Rollins(ROL) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company's unaudited condensed consolidated financial statements reflect its financial position, income, equity, and cash flows for Q1 2024 Condensed Consolidated Statements of Financial Position Total assets grew to $2.66 billion, driven by increases in Goodwill and operating lease right-of-use assets Condensed Consolidated Statements of Financial Position (in thousands) | | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $424,353 | $406,639 | | Goodwill | $1,095,141 | $1,070,310 | | Total assets | $2,658,619 | $2,595,460 | | Total current liabilities | $591,936 | $576,689 | | Long-term debt | $510,909 | $490,776 | | Total liabilities | $1,491,123 | $1,439,893 | | Total stockholders' equity | $1,167,496 | $1,155,567 | Condensed Consolidated Statements of Income Revenues grew 13.7% to $748.3 million in Q1 2024, with net income rising 7.0% to $94.4 million Q1 2024 vs Q1 2023 Income Statement Highlights (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $748,349 | $658,015 | 13.7% | | Operating Income | $132,424 | $112,240 | 18.0% | | Net Income | $94,394 | $88,234 | 7.0% | | Net Income Per Share - Diluted | $0.19 | $0.18 | 5.6% | | Dividends Paid Per Share | $0.15 | $0.13 | 15.4% | Condensed Consolidated Statements of Comprehensive Income Comprehensive income remained flat at $88.7 million, as net income growth was offset by foreign currency translation losses Comprehensive Income (in thousands) | | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income | $94,394 | $88,234 | | Other comprehensive (loss) income, net of tax | $(5,717) | $259 | | Comprehensive income | $88,677 | $88,493 | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $1.17 billion, reflecting net income additions partially offset by dividend payments - Key changes in stockholders' equity for Q1 2024 include the addition of $94.4 million in net income, offset by $72.6 million in cash dividends and $11.3 million for shares withheld for employee taxes[17] Condensed Consolidated Statements of Cash Flows Operating cash flow increased 26.5% to $127.4 million, while investing cash use rose due to higher acquisition spending Summary of Cash Flows (in thousands) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $127,433 | $100,773 | | Net cash used in investing activities | $(52,465) | $(13,590) | | Net cash used in financing activities | $(64,254) | $(71,082) | | Net increase in cash and cash equivalents | $9,146 | $17,157 | | Cash and cash equivalents at end of period | $112,971 | $112,503 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, acquisitions, revenue, and debt, including the impact of the Fox Pest Control acquisition - The company made 12 acquisitions during Q1 2024 for a total consideration of $53.8 million[28] - The Fox Pest Control acquisition, completed in April 2023, contributed $35.5 million in revenues and $1.5 million in net earnings during Q1 2024[31] - As of March 31, 2024, the company had $513.0 million in outstanding borrowings under its $1.0 billion revolving credit facility at an effective interest rate of 6.4%[56] - The company paid cash dividends of $0.15 per share in Q1 2024, up from $0.13 per share in Q1 2023[62] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 13.7% revenue increase driven by organic growth and acquisitions, alongside improved operating margins Q1 2024 Key Performance Metrics | Metric | Q1 2024 | Change vs Q1 2023 | | :--- | :--- | :--- | | Revenues | $748.3M | +13.7% | | Organic Revenues* | - | +7.5% | | Operating Income | $132.4M | +18.0% | | Operating Margin | 17.7% | +60 bps | | Adjusted EBITDA* | $160.8M | +19.3% | | Adjusted EBITDA Margin* | 21.5% | +100 bps | | EPS | $0.19 | +5.6% | | Adjusted EPS* | $0.20 | +17.6% | | Operating Cash Flow | $127.4M | +26.5% | *Non-GAAP measure. - The company is targeting 7% to 8% organic growth and 2% to 3% inorganic growth for the full year 2024[73] - Revenue growth was strong across all major service lines: Residential pest control grew approximately 16%, commercial pest control grew 11%, and termite/ancillary services grew 12%[81] - Gross margin improved by 90 basis points to 51.2%, with 40 basis points of the improvement attributed to the accretive Fox Pest Control acquisition[84] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposure compared to the 2023 year-end disclosures - There were no material changes to the company's market risk exposure during the first quarter of 2024[128] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the quarter-end, excluding recent acquisitions - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2024[129] - The assessment of internal controls over financial reporting excludes Fox Pest Control, which was acquired in the second quarter of 2023 and is still being integrated[130] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[131] PART II - OTHER INFORMATION Legal Proceedings The company is involved in routine litigation and a specific California environmental inquiry, none deemed materially adverse - The company is involved in various routine legal matters arising from its business operations[133] - The company is currently working with local governments in California regarding an investigation into compliance with environmental regulations for waste and pesticide disposal for its Orkin and Clark Pest Control operations[135] - Management does not believe any pending legal proceeding will have a material adverse effect on the company's financial condition or results[136] Risk Factors There have been no material changes to the risk factors disclosed in the 2023 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's 2023 Form 10-K[137] Unregistered Sales of Equity Securities and Use of Proceeds The company withheld shares for employee taxes but made no open market repurchases, with 11.4 million shares remaining authorized Share Repurchase Activity (Q1 2024) | Period | Total Shares Purchased(1) | Weighted Average Price Paid | Shares Purchased as Part of Publicly Announced Plan | | :--- | :--- | :--- | :--- | | Jan 2024 | 213,181 | $43.52 | — | | Feb 2024 | 48,075 | $41.05 | — | | Mar 2024 | 324 | $46.70 | — | | Total | 261,580 | | — | (1) Shares withheld for employee tax obligations. - As of March 31, 2024, the company has authorization to repurchase an additional 11.4 million shares under its share repurchase program[139] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[140] Mine Safety Disclosures The company reported no mine safety disclosures for the period - None[141] Other Information The CEO and President adopted a Rule 10b5-1 trading plan for the potential sale of company securities - CEO and President Jerry E. Gahlhoff, Jr. adopted a Rule 10b5-1 trading plan on March 8, 2024, for the sale of up to 12,000 shares of common stock[143] Exhibits This section lists filed exhibits, including Sarbanes-Oxley certifications and Inline XBRL data files - The exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[145]