Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rollins Inc (ROL, Financial) reported an 8.7% increase in revenue to $892 million for Q2 2024.
- The company achieved healthy organic growth of 7.7% in the quarter.
- Total residential revenue increased by 6.3%, commercial revenue rose by 9.9%, and termite and ancillary services were up by 11.8%.
- Rollins Inc (ROL) closed 26 tuck-in deals in the first six months of the year, with a healthy M&A pipeline.
- The company delivered strong operating cash flow of $145 million and free cash flow of $136 million for the quarter.
Negative Points
- The company faced a significant impact from having two fewer business days in June, affecting productivity and revenue.
- Residential organic growth, while improved, was slightly below historical trends.
- There was a noted softness in one-time residential pest control services.
- Despite strong profitability, the company had to account for $4 million in pretax expenses related to the Fox acquisition.
- The effective tax rate increased to approximately 26.1% for the quarter.
Q & A Highlights
Q: Strong profitability seems to be the theme of the quarter here, so I wanted to dig in a little bit on this. How did your incremental margins look if we exclude elevated claims activity from the prior year?
A: (Kenneth Krause, CFO) Our incremental margins were very strong, approaching 40%. Excluding non-operational items, our incremental margins were still at or above 30%, which is above our historical average range of 25% to 30%.
Q: We saw improvement in organic growth compared to the first quarter, but it's trending slightly below what we've seen historically. Can you provide more color on this?
A: (Jerry Gahlhoff, CEO) The two fewer working days in June had a significant impact, especially during peak season. Despite this, our recurring business and new customer growth are outpacing our organic revenue growth. The consumer side remains strong, particularly in termite and ancillary services, indicating a healthy consumer market.
Q: Are there certain verticals in the commercial side where you're seeing stronger demand?
A: (Kenneth Krause, CFO) We haven't seen stronger demand in specific verticals. Our success comes from building a strong salesforce, investing in their training and development, and capturing new business through these efforts.
Q: Is there any way to estimate how much impact the two fewer working days in June had on organic growth in each of your segments?
A: (Jerry Gahlhoff, CEO) The impact was more significant in residential pest and termite and ancillary services due to the nature of the work. The fewer days affected productivity and the completion of jobs, which carried over into July.
Q: What kind of acceleration in residential demand would be possible, given the exit rates you've been seeing?
A: (Jerry Gahlhoff, CEO) We continue to see consistent levels of demand, giving us confidence in our ability to deliver on our growth range of 7% to 8% organic growth. We feel good about our business and the ability to drive value for our stakeholders.
Q: Did you see any changes in trends throughout the months in 2Q, and what have you seen into July so far?
A: (Kenneth Krause, CFO) The trends have been positive with healthy demand in both residential and commercial segments. Despite the calendar impact, we continue to see confidence in our ability to deliver on our growth goals.
Q: Could you break out how much of the 80 basis points increase in gross profit was driven by price cost spread versus tailwinds from insurance and claims and fleet?
A: (Kenneth Krause, CFO) Roughly 30 basis points were from insurance and claims activity, with the remainder from operational leverage and price improvements across various cost categories, including fleet.
Q: How did the 11% organic growth in termite and ancillary services split between the two?
A: (Kenneth Krause, CFO) Both termite and ancillary services are growing well, with ancillary services often having a higher ticket price. Both segments are in the double-digit growth range and remain very healthy for us.
Q: Are you seeing heightened competition for acquisitions, and are there any particularly attractive areas within pest control?
A: (Kenneth Krause, CFO) We continue to be very acquisitive, closing 26 deals in the first half. While there's always competition, we focus on building relationships and being the acquirer of choice by investing in people and preserving brands.
Q: How has July organic growth trended?
A: (Jerry Gahlhoff, CEO) We haven't provided specific numbers, but we continue to see business levels that give us confidence in our ability to deliver on our growth targets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
