Rollins, Inc. ($ROL)

Okay. Good morning, everyone. I'm Justin Hauke. I'm the senior analyst covering facility and industrial services. And presenting next, we have the pleasure of hosting Rollins, which is the largest pest elimination company in the United States and then probably beyond that, too. So -- but yes, so presenting is going to be -- we've got Lyndsey Burton, who leads IR, and then Will Harkins, who is the very newly appointed Chief Financial Officer, but not a stranger to the company. So I'll let you guys do some little introductory remarks, and then we'll go into Q&A, a small room. So I've got questions, but when we open it up, we can also just take questions from the audience. So I'll let you guys start.

Sure. Well, thanks for having us. It's great to be here. Yes. So we are -- it's an honor to be here representing our 20,000-plus teammates around the world. We are a provider of essential services across a number of different offerings in both the residential and commercial space. Fantastic business model, a fantastic culture with a very long history and a pretty exceptional track record of performance. We -- 100 -- nearing in on 100 straight quarters of growth, 75% recurring business. And at the end of the day, I think what we're really proud of is just how our teammates continue to evolve. Our portfolio of brands is pretty exceptional. It's been built and curated very thoughtfully over many, many years. And so we think that's a very distinct competitive advantage. And from a financial perspective, recession-resilient model has proven to grow through a number of different cycles. And really is just a compounder. And so it's an honor to be here, and we're happy to just kind of focus in on any questions. I'm sure there's quite a few.

Yes. Why don't we start off? Will, just since it is a new role for you, just what's your kind of primary focus on day 1, things that are different, new, whatever, just kind of how you go about that?

Absolutely. So one of the good parts about this transition is that Ken hired me into the company back in March of 2025. And so it was something that when I got hired in this was very much on the agenda that he was looking for a successor. And so nobody knew that June 2026, this was going to happen. And so it wasn't exactly that well timed out. But it was something I always knew about. So when we think about, is there going to be a big change in strategy, a big change in what we're focused on, there's none because I've been around that table for the last year, helping support the mission of the company. And so the entire finance leadership team is relatively new within the last 2 or 3 years. Ken hired all of us. And so we're all very much aligned. We just had an Investor Day 2 weeks ago. And so nothing that was presented at that Investor Day is going to be different than what you're going to hear me say today. And so I think that's a really good thing. The other piece is known about Rollins is I've never met a business that didn't run on relationships, but certainly at Rollins relationships matter even more than any other company that I've worked for in the past just because the operators need to trust you. They need to have respect that you are in it for the full business. And so I think some of the big initiatives we have running, this is going to be a much more seamless transition than what Ken inherited when he first came in because Ken came in from outside of the business and he stepped into the CFO role on day 1. And so I think we'll have a much better -- it's more seamless transition this year.

Yes. And I agree. I mean for the background of where Ken is going, I think that's been kind of a focus. He's going to a pre-IPO data center AI play, just really unique and awesome opportunity for him that we're thrilled for him that he has. And so, yes, I think it's interesting that we were with Jerry yesterday at a number of meetings, who's the CEO, and he kind of talked about, again, how, Will, in a lot of ways because he's kind of starting a year end with those relationships. And this is a decentralized business in a lot of ways with different -- I mean the cultures are similar across the brands, but they all have their kind of unique nuances and things that you kind of have to work through that can add some complexity. So having someone that's already been there for a year and been intimately involved in a lot of the projects that we have that are already in flight gives me and others a lot of confidence that the momentum that we have is going to continue. Ken has built an incredible team, and we're incredibly thankful to him for that.

Great. No, I appreciate that. I just figured that we'd start there because that seems the most topical and relevant and just to kind of baseline everyone. So I think in your prepared remarks, you talked about just the consistency of the business, which has been something very obvious as an outsider watching you guys over the years. So the organic growth, I mean, you've very consistently been kind of high single digits, 7%, 8%. Maybe you can just decompose that a little bit in terms of how much is pricing, how much is volume, new customers? What is the algorithm?

So it was a few years ago that the company made an intentional change to where they moved to a CPI plus model, knowing that it's an essential service, it's something that people value allowed us to be able to do that. And so you think CPI is in the 2% to 3% range. So we're ahead of that from a pricing perspective. Certainly, from a volume perspective, we see that we are continuing to see improvements there as well. So we -- overall -- and then M&A, of course, tucks on. We say 2% to 3%. It's been 4% last year was north of that range. We see ourselves being around the 3% range for this year. And so I think the 7% to 8% that we have consistently guided to, that is something that people have asked, are you going to come off of that? Not at all. Ken mentioned during the Investor Day that some quarters are going to be lower and some quarters are going to be higher. But from the full year perspective, you should expect 7% to 8% growth at the top line from us. And so far this year, I mean, we did see a choppy start. Everybody saw in Q1, it was 6.6% organic growth. And so we still see choppiness in April and then some into May, where we're getting our numbers for May right now. But certainly, the best months are ahead of us. And so when we think about that, thinking about June and all those peak summer months, we do not see any reason to come off of that 7% to 8% guidance.

Yes. And I think the other thing you mentioned, too, and I think it's obvious, but like you talked about recession resistance and the fact that you've been able to grow throughout cycles. Maybe just talk about the peaks and troughs, and how discretionary is it, particularly on the residential versus commercial side maybe?

That's probably where you see some of the choppiness that we talked about in the first quarter and even now as we go through is that in more of the onetime business that we've had in the 75% is recurring and it is essential. So people aren't really going to live with pests. So it's something that they can -- and it's a fairly small ticket item if you're thinking about $100 of service. But in the onetime items, that's where those ancillary services, those are really high ticket values. I mean those are quite expensive for people. And so in this moment, if you see any pressure on a consumer, that might be where we're trying to dig into that. We've got to do some more work there to figure out what could be driving some of that onetime choppiness. But certainly, it stands to reason that maybe people are feeling a little bit more pressure and so some of the onetime services that we have, those are not growing as fast as they had in the past?

Yes. In general, I think we have a very healthy subset of the consumer economy in terms of most of the people that we have are homeowners, [ gainfully ] employed, have seen home price appreciation in a pretty meaningful way over the last decade plus. So it's a healthy consumer. I think there's brands like Orkin that covers such a vast footprint that can have more exposure to some of the lower income brands -- lower income bands from a consumer perspective. But in general, the resilience of the model has been that it's an essential service. It's a low-ticket item. And for many people, it's kind of a set it and forget it, at least on the residential side. I think on commercial, arguably even more essential, right? Essentially, there's regulatory components involved there. That's been an area of the business that we've certainly invested more meaningfully. We've always been focused on commercial, but I think we see this opportunity in the marketplace as there's -- the pest control space, particularly on the residential side is incredibly fragmented, 30,000-plus players, more consolidation at the top on the commercial side. But we have seen opportunities in areas within verticals that we've been targeting to go after that business in a more meaningful way and have -- put the resources towards it over the last several years. And are now kind of -- there's a longer cycle that's more upfront investment for that commercial business before you can really drive some of the returns, but we think we're there. And seeing those returns flow through, and that should continue. But across the board, very essential, arguably, commercial may be a little bit more so.

Go ahead, please.

One other piece that I would just say is that some people don't realize that we have a financing arm of our business for especially residential customers called Rollins Acceptance Corporation (sic) [ Rollins Acceptance Company ]. And when you get into these big ticket items, it's something that we are trying to drive more uptake on. It's around the fact that you can -- if you have a $10,000 bill that shows up on your front door, we do have a financing opportunity for people. And so 90 days same as cash. And so that is often helpful to folks as well. So we're trying to do more of that to alleviate some of the strain that people are seeing.

Are the ancillary -- is that -- do you manage that all kind of centrally or do the different brands kind of offer their own?

It's all managed centrally. And so -- and what we're doing is that we haven't seen a lot of our -- so the business is broken up into Orkin, which is about 50% of the business and then all of our other brands, which are about 50% of the business. And so our other brands have not done as much of the RAC, the Rollins Acceptance Corporation (sic) [ Rollins Acceptance Company ] offering. And so that is something that we're trying to expand today.

Well, and as you heard at our Investor Day, that's one of the levers of growth that we're really excited about is if you think about the ancillary business, which has been growing really solid double digits for a number of years at this point, that's really been concentrated in the Orkin portfolio, right? Some of the exclusion work that we do there, some of the installation work, those types of bigger ticket projects that are really aimed at either preventing a pest issue or remediating after a pest issue, which havoc on your attic as was the case for a friend who had a rat infestation recently, not pretty at all. But those are larger ticket, but really, again, concentrated in the Orkin portfolio. There's no reason as we continue to drive collaboration and share best practices across the portfolio of brands that you can't see other brands really meaningfully step into that ancillary side of the business, right? If you think about Northwest that has really fantastic customer relationships, like I look at ancillary as a proxy for our ability to deepen our relationship with our existing customer base. And so we're excited about that opportunity ahead. Ed Donoghue is a long tenured at Orkin -- long-tenured career with Orkin has moved over to the brand side to kind of help them get some of the ancillary and sales force focus going and have seen really nice results coming out of that.

Yes. And I mean, if I'm not mistaken, I think even some of those other brands like we're exclusively more of a niche ancillary service to begin with in terms of...

Wildlife and [indiscernible]. Yes, absolutely.

Yes. Okay. I guess I want to talk about M&A. Obviously, that's been a really important thing. I think you said, what, 3 or 4 percentage, 2% to 3%...

I mean it was 4% in 2025. Yes.

Yes. So maybe just talk about -- it's a fragmented market, but the depth of it, why people choose to join at, Rollins, how you incentivize things like that?

Yes. So you've heard Jerry talk a lot. I mean the one thing that's been impressive to me since I joined was just I come from companies where there are 2 heavy hitters at the very top, and they just trade share back and forth and they are sworn enemies to each other. Whereas in this business, it does feel like you've got 30,000 different competitors out there. And Jerry is like one of the -- he's a mayor of the town, essentially everybody knows Jerry. And so it's a very collegial atmosphere. So you go to Pest World and there are a lot of people that are right there very friendly towards each other. And folks that come for -- or who are trying to sell their business. I mean, you think about the Northwest story. So Stanford Phillips and his father and grandfather, they built this tremendous business in the Northwest portion of Atlanta. That's why it's called Northwest. It happens to sit in the Southeast portion of the United States, but it is the Northwest portion of Atlanta. And so they built this amazing business. And when it came time to sell, Rollins was the place that they wanted to go to. And that's because we are a business that you still have the Northwest brand out there. You still have all of those great associates that had supported and built that business. They still are wearing the Northwest shirts and logos. And so families who have built their -- these businesses can still go into their communities and not feel like they completely sold out to their associates. And so, I think when you think of the competitive landscape of who's coming to us and how are we buying businesses, folks we're an acquirer of choice is what you'll hear Jerry talk about. And that's because people are looking for Rollins to come and be where they sell their business.

Yes. And it's interesting, the opportunity set, if you look at the PCT top 100 list of companies that's a trade magazine for the industry, as acquisitive as this industry has been over the last 10, 15 years, the pipeline continues to get refreshed, right? I mean I think about a business like Fox that we bought in 2023, Fox was a $200 million business when it didn't exist 10 to 12 years prior to when we bought it. So it's just -- I think the industry is so attractive. The market is so attractive. There are secular tailwinds at the back of everybody in terms of just general climate and do-it-for-me kind of shifts and things like that. And so the pipeline continues to get refreshed. Rising tide kind of lifts all boats. I think the CAGR on that PCT 100 2014 to 2024 was almost 10%. I think it was right around 9%. So it tells you, again, just an incredibly attractive market. I think the beauty is that we can be -- because the opportunity set is so vast and continues to refresh, we can be very selective in terms of what we choose to bring in, particularly when we're looking at a stand-alone brand, right, which is going to be a larger, more platform-type acquisition that's going to stand on its own, keep its brand name and whatnot. So it all kind of starts with the cultural gating factor you've heard us talk about, right? It has to be a business that's been obsessed with taking care of its people and taking care of its customers. And then from a financial perspective, high level, all the KPIs we look for accretively growing businesses. If you're going to be a stand-alone brand, you have to be growing faster than the overall average essentially is the way we think of it and just have kind of nice accretion and return profile up and down the P&L, not cash intensive, not dilutive from a retention standpoint. And we've been fortunate to partner with really great businesses. And I think that's also inflected, by the way, our organic growth over the last 10 years. I think that's been a contributing factor. And so we'll continue to do that and see the opportunity set in front of us continues to be very attractive.

When you -- I understand the platform wants, but the more tuck-ins. So economically, is there a route density aspect to it? Or how do you think about like what's the accretion that comes from those?

It's more -- I mean, you think in a route business, they're never really fully optimized. And so I mean, a lot of the ones that we tuck in, I mean, they're going to be, of course, the smaller businesses. So it's going to be -- the stand-alone ones are going to be of a certain size, certain value. They're going to cover a certain geography. But certainly, it's around route density in those tuck-ins.

It's just building out, and building out that localization and that closeness to the customer in a particular geographic area. But yes, the route density is a huge piece of that and the accretion is pretty attractive right off the bat.

Yes. I mean you guys have done a lot on the margin efficiency stuff over the last -- the system that you guys put in a few years ago that's...

BOSS.

Yes, BOSS, right, that kind of improve things. But where are you on kind of like the technology rollout and additional stuff that you guys are working on that?

So one of the things that I actually in my Chief Accounting Officer role, the largest -- one of the big 4 projects that the company was working on was about putting in an EPM, so an enterprise performance management tool. And so you think the size of business we had, we needed that we've got -- our systems were not -- they were fairly old. And so -- and then they worked for us for many, many years. But we have, this year, been working heavily to be able to put in at the top of the house, a consolidation tool and a better planning tool that's also going to be able to utilize AI features. And so as we think about how we forecast for the future and we look at our business as a total, there's a lot of data that's sitting there, but we just haven't been able to pull it all in to be able to really analyze it and to be able to make sure that we are making better decisions as a result of the data that's sitting there. And that's what this tool is going to really be able to enable for us going forward. And so that's a technology aspect. We spend a lot of time forecasting a 75% recurring business. And so there's no reason that we should spend as much time as we do and involve as many people as we involve. So that is one of the things that we're looking forward to most as we roll out this new tool. But there's a lot of opportunities around margin. So think about procurement. A lot of people see Rollins as multiple different brands. And so they don't necessarily look at the Clark brand or the Northwest brand or the Western brand, and think of that all under the Rollins umbrella when it's a vendor that we're negotiating with. And so we're really trying to drive a lot of improvement around how we purchase our materials and our supplies and do that centrally so that we're getting the benefit of our breadth and the volume that we're purchasing across all of our brands. So that's going to be a nice improvement for our partner stores.

What are some of those bigger categories -- I mean, labor is obviously your biggest cost factor. But like in terms of the procurement side, what are some of the...

Yes. Some of it's technology that we're using across all of our different brands. But a lot of the materials, we're -- the different brands are using the same materials, many of the same materials as they go and they service all of the customers that we have. So it's not that they're all using specialized secret sauce materials for each of those brands. We're purchasing those from providers that provide to all of them. So that's going to be a heavy.

We're just not leveraging our scale as well as we could today. And I think that's the opportunity that's ahead of us. And I also think our procurement function, it serves a purpose, but we could also add -- continue to leverage data and tools to continue to evolve that and to add an even higher level of rigor and sophistication to the function. So that's one of the areas. There's -- you asked about the technology question. I mean, I think we look at technology through the lens of how does it enable a better customer experience or how does it enable the technician experience? How does it make their life easier. So that's where we're focused. That's kind of the anchor at which we look at every investment that we make from a technology standpoint. We get the AI question a lot. We are not AI developers. We can partner with the large massive R&D budgets of the people that we work with to introduce AI into the business. And there's so many areas that it's ripe for. But you think about route optimization, we've had machine learning models and AI components that for years. And I think in a route optimization business, you're never done with route optimization and making sure technology is continuing to advance that. So that's -- on that side of the house, that's where we're focused.

What's your average number of stops per day for tech?

It can depend -- I mean it can depend. We actually have a preference to kind of keep it probably more towards the lower end because we want to make sure that the tech has a sufficient amount of time to really spend with customers. We optimize it, but it's going to depend on the market. It's obviously going to -- is it commercial, residential. But we really want to make sure that we're optimized from a route perspective, but also allowing time for that technician to develop that relationship.

I think that's a really good point, too. I mean even my wife recently sent me a text and said, all right, so the guy who was doing the weeds in our lawn shows up and 3 minutes later, he's already gone. And she's like, what are we paying for? Because I see a lot of weeds in our yard, but I yet do not see the person that's doing this and really working through it. We talk about the fact that we want our technicians to spend time with the customers because in an AI world, people want to see the service that you're providing. They want that personal connection. And I think that makes our solutions...

I'd say sticky.

I mean you realize and they walk you around and they show you where things are, potential opportunities for ancillary services being added on in the future. So, yes.

This business focuses a lot and has continued, and that was the message that hopefully came through in Jerry's presentation at our investor conference is -- we are really focused, particularly in a world where the headlines are dominated by AI on developing the soft skills in our people throughout the organization. So empathy, listening, emotional intelligence, just making sure that we are investing in training and development programs that actually teach those skills because I do think that's what will differentiate us with our customers. I do think that lends to the stickiness that we have with the customer base that we have. And so it sounds soft, but it is very, very important and has been a huge focus and push of ours for the last several years, because at the end of the day, for me, that's what's memorable about my experience with my pest control technician who I have a great relationship with. He truly views himself as a partner in my home, right? He saved me a massive headache by just walking around, he happened to be behind the water heater noticed that there was a leak that was starting and that could have flooded my entire basement and caused a problem. He didn't have to do that. But that's just -- that's what we're trying to develop and what we're trying to encourage and incentivize people to bring to their relationships as this partner -- home protection partner mindset.

Yes. No, I mean you've got people in intimate areas of your house. So like you want to have that trust, obviously. With about 5 minutes left, I want to make sure that anyone from the audience that has a question before I continue. Okay. Feel free to stop me if one does come up. Maybe a little bit more shorter cycle, but there are some seasonal elements to the business, like especially on the termite side and kind of the summer selling door knocking or whatever. Maybe just kind of what are you seeing on -- in terms of the swarm this year and trends as we're moving into the warmer months?

Yes. I mean, I wish Jerry was here, he's our resident entomologist, he would have a much more scientific answer to this question. But from what we're seeing, the environment and conditions have lend itself to be a very healthy and active season. And so we're ready for it. We're staffed for it. As Will mentioned, there has been, I would say, a little bit of choppiness to start the year, certainly, but we have our best months ahead of us, and we're ready. So what we're seeing right now gives us encouragement that the demand environment is intact and solid. And so that's where we're focused.

The one thing we know is the pests aren't going anywhere, right? I mean -- and as temperatures rise, I mean, and it gets warmer and warmer. I mean it's quite warm in Atlanta today. I mean it's going to -- you're going to see more and more pests. I mean kind of the peak season is when those evening temperatures are 70 degrees and above, right? And so as that happens, you're going to see a lot more activity. And so they're not going anywhere. They don't.

And that's something that I think we've seen. The shoulder season, the lengthening of the shoulder seasons in general over the last several years is something we've seen relatively consistent -- with consistency, right? It's not that it peaks in July and August and then kind of goes downhill from there. We've actually seen those seasons really extend into the October month. Sometimes in a couple of years -- recent years here, October has been one of our stronger months because you are getting some of these longer shoulder seasons, which is a benefit to the business overall.

I wanted to maybe move over on the commercial side, going back to the technology question, but some of your peers, if you will, have been using more like Internet of Things type connected devices and like that. So maybe just talk about the opportunity there to kind of reduce labor or what you're doing on that front?

And we are -- you might have heard Scott Weaver, who leads our commercial division. He talked at Investor Day about the fact that we are doing the same thing. I mean, so there are customers who want that, customers who don't want that, right? They want to have that hands-on touch in their business. But certainly, as you think about the build-out of AI data centers, that is going to be something that you probably could use some of that remote monitoring...

Because there's not many people there.

There's not as many people there. That's exactly right. You've got these massive warehouses that you were trying to take care of because certainly, you don't want rodents in that kind of an environment where they could be eating through wires. And so we use it as well. I think that we also have benefited from the fact, Lyndsey mentioned we're not the ones. We don't have the R&D budget that we're not the ones out there that are developing this. We are using our partners and purchasing it. But because we weren't such a fast early adopter to it per se, we are benefiting from the fact that technology has gotten better and technology has gotten cheaper. And so -- but it's not something that I guess we're as vocal about, but it certainly doesn't mean that we're not doing it just like our competitors are.

Again, I think what we would say is that we kind of follow the customer preference on that, right? And just because we have remote monitoring doesn't mean that you're not going to see us, right? Our expertise, our value proposition is that we are the experts. So that's one aspect of pest management, this remote monitoring side. How can we redeploy the technicians' time more effectively to do other value-added things around a customer account, because there's so much that goes into managing the pest environment at a 100,000 square foot fulfillment center, right? So this is one component of the service, but it is not. I think at the end of the day, it's important to stress this is not the service. And we -- again, we kind of look at it as how can it enable a better customer technician experience and allow us to redeploy that time into other value-added service offerings that we can provide.

Yes. Last 1.5 minutes that we have here or whatever, maybe just, I don't know, a final note on just capital allocation. You guys have been pretty disciplined on it, but just where the balance sheet is, anything that you want to kind of stress on that?

We're at a turn of leverage right now. And so -- and I don't see any -- just to say it directly, I don't see any change happening in the way that we have been allocating our capital in the past. So we continue, I think, over the last I don't know what the number of years is, but since 2022, I believe, our dividend has increased 80%. So you're going to continue to see that. You're going to continue to see share repurchases when the time is right. You're going to continue to see, I think, the best use of our capital is M&A. That's what we've proven many times over. So that's where you're going to see us just continue to focus. But no meaningful changes in the way that the way we've been doing that.

Well, with that, I mean, I think we're kind of out of time unless there's anyone else from the audience that has a quick one that they want because we're not doing a breakout. I don't think so. And I think we'll just leave it there, and thanks very much.

Thank you guys very much for your interest.

Thank you. We appreciate it.