Q2 2021 Rollins Inc Earnings Call
Greetings and welcome to Rollins, Inc. Second quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
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Conference is being recorded.
Now I'll turn the conference over to your host Joseph caliber ease. Thank you you may begin.
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On the line with me today are Gary Rollins.
Balance Chairman Chief Executive Officer.
John Wilson, Vice Chairman Jeffrey.
They have been doing your president and Chief operating Officer, and Joe Lieberman, Our interim Chief Financial Officer, Vice President and Treasurer.
Management will make some opening remarks, and then we'll open the line for your questions Gary would you like to begin.
Thank you Joe and good morning, we appreciate all of you joining us for our second quarter.
Gil.
2021 conference call.
Julie will read our forward looking statement and disclaimer and then we'll begin.
Our earnings release discusses our business outlook and contains certain forward looking statements. These particular forward looking statements and all other statements that have been made on.
Quarter on.
Excluding historical facts are subject to a number of risks and uncertainties and actual risks may differ materially from any statement, we make today.
Please refer to today's press release, and other SEC filings, including the risk factors section of our form 10-K for the year interest.
This can for 31st 2020 for more information on the risk factors that could cause actual results to differ.
Thank you Julie before we get started you probably noticed it Eddie Northen is not joining us today on the call John Wilson will share with you more about that now.
Now good morning yesterday, our board of directors supported Julian government, who many of you know is our interim Chief financial Officer and Treasurer Eddie.
Eddie Northern has been moved into an operational role as senior Vice President focused on sustainability.
Julie has significant experience both in finance and our industry as described in.
On the press release, we issued this morning, she has been with US since 2000 and for having most recently been vice President of Finance and Investor Relations.
Prior to joining Rollins Julie worked at a corporate accounting internal audit and corporate tax audit roles.
She is known to many of you already and she will be.
Available to analysts and institutional investors.
After the call as usual.
We also filed an 8-K updating developments in our FCC investigation. This morning.
I will now turn the call back over to Gary.
Now to the exciting news and I'm very pleased to report.
Balance delivered a strong financial performance in the second quarter.
And we remain well position.
For 2021share.
John will share with you our recent additions to our board of directors, while Jerry and Julie will give you details of our financial results.
Sure.
These results were made possible.
By the continued dedication and contribution of our incredible field and corporate teams, we truly appreciate their customer focus.
It has generated is significantly higher than normal growth and profitability.
So far in 2021 now.
Now, let me turn the call over to John.
Thank you Gary.
Over the past year, we have enhanced and diversified Rollins board of directors with several new additions.
Like to spend a moment today well welcoming our 2 newest board members Gregory Morrison.
Paul.
As detailed on our May press releases, Greg was the former Chief Information Officer, who led the information technology operations for Cox enterprises.
And he will add cyber expertise to our board.
Don having worked for many years and investment in commercial banking, including what.
Donald Keybank brings a high level of knowledge and strategic financial trends ex actions to the company.
We're thrilled to add these individuals' to that outstanding group of leaders on our board and we look forward to their counsel and contributions to our company.
Now I will turn the call over to Jerry to provide an overview of the strong quarter.
For just completed.
Thanks, John and good morning, everybody.
As Oregon begins their 120th year of service, we thought it was an opportune time to spend a few minutes highlighting some of the recent successes of the brand.
For those who have followed us over the years you may recall that Oregon was acquired by Rollins of $19.64.
<unk> is the original company.
First started our venture into pest control.
Today working remains our largest brand employing over 8000 team members and completing millions of services annually worldwide.
Work on is very involved in the communities they serve.
Maintaining a strong commitment to edgy.
And public health and environmental responsibility.
From collaborations with the centers for disease control and prevention and major universities to their work with the National Science Teachers Association, Oregon, fosters deeper understanding and appreciation of the natural world around us.
As we have previously previously shared with you.
Cash asked few years Orkin has adopted new technologies, which is improved communications with customers optimized routing and scheduling and increased technician efficiencies to name a few.
Through the years Orkin has grown adding both new customers and new customer service offerings like bedbug.
Over the Pic mosquito and most recently vital clean our service designed to fight COVID-19.
Overall or can has significantly contributed to the long term success of Rollins.
As Gary mentioned earlier, we're very pleased with our results for the second quarter revenue increased.
And 15, 3% to $638.2 million compared to $553.3 million for the second quarter of last year net.
Net income grew to $98.9 million or <unk> 20 per diluted share compared to $75.4 million or <unk> 15 per diluted share for the same period in 2020.
Kris Julie will review, the GAAP and non-GAAP results shortly.
For the quarter, we experienced solid growth in all our business lines with residential increasing 13, 6% and termite 16, 3% over second quarter 2020.
Additionally, commercial excluding fumigation delivered.
Impressive 17, 4% growth over second quarter last year.
This is also an improvement of 11, 3% growth over 2 years ago, when we werent experiencing COVID-19 related shutdowns.
As you May recall last year, we thought it was prudent to forego our annual price increase during the pandemic.
Now encouraged by the economic recovery that is underway, we have rolled out our 2021 annual price increases at all our brands.
Implemented at the end of the second quarter, we expect that we will see the benefits of these increases as we move throughout the remainder of the year.
Additionally, we're especially pleased with our commercial pest control.
<unk> growth, which is not only benefit benefited from the economy reopening, but also from our inside commercial technology.
Through the use of insight Oregon's web reporting tool, our commercial customers have the ability to monitor pest activity and treatments within their facilities reduced service tickets and receipt received specific.
Pest alert notifications.
This allows for quality assurance checks to be easily completed at the customer level.
It also gives the customer the ability to produce timely reporting as necessary for regulatory or third party audits.
We get great feedback from customers on insight and are confident that this feature will strengthen.
Our relationships with commercial clients.
Overall, we've made strong progress during the first 6 months of 2021 and as we look ahead, we're confident in our ability to continue driving growth and profitability in our business now.
Now, let me turn the call over to Julie to discuss our financials.
Thank you Gary.
Ed Rollins, we're constantly looking for ways to win right.
All areas of our business.
As many of you know continuous improvement from an important part of our culture.
We have a lot of opportunity for the remainder of 2021, but I would like to recognize the significant financial gains from this.
Quarter on profit.
Strong gains during.
During 2020.
Even as we were entering a different.
On all the time back in Q2 of last year, our revenue grew at a step.
On a 5.6% net was converted into net income correct.
17, 2%.
Both of these 2020.
We're at or above our historic average it.
So for the second quarter 2021, as Jerry noted all business lines presented strong revenue growth.
Keys for the quarter included pricing strength positively impacting revenue growth.
Continued mosquito service revenue improvement over 30%.
<unk> and commercial pest control revenue improving significantly.
Additionally for the first time on Mosquito service revenue has surpassed for bed bug revenue in this quarter was over 3% of our total revenue.
So looking at the numbers the second quarter revenues of $638.2 million with.
An increase of 15, 3% over the prior year second quarter revenue of $553.3 million.
Our income before income taxes was $133.9 million or 29, 4% above 2020.
Our net income was $98.9 million.
1.2% compare for 2020.
Our earnings per share for 20 cents per diluted share compared to 15 cents in 2024 or 33, 3% increase.
As a reminder, we reported both GAAP and non-GAAP financials for the first quarter of 2.
2021.
The non-GAAP results were positively impacted by a gain on sale of several of our cart probert property.
For the first 6 months of 2021 revenues were $1.174 billion, which was an increase of 12, 7% over the prior year's first 6 months.
Months revenue of 1.014 billion.
Our GAAP income before income taxes was $253.8 million or 59, 7% above 2020.
Our GAAP net income was $191.5 million for 61, 4% compared to 2020.
Our GAAP EPS or earnings per share were 39 cents per diluted share compared to <unk> 24 cents per diluted share in 2020.
Overall like some companies that were negatively impacted by the pandemic demand in most areas of our business in both 2020 and 2021 was strong.
We maintained consistent revenue growth of 5.6% in 2020, followed by a healthy increase of 15, 3% in 2021.
It does not seem that pent up demand or stimulus checks have impacted our residential revenue growth.
But rather a new awareness of past needs based.
For more time spent at the home.
It would be difficult to predict what these new demand levels will look like in the feature but we remain optimistic.
Our total revenue increase for the quarter up 15, 3% included 1.7% from significant Actavis acquisition with the remaining 13.
First on 6% from pricing and new customer growth.
Residential pest control made up 40% of our revenue.
Commercial pest control, 33% and termite and other services made up approximately 21% of our revenue.
In addition, our wildlife service continued to see strong.
Double digit growth.
Again total revenue less significant acquisition was up 13, 6% from that residential was up 12, 3% commercial excluding fumigation increased 14, 8% and termite and ancillary grew by 14, 9%.
In total our gross margin decreased to 53, 3% from 53, 8% in the prior year's quarter.
Improvements were made in total payroll, but were negatively offset by higher overall fleet cost and a write down of inventory of $2.7 million related to our P. P. P. P E R.
Personal protective equipment.
We will continue to assess our fluctuating future needs and market value for a P. P in the coming quarters.
In addition to our continued Orkin U S mileage savings, our Orkin, Canada, and Western pest brands are making progress regarding their boss and routing and scheduling.
Each company has improved there on day and on time delivery since the project started.
These savings will help to support improvements in our overall fleet costs in the future quarters.
Depreciation and amortization expenses for the quarter increased $1.4 million to $23.3 million an increase of 6.3.
Amortization of intangible assets increased $1.3 million due to several acquisitions, including the call service in December 2020, and Adam Perth in Australia in July of last year.
Sales general and administrative expenses presented a 7.1% improvement for the quarter over 2020.
Decreasing from 39% to 28, 7% of revenue in 2021.
The quarter produced savings in administrative and sales salaries and benefits as well as telephone savings from better negotiated contracts.
As for our cash and cash position for the 6 months ending 6.
For 2021.
We spent $28.4 million on the acquisitions of 56 million the same period last year.
We paid $79.7 million on dividends and share.
13, $2.2 billion of Capex compared to $12.4 million in 2020.
We.
We ended the period with $128.5 million in cash of which $73.6 million as held for fire foreign subsidiaries.
Before I close out I would like to mention our recent press release, where Rollins was named the top 50 Green Fleet list as published by automotive fleets 2021 ranking.
As part of.
For our continuous improvement that I mentioned in my opening we have lots of opportunity in the future in this area, but we are proud of this recognition by the industry.
Yesterday, the board of directors approved a regular cash dividend of 8 <unk> per share that will be paid on September 10, 2021 to stockholders of record at the close of business.
2021.
Gary I'll turn it back to you.
Thank you Julie.
And we're happy to take your questions at this time.
Thank you.
As you would like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line.
It's in the question queue, you May press star 2 if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Please ask 1 question and 1 follow up question and then re queue for additional questions.
Our.
August question is from Tim Mulrooney with William Blair. Please proceed.
Gary John Gerry Julie.
Thank you for taking my questions.
Morning.
Okay.
So just a real quick housekeeping here on the residential.
Past can you give us those numbers again for total residential pest growth and organic.
Think I missed that.
Okay.
Yes, I think that's it.
Yes, 1 let me get that for you real quick.
Okay.
Our first looking that up Julie I'll just ask this next question to the broader group. This is my follow up question.
Last year around this time, you guys highlighted the record level of new accounts sales I think particularly in residential and I think that you know.
You had many all.
Record high new sales days throughout the quarter can you talk about how new account sales have trended through the second quarter of this year now a year later.
And how that compares to the really strong period that you had.
During the second quarter of last year. Thank you.
Thank you.
So.
So Tim this is John Wilson.
Ill.
I'll take a stab at that.
Our brand that we.
Best track.
Of course, we're working being our largest and for the second quarter that continued to be up.
Again this year.
But of course not mine.
All time near the same record number, but but we are improved over a year ago and new customer accounts.
Okay. Okay. Thanks, very much and Julie were you able to get the residential organic growth and total growth. Okay. Yes, so were talking about.
The total growth and that may or could you do and we actually had Jerry you talked about the total that I did talk about the organic so from that standpoint.
So for the quarter, we experienced the growth in residential increasing to $13.6 the termite 16.3.
And the commercial excluding fume of $17 for.
Okay got it on with you Okay, just wanted to make sure.
Not a problem that a problem Hey, just bear with me Tim This is new for me.
And then talking on the organic side for the residential was the $12.3 commercial excluding theme for $14.8 and termite.
The $18.9.
Okay, Okay perfect.
Thanks, So much Julie Thank you everybody I'll hop back in queue.
<unk>.
Our next question is from Mario <unk> with Jefferies. Please proceed.
Hi, Thank you for the time.
I guess maybe.
Just asking Tim's question, a slightly different way.
I guess, how much of your organic growth or I mean, maybe you can help us understand the organic growth buildup.
This quarter of how much was new customers, how much was cross seller or new product.
Introduced to existing.
That's our customers. It was there any improvement on retention that can go bad debt contributed to organic growth as well and then it sounds like you turned pricing back on was that still in like the 1% to 2% range for the quarter as well.
Okay I will start on this and then anyone else if you're on a Japan feel free.
First of all on the pricing we put in our normal price increase that we normally would have so we did not do something additional because we held the price increase last year. So it would be within the normal ranges and answer to that on.
As to our retention rate.
<unk> seen a consistent incremental growth.
Growth on a retention over the last 5 years and still do you see that trend continuing this year.
Yes, so I'll add on to that Mario This is John Wilson.
Pricing amounted to about 1.2%, which is kind of in line with our historic.
Normal what pricing ads.
Yes.
And.
The real answer to your question is all day above so cross selling.
The other piece of that would you know we don't track what that May add so I don't I can't give you a number on that.
Retention improved as Julie mentioned and then of course, we did have an increase again as I mentioned a minute ago with time on our.
Accounts at it.
Okay.
Got it. Thank you and then just a guess on.
A follow up on the pricing and maybe whatever inflation that could potentially show up.
I don't other than following you guys as long as from some other guys.
But I don't know, maybe what you've done historically in higher.
Due to inflation environment, if we do see it.
Inflation or wage and labor inflation kind of rear its ugly head for you will.
Would you go above that range that historical 1% to 2% range that you did walk for 2%. This quarter. If you are seeing wages really ramp a lot higher you are finding it a lot harder to find.
And finally.
Over the following over the next year.
Would you kind of flex that pricing up a little higher to offset the increased costs.
Yes, so we could I mean, the market that will obviously dictate what we can do but we've all we've always pointed to R. R.
All center that we have.
There's a wonderful laboratory to test test what are pricing elasticity is with our with our various close rates and what we're capable of getting there. So well we would absolutely look at that Mario.
Right now, we don't feel a need to but we will integrate well.
We will take a look at it.
Got it and then just a quick housekeeping and maybe I missed it in the prepared remarks, you guys disclose or say, how many deals you closed in Q2 or year to date so far.
I don't know that number.
We just gave you the dollars on that.
Got it okay. Thank you.
Thanks Maria.
As a reminder, this star 1 on your telephone keypad, if he would like to ask a question. Our next question is from Michael Hoffman with Stifel. Please proceed.
Okay. Thank you very much and since the other some focus more on sales I'm going to focus on cost.
So there's a little give back on gross margin, but a meaningful improvement in SG&A and on the gross margin I'm trying to understand if theyre not wage inflation as well.
Versus or is that embedded in fleet and then on the SG&A can.
Can you sustain less than 29% of Rev.
From this point forward, given where you are.
Hey, Michael so within the gross margin we did I mean, we actually did see an improvement in our total payroll in answer to that so.
Overall, you've got to remember that technicians are directly tied with the work that they are producing.
So there you know their wages are tied to the when they go through and complete their jobs.
You might recall on that front.
As far as the fleet cost the fleet cost, yes. As you know we did have an increase on that and that was approved dominantly within the fuel.
Okay.
And then the G&A.
On the G&A side.
As you said, though we definitely saw it on the SG&A improvement over the same quarter last year and is really administrative and sales salaries and then also with our new contracts for our telephone debt.
So you.
Work on some better pricing.
This is Jerry Michael the other thing I would say is we've been very careful about adding costs back into our business over the over the past year. We made some changes on our business a year ago and from an operation standpoint, we've been very careful about what what we're.
Sure.
What we're adding back in terms of our cost structure.
And a lot of that has to do with our controlling our overhead expenses on routing and scheduling this is Gary.
Certainly has given us an opportunity to to get more doing it.
And.
And as Julie said.
We were able the vast majority of our <unk>.
Pest control technicians are on the productivity pipeline.
So as they do more they make more.
And that helps with turnover of reduction so.
All of those elements are coming together for us.
Sure.
Terrific and then my follow up.
You released a supplemental 8-K after the earnings release.
And you made reference to an FCC investigation have they completed that because they never tell you when they're completing it. So can you tell us have they completed it.
Yes, Michael so.
I think the 8-K.
References that it's ongoing and it is ongoing as it is not it is not completed.
Thank you very much.
Yeah.
We have reached Oh, we do have a follow up question from Tim Mulrooney with William Blair. Please proceed.
Hey, Thanks for squeezing me in I, just wanted to ask about your Virucide spend because this is a topic.
Across my services coverage universe, I know virus sides spend has been elevated across your customer base. You know as folks are still highly sensitive to the issues of hygiene, Inc.
Virus protection.
But with vaccination rates on the rise I would assume that this offering with moderate overtime. So am I right about that can you talk a little bit about.
On the demand for your Virucide offering and how that's trending.
My Best this is Gerry Tim My best Barometer of that is talking to.
Freeman Elliott to work at Oregon, and while.
While we have seen a moderate I think that's the right term Theres also in places where there is demand still where people are coming back to office spaces and people are still concerned about their workers being in there and won't want that kind of disinfection service still occurring so it's still.
Yeah.
Some markets are better than others.
Where they are.
Turn more people to the offices and things like that so it's still it's still a viable business although to your point it has moderated.
Okay.
And then while you got me here, maybe I'll just try to squeeze 1 more in but thanks for the color.
There I'm sorry.
I wanted to ask about your M&A pipeline.
And this is like Big picture. So how would you say your pipeline looks today compared to say 5 years ago is it smaller given how much consolidation we've seen over the last 5 years or is it.
We're on is it larger because more pest control companies are emerging every day really curious how you all would characterize the M&A pipeline relative to you know 510 years ago.
Yeah, Tim. So this is John I'll I'll take a stab at that at the start and maybe Gary can add to it.
I've used the word for Allstate in the past and it I think it's still that way.
The other way our pipeline is I would.
You don't have that number from 5 years ago, but I would guess is similar.
And a big driver of late has been.
<unk> contemplated tax changes.
Couple of coming out of Washington D C, whether it's too.
I pay taxes or whatever and so some of thats driving some of the conversation that we've had so gerry if you have anything to add to that yeah. We're still seeing plenty of deals looking at things and evaluating what makes sense to us at the end on appropriate appropriate price. So.
We still have plenty of action going on there.
So let me jump on to that real quick and this actually goes back to I think Marios question.
We have a clue.
Those 18 deals through the end of Q2.
Okay.
Yeah.
That's helpful. Thanks.
Thanks for the color everybody.
And I do want to throw 1.
On the other thing out there.
Gerry I had known them for me in front of me it sounds like when I said that.
Residential pest control made up I believe I said, 40% of our revenue that is corrected is 46% apart right.
Understating.
[laughter].
[laughter].
We have reached the end of our question and answer session I would like to turn the conference back over to management for closing remarks.
Okay, well, thank you for joining us today.
We appreciate your interest in our company and look forward to reporting in October.
Alright third quarter results.
And updating you on our progress thanks again.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Yeah.
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<unk>.
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