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Rollins Inc (ROL -0.69%)
Q3Â 2020 Earnings Call
Oct 28, 2020, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings, and welcome to the Rollins, Inc. Third Quarter 2010 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Calabrese. Please go ahead, sir.
Joe Calabrese -- National Head of Investment, Fiduciary and Banking Services
Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact our office at (212) 827-3746, and we will send you a release and make sure you're on the company's distribution list. There will be a replay of the call, which will begin one hour after the call and run for one week. The replay can be accessed by dialing one (844) 512-2921, with the passcode 13710819. Additionally, the call is being webcast at www.viavid.com and a replay will be available for 90 days. On the line with me today and presenting are Gary Rollins, Rollins' Chairman and Chief Executive Officer; John Wilson, Rollins' Vice Chairman; and Eddie Northen, Senior Vice President, Chief Financial Officer and Treasurer. Management will make some opening remarks, and then we'll open the line for your questions. Gary, would you like to begin?
Gary W. Rollins -- Chairman and Chief Executive Officer
Yes. Joe, thank you. Good morning. We all -- we appreciate all of you joining us for our third quarter 2020 conference call. Before turning the call over to Eddie to read our forward-looking statement and disclaimer, first, I want to take a moment to recognize the recent passing of our former Chairman and my brother, Randall Rollins. Randall was an extraordinary human being and his accomplishments and contributions made at the various Rollins public and private companies over the years are unequal. He is missed greatly, not only by our family and his friends, but also by generations of Rollins employees and colleagues who he respected so highly. Many of you reached out with condolences upon receiving the news of his death, and I'd like to thank you for having our family and your thoughts as well as for your kind words. Eddie, would you please read our forward-looking statement and disclaimer.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
Yes. 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, 2019, for more information and the risk factors that could cause actual results to differ.
Gary W. Rollins -- Chairman and Chief Executive Officer
Thank you, Eddie. Looking at our third quarter performance, we are pleased to report another solid result, and we remain proud of our planned execution across all of our business service lines. Revenue grew 4.9% to $583.7 million compared to $556.5 million for the same quarter in 2019. Net income rose to $79.6 million or $0.24 per diluted share compared to $44.1 million or $0.13 per diluted share for the third quarter of last year. Eddie will review the GAAP and non-GAAP results shortly as there were meaningful adjustments impacting our financials. Revenues for the first nine months of the year were $1.62 billion, an increase of 7.6% compared to $1.51 billion for the same period last year. Net income for the first nine months increased to $198.2 million or $0.60 per diluted share compared to $152.6 million or $0.47 per diluted share for the comparable period last year. Again, Eddie will review these and our 9-month non-GAAP results in a few minutes. Turning to our business lines results. Residential pest control grew 10.5% during the quarter, reflecting the resiliency of this service and its strong demand. As anticipated, our commercial operation revenue was down year-over-year as commercial pest control continues to be negatively impacted by the COVID-19 virus and its related economic toll.
However, some businesses reopened during the quarter. And for some of these customers, their economic conditions improved. We've continued to narrow the revenue shortfall gap each month since April. Overall, we were pleased with the steady progress we've achieved under those circumstances. John will provide greater detail on these and our other operational results shortly. Overall, our people and business continues to perform well in what remains a complex environment. We have an unwavering commitment to keep our employees and customers safe. Our team's continued dedication in serving our customers has been outstanding. They are truly our greatest asset, and we're grateful for their efforts. Further, our commitment to safe practices involved our employees and customers as well. We continue to benefit from the high regard, trust and confidence that our customers have in us. Before turning the call over to John, I also want to acknowledge some recent key advancements that further strengthen our executive leadership. John Wilson, who many of you know through his involvement on our earnings conference calls and investor meetings, was promoted to the company's Vice Chairman. John joined the company in 1996 and has been an integral part in developing and executing Rollins strategic initiatives over the years.
This promotion is truly a testament to his leadership, work ethic and talent. Additionally, Jerry Gahlhoff was promoted to Rollins' President and COO. Since many of you may not be too familiar with Jerry's background, I'd like to take a minute and highlight a few of his many accomplishments. Jerry started his career in the pets control industry in 1991 and came to Rollins in the HomeTeam acquisition in 2008. He has successfully managed several areas of the company and has been instrumental in guiding meaningful growth and profitability in these businesses. He most recently led what we refer to as the Rollins specialty brands team, which includes HomeTeam Pest Defense, Clark Pest control, Northwest Exterminating, Western Pest, Waltham Pest and OPC Services as well as our very important Rollins human resources department and training department. A seasoned executive and well-respected industry leader, Jerry has a comprehensive understanding of our organization, business and is extremely well suited for the COO position. Another little-known fact is that Jerry came from an Orkin household as his dad was a 26-year employee. We're fortunate to have John and Jerry assume a greater role in our company, its direction in its future. We look forward to their continued contributions. Let me now turn the call over to John, who will provide more details on the aspect of our third quarter. John?
John Wilson -- Vice Chairman
Thank you, Gary. I am excited and grateful for the opportunity to be here. I wanted to start by providing some context to the current environment. While the coronavirus remains prevalent in many areas, we feel positive about our financial performance this quarter and how we are executing as a company to meet the needs of our residential and commercial customers, both in the U.S. and abroad. Our residential business remains solid. Our call centers are busy, and we are pleased with our results from this service line. We are also encouraged yet, at the same time, cautiously optimistic about the positive trends we have been seeing on the commercial side of our business. As Gary noted, our third quarter commercial results were down year-over-year. However, the operating environment steadily improved as the third quarter progressed, and we continue to see month-to-month improvements as more businesses reopened and the trust that our brands have built over time have enabled our technicians to provide service when and where needed. Still, we are, by no way, thinking that this pandemic is over. We remain diligent considering the current operating environment.
And with many experts projecting that another wave is possible, there remain many uncertainties. We are executing against our plan and continue to proactively navigate the best path forward. For example, out of concern for the health of our employees as well as our customers, stringent safety practices are ongoing and remain a top priority. To keep our technicians safe, we continue to adhere to the advanced health and safety protocols as recommended by the CDC. By providing a full complement of personal protective equipment for our customer-facing employees, we are continuing to build trust with our customers, while also demonstrating it is safe to do business with us. We are also working with our customers to create a safer environment for where they live and work. As we have discussed, Orkin and many of our other brands are now offering a commercial and residential disinfection service, which is effective in quickly and thoroughly eliminating a wide variety of serious pathogens. While it is still early, we are pleased with the very positive reception this new service line has been receiving from existing as well as new customers. During the third quarter, we steadily grew this new offering. Additionally, investors have asked us about the business impact of the devastating wildfires out West as well as the recent tropical storms and hurricanes that have made landfall in the U.S. While our hearts go out to those that have been adversely affected by these natural disasters, up to now, we have not had any significant business disruption. I would also like to take a minute to provide an update on our wildlife brands, who have experienced strong double-digit growth year-to-date.
For those of you who aren't too familiar with this business segment, the services we provide include live trapping and removal of wildlife, exclusion of wildlife from residences and other buildings and the repair and remediation of damages caused by wildlife. There is not a more urgent call for help than that customer who has a wild animal loose in their home or business. Although a small part of our total business, we have firmly established our position as the leading wildlife control provider in North America, and looking ahead, we believe that this is real opportunity to continue to grow this business. Lastly, I wanted to circle back to the promotion of Jerry to President and Chief Operating Officer. Not only does he have a strong foundation in the pest business, he does have a degree in entomology after all, he is that rarest of individuals who knows both bugs and the bug business inside out. He works very hard at improving himself each day. And I've watched him over the last 13 years improve every operation he has touched. I am excited to have Jerry in this new role. I'll now turn the call over to Eddie.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
Thank you, John. I believe that every reference that could be made regarding how long the last quarter has been has already been used, so I'm going to spare my attempt. I would like to pass along my thanks to your outreach regarding our late Chairman. Your words of reflection and support were truly appreciated. In 2016, we had our first-ever Investor Day in New York City, and our team had a chance to get to know many of you on that day. The primary reason for holding that event was to share the depth and breadth of our management -- of our senior management team. I've had discussions with many of you over the years about the eventual passing of the baton, and the elevation of Gary, John and Jerry show this in action. Each of them have been well prepared for years to take their perspective and vision to lead Rollins for years to come. We're fortunate as an organization. And as investors, I believe that you will be pleased with what the future holds. The obstacles that impacted Q2 began to subside, and our operations and nonoperations groups have made tremendous adjustments to the new life that we are all leading. Today, I'll share some details on our Q3 actual results and some additional insight to what we know today that will impact the future. For the quarter, our residential pest control and termite service lines showed growth and key to the quarter included: improvements in commercial revenue growth rates compared to the second quarter; impairment charges related to our personal protective equipment, also known as PP&E and the successful continued cost management implemented to drive margin improvements year-over-year.
As Gary referenced, I will be reporting both GAAP and non-GAAP financials that were impacted by vesting of shares this year and the impact of the pension plan moving off of our Rollins books in Q3 of 2019. Looking at the numbers, the third quarter revenues of $583.7 million was an increase of 4.9% over the prior year's third quarter revenue of $556.5 million. Our GAAP income before income taxes was $108.9 million or 136% above 2019. Net income was $79.6 million, up 80.6% compared to 2019. Our GAAP earnings per share were $0.24 per diluted share. On a non-GAAP basis, our income before taxes was $115.6 million this year compared to $96 million last year, a 20.4% increase. Our 2020 income before taxes was impacted by $6.7 million for the vesting of our late Chairman's Rollins shares. Additionally, 2019 was reduced by $49.9 million for our divesting of the pension plan off of our Rollins books. Both the vesting of shares and pension divesting were noncash items. Our non-GAAP net income was $86.3 million this year compared to $70.6 million in Q3 of 2019, a 22.1% increase. Looking at the first nine months revenue of $1.625 billion, that was an increase of 7.6% over the prior year's third quarter revenue of $1.509 billion. Our GAAP income before income taxes was $267.8 million or 41.6% above 2019.
Net income was $198.2 million, up 29.9% compared to 2019. Our GAAP earnings per share were $0.60 per diluted share. Our non-GAAP financials, taking the share vesting and pension plan into consideration, were income before taxes of $274.5 million, up 14.8% and net income was $204.9 million this year compared to $179.2 million in 2019, a 14.4% increase. Our non-GAAP earnings per share for the nine months were $0.63 compared to $0.55, which is a 14.5% increase. As we stated on our Q1 and Q2 calls, we began aggressively purchasing personal protective equipment in March and April. While these were costly, they were critical to keeping our operations running safely. As the cost of these materials have moved lower from the peak, we took a $2 million onetime charge to revalue our inventory. With pricing moving lower, we anticipate spending $1 million per quarter, down from the $2 million that we shared on previous calls. At this time, we would anticipate having this additional expense through Q2 of 2021. Let's take a look through the Rollins revenue by service lines for the third quarter. Our total revenue increased 4.9%.
That included 1.4% from acquisitions and the remaining 3.5% was from pricing, which was a small portion of that, but mostly from organic and new customer growth. In total, residential pest control, which made up 47% of our revenue, was up 10.5%; commercial, ex-fumigation pest control, which made up 34% of our revenue, was down 1.9%; and termite and ancillary services, which made up approximately 18% of our revenue, was up 6.2%. Again, total revenue less acquisitions was up 3.5% and from that, residential was up 9%; commercial, ex-fumigation, decreased 3.7%; and termite and ancillary grew by 5.9%. Our residential business continues to perform well. And the business on the commercial side has seen steady improvement each month since April. While we continue to manage our costs appropriately, it's difficult to know how the revenue levels will look as we move through the pandemic with restrictions continuing to change throughout the world. In total, gross margin increased to 52.8% from 51.7% in the prior year's quarter. The quarter was positively impacted by lower service and administrative salary expenses as well as lower fuel expense and continued improvements from our routing and scheduling efficiencies. Additionally, materials and supplies were up, as I referenced, related to the inventory revaluation of our personal protective equipment.
Depreciation and amortization expenses for the quarter increased $714,000 to $22.4 million, an increase of 3.3%. Depreciation increased $1 million due to acquisitions, vehicles acquired and equipment purchases, while amortization of intangible assets decreased $286,000 due to the full amortization of customer contracts from several acquisitions, including HomeTeam and tuck-ins related to Orkin. Sales, general and administrative expenses for the third quarter increased $838,000 or 0.5% to $168 million or 28.8% of revenues, down from 30% last year. The quarter produced savings in salaries and benefits, lower fuel and bad debt through better collection efforts. As for our cash position for the 9-month period ended September 30, 2020, we spent $79.9 million on acquisitions compared to $431.2 million in the same period last year, which included the acquisition of Clark Pest Control. We paid $91.7 million on dividends and had $17.7 million of capital expenditures, which was slightly lower compared to 2019. We ended the period with $95.4 million in cash, of which $62.9 million is held by our foreign subsidiaries. Before I close, I would like to give an update on one of our sustainability initiatives, particularly as it relates to our local communities.
Through corporate and brand initiatives, such as our Rollins United and Northwest Good Deeds Teams, Rollins employees across all brands are strongly encouraged to volunteer within our local communities. In 2021, our employee volunteer goals include: community cleanup efforts, trafficking education awareness, literacy programs and support of the united way, to name a few. Rollins is committed to giving back to our communities through a strong philanthropic vision. Please go to rollins.com under the Investor Relations tab to view the full 2020 sustainability report. Yesterday, the Board of Directors approved a large regular cash dividend of $0.08 per share plus a special dividend of $0.13 that will be paid on December 20, 2020, to stockholders of record at the close of business November 10, 2020. In addition, they also announced a 3-for-2 stock split that will take effect December 10, 2020, for stockholders of record at the close of business on November 10, 2020. Gary, I'll turn the call back over to you.
Gary W. Rollins -- Chairman and Chief Executive Officer
Well, thank you, Eddie. We're happy to take your questions at this time.
Questions and Answers:
Operator
[Operator Instructions] The first question is from Tim Mulrooney, William Blair. Please go ahead sir.
Tim Mulrooney -- William Blair -- Analyst
Yes, good morning everybody. Gary, my condolences once again to you and your family on the passing of your brother.
Gary W. Rollins -- Chairman and Chief Executive Officer
Thank you.
Tim Mulrooney -- William Blair -- Analyst
Yes. Just a few questions this morning. On the last conference call, Eddie, you mentioned that you hit 10 out of 10 record new sales days in June and July. How did your new sales trend through August and September? Does it remain elevated? Or did you see a return to more normalized sales patterns as you exited that peak selling season?
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
Yes, Tim, thanks. Yes, we didn't highlight that today, and I don't know if we necessarily duplicated that number that we had shared before. But I think based on what we reported as far as the revenue gains, you can see that they were elevated, especially on the residential side. And our call center did see much higher activity than they've seen in previous years even as we started to come out of the season and move into some cooler areas as we've seen. Again, the majority of that was on the residential side. But we have seen improvements, incremental improvements on the commercial side as well for some of the smaller businesses that would come through our call center for that.
Tim Mulrooney -- William Blair -- Analyst
Okay. That's helpful. On the margins, your EBITDA margins were particularly strong this quarter, nearly 24%. Is there any way for you to quantify for us how much of this is from the temporary cost cuts that you implemented earlier this year? I'm trying to figure out how much of this expansion in margin we've seen recently is structural from your routing and scheduling, for example, versus how much of this is more of a temporary dynamic.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
Well, there's no question that routing and scheduling is paying great dividends for us now, especially as we're having to -- have technicians potentially adjust and change some routes that they maybe would have historically run on both sides. On the residential, as we're growing, it gives us the ability to be able to do that smoothly. And on the commercial side, it allows us to kind of reduce some of the noise that we would have by being able to schedule. We had one of the best quarters, which we didn't go through in detail. We had one of the best quarters as far as year-over-year stops per mile improvement in the quarter, which was -- which is positive. And I think those types of things, to your -- to the point of your question, are more structural in nature. I believe that the majority of the folks that we had furloughed as we went into the pandemic that are going to be brought back have been brought back at this point in time. And I think that both our operations and our non operations groups absolutely are leaner than when we started. We've been forced to find ways, as many organizations have, to use technology in ways that have made us more efficient. So, I don't have a defined answer, an exact answer for you. We will be leaner and margins will be better as a part of this as we're moving forward. But I think as we see that revenue growth, we'll get a more and a better clearer answer to that. The good news is, from Q2 to Q3, we continue to see those margins positively impacted even as we've had more revenue on the residential side and even more revenue on the commercial side that come back into the business.
Operator
[Operator Instructions] The next question is from Seth Weber, RBC Capital Markets. Please go ahead sir.
Seth Weber -- RBC Capital Markets. -- Analyst
Hi. Good morning. I'd also like to extend my condolences to everybody there. I wanted to ask about the commercial business. You mentioned that trends improved sequentially month-to-month. And I was just wondering, I think you said for the quarter, organic was down about 3.7%. Can you just talk about, did it end-up with September in positive territory in the commercial side? Or is that still trending negative through September? Thanks.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
Yes. I think we're still negative. We have a few different operations that have some heavy concentration in areas that are the most impacted right now. We have a heavy concentration in the New York City area. Those of you that are there around that area know and understand the impact of what's going on there. But we're definitely seeing improvements in other areas that have had an opportunity to open back up and as businesses have been able to make those decisions. Our sales group continues to do a good job looking and working on those verticals where we know that there's less impact. On the healthcare side and on logistics and those things like that, they continue to do a nice job in those areas. So positive improvements, but I wouldn't say that we're positive quite yet.
Seth Weber -- RBC Capital Markets. -- Analyst
Okay. And then just a follow-up on that. I think I heard in some of the SG&A discussion that bad debt expense actually got better. Can you just talk about your collection efforts and what kind of trends you're seeing on the commercial side with respect to any kind of customer paying or just extensions that are happening on the commercial side, specifically on the collections? Thanks.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
On the collections side, on the residential side is where we saw our improvements that occurred, and those were in our larger brands. And if you think about our larger brands that are going to have residential bases, large residential bases, our Orkin brand, our HomeTeam brand, our Clark brand all have larger residential bases, and we were able to see improvements there. On the commercial side, obviously, that continues to be a struggle. We made adjustments to payment terms, mostly in Q2, with our customers that we made the decision to do that with. We really didn't have a lot of new customers in Q3 where we request and we made adjustments for that. But the high-profile bankruptcies that you read about and that we read about, a lot of those, in cases, are our customers. So we've worked really diligently to minimize our exposure in those areas. And the news for us there is that a lot of those customers that are on that bankruptcy list have been on that list for the past year. So well before the pandemic occurred, that they were on our watch list. We were minimizing our exposure at that point in time. But the reality is the customers that are struggling to stay in business today are just working day-to-day, and we're trying to work with them as a partner. But the collections on that side is slightly slower, but on the residential side with a positive impact.
Seth Weber -- RBC Capital Markets. -- Analyst
That's great. All right, thank you very much.
Operator
We have a question from Mario Cortellacci, Jefferies. Please go ahead sir.
Mario Cortellacci -- Jefferies. -- Analyst
Thank you. I'd also like to send my condolences to all of you and Gary and your family. Very sorry for your loss. My question is around the disinfectant business, specifically in commercial. I guess, could you give us a sense of what kind of uptake you're seeing there, how much uptake you're seeing from customers? And the reason why I ask is just to understand how much of the improvement in revenue in -- on the commercial side has been this offset from the disinfectant business versus having customers come back -- either coming back or increasing the amount of service that they're getting?
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
So I would -- I'm sure John is going to have some comments that he'd like to add. But I would say if you look at those two categories, it would be more weighted toward customers coming back, but the disinfectant, the new services in many of our brands has been a positive impact for us to be able to go through and add on the revenue side. What we see from the disinfectant side, customers that have had some sort of incident occur that need to ensure that they have this taken care of and the cleanliness in their workplace, either for their customers or for their employees, those are the ones that we have a shorter sales cycle for and that want to need to get something in place. Others that know this is the right thing to do that aren't necessarily under that same pressure, we've had a little bit of a longer sales cycle. And we're learning as we continue to move forward, but it continues to grow for us, but I would say if you had to differentiate between those two that we've had more incremental business that has come back.
John Wilson -- Vice Chairman
Yes, Eddie, you're exactly right. The impact from the -- in Orkin, we call it VitalClean, but various brands have different names that they're calling it as they go to market. But the impact on the gap from commercial revenue to a year ago is very small from VitalClean. Most of it has been from customers returning to service as their needs change.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
Yes. I mean we don't have a lot of view of things that are kind of outside of our area where we are. As you know, most of us aren't traveling these days. We just know what our view is here in Georgia. And a lot of things have opened back up and are more close to what we knew before. And you contrast that with something like the New York City area, where it is significantly different than what it was like before. So with those pockets that are seeing those incremental improvements that we're able to see customers come back, and we're able to continue to be able to service them.
Gary W. Rollins -- Chairman and Chief Executive Officer
Could I add just one thing to that, Eddie? We're very fortunate that in most of our commercial accounts, food-related, hospitality-related, health-related, they can't put the service off indefinitely. They know that the pests will come back, the way they got started to begin with, receiving merchandise from outside and so forth. So that's a positive thing. We're disappointed when they defer service, but our experience has been is they will be back, and I think our numbers are showing them.
Mario Cortellacci -- Jefferies. -- Analyst
Okay, thank you. And then, just on M&A...
Operator
[Operator Instructions] The next question is from Mr. Michael Hoffman, Stifel, Nicolaus & Company. Please go ahead sir.
Michael Hoffman -- Stifel, Nicolaus & Company. -- Analyst
Thank you very much. And like my colleagues, we wish your family the best, Gary.
Gary W. Rollins -- Chairman and Chief Executive Officer
Thank you.
Michael Hoffman -- Stifel, Nicolaus & Company. -- Analyst
I had -- the two questions I have are focused on organic growth and then on margins. So on the organic growth side, we're noticing across the Stifel coverage broadly that work from home is having interesting positive -- mostly positive consequences. I'd point to like Pentair reported extraordinary pool numbers and so on and so forth. Can you disaggregate the 9% and help us understand how much is being influenced by people all at home and so they're ordering maybe adding mosquito and tick and/or they -- you spoke to the wildlife number versus its net new customer adds? So we can understand the influence. And then what are your thoughts about how that starts to anniversary?
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
Yes. Thanks, Michael. I mean, as you know, we don't break out customers and things like that. I will tell you that we have had great new customer growth. But I can't really -- I don't know that we really know exactly how much of this is being driven by someone at home that is adding the mosquito versus that they would want the mosquito. Our mosquito continues to grow at a 30% plus rate as it has for the previous few years. That's a little bit of a higher base. It's still a low base, but it's a little bit of a higher base than what we've seen previously. But we are seeing good new customer growth that has come out of this. Now as far as when it comes time to lap this, can't answer that either. Just because we just don't know, we don't know that people continue to work from home. Will we have situations where there's additional need for more services? We anticipate that our retention of those customers will be higher because as we talked before, as we add an additional service, the retention of those customers improves for us. So as they add mosquito or as they add one of our other services, that retention rate does increase. And John was sharing that at least in our Orkin brand that we've seen that across the board in all of our services there. So good customer growth and probably the best that we could say at this point.
Michael Hoffman -- Stifel, Nicolaus & Company. -- Analyst
Okay. On the margin side, between gross margins and then as a cost, SG&A, so the gross margin came down 100 basis points sequentially, which makes sense if you're bringing back furloughed people. That's -- we flushed out the sort of that returning of people issue. And then on the SG&A side, you clearly have shown a lot of discipline in the management of that in an absolute dollar basis as well as percent of revenue. How much of that is annual accrual things that will come back versus its permanent?
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
So, I think to the first part of your question, I think we've pretty much moved through all the furlough process that we had, just a very small number that would still be -- that we could be making decisions on. But I think Q2, we saw the majority of that. Q3, it's kind of moved through. On the structural side, on the SG&A, like I was answering earlier, we're leaner than we were when we went into this. We did have some positive impact that impacted through our bad debt, but we also saw very strong improvements in our administrative salaries as well as our personnel-related. So structurally, on the people side, I think Q2 and Q3, we're seeing kind of similar trends there. And we've used technology to be able to make us better and be able to make us more efficient as we're moving forward.
Michael Hoffman -- Stifel, Nicolaus & Company. -- Analyst
Okay. Thanks. I'll come by then.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
Thank you.
Operator
We have a further question from Mr. Tim Mulrooney, William Blair. Please go ahead sir.
Tim Mulrooney -- William Blair. -- Analyst
Hey. Thanks for taking my next question. Eddie, I just wanted to follow up on your previous answer to me, where you said that one of your greatest improvements and reduction of miles driven was this quarter. Is that due to anything that you're, I guess, doing differently? Or are your branches just becoming more mature on the VRM system? I guess maybe I'm just looking for a general update on where you're at with your tech initiatives and rollout.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
Yes. So yes, I would say two things, and John's got something to add as well. So I'll say two things. I'd say, one, maturity continues to move forward in time. As we continue to have retention of our technicians, that's going to be a positive thing for us. But, we have these four stages of our rallying and scheduling, and we're in this -- we're in kind of in the phase two of this four stage. And as we continue to layer on additional technology pieces that are kind of behind the scenes for the operation, that's going to continue to drive improvement. So I would see improvements will continue to be positive as we're moving forward.
John Wilson -- Vice Chairman
Yes. I ask two things, Eddie. And the first one is very similar, but greater adoption, Tim, no doubt with our branch operations, but then also greater density. With the huge amount of residential customers we've added, commercial coming back, we just have greater density on our routes.
Gary W. Rollins -- Chairman and Chief Executive Officer
One other thing that we have to look forward to, we do not have all of our brands on our routing and scheduling.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
That's right.
Gary W. Rollins -- Chairman and Chief Executive Officer
So we've got, I guess, what we're converting now.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
We got Canada's converted, and then we have others -- other brands that we're adding as well. But yes, you're right because we talk about these four phases, that's exactly...
Gary W. Rollins -- Chairman and Chief Executive Officer
Well, they're asking for it. That's always a good thing. If you have the people that want it, they adapt a lot quicker than a normal situation, you have to convince them.
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
Gary?
Gary W. Rollins -- Chairman and Chief Executive Officer
Okay. Well, thank you all for joining us today. We appreciate your interest in our company. As you've heard during the past calls, we have several programs under way that will make our company better, improve our customers' experience and our financial results. We look forward to giving you an update with our fourth quarter call in the future. Thanks again.
Duration: 42 minutes
Call participants:
Joe Calabrese -- National Head of Investment, Fiduciary and Banking Services
Gary W. Rollins -- Chairman and Chief Executive Officer
Paul E Northen -- Sr. Vice President, Chief Financial Officer and Treasurer
John Wilson -- Vice Chairman
Tim Mulrooney -- William Blair -- Analyst
Seth Weber -- RBC Capital Markets. -- Analyst
Mario Cortellacci -- Jefferies. -- Analyst
Michael Hoffman -- Stifel, Nicolaus & Company. -- Analyst
Tim Mulrooney -- William Blair. -- Analyst
