.
This step is phase two of a robust for phase routing and scheduling initiative that will drive improved efficiency for years to come.
Let's take a look through the Rollins revenue by service line for the fourth quarter.
Our total revenue increase of 13.8% included 8.1% from from Clark and other acquisitions and the remaining 5.7% was from pricing inorganic growth.
Total residential pest control, which made up 43% of our revenue was up 16.5% commercial pest control X fumigation, which made up 38% of our revenue was up 9.8% and termite and ancillary services, which made up approximately 19% of our revenue was up 16 point.
1%.
Again total revenue less acquisitions was up 5.7% from that residential was up 6% commercial X fumigation increased 3.6% and termite and ancillary grew by 8.7%.
There are two items that I would like to note.
First the continued growth of our mosquito program at over 30% rate has more than offset the slowdown in our onetime bed bug business and helped our residential product with continued strong growth.
And second we experienced the fastest termite and ancillary growth in the past six years.
In total gross margin reduced to 49.7% from 50.2% in the prior years quarter to quarter experienced expense increases in several categories, mostly driven by Clark and the categories of service salaries administrative salaries and personnel related for our four.
And one K. match. Additionally, insurance and claims were up substantially as discussed earlier.
Removing the impact of Clark gross margin improved to 50.6% in 2019 compared to 50.2% in 2018.
Depreciation and amortization expenses for the quarter increased $6 million to 22.6 million an increase of 35.8%.
Depreciation increased 2.7 million due to acquisitions and equipment purchases as mentioned earlier.
Participation of intangible assets increased 3.3 million due to the amortization of customer contracts from several large acquisitions.
Our depreciation in Q1 of 2020 will be slightly higher as we finalize the boss rollout in Canada and moved to the next phase of our routing and scheduling journey as discussed earlier.
Sales general and administrative expenses for the fourth quarter increased 19 million or 14% to 154.8 million were 30.6% of revenues up 110th of a percentage point from 135.8 million for 30, 430.5% of revenues for the fourth quarter 2018.
The increase in the percent of revenues is primarily due to insurance and claims and acquisitions, particularly advertising spend for Clark that was not in our 2018 number.
Before I review, our cash position I want to update the state of our current cash flow.
As I mentioned on the Q3 call we've accelerated our free cash flow by over 40 million for the year, which compares to an average of around 20 million over the past five years.
Not only do we see benefits to our cash flow related to the acquisition of Clark Pest control, but we'll also see some residual improvements from our pension transition.
As for our cash position for the period ended December 30, Onest 2019, we spent 430.6 million on acquisitions compared to 76.8 billion. The same period last year, we paid 153.8 million on dividends and had 27.1 billion of Capex, which were both flat.
2018.
We ended the period with 94.3 million in cash of which 74.1 million, it's helped our foreign subsidiaries.
Yesterday, the board of directors declared a regular cash dividend of 12 cents per share that will be paid on March since 2020 to stockholders of record at the close of business February 10th 2020.
The cash dividend is a 14.3% increase over the prior years quarterly dividends.
This marks the 18th consecutive year. The board has increased our dividend by minimum of 12%.
I'll turn the call back over to you.
Thank you Andy.
We're happy to take your questions at this time.
Thank you.
Thanks to ask a question. Please take note by pressing star one on your telephone keypad. If you are using speakerphone. Please make sure. Your mute function is turned down to like a signal to reach our equipment.
You May ask only one follow up question at a time and then you may read into it to Q again that was star one.
You can audio question.
First question comes from Miami <unk> of Jefferies.
Hi, Thanks for the time, so I think just wanted to get a sense for what the current multiples you're seeing in in the M&A market I think a larger competitor of yours is not going to doing deals for awhile and ER or at least going to be less aggressive on on a on what they're gonna be paying and I just want to see if that's.
Impacting your planning for it for 2020 and.
If multiples do remain off peak in 2020 should we expect another outsize year, maybe not a year as large as 2019, but could 2020 b.
And another above average type of your.
Yeah, It's a summary of I'll, just say that a yet I mean, there's theres no question that within the industry that the separately within the industry have a above historic rates. We did have a the largest acquisition and our company's history, which which obviously for from a multiple perspective.
Was was it a little bit higher than what we've paid historically, but but we've not deviated from the from the average acquisition that we have we've got deviated from our normal history, which has been somewhere between 1.25 and 1.75 times annual revenue.
And it really comes down to that selection of that seller.
And then making the decision on what it is that they're trying to accomplish if that sellers just trying to get the largest dollar that they can out there there are competitors in the market that are as you stated have paid higher multiples, we've been very diligent with that and I think we've made some great selection.
And John is really more involved in that so on a day to day basis and so on a few of something else you looked at it.
I don't know that I have much I would say 2019 would be really rather hard to top.
And I can only take that they'll go down from from there I don't know.
It's anybody's guess as to how much Oh, we want to maintain discipline in our approach in and and.
Then be willing to go a little extra mile what is a really solid company.
Great and then just just a quick question on your connected technology and wondering if you can give us a sense of how many of your customers are using technology or how many locations connected smart connected technology.
It is already at and I guess, where that fits into your your technology Road map overall I just didn't know how big or how fast you want it that could be longer term.
Yeah, we've been testing connected technology for several years now we have our technology or IP group as well as our technical support group.
Our constantly testing all the technology and of course is I'm sure you can assume it's changing rapidly.
We have test customers that are that are using different products. At this point in time, we're not in a position to make any sort of material change or to what we're doing today.
We feel very prepare that if and when there is an industry shift or change or customer need we're ready to be able to respond to that.
But I think at this point in time.
We were just continue and doing what we're doing from a service perspective, and we would supplement is as a broker can there any I'd like to add.
One advantage I think it we have.
As it several of our brands are using different software. So we're really in a position to monitor.
The successes in the features.
That exist and of course is always to use the best product.
We'll be converting boss and what western this next year.
At this point, it's certainly to the superior of everything that's out there, but I think it's it's worthwhile that we can watch carefully.
What other products are available.
Every time is to add to that every time, we do that it gives us ability to be able to Lincoln any connected technology.
In a more efficient manner, but I think we have some really smart people on our team that are that are looking at this both from the technology and the technical support side and I feel very confident where we are at this point.
Great. Thank you.
Our next question comes <unk>, Jamie Buckingham Research.
Hi, Good morning, gentlemen, thanks for taking my question.
Did you guys talked through although it's early and earning season. It seems like you know some of the industry's out there that advertise heavily you know and I've got sort of restaurant chains in Mike.
I have discussed with investors on their calls that you know with elections in front of us that there might be a little bit of margin pressure from increasing and increases in advertising and marketing costs I don't recall that being called out as much four years ago or is that something that you have your eyes on or you know it and did it impact Q4 years ago or can you.
Just tweaking your mix and really had it not that much of an issue.
Yeah, Kevin Smith is or is there a CMO and he has been up against this hurdle that specifically the when you're talking about with the elections, but he has been up against this hurdle with potential for rising costs in this area for the last several years seen a digital marketing we shifted to digital marketing.
Tremendously over the that now the last six years and as everyone knows the cost in those areas continue to continue to escalate, but kevin's a budget for advertising has not changed over that time period, it as far as a percent to revenue.
So he and his team have done a tremendous job just just figuring out how do we still create the number of leads that we need by the different service lines using the different opportunities that are out there and you know some of that's going to be a things like advertising a billboard some of it is going to be commercial advertising some of its going to be through digital but.
He uses that total bucket and go through and figures out a way to be able to create that demand that that we need in order to be able to grow our business and I don't see this 2020 year being any different for for the for the results that he'll be able to go through and create okay. Great. Eddie just one final thing that strong termite numbers on it.
Your report for the quarter on and obviously they've been very good for the last couple of years <unk> during the quarter and kind of bigger picture looking back over the last year or two has there been a disproportionate level of growth internationally in your termite reported segment versus domestically or they both pretty consistent.
Just thinking about you know climate differences in places like Australia that kind of thing.
Yeah, you know, we don't break things out by June by geographic areas, but I'll just say in general we've not seen any sort of specific area. That's been tremendously different weve, our folks have done a great job growing this product to across a across all of our markets.
Within within the U.S., we've done a tremendous job using our closing tools that we have our in our in house.
Financing has been a big push in a big piece of that our sales folks have done a tremendous job and you know we camped out on this for a while with Gary and John talking about the quality of the service and you know you know people talk what and when the quality of the services what it is and we have a great outcomes than we.
Get an opportunity to have word of mouth, and we get a chance to continue to cross sell no and we had the largest residential set of customers that are out there we get a chance to cross sell our pest control or our term I didnt into our pest control customers.
Thank you all very much your top as always thanks, Jim.
[noise] next question comes from Tim Mulrooney of William Blair.
Good morning.
Yep.
Gary Thank you for the great history lesson on the termite business that was very informative.
And John you know for the termite damage claims you said claims expenses were below 1% of revenue for the full year is that 1%, a total revenue or 1% termite revenue.
No, it's 1% of termite revenue.
All right I just wanted to make sure I'd, that's what I thought, but I wanted to make sure and John well I got you can you also just talk about what you plan to do differently. This year to prepare for the spring pest season, what were the primary takeaways from your recent meeting with a with business leaders or at least on that you can share.
Thats publicly.
Yeah, I think the single biggest thing would be too.
Delay our sub staffing for the seasonality of our business to more but just in time approach.
That's it that's a tricky tie wrote to walk in a tough labor market, but Ah. That's that's what our field operators are really focused on doing this year.
Okay. Thank you guys.
Next question comes from Brian Butler second.
Hi, Good morning, Thank you for taking my question.
Yeah Jeremy.
Yes, good morning.
Okay.
<unk> could you give a little bit of color or maybe on organic growth heading into 2020, I mean, it was strong in the back half of 19 is that a pay sustainable or there's some things out there that.
Put some pressure on that.
We don't know if anything right now that would put pressure on it I mean, if it's it's early in the year to be celebrating January has been a has been to a much better month than it was a year ago Ah, but you know, but you never know what mother nature is going to do as we move forward in time, you never know what storms might look like you know in in 2007.
And team we had to back to back storms, the two largest storms and are in our country's history.
That negatively impacted things. So there are a lot of variables that will come into play, but given everything that we know today, we believe that a we're off to a good start and we have no reason to believe that we won't have a really good year from an organic growth perspective.
With the growth of our mosquito product now for the third year as a as I mentioned during my prepared remarks.
We continue to see great opportunity with that particular product as a cross sell opportunity.
We talked about our termite.
Being able to grow as far as a cross sell opportunity we've been able to do that so I think there a lot of very positive things that are that are going on the pricing is still very rational and were able to see price a price increase so we feel very good about 2020 from an organic growth perspective, I think it's.
Important too.
To share that this was the most disappointing year, we've had for 22 years.
So you know we think that.
It was an anomaly I've never seen so many.
One time charges in my experience, Eddie and I noticed that and but seriously I mean.
We've learned.
From this past year I think John hit on the head I think we got too.
Ambitious too soon.
You can't make the season.
And we had some disappointments due to mother nature, but.
I'm I'm, a believer of taken on mistakes and learning from them and benefiting from them and and we had a very powerful leaders coffers and people are optimistic and along with the technology that we're and listing on we think we're going to have a good here.
Okay. That's very helpful. And then one last one on the cost you pointed out a higher cost around Clark and the service salaries that is that limited the 2019 or should we think about those costs really kind of continuing forward and.
Oh, you know into 2020.
Well the purchase a was close to me first Dan <unk> made for so it. So by May 1st will be lapping at that point in time, but it will be new until then.
Okay. Thank you.
[noise] and next question comes himself, but that's RBC capital markets.
Hey, good hey, good morning, everybody.
Just to follow just following up on that last question just to make sure I'm understanding that the insurance claims issue does that continue to be an overhang and in next year or is this kind of do you feel like you've isolated here.
Fourth quarter or does that become.
You know until you until you have a installed a new technology on the trade in the new vehicles, a better training and whatnot do you expect to see this elevated level into next year, sorry for the clarification.
So I appreciate you asking that question are we do not continue to see an issue as we move forward. We believe that a this is a little bit anomaly from the two items that I pointed out.
The industry for the first time in several years of insurance rates increased dramatically.
Some commercial some commercial groups would have strong double digit said they would talk about our increase in our casualty in total was about 5% and I think a piece of that was managing our automotive claims a year over year.
But we feel as though with the enhancements that we're gonna have from a technology perspective with the vehicles as well as the continual training that we will see a positive results that come from that when you take a look at our at our total claims in the automotive side again those are down.
So we know that that will pay dividends as we move forward in time.
Okay and is it is impossible displace out and how much that impacted gross margin in the quarter on the interest the insurance portion of the.
I don't know that number off the top of my head up I'm sure I'm sure that we have that in our.
And our breakout, but up I don't know that number off the top my head.
Okay, and then certainly it was worth a penny to us in total for our for our earnings. So he could right you'll get it kind of a rough idea from from that perspective.
Okay, and then just when you when you talked about the expected I think it was 150 to 200 basis points of.
Additional margin improvement over the next several years from some of the new initiatives and things.
I I guess is that off of a kind of the current levels that off from the pre Clark margin I'm, just I just want to make sure I understand what the baseline is.
For that compare thanks.
Well, what's what's Clark lapse will you know will have less of a have a negative comparison from that so you could really look at it from from the pre Clark levels and say this is going to enhance our overall operations as well as we're moving forward about 150 to 250 basis points.
Okay, and sorry, what was the timing on that.
Next two to three years.
The three okay. That's all I had thank you very much.
And again, if you'd like to ask questions. Please press the star keeps all other ones that we start.
One follow up question.
Morning, ethylene and Blair.
Hey, Thank you for taking my follow up question, Eddie I saw that you guys used [noise].
Cash to pay down debt, a little a little bit more in the fourth quarter can you remind me what your capital allocation plans are for 2020, a with respect to debt pay down I'm trying to get a handle on how much cash you'd have left over after that for M&A and dividends.
Well there are number one priority him and it's the fact that we have some debt right now we will not keep us out of the market.
If the right opportunity comes in and the right valuation.
We will keep that is our number one priority to to find and acquire good quality pest control companies.
If they if they come about and we will continue to use our cash to be able to move forward with that.
Number two priority, we just we just announced that we were able to increase our dividend.
And then from there we will pay down our debt. So if there are good quality opportunities that they come to market and it makes sense to us we're going to continue to move forward just like we have over the last several years.
If a that were to slow down. Some then we'll be a little bit more aggressive paying paying that down so.
That's kind of where we stand with that.
Gotcha, Thanks for the clarification.
Absolutely.
And at this time, we have no further questions this year.
Well. Thank you all for joining US today, we're very optimistic about our company's opportunities going forward.
And appreciate your interest in our company.
Look forward to updating you on our progress on our first quarter call.
Thanks again.
Thank you ladies and gentlemen, this increases teleconference. You may now disconnect.