Rollins, Inc. (ROL) on Q1 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to Rollins Inc. First Quarter 2021 Earnings Conference Call. . As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Calabrese. Joe Calabrese: Thank you, Bart. 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'll 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 1 hour after the call and run for 1 week. The replay can be accessed by dialing 844-512-2921 with the passcode 13717965. Additionally, the call is being webcast at www.viavid.com, and a replay will be available for 90 days. Gary Rollins: Yes. Thank you, Joe, and good morning. We appreciate all of you joining us for our first quarter 2021 conference call. Julie will read our forward-looking statement and disclaimer, and then we'll begin. Julie Bimmerman: Thank you, Gary. 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, 2020, for more information and the risk factors that could cause actual results to differ. Gary Rollins: Thank you, Julie. I'd like to start by taking a moment on behalf of our Board, our entire team and myself to recognize Henry Tippie for everything he's done for our organization over the last 68 years. As many of you are aware, Mr. Tippie recently retired from our Board, leaving behind an incredible legacy of leadership and service to Rollins, its employees and customers. Henry's financial knowledge and guidance helped shape Rollins to become the world's best and largest pest control company. During his distinguished career, not only was Henry our longest-serving CFO through a period for over 17 years, he was the architect of Rollins' purchase of Orkin in 1964. Incidentally, this is considered to be the country's first-ever leveraged buyout and was studied for years at the Harvard Business School. Henry, along with Randall Rollins, our Chairman at the time, were the only 2 Rollins Directors present during our initial stock exchange listing in 1968, and again, on our 50th year New York Stock Exchange anniversary. Additionally, in recognition of his broader impact to the business world, the New York Stock Exchange inducted Henry in 2018 into their exclusive wall of leaders. Randall Rollins was inducted as well. Rollins would not be the company it is today without Henry's numerous contributions. On behalf of the entire Rollins family of employees, thank you, Henry. We will continue to honor your legacy and the example of hard work and dedication that you provided. John Wilson: Thank you, and good morning, everyone. As Gary mentioned, we are pleased with our first quarter results. Revenue grew 9.8% to $535.6 million compared to $487.9 million for the same quarter in 2020. Net income rose to $92.6 million or $0.19 per diluted share compared to $43.3 million or $0.09 per diluted share for the first quarter of last year. Eddie will review the GAAP and non-GAAP results shortly as there was one adjustment impacting our financials. It is not just the results we are pleased with, but the returns we are seeing in the business, highlighted by strong performance in our residential and termite service lines, growing 14.9% and 12.2%, respectively. Further, our commercial business has improved every single quarter during 2020 and continued this steady progress once again this quarter, reaching 2.9% growth over the first quarter 2020. Next, I, too, would like to acknowledge the notable impact Mr. Tippie has made, not only on our company but with me, as well. I am grateful, greatly appreciative of his many years of leadership as part of our management team and as a Board member. While it's never easy to follow in the footsteps of someone who made that type of impact, we are pleased with the distinguished executives that have agreed to join our Board of Directors over the past several months. Many of you may recall that we have enhanced an already experienced and strong Board with the recent additions of Jerry Nix, Susan Bell, Patrick Gunning and Harry Cynkus. They each bring a wealth of knowledge and diverse experience in many different areas that we believe will make us stronger as a company moving forward. Jerry Gahlhoff: Thanks, John, and good morning, everybody. The first quarter business environment was extremely solid across all of our business lines. And our total revenue, less significant acquisitions, grew 7.9% over first quarter 2020 as both our residential and termite segments presented double-digit growth of 12.8% and 11.2%, respectively. These growth levels have exceeded anything we've recently experienced. Commercial, ex fume revenue, less significant acquisitions, presented positive growth for the first time since first quarter 2020. This segment has enjoyed sequential improvement since last April, reaching 1.3% growth over first quarter of 2020. Our team's continued dedication in serving our commercial customers and their recovery has been outstanding. We're pleased with the steady progress achieved over the past 12 months in this segment. Turning to our mosquito service. As families spend more time outdoors recreationally and with the continued threat of mosquito-borne disease, we're realizing significant growth in this segment of our business. For the quarter, our mosquito revenue experienced growth of over 30%. Additionally, the strength of our termite business remains solid, and we expect continued growth in the future. Eddie Northen: Thank you, Jerry. I, too, have greatly benefited from Mr. Tippie's vast experience, wisdom and knowledge. His guidance on cost containment, mergers and acquisitions and managing the balance sheet have been invaluable to me. The results of this quarter are, in part, a testament to his steady guidance throughout his 68-year involvement with the company. For the quarter, our residential pest control, commercial pest control, termite and ancillary service lines showed growth and key to the quarter included cost containment across all major categories throughout the organization, overall good weather conditions that helped with demand and customer retention rates improving across the board. Gary Rollins: Thank you, Eddie. We're happy to take your questions at this time. Operator: . Our first question today is from Tim Mulrooney of William Blair. Tim Mulrooney: So you had a really strong year last year on the residential side. And I think one of the big questions on everyone's mind is how that might translate to organic growth in 2021. You've got some difficult comparisons coming up over the next several quarters in residential pest. But as I sit back, I'm thinking, then again, we're still largely in a work-from-home environment and I have to think that a lot of the accounts that you signed up last year are probably now finally turning profitable up to the third or fourth visit. So taking all that into account, I'm just curious how you're thinking about the residential side of the business as we continue to emerge from this pandemic. Eddie Northen: Yes. So Tim, this is Eddie. So we're seeing continued good demand. I mentioned in my prepared remarks, we did have overall good weather in the first quarter. Don't know what that will look like as we move throughout the remainder of the year. But I think one of the things that we're seeing, and I think we're all living this in real time is we're seeing more of this hybrid work environment. So it's not only people necessarily working from home. They're not only working from the office, but we're seeing more of this hybrid environment, which we believe is still going to have some eyes that's going to create that demand that we've seen as we move through 2020. You see the numbers here. Our lead generation as we go into Q2 is still very strong for us, and that's starting to lap some of those numbers that you already talked about. So I don't know that any of us know exactly what this will look like as the entire year plays out. But I think there are things that are positive for us to be able to continue to see demand as we're moving forward. Tim Mulrooney: Okay. I appreciate those comments and good color on the lead generation. If I could pivot, I know I think it was Jerry that was talking about the technology that you're implementing BOSS in - or Orkin Canada. I know that's not new news, but I'm not sure I heard about Western before. So just curious if you could give us an update on maybe your technology rollout plans this year. Are there any other "specialty brands" that you're planning to roll out BOSS or VRM to any incremental, I guess, technology investments to keep in mind as we model out your expenses for 2021? Eddie Northen: Yes. I'll answer and then let Jerry follow up from there. So yes, Orkin, we're a little bit further down the path as far as getting things moving more towards maturity. We've added Western to that queue. They're moving down the path of maturity. We'll take a pause at this point in time, make sure that we work through and then we get the benefits from those 2 units or those 2 brands before we were to make a decision or anything else. And we would let you know ahead of time that there was going to be anything significant to change our CapEx as a percent of revenue or anything else like that. But we - I always say, from a modeling standpoint, within the historic range of what we've seen over the last few years, is what our plans are right now. And if we make a decision to change that, we'll let you know what we know about that moving forward. Gary Rollins: One thing I'd add to that, Eddie, there's technology improvements when we buy another company because typically, they don't have the best phone systems. They're not paying the best rates for communications. And there are some products available within the industry that, in some cases, are upgrades from what they currently have. So although BOSS is certainly important is going to be critical to our future. We are able to help these newly acquired companies with something short of BOSS. And of course, that will be on their plate in the future. Does that help... Tim Mulrooney: Very helpful. Operator: The next question is from Mario Cortellacci of Jefferies. Mario Cortellacci: I just wanted to ask about organic growth. You guys are using the significant acquisitions verbiage when you're referring to, I guess, organic growth now. Are you able to provide what organic growth looks like, less all acquisitions in resi, commercial and in termite? Eddie Northen: This is - yes, thanks for that question. So we didn't mean to add confusion here. This is the same way that we've measured it every quarter, probably for the last 15 years. We were just trying to give a little bit of clarity around that part. If we were to - or when we acquire a small tuck-in acquisition of, let's just say, 5 technicians, we acquired them on a Thursday. On a Monday, they have new uniforms, they're in new vehicles, and they're embedded into that Orkin branch. And we really don't have a way for that very small piece to be able to kind of parse that out. So this is - again, this is the same way that we've looked at it every quarter, again, at least for the last 15 years. So we really don't look at it because it's such an insignificant number from that perspective. Mario Cortellacci: Just - and then maybe a follow-up to that. With those types of acquisitions, is the - are those like $1 million in revenue or like $500,000? Is it that insignificant that it's not even worth mentioning? Jerry Gahlhoff: That's absolutely correct. Eddie Northen: Yes. So again, we didn't mean to add confusion to this by wording that we have here. But again, this is the same way we've looked at it throughout time. And nothing else would be a part of it that would be material significant at all. Mario Cortellacci: Okay. Great. And then just my follow-up would be on the labor market. You guys actually said that you're seeing labor efficiencies and you're seeing, I guess, maybe savings there or coming in better than expected. And I think commentary from other companies is that they're seeing difficulty in hiring new labor, essentially competing with the government for people looking for jobs with stimulus and unemployment checks. Are you seeing anything similar to that within your new hires? And we've also heard that, I guess, smaller pest companies are even offering bonuses to new hires that they sign and then they work for the first 30 days or 60 days or whatever it is and they'll get an additional bonus for staying with them. Are you doing something similar? Or is that really not in the cards for you? Eddie Northen: Well, when we had demand levels that we've seen this quarter and even if you go back to last quarter that are significantly higher than what we would see on average and any times, it would always be a challenge to ensure that we're finding a hiring and retaining the right employees. The good news for us, and I'll kind of move to specifically your question, the good news for us is as our technology continues to mature on the routing and scheduling part, it enables us to automatically be more efficient. So during my prepared remarks, I talked about, let's just say, a technician that maybe went out with 9 stops in a day and then at 10:00 in the morning, someone called and said, well, they're not going to be available and not be home at 2:00. In our old world, that 2:00 slot basically would have gone empty and the technician would not have had anything to do. In this new world, the branch can see that in real time, our call center can see that in real time. So now when we have a new customer, we can slot a new customer into that time slot. So it's enabling us to continue to be more efficient with that, which is helping with that demand, with the new customer and also being able to move that existing customer as well. So with all that being said, with these demand levels, we are absolutely having issues to be able to go through and make sure that we're finding it and hiring the folks that we need to be able to keep the business moving forward. And HR group and the operations groups are doing a tremendous job with that. But it is a battle with the other companies that are out there that are offering some of the things that you've talked about. Jerry Gahlhoff: And this is Jerry. John and I recently had a meeting with branch managers in the field at Orkin about your #1 job or your #1 priority as a branch leader is recruiting and building your team. We put a high emphasis that - that's first and foremost, the most important thing you can do. So we place a lot of emphasis and have good processes and procedures behind that. But as Eddie said, it is getting tougher. We do offer referral bonuses, there's a lot of activities on friend and family referrals for new employees, things along those lines that also incentivize people if they get referred and they stay longer, we pay referral bonuses over time, things along those lines. So we take advantage of everything that we can get our hands on to help keep a competitive advantage in the search for talent. Eddie Northen: But again, this is nothing that's new - I mean, it might be a little bit more heightened at this moment right here, but this is nothing new for us in the service industry. We've gone - just in my time period that I've been here in 6 years, this is something that we're constantly focused on. John set the tone as far as the importance of that. Jerry set the tone as far as the importance of that over time. And we've been able to be successful with that, and we'll find ways to continue to be successful with it as we're moving forward as well. Gary Rollins: And the other piece of the staffing situation is retention. And we have created in Orkin and in Western and in Canada, we've created a better job. It was very frustrating for that pest control tech to have that cancellation that Eddie just described and really not beginning to unravel the day's route. And now we have the tools that we can move a customer to that slot - a new customer to that slot typically, and he doesn't have or she doesn't have that frustration that how am I going to get through? How am I going to get it done? This has created a mess that ratchets all the way down through the day, et cetera. So it's going to be interesting to see what this does to retention. It has to make a better job for the pest control technician in those areas that have BOSS. Operator: . Our next question is from Michael Hoffman of Stifel. Michael Hoffman: I met Henry Tippie almost at the very beginning of my career 33 years ago when I was covering Rollins Environmental, and he was - gave me sage advice then, which I've always followed in my modeling. So I wish him the best of luck. So the conversation about growth, and I get you're not doing anything different in the language of significant. But double-digit or very high single-digit organic growth in residential relative to the underlying market growth is phenomenal. So what are you doing different that you're producing that type of organic growth versus anybody else in the business because you're clearly gaining share in your well-run company? But what are you doing different, do you think, that allows, even if the comps have to come down because it's so strong last year, you're still gaining share? So what are you doing different? Eddie Northen: Michael, I think it's a very intuitive question to ask. And trust me, as we've gone through this time of these higher demand levels, we've continued to really drill down into that to get a better understanding. I talked again in my prepared remarks, we did have good weather that we're up against that created. But I think the essential worker status and the seriousness that we took with that, especially as the pandemic started, to me, I think, is one of the things that separated us, for sure, in the service industry, and I would say, separated us within our pest control industry as well. So we already had a very professional technician. As we've talked about previously, we invested in PPE very early on. And when you combine that together with that trusted person that you already have, we believe that, that separated us potentially from others that are out there. We've all had people in different service industries that maybe showed up to do some sort of work that looked disheveled, didn't look professional. And they could have been the best person to be able to do that job that you would hope. But the impression didn't come across positively. And we believe that our technicians across the board in all of our brands come across professionally. And we believe that essential worker status really translated into a trusted brand. And as people have felt more comfortable opening their homes over this last, I'll say, 3, 4, 5 months, we believe that's translated more into a trusted brand, a trusted name, I'm open to them coming into my home and it's really been a reflection of this demand that we've seen that we've been able to go through and grow our business with. So we think that those are a few things. When you couple that with these continued enhancements in the routing and scheduling and how our communication with our customers continues to improve, we believe those are things that continue to separate us from the competition that's out there and enabling us to win on high demand and to retain it at a high rate. Michael Hoffman: Okay. Fair enough. You all updated your corporate presentation recently. By the way, it was a nice change. Had to admit, it took me a moment to realize I was clicking through a book. Just trying to make it rotate a different way. But you put in there about a $12 billion domestic market. And yet the major trade associations defining it as $9.6 billion, growing a little bit less than 3% last year. What's - can you bridge the gap between your market size and PCT's market size? Eddie Northen: Michael, I have to get those numbers from you. I'm sure we'll get a chance to talk to you probably later today or tomorrow. Let us talk to our marketing group and let's see what we can do to help out with the difference between those 2. Operator: There are no additional questions at this time. I would like to turn the call back to management for closing remarks. Gary Rollins: Okay. Well, thank you for joining us today. We're optimistic about Rollins' opportunities ahead and appreciate your interest in our company. We look forward to updating you next quarter on our progress. Thanks again. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Rollins, Inc. (NYSE:ROL) Q2 2024 Earnings Overview
- Rollins, Inc. (NYSE:ROL) reported **EPS of $0.2671** and **revenue of $891.92 million**, slightly below analyst expectations.
- The company demonstrated consistent growth with revenue increasing from the previous year and matched the Zacks Consensus Estimate for EPS.
- Despite a high P/E ratio of **52.54**, Rollins maintains a solid market position with a focus on organic growth and strategic acquisitions.
Rollins, Inc. (NYSE:ROL), a leading company in the pest and termite control industry, announced its second-quarter earnings for 2024 on Wednesday, July 24, after the market closed. Operating well-known brands such as Orkin, the company disclosed an earnings per share (EPS) of $0.2671, just below the estimated $0.27, and a revenue of $891.92 million, narrowly missing the forecast of $895.02 million. This performance indicates a steady growth path, albeit with minor deviations from analyst expectations.
The reported earnings were in line with the Zacks Consensus Estimate of $0.27 per share, marking an improvement from the previous year's earnings of $0.23 per share. This consistency in meeting earnings estimates, coupled with a revenue increase from $820.75 million in the same quarter the previous year to approximately $891.9 million, underscores Rollins' solid position in the market. The company's ability to maintain revenue growth, with a slight beat of 0.13% against the Zacks Consensus Estimate, highlights its steady performance in the Building Products - Maintenance Service industry.
Jerry Gahlhoff, Jr., President and CEO of Rollins, attributed the company's strong performance to organic growth of 7.7 percent and an improving margin profile. He emphasized the strong demand for Rollins' services and a robust pipeline for acquisitions, expressing confidence in the company's trajectory for the remainder of 2024. This focus on continuous improvement and profitability enhancement, along with the team's contributions, has been pivotal in driving the company's success.
Financially, Rollins is trading with a price-to-earnings (P/E) ratio of approximately 52.54, indicating a higher valuation compared to the industry average. The company's premium valuation is further reflected in its price-to-sales (P/S) ratio of about 7.48 and an enterprise value to sales (EV/Sales) ratio of roughly 7.71. Despite potential liquidity challenges, as indicated by a current ratio of approximately 0.78, Rollins' moderate level of debt relative to equity, with a debt-to-equity (D/E) ratio of about 0.71, suggests a balanced approach to financing its operations.
In summary, Rollins, Inc.'s financial results for the second quarter of 2024 demonstrate its ability to sustain growth and meet market expectations, despite slight misses in earnings and revenue forecasts. The company's strategic focus on organic growth, profitability, and acquisitions positions it well for continued success in the competitive pest control industry.
Rollins Shares Up 5% Since Q1 Earnings Beat
Rollins (NYSE:ROL) shares rose nearly 5% since the company reported its Q1 earnings results on Wednesday, with EPS of $0.18 coming in better than the Street estimate of $0.17. Revenue was $658 million, beating the Street estimate of $641.47 million.
In contrast to concerns around growth slowing down, the company delivered further acceleration in organic growth to 9.2%, driven by broad-based momentum across all segments.
Adjusted EBITDA margin of 21.1% grew by approximately 130bps year-over-year highlighting robust revenue, pricing actions, and solid execution.
Analysts at RBC Capital expect the company to use its strong free cash flow and under-levered balance sheet to pursue bolt-on acquisitions over transformational M&A until the Fox integration is complete.
Rollins’ Fiscal 2023 Outlook
RBC Capital provided its outlook on Rollins, Inc. (NYSE:ROL), noting the company sets up well going into 2023, given the recession-resilient business model, while expanded upsell/cross-sell opportunities, sustained share gains through solid execution, and improved retention should drive above-industry growth.
The analysts expect organic growth momentum to sustain in 2023, modeling approximately 8% total organic growth composed of 7% Residential, 9% Commercial, and 10% Termite.
According to the analysts, technology adoption should drive improved technician efficiency and customer experience. They expect pricing increases to normalize (1-2% realization) in fiscal 2023. The analysts estimate operating leverage, improved efficiency, and inflationary pressures rolling over to deliver over 35% incremental margins driving approximately 130bps of 2023 EBITDA margin expansion.
Rollins’ Upcoming Q3 Earnings Preview
Analysts at RBC Capital provided their outlook on Rollins, Inc. (NYSE:ROL) ahead of the upcoming Q3 earnings announcement.
The analysts believe organic growth momentum will sustain in Q3 and model 6.6% total organic growth composed of 6.5% Residential, 6.9% Commercial, and 6.7% Termite. That said, Q3 growth is likely to slow sequentially given the tough comp (approximately 9% organic) but the analysts expect re-acceleration in Q4 to 6.9% and 7.0% in 2023 as comps gradually ease as well as pricing and expansion of the commercial sales, which bodes well for growth.
Furthermore, the analysts believe inflationary pressures, namely fuel, and M&S will continue to roll over, which should drive margin expansion starting Q4. There should also be potential for accelerated accretive M&A given the roughly net cash position and favorable backdrop post RTO/TMX deal close.
Rollins’ Upcoming Q3 Earnings Preview
Analysts at RBC Capital provided their outlook on Rollins, Inc. (NYSE:ROL) ahead of the upcoming Q3 earnings announcement.
The analysts believe organic growth momentum will sustain in Q3 and model 6.6% total organic growth composed of 6.5% Residential, 6.9% Commercial, and 6.7% Termite. That said, Q3 growth is likely to slow sequentially given the tough comp (approximately 9% organic) but the analysts expect re-acceleration in Q4 to 6.9% and 7.0% in 2023 as comps gradually ease as well as pricing and expansion of the commercial sales, which bodes well for growth.
Furthermore, the analysts believe inflationary pressures, namely fuel, and M&S will continue to roll over, which should drive margin expansion starting Q4. There should also be potential for accelerated accretive M&A given the roughly net cash position and favorable backdrop post RTO/TMX deal close.
Rollins Upgraded to Outperform at RBC Capital
Analysts at RBC Capital upgraded Rollins, Inc. (NYSE:ROL) to outperform from sector perform, noting that aggressive pricing, strong advertising push, and expanded cross-selling opportunities given fully- staffed technician levels, along with secular trends, namely warmer weather, greater outsourcing propensity, and migration to warmer/ wetter states, should drive robust revenue growth.
According to the analysts, inflationary pressures (fuel, M&S, tight labor market) rolling over, along with the BOSS digitalization initiative driving improved route density and normalization of H2/22 advertising spending, should drive margin expansion starting Q4/22. Additionally, there is potential for accelerated accretive M&A given the roughly net cash position.
Rollins Upgraded to Outperform at RBC Capital
RBC Capital analysts upgraded Rollins, Inc. (NYSE:ROL) to outperform from sector perform, highlighting that Q2/22 had only a partial benefit from pricing and sales momentum and could see the full benefit in Q3/22.
According to the analysts, aggressive pricing, strong advertising push, and expanded cross-selling opportunities given fully-staffed technician levels, along with secular trends, and greater outsourcing propensity, should drive robust revenue growth.
Furthermore, inflationary pressures (fuel, M&S, tight labor market) rolling over, along with the BOSS digitalization initiative driving improved route density and normalization of H2/22 advertising spending, should drive margin expansion starting Q4/22.
