ROLLINS, INC. REPORTS SECOND QUARTER 2023 FINANCIAL RESULTS
ATLANTA, GEORGIA, July 26, 2023: Rollins, Inc. (NYSE:ROL) (“Rollins” or the “Company”), a premier global consumer and commercial services company, reported unaudited financial results for the second quarter of 2023.
Quarterly Highlights
•Second quarter revenues were $821 million, an increase of 14.9% over the second quarter 2022 with organic revenues* increasing 7.7%. The stronger dollar versus foreign currencies in countries where we operate reduced revenues by 30 basis points during the quarter.
•Quarterly operating income was $155 million, an increase of 14.9% over the second quarter of 2022. Quarterly operating margin was 18.9% of revenue, consistent with the second quarter of 2022. Adjusted operating income* was $160 million, an increase of 18.8% over the prior year. Adjusted operating income margin* was 19.5%, an increase of 60 basis points over the prior year.
•Quarterly net income was $110 million, an increase of 8.4% over the prior year net income. Adjusted net income* was $114 million, an increase of 12.2% over the prior year.
•Quarterly EPS was $0.22 per diluted share, a 4.8% increase over the prior year EPS of $0.21. Adjusted EPS* was $0.23 per diluted share, an increase of 9.5% over the prior year.
•Adjusted EBITDA* was $183 million for the quarter, an increase of 15.1%. Adjusted EBITDA* was 22.3% of sales, which was equal to the second quarter of 2022.
•Operating cash flow was $147 million, an increase of 15.8% compared to the second quarter a year ago. The Company invested $312 million in acquisitions, $7 million in capital expenditures, and paid dividends totaling $64 million for the quarter. Free cash flow* was $141 million, an increase of 17.8% compared to the second quarter of 2022.
Management Commentary
"The strong growth in revenue in the second quarter provides a sense of optimism to start the second half of 2023," said Jerry Gahlhoff, Jr., President and CEO. "The demand environment is healthy and our pipeline for acquisitions remains robust to start the third quarter. We continued to invest in customer acquisition activities in the quarter and we remain very well positioned to continue to drive growth through acquisition. I am encouraged by the improvement in quarterly gross margin, which was above 53%,” Mr. Gahlhoff added.
As we start the second half, we are focused on driving growth while evaluating several initiatives aimed at improving productivity. While we remain very well positioned to continue to deliver strong results in 2023 and beyond, we are focused on executing additional programs that we believe will improve the efficiency of our business model," Mr. Gahlhoff added.
"We saw healthy demand for our services in the second quarter and are positioned well to start the third quarter," said Kenneth Krause, Executive Vice President, and CFO. "Cash flow generation was strong, with operating cash flow increasing approximately 16% for the quarter," he added. "While operating margins were pressured on higher insurance and legacy claims activity, the improvement in gross margin and current demand environment provides a sense of optimism to start the second half,” Mr. Krause concluded.
1
Three and Six Months Ended Financial Highlights
Three Months Ended June 30,
Six Months Ended June 30,
Variance
Variance
(in thousands, except per share data)
2023
2022
$
%
2023
2022
$
%
GAAP Metrics
Revenues
$
820,750
$
714,049
$
106,701
14.9
%
$
1,478,765
$
1,304,729
$
174,036
13.3
%
Gross profit (1)
$
436,559
$
377,269
$
59,290
15.7
%
$
767,732
$
672,571
$
95,161
14.1
%
Gross profit margin (1)
53.2
%
52.8
%
40 bps
51.9
%
51.5
%
40 bps
Operating income
$
154,789
$
134,677
$
20,112
14.9
%
$
267,029
$
228,067
$
38,962
17.1
%
Operating income margin
18.9
%
18.9
%
0 bps
18.1
%
17.5
%
60 bps
Net income
$
110,143
$
101,620
$
8,523
8.4
%
$
198,377
$
175,386
$
22,991
13.1
%
EPS
$
0.22
$
0.21
$
0.01
4.8
%
$
0.40
$
0.36
$
0.04
11.1
%
Operating cash flow
$
147,413
$
127,285
20,128
15.8
%
$
248,186
$
214,817
$
33,369
15.5
%
Non-GAAP Metrics
Adjusted operating income (2)
$
160,050
$
134,677
$
25,373
18.8
%
$
272,290
$
228,067
$
44,223
19.4
%
Adjusted operating margin (2)
19.5
%
18.9
%
60 bps
18.4
%
17.5
%
90 bps
Adjusted net income (2)
$
114,057
$
101,620
$
12,437
12.2
%
$
202,291
$
175,386
$
26,905
15.3
%
Adjusted EPS (2)
$
0.23
$
0.21
$
0.02
9.5
%
$
0.41
$
0.36
$
0.05
13.9
%
Adjusted EBITDA (2)
$
183,294
$
159,193
$
24,101
15.1
%
$
322,750
$
276,989
$
45,761
16.5
%
Adjusted EBITDA margin (2)
22.3
%
22.3
%
0 bps
21.8
%
21.2
%
60 bps
Free cash flow (2)
$
140,638
$
119,399
$
21,239
17.8
%
$
233,775
$
198,936
$
34,839
17.5
%
(1) Exclusive of depreciation and amortization
(2) Amounts are non-GAAP financial measures. See the appendix to this release for a discussion of non-GAAP financial metrics including a reconciliation of the most closely correlated GAAP measure.
About Rollins, Inc.:
Rollins, Inc. (ROL) is a premier global consumer and commercial services company. Through its family of leading brands, the Company and its franchises provide essential pest control services and protection against termite damage, rodents, and insects to more than 2.8 million customers in North America, South America, Europe, Asia, Africa, and Australia, with more than 19,000 employees from more than 800 locations. Rollins is parent to Orkin, HomeTeam Pest Defense, Clark Pest Control, Northwest Exterminating, McCall Service, Trutech, Critter Control, Western Pest Services, Waltham Services, OPC Pest Services, The Industrial Fumigant Company, PermaTreat, Crane Pest Control, Missquito, Fox Pest Control, Orkin Canada, Orkin Australia, Safeguard (UK), Aardwolf Pestkare (Singapore), and more. You can learn more about Rollins and its subsidiaries by visiting www.rollins.com.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Statements made in this press release and on our earnings call, may contain forward-looking statements that involve risks and uncertainties concerning the Company’s business and financial results. We have based these forward-looking statements largely on our current opinions, expectations, beliefs, plans, objectives, assumptions and projections about future events and financial trends affecting the operating results and financial condition of our business. Such forward looking statements include, but are not limited to, statements regarding the Company's belief that the demand environment is healthy and the Company’s pipeline for acquisitions remains robust to start the third quarter, the Company remains very well positioned to continue to drive growth through acquisition, the Company is focused on driving growth while evaluating several initiatives aimed at improving productivity, the Company is well positioned to continue to deliver strong results in 2023 and beyond, that the Company is focused on executing additional programs that it believes will improve the efficiency of its business model, improvement in gross margin and current demand environment provides a sense of optimism to start the second half, that the Company continues to focus on implementing continuous improvement initiatives that it believes will improve the efficiency of its business and position itself well for years to come.
Our actual results could differ materially from those indicated by the forward-looking statements because of various risks, timing and uncertainties including, without limitation, the failure to maintain and enhance our brands and develop a positive client reputation; our ability to protect our intellectual property and other proprietary rights that are material to our business and our brand recognition; actions taken by our franchisees, subcontractors or vendors that may harm our business; general economic conditions; the effects of a pandemic, such as the COVID-19 pandemic, or other major public health concern on the Company's business, results of operations, accounting assumptions and estimates and financial condition; adverse economic conditions, including, without limitation, market downturns, inflation and restrictions in customer discretionary expenditures, increases in interest rates or other disruptions in credit or financial markets, increases in fuel prices, raw material costs or other operating costs; potential increases in labor costs; labor shortages and/or our inability to attract and
2
retain skilled workers; competitive factors and pricing practices; changes in industry practices or technologies; the degree of success of our termite process reforms and pest control selling and treatment methods; our ability to identify, complete and successfully integrate potential acquisitions; unsuccessful expansion into international markets; climate change and unfavorable weather conditions; a breach of data security resulting in the unauthorized access of personal, financial, proprietary, confidential or other personal data or information about our customers, employees, third parties, or of our proprietary confidential information; damage to our brands or reputation; new or proposed regulations regarding climate change; any noncompliance with, changes to, or increased enforcement of various government laws and regulations, including environmental regulations; possibility of an adverse ruling against us in pending litigation, regulatory action or investigation; the adequacy of our insurance coverage to cover all significant risk exposures; the effectiveness of our risk management and safety program; general market risk; management's substantial ownership interest and its impact on public stockholders and the availability of the Company's common stock to the investing public; and the existence of certain anti-takeover provisions in our governance documents, which could make a tender offer, change in control or takeover attempt that is opposed by the Company's Board of Directors more difficult or expensive. All of the foregoing risks and uncertainties are beyond our ability to control, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. The Company does not undertake to update its forward-looking statements.
Conference Call
Rollins will host a conference call on Thursday, July 27, 2023 at 8:30 a.m. Eastern Time to discuss the second quarter 2023 results. The conference call will also broadcast live over the internet via a link provided on the Rollins, Inc. website at www.rollins.com. Interested parties can also dial into the call at 1-877-869-3839 (domestic) or +1-201-689-8265 (internationally) with conference ID of 13739505. For interested individuals unable to join the call, a replay will be available on the website for 180 days.
3
ROLLINS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
(unaudited)
June 30, 2023
December 31, 2022
ASSETS
Cash and cash equivalents
$
154,747
$
95,346
Trade receivables, net
176,567
155,759
Financed receivables, short-term, net
37,495
33,618
Materials and supplies
32,685
29,745
Other current assets
62,489
34,151
Total current assets
463,983
348,619
Operating lease right-of-use assets
282,598
277,355
Financed receivables, long-term, net
72,646
63,523
Other assets
1,780,103
1,432,531
Total assets
$
2,599,330
$
2,122,028
LIABILITIES
Accounts payable
74,398
42,796
Accrued insurance - current
40,796
39,534
Accrued compensation and related liabilities
94,968
99,251
Unearned revenues
183,253
158,092
Operating lease liabilities - current
86,918
84,543
Current portion of long-term debt
—
15,000
Other current liabilities
95,368
54,568
Total current liabilities
575,701
493,784
Accrued insurance, less current portion
45,659
38,350
Operating lease liabilities, less current portion
200,201
196,888
Long-term debt
337,509
39,898
Other long-term accrued liabilities
98,035
85,911
Total liabilities
1,257,105
854,831
STOCKHOLDERS’ EQUITY
Common stock
492,821
492,448
Retained earnings and other equity
849,404
774,749
Total stockholders’ equity
1,342,225
1,267,197
Total liabilities and stockholders’ equity
$
2,599,330
$
2,122,028
4
ROLLINS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
REVENUES
Customer services
$
820,750
$
714,049
$
1,478,765
$
1,304,729
COSTS AND EXPENSES
Cost of services provided (exclusive of depreciation and amortization below)
384,191
336,780
711,033
632,158
Sales, general and administrative
255,331
219,987
451,762
398,772
Depreciation and amortization
26,439
22,605
48,941
45,732
Total operating expenses
665,961
579,372
1,211,736
1,076,662
OPERATING INCOME
154,789
134,677
267,029
228,067
Interest expense, net
4,785
880
5,250
1,448
Other income, net
(1,019)
(1,911)
(5,733)
(3,190)
CONSOLIDATED INCOME BEFORE INCOME TAXES
151,023
135,708
267,512
229,809
PROVISION FOR INCOME TAXES
40,880
34,088
69,135
54,423
NET INCOME
$
110,143
$
101,620
$
198,377
$
175,386
NET INCOME PER SHARE - BASIC AND DILUTED
$
0.22
$
0.21
$
0.40
$
0.36
Weighted average shares outstanding - basic
492,700
492,327
492,593
492,270
Weighted average shares outstanding - diluted
492,891
492,440
492,764
492,382
Certain consolidated financial statement amounts relative to prior periods have been revised, the effects of which are immaterial. See the appendix to this release for a discussion of this revision.
5
ROLLINS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW INFORMATION
(in thousands)
(unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
OPERATING ACTIVITIES
Net income
$
110,143
$
101,620
$
198,377
$
175,386
Depreciation and amortization
26,439
22,605
48,941
45,732
Change in working capital and other operating activities
10,831
3,060
868
(6,301)
Net cash provided by operating activities
147,413
127,285
248,186
214,817
INVESTING ACTIVITIES
Acquisitions, net of cash acquired
(312,412)
(36,357)
(327,892)
(49,580)
Capital expenditures
(6,775)
(7,886)
(14,411)
(15,881)
Other investing activities, net
1,155
2,139
10,681
3,429
Net cash (used in) investing activities
(318,032)
(42,104)
(331,622)
(62,032)
FINANCING ACTIVITIES
Net borrowings
275,000
(60,783)
285,000
80,000
Payment of dividends
(63,943)
(49,229)
(127,996)
(98,434)
Other financing activities
220
(2,721)
(16,809)
(12,206)
Net cash provided by (used in) financing activities
211,277
(112,733)
140,195
(30,640)
Effect of exchange rate changes on cash and cash equivalents
1,586
(9,822)
2,642
(6,482)
Net increase (decrease) in cash and cash equivalents
$
42,244
$
(37,374)
$
59,401
$
115,663
Certain consolidated financial statement amounts relative to prior periods have been revised, the effects of which are immaterial. See the appendix to this release for a discussion of this revision.
6
APPENDIX
Reconciliation of GAAP and non-GAAP Financial Measures
The Company has used the non-GAAP financial measures of organic revenues, organic revenues by type, adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share (“EPS”), earnings before interest, taxes, depreciation and amortization (“EBITDA”), EBITDA margin, Adjusted EBITDA, adjusted EBITDA margin, incremental EBITDA margin, adjusted incremental EBITDA margin, and free cash flow in this earnings release. Organic revenue is calculated as revenue less acquisition revenue. Acquisition revenue is based on the trailing 12-month revenue of our acquired entities. These measures should not be considered in isolation or as a substitute for revenues, net income, earnings per share or other performance measures prepared in accordance with GAAP.
Management uses adjusted operating income, adjusted operating income margin, adjusted net income, adjusted EPS, EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, incremental EBITDA margin, and adjusted incremental EBITDA margin as measures of operating performance because these measures allow the Company to compare performance consistently over various periods. Incremental margin is calculated as the change in EBITDA divided by the change in revenue. Adjusted incremental margin is calculated as the change in adjusted EBITDA divided by the change in revenue. Management also uses organic revenues, and organic revenues by type to compare revenues over various periods excluding the impact of acquisitions. Management uses free cash flow, which is calculated as net cash provided by operating activities less capital expenditures, to demonstrate the Company’s ability to maintain its asset base and generate future cash flows from operations. Management believes all of these non-GAAP financial measures are useful to provide investors with information about current trends in, and period-over-period comparisons of, the Company's results of operations.
A non-GAAP financial measure is a numerical measure of financial performance, financial position, or cash flows that either 1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows, or 2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented.
7
Set forth below is a reconciliation of non-GAAP financial measures used in this earnings release with their most comparable GAAP measures.
(unaudited, in thousands, except per share data)
Three Months Ended June 30,
Six Months Ended June 30,
Variance
Variance
2023
2022 (3)
$
%
2023
2022 (3)
$
%
Reconciliation of Operating Income to Adjusted Operating Income and Adjusted Operating Income Margin
Operating income
$
154,789
$
134,677
$
267,029
$
228,067
Fox acquisition-related expenses (1)
5,261
—
5,261
—
Adjusted operating income
$
160,050
$
134,677
25,373
18.8
$
272,290
$
228,067
44,223
19.4
Revenues
$
820,750
$
714,049
$
1,478,765
$
1,304,729
Operating income margin
18.9
%
18.9
%
18.1
%
17.5
%
Adjusted operating income margin
19.5
%
18.9
%
18.4
%
17.5
%
Reconciliation of Net Income to Adjusted Net Income and Adjusted EPS
Net income
$
110,143
$
101,620
$
198,377
$
175,386
Fox acquisition-related expenses (1)
5,261
—
5,261
—
Tax impact of adjustments (2)
(1,347)
—
(1,347)
—
Adjusted net income
$
114,057
$
101,620
12,437
12.2
$
202,291
$
175,386
26,905
15.3
Adjusted EPS - basic and diluted
$
0.23
$
0.21
$
0.41
$
0.36
Weighted average shares outstanding - basic
492,700
492,327
492,593
492,270
Weighted average shares outstanding - diluted
492,891
492,440
492,764
492,382
Reconciliation of Net Income to EBITDA, Adjusted EBITDA, EBITDA Margin, Incremental EBITDA Margin, Adjusted EBITDA Margin, and Adjusted Incremental EBITDA Margin
Net income
$
110,143
$
101,620
$
198,377
$
175,386
Depreciation and amortization
26,439
22,605
48,941
45,732
Interest expense, net
4,785
880
5,250
1,448
Provision for income taxes
40,880
34,088
69,135
54,423
EBITDA
$
182,247
$
159,193
23,054
14.5
$
321,703
$
276,989
44,714
16.1
Fox acquisition-related expenses (1)
1,047
—
1,047
—
Adjusted EBITDA
$
183,294
$
159,193
24,101
15.1
$
322,750
$
276,989
45,761
16.5
Revenues
$
820,750
$
714,049
106,701
$
1,478,765
$
1,304,729
174,036
EBITDA margin
22.2
%
22.3
%
21.8
%
21.2
%
Incremental EBITDA margin
21.6
%
25.7
%
Adjusted EBITDA margin
22.3
%
22.3
%
21.8
%
21.2
%
Adjusted incremental EBITDA margin
22.6
%
26.3
%
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
Net cash provided by operating activities
$
147,413
$
127,285
$
248,186
$
214,817
Capital expenditures
(6,775)
(7,886)
(14,411)
(15,881)
Free cash flow
$
140,638
$
119,399
21,239
17.8
$
233,775
$
198,936
34,839
17.5
(1) Consists of expenses resulting from the amortization of certain intangible assets and adjustments to the fair value of contingent consideration resulting from the acquisition of Fox Pest Control during the quarter. While we exclude such expenses in this non-GAAP measure, the revenue from the acquired company is reflected in this non-GAAP measure and the acquired assets contribute to revenue generation.
(2) The tax effect of the adjustments is calculated using the applicable statutory tax rates for the respective periods.
(3) Certain condensed consolidated financial statement amounts relative to the prior period have been revised as detailed in our annual report on Form 10-K for the year ended December 31, 2022. The impact of this revision on the Company's previously reporting condensed consolidated financial statements for the three and six months ended June 30, 2022 includes a decrease to depreciation and amortization expense of $1.7 million and $3.4 million, respectively, and an increase in the provision for income tax expense of $0.4 million and $0.8 million, respectively. This revision affects these specific line items and subtotals within the consolidated statements of income and cash flows.
8
Three Months Ended June 30,
Six Months Ended June 30,
Variance
Variance
2023
2022
$
%
2023
2022
$
%
Reconciliation of Revenues to Organic Revenues
Revenues
$
820,750
$
714,049
106,701
14.9
$
1,478,765
$
1,304,729
174,036
13.3
Revenue growth from acquisitions
(51,148)
—
(51,148)
—
(64,302)
—
(64,302)
—
Organic revenues
$
769,602
$
714,049
55,553
7.7
$
1,414,463
$
1,304,729
109,734
8.4
Reconciliation of Residential Revenues to Organic Residential Revenues
Residential revenues
$
385,645
$
325,311
60,334
18.5
$
669,270
$
584,570
84,700
14.5
Residential revenues from acquisitions
(42,089)
—
(42,089)
—
(48,093)
—
(48,093)
—
Residential organic revenues
$
343,556
$
325,311
18,245
5.6
$
621,177
$
584,570
36,607
6.3
Reconciliation of Commercial Revenues to Organic Commercial Revenues
Commercial revenues
$
259,964
$
234,483
25,481
10.9
$
490,366
$
440,270
50,096
11.4
Commercial revenue growth from acquisitions
(3,038)
—
(3,038)
—
(7,232)
—
(7,232)
—
Commercial organic revenues
$
256,926
$
234,483
22,443
9.6
$
483,134
$
440,270
42,864
9.8
Reconciliation of Termite and Ancillary Revenues to Organic Termite and Ancillary Revenues
Termite and ancillary revenues
$
166,823
$
146,781
20,042
13.7
$
303,428
$
266,487
36,941
13.9
Termite and ancillary revenues from acquisitions
(6,020)
—
(6,020)
—
(8,977)
—
(8,977)
—
Termite and ancillary organic revenues
$
160,803
$
146,781
14,022
9.6
$
294,451
$
266,487
27,964
10.5
Three Months Ended June 30,
Six Months Ended June 30,
Variance
Variance
2022
2021
$
%
2022
2021
$
%
Reconciliation of Revenues to Organic Revenues
Revenues
$
714,049
$
638,204
75,845
11.9
$
1,304,729
$
1,173,758
130,971
11.2
Revenue growth from acquisitions
(20,471)
—
(20,471)
—
(38,039)
—
(38,039)
—
Organic revenues
$
693,578
$
638,204
55,374
8.7
$
1,266,690
$
1,173,758
92,932
8.0
Reconciliation of Residential Revenues to Organic Residential Revenues
Residential revenues
$
325,311
$
292,945
32,366
11.0
$
584,570
$
528,124
56,446
10.7
Residential revenues from acquisitions
(11,625)
—
(11,625)
—
(21,908)
—
(21,908)
—
Residential organic revenues
$
313,686
$
292,945
20,741
7.0
$
562,662
$
528,124
34,538
6.6
Reconciliation of Commercial Revenues to Organic Commercial Revenues
Commercial revenues
$
234,483
$
210,838
23,645
11.2
$
440,270
$
399,535
40,735
10.2
Commercial revenue growth from acquisitions
(3,943)
—
(3,943)
—
(6,165)
—
(6,165)
—
Commercial organic revenues
$
230,540
$
210,838
19,702
9.3
$
434,105
$
399,535
34,570
8.7
Reconciliation of Termite and Ancillary Revenues to Organic Termite and Ancillary Revenues
