Rollins [ROL] Conference call transcript for 2022 q1
2022-04-27 15:41:04
Fiscal: 2022 q1
Operator: Greetings, and welcome to Rollins Inc. First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to turn the call over to Joe Calabrese. Thank you. You may begin.
Joe Calabrese: Thank you. 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 (877) 660-6853 with the pass code 13728548. Additionally, the call is being webcast at www.rollins.com, and a replay will be available for 90 days. The company is also offering investors a supporting slide presentation, which can be found on Rollins' website at www.rollins.com. We'll be following that slide presentation on a call this morning, and encourage you to view that with us. On the line with me today and speaking are Gary Rollins, Rollins' Chairman and Chief Executive Officer; John Wilson, Vice Chairman, Jerry Gahlhoff Jr. President and Chief Operating Officer and Julie Bimmerman, Interim Chief Financial Officer, Vice President and Treasurer. Management will make some opening remarks. And then we'll open the line for your questions. Gary, would you like to begin?
Gary Rollins: Yes. Thank you, Joe and good morning. We appreciate all of you joining us for our first quarter 2022 investor call. Julie will read our forward-looking statement, disclaimer, and then we will begin.
Julie Bimmerman: 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 for our SEC filings, including the Risk Factors section of our Form 10-K for the year ended December 31, 2021, for more information and the risk factors that could cause actual results to differ.
Gary Rollins: Thank you, Julie. I'm pleased to report that Rollins delivered solid first quarter results and realized strong year-over-year growth in many key performance areas. We remain well positioned to deliver on our short-term and long-term objectives. And we look forward to sharing our progress in the quarters ahead. I would now like to give an update on our SEC investigation. Rollins reached a settlement agreement with the U.S. Security and Exchange Commission on April 18th. The settlement fully resolves the SEC's investigation into certain adjustments to accruals and reserves and their impact on reported earnings per share in the first quarter of 2016 and the second quarter of 2017. Rollins paid a $8 million civil penalty, which was fully accrued in a third and fourth quarters of 2021. Under terms of the settlement Rollins, neither admits or denies the SEC's findings in this matter. The settlement completes the SEC's investigation and there will be no restatement of Rollins financials related to this matter. I want to take a moment to highlight the actions that we've taken to strengthen Rollins controls and procedures to prevent something like this from happening in the future. From the beginning, we took this matter very seriously and hired outside consultants to evaluate and strengthen our financial reporting. This included improving processes, procedures, and supporting documentation, that impact financial results. We also hired a Chief Accounting Officer, Traci Hornfeck, last October and added two retired E&Y partners to our audit committee, Susan Bell and Pat Gunning. Susan currently serves as Chair of that committee. We have also hired and added several experienced accounting personnel to further strengthen our team. Jerry will share with you details of our active CFO search to further improve this area. It is noteworthy that the SEC recognizes within the order that Rollins "cooperation and the remedial acts were promptly undertaken to prevent and detect the type of misconduct described in the order". Out of respect for the process, we will not answer any questions during our Q&A on this matter. I assure you that integrity is at the core of who we are as a company. And we remain committed to doing the right thing for our employees, investors, and customers. And finally, we are pleased that this matter is resolved. With that, let me turn the call over to John who will provide some business updates. John?
John Wilson: Thank you and good morning everyone. As Gary mentioned, we are pleased with our first quarter financial results, with revenue increasing to $590.7 million and net income totaling $72.4 million or $0.15 per share. Overall, we experience solid growth across our family of pest management brands and continue to achieve strong levels of customer growth. Over the past couple of years, we have been actively strengthening and solidifying our Board of Directors and board committees, reflecting our commitment to effective corporate governance. For those of you who are familiar with Rollins, our Board consists of outstanding directors who have diverse backgrounds and bring invaluable experience, strong governance and their unique perspectives to our company. As part of that process, our directors have also been a key component of driving Rollins long-term strategic vision. We are pleased to announce that Gregory Morrison has been recently appointed to Rollins audit committee. Some of you may recall that Greg who joined as a Director of Rollins in 2021 served 18 years as Vice President and Corporate Chief Information Officer for Cox Enterprises. At Cox, he was responsible for the management and operations of all information technology, including cybersecurity solutions, which we believe makes him particularly well suited to join the audit committee. In addition to his responsibilities as a member of our Board's human capital management and compensation committee. We are also pleased to announce that Don Carson has been appointed to our nominating and governance committee. Don also joined our Board in 2021 and is a trusted advisor to Catheter Precision, where he also serves as a Director. Don also acts as a trustee for The Cook and Bynum Fund. Furthermore, we strengthened our Board with the recent selection of seasoned and executive Louise Sams. Louise has also been appointed to our nominating and governance committee and the compensation committee. For almost 20 years, Louise was an Executive Vice President and General Counsel of Turner Broadcasting System. As General Counsel, Louise oversaw legal work relating to Turner's business activities and at subsidiaries worldwide, including licensing and production of content for Turner Television. She was also involved in the sale and distribution of those networks. The protection of intellectual property, employment matters, as well as litigation and transactional work relating to acquisitions and joint ventures. Most recently, Louise focused on issues related to technology, information security, use of data and consumer privacy, as well as enterprise-wide risk management. We are pleased to have Louise joint our Board, and we believe her broad experience will help to further strengthen Rollins and guide our strategic direction. At our core, we are foremost a service company. Our track record of success is a direct result of the efforts of the dedicated and caring people that work at Rollins. Toward this end, I'd like to highlight that during the quarter Rollins was awarded a 2022 top workplaces award by the Atlanta Journal Constitution. Rollins will rank 17th in the large business category, marking the sixth consecutive year we've received this award. This recognition is based solely on employee satisfaction and engagement feedback gathered through a third-party survey. The survey measures several aspects of workplace culture, including alignment, execution and leadership, more than 2,900 Atlanta companies participated in this program. And over 68,000 of their employees were surveyed about their workplace experience. Another recent recognition that I am particularly proud of is that Newsweek ranked Rollins number eight in their article on America's Most Trustworthy Companies for 2022 in the consulting and professional services category. Over 110,000 of valuations were collected and reviewed regarding customer trust, investor trust and employee trust to receive this recognition. We remain committed to providing a workplace where our team members can grow professionally and have a positive impact on the community and many thanks go to our leadership team who deserve all the credit for Rollins achieving these honors. Now, let me turn the call over to Jerry who will provide more details on our business.
Jerry Gahlhoff: Thank you, John and hello everyone. I'd now like to walk through our 2022 first quarter financial results, focusing on items that directly impacted our operations during the quarter. Julie will address the non-GAAP adjustments a little later. Looking at our numbers. Rollins first quarter 2022 was highlighted by revenue growth of 10.3% to $590.7 million compared to $535.6 million in last year's first quarter. Net income was $72.4 million or $0.15 per diluted share. This is compared to $92.6 million or $0.19 per diluted share for the same period in 2021. This decline in EPS was primarily the result of last year's gain on the sale of Clark properties. As mentioned, Julie will review GAAP and non-GAAP results as well as organic revenue growth numbers shortly. Operationally, all our business lines experience good growth during the quarter, with residential pest control up 10.2%, commercial pest control rising 9.1% and termite increasing 13.3%. On the expense side, in the first quarter, we felt significant inflationary pressures in fleet and pest control materials and supplies. I'll give insight on these and an overview of the actions we've been implementing to mitigate these expense pressures. As you may recall from last quarter, we've been proactively addressing supply chain issues and our termite and ancillary service offerings. With our procurement team seeking alternate products and suppliers, while our operation teams have been successfully initiated increases in our rate card pricing where needed to counteract the rise in some of these material costs. We believe we've struck the right balance and these efforts are helping to bring material costs back in line for our termite and ancillary business. In the first quarter, we began experiencing similar inflationary headwinds within our residential and commercial pest control materials and supplies. Given the successes we've achieved, mitigating M&S costs in termite, we're implementing a proactive approach within our pest control business by adjusting our rate cards and diversifying through alternative suppliers and also by seeking shipping and freight efficiencies. Most important to improve our profit margin, we're also implementing our annual price increase programs earlier this year. These more aggressive price increases were initiated within all our brands in late spring as compared to typical timing of the early summer months in prior years. In short, we're proactive managing through this. Our fuel expense is an important example. We gave up seven tenths of a point in margin to increases in fleet expense in Q1. Through extensive routing and scheduling initiatives, we have reduced our overall mileage necessary, which lowers our fuel requirements. For our first quarter of 2022, our fuel would've been approximately $700,000 higher if we had not begun these routing and scheduling processes. This equates to an estimated addition of over 3.2 million miles driven if our miles between stops had not been reduced using our routing and scheduling technologies. We expect that we will see ongoing benefits of these improvements as we move throughout the remainder of the year. Furthermore, we continue to increase the number of hybrid and electric vehicles in our fleet, as we now have over 800 currently deployed. Next for a quick update on our acquisition pipeline. Fortunately, it's full. We have plenty of potential opportunity that we're actively engaged with. Our acquisition team has been busy, both domestic and internationally. One of our latest acquisitions highlighted in a recent press release NBC Environment, headquartered in the U.K., closed April 1st and now gives us full coverage within the U.K., including multiple locations within Scotland. Before closing, I'd like to provide an update on our Chief Financial Officer search. While we don't have an announcement to make today, we have engaged an executive search firm to assist with identifying an exceptional candidate to join our leadership team. We are focused on getting a seasoned, talented financial executive as our CFO. The search is progressing well, and we look forward to providing an update this summer. Julie has been filling in remarkably as our Interim CFO, and you can all rest assure that Julie will be remaining with Rollins as our Group Vice President of Finance and Investor Relations. I know that I sleep better at night knowing that. Before I turn it over to Julie, I want to emphasize how pleased we are of our first quarter results, given the inflationary pressures we faced and remain well positioned for 2022. I'll now turn the call over to Julie.
Julie Bimmerman: Thank you, Jerry. We delivered a strong first quarter highlighted by significant growth across many key financial me metrics. Like last quarter, we are including a slide deck on our website, which presents the numbers we discussed during today's earnings call presentation. To view the deck, please go to rollins.com, click on news and events, then presentation. Now onto the numbers. Our first quarter revenues of $590.7 million was an increase of 10.3% actual exchange rate and 7% organic. For the constant exchange rate, the total revenue growth totaled 9.6%, with 6.3% organic. As previously mentioned residential, commercial and termite all presented strong growth for the quarter. Residential grew 10.2%, 5.8% organic, commercial grew 9.1%, 7.9% organic. Lastly, we have termite which grew 13.3% with 5 8, excuse me, with 8.5% organic. Now onto our income. For the first quarter, we are presenting adjusted EBITDA for comparison purposes due to the impact of our gain on sale of several of our Clark properties of $31 million in Q1 of last year. First quarter EBITDA 2022 was $117.8 million or 4.2% over 2021 adjusted EBITDA of $113 million. First quarter 2022 EPS was $0.15 per diluted share or 7.1% improvement over 2021 adjusted EPS. For the first quarter 2022, gross margin decreased to 50% or 1.2 points below last year. As mentioned, fleet created another quarter of strong headwinds in Q1, 2022, primarily from fuel in the amount of $4.6 million and vehicle repairs of $1.2 million over last year. Combined, these fleet expense increases equated to seven tenths of a point in additional cost. Service salaries were up four tenths of a point, while pest control materials and supplies were up $2.9 million or one 10th of a point. Fuel increases were driven by a 42% increase in average price paid per gallon in Q1, 2022, over 2021. This along with customer growth brought a 55% increase in our total fuel cost for the quarter. The service wages increase was a combination of COVID sick time taken and overtime paid to cover work for employees out sick with COVID. We face some difficult challenges in January as our reported number of employees testing positive for COVID-19 increased 154% over January, 2021. Additional overtime pay required to complete our routes and cover for these COVID cases contributed to a 21% increase over Q1, 2021. We believe this to be a one-time event unless another COVID surge occurs. Sales, general and administrative, or SG&A on the other hand, held flat Q1, 2022, over 2021 with both quarters coming in at 30.3%. Now for a few notes regarding our cash flow. Our dividends for Q1, 2022 totaled $49.2 million or an increase of 25% over 2021, while cash used for acquisitions declined 22% to $13.2 million for 2022. We ended the current period with $258.3 million in cash, of which $86.1 million was held by our foreign subsidiaries. As you've probably noted, we have also increased our term loan over last year. This will put us in a strong position to act quickly on either potential acquisitions or stock repurchases as opportunities may arise. Now to free cash flow. For the quarter of 2022, our free cash was $79.5 million or a decrease of 28.8% over last year. The decline was related to $30.6 million in payroll taxes deferred under the Coronavirus Aid, Relief, and Economic Security, or CARES Act, in 2022 and subsequently paid in the third quarter of 2021. In comparing the current first quarter to last year, the deferral was within the Q1, 2021 operating activities. Last, I am please to share that yesterday the Board of Directors approved a regular cash dividend of $0.10 per share that will be paid on June 10th, 2022 to shareholders of a record at the close of business May 10th, 2022. This represents a 25% increase over the dividends paid in June, 2021. The dividend increase reflects our strong performance in the quarter of 2022, accentuates our financial strength, the Board's confidence in our outlook for continued growth. Gary, I'll turn the call back to you.
Gary Rollins: Thank you, Julie. We're happy to take any questions at this time.
Operator: Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your questions.
Tim Mulrooney: Gary, Julie, Jerry, John, good morning.
Julie Bimmerman: Good morning.
Gary Rollins: Good morning.
Jerry Gahlhoff: Good morning.
Tim Mulrooney: Thanks for taking my questions. So, I just had a couple about pricing, and I appreciate the color that Jerry gave. But the first one is, pricing is typically, call it, 1% to 2%. How much do you expect it to be this year? I mean, we've spoken to several regional providers who are talking about price increases of more than 5% this year. So, we're wondering if Orkin is thinking along the same lines.
Julie Bimmerman: So, I'll start with this and then any of the guys can jump in if they want to add to that, Tim. As you know, our price increase will typically equate to 1% to 2% of our overall growth. And we have said bringing it 4% earlier this year and the fact that we are being more aggressive than we do expect it to increase over that. We're obviously not going to give you an exact number. As you know, we -- I'll never really do that. But keep in mind what this means by being more aggressive is there are customers that in the past that we may have considered not doing the increase or holding off a little bit longer, we'll do that. Also, there may be some areas that we may push that envelope a little bit and increase it higher by -- region by region.
Jerry Gahlhoff: Yeah. Tim, this is Jerry. We took a hard look and as we said, we've been more aggressive than we probably ever have been in the future. And we looked at it as to from a standpoint of what will the market bear and we've just been considerably more aggressive than we have in prior years with our percentage increases.
Tim Mulrooney: Okay. Well, I'll take what I can get. Thank you. Maybe for my follow-up on pricing, can you talk a little bit about -- look, I think we know how it works on the residential side, you send out your price increase in the second quarter every year. So we -- that makes sense. But on the commercial side, I think it could be a little more nuanced, please correct me if I'm wrong. But I mean, my question, I guess, is, are there opportunities for pricing conversations every time you visit a commercial customer, or is it once per year or is the price fixed through the duration of the contract length? Could you just give us a little more insight on how that dynamic occurs on the commercial side?
John Wilson: Tim, yeah. This is John. I'll take that. I guess, the easy answer is it depends. It depends entirely on that that customer, the contract arrangement and where we are in terms of service duration. Most of our commercial customers sort of equate service duration to the price they pay. And so, if -- we get some pretty robust reporting out of our systems to provide our managers and field sales folks with the information they need to then kind of have that conversation if service durations are exceeding kind of what our revenue per hour goal might be. So, it just depends entirely on the customer and where they are relative to all that.
Gary Rollins: I'd like to add something, John. This is Gary. We have been doing price increases on a consistent program or a routine program for the last 20-plus years. And we have a tremendous database that we're able to compare the price that the customer is paying related to the current rate card, look at the exact gap, if you will, between the rate card and the price and study quite carefully what the results are going to be and so forth. So, I think it it's not a hit or miss deal. And we measure rollbacks. This would be a situation where the customer objects and we feel like -- customer is certainly profitable obviously. But we've learned that that really there's not much difference between the customers that are being rolled back. In other words, we have branches that rollback very few, maybe 10% of their customers. So, we really share that data and -- which really kind of adds integrity to what we're doing, because there there's no need to change the pricing. And then we even get something. Our attitude is, they may not have -- maybe not require the full amount of the pricing increase, but we do get some amount. So, this is something that we've been watching carefully, and it's made a big difference to our company.
Jerry Gahlhoff: I would add, Tim. This is Jerry, that we were just as aggressive within our brands if not in some brands, more aggressive on the commercial side than residential even. So, we were -- we definitely touched the commercial business in a great way as it relates to price increase.
Tim Mulrooney: Okay. That's great color. Thank you everybody.
Operator: Thank you. Our next question comes from the line of Ashish Sabadra of RBC Capital Markets. Please proceed with your questions.
Ashish Sabadra: Thanks for taking my question. Just maybe on the gross margins, just given all the mitigations that you put together in terms of price increases as well as scheduling, is it fair for us to assume that the rent of the headwinds were faced in the first quarter and those headwinds moderate going forward? And again, I understand you don't give guidance, but is there a way to think about when does it inflect from being a headwind to potentially being -- where we start to start seeing gross margin expansion? Could that -- could we start to see that in the back half of the year, or do we need to wait for next to really start gross margin expanding again? Thanks.
Julie Bimmerman: I'll start on that and then let everyone else jump in. So, basically, yes. On the service salaries we were talking -- we do believe that that is something that we have overcome, because we do believe that that is related to the COVID experience that we had in the early part of the year. So, unless as I say another wave of COVID comes through, we believe that we're done with that. Also as Jerry commented, as far as the pest control M&S, yes, we're taking care of that and going through and adjusting through our procurement group. And then, also through our rate cards to make sure that we take care of that, that leaves our fuel cost from that 10 point. And so, that's where our price increase will definitely be beneficial in helping cover that. And then also as our fleet group -- I think Jerry had commented that is shifting and looking at the type of vehicles that we're using and the ones that are coming into our fleet in the future. So, most of these or half of these expenses that we're talking about, we are -- we do believe are -- were beyond those. Jerry, do you want to jump in on anything?
Jerry Gahlhoff: As we also move through the year on this fuel side, we started seeing those -- the price increases in fuel by mid-year. And some of that will be a little more in our run rate of what we're accustomed to as we move through the year as well. So, there's -- that headwind will be mitigated from a year-over-year comparison standpoint as we move through the year.
Julie Bimmerman: And let me add one last thing is the fact that Jerry had commented is keep in mind with our price increase coming in, we've actually brought that forward to where it is going in earlier as well to help mitigate those costs.
Gary Rollins: If I could add something, most of our pest control technicians have an element of productivity and their pay plans. So, when we raised the customer's price, the technician benefits from that as well. So, it's kind of a win-win situation and makes you feel good that they're getting a raise too.
Ashish Sabadra: That's great color. Thank you very much. And maybe if I can ask a quick follow-up on the M&A pipeline. As you mentioned, M&A pipeline is pretty solid. I was just wondering if you could comment on the valuation. And also, on the last call, there was a comment made around restructuring foreign entities to make cash available from foreign operations more readily. So, would it be fair for us to assume that we could potentially see bigger M&A in the international markets as well? Any comments on that front? Thanks.
Julie Bimmerman: I'll address the second part of that, which was on the -- we talked about the foreign subsidiaries -- or excuse me -- the cash held by foreign subsidiaries. As you noted, we had -- I believe, it was $86 million held at the end of March. Our acquisition that occurred on April 1st in the U.K., NBC was a prime example of how when we have those funds already on the -- within the foreign soil. We can use those for the acquisitions immediately and -- which we do so at that time. And we're always looking for acquisitions. We do not earmark our dollars to be domestic or international, wherever that next right company, the one that has the correct culture fit is the direction -- the acquisition we will make. So, just understand that we do not say that these dollars have to be for one or the other. Did you want to address anything else on the pipeline?
Jerry Gahlhoff: And I would add on the valuation part. We really haven't seen a significant change in valuation in the market. I think, it's still a very competitive acquisition market. There's probably more private equity players involved now than there were even two years ago. There's still plenty of competition there on the valuation side that's keeping the prices of some of these businesses fairly well propped up.
Ashish Sabadra: Thanks again. Very helpful color and congrats on the strong momentum in the business. Thank you.
Operator: Thank you. Our next question comes from the line of Mario Cortellacci with Jefferies. Please proceed with your question.
Mario Cortellacci: Hi, guys. Really appreciate the time. Just my first question around kind of what the organic growth looks like in Q2, or in the back half of the year. You guys are coming up on tougher comps. I know that you guys have ramped your Salesforce as well. So, maybe you could just help us understand how much pricing is playing into helping alleviate some of that comp pressure? And then, also how much that extra Salesforce capacity that you guys have will help potentially maintain high single digit growth in Q2 and the back half of the year?
John Wilson: So, Mario, this is John. I'll start and then maybe Jerry might have something to add. So, I think, when you look at the -- with the -- our business by the kind of the service line, the residential after two years of really pretty explosive growth, we'll -- I think we saw it soften in the first quarter and I think that will continue, especially given some of the weather challenges in the first four months or so of the year. But I think where the Salesforce's expansion that you mentioned will help us is on the commercial and the termite side. And I would expect our organic growth there to remain in that high single digit that you mentioned.
Jerry Gahlhoff: And this is Jerry. We think -- John is absolutely right about commercial and termite that ramped up the Salesforce. I would add to the color that spring hasn't fully sprung. In that when we look at our call center data -- and you just look at the call volume from existing customers that are calling in because I have -- I need an extra service or I see something. We just see that the volume isn't quite there yet that we would expect. I think we're probably weeks late from a seasonal standpoint as well. So, we'll probably have some better color around that as we move through Q2 and see how the weather plays out and what that one spring -- one spring has sprung, we will probably have a better feel for that residential pest control side.
Mario Cortellacci: Got it. I appreciate it. And then, just for my follow-up, I haven't asked you guys about this in a while. Just around technology and kind of connected technology or connected tools. How penetrated are you within your customer base on that connected technology front? I'm assuming it's probably more weighted towards the commercial customer base and the residential customer base. But any kind of quantification there would be extremely helpful. And maybe where do you think that could go over time? I mean, we're seeing in other industries where automation is helping reduce headcount or at least allow headcount to be used more efficiently. I'm just wondering if you guys have kind of thought about it internally about potential cost savings or efficiency through using kind of a connected products or Internet of Things type of tools.
Jerry Gahlhoff: The work that we've done technology-wise, you're right, is very heavily on the commercial side. And I would say, at this point in time, most of the technology that we're thinking about on the residential side, all has to do with customer communication and helps us -- helping us improve our relationships with customers to improve customer retention. We have not been as focused on automation and back office type stuff, although the routing and scheduling effects if -- automated scheduling and a lot of what were manual processes can be eliminated over time with that through the routing and scheduling technologies. But most of our technology on the residential side is focused on that relationship building with the customer communications, notifications. Hey, our truck is on the way. You can see the truck on its path coming to you, those types of things that we think will improve customer loyalty.
Mario Cortellacci: Understood. Thank you very much.
Operator: Thank you. Our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your question.
Michael Hoffman: Thank you very much everybody for taking the question. So, I'd like to come back to price with a little different angle and clarity. The -- if I understand the way you're describing the timing of it, first quarter 2022 does not reflect the benefit of being more aggressive. And therefore, that's in front of us coming into 2Q, 3Q and 4Q.
Julie Bimmerman: Exactly. You're thinking correctly, Michael.
Michael Hoffman: Okay. And on the commercial growth, can you help us understand -- I'm trying to get a feel for the macro. So, this is as much as about your businesses that is a read through just given all the things that are going on a geopolitical basis. I have this sense that there's been a trend of new business formation happening in North America, but really began to ramp in the second half of last year. And that has not peaked. Do you think your commercial organic growth reflects that there is new business formation, meaning you're adding incremental new customers as opposed to upselling existing?
Jerry Gahlhoff: We're probably doing a better job at adding new customers and then adding services on to the existing. Yeah. We're growing through new customers.
Michael Hoffman: So, you would support the idea that there's new business formation going on still that we have -- that has not peaked. So, whatever fears about slowing consumer demand and recessions and what have, you haven't seen that come through on somebody starting a business in the empty storefront that needs a pest service.
Jerry Gahlhoff: I don't know that there are start-ups from new businesses or it's just existing businesses making a change or initiating services for the first time. We really don't have much insight into that unfortunately for you, Michael. Sorry.
Michael Hoffman: No. Okay. All right. Thank you.
Operator: Thank you. There are no further questions at this time. I would now like to turn the call back over to management for any closing comments.
Gary Rollins: Okay. Well, thank you all for joining us today. We're optimistic about our opportunities ahead and appreciate your interest in our company. We look forward to updating you next quarter on our progress. Thank you again.
Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
