Jan 28, 2009
Executives
Marilyn Meek – Financial Relations Board Gary Rollins – CEO, President and COO Harry Cynkus – CFO and Treasurer
Analysts
Jamie Famalette – Sidoti & Company Clint Fendley – Davenport & Company Garo Naruein [ph] – Blackrock Patrick Stowe – Priority Capital Tom Quinn [ph] – Deutsche Bank Andrew Mahoney [ph] – Green Arrow [ph]
Operator
Good morning, ladies and gentlemen. Thank you for standing by.
Welcome to the Rollins Inc. fourth quarter 2008 conference call.
During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.
(Operator instructions) This conference is being recorded today, Wednesday, January 28th, 2009. I would now like to turn the conference over to Marilyn Meek with the Financial Relations Board.
Please go ahead ma’am.
Marilyn Meek
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 212-827-3777. We will send you a release and make sure you are 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 1800-405-2236 with the pass code of 11124781.
Additionally, the call is being web cast over www.viavid.com and a replay will be available for 90 days. On the line with me today are Gary Rollins, President and Chief Executive Officer; and Harry Cynkus, Chief Financial Officer and Treasurer.
Management will make some opening remarks and then we’ll open up the line to your questions. Gary, would you like to begin?
Gary Rollins
Yes, thank you Marilyn. Good morning and thank all of you for joining our fourth quarter and year end 2008 conference call.
Harry will read our forward-looking statements and disclaimer and then we will begin.
Harry Cynkus
Thanks, Gary. Our earnings release discusses our business outlook and contains certain forward-looking statements.
These particular forward-looking statements and all other statements that may be made on this call excluding historical facts are subject to a number of risks and uncertainties and actual results may differ materially from any statement we make today. Please refer to today’s press release and our SEC filings, including the risk factor section on Form 10-K for the year ended December 31, 2007, for more information on the risk factors that could cause actual results to differ.
Gary Rollins
Thank you, Harry. In what has been a most turbulent year business wise I am gratified to report that we achieved an increase in revenues and profitability for both our fourth quarter and the full-year.
In fact we reached a milestone in our company's history having recorded a little over $1 billion in revenues for 2008. We also reported our eleventh consecutive quarter of improved earnings results.
Revenues for the quarter grew 14.9% and less than 1% excluding HomeTeam's contribution. I will expand on that in a few minutes.
For the full-year revenues increased 14%. Excluding HomeTeam's revenues for the year it – we increased 3%.
While we normally do not address our Canadian operations in detail I believe it is important to discuss it this quarter. We continue to enjoy steady organic growth in Orkin and PCO Services.
However, the volatility of the exchange rate this last quarter clouds the picture of our consolidated revenue. Specifically PCO Services enjoyed over 5% real growth this quarter.
However, as a result of nearly 20% decline in the Canadian dollar in the fourth quarter our reported Canadian revenues declined 14.1%. This lowered Rollins’ overall revenue growth.
Looking at total revenue excluding HomeTeam and our Canadian currency hit, we experienced 1.6% growth. Our residential pest control service offering including HomeTeam grew almost 29% for the quarter while termite increased 19.5%.
Excluding HomeTeam both of these service lines declined slightly growth wise compared to last quarter. Harry will provide more detail shortly.
(inaudible) new sales slowed in October and November across all business lines. Compared to the same period a year ago we saw an increase in sales in December in all categories though not enough to make up for the previous two months.
Clearly an indication that unlike retail our other business dependent on consumer spending, our business does not appear to be changing dramatically at this point. For another validation of how our business is holding up we also look back and compared fourth quarter sales with sales in the fourth quarter of ’06, which was a strong year as well.
What we found was sales this year were up in all categories from the fourth quarter of ‘06. Looking forward while January is not a big month for new sales, we're seeing thus far sales increases.
In areas of the country that are reasonably warm residential pest control sales were up. In areas experiencing extreme cold and snow have sales decreases.
But for the near term we see no significant falloff in our business. As I have said in the past our business historically has been influenced more by weather than by other factors.
We also took a look back in how well we did during the last significant recession. During 1981 to 1983 and found the Orkin’s business grew at a rate around 5%.
The past doesn't guarantee the future and a lot has occurred since 1983. But this information does appear to validate why we feel Rollins is recession resistant.
For the quarter our net income improved 5.2% and we had an EBITDA increase of 28.4. The gap between the two increased amounts is our HomeTeam acquisition amortization.
For the year net income increased 6.5% and we had a 13.5 increase in EBITDA. Results that we are proud of having this economically challenging period.
Taking a closer look at our results for the quarter and full year a major contributor to our growth was HomeTeam, which you will recall was acquired in April this year. They have exceeded our expectations in both revenue growth and improved margins.
HomeTeam is also has one of the highest customer retention rates in the industry attributed to their very highly customer satisfaction rates. For those of you that might be new to our story or were not on our third-quarter conference call and may be concerned about HomeTeam's exposure to the home building sector, I would like to take a moment to read (inaudible) HomeTeam’s revenue makeup.
Their base consists of two sources. One, new construction or builder's new home installation revenue which makes up less than 10% of their total revenue and the remaining 90% representing recurring revenue from servicing their residential customers.
This service consists of conventional pest control and termite treatments just like Orkin does, along with tubes in the wall recurring residential pest defense service. The smaller piece of their business builder revenue is an important piece, however, as it as a source of potential tubes in the wall customers.
In total, we expect builder revenue to be flat next year. We do have some upside for new national builders that hadn't been a customer due to (inaudible) former ownership.
It doesn't appear that last year's level of builder sales will make up for the normal attrition of customers and as a result HomeTeam's revenue will be off but only 2% to 3% in ’09. Additionally HomeTeam is pursuing small acquisitions to add route density and improve margins.
The strategic value of this acquisition is best exhibited by the position they hold in their markets. At a time when home construction has declined HomeTeam achieved an all-time record in this year of 20% market share in the almost 40 markets in which they operate.
Or to put it another way 20% of all new homes constructed in these markets have tubes in the wall pest defense system, waiting to be serviced regularly by HomeTeam and only HomeTeam. We are very pleased with the results of this operation and this acquisition.
Other previous acquisitions such as PCO Services, Western Pest Services, Industrial Fumigant, and our most recent acquisition Crane Pest Control all represent successes of our strategic plan to grow our commercial business. As we stated in the past this service line has higher customer retention, high your average prices, and enjoys higher technician productivity.
Our commercial customers and prospects have strict Federal, State and local regulations with which they must comply and they look to us in helping to ensure they meet these requirements. Pest control is essential to commercial business and we are North America's largest provider.
The current economic environment appears to be providing a pick up in acquisition prospects. And our strong free cash flow gives us the opportunity to purchase leading companies such as Crane Pest Control, which was announced earlier this month.
Crane is a leading provider of advanced pest management and primarily commercial serving Northern California in the Reno/Tahoe Basin. Glen Rollins had been in conversations with this company's owner for a number of years and we are very happy that Harold Stein and his team decided to join Rollins.
Harold is a well recognized industry leader, a highly respected individual and a former past president of the National Pest Management Association. During the quarter, we also made to smaller acquisitions that service both residential and commercial customers.
Internationally, we announced that Orkin established a franchise in the State of Kuwait. This latest franchise expands Orkin’s presence in the Middle East to 5 franchises and now we have a total of 11 international franchises worldwide.
One of the key factors in our company's success is the extensive training that we provide to our employees to ensure they achieve their goals and we continue to provide our residential and commercial customers with the safest and most effective pest control and termite services available. Our commitment to this effort resulted in Rollin’s being named by Training magazine for the seventh year in a row as one of the top 125 companies that excel in human capital development.
We have always been conscious of controlling our cost. However, we know now more than ever that it is important to keep an even closer eye on our expense structure in what will likely be a slow growth situation.
We have taken steps to reduce our operating cost and this effort has taken place in both our home office and field operations. One area that has the ability to contribute positively this year is reduced fuel expenses compared to 2008.
The run-up in fuel costs earlier in the year forced us to be better managers of this expense. So we should doubly benefit with the current cost of gasoline.
We look to reduce costs further as we identify new opportunities and conditions dictate. At the same time, we will continue to work hard as a team to ensure that we provide the best in class pest service while taking this opportunity to build market share.
We think that we have excellent potential in both of these areas. While we do not minimize the current economic crisis and no doubt 2009 will be a challenging year for Rollins, however, we're guardedly optimistic and look for improved results on the top and bottom lines.
I will now turn the call over to Harry who will discuss our financials in greater detail.
Harry Cynkus
Thank you Gary. We continue to receive enquiries asking is your business really recession resistant.
As you can see from our earnings release earlier this morning we are producing results that are counter to the vast member of public companies reporting. While revenue growth has slowed, earnings remain strong and for the year we produced the highest revenue and profits in the company's history while generating strong cash flows, probably the best indicator of the business’ health.
Someone told me this quarter that zero growth in sales and earnings is equivalent to an old plus 20. Well, we did better than zero but it sure doesn't feel like any plus 20.
As Gary said our December was a killer for most businesses was the best month improvement wise in our quarter. We just wish it was a bigger month.
Let us review the quarter’s details. Revenue for the first quarter grew 14.9%; revenues totaled $248 million compared to $216 million for the fourth quarter last year.
Net income for the quarter is $12.6 million as compared to $11.9 million last year, a 5.2% improvement. While diluted earnings per share this quarter is $0.13, an 8.3% improvement over the $0.12 reported last year in the fourth quarter.
Another important measure, earnings before interest, taxes, depreciation and amortization, EBITDA, was $30.9 million increasing 28.4% over the fourth quarter last year. EBITDA grew faster than net income due to $1.9 million of amortization of intangibles relating to this year’s HomeTeam acquisition.
I think as EBITDA improvement as a result of acquisition amortization, a little different than capital intensive companies with high depreciation constantly having to reinvest their cash for plant and equipment. HomeTeam Pest Defense contributed revenues of $31.7 million for the quarter and $98.9 million year-to-date.
Excluding the impact of HomeTeam revenue increased two-tenths of one percent in the quarter and 3% year-to-date. As Gary has already mentioned the nearly 20% drop in the Canadian dollar in the fourth-quarter negatively impacted our total revenue growth.
Looking just at our US domestic revenue, excluding both the impact of HomeTeam, which wasn't in last year's results and our Canadian operations which represent approximately 7% of our revenues, for the quarter total revenue was 1.6% growth versus 1.9% last quarter on the same basis. Growth is slowing but not precipitously like so many other businesses today.
Let us talk about the business lines starting with the fastest growing part of our business this year; commercial pest control represented 40% of our business this year. Substantially all of the pest control business we serviced in Canada is commercial.
This quarter on a constant dollar basis work in Canada grew over 5% but in converting it to US dollars its contribution to our consolidated results was an unfavorable 14.1% decrease and as a result dampened our overall commercial revenue growth to an 1.8% increase. To draw a clear picture of the health of our commercial business we need to separate the impact of Canada and just look at our domestic and commercial business over the last four quarters working backwards, 5.7% growth this quarter, 5.7% last quarter, 7.2% in Q2, and 6.4% in Q1.
For the full year in 2008 our US commercial revenue grew 6.6% versus US growth in 2007 of 5.5%. Commercial customer retention declined slightly in the quarter, less than two tenths of a percent in our monthly cancellations and put us basically unchanged for the full year, equal to last year's record best retention rate.
Further testimony to the best in class service we are providing to our customers. I would like to add that we have yet to lose any significant number of commercial accounts as a result of the economy.
Due to the regulatory consequences of a business having pest problems it doesn't make much sense to cancel or switch providers if we're doing a good job. Our residential pest control service now represents around 41% of the business and for the first time in a long time declined slightly less than 1% excluding HomeTeam's contribution, slowing a little over 1% from last quarter’s growth and brings the year-to-date growth to less than 1%.
With HomeTeam residential pest control grew almost 29% in the fourth quarter compared to the prior quarter, prior year quarter. Orkin saw an 8% decrease in lease during the quarter.
Historically, we see some weakening in residential demand during downturns but the quarter was impacted by bad weather as well and quite frankly it is impossible to determine the impact of the economy versus the weather. Retention declined slightly in the quarter less than two-tenths of a percent in our monthly cancellations.
Lastly, let us talk about our termite service revenues, which now represent around 18% of our business and grew 19.5% as a result of the acquisition of HomeTeam. However, excluding HomeTeam's contribution our previously existing business declined in the quarter less than 2% similar to last quarter.
Termite work has a much larger dollar purchase. Given the consumer sentiment this portion of our business has held up surprisingly well all things considered.
Cancellation rate was basically flat in the quarter and it actually improved ever so slightly for the full year. We have new sales and service programs identified that we think can reverse this industry-wide malaise.
Gross margins for the quarter improved 70 basis points to 46.4% for the fourth quarter versus 45.7% in the prior year. Excluding the impact of HomeTeam’s higher cost of services margins improved to 130 basis points due primarily to 92 basis improvement in cost of risk.
We closed out the year at Orkin with a 40% plus reduction in paid termite claims. We did get some relief from fleet costs this year in that – this quarter in that they were flat the prior year for the first time all year.
Deprecation and amortization expense for the fourth quarter totaled $9.1 million with amortization of intangibles at $5.2 million and depreciation of $3.9 million. Amortization increased $1.9 million in the quarter, an increase of 58% due to the almost $90 million assigned to customer contracts and other intangible assets as part of the HomeTeam acquisition.
I point this out each quarter as investors new to Rollins sometimes overlook it. The amortization of intangibles represents a significant non-cash charge to the P&L.
Under GAAP we write-off the fair value of signing the customer contracts acquired in acquisitions over their economic life. In 2008, total amortization of intangible expense was $19.2 million and will increase to nearly $22 million in 2009 reflecting a full year of HomeTeam's results and other acquisitions made late in ’09 – ‘08.
Based upon our fully diluted share outstanding it was a non-cash after tax charge of $0.12 this year and $0.14 to GAAP EPS in 2009. Sales, general and administrative expenses for the fourth quarter ended December 31, 2008, increased $9.5 million or 12.7% to 33.9% of revenues from 34.6% last year.
$8.4 million of the dollar increase was due to the addition of HomeTeam. Sales, general and administrative expenses excluding the impact of HomeTeam as a percent of revenues increased 40 basis point due to sales salary investments, accrued severance costs related to home office reductions and increase in bad debt expense.
The increase was partially offset by a decrease in costs related to reduced summer sales programs. Gary has already mentioned the continuing contribution of HomeTeam and I wish to echo how they have exceeded our expectations particularly in improving their margins.
Even with the large write-off of intangibles, the acquisition expenses and interest expense on the debt to fund the purchase HomeTeam was accretive on a GAAP basis in its first year. They have moved aggressively to adopt our risk management and other cost-saving programs substantially reducing their historical insurance and other costs and hence improving margins.
Rollins continues to be financially solid. We generated $75.9 million in free cash flow, cash provided from operations less CapEx, this year representing 7.4% of revenue.
Rather than using our strong cash flow to recapitalize the banking system this quarter we were able to reinvest some funds towards our number one priority, acquisitions. By acquiring the leading commercial pest control service company servicing Northern California in the Reno/Tahoe Basin, Crane Pest Control.
Crane is a very profitable operation and will contribute nearly $11 million in annual revenue in 2009. We also returned money to our shareholders this quarter by repurchasing 835,300 shares of common stock at an average weighted price of $15.57 per share bringing the total share repurchases for 2008 to nearly 1.4 million shares.
Over the last 40 years the company has brought back 7.7 million shares adjusted for stock splits. We have approximately 4.6 million additional shares that can be purchased under a previously approved program by the Board Of Directors.
We recognize that with short-term treasuries currently yield near 0% and the economic growth likely to remain subpar dividend coverage and safety is even more important to investors. Our board feels confident of our continuing and consistent strong cash free cash flow and as a result the Board Of Directors approved a 12% increase in the company's quarterly dividend yesterday.
The increased regular quarterly dividend of $0.07 per share will be payable March 10th to stockholders of record at the close of business February 10, 2009. On an annual basis the dividend payout increases from $0.25 per share to $0.28 per share.
This marks the seventh consecutive year the board has increased the company's dividend 12% or greater. As we enter 2009, we are cautiously optimistic.
Our business model has held up well in prior recessions and has appeared to have weathered most of this year's economic storm. We look forward to the increasing contributions from our acquisitions.
We will keep a close eye on our operating expenses and enjoy the relief from last year's high fuel charges for at least a little while. As always looked forward to spring when the warm weather returns and as pest control demand and we can get a clearer picture of what the year holds for us.
Keeping pests in their place is our only business. If we can help you keep us in mind 1-1800-800-ORKIN.
I will now turn the call back over to Gary.
Gary Rollins
Thank you Harry. We are now ready to open the call for any questions that you might have.
Operator
Jamie Famalette – Sidoti & Company
Gary, Harry. Good morning.
Gary Rollins
Good morning.
Harry Cynkus
Good morning.
Jamie Famalette – Sidoti & Company
Harry, I'm not sure I saw this in the release and I don't recall you mentioning it in your prepared remarks what was CapEx all in for 2008, do you have an approximate number?
Harry Cynkus
Including CapEx from acquisitions it was right around $15 million.
Jamie Famalette – Sidoti & Company
And is – pardon me, a rough guess for what 2009 might look like?
Harry Cynkus
I would give you a range right now $14 million to $18 million.
Jamie Famalette – Sidoti & Company
Okay, so it is similar, all right.
Harry Cynkus
Similar.
Jamie Famalette – Sidoti & Company
Thank you and Gary, you spent a little bit of time talking about the franchise programs earlier in your prepared remarks, can you talk a little bit about the differentiation between your strategy within North America versus outside of North America and obviously you mentioned Kuwait, I was just curious for your thoughts.
Gary Rollins
Well it is quite a different. In the United States or North America we only will select proven pest control operators as franchisees.
Most (inaudible) these are working alone now. We have always you know, before the franchise program lost 6 or 7 managers because they just wanted to go into business for themselves and pursue their entrepreneurial spirit.
And so we have a pretty good stream of franchisees and as a result they are familiar with Orkin, they keep their uniform; they keep their vehicles on their own vehicles et cetera. So it is a very smooth transition and we also have a kind of a guaranteed buyback situation at different milestone dates, 7 years, 10 years, something in that nature.
They are required to sell their business to us at a predetermined price and this really works well for both sides because quite often these people are, you know, by the time they get into the program are in their 50s or early 60s and they are really looking for an exit to the business as well and they've got a guaranteed purchaser. This represents, I guess, about 32 – they do about $32 million you know, we had a couple each year.
They pay us the 6% royalty and subsidize some other things like advertising and training. The domestic, I mean the international dealers is quite different in that we are looking for successful business people in these foreign locations typically people that are in service related industries, janitorial or cleaning business, route delivery type businesses.
Recently, one I think the Turkey franchisee was in the snack food delivery business. People that kind of understand getting a service person to the right place at the right time and of course, we take our money.
We are not copartners. On the start ups, you know, they are given fixed amounts that they have to pay us and then after they mature they get more on a percentage basis.
Jamie Famalette – Sidoti & Company
Okay, thank you very much. I appreciate that and I will get back in the queue, thanks.
Gary Rollins
Okay, thanks.
Operator
Thank you. Our next question is from the line of Clint Fendley with Davenport & Company.
Please go ahead.
Clint Fendley – Davenport & Company
Thank you. Good morning Gary and Harry.
Gary Rollins
Good morning Clint.
Clint Fendley – Davenport & Company
The first question, the pension accrual on the balance sheet any thoughts Harry as to the timing and amount of any potential cash contribution to your?
Harry Cynkus
We have been contributing $5 million a year for each of the last several years. We are working with our actuary now to determine clearly what the requirements will be in ’09 that we went from an actuary overfunded status to about 86% funded status and you know, we need to make some long-term decisions in terms of sourcing that gap, the government's laws have changed in terms of requirements.
We do still have some credits available. So I can say the contribution won’t be less than $5 million that is clear.
Whether we will need to increase it to $10 million hasn't been determined. It will take probably at least 5 and I don't know how much more but it shouldn’t be dramatic in terms of a demand in our free cash flow.
Clint Fendley – Davenport & Company
Okay, great thank you. That is helpful and then I may have missed it but the DSOs for the quarter, were there any noticeable changes there?
Harry Cynkus
No, you know the – I don't have it right handy but it is less than I think we are actually at decreases in some of the operations but in the largest of operations, Orkin, it was up less than a day.
Clint Fendley – Davenport & Company
Okay great and the final question, any idea as to the EPS benefit that we might have for 2009 if the fuel prices stayed at this level for the entire year?
Harry Cynkus
It stays at this level, let us say, that is going out on the limb, as volatile as it has been but it is – in terms of EPS if the – I can give you a range because I wish I could tell you what fuel is going to do but anywhere from $0.03 to $0.07 impact. It is – I just don't feel comfortable projecting fuel prices.
Lot of people lost lot of money last year.
Clint Fendley – Davenport & Company
Understood. Thank you and good job in a very difficult climate here.
Thanks guys.
Gary Rollins
Thank you.
Operator
(Operator instructions)
Gary Rollins
Harry, I hope this is a good sign.
Operator
Our next question is from the line of (inaudible) pardon me, I am sorry, Garo Naruein [ph] with Blackrock. Please go ahead.
Garo Naruein – Blackrock
Hi, I just wanted to ask a little bit more about this acquisitions environment and it sounds like there is certainly an increase on the conversations perhaps going on and I want to get sense of as far as prices paid, how does that compare today versus maybe 12 months ago over a longer period of history?
Gary Rollins
Well, you know, the fuel cost earlier climbed early in the year startled a lot of operators and had them come and take a harder look about whether they need to this was the time to sell or not. We saw a kind of an uptick at that point and of course from an economic point of view there is nothing and really has taken place it has been favorable.
So I think there is definitely a lot more people, we are getting more enquiries. I think we have proven ourselves to be the acquirer of choice because we really are not heavy-handed with the company that the companies that we acquire.
So, you know, we've got great references when they contact Western or even as recently as HomeTeam. So, we are very optimistic.
We think that there are a lot of people that – this is just kind of the push that they need to make the sale decision. Price-wise, I think prices have gone down.
Some of the people that were spending money – in our determination fairly loosely are no longer pursuing acquisitions. You know, we pretty much held to our guns and didn't feel like we could chase some of the amounts that were being paid.
So I really think that we pretty much – we are in a good position that you know, to really buy some of these businesses at a very good value.
Garo Naruein – Blackrock
Great and just historically what kind of multiples have you guys had.
Gary Rollins
The business is kind of funny because typically it has been sold on a multiple of revenue. You know, there is quite a bit of (inaudible) in some of these smaller companies and multiples of revenues have been kind of the way that businesses have been placed.
Our models are far more sophisticated than that. We really look at what is going to happen to the business after we own it and so there is a lot of things that really kind of determine our value, how profitable it is at that time, what are some of the expenses that are going to disappear when a person sells and so, you know, I think you can convert that if you wanted to kind of back into the percentage of revenue that could be probably anywhere from $0.80 to maybe $1.10.
But typically historically once you restate the amount to the EBITDA, 6 to 7 times EBITDA and obviously there are variations in that.
Garo Naruein – Blackrock
Great, thanks very much.
Gary Rollins
Thank you.
Operator
Thank you, our next question is from the line of Patrick Stowe with Priority Capital. Please go ahead.
Patrick Stowe – Priority Capital
Thanks, good morning.
Gary Rollins
Good morning.
Patrick Stowe – Priority Capital
I just wanted to clarify; did you say that termite claims were down 40% year-over-year?
Gary Rollins
That is correct.
Patrick Stowe – Priority Capital
So that – does that make it $7.5 million for the year?
Harry Cynkus
Yes.
Patrick Stowe – Priority Capital
Any idea what the provision for ’09 on that will be? I'm just looking back I mean in 2006 that was a $17 million charge.
So, obviously it has dropped significantly.
Gary Rollins
Yes and the provision should match pretty close in ’09 we expect to claim levels and we are hoping that and looking to reduce the number of claims in ‘09 from ‘08. I don't think we can expect another 40% reduction but by the same token the number of new claims last year was down significantly from the year before, the number of open claims was down as well.
So, we think the number should continue to trend down but certainly we can’t keep that pace up.
Patrick Stowe – Priority Capital
I mean is it just an issue where the old termite applications aren’t really as much of an issue any more? And what are the trends driving that really?
Gary Rollins
I think the largest trend is that back in the late 90s we went from lifetime repair contracts to term contracts and you know, we've been able to do a good job in matching the efficacy of the contract with the term of the contract, and you know as a result we're seeing a reduction. In addition you know based on lot of actuarial work that we did as we felt a matrix.
So we're much more – much smarter in imagining the risks that we will incur soon. We know what home type constructions are problematic and what not.
So lot of work over the years that have all contributed to the trend.
Patrick Stowe – Priority Capital
Well I appreciate the color and good luck to you.
Gary Rollins
Thank you.
Harry Cynkus
Thank you.
Operator
Thank you. (Operator instructions)
Gary Rollins
Well, thank you all for joining today's call and your interest in Rollins and we look forward to participate. We have a late question, okay.
Operator
Excuse me, would you like to take the questions sir?
Gary Rollins
Yes.
Operator
That question is from the line of Tom Quinn [ph] with Deutsche Bank. Please go ahead.
Tom Quinn – Deutsche Bank
Hi. Thanks for taking my question.
Two quick ones. How do your contracts work if a restaurant has a chain and they close a few units, you get revenue per store or just the contract stays the same?
Gary Rollins
We would lose the revenues that went with the stores that closed.
Tom Quinn – Deutsche Bank
Okay. And the –
Gary Rollins
I like it your way though. It is better.
We can’t get them to stand for that.
Tom Quinn – Deutsche Bank
Okay and then you know I have listened to lot of conference calls where you know, lot of managements talk about how bad the economy is and they are going line by line through their costs trying to reduce some, and I understand in your business how you know it is contractually set up and how regulations have acquired your services in some cases but have any businesses come back to you not trying to cancel or anything like that but just trying to ask for a better price?
Gary Rollins
Oh sure. I mean you know typical national – national accounts you know do.
We have a little bit of room in that we can if it's a non-food type of account it has no food sales or service or whatever we can make some adjustments sometimes with the service frequency because you know, you can certainly under some circumstances if they have no pest and we've remedied their pest problems and we sometimes can look at if there are twice a month customers sometimes we can reduce that to once a month but we're not involved in any price reductions or anything of that nature I mean it's just taken a long time to get our prices up and so we're pretty firm about holding the line.
Tom Quinn – Deutsche Bank
Okay, all right. Thank you very much.
Gary Rollins
Thank you.
Operator
Thank you and we do have a question from the line of Andrew Mahoney [ph] with Green Arrow [ph]. Please go ahead.
Andrew Mahoney – Green Arrow
Hi, thanks. Actually I just have one question.
Can you quantify what earnings per share accretion were from the HomeTeam acquisition in 2008?
Harry Cynkus
No. We typically don't break up the earnings of our various operating divisions but it was as we mentioned mildly accretive.
Andrew Mahoney – Green Arrow
Okay, and cost synergies should accelerate in 2009 for that one property, the acquisition?
Harry Cynkus
Yes, we have – as we said in some previous calls you know we set out a four-year plan and model that we believe we could bring their margins up to equal to what the margins in our other operating businesses are excluding the impact of the intangibles and they are operating well ahead of schedule and we believe we have opportunities to further improve their margins.
Andrew Mahoney – Green Arrow
Okay thank you.
Operator
Thank you and there are no further questions at this time. I would like to turn it back to management for any closing comments.
Gary Rollins
Okay, well thank you again for joining our call and your interest in Rollins. We look forward to your participation on our next quarter’s call.
Thank you.
Operator
Thank you ladies and gentlemen. This does conclude the Rollins Inc.
fourth quarter 2008 conference call. If you would like to listen to a replay of today's conference you can dial 303-590-3000 or you can dial 1800-405-2236 and enter the access code 111-24-781 followed by the pound sign.
We thank you for your participation. You may now disconnect.