ROL

• Business Diversification and Q2 Performance
  • Q2 results missed expectations due to slower growth in portions of the residential pest control business, concentrated in brands like Orkin that rely on consumer-initiated demand via search, digital media, and inbound calls
  • Lead flow declined through Q2 before improving at the end of June, with positive momentum continuing into the first weeks of July
  • The slowdown was not broad-based: relationship-driven channel brands (direct sales, door-to-door, home builder partnerships) delivered organic growth above the 7% to 8% target, with Home Team posting double-digit growth and Fox growing in the high teens
  • The diversified multi-brand portfolio remains a core strength that offsets uneven performance across business models
• Operational Changes and Accountability
  • Organizational changes were implemented to strengthen accountability and align resources with current demand; Scott Weaver was promoted to COO of Orkin North America, expanding his scope to cover both residential and commercial operations across the U.S. and Canada to improve span of control and execution
  • Immediate priorities are improving customer acquisition results, sales productivity, local market execution, and labor efficiency, while maintaining industry-leading customer service standards
  • Management is focusing on cost discipline, including optimizing digital marketing spend, reallocating resources to high-return door-to-door channels, and addressing rising medical and fleet costs
• Financial and Operational Health
  • Customer retention remains strong, with no notable deterioration across the business; some segments even saw improved retention in Q2
  • Customer response to recent price increases has been favorable, and management still expects full-year price to outpace costs
  • The balance sheet remains strong with a leverage ratio of 1x, solid free cash flow conversion of 115% in Q2, and an active M&A pipeline that is expected to contribute 2% to 3% of 2026 revenue growth

• Full-year 2026 organic revenue growth guidance was revised down to at least 6%, from the prior 7% to 8% target, reflecting weaker-than-expected first half results and near-term demand uncertainty
• Full-year 2026 incremental margin guidance was revised down to at least 10%, with most implied margin improvement expected in the fourth quarter due to difficult comparables from the strong Q3 2025 results
• M&A is still expected to contribute 2% to 3% of full-year revenue growth, and full-year free cash flow conversion is still expected to be above 100%, unchanged from prior guidance
• The medium-term target of 7%+ organic growth and 30%+ incremental margins, outlined at the May 2026 Investor Day, remains unchanged; management maintains conviction that long-term operational opportunities will deliver these targets
• Fuel costs are still expected to remain below 2% of full-year 2026 revenue, and the effective tax rate is still expected to come in under 25% (down 100 basis points from historical levels)

Total company revenue grew 7.9% year-over-year (YoY) with 5.7% organic growth, below management expectations. Residential pest control revenue grew 6.6% YoY with 3.6% organic growth, representing the largest drag on overall results due to slowdowns in brands dependent on consumer-initiated digital demand. One-time residential pest services saw low to mid-single digit negative growth, while recurring residential pest services posted healthier growth. Commercial pest control revenue grew 8.6% YoY with 7.2% organic growth, delivering high single-digit overall growth. Termite and ancillary services revenue grew 10.5% YoY with 8.9% organic growth, delivering solid double-digit growth. GAAP operating income for the quarter was $201 million, up 1.5% YoY. Adjusted operating income was $210 million (up 2% YoY), and adjusted EBITDA was $236 million (up 2.2% YoY) with a 21.9% margin. Gross margin for the quarter was 52.8%, down 100 basis points YoY, pressured by lower-than-expected volume, higher people-related medical costs, and higher fuel costs.

• Near-term demand for consumer-initiated residential pest services remains volatile and difficult to forecast; demand patterns in the 2026 peak season have been more variable than any point in the past decade
• The confluence of potential headwinds (late mosquito season/pest pressure from weather, softer consumer confidence especially in lower income bands, potential impact of AI/LLMs driving DIY pest control, shifts in digital search behavior) creates uncertainty that is difficult to fully quantify
• Input cost headwinds from rising medical benefit expenses, fuel prices, and insurance claims remain; higher-than-expected cost inflation could pressure margins even with cost mitigation efforts
• Q3 2026 faces very difficult year-over-year comparables, as Q3 2025 delivered unusually strong results with favorable tailwinds from insurance and claims that are not expected to repeat in 2026

Q: The slowdown is concentrated in digital lead channels — is the issue just new customer acquisition, or have retention or pricing also been impacted? What is driving the sharp digital slowdown in April and May, and is it related to AI or weaker consumer demand? / A: Retention and pricing have held steady, with no signs of customer pushback on price or deterioration in retention. The slowdown is purely a top-of-funnel lead issue. Management concluded the slowdown stems from a confluence of factors, most notably unusually low pest pressure (especially for mosquitoes, one-time service pests) due to a late-starting season, rather than AI or major SEO changes. Lead flow recovered to near prior-year levels by the end of June and has stayed healthy through early July, matching the pattern of a similarly late peak season in Q2 2017 that recovered quickly in Q3.

Q: Can you size the exposure of the underperforming consumer-initiated residential segment, and how much of the weakness is within management's control? / A: Most of the residential pest control portfolio is concentrated in Orkin, Northwest Exterminating, Fox, and Home Team. Orkin is the largest by far and the source of most of the headwinds, while relationship-driven brands like Fox and Home Team, which rely on door-to-door sales rather than digital marketing, are delivering strong growth and are insulated from digital demand shifts. Orkin’s larger exposure to one-time pest services, which saw low-to-mid single-digit negative growth in Q2, drove most of the segment weakness. Management is reallocating marketing spend from underperforming digital channels to higher-return door-to-door/preventive sales channels to offset the weakness.

Q: Your new 10%+ incremental margin guidance implies limited second half improvement after a 6.5% increment in the first half. What upside is possible from cost actions, and what are the key offsetting headwinds? / A: Management has identified multiple cost levers to drive improvement in the back half, including a new favorable fleet supplier agreement, procurement savings across supplies, and initiatives to lower medical costs by encouraging use of lower-cost telehealth and on-site clinics. However, Q3 2026 faces very tough comparables, as Q3 2025 had unusually favorable tailwinds from insurance and claims that will not repeat this year. All expected cost headwinds (fuel, medical, insurance) are already incorporated into the 10% full-year incremental margin floor, with most improvement expected to be weighted to Q4 2026.

Q: Given the near-term choppiness, why maintain your medium-term 30%+ incremental margin target instead of building in more conservatism? / A: The medium-term target is rooted in long-standing operational opportunities that remain intact, including procurement leverage, sales productivity improvements, and employee retention gains that have delivered results in the past. Management acknowledges it underperformed operationally in Q2 and has identified specific areas for improvement that will drive better results in the back half and into 2027. The short-term demand slowdown in parts of the residential business is not seen as a structural change that alters the long-term margin opportunity.