Rollins, Inc. Q4 FY2025 earnings call

• Fiscal 2025 was a solid year with double-digit revenue, earnings, and cash flow growth, though the fourth quarter was impacted by early winter weather. - Prioritized investments to support teammates and enhance customer experience, including the CoLab program for people managers focused on servant leadership. - Completed acquisition of Sela and 26 tuck-in deals, with Sela's performance exceeding expectations. - Focused on hiring and developing top talent, seeing improvement in retention of newer teammates. - Committed to providing best customer experience and investing in business through organic growth and disciplined acquisitions.

In 2025, Rollins achieved $3,800,000,000 in revenue. For the fourth quarter, revenue was up 9.7% with organic growth of 5.7%. Residential revenue increased 9.7%, commercial pest control grew 8.7%, and termite and ancillary was up 11.9%. Recurring revenue and ancillary services, which represent over 80% of total revenue, grew organically at over 7% for both the quarter and the year. The one-time business in the quarter declined almost 3% compared to year-to-date growth of 4% through the first nine months, with erratic weather patterns hindering demand for one-time projects.

• Expect double-digit revenue, earnings, and cash flow growth in 2026. - Anticipate 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 2026. - Confident in ability to improve margins and deliver on margin targets.

• Erratic weather patterns can hinder demand for one-time projects and make it difficult to service demand, impacting profitability in shoulder seasons. - Extreme ramp-ups in hiring can drive teammate turnover rates higher, impacting productivity in the short term.

Q: Thanks for all the detail around the one-time sales and the recurring base of business. It is all very helpful to understand how the underlying business is performing. But I am curious if you could expand a little bit more on that 7% growth that you are seeing in the recurring and ancillary business? Like, you know, how do you get comfortable that that level of growth is heading into 2026? Like, can you provide any details on retention rate or net gains or customer wins?

A: Tim, this is Jerry. I will walk you through a few of the main points on my mind and maybe Ken can add a little color to it. There is I think there is a lot of data points that we have that give us that comfort, if you will, about the future. In the fourth quarter, we looked at our price increase data and we monitor that throughout the year and we look at what the consumer health is like. For example, we have really super low impact of things like percentages of rollbacks and things along those lines. That gives us a great deal of confidence that our consumer is still healthy. It also indicates to us that we affirm our plan to continue to move forward with our pricing initiatives that we have laid out for ourselves to continue to use price as a lever as we move into 2026. So we are very comfortable there. If you look at the customer retention side, it is very stable and we have also had some areas that have improved. And looking specifically, Orkin, for example, at the net gain of the customers they carried in at what they had at the end of the year compared to the beginning of the year, they had the best performance in growing their customer base that they had since the COVID era. So that first year of COVID was everyone at home and signing up for services and they saw that big net gain there. And this is the best year since then. We look at things and monitor things like our close rates on customers calling in, and that also tells you a little bit about the health of the consumer, you know, the health of our pricing programs, things like that. We look at the leads and our closure rates, the closure rates, it is up. It is not down. So we are also seeing, for example, on ancillary business, our customers are not overly price sensitive. And we have financing options that give them the ability to get the much needed work that they need done, to give them peace of mind and allow them to pay over time. So we see all those. Those are the things that we look at every single day. And it just gives us a lot of comfort. That is why I said what I said fairly emphatically in my opening remarks is that there is nothing fundamental about our business that has changed. We are going to keep doing what we do, and trying to deliver the best service that we possibly can for our continuing growing customer base. Because that is the most important part of our business is the recurring piece and that is where we want to spend our marketing dollars, is creating recurring base and that is how we want to continue to invest in our business. And just to add on to what Jerry had mentioned there, another couple of points. If you look at the recurring organic business, without ancillary, right, if you actually look at it even and unpack it even further, you actually saw 10 basis points more of growth in Q4 versus Q3. And so you are actually seeing that business hold in. If anything, it strengthened a little bit between Q3 and Q4. The ancillary business still growing strong, high teens, mid-teens double-digit. That business normally grows in that 20% range. When you cannot get people on the roof safely and you cannot get them out into the worksite, you will feel the pain and you will feel the impact there. But that business, again, growing at mid to high teens, very healthy, that is the big ticket. That is the nine shots on goal that I have talked about quite frequently with investors. Is that we have all these opportunities and we continue to see good demand there. So I think those two things give us a sense that the business is holding in there, especially that recurring revenue, which is 75% of our business, strengthening by ten or so basis points between Q3 and Q4. And I think too, Ken, you think about 2024 was our best 2024. We were having to lap that in some little more challenging conditions. And we knew starting the year that it was going to be a tougher comparable for us year over year and certainly was a little bit of a headwind for us the last couple of months of the year.

Q: Just by segment as well? And also, what is the margin profile of this one-time business just to consider that as well?

A: Yes, that is a great question, Manav. And thank you for asking that. The margin profile on this one-time business is oftentimes better than the margin on our recurring business. Because we are pricing that business assuming that it is not coming back. And so you are going to a customer knowing you are going one time, you might get $200, $300, $400 for a service. The cost is not necessarily that different than it would be on a recurring service that you might be getting $150 or $200 for, for example. So you see a much better margin profile on the one-time business. That has an impact on the overall results. And I think it is, again, it is only 15% of the business, so I do not want to overstate how much of an impact that had on margins, but it certainly is margin accretive to our overall business. And I would say there is some impact in every category. I think the residential side was probably hurt a little bit more, especially in things like wildlife and rodent work and things along those lines. And ancillary and termite side, some of that softness we are able to get back because that just creates a workload maybe we could not get to and we sell it and still have some backlog that we carry into January, we carry it into January, things along those lines on some of that kind of work. But some of it, you just never really make up, you are not going to make it up.