Rollins at Barclays Conference: Strategic Growth Focus

On Tuesday, 06 May 2025, Rollins Inc. (NYSE:ROL) provided strategic insights at the Barclays Americas Select Franchise Conference 2025. CFO Ken Krausz highlighted the company’s robust growth trajectory and strategic focus on organic expansion and mergers and acquisitions (M&A). Despite a strong performance, challenges such as foreign exchange impacts were noted.

Key Takeaways

• Rollins emphasized its focus on pest control, with 93% of its business in the US and 7% internationally.
• The company is forecasting 7-8% organic growth and has raised its M&A growth guidance to 3-4%.
• Rollins’ capital structure has improved with an investment grade rating, enabling effective debt management.
• The multi-brand strategy includes well-known names like Orkin and Northwest.
• CEO Jerry Galoff, appointed in January 2023, is driving modernization efforts.

Financial Results

• Revenue is growing at double-digit rates, with cash flow increasing by 15% to 17%.
• Organic growth is projected at 7-8% for the year.
• M&A growth expectations have been raised from 2-3% to 3-4%.
• Rollins experienced a 40 basis point headwind from foreign exchange in Q1, expected to decrease throughout the year.
• The company’s pricing strategy has shifted to CPI plus, targeting 3-4% increases.

Operational Updates

• Rollins operates with a multi-brand strategy, including brands like Orkin and HomeTeam.
• The commercial business constitutes approximately 35% of revenue.
• The recent Sela acquisition expands Rollins’ geographic presence in the Mountain West and beyond.

Future Outlook

• Rollins is committed to growth through organic means and strategic tuck-in acquisitions.
• The company sees significant potential in the pest control market due to low adoption rates.
• Geographic expansion is a priority, with recent acquisitions broadening their reach.

Q&A Highlights

• Rollins is not significantly impacted by macroeconomic challenges or tariffs.
• The company evaluates acquisitions based on growth potential and return on capital.
• The market is fragmented, but Rollins does not attribute its success to competitors’ struggles.

Rollins continues to focus on sustainable growth and shareholder value. For more details, refer to the full conference call transcript below.

Full transcript - Barclays Americas Select Franchise Conference 2025:

Manav Patnaik, Analyst, Barclays: Good morning again. Let’s, keep this rolling before lunch. For those of you just walked in, my name is Manav Patnaik. I cover business and information services for Barclays.

And we’re pleased to have today with us Ken Krausz, who’s the CFO of Rollins. First appearance for Rollins here at America Select, so thank you for being here. Appreciate it. You know, since it is your first can, I figured we’d just start a little bit high level just for the benefit of the audience, you know, how you would describe, you know, kind

Ken Krausz, CFO, Rollins: of the Rollins business mix and the overall just, you know, strategy? Sure. No, thank you. Thanks for having me and having Rollins here. It’s great to be here and to represent such a great business.

It continues to perform. We continue to see great demand for our services. We are we’re in one in one specific area. We’re focused on pest control. 93% of our business is in The US.

Seven Percent of our business is outside the borders of The US, notably Canada, The UK, Singapore, and Australia. But we continue to operate a very successful business. Some call it a defensive business, but it’s hard to find defensive businesses that are growing at 10%. And so we continue to compound revenue, earnings, and cash flow at double digit rates. And we see an opportunity to continue to execute upon that and deliver solid results as we think about the future.

You know, it’s interesting. There’s a lot of challenges on the macro economy today. We feel very well positioned as as many others navigate very highly uncertain environment. And so so we feel good about where we are. We feel good about how we’re executing, and we’re excited for the future.

Manav Patnaik, Analyst, Barclays: And, you know, just to the point of the macro, guess, just to start there, I think on the on the call, you aren’t seeing any impacts really at the moment. Is that correct?

Ken Krausz, CFO, Rollins: Right. Right. It’s it’s a it’s a fair question. When we look at the macro, you know, I work with our board and and others, and, you know, I look at it through six or seven different lenses. And so so one lens that I look at it through is what’s the impact on liquidity for us to grow our business?

We were really successful back in February with our inaugural bond offering, very tight spread, investment grade bonds. We’ve got adequate liquidity to grow our business. The second area is tariffs. Everybody’s talking about tariffs. We don’t see a major issue with tariffs.

When we look at the cost structure of our business, we’ve got people, which is our largest, by far largest category. That’s not impacted by tariffs. When we look at fleet and material, not as big of an issue either. It’s roughly 3% of sales on fleet and 3% of sales on on our material area. So so not an overall big impact from a tariffs perspective.

And in fact, materials, a lot of the materials we’re using are procured in The US, and so we’re not seeing and we’re not reliant upon a lot of other regions to supply us with the chemicals. We’re buying those chemicals and sourcing those locally. Material availability, again, we’re not seeing issues with material availability. Note to supply chain challenges. Labor markets are healthy and labor availability continues to be healthy.

The FX environment, we had about 40 basis point headwind on FX in the first quarter. We think that dissipates as we go throughout the year. But again, with 7% of your business outside the borders of The US, you’d have to see a major change in FX to have a significant impact on us. And then inflation and M and A continue to be positioned well. Pricing is healthy, CPI plus pricing, and our M and A pipeline is very, very, very strong.

Got it. And, you

Manav Patnaik, Analyst, Barclays: know, just for some historical context, for most companies this is not a softball question, but for you it is like, how has Rollins performed in prior recessions?

Ken Krausz, CFO, Rollins: I love softball questions like that. But no, that it’s it’s been it’s we’ve been very successful. There’s a chart in our investor material from the quarter that shows our business over twenty plus years. And over twenty plus years, we’re compounding revenues at a very attractive pace, not only in strong cycles, but during the great financial crisis. I wanna say we grew at 6%, and industrial recession similarly, and then COVID.

We grew through all three of those, and we continue to grow through what we’re dealing with now. We’re forecasting seven to 8% growth this year in organic, three to 4% m and a, which is up from two to 3% in terms of our longer term guides.

Manav Patnaik, Analyst, Barclays: And so we feel good and our track record I think, is is just an example and and reflective of of how good the market is that we we operate, but also how good the execution has been with the company. And, you know, that that chart obviously showed the resiliency of the years, but also, you know, Rollins has been around for a long time, but there there’s there there have been some changes over the last three to four years. So maybe we can start with, you know, the the CEO change and perhaps, you know, what some of the the changes, you know, from that level have happened so far.

Ken Krausz, CFO, Rollins: Sure. So Jerry Galoff assumed the CEO position 01/01/2023 from Gary Rollins. And Gary Rollins, his father founded the company, bought out Orkin back in 1963, and and him and Randall ran the company for years. Randall passed, unfortunately, back in 2020. Gary’s ’80, ’80 ’1 years old, I want to say.

And so he’s transitioned out of the business, and he’s now our chairman of Meritas. He turned over the chairman role to John Wilson recently. But Jerry is as much pest control as Gary Rollins is, and he knows the business. He’s been around the business. He’s grew up in the business.

His dad worked for Orkin, so he’s been in a Rollins oriented business for his entire life. But he’s making changes. He’s open to changes. He hired you know, I came to the company in ’22, and he hired me in from MSA safety with a great track record and a run great run at MSA safety, but he attracted me. You know, he hired me and recruited me and and I think we have a great partnership.

It’s a unique partnership. I’m learning about pest control. He’s he’s well attuned to pest control. I’m bringing new ideas, new modernization efforts, whether it be the dividend strategy, the bond deal, the secondary offering, auditors, the I can go through a number of different things that we’ve executed. And I think it’s been successful over the last two and a half years, and and we’re excited for the future.

It’s not a business that’s broke. It’s a business that we’re trying to just make better.

Manav Patnaik, Analyst, Barclays: And and maybe just, from our perspective to all the things that you’ve done, you you mentioned, maybe just elaborate a little bit on that more. But for background, what was it that the company finally realized that needed to change from the, you know, the CFO and IR perspective?

Ken Krausz, CFO, Rollins: You know, it’s interesting. I think, you know, I think that coming in, I tried to just paint a vision of of what the the business could could do. And and with a roughly at that point, 15 to $20,000,000,000 market cap, with such strong financials, there was a great opportunity to tell the story. And and and so I was able to hire, Lindsey from and and bring her on, in addition to a number of other, folks on my team. And we completely changed the team.

My team is completely different from where it was on 09/01/2022. And so I think the company was just I think it was just at the point in the history, and that’s what I saw. It was very similar to where I came from. This company was at a point in its history where it was open to making the change. If it wasn’t open to making the change, I probably wouldn’t be sitting here, But they were.

And so we’ve begun this evolution where we brought in more sell side analysts like yourself, and it’s great to have Barclays following us. We went through a sell down with the family, and our liquidity and our volume has increased significantly. The shareholder base has evolved. There’s a lot of shareholders that have been there for a very long time. It’s a hard stock to sell once you see the performance.

But there’s also nice to see new investors coming in that are hearing the story for the first time, going to our Investor Day last May, hearing about how we’re looking at the business through a new lens. It’s an exciting time. It really is. So just to follow-up on

Manav Patnaik, Analyst, Barclays: a couple of the So the the secondary that you talked about, you know, how much does the family still own and, you know, what should we think about, you know, the that ownership plan going forward?

Ken Krausz, CFO, Rollins: Sure. So the family owns roughly 40% today. It’s I I have no idea what their investment horizon looks like. It’s just like I wouldn’t have any idea what your investment horizon looks like. But what I can tell you is is we have a very healthy relationship with the family office and the head of the family office, And we worked with the family office as we put in place the shelf filing back in June of twenty twenty three and going through the secondary.

When I joined the company, the family was selling down through block trades and one forty fours. And at that point, they owned over 50% of the company. And so you can imagine the challenges that you have when you have a a shareholder of that size selling into the market through blocks and one forty fours. That’s challenging. So so we decided to work with the family to put in place the shelf and then to do the secondary and then for us to use our balance sheet because we saw a very attractive valuation, and then they locked up their shares for a full three hundred sixty five days.

So So I think we’ve got a great relationship. I have like I say, as I started this, I have no idea what their investment horizon looks like, but I think they’re very much like you. As the stock continues to perform, they wanna hold on to it.

Manav Patnaik, Analyst, Barclays: And and another big milestone was, I think, the for you at least was in in February, the IG ratings from S and P and Fitch. Can you just help, help us appreciate why that was so important?

Ken Krausz, CFO, Rollins: Certainly. You know, it’s interesting. When we look at the journey the last three years, it started I joined the company in ’22 and they had a a two bank revolver, for a $16,000,000,000 company. It didn’t have any leverage. In fact, I think they were in a a cash position.

And but but at that point, I’ve I’ve I’ve decided that, you know, we as a company had the opportunity to use our balance sheet more effectively and and more efficiently, probably better said. And so we put a billion dollar revolver in place. That was in January of twenty twenty three. And then we went through and we did that shelf filing that we talked about and we did the secondary sell down. After that, we decided, you know, on my horizon, I wanted to modernize the capital structure.

And so there was an opportunity after the sell down to put together a timeline where we could get an investment grade rating. Hopefully get an investment grade rating. At 3,000,000,000 to $4,000,000,000 that’s not always a sure thing. But when you look at the business and you look at the markets that we’re in and you look at our performance, we were able to secure that investment grade rating and then do that bond deal. And in addition to doing the bond deal and getting a very attractive spread of 90 basis points above the ten year at that point, which was the tightest going back a number of years in the industrial space, we also put in a commercial paper program.

And so no longer are we using the revolver, we’re using the commercial paper program that’s saving us real dollars from an interest cost perspective, and then also using the bond market to term out some of our longer term debt. So I think we’ve completely transitioned the capital structure to something that looks more like a modernized structure and allows us and it affords us the opportunities to continue to be acquisitive and grow the business as we think about the future.

Manav Patnaik, Analyst, Barclays: So you were clearly not having any issues with doing acquisitions already. So the comment on IG rating, acquisitive, does that mean we should anticipate bigger deals down the road or not necessarily?

Ken Krausz, CFO, Rollins: You know, I think today and for the foreseeable future, I think the focus is buck bolt ons, incremental, tuck ins, Sela like deals, Fox like deals. You know, we have a track record of every eighteen months or two years doing a larger deal and then having smaller tuck ins in between those. But I think as I think about three or four years down the road, you know, I think the important thing to measure this is the pace of our modernization. Are we able to put the back office technology and processes and standardization in place? If we’re able to do that, I think you could see us do larger, more impactful deals in the future.

But again, we don’t need to. We don’t need to rush down that road just yet. I think what we want to do is be pragmatic and put the processes and the structure in place that will allow us to be a better acquirer of businesses as we think about the future and then hopefully afford us the opportunity

Manav Patnaik, Analyst, Barclays: to do that. Got it. Shifting to another topic, pricing. I think that’s also an area I think where you and Jerry have really focused in on. So, again, just for some perspective, what was historical pricing like?

What’s current pricing? What are some of the changes around there?

Ken Krausz, CFO, Rollins: Historical pricing was in the range of one to 2%. And and so over the last couple of years, we’ve taken a fresh look at the pricing structure. Pricing has always been an important part of the equation here. It’s an essential service. It’s a very low ticket for our customers and they value the service that they’re getting.

And so it’s one of those things that, as our performance indicates, it’s one of those things that people struggle canceling even in an economic downturn because the last thing they want to do is live with pests, whether it be protecting their health, protecting their property, or just general standard of living. They just don’t want to live with pests. And so they just don’t cancel those pest control services. So as a result, we’ve got pricing opportunities. So if we’re charging roughly $500 for an annual contract, a 3% price increase is $15 It’s less than 1.5 dollars a month in terms of price increase on those services.

As long as we’re providing the service, as long as the customer’s happy, we’re showing up when we say we’re going to show up, we have the right to charge, we feel like we’ve earned the right to charge a CPI plus rate of price increase. When we think about the services and everything that goes into CPI, we think this is a valuable service, very small ticket in terms of purchase price. And so as a result, we should be charging slightly ahead of what CPI is. So if CPI is at 2%, three to 4% is not unrealistic to think about when it comes to pricing our services.

Manav Patnaik, Analyst, Barclays: And so of your seven to 8% organic growth, three to four is pricing, how do you break out the other three to four? Yeah, the

Ken Krausz, CFO, Rollins: other three to four is just volume. When you look at the volume, it’s inclusive of new services. You know, we have a chart in our investor material that talks about all the different opportunities with our customer base. And so if we had nine or 10 opportunities, we’re growing there. Our that’s in our ancillary number, in our termite ancillary, seeing great demand, great growth there, continuing to see performance there.

You’re seeing market growth, you know, maybe a a two or 3% 2% market growth or so, and then you’re seeing some more share gain. And so we continue to outpace a number of our competitors and gain share. So so it’s inclusive of new services, a broader share of wallet, share gain, and then underlying market growth.

Manav Patnaik, Analyst, Barclays: And and so maybe on that market growth, maybe the first question would be, you know, at Investor Day, you guys to to size the TAM. So maybe just for the audience, if you can help, you know, with that TAM size and what that market should grow foreseeably.

Ken Krausz, CFO, Rollins: Yeah. It’s globally it’s it’s it’s a very, very large business or very large market, 20 plus billion dollars. And we see the opportunity for that inflect significantly higher, multiples higher. The adoption rate of pest control in The US is very low. Some estimate it to be roughly 15% of households.

And so if you imagine that and you imagine that changing, the size of the pest control market has an opportunity to continue to expand significantly. You see secular tailwinds that are behind it. Weather, warmer weather, certainly more favorable for pests. I’ve seen people move to more southern regions, very favorable for pests. And pest activities continue to evolve.

You see new pests every year. So you’ve got so many different secular tailwinds. You have a low adoption rate. You have the essential nature of the service. All those things make it interesting and and provide me optimism for for market growth just from the from the base of the business.

Manav Patnaik, Analyst, Barclays: And and, you know, you mentioned share gains as part of your growth vertical. Can you just talk about how fragmented or the market is and perhaps maybe where some concentrations are?

Ken Krausz, CFO, Rollins: Certainly. The the the market is remains incredibly fragmented. We looked at a statistic recently from the PCT top 100 from ten years ago, and that number of companies has expanded greatly from 02/2014 to 02/2024. And so even though there’s been a lot of consolidation, you continue to see the fragmentation. You see new parties and new entrants every year, entrants that are here in ’24 that weren’t even in around in 02/2014 and are very significant players.

And so we continue to see a very fragmented with thousands of competitors, opportunities. Not every one of them is an opportunity. That’s the great thing about this business. With the fragmentation provides optionality for us as we think about acquisitions. We don’t have to have any one opportunity.

We can remain disciplined and take a pragmatic approach as it relates to the M and

Manav Patnaik, Analyst, Barclays: A environment. Got it. And the concentration question where I was heading to is, you know, obviously, out here in The UK in particular, we get a lot of questions around rent or kill and Mhmm. Terminus acquisition. Does a particular player like that not doing well directly show up in better numbers of yours or not necessarily?

Ken Krausz, CFO, Rollins: You know, I I I wouldn’t say, that we’re our success is on the backs of our competitor. You know, I I I don’t envy the the position they’re in. They certainly have a lot going on. But I think when I look at our performance, our performance has not been better just the last couple of years, but I think it’s been better over a very long sustained period. And I think that outperformance relates to our brand strategies with all of our various brands using different approaches to customer acquisition.

Jerry likes to say we have multiple bites at the apple. If you do business here and you don’t like it or you’re dissatisfied, we have this brand that can step in and provide a different level of service, maybe something that you’re expecting. And so we’ve got all of that and that’s been built over a very long period of time. And during that time, we’ve consistently outperformed. And so we feel like we’re positioned extremely well as we think about the future to continue on that outperformance trajectory.

Manav Patnaik, Analyst, Barclays: Got it. You briefly referred to your multi brand strategy. So so if you could just elaborate on that because, you know, quite often you’re like, oh, that looks like a Rollins competitor, the next thing you know, it’s it’s under your umbrella.

Ken Krausz, CFO, Rollins: Yeah. Right.

Manav Patnaik, Analyst, Barclays: So, like, how did that develop? And, you know, it seems a little bit unique to some of the other larger scale industrial services companies we cover.

Ken Krausz, CFO, Rollins: You know, it’s more like a consumer services company. And so it’s not really I know a lot of people compare us to an industrial services company, but we’re really more of a consumer services company. And so when you look at some of the leading consumer services companies, I think our brand strategy looks more like them. We have a portfolio of brands, a house of brands. We’re not a branded house.

We’re not just Rollins. If you’re looking for pest control, you’re not going to know about Rollins. You’re going know Orkin. You’re in Northwest if you’re in the Southeast. Northwest was an acquisition we made in ’17, dollars ’50 million of revenue back in ’17.

Today it’s approaching 200. Continues to be performing well, and that growth is enabled through roll ups. And so we’re rolling up the Southeast market and putting that into the Northwest business. Or Clark in California we bought in 2019. Fox out in out in, Utah and Salem more recently.

HomeTeam that we bought back in 02/2008. It’s a homebuilder. It has a lot of relationships with homebuilders, especially in the Southeastern United States. And it’s a and they’re all different. All their marketing strategies are very, very different from brand to brand.

So they’re reaching customers differently, opening up that opportunity, and helping us, you know, build out that already very strong customer base of almost 3,000,000 customers.

Manav Patnaik, Analyst, Barclays: So when you look at an, when you look at your acquisition pipeline, you know, let’s put the returns and stuff to the side for a second, but strategically, are you going after geographies? Is that the primary, target that you’re looking for or is there something more with some

Ken Krausz, CFO, Rollins: of these deals? No. When we look at these deals, we’re looking at it through a number of different lenses. But, you know, first and foremost, at the services. There’s certain types of services we really like.

There’s other services that maybe aren’t as attractive. And then geography is certainly an opportunity. You know, the SALA deal gave us the Mountain West, it gave us the Pacific Northwest and Midwest, areas that we weren’t as strong. And so it built out that. And then customer access is important.

So every time we buy these businesses, we’re trying to understand how they’re accessing their customer base. Are they reliant on one form of marketing or are they using multiple forms of marketing? And so that’s important. So customer access and marketing access, geographic exposures, and then general composition of services. Is it general pest control?

Is it termite and ancillary? Does it have commercial in it? And so looking at

Manav Patnaik, Analyst, Barclays: it through those three broad lenses. Got it. And maybe looking at your most recent acquisition, the Saila acquisition, can you just remind us of you know, the size, contribution, metrics, and and maybe use that as an example of, like, the financial criteria you use, like, you know, the the returns you need on investment Mhmm. And how many years does it need to be accretive, those kinds of things.

Ken Krausz, CFO, Rollins: Sure. When I look at acquisitions and when we at Rollins look at acquisitions, we look at them through five lenses. One is growth. When we buy businesses, we want to make sure that it’s going to help improve our organic growth as we get into year two, three, and four. And so when you look at that, Fox was probably our most recent acquisition.

It’s being measured in that manner. Fox is accretive. It’s growing faster than our 7.4% growth in the first quarter. So it’s adding to organic growth. The second area that I look at and we’re hopeful that will do the same.

CELA we bought in April, roughly $65,000,000 of revenue. Margins that are relatively neutral to our margins, we don’t see a big headwind on margins or even a tailwind at this point. But I think as we get into year one, year two, see more growth, help provide some support in a number of areas, we think those margins can accrete higher. So margins are the second area. Margins accretion within the first year is certainly important to us.

Earnings accretion, EPS accretion, we expect to see SALA accretive to the first year earnings. Probably will be more as we get into the third or fourth quarter of that deal, of owning that deal. But we’re hopeful to see that in cash flow, making sure that we’re not buying businesses that are going to dilute our cash flow. We’re growing cash flow at 15% to 17%. And so we want to make sure that we’re not buying businesses that are going to take a large amount of CapEx or working capital.

And then return on capital, you know, within the first three years, we should see a return on capital that exceeds our cost of capital by the third year. And and we’ve done that with Fox. Fox, we bought 13.4 times, I wanna say, and after year one, it was trading at 9.7. So you can see that we we made considerable progress with with our return on capital hurdle when it comes to that acquisition, and we’re hopeful that Saylor will follow a consistent, in a in a similar trend.

Manav Patnaik, Analyst, Barclays: Got it. The the Fox acquisition, you remind me just a quick follow-up on pricing. The three to 4% is the company average. Correct? Like Right.

The depending on the brand or the demographic, it’s higher in different places?

Ken Krausz, CFO, Rollins: Yeah. Certainly it is. Three to four is how it all shakes out, but it might be eight or 10 here in this one area, for whatever reason, and it might be lower in another region. And so so but it will it’ll it’ll even out to that three to four. And then even just broadly, commercial versus residential, you’re gonna see you’re probably gonna see a higher price increase than three to 4% on the commercial side.

You might see a little bit lower on the residential side, not much, but it could follow a trend in a composition similar to that.

Manav Patnaik, Analyst, Barclays: Got it. Since you mentioned commercial, let’s jump there. I mean, for the most part, I think we think residential when we think Rollins, but obviously, it’s been a greater focus for you guys. So maybe if you can just give us a sense of what mix commercial is today of the business and then, you know, the the the change in strategy, I guess.

Ken Krausz, CFO, Rollins: Commercial is roughly 35% of our business today. And so it’s meaningful. It’s roughly a third or so of our business, but it’s a great market. We put together a strategy where we decided to pull out the commercial branches from the residential branches. The services are different, the customers are different, how you interact, what you’re providing, it’s just a different approach.

And so we decided to separate them too. Not that we’re building more bricks and mortar, we still have them in the same location, but the ownership and the responsibility for the commercial business falls under Scott Weaver who runs that business for us at Orkin. And it’s really an Orkin based business. When you’re in a commercial setting, you want to have the power of the Orkin brand behind you. Not to say our other brands aren’t strong, they are very strong.

But the brand Orkin is widely recognized and there’s a quality associated with it. And on a commercial side, there’s zero risk of failure or there’s zero tolerance for failure. And so they got to rely on a strong brand like Orkin, provide them the peace of mind that they need when it comes to pest control in the commercial area, and it continues to be a good business. Customers stay in the commercial side. You’ll see customers stay for quite some time.

Retention might be 90 plus percent. It’s not unusual to see retention for commercial at 90 plus percent. So we like that business, we’re investing in that business, and we’re excited for the future.

Manav Patnaik, Analyst, Barclays: How about the growth and margin profile commercial versus residential?

Ken Krausz, CFO, Rollins: Yeah. The margin profile is a little bit higher in the commercial. It’s not it’s not that much higher. If it were, I’d probably have to break it out and report it separately, but but it’s not. It’s a similar margin profile to the margin profile that we have in the residential side.

It’s a little bit more attractive on the pricing, but it’s not 400 or 500 basis points. It’s a much smaller than that in terms of pricing as well as the margins.

Manav Patnaik, Analyst, Barclays: Got it. And then in terms of the competitive dynamics, fragmentation, TAM, anything to call out there versus the residential? What I

Ken Krausz, CFO, Rollins: would say on the on the commercial business is that it’s more consolidated. There’s less players to acquire. As I said earlier, normally you’re wanting to do business on the commercial side with large, well known brands. And so as a result, you’re seeing concentration with Renekil, Ecolab, Rollins, or Orkin, and so it’s more consolidated. We do see it in regionals.

I mean, are regionals out there and even brands that we have that do commercial pest control, but it’s more heavily dominated or heavily related to some of the larger brands that we all know.

Manav Patnaik, Analyst, Barclays: Got it. And so, residential, commercial, and then the other ancillary, can you just help us with what fits into the other stuff there?

Ken Krausz, CFO, Rollins: Yeah. Termite and ancillary. So it’s termite, Sentricon, and other sorts of baiting that we use for termites protecting the house. In a lot of regions of the country, in The US, you have to have a termite bond to close on your house. And so we certainly have that business.

But we have a very exciting business in there. It’s called our ancillary business. And that ancillary business is additional cross sell on a lot of the residential area. And so when you look at that, it’s insulation in the attic, it’s exclusion work. So what you’re trying to do is treat for the damage the pests made on the house, and you’re also trying to restrict access of the pest from the house.

Because oftentimes you can treat the pest, you can take care of the issue, but you need to take care of the long term issue associated with it. So the ancillary business is growing. I mean, we’re adding resources. Every time we have a new customer come in, we have an opportunity to expand the ancillary service offering with our customers. It’s a great business growing at a very healthy rate with what we feel like is a lot

Manav Patnaik, Analyst, Barclays: of potential ahead. Got it. I wanted to shift to margins. Obviously with the top line growing eight plus percent that helps give you a lot of leverage to show margins, but what is the new kind of incremental margin target or margin targets and how did that compare to before?

Ken Krausz, CFO, Rollins: Yeah. No. It’s, this business should be a 30% incremental margin business. Know, 25 to 30% should be very realistic. Mean, if gross margins are where they are currently, if you’re seeing an incremental gross margin of 55 to 60% and then you look at our SG and A spend at roughly 29% to 30% of sales, you should be and then you consider that out of that 30%, you’ve got fixed costs that you can leverage.

You should certainly see an incremental margin that would be nearing or approaching or around 30%. And we’ve seen it. You’re not going to see it every quarter. We’re going to have timing things, investments that we make. We don’t look at this business through a quarterly lens.

We look at it through a long term lens. Investing in these customers is a long term investment. And so so we’re looking at it through that lens. But what you saw in the first quarter was 8%, roughly 7.4% organic growth, and you saw roughly a 15% incremental. Now what you may not have seen is in that 15% incremental, we had a significant investment in selling and marketing, and we also had a significant investment in what we call advertising.

There were two aspects of the advertising. One was we were shooting new television advertisements that we do every two years, and that was a period expense. The other half is in just general advertising pull forward. And so we’re pulling some of that forward into March as we saw demand continue to be strong. So investments will be there.

If you set those investments aside though, you had an incremental margin that was approaching 30%. So it is certainly a 30% business. We’re excited about it. We think there’s opportunity to to improve that going forward.

Manav Patnaik, Analyst, Barclays: And and what are some of those opportunities to improve that going forward? I mean, obviously, you have you have the scale Mhmm. You have the root density. Is it technology? What is the what is the extra juice there?

Ken Krausz, CFO, Rollins: I think the extra juice is the extension of the modernization journey where we look at our back office. So so right now we’ve got a lot of it’s very decentralized. And I would not say I’d be remiss if I said to you that everything needs to be centralized. That’s not the case. There’s a lot of things that need to be in the field, that need to be with our operators.

But there are other things like fleet and other types of services that we can centralize. If we can become a better support function for finance, accounting, HR, IT, legal, I think we’ll be a better acquirer of businesses. We’ll take some cost out and improve the margin profile. I think that’s what we’re seeing. If you look at our earnings presentations each quarter, we have a waterfall in there.

And you can see for every quarter for quite some time, administrative costs are coming down. And so our focus is how do we continue to accelerate that? We’ve hired so much new talent in the business, completely different business today than it was in ’22, and we’re excited about what that new talent’s doing to bring new technologies, new ideas, process simplification, standardization in the business. So it’s an exciting time to to be

Manav Patnaik, Analyst, Barclays: at Rollins. Got it. Maybe let’s just end with a broader capital allocation question. You know, we’ve talked a lot about, you know, m and a, but help us with, you know, how you guys see your priorities with, you know, organic Sorry. Buybacks, dividends, those kinds of things.

Ken Krausz, CFO, Rollins: Growth, growth, growth is how I would start it. And so we want to invest in growth. Our capital allocation starts with investing in our business and growing our business, and whether it be organic, which is an incredibly attractive growth, or through M and A. This year, we’ve raised our guidance on M and A from 2% to 3% to three to 4% because of our Sale acquisition, but the growth is paramount. And secondly, when we look at the business, when we create growth, when we invest in growth, and we realize the investments, we then share that increase in cash flow through the use of the dividend.

And so I joined in ’22. We raised the dividend, I think, over 60% between then and now. We essentially priced in a special dividend. We’ve got a very sustainable dividend growing it as as we continue to grow the business. And then share buybacks, and we bought shares back in that secondary offering I referred to earlier.

And and and and I think we invested roughly 300,000,000 in ’23 in in share buyback. We’ll do that from time to time, but our priority is growth followed by the dividend and then share repurchase. Got it. Alright, Ken. Well, let’s leave it there.

Manav Patnaik, Analyst, Barclays: Thank you so much. Appreciate it. Thank you, everybody.

Ken Krausz, CFO, Rollins: Thank you. Alright. Thanks a lot.

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