Rollins Inc

NYSE:ROL

Earnings Call Transcript 2018-Q2

[Operator]

Excuse me, everyone. Good day and welcome to the Rollins Inc., Second Quarter 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session and instructions will be given at that time. [Operator Instructions]

I would now like to introduce your host for today’s call, Marilyn Meek. Ms. Meek, you may begin.

[Marilyn Meek, IR]

Thank you, Todd. 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 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 1-888-203-1112 with the pass code 3402261.

Additionally, the call has been webcast at viavid.com. And the replay will be available for 90 days. On the line with me today and presenting are Gary Rollins, Rollins’ Vice Chairman and Chief Executive Officer, John Wilson, Rollins’ President and Chief Operating Officer and Eddie Northen, Senior Vice President and Chief Financial Officer and Treasurer.

Management will make some opening remarks and then we'll open up the line for your questions. Gary, would you like to begin?

[Gary Rollins, Vice Chairman and CEO]

Yes Marilyn, and thank you, and good morning. We appreciate all of you joining us for our second quarter 2018 conference call. Eddie will read our forward looking statement and disclaimer and then we'll begin.

[Eddie Northen, SVP and CFO]

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 our SEC filings, including the Risk Factors section of our Form 10-K for the year ended December 31, 2017, for more information and the risk factors that could cause actual results to differ.

[Gary Rollins, Vice Chairman and CEO]

Thank you, Eddie. We’re very pleased to report our 49th consecutive quarter of improved revenue and earnings. For the quarter, our revenues grew 10.8% to 480.5 million compared to 433.6 million for the same period last year. Net income increased 21.1% to 65 million or $0.30 per diluted share compared to 53.7 million or $0.25 per diluted share for the same quarter last year. Revenues for the first 6 months rose 9.9% to 889.2 million compared to 808.8 million for the same period last year. Net income increased 20.9% to approximately 113.6 million with earnings per share at $0.52 per diluted share compared to 94 million or $0.43 per diluted share for the same period last year. We experienced good growth in all of our business lines, with residential up 11.6%, commercial pest control rose 6% and Termite & Ancillary services rose 16.9%. Eddie will provide greater detail on our financial results in a few moments.

We’re extremely pleased with the expansion that we continue to make with our global footprint. During the quarter, we made two significant acquisitions in this regard. In May, we acquired Guardian Pest Control in the United Kingdom. Guardian was founded in 2002 and is a well-recognized for its pest control services, legionella disease control and hygiene services. These services are provided to commercial customers throughout the UK’s midlands. This acquisition, our fourth in the UK, will help us to expand our footprint within this country. As in the past, we look forward to sharing best practices with one another.

On July 2nd, we marked another important company milestone, having closed on the acquisition of Aardwolf Pestkare, our first company owned acquisition in Singapore. Founded in 1997, Aardwolf is a highly regarded company and known for its superior pest control and specialty services to both residential and commercial customers. In selecting to partner with Rollins, founders John Ho and Patrick Chong shared that it has taken them 3 years to find a company that had the same business philosophy that they had. Both of our company's share a commitment to quality service and care for our employees. We're most pleased that Patrick Chong will remain in a leadership role and we look forward to working with him and his fine team with the goal of becoming the dominant pest control provider in Singapore.

The landmark acquisition expands our residents now into 54 countries worldwide. John will provide greater details on this acquisition. We received an overwhelmingly positive response from our employees, resulting from the tax related benefit improvements announced last quarter. If you look around, we granted Rollins’ stock to over 7,000 employees based on tenure with the company. This was a one-time charge for the second quarter P&L. On a going forward basis, our 401(k) plan was improved, which benefited all participating employees. This was complemented by an additional floating holiday and an enhanced college scholarship program. Investing in our people is always beneficial and critical to our mission to become the world's best service company.

Before turning the call over to John, I'd also like to acknowledge HomeTeam is receiving for the 7th time in a row, David Weekley’s highly coveted Partners of Quality award. David Weekley Homes is the largest privately held builder in the country, implementing its rigorous supply feedback platform as a way to measure world class lender excellence. And to demonstrate their commitment to partner with our suppliers, believing that when a partner improves his relationship with them, they both become better providers in the marketplace. HomeTeam performs thousands of services for David Weekley Homes at 13 cities where they conduct this. This award confirms HomeTeam’s commitment to providing exceptional service to its business partners.

I’d now like to turn the call over to John.

[John Wilson, President and COO]

Thank you, Gary. I’m often asked about whether the tight labor market and the competition for talent is impacting our business. As you well know, in April and May, the unemployment rate reached lows not seen since 2000. However, I'm pleased to report that our brands are dealing fairly well with this issue. We believe the strength of our various brands recognition and their reputation has helped, evidenced by the volume of applicants we continue to get for employment opportunities at Rollins companies.

Through the first half of this year, our number of applicants per job opening was similar to a year ago. And for March and April, when unemployment figures hit their lowest, our applicant flow remained comparable to 2017 levels as well. That said, we recognize a strong applicant flow is not enough. We also have to ensure that our hiring processes are efficient and that we select the right people. Towards that end, we have made a few changes to our assessment tools and pre-employment screening processes to reduce the time it takes to get someone on board and begin their training programs.

Any reduction in time we can implement around these processes reduces the risk that we lose a good candidate to some other employer. Most importantly, it allows us to review hard and ultimately choose well. One of the most important ways we do that is by having our top job candidates complete what we call, an observation day, where the candidate spends time shadowing one of our top employees who performs really well in the same type of work. This helps a candidate to decide whether the work we do in our company is a good fit for them. We get to see how they interact with co-workers and their likelihood to fit into the team.

This additional step also helps to ensure we select the best people. One other added benefit of taking the time for the observation period is that it keeps the candidate engaged and active during the process and gives our managers a bit more time to check background and references on their candidates. 4.5 years ago, we pledged to hire 1,000 veterans over 5 years and we’ve put more effort into recruiting military veterans. These folks are returning from Iraq, Afghanistan and other places around the world and are well trained, very motivated and very disciplined. I am happy to report that we have exceeded that goal by 177 new team members prior to the 5th year being completed.

At the end of last year, we also hired a human resources consulting company to review the effectiveness of our compensation programs. They found that our company is in the top quartile in compensation with comparable industries. However, they have also shown us areas to improve. We feel strongly that being the employer of choice for the pest control industry and even for the service industry at large will continue to provide us with a good supply of candidates to choose from. In addition to ensuring we get the right people on our team, we also want to get them up to speed more quickly.

As I mentioned on a previous earnings call, we were evaluating the best way to move forward. Prior to making any ill advised decisions, we decided to survey our new hires to see how well we were doing with their on-boarding experience. We found out we weren’t always doing a very good job of providing these folks with an experience that would help them to be successful and leave our customers happy.

In late 2017, we implemented new on-boarding processes to improve the experience. We wanted them to feel a part of the team from day one and to quickly get the training and development they need to learn their jobs more quickly. By making these changes based on this survey feedback, we have made improvements. Today, our on-boarding surveys tell us that 93% of our new hires are proud to work for our brand and over 90% said they would recommend our company as a great place to work.

Of course, there is a lot more to this than just selecting and hiring new team members, we have to train them exceptionally well, provide them with all the tools necessary, show them that there is plenty of opportunity with our company, compensate them well and most importantly, treat them well. There are certainly a lot of moving parts to it, but it is well worth that extra effort to ensure that we build and maintain a strong team. So while the labor market is tight, we're continuing to adjust. We know talented people have choices and we want the Rollins brands to be a leading contender for the best talent.

Following up Gary’s remarks on our acquisition of Aardwolf and Guardian, I wanted to reiterate how pleased we are to have them join our company. The depth and talent of the leadership team at Aardwolf played a major factor in our desire to join with this organization. With the strong history of growth and leadership in the industry, Aardwolf shares many similarities with the Rollins family of brands. Gary mentioned that Patrick Chong remains with us to lead this talented team forward. We wish John Ho well as he transitions into retirement and begins to travel and spend quality time with his family. We look forward to working and learning from these new members of the Rollins family for years to come.

I will now turn the call over to Eddie.

[Eddie Northen, SVP and CFO]

Thanks, John. The hiring method that John discussed is extremely timely, with the historic revenue growth rate that we've seen this quarter, which followed a very strong Q1. While M&A made up roughly half of the 10.8% growth rate that Gary mentioned, the remaining 5.4% organic growth rate drove the need for accelerated hiring and additional service payroll to get these new accounts, up and running with a quality service. Our financial results continue to show the impact of our extremely high level of acquisitions over the past six months, as depreciation and amortization impacted both our income before taxes and net income. That said, we look forward to the related profit improvement in the future.

For the quarter, all of our service lines showed significant growth and keys to the quarter included historic commercial organic revenue growth, substantial increase in depreciation and amortization, as a result of multiple acquisitions and thirdly, fleet expense increase, which was impacted by lease cost and a significant increase in fuel price per gallon.

Looking at the numbers, the second quarter revenues of 480.5 million was an increase of 10.8% over the prior year’s second quarter revenue of 433.6 million. Income before taxes increased 4.7% to 90.2 million from 86.1 million in 2017. Net income rose 22.1% to 65.5 million and earnings per share increased 20% to $0.30 per diluted share in the second quarter of 2017.

As we discussed last quarter, there were two unusual items that affected the profit numbers compared to the typical quarter, as they will continue to do for the remainder of 2018. The first was the enhanced employee benefit that Gary referred to earlier. This impacted the second quarter by about a penny due in part to the expense related to our enhanced 401(k) match and the one-time stock grants to many of our US based employees. We received very positive feedback from our workforce on this tremendous use of a portion of our tax savings.

Additionally, the second significant item is the increase in recent acquisition, which has increased our amortization of intangible assets for the quarter by 27.3%. Over the past five years, our average increase of amortization of intangible assets year-over-year has been 9.5%. Compared to last year, this significant increase also impacted the earnings per share by a penny and is a tremendous investment for our future.

With our strong increase in pest control revenue generated, there is an aspect of our business that we have not spent a lot of time discussing in the past. This is related to start-up costs for new recurring businesses. This would include initial sale, materials and supplies, sales commissions and labor costs, all of which falls in the first month of service with only a portion of the revenue recognized.

For commercial customers, this would include equipment need such as rodent trap, fly lights and base station, just to name a few. The time to get this equipment in place and to provide the needs of the new account reduced the profit contribution for the first three to four visits. Once we are at that four to five visit level, the profitability significantly improved and this is a key reason that we concentrate on high levels of customer service to ensure that we retain these customers for years to come.

Because of the consistency of our organic revenue growth over the years, this has not been readily visible in our quarterly numbers. With the recent significantly accelerated organic growth, especially on the commercial side, the revenue growth of over 4% in Q1 and Q2, we felt that this was a timely discussion for us to have.

A deeper look into our organic growth rates reveals that in Q2, our recurring revenue grew greater than 10%, well above our historic norm. We believe that our investments in technology, training and our employee base are paying these dividends. In comparison, we know that one time revenue is immediately profitable, but the recurring revenue will ultimately generate excellent profitability. With strong residential and commercial retention rate, this investment will pay dividends for years to come.

Let's take a look through the revenue by service line for the second quarter. As discussed earlier, our total revenue increase of 10.8% included 5.4% from several acquisitions and the remaining 5.4% was from pricing and organic growth. In total, residential pest control, which made up 42% of our revenue, was up 11.6%. Commercial pest control, which made up 37% of our revenue was up 6% and termite and ancillary services, which made up approximately 20% of our revenue was up 16%. Our commercial growth has trended higher over the past five years, but as I’ve mentioned, this quarter is the fastest growth that has occurred during that time period. Again, total revenue less acquisitions was up 5.4% and from that, residential was up 6.1%, commercial increased 4.2% and termite improved 3.3%.

When we take a look at the quarter, taking out the impact of foreign companies and currency, in total, we grew 10.9%, residential grew 11.5%, commercial pest control was up 5% and termite and ancillary improved 16.7%. In total, gross margin for the quarter was 52%, down from 52.8% in prior year’s quarter. A large impact was felt from gasoline costs that were up on average $0.39 per gallon compared to last year. However, our efforts around route optimization to our virtual route management system continues to see improvement and partially offsets the fuel increase.

The second quarter and specifically June revealed the best improvement in stops per mile since we completed our rollout of the virtual route management system in 2017. Fleet expenses in total increased 3.5 million or 21.5% for the quarter, driven by fuel price increases that I mention and leased vehicle expense. Personnel related costs were up due to the 401(k) plan company match and stock grant that we began to amortize this quarter. Depreciation and amortization expense for the second quarter increased 2.8 million to 16.4 million, an increase of 20.8%.

Depreciation increased 936,000 due to acquisitions, vehicle leases and equipment purchases as mentioned before. Amortization of intangible assets increased 1.9 million, due mostly to amortization of customer contracts included in the various acquisitions. Sales, general and administrative expenses for the quarter increased 13.7 million or 10.6% to 29.8% of revenues, down one-tenth of a percentage point from 29.9% for the first quarter last year. The decrease in the percent of revenue is due to lower salaries, which increased slower than revenue and reduced professional services, as we wrapped up various projects.

As for our cash position, for the quarter ended June 30, 2018, we spent 14.2 million on acquisition compared to 11.2 million the same quarter last year, as we continue to deploy higher levels of cash on acquisitions year-over-year and 61.1 million on dividend, an increase of 22%. We had 14.2 million of CapEx, which was up 27% from 2017, primarily from planned IT upgrades and the Northwest acquisition. We ended the quarter with 87.9 million in cash, of which 40.1 million is primarily held in non-interest bearing account at various domestic banks.

There is one other item to note related to our cash flow moving forward. We have initiated a process to transition our pension plan to an insurance provider. The time allotted will take the next 16 to 18 months, for which the pension plan over 100% funded, interest rates rising and pricing very attractive, we felt this was the best time to move forward. On an annual basis, historically, we have made a $5 million contribution to the pension plan. This means that we do not have any plans to make this payment moving forward in time.

Last night, the Board of Directors declared a regular cash dividend of $0.14 per share that will be paid on September 10, 2018 to stockholders of record at the close of business, August 10, 2018. The cash dividend is a 22% increase over the prior year. This marks the 16th consecutive year the board has increased our dividend by a minimum of 12%.

Before I turn the call over to Gary, I'd like to ensure that you are all aware of our Analyst/Investor Day on August 10 at the New York Stock Exchange, recognizing the 50th anniversary of Rollins, as a publicly listed company on the New York Stock Exchange. Gary, John, Julie and I will be giving an update on several parts of our business as we see them today and moving forward.

Gary, I’ll turn the call back over to you.

[Gary Rollins, Vice Chairman and CEO]

Thank you. We’re happy to take your questions at this time.

[Operator]

[Operator Instructions] We'll take our first question from Jamie Clement with Buckingham.

[Jamie Clement, Buckingham]

Eddie, if I can start with you if you don't mind. Typically, you guys don't talk about, on a quarterly basis, the difference between growth in recurring revenue versus organic growth. And I think based on the numbers you gave, the recurring number I think was like 2X that would be already pretty strong organic growth. So what exactly is the difference there? Because like generally speaking, if I think about you adding a commercial customer, I consider that recurring and if you sign a residential customer to a one year contract, I'd also consider that recurring, so what's the difference there?

[Eddie Northen, SVP and CFO]

Well, the reason why we’re pointing this out is because our profitability really begins after that third or fourth visit. Yeah. So, the first visit, the first, second and third visit, if it’s a commercial account, we’re setting up all this equipment, we’re setting up the base stations, we’re setting up the rodent trap, we’re learning the customer and by that fourth to fifth visit is really when all of that is behind us, the expense of all that is behind us and that’s when the profitability really improves rapidly. To a lesser degree, we'll still see that on the residential side. We may have sales commissions that may be a part of that new residential sale or we may also have a learning curve with the new consumer as well. So we were just pointing out with the rapid growth on the organic side, that’s a little bit different than what we've seen in the historical kind of regulated -- regular organic growth that we’ve seen think.

[Jamie Clement, Buckingham]

And then on the investments that you all have made this year into your employees, I think, you said it was about a penny for the second quarter. I think you said it was about a penny for the first quarter too. Am I right about that?

[Eddie Northen, SVP and CFO]

That’s correct.

[Jamie Clement, Buckingham]

I was little unclear, should that impact goal would be the same in Q3 and Q4 or should that go down because you've already given out the stock.

[Eddie Northen, SVP and CFO]

It will be slightly less than we began the amortization, we’ll have a slightly less amount of amortization in Qs 3 and Q4. So it will probably, to your point, I’ll probably round down slightly less than a penny.

[Jamie Clement, Buckingham]

Would it also be fair to say that based on John's comments about hiring more folks and that kind of thing, I mean, I would imagine that your technicians are more profitable, all else being equal after they’ve been on the job. I don’t know what the right number is, 9 months, 12 months, than when they just start. So if you’re adding a bunch of new business and you’re adding new employees, you sort of get a little bit of a double whammy that, right and it's temporary, right?

[Eddie Northen, SVP and CFO]

That’s right. We’re going to have the training expense, you’re going to have obviously hiring expense when you're hiring more people as we're able to grow this revenue as well as we're able to grow. And that’s part of the reason why John talked a couple of quarters ago about the on boarding process and making sure that we're doing the right things to move that retention in the right direction and why we wanted to follow up on that on this quarter. Do you have anything else to add to that, John?

[John Wilson, President and COO]

Yes. Jamie, in some markets, depending on regulatory requirements, it takes us 90 days to get a new person on the street and producing revenue, sort of taking care of customer. So, you're absolutely right. The longer therefore, the more profitable and the better that is. In addition, costs, some number, anywhere from $5000 to $10000, just to source and hire new employees. So it's a pretty expensive proposition upfront but that's why we want to put so much effort into sourcing right, hiring right and retaining those people.

[Operator]

We’ll take our next question from Tim Mulrooney with William Blair.

[Tim Mulrooney, William Blair]

So the gross margin contracted, I think, 80 basis points in the quarter, which was a little bit more than what we were expecting, how much of this was related to stronger organic growth, on boarding new customers as you discussed in your prepared remarks and how much of this was the impact from recent acquisitions?

[Eddie Northen, SVP and CFO]

Yeah. So I would say the organic growth was probably from a weighted average perspective, was probably the larger piece of that that we have, more employees are spending a little bit more time on those new customers as we added them so rapidly over these last two quarters. But then fleet it also a piece of that as well, but the fuel price is up on average, $0.39 per gallon and then our -- and our lease vehicle cost is up. So as we're adding these new customers and this new revenue and we're adding new employees, we have had additional vehicle lease expense as well. So those were two of the key items that really made that impact that you mentioned.

[Tim Mulrooney, William Blair]

And then secondly, on international expansion. I mean with some of the recent acquisitions, you've expanded your presence in the UK, now Singapore. You guys have leading positions in Canada and Australia as well. Could you just talk about the international pest landscape? I mean, are there any other large international markets where maybe you have a smaller presence today, but they have a large TAM maybe right for consolidation or further investment in the future and are these mostly in Europe or are there others in Asian and South American markets as well for example.

[Eddie Northen, SVP and CFO]

There's significant growth opportunities in lesser developed countries. The growth rates that we see in places like Southeast Asia and in China through our franchise groups, the growth rate there is significantly higher. To your point in Europe, there are some very mature markets that are larger markets that are out there and we’ll continue to be able to go through and take a look at different countries where, at this point in time, probably going to continue to still take a look at countries, where we understand the language, we understand the culture, it is a business environment we clearly understand, but we're going to continue to use these franchises to be able to know and understand these markets as we're growing and we’re moving forward, especially in these higher emerging opportunity, countries that are out there.

And it is a formula that's worked very well for us. I mean, the franchise group in total, the International Franchise group has grown significantly faster than our overall company’s growth rate. Now, of course, we only have the royalties portion of that from a financial perspective. But it gives us an opportunity to be able to know and understand the footprint and the opportunities that are out there around the rest of the globe. So, we feel good with Australia moving forward the way that it has and developing that landscape, starting there in 2014 and then adding new countries in 2016, the UK and now 2018, in Singapore. It's been a good cadence for us, first to be able to digest that and learn and understand more about those parts of the world and we’re excited about what that future looks like.

[John Wilson, President and COO]

Yeah. And Tim, I would just add. This is John Wilson by the way. I would just add that while we're excited about the opportunity, there's tons of opportunity in the countries that we've already expanded in and as you've got well no density, it’s really important to our businesses and so building out the footprint and the service capabilities of the countries that we're in already is real important to us improve in those businesses. So we're looking at opportunities and always interested, but I think my first priority is to take care of what we -- expand what we have I guess.

[Operator]

[Operator Instructions] We'll take our next question from Sean Kennedy with Nomura.

[Sean Kennedy, Nomura]

So I had another question that’s concerning the M&A, specifically the increase in M&A in recent years. I was wondering if there was a specific strategy behind the accelerating M&A over the last year, especially in mid to high valuations and competition for deals in the industry. Was decrease in taxes a factor?

[Eddie Northen, SVP and CFO]

I will answer the last piece of that. Our model, the decrease in taxes helped with the model when we take a look at it, but I would not say that that has been a driving factor behind anything. We continue just to find opportunities for good quality companies that want to join the Rollins family of brands that maybe aren’t necessarily looking for that biggest check and then happier company broken up. They’re looking for an opportunity to be able to join the Rollins family of brand and be able to continue to keep that legacy company intact and be able to continue to make improvements from there.

We’ve see that through the relationship that Gary and John and our other senior management folks have developed over the years that we continue to have these folks come to the table or come to us and in a lot of cases, we’re the only ones at the table. For the last two major deals that we did, it was not a situation of a bidding process. So the valuation that other companies are paying, we're not a part of that. It's more important that whole legacy piece and continuing to keep those good quality companies and employees and being able to go through and finally get to that.

And one of the key things and the most important thing to us, if you hear us talk about over and over is our company culture. And when someone else is selling a company and they have a very similar culture to us, the importance of their customers and their employee is, in a lot of cases, a driving decision. For Aardwolf, in Singapore, they told us that was the number one thing that made their decision for Rollins.

And as John talked about, it took them over three years to make their decision, but when they found us and learned about us and they found out more about our culture and who we are and what the company thinks about our employees and how we think about our customer experience and taking care of our customers, they said that was a perfect fit for them. Now, if they had chosen someone else where they had been a different price tag for them, it’s a possibility that that could have been the case, but the culture piece was really the most important part for them and we continue to see that with many, many opportunities that are out there from an acquisition perspective.

[Operator]

Thank you. We'll now take our next question from Michael Hoffman with Stifel.

[Brian Butler, Stifel]

This is actually Brian Butler for Michael today. Just to swing back on the international piece, in the markets -- the new markets are kind of in. Can you give a little color on the relative margins of where they are now versus kind of where the company is and what the opportunity is once you kind of get that density in those markets?

[Eddie Northen, SVP and CFO]

We don't break any margins down by any of our geographic areas. When we get an opportunity to be able to add density into a country such as we were able to do in Australia, things obviously move in the right direction, because we have one set of leadership that's going to be in place or the country. And as we were able to go through and add our third and our fourth and our fifth and sixth companies there, we're able to go through it and use that more efficiently. We're also able to be able to use our purchasing power at the company typically to be able to go through and enhance the margin in these existing countries and companies that we're buying. Our purchasing power for material and supplies and for vehicle and all those types of things as well as benefits in a lot of cases is a very positive thing what will impact the overall margin, but we'll break those out, but we'll have opportunities to be able to see how we can help our overall company's margin go forward when we add acquisition, not just internationally, but domestically as well.

[Brian Butler, Stifel]

Okay. Without getting I guess into the detail of what the margins are, just kind of what that range is in the sense of, when you add that density, does that add 100 basis points of improvement or is it -- just trying to look at a relative kind of, what the impact of those additional acquisitions are.

[Eddie Northen, SVP and CFO]

So when we acquire a company depending on what's already in place, we can typically pick up 4 to 5 margin points, when we go through and we strip out cost that we would not need to continue to run the company when we use our purchasing power as I just talked about, when we use our vehicle leases, when we put them on our benefit. And if there are opportunities to be able to create further synergies from there, whether it’s back office or whether it is their management structure, we're able to sometimes do better than that. But we're able to use our tools typically to be able to make them better. A great example would be when we acquired Critter Control and they really didn’t have a very strong Internet presence. So we were able to go through and use our marketing group to be able to help them further develop and improve their revenue stream in a more efficient manner that enabled us to be able to improve the margins there. So having our structure in place just enabled us to be able to provide that. [Technical Difficulty]

[Brian Butler, Stifel]

Switching over to the new customer, how long is it typically between the first and fourth visit?

[Eddie Northen, SVP and CFO]

It will depend on what kind of customer it is. So if it is a residential customer, let’s just say it is in every other month customer that we have, which is our most frequent visit, that third visit, you can help through the math there, so every other month times three visit is what we would be looking at. And then on the commercial side, I think the average of averages and I'm going to say that because you have some that, some customers revisit twice a week and some customers, we might have quarterly, the average of averages will probably be about a month. So now we're talking about that two to three month time period for the average of averages to be able to go through and --

[Gary Rollins, Vice Chairman and CEO]

Yeah, I think that's right. Six to eight months for a residential customer and for that third or fourth visit and three times in the quarter for the commercial.

[Eddie Northen, SVP and CFO]

And that's the reason why our retention rate, leading the industry is such an impactful item for us as far as profitability is concern, with residential, retention rates well into the '80s and commercial in the high 80, that's what really helped with that profitability. We keep those that are profitable over a long period of time.

[Brian Butler, Stifel]

Okay, great. And then on the SG&A side, I mean that kind of tracked with revenues from a growth perspective, it was up a similar amount. Looking forward, once you kind of anniversary some of the compensation changes you've made, is this -- what kind of leverage do you get on the SG&A side? I would expect it to be slower than revenue typically.

[Eddie Northen, SVP and CFO]

Well, so we'll definitely see leverage, this quarter was impacted by the enhanced benefit that we had for our employees. So if you kind of take that out, it’s kind of a one-time type of event, we would have seen a further improvement on the SG&A. But as we move through time, as we continue to streamline with the acquisition and one of the things that we're able to do is we're able to sometimes pull in back office support into a more consolidated environment and help reduce the overall cost. Those numbers should continue to move in a positive direction for us.

[Brian Butler, Stifel]

Okay. And this is the last one. Was there anything seasonally about the second quarter unusual that contribute to any of the margin headwind there or was this fairly typical second quarter?

[Eddie Northen, SVP and CFO]

I don't know if there's ever. You all will have to help me. I don’t know if there’s ever a typical second quarter. In April, it was still a little bit cool. In May and June, it warmed up and every year that cycle looks maybe a little bit different, but like I said, that organic growth rate really moves forward very, very positively, the recurring growth rate has really moved forward very, very positively. And we just hope to continue to be able to see that as we move forward.

[Operator]

Thank you. Our next question comes from Chris McGinnis with Sidoti & Company.

[Chris McGinnis, Sidoti & Company]

Just have two quick kind of follow-ups. Just quickly around the acquisitions, obviously, in Q1, I think you highlighted 16 smaller acquisitions, I guess obviously given the number, was there a number for Q2 that I missed, I may have missed that, if I did, I apologize.

[Eddie Northen, SVP and CFO]

I don't know if I have that exact number off the top of my head. It was somewhere around 4, 5. I think in total, we’ve got somewhere in around 20. I think I did mention the dollar amount that we had that we deployed this year versus last year as well.

[Chris McGinnis, Sidoti & Company]

And then just quickly on the increase in the fuel, is there any way to kind of offset that other than route out the optimization, is there a pricing mechanism, would that increase, just a little color around that would be helpful? Thanks.

[Eddie Northen, SVP and CFO]

We've really analyzed a hedge type of a situation and at this point in time, just isn’t really some expense for us to be able to look at that. Gasoline, in total, specifically has been somewhere between 3% and 4% in total. So to pick a chance of that, and being on the wrong side of that, we’ve not made a decision, we’ve made a decision not to do that at this point in time. Our real effort is around our routing scheduling and our route optimization and we have a lot of very, very good opportunity for us in that area as we move forward, not just in or chem, but in some of our other brands as well that have made some good improvement in the routing and scheduling piece.

So anything that we can do to continue to reduce our miles per stock, which we are in June with our best month we’ve had since the inception of this program, we continue to move that forward. That’s going to offset some of that fuel increase. And we're just not smart enough to be able to bet on almost every another on where that price per gallon is going to go as we move forward in time. So we’re going to do the parts that we can do and that’s making the routes more optimized and be able to reduce the miles that way.

[Operator]

[Operator Instructions]

[Gary Rollins, Vice Chairman and CEO]

Thank you all for joining us today. And we appreciate your interest in our company and look forward to updating you on our progress on our next call.

[Operator]

Thank you, ladies and gentlemen for joining today's conference. This concludes today's call. You may now disconnect.