ROLLINS INC

Previous wording

•First quarter revenues were $748.3 million, an increase of 13.7% over the first quarter 2023 with organic revenues* increasing 7.5%.

Current wording

•Second quarter revenues were $891.9 million, an increase of 8.7% over the second quarter of 2023 with organic revenues* increasing 7.7%.

Previous wording

•Quarterly operating income was $132.4 million, an increase of 18.0% over the first quarter of 2023. Quarterly operating margin was 17.7% of revenue, an increase of 60 basis points over the first quarter of 2023. Adjusted operating income* was $137.7 million, an increase of 22.7% over the prior year. Adjusted operating income margin* was 18.4%, an increase of 130 basis points over the prior year. Adjusted EBITDA* was $160.8 million, an increase of 19.3%. Adjusted EBITDA margin* was 21.5% of revenue, an increase of 100 basis points over the first quarter of 2023.

Current wording

•Quarterly operating income was $182.4 million, an increase of 17.8% over the second quarter of 2023. Quarterly operating margin was 20.4%, an increase of 150 basis points over the second quarter of 2023. Adjusted operating income* was $186.6 million, an increase of 16.6% over the prior year. Adjusted operating income margin* was 20.9%, an increase of 140 basis points over the prior year. Adjusted EBITDA* was $210.1 million, an increase of 15.3% over the prior year.

Previous wording

•Quarterly EPS was $0.19 per diluted share, a 5.6% increase over the prior year EPS of $0.18. Adjusted EPS* was $0.20 per diluted share, an increase of 17.6% over the prior year.

Current wording

•Quarterly EPS was $0.27 per diluted share, a 22.7% increase over the prior year EPS of $0.22. Adjusted EPS* was $0.27 per diluted share, an increase of 17.4% over the prior year.

Previous wording

•Operating cash flow was $127.4 million for the quarter, an increase of 26.5% over the prior year. The Company invested $47.1 million in acquisitions, $7.2 million in capital expenditures, and paid dividends totaling $72.6 million.

Current wording

•Operating cash flow was $145.1 million for the quarter. The Company invested $34.5 million in acquisitions, $8.7 million in capital expenditures, and paid dividends totaling $72.6 million.

Previous wording

Demand remains favorable to start the second quarter and the pipeline of acquisition activity remains healthy. Although we continue to navigate a highly uncertain macro-environment, we believe we are well positioned to deliver strong results in 2024.

Current wording

Demand remains favorable to start the third quarter and the pipeline of acquisition activity remains healthy. Although we continue to navigate a highly uncertain macro-environment, we believe we are well positioned to continue to deliver strong results in the second half of 2024.

Previous wording

Revenues for the quarter ended March 31, 2024 were $748.3 million, an increase of $90.3 million, or 13.7%, from 2023 revenues of $658.0 million. The increase in revenues was driven by demand from our customers across all major service offerings. Organic revenue* growth was 7.5% with acquisitions adding 7.0% in the quarter. Residential pest control revenue increased approximately 16%, commercial pest control revenue increased approximately 11% and termite and ancillary services grew approximately 12% including both organic and acquisition-related growth in each area. Organic revenue* growth was strong across our service offerings, growing over 4% in residential, 10% in commercial, and over 9% in termite and ancillary activity.

Current wording

Revenues for the quarter ended June 30, 2024 were $891.9 million, an increase of $71.2 million, or 8.7%, from 2023 revenues of $820.8 million. The increase in revenues was driven by demand from our customers across all major service offerings. Organic revenue* growth was 7.7% with acquisitions adding 1.7% in the quarter. Divestitures reduced sales by 0.7%. Residential pest control revenue increased 6.3%, commercial pest control revenue increased 9.9% and termite and ancillary services grew 11.8% including both organic and acquisition-related growth in each area. Organic revenue* growth was strong across our service offerings, growing 5.4% in residential, 8.6% in commercial, and 11.1% in termite and ancillary activity.

Previous wording

For the quarter ended March 31, 2024, depreciation and amortization increased $4.8 million, or 21.4%, compared to the quarter ended March 31, 2023. The increase was due to higher amortization of intangible assets from acquisitions, most notably from Fox.

Current wording

For the quarter ended June 30, 2024, depreciation and amortization increased $1.3 million, or 4.8%, compared to the quarter ended June 30, 2023. The increase was due to higher amortization of intangible assets from acquisitions.

Previous wording

For the quarter ended March 31, 2024, operating income increased $20.2 million, or 18.0%, compared to the prior year.

Current wording

For the quarter ended June 30, 2024, operating income increased $27.6 million, or 17.8%, compared to the prior year.

Previous wording

As a percentage of revenue, operating income was 17.7%, an increase of 60 basis points over the first quarter of 2023. Operating margin improved on the changes noted in gross profit and SG&A above, offset by higher depreciation and amortization associated with our acquisition of Fox.

Current wording

As a percentage of revenue, operating income was 20.4%, an increase of 150 basis points over the second quarter of 2023. Operating margin improved due to revenue growth and the changes noted in gross profit and SG&A above.

Previous wording

During the quarter ended March 31, 2024, interest expense, net increased $7.3 million compared to the prior year, primarily due to the higher average debt balance, as well as the increase in weighted average interest rates in the first quarter of 2024 compared to the first quarter of 2023. The increase was driven by the debt associated with the acquisition of Fox in the second quarter of 2023 and the share repurchase completed in the third quarter of 2023.

Current wording

During the quarter ended June 30, 2024, interest expense, net increased $3.0 million compared to the prior year, primarily due to the higher average debt balance, as well as the increase in weighted average interest rates in the first quarter of 2024 compared to the first quarter of 2023. The increase was driven by the debt associated with the share repurchase completed in the third quarter of 2023 and acquisition activity. We expect interest costs to continue to be elevated in the second half of 2024.

Previous wording

During the quarter ended March 31, 2024, other income decreased $4.8 million primarily due to lower gains on non-operational asset sales.

Current wording

During the quarter ended June 30, 2024, other income decreased $0.6 million primarily due to lower gains on non-operational asset sales.

Previous wording

Gross profit for the quarter ended March 31, 2024 was $382.8 million, an increase of $51.6 million, or 15.6%, compared to $331.2 million for the quarter ended March 31, 2023. Gross margin improved 90 basis points to 51.2% in 2024 compared to 50.3% in 2023. The recent acquisition of FPC Holdings, LLC (“Fox Pest Control”, or "Fox") was accretive to gross margin by 40 basis points. Excluding Fox, we saw 50 basis points of improvement in underlying margins, as pricing more than offset inflationary pressures. We saw leverage on people costs, fleet, and materials and supplies, the major areas that comprise cost of services provided.

Current wording

Gross profit for the six months ended June 30, 2024 was $864.4 million, an increase of $96.7 million, or 12.6%, compared to $767.7 million for the six months ended June 30, 2023. Gross margin improved 80 basis points to 52.7% in 2024 compared to 51.9% in 2023, as pricing more than offset inflationary pressures. We saw leverage across several areas that comprise cost of services provided, including people costs, materials and supplies, fleet, and insurance and claims.

Previous wording

For the quarter ended March 31, 2024, sales, general and administrative ("SG&A") expenses increased $26.6 million, or 13.6%, compared to the quarter ended March 31, 2023. The increase is driven by expenses associated with growth initiatives aimed at capitalizing on the health of our underlying markets, offset by leverage from administrative costs.

Current wording

For the six months ended June 30, 2024, SG&A expenses increased $42.8 million, or 9.5%, compared to the six months ended June 30, 2023. The increase is driven by expenses associated with growth initiatives aimed at capitalizing on the health of our underlying markets.

Previous wording

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, free cash flow, free cash flow conversion, net debt, net leverage ratio, and adjusted sales, general and administrative expenses ("Adjusted SG&A") in this Form 10-Q. Organic revenue is calculated as revenue less the revenue from acquisitions completed within the prior 12 months and excluding the revenue from divested businesses. Acquisition revenue is based on the trailing 12-month revenue of our acquired entities. Adjusted operating income and adjusted operating income margin are calculated by adding back to the GAAP measures those expenses resulting from the amortization of certain intangible assets and adjustments to the fair value of contingent consideration resulting from the acquisition of Fox. Adjusted net income and adjusted EPS are calculated by adding back to the GAAP measure amortization of certain intangible assets and adjustments to the fair value of contingent consideration resulting from the acquisition of Fox and excluding gains and losses on the sale of non-operational assets and by further subtracting the tax impact of those expenses, gains, or losses. Adjusted EBITDA and adjusted EBITDA margin are calculated by adding back to the GAAP measures those expenses resulting from the adjustments to the fair value of contingent consideration resulting from the acquisition of Fox and excluding gains and losses on the sale of non-operational assets. 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. Free cash flow is calculated by subtracting capital expenditures from cash provided by operating activities. Free cash flow conversion is calculated as free cash flow divided by net income. Net debt is calculated as total long-term debt less cash and cash equivalents. Net leverage ratio is calculated by dividing net debt by trailing twelve-month EBITDA. Adjusted SG&A is calculated by removing the adjustments to the fair value of contingent consideration resulting from the acquisition of Fox. 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.

Current wording

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, free cash flow, free cash flow conversion, net debt, net leverage ratio, and adjusted sales, general and administrative expenses ("SG&A") in this Form 10-Q. Organic revenue is calculated as revenue less the revenue from acquisitions completed within the prior 12 months and excluding the revenue from divested businesses. Acquisition revenue is based on the trailing 12-month revenue of our acquired entities. Adjusted operating income and adjusted operating income margin are calculated by adding back to the GAAP measures those expenses resulting from the amortization of certain intangible assets and adjustments to the fair value of contingent consideration resulting from the acquisition of Fox. Adjusted net income and adjusted EPS are calculated by adding back to the GAAP measure amortization of certain intangible assets and adjustments to the fair value of contingent consideration resulting from the acquisition of Fox and excluding gains and losses on the sale of non-operational assets and by further subtracting the tax impact of those expenses, gains, or losses. Adjusted EBITDA and adjusted EBITDA margin are calculated by adding back to the GAAP measures those expenses resulting from the adjustments to the fair value of contingent consideration resulting from the acquisition of Fox and excluding gains and losses on the sale of non-operational assets. 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. Free cash flow is calculated by subtracting capital expenditures from cash provided by operating activities. Free cash flow conversion is calculated as free cash flow divided by net income. Net debt is calculated as total long-term debt less cash and cash equivalents. Net leverage ratio is calculated by dividing net debt by trailing twelve-month EBITDA. Adjusted SG&A is calculated by removing the adjustments to the fair value of contingent consideration resulting from the acquisition of Fox. 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.

Previous wording

(5) In the first quarter of 2024, we revised the non-GAAP metrics adjusted net income, adjusted EPS, and adjusted EBITDA to exclude gains and losses related to non-operational asset sales. These measures are of operating performance and we believe excluding the gains and losses on non-operational assets allows us to better compare our operating performance consistently over various periods. Revising these metrics for the three months ended March 31, 2023 resulted in a $3.5 million reduction to adjusted net income, a $0.01 reduction to adjusted EPS, and a $4.7 million reduction to adjusted EBITDA.

Current wording

(5) In the first quarter of 2024, we revised the non-GAAP metrics adjusted net income, adjusted EPS, and adjusted EBITDA to exclude gains and losses related to non-operational asset sales. These measures are of operating performance and we believe excluding the gains and losses on non-operational assets allows us to better compare our operating performance consistently over various periods. Refer to our first quarter 2024 press release for fully revised quarterly metrics.

Previous wording

(6) Revenues classified by significant product and service offerings for the three months ended March 31, 2023 were misstated by an immaterial amount and have been restated from the amounts previously reported to correct the classification of such revenues. There was no impact on our condensed consolidated statements of income, financial position, or cash flows.

Current wording

(6) Revenues classified by significant product and service offerings for the three and six months ended June 30, 2023 and 2022 were misstated by an immaterial amount and have been restated from the amounts previously reported to correct the classification of such revenues. There was no impact on our condensed consolidated statements of income, financial position, or cash flows.

Previous wording

(7) As of March 31, 2024, the Company had outstanding borrowings of $513.0 million under the Credit Facility. Borrowings under the Credit Facility are presented under the long-term debt caption of our condensed consolidated balance sheet, net of $2.1 million in unamortized debt issuance costs as of March 31, 2024.

Current wording

(7) As of June 30, 2024, the Company had outstanding borrowings of $504.0 million under the Credit Facility. Borrowings under the Credit Facility are presented under the long-term debt caption of our condensed consolidated balance sheet, net of $2.0 million in unamortized debt issuance costs as of June 30, 2024.

Previous wording

The Company’s $113.0 million of total cash at March 31, 2024 is held at various banking institutions. As of March 31, 2024, approximately $56.3 million is held in cash accounts at international bank institutions and the remaining $56.7 million is primarily held in Federal Deposit Insurance Corporation (“FDIC”) insured non-interest-bearing accounts at various domestic banks which at times exceed federally insured amounts.

Current wording

The Company’s $106.7 million of total cash at June 30, 2024 is held at various banking institutions. As of June 30, 2024, approximately $55.9 million is held in cash accounts at international bank institutions and the remaining $50.8 million is primarily held in Federal Deposit Insurance Corporation (“FDIC”) insured non-interest-bearing accounts at various domestic banks which at times exceed federally insured amounts.

Previous wording

As of March 31, 2024, the Company had outstanding borrowings of $513.0 million under the Credit Facility. The aggregate effective interest rate on the debt outstanding as of March 31, 2024 was 6.4%. As of December 31, 2023, the Company had outstanding borrowings of $493.0 million under the Credit Facility. The aggregate effective interest rate on the debt outstanding as of December 31, 2023 was 6.5%.

Current wording

As of June 30, 2024, the Company had outstanding borrowings of $504.0 million under the Credit Facility. The aggregate effective interest rate on the debt outstanding as of June 30, 2024 was 6.4%. As of December 31, 2023, the Company had outstanding borrowings of $493.0 million under the Credit Facility. The aggregate effective interest rate on the debt outstanding as of December 31, 2023 was 6.5%.

Previous wording

The Company maintains $68.4 million in letters of credit as of March 31, 2024. These letters of credit are required by the Company’s insurance companies, due to the Company’s high deductible insurance program, to secure various workers’ compensation and casualty insurance contracts coverage and were decreased from $71.7 million as of December 31, 2023. The Company believes that it has adequate liquid assets, funding sources and insurance accruals to accommodate potential future insurance claims.

Current wording

The Company maintained $71.7 million in letters of credit as of June 30, 2024 and December 31, 2023. These letters of credit are required by the Company’s insurance companies, due to the Company’s high deductible insurance program, to secure various workers’ compensation and casualty insurance contracts coverage. The Company believes that it has adequate liquid assets, funding sources and insurance accruals to accommodate potential future insurance claims.

Previous wording

The following table sets forth a summary of our cash flows from operating, investing and financing activities for the three month periods presented:

Current wording

The following table sets forth a summary of our cash flows from operating, investing and financing activities for the six month periods presented:

Previous wording

Cash from operating activities is the principal source of cash generation for our businesses. The most significant source of cash in our cash flow from operations is customer-related activities, the largest of which is collecting cash resulting from services sold. The most significant operating use of cash is to pay our suppliers, employees, and tax authorities. The Company’s operating activities generated net cash of $127.4 million and $100.8 million for the three months ended March 31, 2024 and 2023, respectively. The $26.7 million increase was driven primarily by strong operating results and the timing of cash receipts and cash payments to and from customers, vendors, employees, and tax and regulatory authorities.

Current wording

Cash from operating activities is the principal source of cash generation for our businesses. The most significant source of cash in our cash flow from operations is customer-related activities, the largest of which is collecting cash resulting from services sold. The most significant operating use of cash is to pay our suppliers, employees, and tax authorities. The

Previous wording

The Company’s investing activities used $52.5 million and $13.6 million for the three months ended March 31, 2024 and 2023, respectively. Cash paid for acquisitions totaled $47.1 million for the three months ended March 31, 2024, as compared to $15.5 million for the three months ended March 31, 2023. The Company invested $7.2 million in capital expenditures during the year, offset by $0.7 million in cash proceeds from the sale of assets, compared with $7.6 million of capital expenditures and $8.9 million in cash proceeds from asset sales in 2023. The Company’s investing activities were funded through existing cash balances, operating cash flows, and borrowings under the Credit Facility.

Current wording

The Company’s investing activities used $93.6 million and $331.6 million for the six months ended June 30, 2024 and 2023, respectively. Cash paid for acquisitions totaled $81.7 million for the six months ended June 30, 2024, as compared to $327.9 million for the six months ended June 30, 2023. The Company invested $15.9 million in capital expenditures during the year, offset by $2.3 million in cash proceeds from the sale of assets, compared with $14.4 million of capital expenditures and $10.2 million in cash proceeds from asset sales in 2023. The Company’s investing activities were funded through existing cash balances, operating cash flows, and borrowings under the Credit Facility.

Previous wording

Cash used in financing activities was $64.3 million and $71.1 million during the three months ended March 31, 2024 and 2023, respectively. A total of $72.6 million was paid in cash dividends ($0.15 per share) during the three months ended March 31, 2024, compared to $64.1 million in cash dividends paid ($0.13 per share) during the three months ended March 31, 2023. The Company made net borrowings under its credit agreements of $20.0 million during the three months ended March 31, 2024 compared to net borrowings of $10.0 million during 2023.

Current wording

Cash of $173.9 million was used in financing activities during the six months ended June 30, 2024, compared with $140.2 million of cash provided by financing activities during the six months ended June 30, 2023. A total of $145.2 million was paid in cash dividends ($0.30 per share) during the six months ended June 30, 2024, compared to $128.0 million in cash dividends paid ($0.26 per share) during the six months ended June 30, 2023. The Company made net borrowings under its credit agreements of $11.0 million during the six months ended June 30, 2024 compared to net borrowings of $285.0 million during 2023. During the six months ended June 30, 2024, the Company paid $30.3 million of contingent consideration, primarily related to the Fox acquisition, compared to $4.4 million during the six months ended June 30, 2023. The Company withheld $11.6 million and $11.8 million of common stock for the six months ended June 30, 2024 and 2023, respectively, in connection with tax withholding obligations of its employees upon vesting of such employees’ equity awards.

Previous wording

In 2012, the Company’s Board of Directors authorized the purchase of up to 5 million shares of the Company’s common stock. After adjustments for stock splits, the total authorized shares under the share repurchase plan is 16.9 million shares. The Company did not repurchase shares of its common stock on the open market during the first three months of 2024 or 2023. As of March 31, 2024, 11.4 million additional shares may be purchased under the share repurchase program. The Company withheld $11.3 million and $11.4 million of common stock for the three months ended March 31, 2024 and 2023, respectively, in connection with tax withholding obligations of its employees upon vesting of such employees’ equity awards.

Current wording

In 2012, the Company’s Board of Directors authorized the purchase of up to 5 million shares of the Company’s common stock. After adjustments for stock splits, the total authorized shares under the share repurchase plan is 16.9 million shares. As of June 30, 2024, 11.4 million additional shares may be purchased under the share repurchase program.

Previous wording

In addition, the Form S-3 on file with the SEC registers $1.5 billion of the Company’s common stock, preferred stock, debt securities, depositary shares, warrants, rights, purchase contracts and units for future issuance. The Company may offer and sell some or all of such securities from to time or to or through underwriters, brokers or dealers, directly to one or more other purchasers, through a block trade, through agents on a best-efforts basis, through a combination of any of the above methods of sale or through other types of transactions described in the Form S-3. The Company has not sold any securities as of the date of this Form 10-Q.

Current wording

In addition, the Form S-3 on file with the SEC registered $1.5 billion of the Company’s common stock, preferred stock, debt securities, depositary shares, warrants, rights, purchase contracts and units for future issuance. The Company may offer and sell some or all of such securities from to time or to or through underwriters, brokers or dealers, directly to one or more other purchasers, through a block trade, through agents on a best-efforts basis, through a combination of any of the above methods of sale or through other types of transactions described in the Form S-3. The Company has not sold any securities as of the date of this Form 10-Q.