Rollins, Inc. (ROL) on Q2 2021 Results - Earnings Call Transcript
Operator: Greetings. Welcome to Rollings Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Joseph Calabrese. Thank you. You may begin. Joseph Calabrese: 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'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, 13720627. Additionally, the call is being webcast at www.viavid.com, and a replay will be available for 90 days. Gary Rollins: Thank you, Joe, and good morning. We appreciate all of you joining us for our second quarter 2021 conference call. Julie will read our forward-looking statement and disclaimer, and then we'll begin. Julie Bimmerman: 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 other 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. Before we get started, you probably noticed that Eddie Northen is not joining us today on the call. John Wilson will share with you more about that now. John Wilson: Good morning. Yesterday, our Board of Directors appointed Julie Bimmerman, who many of you know, as our Interim Chief Financial Officer and Treasurer. Eddie Northern has been moved into an operational role as Senior Vice President focused on sustainability. Julie has significant experience, both in finance and our industry as described in the press release we issued this morning. She has been with us since 2004, having most recently been Vice President of Finance and Investor Relations. Prior to joining Rollins, Julie worked in corporate accounting, internal audit and corporate tax audit role. She's known to many of you already and she will be available to analysts and institutional investors after the call as per usual. We also filed an 8-K updating developments in our SEC investigation this morning. I will now turn the call back over to Gary. Gary Rollins: Now to the exciting news. I'm very pleased to report that Rollins delivered a strong financial performance in the second quarter, and we remain well-positioned for 2021. John will share with you our recent additions to our Board of Directors, while Jerry and Julie will give you details of our financial results shortly. John Wilson: Thank you, Gary. Over the past year, we have enhanced and diversified Rollins' Board of Directors with several new additions. I'd like to spend a moment today welcoming our two newest Board members, Gregory Morrison and Donald Carson. As detailed in our May press releases, Greg was the former Chief Information Officer, who led the information technology operations for Cox Enterprises, and he will add cyber expertise to our Board. Don, having worked for many years in investment in commercial banking, including Wachovia Bank, brings a high level of knowledge and strategic financial transactions to the company. We're thrilled to add these individuals to the outstanding group of leaders on our Board, and we look forward to their counsel and contributions to our company. Now I will turn the call over to Jerry to provide an overview of the strong quarter just completed. Jerry Gahlhoff: Thanks, John. And good morning, everybody. As Orkin begins their 120th year of service, we thought it was an opportune time to spend a few minutes highlighting some of the recent successes of the brand. For those who have followed us over the years, you may recall that Orkin was acquired by Rollins in 1964 and as the original company that first started our venture into pest control. Today, Orkin remains our largest brand, employing over 8,000 team members and completing millions of services annually worldwide. Orkin is very involved in the communities they serve, maintaining a strong commitment to education, public health and environmental responsibility. From collaborations with the centers for disease control and prevention and major universities to their work with the National Science Teachers Association, Orkin fosters a deeper understanding and appreciation of the natural world around us. As we have previously shared with you over the past few years, Orkin has adopted new technologies, which has improved communications with customers, optimized routing and scheduling and increased technician efficiencies to name a few. Through the years, Orkin has grown, adding both new customers and new customer service offerings like bed bug, flea and tick, mosquito and most recently, VitalClean, our service designed to fight COVID-19. Overall, Orkin has significantly contributed to the long-term success of Rollins. Julie Bimmerman: Thank you, Jerry. At Rollins, we are constantly looking for ways to improve in all areas of our business. As many of you know, continuous improvement is an important part of our culture. We have a lot of opportunity for the remainder of 2021. But I would like to recognize that the significant financial gains from this quarter are on top of the strong gains that we experienced during 2020. Even as we were all entering a different economic time back in Q2 of last year, our revenue grew at a steady 5.6%. That was converted into net income growth of 17.2%. Both of these 2020 numbers were at or above our historic averages. Gary Rollins: Thank you, Julie. And we're happy to take your questions at this time. Operator: Thank you. Our first question is from Tim Mulrooney with William Blair. Please proceed. Tim Mulrooney: Gary, John, Jerry, Julie, good morning. Thank you for taking the questions. Gary Rollins: Good morning. John Wilson: Good morning. Tim Mulrooney: So just a real quick housekeeping here. On the residential pest, can you give us those numbers again for total residential pest growth and organic? I think I missed that. Julie Bimmerman: Okay. Gary Rollins: Yes. You got that Julie? Julie Bimmerman: Yes. Let me get that for you real quick, Tim. Tim Mulrooney: Okay. While you're looking that up, Julie, I'll just ask this next question to the broader group. This is my follow-up question. Last year, around this time, you guys highlighted the record level of new account sales, I think, particularly in residential. And I think that you had many all time record high new sales days throughout the quarter. Can you talk about how new account sales have trended through the second quarter of this year, now a year later? And how that compares to the really strong period that you had during the second quarter of last year? Thank you. John Wilson: So Tim, this is John Wilson. I'll take a stab at that. Our brand that we best track and that is, of course, Orkin being our largest. And for the second quarter, that continued to be up again this year. But of course, not by near the – near the same record number, but we are improved over a year ago in new customer accounts. Tim Mulrooney: Okay. Okay. Thanks very much. And Julie, were you able to get the residential organic growth and total growth? Julie Bimmerman: Okay. Yes. So we're talking about the total growth and that may have We actually had Jerry talk about the total, then I did talk about the organic, so from that standpoint. So for the quarter, we experienced the growth in residential increasing to 13.6%, the termite 16.3% and the commercial, excluding fume of 17.4%. You're listening? Tim Mulrooney: Okay. Got it. I'm with you. Julie Bimmerman: Okay. I just wanted to make sure. And then - not a problem, not a problem. Just bear with me, Tim. This is new for me. And then talking on the organic side for the residential was the 12.3%, commercial, excluding fume 14.8%, and termite at the 14.9%. Tim Mulrooney: Okay, okay. Perfect. Thanks so much, Julie. Thank you everybody… Julie Bimmerman: Yes. Thanks, Tim. Gary Rollins: Thank you. Operator: Our next question is from Mario Cortellacci with Jefferies. Please proceed. Mario Cortellacci: Hi. Thank you for the time. I guess maybe just asking Tim's question a slightly different way. I guess how much of your organic growth - or maybe you can help us understand the organic growth build-up this quarter of how much was new customers, how much was cross-sell or new products introduced to existing customers? Was there any improvement on retention that contributed to organic growth as well? And then it sounds like you turned pricing back on, was that still in like the 1% to 2% range for the quarter as well? Julie Bimmerman: Okay. I will start on this and then anyone else, if you want to jump in feel free. First of all, on the pricing, we put in our normal price increase that we normally would have. So we did not do something additional because we held the price increase last year. So it would be within the normal ranges in answer to that. As to our retention rate, we have seen a consistent incremental growth on our retention over the last 5 years and still do see that trend continuing this year. John Wilson: Yes. So I'll add on to that, Mario. This is John Wilson. Pricing amounted to about 1.2%, which is kind of in line with our historic norm of what pricing adds. And the real answer to your question is all of the above. So cross selling had a piece of that, we don't track what that may add. So I don't - I can't give you a number on that. Retention improved, as Julie mentioned. And then, of course, we did have an increase, again, as I mentioned a minute ago with Tim, on our new accounts added. Mario Cortellacci: Got it. Thank you. And then just, I guess, a follow-up on the pricing and maybe whatever inflation that could potentially show up. I have been following you guys as long as some other guys. But I don't know maybe what you've done historically in higher inflation environment. If we do see inflation or wage and labor inflation kind of rear its ugly head for you, would you go above that range, that historical 1% to 2% range, like you did 1.2% this quarter. If you're seeing wages really ramp a lot higher, you're finding it a lot harder to find talent over the following - over the next year, would you kind of flex that pricing up a little higher to offset the increased costs? John Wilson: Yes. So we could. I mean, the market will, obviously, dictate what we can do. But we've always pointed to our call center that we have is a wonderful laboratory to test what our pricing elasticity is with our various close rates and what we're capable of getting there. So we would absolutely look at that, Mario. Right now, we don't feel a need to, but we'll take a look at it. Mario Cortellacci: Got it. And then just a quick housekeeping, and maybe I missed it in the prepared remarks, did you guys disclose or say how many deals you closed in Q2 or year-to-date so far? John Wilson: I don't know that number. Julie Bimmerman: We just gave you the dollars on that. Mario Cortellacci: Got it. Okay. Thank you. Julie Bimmerman: Thanks, Mario. Operator: Our next question is from Michael Hoffman with Stifel. Please proceed. Michael Hoffman: Thank you very much. And since the others have focused more on sales, I'm going to focus on cost. So there's a little giveback in gross margin, but a meaningful improvement in SG&A. And on the gross margin, I'm trying to understand, is there not wage inflation as well versus - or is that embedded in fleet? And then on the SG&A, can you sustain less than 29% of revs from this point forward, given where you are? Julie Bimmerman: Hey, Michael. So within the gross margin, we did - I mean, we actually did see an improvement in our total payroll in answer to that. So overall, you've got to remember that technicians are directly tied with the work that they're producing. So their wages are tied to - at the - when they go through and complete their jobs, if you recall on that front. As far as the fleet cost, the fleet cost, yes, as you know, we did have an increase in that, and that was improved predominantly within the fuel . Michael Hoffman: Okay. And then the G&A? Julie Bimmerman: On the G&A side, as you said, though, we definitely saw some SG&A improvements over the same quarter last year. And it was really administrative in sales salaries, and then also with our new contracts for our telephone that we were able to work on some better pricing. Jerry Gahlhoff: This is Jerry, Michael. The other thing I would say is we've been very careful about adding costs back into our business over the past year. We made some changes in our business a year ago. And from an operations standpoint, we've been very careful about what we're adding back in terms of our cost structure. So - and a lot of that has to do with our - controlling our overhead expenses. Gary Rollins: Well, on revenue and schedule, and this is Gary. Certainly, has given us an opportunity to get more done. And as Julie said, the vast majority of our pest control technicians are on a productivity pay plan. So as they do more, they make more and that helps with turnover reduction. So all those elements are coming together fortunately. Michael Hoffman: Terrific. And then my follow-up, you released a supplemental 8-K after the earnings release and made reference to an SEC investigation. Have they completed that because they never tell you when they're completing it? So can you tell us if they completed it? John Wilson: Yes. Michael. So I think the 8-K referred is that it's ongoing, and it is ongoing. It is not completed, no. Michael Hoffman: Okay. Thank you very much. Julie Bimmerman: Thank you. Operator: We have reached - we do have a follow-up question from Tim Mulrooney with William Blair. Please proceed. Tim Mulrooney: Hey. Thanks for squeezing me in. I just wanted to ask about your virus side spend term because this is a topic across my services coverage universe. I know virus side spend has been elevated across your customer base, as folks are still highly sensitive to the issues of hygiene in virus protection. But with vaccination rates on the rise, I would assume that this offering would moderate over time. So am I right about that? Can you talk a little bit about demand for your virus side offering and how that's trending? Jerry Gahlhoff: My best. This is Jerry, Tim. My best barometer that is talking to Freeman Elliott at Orkin. And while we have seen it moderate, I think that's the right term. There is also places where there is demand, still where people are coming back to office spaces and people are still concerned about their workers being in there and want that kind of disinfection service still occurring. So it's still there. Some markets are better than others where they've returned more people to the offices and things like that. So it's still a viable business, although, to your point, it has moderated. Tim Mulrooney: Okay. And while you got me here, maybe I'll try to squeeze one more in, but thanks for the color on that, Jerry. I wanted to ask about your M&A pipeline, and this is like big picture. So how would you say your pipeline looks today compared to say 5 years ago? Is it smaller given how much consolidation we've seen over the last 5 years? Or is it the other way? Is it larger because more pest control companies are emerging every day? Really curious how you all would characterize the M&A pipeline relative to 5, 10 years ago? John Wilson: Yes, Tim, so this is John. I'll take a stab at that at the start and maybe Jerry can add to it. I've used the word frothy in the past, and I think it's still that way. Our pipeline is - I would - I don't have that number from 5 years ago, but I would guess it's similar. And a big driver of late has been contemplated tax changes coming out of Washington, D.C., whether it's to you know, state taxes or whatever. And so some of that's driving some of the conversations that we've had. So Jerry, if you have anything to add to that? Jerry Gahlhoff: Yes. We're still seeing plenty of deals looking at things and evaluating what makes sense to us at an appropriate price. So we still have plenty of action going on there. Julie Bimmerman: Okay. And let me jump on to that real quick, and this actually goes back to, I think, it was Mario's question. We have closed 18 deals through the end of Q2. Tim Mulrooney: Okay. That’s helpful. Thanks for the color, everybody… Julie Bimmerman: And I do want to throw one other thing out there. Jerry just put a note in front of me. It sounds like when I said that residential pest control made up, I believe, I said 40% of our revenues, that is incorrect. It is 46% of our revenue. So… Jerry Gahlhoff: I can't believe you're understating it. Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks. Gary Rollins: Okay. Well, thank you for joining us today. We appreciate your interest in our company. And look forward to reporting in October, our third quarter results and updating you on our progress. Thanks, again. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. And 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.
