Q1 2025 Rollins Inc Earnings Call
Rollins: and the American Hockey Club. This is a production of the U.S. Hockey Association. No part of this recording may be reproduced without the support of the Hockey Club of America.
Thanks, Tom.
Rollins: Greetings, welcome to the Rollins Inc First Quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode.
Speaker Change: Im pleased to report Rollins delivered strong first quarter results overall, we continued to see solid growth across all major service lines with total revenue growth of nearly 10% and organic growth of seven 4%. Despite one less business day.
Speaker Change: Earlier this month, we announced our acquisition of sale of pest control.
Speaker Change: We have known and admired stainless business for a number of years in fact, Mitch Smith.
Speaker Change: He was president is a former Orkin division President So we're happy to welcome him and the rest of our sabre teammates to the wrong family.
Speaker Change: Kevin will share more of the financial details associated with the transaction in a moment.
Speaker Change: The sale is a wonderful addition to the Rollins family of brands for several reasons.
Speaker Change: First and foremost the heavy strong culture that is focused on people people, who deliver amazing service.
Speaker Change: Second favorable has a scaled operation with a strong track record enabled by their focus on operational execution.
Speaker Change: Third their presence in key geographies, including the Pacific Northwest Mountain West and the Midwestern United States provides a platform for us to more effectively deploy our multi brand strategy.
Speaker Change: As you know we believe the combination of Oregon, and our start strong group of regional brands is a competitive differentiator for Rollins, giving us multiple bites at the Apple with potential customers, while also providing some balance and diversification with respect to customer acquisition.
Speaker Change: The addition of sale it further strengthens these competitive advantages.
Speaker Change: Earlier this month I was able to meet many of sales teammates in Utah, and Colorado and I was really impressed I'm proud to welcome them all to Rollins and I'm confident that sales business is well aligned to our strategy for sustainable profitable growth.
Speaker Change: Our investments in strategic M&A opportunities are also complemented by ongoing investments to drive organic growth as.
Speaker Change: As expected we continued our investments in incremental sales staffing and marketing activities ahead of peak season to ensure that we're positioned top of mind for the consumer as pest season begins.
Speaker Change: We are well staffed on the sales technician and customer service support front with our teammates on boarded extensively trained and ready to provide an exceptional level of service for our customers.
Speaker Change: On the commercial side of the business, we are encouraged by our momentum.
Speaker Change: Overall, we delivered solid double digit commercial growth for the first quarter. Despite some softness of commercial onetime special services such as commodity fumigation.
Speaker Change: Over the last year, we have strategically added resources to support our dedicated commercial division within Oregon.
Speaker Change: These resources are paying off as working commercial delivered double digit recurring revenue growth in the first quarter.
Speaker Change: Beyond growth, our dedication to operational efficiency and continuous improvement is an important part of our strategy and culture Kim.
Tim will discuss in more detail, but we saw gross margin improvement in the quarter as we executed our pricing strategy leveraged our cost structure and drove efficiencies throughout the business.
Speaker Change: This was somewhat offset by ongoing investments we have made to support our long term growth objectives, but we remain confident in our ability to yield a strong return on these investments in the quarters and years ahead.
Ken: And finally before I turn it over to Ken I would like to take a moment to welcome Paul Donahue, who was elected to our board of directors at our annual shareholder meeting earlier this week.
Ken: <unk> serves as nonexecutive chairman of genuine parts company and was previously CEO and chairman there as well as.
Ken: His extensive leadership experience business expertise and commitment to the community bring great value to Rollins and we look forward to the impact it will have on our company.
Ken: In closing.
Ken: We're excited about where our business stands today, the year's off to a solid start and demand from our customers remains strong our teams in the field are ready to support our customers as peak season ramps up and I want to thank each of our 20000 plus team members around the world for their ongoing commitment to our customers I will now turn the call over to Ken.
Ken: Thanks, Jerry and good morning, everyone. The first quarter reflects continued strong execution by the Rollins team a few highlights the start growth was robust to start the year, we delivered revenue growth of nine 9% year over year organic growth was seven 4%, despite 40 basis points of headwind from foreign currency.
Ken: As well as an impact from one less business day in the quarter versus last year.
Ken: <unk> growth would have exceeded the high end of our 7% to 8% range were it not for these two factors on the profitability side. We continue to make progress gross margin of 51, 4% is the highest first quarter gross margin that we have recorded in recent history as expected strategic growth investments did temper EBIT.
Ken: Margins a bit in the quarter, but we continue to anticipate an improving margin profile as we move through the back half of the year and finally, we delivered operating cash flow of $147 million and free cash flow of $140 million up, 15% and 17% respectively versus last year, enabling a <unk>.
Ken: Balanced capital allocation strategy.
Ken: Diving further into the quarter, we saw good growth across each of our service offerings in the first quarter residential revenue increased eight 2% commercial pest control rose 10, 2% and termite and ancillary increased by 13, 2%.
Ken: Organic growth was also healthy across the portfolio with growth of five 7% in residential seven 4% in commercial and 11, 1% and termite and ancillary area importantly, our organic growth rate on a recurring base of commercial business grew at nearly 10% we remain encouraged that our.
Ken: Investments in this area are paying off.
Ken: Turning to profitability, our gross margins were healthy at 51, 4% up 20 basis points versus last year, we continue to be positive on the price cost equation and saw good performance across several key cost categories looking at our four major buckets of service cost people fleet materials and slides as well.
Ken: Insurance and claims we saw improvements in margins associated with people cost materials and supplies as well as the insurance and claim area, which was somewhat offset by higher fleet expense.
Ken: Quarterly SG&A cost as a percentage of revenue increased by 70 basis points versus last year, we saw healthy leverage on administrative people costs, which enabled reinvestment and incremental advertising and selling expenses associated with the growth initiatives that we've discussed previously.
Ken: First quarter GAAP operating income was $143 million up seven 7% year over year.
Ken: Adjusted operating income was $147 million up six 7% versus prior year first.
Ken: First quarter, EBITDA was $173 million up eight 1% and representing a 21% margin.
Ken: Interest expense was $2 million lower year over year due to lower average debt balances and a lower average rate versus last year. We expect interest expense for the remainder of the year to be slightly elevated compared to last year due to higher debt levels associated with our recent M&A activity.
Ken: Notably, we expect interest expense to be $8 million to $10 million in Q2 on the higher higher borrowings.
Ken: The effective tax rate was 23, 5% in the quarter lower than the 26% we expect for the year due to timing of certain tax benefits associated with the vesting of restricted shares.
Ken: We expect the second quarter tax rate to approximate 26%.
Ken: Quarterly GAAP net income was $105 million or 22 per share increasing from <unk> 19 per share in the same period a year ago for.
Ken: For the first quarter, we had non-GAAP pre tax adjustments associated with the Fox acquisition related items totaling approximately $4 million of pre tax expense in the quarter accounting for these expenses adjusted net income was $108 million or 22 per share increasing 10%.
Ken: Turning to cash flow and the balance sheet operating cash flow increased 15% in the quarter to $147 million, we generated $140 million of free cash flow, a 17% increase versus last year.
Ken: And cash flow conversion the percent of income that was converted into operating cash flow was very strong at well above 130, 130% for the quarter. As a reminder, our second quarter cash flow will be impacted by a deferred tax payment associated with a disaster relief measure granted to those with operations impacted by it.
Ken: Hurricane Helene that we.
Ken: That we discussed on our fourth quarter call.
Ken: We made acquisitions totaling $27 million and we paid $80 million in dividends in the first quarter during.
Ken: During the quarter, we executed our inaugural bond offering issuing $500 million of 10 year notes with the tightest bond Ipos credit spread for any industrial company. Since 2016, we also established a $1 billion commercial paper program, which will generate ongoing savings as short term funding needs arise.
Ken: Our leverage ratio stands at <unk> eight times, our balance sheet is very healthy and positions us well to continue to execute on our balanced capital allocation strategies.
Ken: As Jerry mentioned, we closed the sale acquisition earlier in April and are excited about the strategic growth opportunities. This acquisition will provide us.
Ken: Let me share a few financial details on the acquisition, we expect it to add between $45 million to $50 million of revenue in 2025 with approximately $15 million in Q2 from an EBIT standpoint sailors margin profile is neutral to ours and we anticipate the deal to be accretive to earnings in the first full year of ownership.
Ken: We are in the process of filing our finalizing our purchase accounting and we will provide an update on this during our Q2 call in July.
Ken: As we look to the remainder of 2025, we remain encouraged by the strength of our markets Our reserve recession resilient business model and the execution of our teams. We are fortunate to have limited exposure with respect to tariffs to give you some perspective, our greatest area of potential impact from tariffs could be in our fleet.
Ken: Fleet costs in total represent just over 5% of our income statement and it is important to dissect that further and recognize that automobile lease costs represent roughly 3% of our income income statement.
Ken: We are positioned extremely well to deliver on our financial objectives. Despite uncertainty in the current macroeconomic environment. We continue to expect organic growth in the 7% to 8% range for the year, but expect that the addition of the sale of business, we'll take anticipated growth from M&A to 3% to 4% for the year versus the 2% to three.
Percent, we discussed previously.
Ken: We remained focused on improving our incremental margin profile, while investing in growth opportunities and we anticipate that cash flow will continue to convert at a rate that is above 100% in 2025 with that I will turn the call back over to Gerry. Thank you Ken we're happy to take any questions at this time.
Speaker Change: Thank you if you would like to ask a question. 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 he would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ask one question and one follow up.
Speaker Change: One moment, while we poll for questions.
Speaker Change: Our first question is from Tim Mulrooney with William Blair. Please proceed.
Speaker Change: And very good morning good.
Hey, Tim.
Speaker Change: Okay, a couple questions. So.
Speaker Change: First just.
Speaker Change: In terms of your I guess this would be more your consumer facing businesses resident and termite.
Speaker Change: From some other industry participants.
Speaker Change: Lead volumes in North America, but a little bit weaker to start the year.
Speaker Change: Im curious what youre seeing in the market as it pertains to demand trends, obviously everything sounds good but is there anything in the data to suggest that things are slowing down at all maybe towards the end of the quarter or after the quarter as macro uncertainty continues to wrap up here.
Speaker Change: Okay.
Ken.
Speaker Change: I guess I'll kick off.
Speaker Change: January and February were certainly all tougher got better in March.
Speaker Change: I would characterize demand was still still pretty good.
Speaker Change: Did see also some uptick and our our technician sales efforts and things along those lines that also helped drive the residential creative selling on the termite and ancillary ancillary side of the business grows helped in that area.
Speaker Change: I would for us at least we didn't see some any type of demand.
Speaker Change: Signals are changes that that gave us pause the only thing I would add Jerry is when you look across the business. The residential business continues to perform well we're happy with the <unk>.
Speaker Change: The recurring revenue growth, we're seeing in that business. When you look at the commercial area.
Speaker Change: Wanted out in my prepared comments that that business. The recurring organic growth was close to 10% and then the termite and ancillary business continues to be a strong contributor.
Speaker Change: Teammates and the team across the organization is just do an exceptional job navigating an uncertain economic environment, but again, our business remains very recession resilient and we've seen that through a number of cycles in the past and we're seeing that now as we go through April we're executing well we're seeing good results.
Speaker Change: Continue to see and continue to expect to be able to deliver on our organic growth commitments.
Speaker Change: Okay, that's very clear.
Speaker Change: As arent seeing it at all and if anything it sounds like things got better as you move through the quarter. So that's all very clear. Thank you and just to build on that on that comment that you are making there Ken on your commercial business.
Speaker Change: I think and please correct me if I'm wrong, but I think a lot of the investments that have been weighing on margins the last couple of quarters.
Speaker Change: Our in Oregon commercial specifically.
Speaker Change: So that's really strong.
Speaker Change: Strong result that you're seeing in your commercial business do you think that that's a direct result of these investments that youre, making adding feet on the street splitting up the branches those kind of things do you think youre starting to see.
Speaker Change: The benefit.
Speaker Change: Those investments are paying off or is it too early there.
Speaker Change: I think it is.
Speaker Change: I look at that business and think about what Scott Weaver is doing with leading that business.
Speaker Change: The performance, we're seeing it certainly.
Speaker Change: It certainly is correlated I believe to the level of focus and the emphasis and the investments we're making.
Speaker Change: In that business and we feel like they are paying off we continue to be bullish on that segment. We're also when you step back and look across the business. We're bullish in the other areas as well you look at the termite and ancillary business and what we're seeing there.
Speaker Change: Dissecting that and looking at some of the ancillary growth, we're seeing gives us a sense of optimism and we think about the how healthy our customer base might be because those are larger ticket items, but we think generally across the board. We're seeing good returns on the investments, we're making and I would add Ken that.
Speaker Change: It takes the sales cycle on on the <unk> side is longer so those investments that we make in the back half of last year really don't start paying off until the middle of this year.
Speaker Change: Unlike residential that tends to have a little quicker ramp up things like that so these investments in the commercial business take time. It takes focus it takes a commitment to really stick with it and keep keep driving away at it and we will focus heavily this year on productivity of the of the sales force that we built much of.
Speaker Change: The last couple of years and now we can focus on productivity.
Speaker Change: Got it thanks guys.
Speaker Change: <unk>.
Speaker Change: Our next question is from Manav Patnaik with Barclays. Please proceed.
Speaker Change: Hi, Good morning. This is roni Kennedy on for Manav. Thanks for taking my question.
Speaker Change: I think it would be fair to say that you guys have been remarkably resilient throughout the cycle could you just touch on four.
Speaker Change: I guess, a high level standpoint, the drivers of the top line growth. If you see contributions from new Cros pricing in an organic change.
Speaker Change: The drivers of margins in say a downturn and then anything can know for resiliency by segment and if there's any nuances there.
Speaker Change: A number of different questions I'll try to take them and make sure I address them, but.
Speaker Change: When you look at the resiliency of the business and you look at the contributors to growth.
Speaker Change: To start with pricing.
Speaker Change: We continue to see good pricing in our in our business CPI plus level of pricing, 3% to 4% price increases.
Speaker Change: It's not just every customer is not seeing the same price increase it's certainly is market specific but we're seeing good traction on that side.
Speaker Change: Volume growth continues to be healthy.
Speaker Change: When you look at all of the various segments I pointed out previously and the contributions in those segments certainly feel like we're seeing good volume growth and.
Speaker Change: And share gain.
Speaker Change: When you think about the M&A environment remains very healthy as you saw us execute on sale a great business with a lot of great people that we've acquired and really looking forward to the contributions of that business, but we continue to remain active in looking at a number of additional opportunities and so we continue to build the pipeline on.
The M&A, so generally across all of that we feel pretty good.
Speaker Change: And when you look at downturn, what do you what do you do in a downturn.
Speaker Change: We're a very labor intensive business. So we have a very high variable cost model and the business and so if the business. We don't see it off to say that we're not seeing a slowdown but if it were that would certainly be a lever that one would address but today, we see we're very much in growth in a growth mode.
Speaker Change: We're investing in our business, we're investing in our teammates and we're excited about the future.
Speaker Change: And Ken I would add to that when we talk about our revenue drivers and whats what keeps us keeps the gasoline engine, it's our multi brand strategy that's what.
Speaker Change: We have our eggs are in a lot of different baskets and we have so many ways to go to market.
Speaker Change: Capitalize on the opportunities that are there that is really the probably the single biggest difference maker as it relates to how do we drive consistent revenue across all of these categories. It's our it's our multi brand approach that gets us there.
Speaker Change: That's very helpful. Thank you. Thank you for taking the multifaceted question on M&A can I.
Speaker Change: Just ask that you reaffirm how how the pipeline looks good.
Speaker Change: With the sale execution.
Speaker Change: Acquisition, some upside from M&A there, but also if you are seeing with the uncertain market environment, if that puts potential pressure on competitors and potentially valuation and therefore, you may be inclined to do a more sizable transaction.
Okay.
Speaker Change: When we look at the M&A pipeline the pipeline is healthy, but as I've said, a number of times Theres no urgency to chase any one individual asset or our opportunity we remain in a very enviable position when it comes to M&A, we're very strategic but also very pragmatic.
Speaker Change: When we think about the steps we've taken the M&A side.
Speaker Change: The market remains healthy, but the one thing even though we do have a significant amount of financial bandwidth. We're always looking at the pace that we're acquiring these businesses because it's a lot of work to integrate and to bring new businesses and new brands and new teammates on so we're going to continue to be pragmatic and take a step approach when it comes to M&A.
Speaker Change: Thank you I appreciate it.
George Tong: Our next question is from George Tong with Goldman Sachs. Please proceed.
George Tong: Alright, thanks, good morning.
George Tong: I look at organic revenue growth for the residential and termite businesses. It looks like it's stepped down a little bit.
George Tong: <unk> organic growth ticked down about a point and then termite organic growth ticked down about three five points going from <unk> to <unk>. So I know there was one fewer working day in the quarter, but what were some other factors that may have contributed to this growth moderation in residential and termite.
George Tong: Yes, it's not something that we're overly concerned with George we feel good about the contributions of those businesses.
George Tong: To see good demand in those businesses as you pointed out we had one less business day. We also had roughly a 40 basis point headwind on currencies that impacted our business across the board and so so but when we step back and we look at it.
George Tong: We feel good about how we exited Q1, but also how we're starting Q2 and we feel like the business is very much intact.
George Tong: And George I would add that with the <unk>.
George Tong: <unk> in the first quarter when you lose that day there are a lot of one time theres a lot of one time business.
George Tong: That may not get you are losing a full day of one time or recurring base is still there and we're finding ways to get that work done, but you do lose a lot of that onetime business in a lot of that termite and ancillary work certainly could fit fit into that category. So some of it's just contributed just attributed to that the heaviest area of onetime is definitely termite and ancillary so that's great.
George Tong: Points here.
George Tong: Okay.
George Tong: Helpful color. Thank you.
George Tong: And then with your acquisition of <unk> closed in early April can you confirm what the commercial and residential mixes.
George Tong: Yes.
George Tong: 95% range residential they're largely a residential customer.
Company, they do some commercial but it's not significant.
Speaker Change: Got it helpful. Thank you.
George Tong: Okay.
Jason Haas: Our next question is from Jason Haas with Wells Fargo. Please proceed.
Jason Haas: Hey, good morning, Thanks for taking my question in light of those Taylor acquisition can you talk about your playbook for driving synergies of the businesses you acquire and I'm curious if there's a similar opportunity to what you saw with Fox. Thank you.
Speaker Change: When we look at these businesses.
Speaker Change: We certainly do look at integration, but we're buying really good businesses businesses that are very attractive from a financial perspective, So we very much take a.
Speaker Change: A pragmatic approach to integration with that said, we do help them on fleet, we do help them on materials and supplies and a number of other measures and when you look at the things we're doing around our modernization and our back office looking at our finance and accounting and HR and it teams and I think there is an opportunity to do even.
Speaker Change: As we go forward.
Speaker Change: So it's very much pragmatic approach, but looking at how we can help them improve their business and how we might learn from them as well.
Speaker Change: A perfect example of a synergy that can be gained there quickly as I mentioned, Mitch Smith, who.
Speaker Change: Work for us at one point in time in his career he's familiar with the technologies that we have that enable our sales force like our business suite in our home suite App set that are powerful tools for our sales team and.
Speaker Change: If we can help him mobilize those types of technologies and put those into the sale of business. We can help them accelerate their growth. So those are the types of.
Speaker Change: And then maybe not traditional synergies, but it's the way that we share best practices share technologies share things to how do we make the business better.
Speaker Change: It's not always just about how we cut costs alright, great and very much when you look at the Fox acquisition, a lot of that was revenue growth and how we were able to see an improvement in the or the multiple that we paid on that and so the things Gary.
Speaker Change: Particularly it are very much aimed at growth enablers.
Speaker Change: That's great and as a follow up can you talk about what incremental margins might've looked like in <unk>. If you exclude some of these one time impacts from the one less workday.
Speaker Change: And the investments Youre, making in the business excluding those would you have been.
Speaker Change: Your long term target and then how are you thinking about incremental margins how should they trend through the remainder of the year.
Speaker Change: Great question, Jason and thank you for that when we look at incremental margins a couple of things Youre right to talk about the growth.
Speaker Change: 40 basis points of FX, and maybe another 30 to 40 basis points associated with.
Speaker Change: The ones or the loss of the business day.
Speaker Change: Meaningful, but what's more meaningful is the investments, we made and especially in the selling and marketing and advertising area.
Speaker Change: We pulled forward some advertising every other year, we go out and shoot new TV ads, we did that in the quarter incurred that expense. If you set aside the selling and marketing expenses.
Speaker Change: You would have been in that 25% to 30% margin profile.
Speaker Change: With that improving gross margin enables us to be able to deliver that.
Speaker Change: But we did invest as we think about the future as we said at the end of last year as we did the call for Q4, we expect that that incremental margin to improve as we go throughout the year.
As we start to lap some of these more significant investments as we see the growth come on but we'll continue to update that as we go throughout this year.
Speaker Change: Great. Thank you.
Toni Kaplan: Our next question is from Toni Kaplan with Morgan Stanley. Please proceed thanks.
Speaker Change: So much wanted to sorry to go back to the marketing and investments.
Speaker Change: I just wanted to ask how youre thinking about your strategy in terms of marketing just in the current period I know you talked that.
Speaker Change: You haven't seen any impact yet so I imagine youre still in a business as usual I'll note and maybe.
Speaker Change: Hearing the spend based on traditional seasonality, but just wanted to get a sense of like what would change that trajectory dialing up or down the marketing spend.
Speaker Change: Really its business related it's related to what we're seeing in our markets and the strategic initiatives that we've talked about and so.
Speaker Change: Nothing outside of that I think would cause us to change our approach when it comes to the selling and marketing side, but it's more about the health of how healthy our markets are and then execution of our strategy.
Speaker Change: <unk> got tenants something kind of crazy happened in the digital side and cost flat dramatically up.
Speaker Change: We've never seen it happen that we could mitigate or control or adjust we just pivot alright. So we'll take those dollars and use them in other ways.
Speaker Change: And through other perhaps other channels.
Speaker Change: Repurpose those dollars into perhaps more efficient ways. If there were if there were some of those dynamics that occurred that caused prices to go up and that gets to the point you raised with the previous question. This multi brand strategy. We've got so many different ways that we market to our customers and we focused on that as part of our Investor Day last may where we.
Speaker Change: Showed various brands and how some are more reliant on digital some are more reliant on Billboard some are more reliant on door to door homebuilders homebuilders and so we very much have a diversified approach to marketing and capturing customers.
Speaker Change: Great.
Speaker Change: Just as a follow up I wanted to ask about sort of a longer term picture on termite.
Speaker Change: You had double digit organic growth during the last four quarters and at least high single.
Low double.
Speaker Change: Basically for years and so when you sort of just think about the main factors that have driven that high level of growth.
Speaker Change: Fine.
Speaker Change: Taking share over the past five years or so.
Speaker Change: Are you able to command more pricing in that market like I guess, what what are.
Speaker Change: Just long term.
Speaker Change: Factors that are really driving that.
Speaker Change: Elevated growth there thanks.
Speaker Change: To us it has to do with the relationships that we have with our existing customer base and being able to cross sell additional services to them. If they know you if they trust you and Youre in their homes. If you are in their <unk> and they are in their cross basis doing inspections on a regular basis and you noticed things that.
Speaker Change: They need to take care of the trusted you to do that it's really as simple as that and then if you know if we have cost structures or things that go up with materials or supplies. We just have to adjust our pricing, but we have an incredible opportunity that's where you see this continuing to grow.
Speaker Change: This sort of creative selling we're not reliant on digital leads to drive this business.
Speaker Change: Especially in termite these are creative type of.
Speaker Change: Benefits that we have by having such a strong strong recurring customer base with good relationships high net promoter scores customers that trust US Trust, our brands and Thats, what really drives the business. That's why I think you have seen it be such a sustainable number going.
Speaker Change: Historically, the relationships are there Tony and the opportunities there and so when you look again back in May of last year. We showed in his hockey playoffs season. So we showed nine shots on goal with the customer I believe and so theres. So many different opportunities that we can go after as long as we're providing the services we're investing in the <unk>.
Speaker Change: <unk> chip, we've got that if we have that intact, we have an opportunity to grow the business.
Speaker Change: Thank you.
Speaker Change: As a reminder, this star one on your telephone keypad, if he would like to ask a question. Our next question is from Josh Chan with UBS. Please proceed.
Josh Chan: Hi, Good morning, Jerry again, congrats on a very strong quarter.
Speaker Change: Sure.
Speaker Change: Hi, Good morning, I guess two commercial questions for me first one just strategically as you make these investments.
Speaker Change: Kind of your strategy in picking up new accounts I assume you're going to have to displace existing competitors and so I'm just wondering how youre going with that.
Speaker Change: <unk> the new constant commercial thank you.
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: I give you a little bit of color here, but.
Speaker Change: Obviously, I don't want to say too much about what our strategies are competitively.
Speaker Change: But.
Speaker Change: When you have.
Clearly defined territories.
Speaker Change: Trained.
Speaker Change: Trained teammates that no.
Speaker Change: What verticals, they like to sell and what the off where the opportunities are what those opportunities are and you pointed in the right direction.
Speaker Change: Got to have really strong.
Speaker Change: Sales management processes sales management tools sales management disciplines, that's really more of what it's about.
Speaker Change: And when you have people you have the brand you have scale.
Speaker Change: We can handle just about any type of thing that anybody could throw at us.
Speaker Change: Just a competitive that's our competitive advantage is our people.
Speaker Change: Other than that I wouldn't say, there's any anything magical competitively out there in the market that is going on any dynamic there. It's just a function of looking at what we do investing in our people investing in our teams investing in our technology that helps us in that regard and just going after the business and yes, you are displacing.
Speaker Change: Others. Some people maybe don't have a service if it's maybe.
Speaker Change: Maybe there's a.
Speaker Change: Office building or something like that that Hasnt considered pest control, yet and we happened to show up and present, what we have to offer.
Speaker Change: Cold, calling and those types of those types of things that youre presence gets expanded with feet on the street and that.
Speaker Change: That's the investment that we've made.
Speaker Change: That makes a lot of sense, thanks for that commentary.
Speaker Change: Then on the.
Speaker Change: Numbers question on commercial I know, Ken you mentioned orphan recurring organic growth was 10% almost 10% in the segment was 7%. So could you just kind of bridge us are there any other pieces there between Oregon and.
Speaker Change: The one time.
Speaker Change: 10 gets to seven and then how you expect.
Speaker Change: These pieces to kind of slow going forward. Thank you.
Speaker Change: Certainly.
Speaker Change: That is close to 10 does across the business. So it's not just the orkin area, but it's across the business team is doing a really good job of driving that level of performance, but we do have a one time part of the business. There is a one time aspect of commercial.
Speaker Change: Fumigation, where other work that is more one time oriented we just saw a little bit weaker onetime business in the quarter.
Speaker Change: One less day, certainly has an impact when it when it comes to that.
Speaker Change: With the contribution and so when I think about it that's that's probably the single largest contributor is having one less day in that part of our business and drawing that down.
Speaker Change: Great. Thanks for the color and good luck in the rest of the year. Thank.
Josh Chan: Thank you Josh.
Speaker Change: Our next question is from Ashish <unk> with RBC capital markets. Please proceed.
David Page: Hi, Good morning. This is David page on for Ashish, Thanks for taking our questions.
Speaker Change: I had a.
Speaker Change: A question I know you mentioned the fleet was maybe less than 5% of.
Speaker Change: Cost, but I was curious to know how.
Speaker Change: How much of the fleet has been actually refreshed or how much will be meet it needed to be refreshed over let's say the next like one to two years. Thank you.
Speaker Change: And it's hard to give a precise number on how much of our fleet is going to get refreshed over the next 12 months, but what I would say and the reason I think we have some confidence as we feel good about our level of fleet and 25 here.
Speaker Change: We'll continue to evaluate 2006 and beyond.
Speaker Change: But we will continue to look at that we have opportunity to keep trucks longer if we need to we have an opportunity. We continue to look at a number of different sources, but we feel pretty good about our position in that area. Yes, we'd have to do the math to say what are we what's the potential exposure to increase repair and maintenance costs.
Speaker Change: Keeping some trucks longer versus the.
Speaker Change: Increase of say trucking tariff tariffs and things like that so.
Speaker Change: But at the same time, we also need to be looking for maybe lighter duty smaller utility vehicles that we can maybe there are some options that we have out cannot find out there that we can get less expensively and offset some of those costs as well. So we're looking at all of those all of those opportunities and levers.
Speaker Change: Okay makes sense. Thank you just as a follow up.
Speaker Change: In terms of like Big ticket items or nonrecurring revenue you have a slide in the deck here slide nine of the past.
Speaker Change: Row Downs, TFC industrial slowdown coalbed et cetera.
Speaker Change: Those are nonrecurring or big ticket items.
Speaker Change: How do they fare during those downturn and just as a reminder, thank you.
Speaker Change: So it's always hard to compare our business today to the great financial crisis, because it's just so different we have so many different brands today than we had back in 2008 nine.
Speaker Change: And so the business has continued to evolve if anything we have a much more defensive business, we've got more diversification in the base.
Speaker Change: And when we look at and when we look at our performance. It's interesting we're seeing great performance across those onetime areas, notably in the Permian area, which is the largest and so that's an area that we certainly see good demand levels for continue to see good.
Speaker Change: Good levels of interest we also provide opportunity for customers to access our acceptance Corp for credit, we certainly have pretty tight credit standards. When it comes to that but we also have an opportunity to provide our customer within our sales folks with another tool in the toolbox to sell those products, but.
Speaker Change: So those services, but generally when we look at it we feel good about the onetime business and the one area. We look at again is the termite and ancillary and how that's performing and it continues to perform very well.
Speaker Change: David here as this is my perspective on the reality of this is if my attic at my House had rodent rodent infestation with rodent droppings and wrote in year end throughout and the installation.
Speaker Change: I can assure you that no matter what the economy is I'm going to find a way to figure that out and remediate that situation because I don't want to I don't want to live like that and then on top of it you add our financing options. How you can pay over time.
Speaker Change: And or finance that type of work overtime.
Speaker Change: Those are tools that we have to help us navigate these types of these types of events because the reality is quality of life being what it is today if people don't want to live like that.
Speaker Change: And we have a we offer a very valuable in a central service to people that.
Speaker Change: That's what makes us I think as resilient as you've seen in those charts.
Speaker Change: Yes.
Speaker Change: Thank you very much.
Speaker Change: Our next question is from Stephanie Miller with Jefferies. Please proceed.
Stephanie Miller: Hi, Good morning appreciate it I guess continuing on the theme of a potential recession here, it's been a while particularly and to your point the business has evolved quite a bit since the last recession, but as you think about maybe the reoccurring side of the residential business.
Stephanie Miller: Which I think relative standpoint, it's probably there may be less expensive than commercial or as you just described.
Stephanie Miller: Definitely necessity.
Stephanie Miller: But can you talk about ladies levers that you pull to maintain client retention in a recessionary environment and also.
Stephanie Miller: Maybe your perspective about customers' willingness to potentially trade down our Rockies their monthly bill and what levers you could pull just to kind of maintain.
Stephanie Miller: Hello status cloud thank you.
Stephanie Miller: So.
Stephanie Miller: Ken I'll try.
Stephanie Miller: I would take this I'm going to.
Stephanie Miller: Put it in perspective of I remember.
Stephanie Miller: And two in 2000.
Stephanie Miller: Seven 2008, I was with the home team brand and we were completely tied to homebuilding, we captured customers wherever is predominantly a residential business.
Stephanie Miller: And you had people, losing their homes people upside down in their homes people walking away from their homes and yet if customers were still in their house, our customer retention rate was still pretty solid and it's because of the relationships that we have with our clients our customers had personal relationships with their technicians and.
Stephanie Miller: And.
Stephanie Miller: From a share of wallet standpoint, it wasn't it wasn't.
Stephanie Miller: It just wasn't a lot of money for folks during those periods of times. There were some there were some markets.
Stephanie Miller: I remember gosh going back a while now but.
Stephanie Miller: There were some markets I remember having to we would look at a customer that's been with us a while that was struggling financially and maybe we put them on hold for a month or two months or we would work with them or we'd work on back in those days, we didnt have monthly building plans, we would convert them try to convert them to monthly billing plans. So they didn't have a lot.
Stephanie Miller: Our outlay of cash they every quarter. So we tried to work with our customers because we know the cost to reacquire customers far greater than some cost to keep them. So.
Stephanie Miller: Our brands can easily put in playbooks too.
<unk> learned from the past and may make those kinds of adjustments but.
Stephanie Miller: It's usually a market by market kind of branch to branch kind of a kind of a situation based on whats going on their household income.
Stephanie Miller: How hard are certain market is hit.
Stephanie Miller: So for example back in 2008, there were markets like California, where it was in Florida that were hit way.
Stephanie Miller: Harder than say, a Texas was right. So we had we had to pull those levers differently from from market to market. So we're able to do that we give our field autonomy to make those make those decisions, especially with customers that have been with us for a long time.
Stephanie Miller: Got it that's really helpful. And then maybe talk about given the.
Stephanie Miller: The uncertainty in the current in the market and maybe risk recession or gosh, who knows at this point do you think this actually could be an enabler of your M&A strategy.
Stephanie Miller: Willing sellers looking to just kind of throw in the towel in this more challenging environment something that you can take advantage of thank you.
Stephanie Miller: I don't know, but I don't I don't necessarily think that because I think in this business. They have they'll have a lot of the same headwinds and <unk> as we do.
Stephanie Miller: What's great about this entire industry.
Stephanie Miller: And we're going to have fleet challenges theyre going to have fleet challenges I don't think theres anything thats suddenly facing them.
Stephanie Miller: Maybe there is some market to market differences or some customers they serve.
Stephanie Miller: That are impacted or something along those lines, but I hadn't thought about that much but.
Stephanie Miller: I wouldn't think it would.
Stephanie Miller: Cause a bunch of people to suddenly want to sell there, but a lot of these businesses. Stephanie are family owned multi generation they've been around for a very long time through a lot of different cycles.
Stephanie Miller: Theyre not basing their cell selling decision to ones that we like to buy arent basing their selling decisions based upon a short term macroeconomic of that.
Speaker Change: We're buying good businesses that have been around for decades, if not longer.
Speaker Change: Sure. There is other businesses that maybe haven't been around that long, but generally our preferred approach is to buy those businesses that are that are looking at it through a long term loan.
Speaker Change: Understood. Thank you guys.
Speaker Change: Yeah.
Speaker Change: Our next question is from Brian Mcnamara with Canaccord Genuity. Please proceed.
Brian McNamara: Hey, good morning, guys. Thanks for taking the questions I'm.
Brian McNamara: I'm curious if you have an idea of how fast the industry as a whole is growing kind of particularly in Q1, you guys have had pretty strong organic growth for some time now your larger peer clearly is lagging you in that regard so their share gains there, but any more color on maybe some of the smaller players would be helpful.
Brian McNamara: I don't think we have a strong sense of how others are doing other than what you see I guess, maybe in a public market.
Brian McNamara: Hum.
Speaker Change: I would say way for Tim Mulrooney.
Speaker Change: Pest Index report that come about probably be out in the next month or so they will have a pretty good sense of.
Speaker Change: Of what that looks like but thats, probably one of the better tools out there.
Speaker Change: To help with that.
Speaker Change: Market continues to be good.
Speaker Change: We feel like it's a good market continues to be healthy.
Speaker Change: Our market share and market data is very much art more than it is science.
Speaker Change: But we just feel like from where we sit we're growing and probably gaining a little bit of share.
Speaker Change: And then secondly, I was hoping you guys could provide some kind of update on your employee retention efforts, particularly with the first year tax and.
Speaker Change: How you think that evolves in a potentially softening labor market environment I'm, assuming that's probably a beneficial there.
Speaker Change: We've made some I'm really proud of.
Speaker Change: <unk> spent this last week reviewing those numbers from the first quarter I'm really proud of our operations teams have made marked improvement in our first year retention double digit improvements in percentage wise.
Speaker Change: And what we call the short term retention, making sure that the folks that have been with us for less than a year are staying longer so I'm really proud of that.
Speaker Change: And as a result of that we've had to make far fewer new hires in the first quarter than we did a year ago.
Speaker Change: That proof that.
Speaker Change: The improvements that we've made in that regard, we're really proud of that certainly we still work to do still have.
Speaker Change: Plenty of work to do on that front, but we are beginning to see light at the end of the tunnel on that one and maybe the labor market is helping with that some of that too. Yes passenger announced you are ahead of our orphan business actually sent me a note. This morning, and he was talking about that as one of his highlights the significant improvements in first year PC Pro technician was led by the head of HR and all of us.
Speaker Change: Divisional director is seeing really good engagement and results.
Speaker Change: Okay, great. Thanks, a lot best of luck.
Speaker Change: Thank you.
Speaker Change: With no further questions I would like to turn the conference back over to management for closing remarks.
Speaker Change: Thank you everyone for joining us today, we appreciate your interest in our company and look forward to speaking with you on our Q2 earnings call later this summer.
Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Sure.
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