Rollins(US:ROL)2024-10-24 19:02PART I FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended September 30, 2024 Financial Statements This section presents Rollins, Inc.'s unaudited condensed consolidated financial statements for the three and nine-month periods ended September 30, 2024, including balance sheet, income statement, and cash flows, highlighting revenue and net income growth Condensed Consolidated Statements of Financial Position As of September 30, 2024, total assets increased to $2.82 billion from $2.60 billion at year-end 2023, driven by growth in goodwill and current assets, while total liabilities rose to $1.50 billion from $1.44 billion, and total stockholders' equity grew to $1.32 billion from $1.16 billion Condensed Consolidated Balance Sheet (in thousands) | Account | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $486,502 | $406,639 | | Goodwill | $1,135,122 | $1,070,310 | | Total assets | $2,816,198 | $2,595,460 | | Total current liabilities | $622,068 | $576,689 | | Long-term debt | $445,176 | $490,776 | | Total liabilities | $1,498,421 | $1,439,893 | | Total stockholders' equity | $1,317,777 | $1,155,567 | Condensed Consolidated Statements of Income For Q3 2024, revenues increased to $916.3 million from $840.4 million in Q3 2023, leading to a net income of $136.9 million, while for the nine months ended September 30, 2024, revenues reached $2.56 billion, up from $2.32 billion year-over-year, with net income rising to $360.7 million Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $916,270 | $840,427 | $2,556,539 | $2,319,192 | | Operating Income | $191,796 | $177,124 | $506,597 | $444,153 | | Net Income | $136,913 | $127,777 | $360,704 | $326,154 | | EPS (Basic & Diluted) | $0.28 | $0.26 | $0.74 | $0.66 | - Dividends paid per share increased to $0.15 in Q3 2024 from $0.13 in Q3 2023, and to $0.45 for the nine-month period from $0.39 in the prior year6 Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash from operating activities was $419.5 million, an increase from $375.5 million in the prior year, while investing activities used $123.6 million, significantly less than the $362.3 million used in 2023, and financing activities used $305.5 million, primarily for dividend payments and debt repayment Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $419,495 | $375,541 | | Net cash used in investing activities | ($123,560) | ($362,334) | | Net cash (used in) provided by financing activities | ($305,506) | $33,743 | | Net (decrease) increase in cash | ($8,543) | $46,901 | - Cash used for acquisitions decreased significantly to $105.5 million in the first nine months of 2024 from $349.3 million in the same period of 202312 Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, acquisitions, revenue recognition, debt, and other financial items, highlighting 32 acquisitions made in 2024, detailed revenue breakdowns showing growth across all segments, and information on the company's $1.0 billion credit facility - The company made 32 acquisitions during the first nine months of 2024 for a total consideration of $119.9 million, adding $61.7 million in goodwill19 Revenue by Service - Nine Months Ended Sep 30 (in thousands) | Service Offering | 2024 | 2023 | | :--- | :--- | :--- | | Residential revenue | $1,166,042 | $1,069,403 | | Commercial revenue | $845,517 | $767,472 | | Termite & ancillary | $515,758 | $457,664 | - On October 22, 2024, the Board of Directors declared a quarterly cash dividend of $0.165 per share, an increase from the previous quarter56 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the financial results for Q3 and the first nine months of 2024, highlighting a 9.0% revenue increase in Q3 driven by 7.7% organic growth, and reaffirms 2024 growth targets despite macroeconomic uncertainties Results of Operations - Q3 2024 vs Q3 2023 In Q3 2024, revenues grew 9.0% to $916.3 million, with 7.7% organic growth across all service lines, while operating income increased 8.3% to $191.8 million, though operating margin slightly decreased by 20 basis points to 20.9% due to growth investments and higher insurance costs Q3 2024 vs Q3 2023 Performance (in thousands) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $916,270 | $840,427 | 9.0% | | Gross profit | $494,378 | $451,894 | 9.4% | | Operating income | $191,796 | $177,124 | 8.3% | | Net income | $136,913 | $127,777 | 7.1% | - Q3 organic revenue growth was strong across service offerings: 4.9% in residential, 8.1% in commercial, and 13.7% in termite and ancillary services65 - Gross margin improved by 20 basis points to 54.0%, as pricing offset inflation, with leverage in fleet and material costs, however, SG&A as a percentage of revenue increased from 29.1% to 30.0% due to investments in growth and higher insurance costs6769 Results of Operations - Nine Months 2024 vs 2023 For the first nine months of 2024, revenues grew 10.2% to $2.6 billion, with 7.7% organic growth across all service lines, while operating income rose 14.1% to $506.6 million, and operating margin improved by 60 basis points to 19.8%, driven by pricing and leverage on fleet and material costs YTD 2024 vs YTD 2023 Performance (in thousands) | Metric | YTD 2024 | YTD 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $2,556,539 | $2,319,192 | 10.2% | | Gross profit | $1,358,804 | $1,219,626 | 11.4% | | Operating income | $506,597 | $444,153 | 14.1% | | Net income | $360,704 | $326,154 | 10.6% | - YTD organic revenue growth was 7.7%, with acquisitions contributing 3.3%, and by service line, organic growth was 4.9% in residential, 8.9% in commercial, and 11.4% in termite76 - Gross margin for the nine-month period improved by 60 basis points to 53.2% compared to 52.6% in 2023, as pricing outpaced inflationary pressures77 Non-GAAP Financial Measures The company provides several non-GAAP metrics, including organic revenue, adjusted operating income, adjusted EBITDA, and free cash flow, to offer a clearer view of operating performance by excluding items like acquisition-related amortization and restructuring costs, with detailed reconciliations to GAAP measures - Management uses non-GAAP measures such as organic revenues, adjusted operating income, adjusted EBITDA, and free cash flow to compare performance consistently over various periods, excluding the impact of acquisitions, divestitures, and other specific items8384 Reconciliation of Operating Income to Adjusted Operating Income (in thousands) | Description | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Operating income (GAAP) | $191,796 | $177,124 | $506,597 | $444,153 | | Fox acquisition-related expenses | $4,216 | $5,262 | $13,689 | $10,523 | | Restructuring costs | $0 | $5,196 | $0 | $5,196 | | Adjusted operating income (Non-GAAP) | $196,012 | $187,582 | $520,286 | $459,872 | Liquidity and Capital Resources The company ended Q3 2024 with $95.3 million in cash and a $1.0 billion revolving credit facility with $447.0 million outstanding, while operating cash flow for the first nine months was strong at $419.5 million, which management believes is sufficient to fund operations and growth - The company has a $1.0 billion revolving credit facility maturing in February 2028, with $447.0 million outstanding as of September 30, 20249798 - Net cash from operating activities increased by 11.7% to $419.5 million for the nine months ended Sep 30, 2024, driven by strong operating results99100 - The company has a share repurchase program with 11.4 million shares remaining for purchase as of September 30, 2024103 Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposure during the nine months ended September 30, 2024, from what was disclosed in its 2023 Form 10-K - There were no material changes to the company's market risk exposure during the first nine months of 2024111 Controls and Procedures Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2024112 - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting113 PART II OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings The company is involved in various claims and litigation in the normal course of business, including an investigation by local governmental authorities in California regarding environmental regulations, though management does not believe any pending matter will have a material adverse effect on the company's financial position - The company is under investigation by local California governmental authorities regarding compliance with environmental regulations for hazardous waste and pesticide disposal115 - Management does not believe that any pending legal proceeding, including the California investigation, will have a material adverse effect on the company's financial position, results, or liquidity116 Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes have been made to the risk factors disclosed in the 2023 Annual Report on Form 10-K117 Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2024, the company did not repurchase any shares under its publicly announced repurchase plan, though a small number of shares were withheld to satisfy employee tax obligations upon equity award vesting, and the company has authorization to repurchase an additional 11.4 million shares under its existing plan - No shares were purchased as part of the publicly announced repurchase plan in Q3 2024118 - As of September 30, 2024, the company has a remaining authorization to repurchase 11.4 million shares of its common stock under its 2012 plan119 Other Information During the fiscal quarter ended September 30, 2024, none of the company's directors or officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the third quarter of 2024122 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and XBRL data files - The report includes CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, as well as Inline XBRL documents122