ROLLINS INC Q4 FY2024 earnings call

• Fiscal 2024 was a solid year with $3.4 billion in revenue, 10.3% revenue growth, 7.9% earnings growth, and 11.2% adjusted EPS growth. - Strategically allocated resources to the commercial side, opening a dedicated commercial division within Orkin and growing the sales force by over 15%. - Closed 44 tuck-in deals in 2024 and have a robust M&A pipeline. - Fourth quarter results: revenue up 10.4%, organic growth 8.5%, gross margin 51.3%, GAAP operating income $151 million, adjusted EBITDA $181 million. - Fitch and S&P assigned investment-grade corporate credit ratings, and Board approved a $1 billion commercial paper program.

For fiscal 2024, Rollins achieved $3.4 billion in revenue, with full year revenue increasing 10.3% versus the prior year. Organic growth for the year was 7.9%. In the fourth quarter, revenue was up 10.4% with the strongest organic growth rate of the year at 8.5%. Residential revenue increased 8.4%, commercial pest control increased 9.2%, and termite and ancillary related services was up 16.6%. Organic growth in the fourth quarter was 6.5% in residential, 7.2% in commercial, and 14.9% in termite and ancillary.

• Expect organic growth in the range of 7% to 8% with additional growth from M&A of at least 2% to 3%. - Anticipate cash flow will continue to convert at a rate above 100% in 2025. - Effective tax rate expected to be approximately 26% in 2025.

• Insurance and claims were a headwind in the fourth quarter due to legacy auto claims. - Improving safety culture is a long-term effort with a long tail associated with safety claims. - Weather impact on pest populations, though Jerry Gahlhoff states it hasn't radically changed pest populations in recurring markets.

Q: Please elaborate on what drove the better-than-expected organic growth in the residential business in the fourth quarter?

A: Jerry Gahlhoff mentioned strong lead demand, increased call volume, especially for rodents in November and December, and a University of Richmond study on rodent populations thriving in urban markets not aligning with some published data.

Q: How much did auto claims activity impact EBITDA margins in the quarter?

A: Kenneth Krause said auto claims activity led to a 40 basis point loss of leverage across the P&L, with 20 basis points in gross margin and 20 basis points in SG&A.

Q: Can you comment on pricing increases in 2025?

A: Kenneth Krause stated they aim for CPI plus level pricing, feeling confident in their ability to price slightly ahead of CPI given the essential nature of their services.

Q: How does the investment-grade rating impact M&A opportunities?

A: Kenneth Krause and Jerry Gahlhoff mentioned it avails them to better capital opportunities, but they will maintain a disciplined approach to M&A, focusing on the same strategy with a focus on investment grade.