Rollins(ROL) - 2024 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements This section presents Rollins, Inc.'s unaudited condensed consolidated financial statements for Q2 and H1 2024, including statements of financial position, income, cash flows, and related notes Condensed Consolidated Statements of Financial Position | (in thousands) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $474,292 | $406,639 | | Total Assets | $2,766,502 | $2,595,460 | | Total Current Liabilities | $609,950 | $576,689 | | Total Liabilities | $1,530,444 | $1,439,893 | | Total Stockholders' Equity | $1,236,058 | $1,155,567 | | Total Liabilities and Stockholders' Equity | $2,766,502 | $2,595,460 | - Total assets increased to $2.77 billion as of June 30, 2024, from $2.60 billion at the end of 2023, primarily driven by increases in Goodwill and Operating lease right-of-use assets[24] Condensed Consolidated Statements of Income | (in thousands except per share data) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $891,920 | $820,750 | $1,640,269 | $1,478,765 | | Operating Income | $182,377 | $154,789 | $314,801 | $267,029 | | Net Income | $129,397 | $110,143 | $223,791 | $198,377 | | Net Income Per Share - Diluted | $0.27 | $0.22 | $0.46 | $0.40 | Condensed Consolidated Statements of Cash Flows | (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $272,548 | $248,186 | | Net cash used in investing activities | ($93,621) | ($331,622) | | Net cash (used in) provided by financing activities | ($173,886) | $140,195 | | Net increase in cash and cash equivalents | $2,872 | $59,401 | - Cash used in investing activities decreased significantly in the first six months of 2024 to $93.6 million from $331.6 million in the prior year, primarily due to lower cash paid for acquisitions ($81.7 million in 2024 vs. $327.9 million in 2023)[45] Notes to Condensed Consolidated Financial Statements - The company completed 26 acquisitions during the first six months of 2024, with total preliminary consideration of $92.2 million[50] - The valuation for the Fox Pest Control acquisition, which occurred on April 1, 2023, was finalized as of March 31, 2024, with a total purchase price of $339.5 million, resulting in $188.2 million of goodwill and $118.0 million of customer contracts[51][72][52] | (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Residential revenue | $737,752 | $666,844 | | Commercial revenue | $545,884 | $493,607 | | Termite completions, bait monitoring, & renewals | $338,084 | $302,529 | | Total Revenues | $1,640,269 | $1,478,765 | - As of June 30, 2024, the company had $504.0 million in outstanding borrowings under its $1.0 billion revolving credit facility, with an effective interest rate of 6.4%[86][88] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 and H1 2024 financial results, emphasizing strong revenue growth, margin expansion, profitability, liquidity, and non-GAAP reconciliations Results of Operations Q2 2024 Key Metrics vs. Q2 2023 | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $891.9M | $820.8M | +8.7% | | Organic Revenues | - | - | +7.7% | | Operating Income | $182.4M | $154.8M | +17.8% | | Net Income | $129.4M | $110.1M | +17.5% | | Diluted EPS | $0.27 | $0.22 | +22.7% | H1 2024 Key Metrics vs. H1 2023 | (in thousands) | H1 2024 | H1 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $1,640,269 | $1,478,765 | +10.9% | | Operating Income | $314,801 | $267,029 | +17.9% | | Net Income | $223,791 | $198,377 | +12.8% | | Diluted EPS | $0.46 | $0.40 | +15.0% | - For Q2 2024, revenue growth was driven by strong performance across all major service lines: Residential pest control grew 6.3%, commercial pest control grew 9.9%, and termite and ancillary services grew 11.8%[156] - Gross margin improved by 80 basis points in both Q2 and H1 2024 compared to the prior year periods, reaching 54.0% and 52.7% respectively, as pricing actions more than offset inflationary pressures[157][190] Non-GAAP Financial Measures - The company uses non-GAAP measures such as organic revenues, adjusted operating income, adjusted net income, adjusted EPS, and Adjusted EBITDA to provide investors with information about current trends and period-over-period comparisons of its operating results[169][194] Reconciliation of Revenues to Organic Revenues (Q2 2024 vs Q2 2023) | (in thousands) | Q2 2024 | Q2 2023 | Variance $ | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $891,920 | $820,750 | $71,170 | 8.7% | | Revenues from acquisitions | ($14,153) | — | ($14,153) | 1.7% | | Revenues of divestitures | — | ($5,924) | $5,924 | (0.7)% | | Organic revenues | $877,767 | $814,826 | $62,941 | 7.7% | Reconciliation of Net Income to Adjusted EBITDA (Q2 2024 vs Q2 2023) | (in thousands) | Q2 2024 | Q2 2023 | Variance $ | % Change | | :--- | :--- | :--- | :--- | :--- | | Net income | $129,397 | $110,143 | - | - | | Depreciation & amortization | $27,711 | $26,439 | - | - | | Interest expense, net | $7,775 | $4,785 | - | - | | Provision for income taxes | $45,617 | $40,880 | - | - | | EBITDA | $210,500 | $182,247 | $28,253 | 15.5% | | Adjustments | ($412) | $35 | - | - | | Adjusted EBITDA | $210,088 | $182,275 | $27,813 | 15.3% | Liquidity and Capital Resources - The company believes its current cash, future operating cash flows, and available borrowings under its $1.0 billion Credit Facility are sufficient to finance current operations and fund expansion for the foreseeable future[224][201] Cash Flow Summary (Six Months Ended June 30) | (in thousands) | 2024 | 2023 | Change $ | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $272,548 | $248,186 | $24,362 | | Net cash used in investing activities | ($93,621) | ($331,622) | $238,001 | | Net cash (used in) provided by financing activities | ($173,886) | $140,195 | ($314,081) | - Cash from operating activities increased by $24.4 million in H1 2024 compared to H1 2023, driven by strong operating results and timing of cash receipts and payments[180] - As of June 30, 2024, 11.4 million shares may still be purchased under the company's authorized share repurchase program[227] Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk exposure occurred during the six months ended June 30, 2024, compared to the 2023 Form 10-K - There were no material changes to the Company's market risk exposure during the six months ended June 30, 2024[233] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes in internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2024[13] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, these controls[210] PART II OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, including an ongoing environmental investigation, which management does not expect to materially impact financial position - The company is involved in various claims, arbitrations, and litigation arising from its normal business operations[14] - An investigation by local governmental authorities in California concerning compliance with environmental regulations for hazardous waste and pesticide disposal is ongoing, with the company not expecting a material effect on its financials[212] Risk Factors No material changes to the company's risk factors have occurred since the filing of the 2023 Annual Report on Form 10-K - No material changes have occurred in the risk factors since the filing of the 2023 Annual Report on Form 10-K[213] Unregistered Sales of Equity Securities and Use of Proceeds This section details Q2 2024 share repurchase activity, primarily for employee tax obligations, not open market purchases Share Repurchase Activity (Q2 2024) | Period | Total Shares Purchased | Weighted-Average Price Paid | Shares Purchased as Part of Publicly Announced Plan | | :--- | :--- | :--- | :--- | | April 2024 | 3,883 | $45.62 | — | | May 2024 | 727 | $45.82 | — | | June 2024 | — | $— | — | | Total | 4,610 | - | — | - As of June 30, 2024, the company has remaining authorization to repurchase 11.4 million shares under its share repurchase plan[238] Other Information An executive officer adopted a 10b5-1 trading plan, and the Board approved amended by-laws to declassify the board and update governance provisions - On May 1, 2024, Elizabeth B. Chandler, VP and General Counsel, adopted a Rule 10b5-1 trading plan for the sale of 14,056 shares of common stock, with sales eligible to begin on or after August 1, 2024[19][241] - On July 23, 2024, the Board approved amended by-laws to declassify the Board, phasing in one-year terms for all directors by 2027[20] Exhibits This section lists exhibits filed with the Form 10-Q, including Amended and Restated By-Laws and CEO/CFO certifications - Key exhibits filed with this report include the Amended and Restated By-Laws (Exhibit 3.8), CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1), and various Inline XBRL documents[219] Signatures