Serve Robotics Inc.
Q1 2015 Earnings Call Transcript

Published: 28 Apr 2015

[Operator:]

Ladies and gentlemen, welcome to ServiceMaster’s First Quarter 2015 Earnings Conference Call. Today’s call is being recorded and broadcast on the internet. Beginning today’s call is Jim Shields, ServiceMaster’s Vice President of Investor Relations and Treasurer and he will introduce the other speakers on the call. At this time, we will begin today’s call. Please go ahead, Mr. Shields.

[Jim Shields:]

Thank you, Frank. Good morning and thank you for joining our first quarter 2015 earnings conference call. Today, you will hear from ServiceMaster’s Chief Executive Officer, Rob Gillette; and Chief Financial Officer, Alan Haughie. For those of you who haven’t had a chance to download the investor presentation from our website, I will walk you through the agenda items shown on Slide 1. Rob will lead off by providing a summary of our full year financial results and then review our performance by segment. Alan will then review our consolidated results. Rob will then provide summary comments before opening the call to your questions. Before we begin, I would like to remind you that throughout today’s call, management may make forward-looking statements to assist you in understanding the company’s strategies and operating performance. As stated on Slide 2, all forward-looking statements are subject to the forward-looking statement legends contained in our public filings with the Securities and Exchange Commission. These forward-looking statements are not guarantees of performance and are subject to the risk factors contained in our public filings that may cause actual results to vary materially from those contemplated in the forward-looking statements. The information discussed on today’s call speaks only as of today, April 28, 2015. The company undertakes no obligation to update any information discussed on today’s call. This morning, ServiceMaster issued a press release filed with the SEC on Form 8-K highlighting our first quarter 2015 financial results. And we have posted a related presentation both of which can be found on the Investor Relations section of our website. We will reference certain non-GAAP financial measures throughout today’s call and we have included definitions of these terms in our press release, which is available on our website. We have also included reconciliations of the relevant non-GAAP financial measures to the most comparable GAAP financial measures in our press release and presentation in order to better assist you in understanding our financial performance. All references on the call to EBITDA are to adjusted EBITDA as defined in our press release and the figures labeled as such therein. I will now turn the call over to ServiceMaster CEO, Rob Gillette for opening comments. Rob?

[Rob Gillette:]

Thanks, Jim and good morning, everyone. Thanks for joining us today for our first quarter 2015 earnings call. Before I walk you through our financial results, I would like to address an incident that occurred at a U.S. Virgin Island resort served by a local Terminix branch. The family of four was seriously injured and our foremost concern is for the family to make a full recovery. Our thoughts and prayers go out to them. On March 25, we were informed that the United States Department of Justice initiated a criminal investigation in the matter surrounding the incident. We were also informed that the United States Environmental Protection Agency did participate in the investigation and working with the U.S. Virgin Island’s Department of Planning and Natural Resources. We take this thing very seriously and are cooperating fully with all relevant governmental authorities. Our investigation is currently underway. We say it’s a great priority of the company on providing safe, convenient and dependable service to our customers. The incident was tragic and our utmost concern is for the family and their full recovery. We appreciate the desire of many of our stakeholders for additional information about the incident, but due to the ongoing investigation, we will make no further comments at this time. Alan will discuss later how this has been reflected in our financial results for the quarter and we appreciate your understanding and support. Okay, now, let me turn to the first quarter results on Slide 3. We had a strong top and bottom line growth as we continue to grow customer focused teams that delivered convenient, on-time and dependable customer service. Revenue increased $38 million or 7% versus prior year. The increase was driven by the introduction and growth of new services at Terminix, the continued development of the direct-to-consumer channel at our American Home Shield or AHS business, and the successful acquisition and integration of Home Security of America, or HSA and home warranty business that we acquired in February of last year. In the first quarter, our EBITDA improved $18 million, or 16% compared to prior year driven by operating leverage on the increase in revenue combined with increased improvement in productivity. Adjusted net income of $45 million improved $23 million or 98% compared to prior year. Adjusted diluted earnings per share of $0.33 increased $0.08 versus prior year. Bear in mind, diluted shares outstanding increased by $44 million for this quarter compared to last year largely as a result of the additional shares issued at the time of our IPO, which closed July 1, 2014. Cash flow was very strong in the first quarter. Pre-tax un-levered free cash flow of $146 million was an increase of $35 million and represents a very high cash contribution rate of about 110% of EBITDA. Alan will speak more about cash flow, leverage and our use of cash later, but I would like to note that during the first four months of this year, we regained all $390 million of our 8% senior notes. To redeem the notes, we used $215 million of balance sheet cash and refinanced the remaining $175 million, with an incremental term loan B at an effective interest rate of 4.25%. The redemption and corresponding refinancing, net of annualized interest savings, of $24 million. Turning to segment performance, Slide 4 provides a strong first quarter results for Terminix. Revenue was $336 million, increasing $16 million, or 5% compared to the same period last year. EBITDA for Terminix was $89 million, up $11 million or 14% compared to last year, primarily reflecting the flow through effect of higher revenue and production labor and overhead cost efficiencies. The EBITDA margin improved 200 basis points year-over-year. Slide 5 provides more detail on Terminix revenue growth by channel. As you can see, we achieved year-over-year growth in revenue of 18% in termite and other services, reflecting improved pricing and an increase in the sale of new services partially offset by a decline in core termite completions. As we mentioned on previous calls, Terminix has broadened its portfolio beyond traditional pest and termite services and creating growth opportunities by introducing new services such as crawl space encapsulation, wildlife removal, pest exclusion and mosquito services. While we are building a more resilient business model with diverse offering of new services, we still are focused on growing our traditional termite services. We are continuously evaluating alternative pricing plans in new products, customer buying preferences and sales channels. With Terminix strong brand recognition and customer service, we believe we are in a position to capture a greater share of the termite market. Renewal revenue was flat to prior year as improved pricing was offset by a 2% decline in the contracted customer account at the end of March. We are focused on increasing our penetration in the traditional termite market. As I mentioned earlier, we continue to evaluate our product offerings to ensure we profitably grow revenue and customers. Moving to pest control, the 4% increase in revenue reflects improved pricing and an increase in one-time services, in particular bed bug services we saw over a 20% jump in leads this quarter. Although pest control customer count is down slightly, we are pleased with the direction of the business over the past year. One-time sales are increasing, mosquito services are showing traction and the rollout of new pricing and service plans is being well received by our customers. Product sales were down $2 million this quarter reflecting timing on our chemical distribution business. American Home Shield results are shown on Page 6. American Home Shield performed well with the double-digit top and bottom line growth for the quarter. First quarter revenue was $175 million, up 16% compared to prior year. Revenue associated with the HSA acquisition at the end of February 2014 was $10 million with the remaining $14 million revenue increase representing organic growth. The organic growth was driven primarily by our investment in marketing through the direct to consumer channel. AHS offers a compelling value proposition that we believe offers homeowners meaningful dollar savings and a peace of mind. As the market leader, we are in a position to drive increase in use of home warranties by continuing to invest in marketing and drive an increase in adoption in the market that is only 3% to 4% penetrated. During the quarter, AHS continued to experience high customer retention rates. For the first quarter 2015, customer retention was 74.9%, slightly down from 75.9% from the prior year. This decrease was the result of a mix shift driven by the HSA acquisition, which is exclusively using the real estate channel to market its products and has a significantly lower retention rate in the first year renewals compared to the consumer channel. Excluding HSA, retention increased to 76% this quarter from 74.5% prior year. First quarter EBITDA was $29 million, an increase of $6 million or 28% compared to a year ago. The increase primarily reflects the flow through effect of higher revenue and operating efficiencies partly offset by an increase in marketing and non-recurrence of prior year gains on investments. We continue to invest in digital media and explore new and better ways to engage our customers. As such, customer experience is improving and our cost to acquire and serve customers is falling. In the first quarter of 2015, buying online for our direct to consumer channel increased 64% from prior year and almost 50% of technicians were this fast during the automated process this quarter, it’s an all-time high. As we continue to automate and learn new ways to engage new customers, we are driving growth and profitability. The Franchise Services Group’s first quarter results are shown on Slide 7, it includes revenue of $59 million, a decrease of $1 million compared to prior year, driven primarily by converting the first 10 of the 71 company owned Merry Maids branches to franchises. First quarter adjusted EBITDA increased $1 million primarily driven by cost reduction efficiencies. As I mentioned last quarter, 2015 is a year of change with the Franchise Services Group, although we know it will take time for the new management team to realize results, we are already seeing progress. In addition to converting the first 10 Merry Maids branches – franchises, the new management team has aggressively cut cost, refocused sales resources and upgraded talent to achieve the market expansion expected of them. They are employing strategy to resize key territories in major markets to maximize coverage and are beginning to see the pipeline builds. I will now turn it over to Alan who will review our first quarter results in more detail and then speak to our 2015 outlook. Alan?

[Alan Haughie:]

Thanks, Rob and good morning, everybody. I will now cover our first quarter results as shown on Slide 8. Revenue for the quarter increased 7% or $38 million over the prior year and it was about $23 million, a little over 4% of organic growth, including pricing. The balance of the revenue increase of $15 million was largely due to acquisition with HSA acquired at the end of February 2014, representing $10 million and $5 million from acquisitions within Terminix. Significantly, American Home Shield grew organically about 9%, largely as a result of the heavy marketing campaign in the second half of last year. And within Terminix, solid performance in the pest business and continued growth in new services more than offset the decline in traditional termite revenue, giving Terminix about 3.5 points of organic revenue year-over-year. Gross profit increased by $23 million, of which about $4 million was due to the HSA acquisition and about $3 million from the Terminix acquisition. With that $4 million, about $16 million of the increased gross profit was largely organic, representing a conversion rate of almost 70% of organic revenue to gross profit that is $16 million of incremental margin on $23 million of incremental organic revenue. And this operating leverage helped gross margin as a percentage of revenue increase by almost 1 point over last year to 46.9% from 46%. Selling, general and administrative expenses remained flat year-over-year and therefore fell as a percentage of revenue by 2 points. This flat SG&A does reflect the impact of about $4 million of additional structural SG&A due to the acquisition of HSA and so does reflect not only continued operating leverage, but also continued reductions in infrastructure costs of about $4 million. And as a reminder, in the first quarter 2014, we recorded an impairment charge of $48 million from abandonment of a software development project for American Home Shield. Now, interest expense improved by $15 million over the prior year, largely as a result of the debt reduction effected using the proceeds of the IPO and the balance sheet cash. And in broad terms, this reflects $835 million of reduced debt at the blended rate of a little over 6%, given that we took out a combination of 7% and 8% high yield notes along with some lower cost term debt, plus the benefit of 1.5 months of reduced interest from the redemption of $190 million of 8% notes full cash in mid-February. Furthermore, we paid down the remaining $200 million of 8% notes on the April 1 this year and the upside of our term debt by $175 million in doing so. And since this term debt carries a 4.25% rate, we are now running at an annualized interest expense of about $167 million, a little under $42 million per quarter. Now, this interest saving is partially offset by $5 million less of investment income than last year. In the first quarter of last year, we sold securities within the AHS investment portfolio and realized gains of about $5 million largely to utilize capital losses that would otherwise have expired. The gains and losses on the AHS portfolio are included in the components of AHS and certain company EBITDA. We made no material changes in the composition of the portfolio in the first quarter this year and hence we are calling them at smaller level of income in this first quarter of 2015. Now, the loss on extinguishment of debt of $13 million was two components. The 6% prepayment premium for the $190 million of 8% notes of $11 million and the write-off of $2 million of previously capitalized debt issuing costs. We will have a similar charge in the second quarter relating to the redemption of the remaining $200 million of these notes, which occurred, as I said, on April 1. So, as a result of all this, our pre-tax income of $45 million compares to our pre-tax loss of $27 million last year with the increase essentially being a gross profit improvement of $23 million and the non-recurrence of the software impairment charge from last year of $48 million. And as you can see, the permanent savings in interest expense were largely offset in the quarter by the redemption premium. Our effective tax rate for the quarter was about 38% helped by rising pre-tax income and a couple of discrete items too trivial to be worth mentioning. And I currently expect our effective tax rate for the full year to hover around 39%. So, first quarter adjusted net income, which I will reconcile in a moment, increased by $22 million over the prior year to $45 million. First quarter EBITDA of $133 million increased by $18 million over prior year largely effect of the improvement in gross profit partly offset by the lower investment income within the American Home Shield. And this is probably the most appropriate point to mention that in connection with the Virgin Islands incident, we have recorded a charge of $3 million for the quarter equal to our deductible and our general liability insurance program. This charge is reflected in gross margin and has not been added back from calculating our adjusted EBITDA. In other words, our reported EBITDA is not applicable to $3 million charge. However, since the range of any potential, criminal or other penalties or governmental fee, is not currently known nor is it reasonably estimable, no other [indiscernible] charges taken in connection with this matter at this time. Slide 9 provides two reconciliations. First, we walk our second performance measure, adjusted EBITDA, down to income from continuing operations and then walk the reconciliation backup to adjusted net income. As a reminder, we exclude all amortization expense $12 million for the quarter from adjusted net income. And as discussed last quarter, about $9 million of this amortization actually stems from the definite live implied intangibles that were created on the company was originally taken private in July 2007. These intangibles are nearly fully amortized and the associated amortization for these actions will start to decline in the second half of 2015. Now, the second quarter charge will be about $9 million, the same as the first quarter charge, but the first quarter charge will be about $3 million and the full quarter charge will be about $1 million. And by definition, this low amortization will boost U.S. GAAP net income, but not adjusted net income. Turning to the first quarter simplified cash flow statement, which is provided on Slide 10, I think that better explains the sources and uses of cash for ServiceMaster. Pre-tax un-levered free cash flow was our preferred measure for the sustainable cash generative capacity of the company for components of share on the top of the slide. And for the quarter, we generated about $146 million of pre-tax un-levered free cash flow, a $35 million improvement over last year. About half of this improvement came from EBITDA with the balance from working capital and lower capital investments. So, there is no major theme here other than the opportunity for me to continue to stress that the revenue growth in the quarter clearly did not require any working capital investment and so this quarter’s pre-tax un-levered free cash flow represents 110% of EBITDA, up 13 points from prior year. Now, the remainder of the items on this cash flow summary, are actual amounts paid, not movements in balance sheet items, but a number of them are worth of further explanations. Interest payments of $67 million are $25 million better than prior year. This is significantly more than the interest expense savings discussed a moment ago, because our high-yield notes are paid semiannually in February and August. So, in essence, the payments made in the middle of the first quarter are in settlement of the previous six months of interest. Overall, for the year, we will pay about $60 million less cash interest from last year. Any further changes in capital structure, notwithstanding, is $25 million of its benefit sharing up now in the first quarter and another $25 million of savings showing up in the third quarter. Let me put it another way. Our projected interest payments are roughly $26 million in the second quarter, $54 million in the third quarter and $24 million in the fourth quarter. So, when it combined, that would be amount paid in the first quarter, we have a total of $171 million for the year compared to $220 million for the entirety of 2014. And as previously discussed, we will be a federal taxpayer in 2015, but cash tax payments in the first quarter benefit from a deduction related to the exercising of options and our dues until remains virtually zero for the quarter. Now, with respect to our acquisition payments, this time last year, we paid $32 million for HSA, a fairly sizable acquisition for us and so not surprisingly, acquisition payments are lower this year. Combining these items, we accumulated about $76 million of cash for debt reduction, for which we contributed $135 million of balance sheet cash and is the result of $211 million to the debt. And to be precise, the debt repayment for about $211 million reflects the $190 million of 8% note redemption plus the 6% premium of $11 million and then about $10 million of regularly scheduled debt repayments. And plus, we ended the quarter with $248 million of cash. Please note that a formal reconciliation from the U.S. GAAP cash flow statement to pre-tax un-levered free cash flow is provided in the appendix and in the press release. Slide 11 provides an update on our net leverage and interest coverage as of the end of the quarter. Net leverage for the end of the quarter is calculated as gross debt with a face value of about $2.94 billion, less unrestricted cash of about $190 million. So net debt of $2.75 billion, divided by trailing 12 months EBITDA of $575 million, which gives us net leverage of about 4.8 times EBITDA compared to 7.8 times at the end of 2013 and 5 times at the end of 2014. And using the annualized $42 million per quarter of perspective interest expense that I referenced earlier, our trailing 12 months EBITDA of $575 million is almost 3.5 times our go-forward interest expense. On Slide 12, we are confirming our previously provided range for revenue and our minimum 2015 EBITDA. We are making progress in converting Merry Maids branches to franchisees include the – first quarter is converted about $7 million of roughly $6 million of annual branch revenue over to the franchisees. So we remain confident in our revenue projection and that we will generate at least $610 million of EBITDA in the full year 2015. That concludes my comments on ServiceMaster’s financial results and outlook. And I will turn the call back over to Rob for closing comments.

[Rob Gillette:]

Alright. Thanks, Alan. Just to close we have a motivated team focused on providing outstanding customer service with exceptional expertise in each of our businesses. For our network of employees, franchise owners, contractors and technicians, we are well positioned to be the leading provider of essential residential and commercial services. In each of the services we provide, whether termite and pest control, HVAC repair, plumbing, disaster restorations are one of the many other services we provide. We are dedicated to convenient on-time dependable and effective service delivery to our customers. By meeting these commitments we are confident that we will continue to drive both top and bottom line growth and deliver value to our shareholders. I look forward to sharing our performance with you in coming quarters. I will now turn it over to Jim Shields to start the Q&A. Thanks.

[Jim Shields:]

Thanks Rob. As a reminder during the question-and-answer session we encourage you to ask questions that you may have, but please note that guidance is related to outlook we have provided in the press release and the webcast presentation. In addition since the queue is long this morning please limit yourself to one follow-up question so that we can get to everyone in the allotted time. Frank let’s open it up – up the line for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from of the line of George Tong with Piper Jaffray. Please proceed.

[George Tong:]

Hi, thanks. Good morning. You saw meaningful organic growth in the American Home Shield segment this quarter driven by investments in the direct to consumer channel, can you discuss your outlook for further investments in the DTC sales channel and how this compares with prior investments?

[Rob Gillette:]

Well, I will make a comment and actually have Mark Barry here with me, so I’ll let him comment as well, but thanks George, we will continue to invest in marketing and look at new and different ways to expand the direct to consumer channel. And we are looking for opportunities to free up investments to further grow the business and we will continue to do that like we did in 2014. So Mark can comment in terms of his outlook and balance, but we are really happy with the performance of the business and how well we have been able to grow that channel. So, go ahead, Mark.

[Mark Barry:]

Yes. George, we are very happy with our ability to create new accounts and our acquisition costs, factoring and trading down a little bit and our renewal rates going up, meaning we can grow while acquiring new resorts within more and more cost associated [indiscernible] the floating expense for 2015 is similar to 2014, but we don’t currently have it all that we had in Q4 although if we create that opportunity we are likely to do the rest.

[George Tong:]

That’s helpful. And as a follow-up can you provide an update on you commercial initiatives within your Terminix segment and if commercial penetration assumptions are incorporated into your guidance or if it represents upside?

[Rob Gillette:]

Well, I think everything is incorporated in the guidance in general. So I think we are really happy with the progress we made on the commercial front and we are continuing to see growth with the current customers and expanding base. So as we talked about before, we started on an isolated basis with key customers refining processes as we enter the market and so it has continued to reinforce and add commercial people to that team. So, it’s included in the business outlook that Alan provided and we are happy with the progress.

[George Tong:]

Okay, thank you.

[Rob Gillette:]

Thanks.

[Operator:]

Our next question comes from the line of Sara Gubins with Bank of America Merrill Lynch. Please proceed.

[Sara Gubins:]

Thank you. Good morning. You talked about price increases as being a driver of the revenue growth, could you help us think about the magnitude?

[Rob Gillette:]

Yes, sure. It’s about 1.5% to 2% almost across all segments.

[Sara Gubins:]

Okay, great. And then – I am sorry.

[Rob Gillette:]

Yes. I was going to say, bear in mind that because we have a large recurrent customer base, those price increases, as I said before they are perpetual. So, they work on same anniversaries for the company, it’s really the first anniversary of let’s say customers contract as well and that should continue.

[Sara Gubins:]

Great, thanks. And then with the number of termite clients going down, do you think that you are losing market share or do you think that the market is actually shrinking. And aside from weather, what might cause that, if the market is shrinking, what might cause the market growth to improve?

[Rob Gillette:]

Well, we would say it is flattish in nature. I wouldn’t say shrinking necessarily, I think a lot of the product offerings that we had mentioned in the overview, we are looking at and targeting new and different ways to serve customers. So when we mentioned contracted customer base that applies everything that we do in general. So, there is a trend towards people wanting the thought services they need versus contracting on an annualized basis. So, we continue to do that and mentioned that in the text of our comments and we are seeing growth. So, it hasn’t – we haven’t had the [indiscernible] I think that we would have expected over the last several years. I would say the good news is we think that at least now there is more activity that we see and having more inquiries and leads coming in for business. So we would anticipate that the season would be at least equal to last year and hopefully better.

[Sara Gubins:]

Thank you.

[Operator:]

Our next question comes from the line of Jeff Volshteyn with JPMorgan. Please proceed.

[Jeff Volshteyn:]

Hi, good morning. Thank you for taking question. Just following up on AHS, is there any color that you can give around sort of geographies of where you see incremental growth?

[Rob Gillette:]

Go ahead, Mark.

[Mark Barry:]

Yes. This is Mark Barry. We are investing very heavily in the Southeast right now. Our traditional base is very, very strong on the West Coast and from Texas [indiscernible] here as a country. The acquisition they did there last year it really strengthened our position in the Mid-Atlantic and the Midwest, so it’s a great opportunity to grow and very quickly in Florida, Georgia and Carolinas and Virginia is right now is a good platform [indiscernible] to grow there as well, so it’s in the right place at the right time.

[Jeff Volshteyn:]

That’s very helpful. And a follow-up on the Merry Maids business, as your first 10 locations are converting, what are the unit economics, are they sort of the – are the numbers working out as you expected when…?

[Mark Barry:]

But again, that much movement we have at a few branches so as Rob mentioned but yes, the economics are we are getting the prices that we have been able for you. And certainly, in terms of taking out development cost, that’s also been encouraging. So, we are happy with what we are seeing.

[Jeff Volshteyn:]

Thank you very much.

[Operator:]

Our next question comes from the line of Gary Bisbee with RBC Capital Markets. Please proceed.

[Gary Bisbee:]

Hi, good morning. Can you give us an update on just what’s the penetration of your network in selling and new services at Terminix? And over what time period do you think you rollout the rest of it? And I ask it from a context of, how are you confident in the ability to continue to deliver mid single-digit growth amid what has been a pretty persistent decline or at least not growth in both pest and termite customers?

[Rob Gillette:]

So, I think that – we as a business I don’t have the absolute number, but most of our services, the predominance of our services that we talk about and the innovation had been introduced between customer base that we have and largely through what we would call creative sign and leads. So, our own team going out and evaluating services and talking to customers about what they would like to have done. So, we are pretty excited about the opportunity to expand that to just our existing customer base as a beginning opportunity as more and more customers become knowledgeable about all the other services that we provide. We are confident we can continue to expand that business. And I would say also on the mosquito side, we are pretty excited about the business opportunity that’s presented by 2015. And it is the fact that we have a full selling season and the team positioned to go sell that product effectively in the market. So, we are looking forward to selling you about the growth of that business as well in the future.

[Gary Bisbee:]

If you were to see the limited growth in customers and the core historical offerings, is there enough opportunity with these new services you have been talking about? You continue to drive the mid single-digit growth say for the next 2 years or are we more penetrated in that?

[Rob Gillette:]

So, obviously we are not anywhere near penetrated and I thought we are confident in terms of the growth of the Terminix business and the core business as we always say between the pricing, the general market growth and then our own development and execution with customers to be in that mid single-digit range.

[Gary Bisbee:]

Okay, thank you.

[Operator:]

[Operator Instructions] Our next question comes from the line of Paul Hanson with Loomis Sayles & Company. Please proceed.

[Paul Hanson:]

Hi, thanks for taking the call and congrats on the good quarter. My question was on the capital structure, I am curious about the – if there is any intentions with the 7% notes that are callable in August?

[Alan Haughie:]

Yes, it’s good question. We are still considering the optimal path, but the questions if I was right, that’s the next tier of high cost debt that will turn our attention to, looking to them to say precisely what we will do, but we are likely to do something in that regard in August, yes.

[Paul Hanson:]

Alright, fair enough. Thank you.

[Operator:]

Our next question comes from the line of Denny Galindo with Morgan Stanley. Please proceed.

[Denny Galindo:]

Hi, guys. I jumped on a little late. So, I am sorry if this has already been asked. But I was curious if you had seen any impact on your Terminix sales since the Virgin Islands issue came up? I know it was on the news on CNN and that sort of thing. Did that affect any of your business here in the U.S. or are we not seeing the impact?

[Rob Gillette:]

I would say that the business in terms of our growth and what we have planned versus the quarter and where we are we haven’t seen anything that has impacted the business.

[Denny Galindo:]

Okay, that’s helpful. And then just going back to the customer growth, I think you may have addressed this earlier, but how long do you think it will be to at least see things like the customer account in pest in Terminix to turn positive? Is that something that should happen in the next couple of quarters or it will take a little bit longer?

[Rob Gillette:]

Well, I think it varies from quarter-to-quarter. I think it was Q3 we talked about some growth in the customer account and the growing trends was more and more customers wanting stock services. And so, I think that it will balance around and change somewhat. And as we grow in commercial, it will have a different kind of impact, which may have one customer with multiple locations. So, we would expect it to continue to be flattish or some of these changes quarter-over-quarter, sometimes slightly positive or sometimes slightly negative in contracted customer accounts.

[Denny Galindo:]

And then lastly on the incremental margins in Terminix, I mean, it then is very strong. I mean, is that – was there anything one-time that kind of impacted incremental margins this quarter or is this just kind of more in the same of more – more of what you expect going forward?

[Rob Gillette:]

I think the team did a good job in terms of servicing customers in a high-quality way reducing cost to serve in terms of what we do everyday and the resources we would apply to deliver to customers. And that’s what the team does. They will continue to work on expanding margins much on improving the services we provide. So, it’s what we do.

[Denny Galindo:]

Thanks for taking my questions.

[Operator:]

Our next question comes from the line of Gary Bisbee with RBC Capital Markets. Please proceed.

[Gary Bisbee:]

Hey, just one quick follow-up. Is the 9% organic growth at American Home Shield is that a good run-rate to think about from here or what are the factors that could lead that to be different in the next couple of quarters? Thank you.

[Alan Haughie:]

Gary, from a trajectory standpoint, we keep this deal in the range.

[Gary Bisbee:]

Okay, thank you.

[Operator:]

Mr. Shields, there are no further questions at this time. Please continue with the presentation or closing remarks.

[Jim Shields:]

Okay. Thank you again for your participation in today’s conference call and webcast. As a reminder, replay of the call will be available on our website in about an hour. We look forward to speaking with you. Thank you.

[Rob Gillette:]

Thank you.

[Operator:]

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day everyone.