Rollins(ROL) - 2023 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Rollins, Inc.'s unaudited condensed consolidated financial statements for Q1 2023 are presented, including financial position, income, equity, and cash flows, with detailed notes Condensed Consolidated Statements of Financial Position Total assets increased to $2.139 billion as of March 31, 2023, driven by cash, while total liabilities slightly decreased to $851.1 million, and stockholders' equity grew to $1.288 billion Condensed Consolidated Balance Sheet (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $367,866 | $348,619 | | Goodwill | $852,800 | $846,704 | | Total Assets | $2,138,886 | $2,122,028 | | Total Current Liabilities | $467,356 | $493,784 | | Long-term debt | $62,432 | $39,898 | | Total Liabilities | $851,134 | $854,831 | | Total Stockholders' Equity | $1,287,752 | $1,267,197 | Condensed Consolidated Statements of Income Q1 2023 revenues increased 11.4% to $658.0 million, with operating income up 20.2% to $112.2 million, and net income rising 19.6% to $88.2 million, yielding $0.18 diluted EPS Q1 2023 vs Q1 2022 Income Statement (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenues | $658,015 | $590,680 | | Operating Income | $112,240 | $93,390 | | Net Income | $88,234 | $73,766 | | Net Income Per Share - Diluted | $0.18 | $0.15 | | Dividends Paid Per Share | $0.13 | $0.10 | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $100.8 million in Q1 2023, while investing activities used $13.6 million, and financing activities shifted to a $71.1 million outflow due to higher dividends and debt repayments Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $100,773 | $87,532 | | Net cash (used in) investing activities | $(13,590) | $(19,928) | | Net cash (used in) provided by financing activities | $(71,082) | $82,093 | | Net increase in cash and cash equivalents | $17,157 | $153,037 | Notes to Condensed Consolidated Financial Statements Key notes include six acquisitions for $15.5 million, a new $1.0 billion credit facility, PSU awards, and the subsequent $318 million acquisition of Fox Pest Control - The company completed six acquisitions during Q1 2023 for a total cash purchase price of $15.48 million, adding $6.1 million in goodwill[27] Revenue by Service Offering (in thousands) | Service | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Residential revenue | $283,625 | $259,259 | | Commercial revenue | $230,402 | $205,787 | | Termite & ancillary | $136,605 | $119,706 | - On February 24, 2023, the company entered into a new $1.0 billion revolving credit agreement, refinancing its previous facility. As of March 31, 2023, $62.4 million was outstanding[51][52][56] - On April 1, 2023, the Company acquired Fox Pest Control for $318 million plus $32 million of contingent consideration. The acquisition was funded by borrowing $305.0 million under the new credit facility and cash on hand[78] - The Board of Directors declared a quarterly cash dividend of $0.13 per share on April 25, 2023[79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, highlighting 11.4% revenue growth, 20.2% operating income increase, margin expansion, liquidity, and the significant post-quarter Fox Pest Control acquisition - Q1 2023 revenue grew 11.4% to $658.0 million, driven by 9.2% organic growth and 2.2% from acquisitions. A stronger U.S. Dollar had a negative 0.6% impact on revenues[82] - Operating income increased 20.2% to $112.2 million, with operating margin improving to 17.1% from 15.8% in the prior year, reflecting improved price realization and SG&A cost control[83] - The company anticipates the Fox Pest Control acquisition will have a larger impact on revenue growth in the second quarter compared to the first[85] Results of Operations Q1 2023 revenues rose 11.4% across all service lines, gross margin improved to 50.3%, SG&A decreased to 29.9%, and operating income margin expanded to 17.1%, despite a higher effective tax rate of 24.3% Q1 2023 vs Q1 2022 Performance Summary (in thousands) | Line Item | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $658,015 | $590,680 | 11.4% | | Gross Profit | $331,173 | $295,302 | 12.1% | | Operating Income | $112,240 | $93,390 | 20.2% | | Net Income | $88,234 | $73,766 | 19.6% | - Gross margin improved to 50.3% from 50.0% as pricing was pulled forward and applied more consistently across brands, more than offsetting inflationary pressures[95] - SG&A as a percentage of revenue decreased to 29.9% from 30.3% due to favorable results in people-related costs[97] - The effective tax rate increased to 24.3% in Q1 2023 from 21.6% in Q1 2022, primarily due to higher foreign and state income taxes[106] Non-GAAP Financial Measures The company reconciles GAAP to non-GAAP measures, reporting 9.2% organic revenue growth and an 18.4% increase in EBITDA to $139.5 million, with EBITDA margin expanding to 21.2% Reconciliation of Net Income to EBITDA (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income | $88,234 | $73,766 | | Depreciation and amortization | $22,502 | $23,127 | | Interest expense, net | $465 | $568 | | Provision for income taxes | $28,255 | $20,335 | | EBITDA | $139,456 | $117,796 | Liquidity and Capital Resources Q1 2023 ended with $112.5 million cash, $100.8 million from operations, and a new $1.0 billion credit facility, with cash used for $15.5 million in acquisitions and $64.1 million in dividends - The company entered into a new $1.0 billion revolving credit facility on February 24, 2023, with a maturity date of February 24, 2028[115][116] - Cash from operating activities increased by $13.2 million year-over-year, driven by strong operating results and timing of cash flows[121] - Financing activities used $71.1 million, a major shift from the $82.1 million provided in the prior year, mainly due to higher dividend payments and net debt repayments in Q1 2023 versus significant borrowings in Q1 2022[123] Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk exposure occurred during Q1 2023 compared to the 2022 Form 10-K disclosures - There were no material changes to the company's market risk exposure during the first quarter of 2023[135] Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during Q1 - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2023[136] - No changes in internal control over financial reporting occurred during the first quarter that would have a material effect[137] PART II OTHER INFORMATION Legal Proceedings The company faces various claims and litigation, including alleged hazardous waste violations in California, but management expects no material adverse financial impact - The company is involved in various claims, arbitrations, and litigation matters arising from its normal business operations[138] - The company has received notice of alleged violations and information requests from local governmental authorities in California concerning waste handling and disposal. Management does not expect the outcome to have a material effect on financial results[140] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes have been identified from the risk factors disclosed in the 2022 Annual Report on Form 10-K[142] Unregistered Sales of Equity Securities and Use of Proceeds The company did not conduct open market share repurchases in Q1 2023, but repurchased 262,409 shares from employees for tax payments, with 11.4 million shares remaining authorized - The company did not purchase any equity securities on the open market during Q1 2023[143] Share Repurchases in Q1 2023 | Period | Total shares purchased | Weighted average price paid per share | | :--- | :--- | :--- | | January 1 to 31, 2023 | 236,310 | $36.15 | | February 1 to 28, 2023 | 7,816 | $36.52 | | March 1 to 31, 2023 | 18,283 | $36.16 | | Total | 262,409 | $36.17 | - The repurchased shares were from employees for the payment of taxes on vested restricted shares, not as part of the publicly announced repurchase plan[125][144] Exhibits This section lists exhibits filed with the Form 10-Q, including various agreements, corporate documents, and CEO/CFO certifications required by Sarbanes-Oxley - The filing includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[149] - The filing includes the Credit Agreement dated February 24, 2023, and various other corporate and compensatory plan documents[147]