Q2 2024 Rollins Inc Earnings Call

Greetings and welcome to the Rollins Inc. Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Operator: or Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lyndsey Burton, Vice President of Investor Relations. Thank you, Ms. Burton. You may begin.

Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lyndsey Burton, Vice President of Investor Relations. Thank you, Ms. Burton. You may begin.

Lyndsey Burton: Thank you and good morning everyone. In addition to the earnings release that we issued yesterday, the company has also prepared a supporting slide presentation. The earnings release and presentation are available on our website at www.rollins.com. We have included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation, as well as in our earnings release. The company's earnings release discusses the business outlook and contains certain forward-looking statements.

Lyndsey Burton: Thank you and good morning everyone. In addition to the earnings release that we issued yesterday, the company has also prepared a supporting slide presentation. The earnings release and presentation are available on our website at www.rollins.com.

Speaker Change: We have included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation, as well as in our earnings release.

Speaker Change: The company's earnings release discusses the business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that have been made on this call, excluding historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially from any statement we make today.

Lyndsey Burton: These particular forward-looking statements and all other statements that have been made on this call, excluding historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially from any statement we make today. Please refer to yesterday's press release and the company's SEC filings, including the risk factor section of our Form 10-K for the year ended December 31, 2023. On the line with me today and speaking are Jerry Gahlhoff, President and Chief Executive Officer, and Ken Krause, Executive Vice President and Chief Financial Officer. Management will make some opening remarks, and then we'll open the line to your questions. Jerry, would you like to begin? Thank you, Lyndsey.

Speaker Change: Please refer to yesterday's press release and the company's SEC filings, including the risk factor section of our Form 10-K , for the year ended December 31, 2023.

Speaker Change: On the line with me today and speaking are Jerry Gahlhoff, President and Chief Executive Officer, and Ken Krause, Executive Vice President and Chief Financial Officer.

Speaker Change: Management will make some opening remarks and then we'll open the line for your questions. Jerry, would you like to begin? Thank you, Lyndsey. Good morning, everyone.

Jerry E. Gahlhoff: Thank you, Lyndsey. Good morning, everyone.

Jerry E. Gahlhoff: I'm pleased to report that Rollins delivered another good quarter of growth and profitability, reflecting consistent execution of our operating strategies and continuous improvement in our business. Our financial performance for the second quarter was highlighted by an increase in revenue of 8.7% to $892 million, and we delivered healthy organic growth of 7.7% in the quarter. Overall, we continue to see solid revenue growth across all major service lines, as total residential revenue increased 6.3%, commercial revenue rose 9.9%, and termite ancillary was up 11.8% this quarter.

Jerry E. Gahlhoff: I'm pleased to report that Rollins delivered another good quarter of growth and profitability reflecting consistent execution of our operating strategies and continuous improvement in our business.

Speaker Change: Our financial performance for the second quarter was highlighted by an increase in revenue of 8.7% to $892 million, and we delivered healthy organic growth of 7.7% in the quarter.

Speaker Change: Overall, we continue to see solid revenue growth across all major service lines, as total residential revenue increased 6.3%, commercial rose 9.9%, and termite and ancillary was up 11.8% this quarter.

Jerry E. Gahlhoff: We continue to invest in growing our business. As you would expect, we made strategic investments in incremental sales staffing and marketing activities during the quarter. We will continue to invest throughout Q3 to ensure that we remain top of mind and well-positioned for share gains as peak football season continues. We are well-staffed on the technician and customer support front so that our people are onboarded, extensively trained, and ready to provide an exceptional level of service for our customers.

Speaker Change: We continue to invest in growing our business.

Speaker Change: As you would expect, we made strategic investments in incremental sales staffing and marketing activities during the quarter.

Jerry E. Gahlhoff: We will continue to invest throughout Q3 to ensure that we remain top of mind and well-positioned for share gains as peak pet season continues.

Jerry E. Gahlhoff: We are well-staffed on the technician and customer support front so that our people are onboarded, extensively trained, and ready to provide an exceptional level of service for our customers.

Jerry E. Gahlhoff: This also means that we are positioned to convert our marketing and sales investments into new customer growth. Our team continuously challenges itself to think of new and different ways to enhance the relevance of our brands to current and future customers. Earlier in the summer, our creative team at Orkin partnered with Emmy-nominated composer Brian Rudd to compose a seven-act symphony crafted entirely around the historic emergence of two broods of cicadas. We hosted the Orchestra Symphony live in Springfield, Illinois, with curated music composed to accompany the recorded songs and rhythms of trillions of cicadas.

Jerry E. Gahlhoff: This also means that we are positioned to convert our marketing and sales investments into new customer growth.

Jerry E. Gahlhoff: Our team continuously challenges itself to think of new and different ways to enhance the relevance of our brands with current and future customers.

Jerry E. Gahlhoff: The event garnered hundreds of millions of impressions for the Orkin brand, and support for this unique initiative continues as the symphony is currently available on all streaming platforms. In fact, I listened to it again just the other day on a flight and found it to be very relaxing.

Speaker Change: Earlier in the summer, our creative team at Orkin partnered with Emmy-nominated composer Brian Rudd to compose a seven-act symphony crafted entirely around the historic emergence of two broods of cicadas.

Jerry E. Gahlhoff: We hosted the Orchestra Symphony live in Springfield, Illinois, with curated music composed to accompany the recorded songs and rhythms of trillions of cicadas.

Jerry E. Gahlhoff: The event garnered hundreds of millions of impressions for the Orkin brand, and support for this unique initiative continues, as the symphony is currently available on all streaming platforms.

Jerry E. Gahlhoff: In fact, I listened to it again just the other day on a flight and found it to be very relaxing. I encourage you to check it out.

Jerry E. Gahlhoff: I encourage you to check it out. On the commercial side of the business, investments we've made to capitalize on a multi-billion dollar growth opportunity in the B2B space continue to pay dividends. Our new commercial division continues to strategically add feet on the street to our sales force, and we are leveraging data analytics and training to better enable their success. Investments to drive organic growth are complemented by strategic M&A. We closed 26 tuck-in deals in the first six months of the year, and the M&A pipeline remains healthy. We're actively evaluating acquisition opportunities both domestically and internationally and remain on track to deliver at least 2% of growth from M&A activity in 2024.

Speaker Change: On the commercial side of the business, investments we've made to capitalize on a multi-billion dollar growth opportunity in the B2B space continue to pay dividends.

Speaker Change: Our new commercial division continues to strategically add feet on the street to our sales force and we are leveraging data analytics and training to better enable their success.

Speaker Change: Investments to drive organic growth are complemented by strategic M&A.

Speaker Change: We closed 26 tuck-in deals in the first six months of the year, and the M&A pipeline remains healthy. We're actively evaluating acquisition opportunities both domestically and internationally, and remain on track to deliver at least 2% of growth from M&A activity in 2024.

Jerry E. Gahlhoff: Beyond growth, our dedication to operational efficiency and continuous improvement is an important part of our strategy and culture. Kim will discuss this in more detail, but we saw healthy margin improvement in the quarter as we executed our pricing strategy, leveraged our cost structure, and drove efficiencies throughout the business. Safety remains an important area of focus. In Q2, we enhanced our onboarding program for new teammates by providing more robust safety training with an emphasis on how we equip our new drivers with the technical skills, awareness, and courtesy needed to be safe on our roads and in the neighborhoods we serve.

Speaker Change: Beyond growth, our dedication to operational efficiency and continuous improvement is an important part of our strategy and culture.

Speaker Change: Kim will discuss in more detail, but we saw healthy margin improvement in the quarter as we executed our pricing strategy, leveraged our cost structure, and drove efficiencies throughout the business.

Kim: Safety remains an important area of focus.

Kim: In Q2, we enhanced our onboarding program for new teammates by providing more robust safety training with an emphasis on how we equip our new drivers with the technical skills, awareness, and courtesy needed to be safe on our roads and in the neighborhoods we serve.

Jerry E. Gahlhoff: Our efforts continue to yield solid driver safety scores and further reinforce the culture of safety we strive to promote throughout our company. We continue to look for ways to modernize our company, and to that end, our board of directors recently amended and restated our bylaws to transition from a classified board structure to a declassified one. Going forward, board members that are up for re-election will be elected for one-year terms.

Kim: Our efforts continue to yield solid driver safety scores and further reinforce the culture of safety we strive to promote throughout our company.

Kim: We continue to look for ways to modernize our company, and to that end, our Board of Directors recently amended and restated our bylaws to transition from a classified board structure to a declassified one.

Kim: Going forward, board members that are up for re-election will be elected to one-year terms. This step aligns with corporate governance best practices.

Jerry E. Gahlhoff: This step aligns with corporate governance best practices. In closing, we're excited about where our business stands today. Demand from our customers remains strong, with over 7% organic growth in the quarter and for the first half of the year. Our markets are solid, staffing levels are healthy, and our team is focused on driving continuous improvement and profitable growth. I want to thank each of our 20,000 plus teammates around the world for their ongoing commitment to our customers. I'll now turn the call over to Ken. Thanks, Jerry. And good morning, everyone.

Kim: In closing, we're excited about where our business stands today.

Kim: Demand from our customers remains strong, with over 7% organic growth in the quarter and for the first half of the year.

Kim: Our markets are solid, staffing levels are healthy, and our team is focused on driving continuous improvement and profitable growth.

Kim: I want to thank each of our 20,000 plus teammates around the world for their ongoing commitment to our customers.

Kenneth D. Krause: The second quarter reflects continued strong execution by the Rollins. A few highlights to start. We delivered Q2 revenue growth of 8.7% year over year and organic growth of 7.7%. That was at the high end of the 7 to 8% range we discussed at our recent investor day, despite having two fewer business days in June relative to the prior year. Through the first half of the year, the team delivered total revenue growth of 10.9% and solid organic revenue growth of 7.6%.

Kim: I'll now turn the call over to Ken.

Kenneth D. Krause: Thanks Jerry and good morning everyone. The second quarter reflects continued strong execution by the Rollins team.

Kenneth D. Krause: A few highlights to start.

Kenneth D. Krause: We delivered Q2 revenue growth of 8.7% year-over-year, with organic growth of 7.7%. That was at the high end of the 7-8% range we discussed in our recent Investor Day.

Kenneth D. Krause: Despite having two less business days in June relative to the prior year.

Unknown Executive: Through the first half of the year, the team delivered total revenue growth of 10.9% and solid organic revenue growth of 7.6%. Incremental EBITDA margins were over 30% for the first half of the year, and approached 40% in the second quarter, ahead of the metrics we discussed in our recent Investor Day, driven by strong leverage throughout the P&L. And last but not least, our team delivered operating cash flow of $145 million in free cash flow of $136 million. Year to date, operating cash flow approximates 273 million, and free cash flow approximates 257 million, both growing 10% with very healthy conversion.

Kenneth D. Krause: Through the first half of the year, the team delivered total revenue growth of 10.9% and solid organic revenue growth of 7.6%.

Kenneth D. Krause: Incremental EBITDA margins were over 30% for the first half of the year and approached 40% in the second quarter, ahead of the metrics we discussed at our recent investor day, driven by strong leverage throughout the P&L. And, last but not least, our team delivered operating cash flow of $145 million and free cash flow of $136 million. Year-to-date operating cash flow approximates $273 million, and free cash flow approximates $257 million, both growing 10% with very healthy conversions.

Kenneth D. Krause: Incremental EBITDA margins were over 30% for the first half of the year and approached 40% in the second quarter, ahead of the metrics we discussed in our recent Investor Day, driven by strong leverage throughout the P&L.

Kenneth D. Krause: And last but not least, our team delivered operating cash flow of $145 million and free cash flow of $136 million.

Kenneth D. Krause: Year-to-date operating cash flow approximates $273 million.

Kenneth D. Krause: And free cash flow approximates $257 million, both growing 10% with very healthy conversion.

Unknown Executive: Driving further into the quarter, we saw good growth across each of our service offerings. Residential revenues increased 6.3%; commercial pest control rose 9.9%; and our termite and ancillary services increased by 11.8%. Organic growth was also healthy across the portfolio, with growth of 5.4% in residential, 8.6% in commercial, and 11.1% in termite and salary services. Turning the profitability, our gross margins were 54% of 80 basis points versus last year. We continued to be positive on the price-cost equation. We realized improvements across several cost categories, with the most notable contributions coming from fleet and insurance in claims. Orderly adjusted FGNA cost as a percentage of revenue decreased by 16 basis points versus last year.

Kenneth D. Krause: Driving further into the quarter, we saw good growth across each of our service offerings. Residential revenues increased 6.3%, commercial pest control rose 9.9%, and our termite and ancillary services increased by 11.8%. Organic growth was also healthy across the portfolio, with growth of 5.4% in residential, 8.6% in commercial, and 11.1% in termite ancillary services. Turning to profitability, our gross margins were 54% of 80 basis points versus last year. We continue to be positive on the price-cost equation.

Speaker Change: Driving further into the quarter, we saw good growth across each of our service offerings. Residential revenues increased 6.3%, commercial pest control rose 9.9%, and our termite and ancillary services increased by 11.8%.

Speaker Change: Organic growth was also healthy across the portfolio, with growth of 5.4% in residential, 8.6% in commercial, and 11.1% in termite and ancillary services.

Speaker Change: Turning to profitability, our gross margins were 54% up 80 basis points versus last year.

Kenneth D. Krause: We realized improvements across several cost categories, with the most notable contributions coming from fleet and insurance and claims. Quarterly adjusted SG&A costs as a percentage of revenue decreased by 60 basis points versus last year. While we saw improvements in insurance claims activity, we also saw leverage across several cost categories. We did see some leverage from customer acquisition costs in the quarter, but we continue to focus on driving demand for our services and expect to make additional investments in these areas during the third quarter.

Speaker Change: We continue to be positive on the price-cost equation. We realized improvements across several cost categories with the most notable contributions coming from fleet and insurance in claims.

Speaker Change: Quarterly adjusted SG&A costs as a percentage of revenue decreased by 60 basis points versus last year.

Unknown Executive: While we saw improvements and insurance claims activity, we also saw leverage across several cost categories. We did see some leverage from customer acquisition costs in the quarter, but we continued to focus on driving demand for our services and expect to make additional investments in these areas during the third quarter. Second quarter gap operating income was $182 million. Approximately 18% year over year on 8.7% revenue growth. Operating margins were 20.4%, up 150 basis points year over year on strong gross margins and solid expense leverage. Second quarter adjusted EBITDA was 210 million, up over 15%, representing a 23.6% margin.

Speaker Change: While we saw improvements in insurance claims activity, we also saw leverage across several cost categories.

Speaker Change: We did see some leverage from customer acquisition costs in the quarter, but we continue to focus on driving demand for our services and expect to make additional investments in these areas during the third quarter.

Kenneth D. Krause: Second quarter GAAP operating income was $182 million, approximately 18% year-over-year, on 8.7% revenue growth. Operating margins were 20.4%, up 150 basis points year over year on strong gross margins and solid expense leverage. Second quarter adjusted EBITDA was $210 million, up over 15% and representing a 23.6% margin. Margin were up 140 basis points versus last year, and adjusted incremental EBITDA margins were approaching 40%, supported by benefits from more favorable claims activity, as well as underlying leverage in more traditional operating expense categories.

Speaker Change: Second quarter GAAP operating income was $182 million, approximately 18% year-over-year on 8.7% revenue growth.

Speaker Change: Operating margins were 20.4% up 150 basis points year-over-year on strong gross margins and solid expense leverage.

Speaker Change: Second quarter adjusted EBITDA was $210 million, up over 15% and representing a 23.6% margin.

Unknown Executive: Margins were up 140 basis points versus last year, and adjusted incremental EBITDA margins were approaching 40%, supported by benefits from more favorable claims activity as well as underlying leverage in more traditional operating expense categories.

Speaker Change: Margins were up 140 basis points versus last year, and adjusted incremental EBITDA margins were approaching 40%, supported by benefits from more favorable claims activity, as well as underlying leverage in more traditional operating expense categories.

Kenneth D. Krause: I'm pleased with the strong improvements and profitability in the quarter and for the first half of 2024. We delivered solid growth with an improving margin profile and remain focused on investing in our business and capturing growth in our very attractive end market. The effective tax rate was approximately 26.1% in the quarter.

Unknown Executive: I'm pleased with the strong improvements and profitability in the quarter and for the first half of 2024. We delivered solid growth with an improving margin profile and remained focused on investing in our business and capturing growth in our very attractive markets. The effective tax rate was approximately 26.1% in the quarter. Our ETR was 25.3% for the first half, and we expect this rate to approximate 26% for the year. Orderly GapNet income with $129 million of $27 per share, increasing approximately 23% from 22 cents per share in the same period a year ago. For the second quarter, we had non-GAAP pre-packed adjustments associated primarily with the FOX acquisition of related items, totaling approximately $4 million of pre-packed expense in the quarter.

Speaker Change: I'm pleased with the strong improvements and profitability in the quarter and for the first half of 2024. We delivered solid growth with an improving margin profile and remain focused on investing in our business and capturing growth in our very attractive end markets.

Speaker Change: The effective tax rate was approximately 26.1% in the quarter. Our ETR was 25.3% for the first half, and we expect this rate to approximate 26% for the year.

Kenneth D. Krause: Our ETR was 25.3% for the first half, and we expect this rate to approximate 26% for the year. Quarterly gap net income was $129 million, or $0.27 per share, increasing approximately 23% from $0.22 per share in the same period a year ago. For the second quarter, we had non-GAAP pre-tax adjustments associated primarily with the FOX acquisition-related items, totaling approximately $4 million of pre-tax expense in the quarter. Accounting for these expenses, adjusted net income for the quarter was $132 million, or $0.27 per share, increasing over 17% from the same period a year ago, despite the higher level of interest costs. Speaking of interest costs, we expect a similar run rate for these costs in the second half relative to the first.

Speaker Change: Quarterly gap net income was $129 million or $0.27 per share, increasing approximately 23% from $0.22 per share in the same period a year ago.

Speaker Change: For the second quarter, we had non-GAAP pre-tax adjustments associated primarily with the FOX acquisition-related items, totaling approximately $4 million of pre-tax expense in the quarter.

Unknown Executive: Accounting for these expenses, adjusted net income for the quarter was $132 million or $0.27 per share, increasing over 17% from the same period a year ago, despite the higher level of interest costs. Speaking of interest costs, we expect the similar run rate in these costs for the second half, relative to the first half. Turning to cash flow in the balance sheet, operating cash flow was $145 million, and we generated $136 million of free cash flow. This is slightly down versus last year by working capital time. With that said, I'm pleased with the 10% growth in first half at cash flow.

Speaker Change: Accounting for these expenses, adjusted net income for the quarter was $132 million, or $0.27 per share, increasing over 17% from the same period a year ago, despite the higher level of interest costs.

Speaker Change: Speaking of interest costs, we expect a similar run rate in these costs for the second half relative to the first half.

Kenneth D. Krause: Turning to cash flow on the balance sheet, operating cash flow was $145 million, and we generated $136 million of free cash flow. This is slightly down versus last year driven by working capital timing. With that said, I'm pleased with the 10% growth in first half cash flow. Our business remains very well positioned to continue to deliver healthy cash flow performance, enabling a balanced capital allocation strategy. Cash flow conversion, the percent of income that was converted into operating cash flow, was over 100% for the quarter as well as for the first six months. We made acquisitions totaling $35 million, and we paid $73 million in dividends in the quarter, so the EBITDA leverage is well below one times on a gross and net level.

Speaker Change: Turning to cash flow in the balance sheet, operating cash flow was $145 million and we generated $136 million of free cash flow. This is slightly down versus last year driven by working capital timing.

Speaker Change: With that said, I'm pleased with the 10% growth in first half cash flow. Our business remains very well positioned to continue to deliver healthy cash flow performance, enabling a balanced capital allocation strategy.

Unknown Executive: Our business remains very well positioned to continue to deliver healthy cash flow performance, enabling a balanced capital allocation strategy. Cash flow conversion, the percent of income that was converted into operating cash flow, was over 100% for the quarter as well as for the first six months. We made acquisitions totaling $35 million, and we paid $73 million in dividends in the quarter. That's the EBITDA leverage is well below one hands on a gross and net level. Our balance sheet is very healthy, and it positions us well heading into the second half of the year.

Speaker Change: Cash flow conversion, the percent of income that was converted into operating cash flow was over 100% for the quarter as well as for the first six months.

Speaker Change: We made acquisitions totaling $35 million and we paid $73 million in dividends in the quarter.

Speaker Change: That the EBITDA leverage is well below one times on a gross and net level. Our balance sheet is very healthy and it positions us well heading into the second half of the year.

Kenneth D. Krause: Our balance sheet is very healthy, and it positions us well heading into the second half of the year. In closing, our performance this quarter and throughout the first half of 2024 continues to demonstrate the strength of our business model and the engagement level of our team. We continue to focus on driving growth while executing on our continuous improvement and modernization initiatives. We are starting the second half with healthy organic demand, and we remain committed to investing in our people and providing our customers with the best customer experience. With that, I'll turn the call back over to Jerry. Thank you, Ken. We're happy to take any questions at this time.

Unknown Executive: In closing, our performance this quarter and throughout the first half of 2024 continues to demonstrate the strength of our business model and the engagement level of our team. We continue to focus on driving growth while executing on our continuous improvement and modernization initiatives. We are starting the second half with healthy organic demand, and we remain committed to investing in our people and providing our customers with the best customer experience.

Speaker Change: In closing, our performance this quarter and throughout the first half of 2024 continues to demonstrate the strength of our business model and the engagement level of our team.

Speaker Change: We continue to focus on driving growth while executing on our continuous improvement and modernization initiatives. We are starting the second half with healthy organic demand and we remain committed to investing in our people and providing our customers with the best customer experience.

Unknown Executive: With that, I'll turn the call back over to Jerry.

Jerry Gahlhoff: Thank you, Ken. We're happy to take any questions at this time. Thank you.

Speaker Change: With that, I'll turn the call back over to Jerry. Thank you, Ken. We're happy to take any questions at this time.

Operator: Thank you. We will now be conducting a question and answer session. Please note that at this time we are limiting participants to one question and one follow-up question. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. One moment, please, while we poll for questions. Our first question comes from Tim Mulrooney from William Blair. Please proceed.

Unknown Executive: We will now be conducting a question and answer session. Please note that at this time, we are limiting participants to one question and one follow-up question. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the set keys. One moment, please, while we pull for questions.

Jerry E. Gahlhoff: Thank you. We will now be conducting a

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star Q if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment, please, while we poll for questions.

Timothy Mulrooney: Our first question comes from Tim Mulrooney from William Blair.

Speaker Change: Our first question comes from Tim Mulrooney from William Blair. Please proceed.

Timothy Michael Mulrooney: Jerry, Jerry 10. Good morning. Morning, morning. Um, just one for me on the, uh, you know, profitability. Uh, strong profitability seems to be the theme of the quarter here. So I wanted to dig in a little bit on this. Um, Ken, as you highlighted in your prepared remarks, your incremental margins were very strong in the quarter, approaching 40%. But I know there was some elevated claims activity in the prior year period, if I'm remembering correctly, so if we exclude that, you know how did your incremental margins look? Were they still above that historical average range of 25 to 30%?

Jerry Gahlhoff: Jerry, Tim, Good morning. Good morning. Just one for me, and the profitability strong profitability seems to be the theme of the quarter here. So I wanted to dig in a little bit on this. You know, Ken, as you highlighted in your prepared remarks, your incremental margins were very strong in the quarter, approaching 40%. But I know there were some elevated claims, actually.

Speaker Change: Jerry, Jerry Chan, good morning. Morning, morning.

Joshua K. Chan: Just one for me on the profitability, strong profitability seems to be the theme of the quarter here. So I wanted to dig in a little bit on this. You know, Ken, as you highlighted in your prepared remarks, your incremental margins were very strong in the quarter approaching 40%.

Speaker Change: But I know there were some elevated claims activity.

Speaker Change: In the prior year period, if I'm remembering correctly, so if we exclude that, you know, then how did your incremental margins look? Were they still above that historical average range of 25 to 30 percent?

Kenneth D. Krause: Thank you for the question, Tim. I appreciate that.

Speaker Change: Thank you for the question, Tim. I appreciate that.

Speaker Change: And it's a great question, something that we certainly took a close look at as we prepared for the call.

Speaker Change: Reviewed the quarter.

Speaker Change: And what we found was business, the performance continues to be exceptional. The margin performance was incredibly healthy. We saw leverage across gross margin.

Speaker Change: We also saw improvements in SG&A.

Speaker Change: As you indicated, our quarterly incremental margin approached 40%.

Speaker Change: If you exclude some of those non-operational items, I would call.

Speaker Change: Our incremental margins were still at or above 30%, and that's a pace that we like to see.

Speaker Change: And in fact, if we go back a couple of years, we've seen some great improvement in those margins. So it's good to see those margins coming in, even without the benefit of some of those non-operational items at or above the 30% range.

Speaker Change: Got it. Thank you very much. Nice quarter guys. Thank you.

Speaker Change: Our next question comes from Ashish Sabrada from RBC Capital Markets. Please proceed.

Ashish Sabadra: Thanks for taking my question. Really strong momentum in the business. But if I had to nitpick on consumer, we did see improvement in the organic growth compared to first quarter, but it's trending slightly below what we've seen historically. So I was just wondering if you could provide some more color on that trend. What are we seeing on recurring versus?

Speaker Change: Ad Hoc Services, and also was there any impact of the two fewer working days in June . Thanks.

Kenneth D. Krause: And it's a great question, something that we certainly took a close look at as we prepared for the call and reviewed the quarter. And what we found was that business, the performance continues to be exceptional. The margin performance was incredibly healthy, and we saw leverage across gross margin. We also saw improvements in SG&A. As you indicated, our quarterly incremental margin approached 40%. If you exclude some of those non-operating items, I would call them, our incremental margins were still at or above 30%.

Jerry: So, Ashish, this is Jerry.

Jerry: So when we look at the quarter, I'll start with the two fewer working days.

Kenneth D. Krause: And that's a pace that we like to see. And in fact, if we go back a couple of years, we've seen some great improvement in those margins. So it's good to see those margins coming in, even without the benefit of some of those non-operating items. At or above the 30% range.

Jerry E. Gahlhoff: In June , I mean, that was a pretty significant impact for us in the quarter. You're in the thick of your peak season right in the middle of the year to have two or fewer workdays.

Timothy Michael Mulrooney: Got it. Thank you very much. Nice quarter, guys.

Ashish Sabadra: Our next question comes from Ashish Sabrada from RBC Capital Markets. Please proceed.

Jerry E. Gahlhoff: Thanks for taking my question. There is really strong momentum in the business. But if I had to nitpick on consumers, we did see improvement in organic growth compared to the first quarter, but it's trending slightly below what we've seen historically. So I was just wondering if you could provide some more color on that trend. What are we seeing on recurring versus ad hoc services? And also, was there any impact of the two or two fewer working days in June? Thanks.

Jerry E. Gahlhoff: More than anything, even though we had a bit of a softer June last year, it affected productivity fairly significantly about...

Jerry E. Gahlhoff: So, Ashish, this is Jerry. So when we look at the quarter, I'll start with two fewer working days in June. I mean, that was a pretty significant impact for us in the quarter. You're in the thick of your peak season right in the middle of the year to have two or fewer work days. More than anything, even though we had a bit of a softer June last year, it affected productivity fairly significantly in terms of ability to get work done and things along those lines. So I would much rather have those two extra days in June than I would in an April very early, very early in a quarter.

Jerry E. Gahlhoff: Ability to get get work done and and things along those lines, so

Jerry E. Gahlhoff: I would much rather have those two extra days in a June than I would in an April , very early in a quarter. So that's interesting.

Jerry E. Gahlhoff: So that's interesting, and there was some impact there. The recurring business is the additions to our new customer growth are actually outpacing our organic revenue growth, so that's healthy.

Speaker Change: And there was some impact there. The recurring business is the additions to our new customer growth are actually outpacing our organic revenue growth. So that's healthy. So thank you.

Jerry E. Gahlhoff: So, when you think about the consumer side of it, the one-time business, while it's still there, it may be a little softer on some of the residential pest control, but we still see a very strong consumer in the marketplace. That consumer, when you look at our termite and ancillary growth in the double-digit range, that tells you you still have a healthy consumer that really is staying in their home. There's a lot less relocation going on.

Jerry E. Gahlhoff: When you think about

Jerry E. Gahlhoff: The consumer side of it.

Jerry E. Gahlhoff: The one-time business, while it's still there, it may be a little softer on some of the residential pest control, but we still see a very strong consumer in the marketplace. That consumer, when you look at our termite and ancillary growth in the double-digit range, that tells you you still have a healthy consumer that really is staying.

Jerry E. Gahlhoff: People are staying at home, investing in their homes, and certainly buying things like pest control and adding that to their home services. That is still very, very healthy, so we haven't really seen any shift from a consumer side in that regard either. The only thing I would say is, you know, we had 5.4% residential growth. And so when you look at the one-time, or the recurring business, it was at or above 6% in the quarter, and when you take into consideration some of those factors you described, I mean, they certainly had a potential to have an impact on the overall growth rate.

Jerry E. Gahlhoff: In their home, there's a lot less.

Jerry E. Gahlhoff: Relocation going on. People are staying at home, investing in their homes, and certainly buying things like pest control and adding that to their...

Jerry E. Gahlhoff: to their home services, that is still remaining very, very healthy. So we haven't really seen any shift from a consumer side in that regard either.

Kenneth D. Krause: Would you add anything to that, Ken? No, the only thing I would say is, you know, we had a, what was it, 5.4% residential growth. And so when you look at the one time, or the recurring business was at or above 6% in the quarter, and when you take into consideration some of those...

Kenneth D. Krause: factors you described. I mean, they certainly had a potential of having an impact on the overall growth rate. So we feel good about the level of growth we saw in the quarter, the level of activity around customers, and the demand levels we continue to see going into the third quarter.

Jerry E. Gahlhoff: So we feel good about the level of growth we saw in the quarter. But I think it's important to look at the level of activity around customers and the demand levels we continue to see going into the third quarter.

Jerry E. Gahlhoff: That's great color. And maybe on my follow-up, if I can ask a quick question on the commercial side, you talked about the investments there to capture and capitalize. I was wondering if you could talk about, are there certain verticals where you're seeing stronger demand?

Kenneth D. Krause: That's great, Kalar. And maybe on my follow-up, if I can ask a quick question on the commercial side, you talked about the investments there to capture, capitalize. I was wondering if you could talk about, are there certain verticals where you're seeing stronger demand environment? Thanks.

Jerry E. Gahlhoff: We, I don't, I don't think we've seen necessarily a stronger demand in certain verticals. What we're getting our results is by building the biggest and best sales force on the commercial side that we can, that is possible out there. We continue to add to our sales force, invest in their training, invest in development, and build a very strong, cohesive team on the commercial sales side. That's really what's paying dividends, not necessarily one vertical or another. I think we're, we're, we're out there just trying to capture new business through the new people that we're adding to our team.

Speaker Change: We I don't I don't think we've seen necessarily a stronger demand in certain verticals What where we're getting our results is by?

Speaker Change: A building, the biggest and best sales force on the commercial side that that we can that that is possible out there. We continue to add.

Kenneth D. Krause: to our sales force.

Kenneth D. Krause: Invest in their training, invest in development, and building a very strong, cohesive team on the commercial sales side. That's really what's paying dividends, not necessarily one vertical or another. I think we're out there just trying to capture new business through the new people that we're adding to our team.

Ashish Sabadra: That's very helpful. Thanks and congrats on a solid quote.

Speaker Change: That's very helpful. Thanks, and congrats on a solid quarter.

George Tong: Our next question comes from George Tong from Goldman Sachs. Please proceed. Hi, thanks. Good morning.

Speaker Change: Our next question comes from George Tong from Goldman Sachs. Please proceed.

George Tong: Hi, thanks. Good morning. Is there any way to estimate how much the two fewer working days in June affected organic growth in each of your segments? Was the impact greater in certain segments than others?

George Tong: Hi, thanks, good morning. Is there any way to estimate, morning, any way to estimate how much impact the two fewer working days in June affected organic growth in each of your segments? Was the impact greater in certain segments than others?

Kenneth D. Krause: Yeah, I don't think it was greater in certain segments than others necessarily, although my intuition tells me it affected us more in the residential pest and then maybe a little bit on the termite ancillary because those are often larger jobs that take time to get, take time to complete, and when you talk about having two fewer days in a month in a month like June, it will result in some of that work carrying over not being completed into July So, you know, it's really that kind of impact on the residential side, both pest and termite ancillary, than on the commercial side.

Speaker Change: Yeah, I don't think it was greater in certain segments than others necessarily, although my intuition tells me it affected us more in the residential pest and then maybe a little bit on the termite ancillary because those are often larger jobs.

Speaker Change: that take time to get, take time to complete, and when you talk about having two fewer days in a month, in a month like June , it will result in some of that work carrying over and not being completed into July that last year would have been completed in June .

Speaker Change: So, um, you know, it's really that kind of impact more probably on the residential.

Kenneth D. Krause: And it could probably impact both one-time as well as recurring business because we don't have the opportunity to get out and maybe start the recurring business because we're losing those days, and we're also just not seeing the calls from the one-time customers because we don't have those days. Right, you don't get as much one-time business at that very end or in the peak, in the peak of the peak season. Right, that's right.

Speaker Change: both past and termite ancillary than on the commercial side.

Speaker Change: And it could probably impact both one time as well as recurring business because we don't have the opportunity to get out and maybe start the recurring business because we're losing those days.

Speaker Change: And we're also just not seeing the calls from the one time because we don't have those days. Right, you don't get as much one time at that very end, or in peak, in the peak of the peak season. Right, that's right.

Kenneth D. Krause: Got it, that's helpful. On the residential side, you also mentioned that you're seeing healthy demand levels heading into 3Q. What kind of acceleration would be possible given the exit rates that you've been seeing for the residential sector?

Speaker Change: Got it. That's helpful. On the residential side, you also mentioned that you're seeing healthy demand levels heading into 3Q. What kind of acceleration would be possible given the exit rates that you've been seeing for the residential business?

George Tong: Yeah, I wouldn't want to, I wouldn't want to say that we're seeing acceleration in Q3. But we continue to see just consistent levels of demand for our services, very much giving us, you know, confidence in our ability to deliver on the range of growth that we provided at Investor Day of roughly seven to 8% organic growth. I mean, through the first six months, we were 7.6. And in the quarter, we were at the high end of the range. So we feel good about this business and the ability to drive value for all of our stakeholders when we're seeing demand levels like we saw here in Q2.

Speaker Change: Yeah, I wouldn't want to, I wouldn't want to say that we're seeing acceleration in the Q3, but we continue to see just consistent levels of demand.

George Tong: Got it. That's helpful. Thank you.

Speaker Change: for our services and very much giving us, you know, confidence in our ability to deliver on the range of growth that we that we provided at Investor Day of roughly seven to 8% organic growth. I mean, through the first

Speaker Change: six months were 7.6 and in the quarter we were at the high end of the range. So we feel good about this business and the ability to drive value for all of our stakeholders when we're seeing demand levels like we saw here in Q2.

Speaker Change: Got it. That's helpful. Thank you.

Toni Michele Kaplan: Our next question comes from Toni Kaplan from Morgan Stanley. Please proceed.

Speaker Change: Our next question comes from Toni Kaplan from Morgan Stanley . Please proceed.

Kenneth D. Krause: Hi guys, this is Hilary Lee on behalf of Toni Kaplan. So just wanted to talk about the trends that you're kind of seeing in residential and commercial, like what, did you see any changes throughout the months of 2Q? And what have you seen so far in July?

Hilary Lee: Hi guys, this is Hilary Lee on for Toni Kaplan. So just wanted to talk about the trends that you're kind of seeing in residential and commercial. Like what, did you see any changes throughout the months in 2Q and what have you seen into July so far?

Kenneth D. Krause: You know, the trends have been positive, and demand remains healthy. And both residential as well as commercial, all giving us confidence in our ability to continue to deliver that seven to 8% of organic growth that I just spoke about. And so, you know, generally, as Jerry indicated, it was unfortunate, you know, where the calendar fell, where you lose a couple of days in peak season. But we certainly continue to see the things that are in our control give us confidence in our ability to deliver on the goals that we've set for ourselves. That's exactly right, Ken. We just don't really see any headwinds. [inaudible] have some significant impact on what we're seeing.

Speaker Change: You know, the trends have been positive. The man remains healthy.

Speaker Change: and both resi as well as commercial all giving us confidence in our ability to continue to deliver that seven to eight percent of organic growth that I just spoke about.

Speaker Change: And so, you know, generally, as Jerry indicated, it was unfortunate, you know, the way the calendar fell, where you lose a couple of days in peak season.

Speaker Change: But we certainly continue to see the things that are in our control give us confidence in our ability to deliver on our goals that we've set for ourselves. That's exactly right, Ken. We don't really see any headwinds that could...

Kenneth D. Krause: have some significant impact on what we continue to see.

Kenneth D. Krause: Got it. And, you know, just to kind of dovetail off that, you know, it's been kind of a, you know, not unusually, but warmer July than in recent memories. Like, do you expect that to kind of help out with the peak season this year? And, you know, any indication on, you know, what do you guys do with, you know, taking care of the staccato issue, or is that not really an issue for you guys to handle, even though regarding the symphony as well?

Kenneth D. Krause: Got it. And, you know, just to kind of dovetail off that, you know, it's been kind of a, you know, not unusually, but warmer July than in recent memories. Like, do you expect that to kind of help out with the peak season this year? And, you know, any indication on, you know,

Speaker Change: What do you guys do with, you know, taking care of the staccato issue, or is that not really an issue for you guys to handle, even though, regarding the symphony as well?

Jerry E. Gahlhoff: Yeah, I gave up a long time ago trying to predict the weather and what bugs are going to do, and what pests are going to do with the weather. And so, you know, generally speaking, warmer weather is good for business, but you just never know how fast that could change. If you recall back last year in June, we went through that cold spell in the little bit of June that softened for a couple weeks there, and then in July it picked back up, and things went crazy again.

Speaker Change: I've given up a long time ago trying to predict the weather and what bugs are going to do and pests are going to do about the weather.

Speaker Change: Generally speaking, warmer weather is good for business, but you just never know how fast that could change. If you recall back last year in June , we went through that cold spell in the little bit of June .

Speaker Change: that softened for a couple weeks there and then in July it picked back up and things went crazy again so you just

Jerry E. Gahlhoff: So you just kind of never know what's in store in terms of the weather, and we really don't think too much about the weather. And in terms of the cicadas, you know, Ashish is probably still listening. He asked about the cicadas. You know, they're typically a consumer, not a pest. While they are a perceived pest problem, it's not something we can do much about. You mentioned you're talking about millions, potentially trillions of cicadas, and the extent that you would have to go through to quiet them down would be pretty extreme.

Speaker Change: You just kind of never know what's in store in terms of the weather and we really don't think too much about the weather.

Speaker Change: In terms of the cicadas...

Speaker Change: You know, Ashish is probably still listening. He asked about the cicadas. You know, they're typically to a consumer, not a pest. While they are a perceived pest problem, it's not something we can do much about, as I mentioned.

You're talking about millions, potentially trillions of cicadas, and...

Speaker Change: The extent that you would have to go through to quiet them down would be pretty extreme. That's not something we necessarily do. Instead, we've chosen to have a little fun with it, create some consumer demand, and build some brand recognition around the attention that the cicadas are getting. Not really a pest problem, however.

Jerry E. Gahlhoff: That's not something we necessarily do. Instead, we've chosen to have a little fun with it, create some consumer demand, and build some brand recognition around the attention that the cicadas are getting. Not really a pest problem, however. You know, on the weather, just on the weather, you know, you're, you are right; you see statistics about the warming environment and things like that. But the other side of it is, you just never know what hurricane season might look like here as you get into August and September. I think a lot of people were predicting a pretty tough hurricane season.

Jerry E. Gahlhoff: So, you know, that could cause a disruption, a short-term disruption. But you just, you just never know. I mean, overall, when we look at the things we control and we look at what we're doing, we feel good about the demand levels that we're seeing across our

Speaker Change: On the weather, you are right, you see statistics about warming environment and things like that.

Speaker Change: But the other side of it is, you just never know what hurricane season might look like here as you get into August and September . I think a lot of people were predicting a pretty tough hurricane season.

Speaker Change: So, you know, that could have a disruption, a short-term disruption, but you just never know. I mean, overall, when we look at the things we control and we look at what we're doing, we feel good about the demand levels that we're seeing across our business.

Kenneth D. Krause: Great. Thanks, guys. Our next question comes from Heather Balsky from Bank of America. Please proceed.

Speaker Change: Great. Thanks, guys.

Heather Nicole Balsky: Our next question comes from Heather Balsky from Bank of America. Please proceed. Hi, thanks for taking my question.

Speaker Change: Our next question comes from Heather Balsky from Bank of America. Please proceed.

Heather Nicole Balsky: Hi, thanks for taking my question. I was hoping to drill down on a commentary around investing in marketing and customer acquisition.

Heather Nicole Balsky: How you're, you know, just the pace of it this quarter, how you're thinking about it in the back half, and what you're seeing from the competition as well.

Jerry E. Gahlhoff: From a competitive standpoint, I don't know that we pay a lot of attention to what's going on in that regard. We kind of look at our business and know what our needs are and measure things on a market-to-market basis.

Speaker Change: From a competitive standpoint,

Speaker Change: I don't know that we've paid a lot of attention to what's going on in that regard. We kind of...

Speaker Change: look at our business and know what our needs are and measure things on a market to market basis. You have to remember, we're still in a very highly fragmented business with a lot of competition. And that includes regional competitors and everything is just so local. So from that standpoint,

Kenneth D. Krause: You have to remember, we're still in a very highly fragmented business with a lot of competition, and that includes regional competitors, and everything is just so local. So from that standpoint, you know, that is just one of the most dynamic things that we do that can change week-to-week, sometimes day-to-day. I will say philosophically, if you look back to how, say, the digital marketplace was five to ten years ago compared to today, it has shifted, and some of that philosophy has shifted over the last few years where we used to spend a lot of our money on advertising, especially in digital performance.

Speaker Change: You know, that just is one of the most dynamic things that we do that can change week to week.

Speaker Change: Sometimes day-to-day.

Speaker Change: I will say, philosophically...

Speaker Change: If you look back to how, say,

Speaker Change: The digital marketplace was...

Speaker Change: Unknown Executive, Lyndsey Burton, Joseph Calabrese, Unknown Executive, Lyndsey Burton,

Kenneth D. Krause: A lot of that was spent, say, late April into September. So you have this curve with a spike that really went up right in the middle of the season. And what we've seen now is, now that we have these shoulder seasons of past activity, you've got generally warmer environments, that curve is kind of softened in the middle, and we put more of our dollars on both tails of that curve, where we're now starting a lot of those processes on the digital side are now starting in March and running well into October, maybe even early November if the weather holds up and the demand is still good.

Speaker Change: A lot of that was spent, say, late April into September . So you have this curve with a spike that really went right in the middle of the season. And what we've seen now is, now that we have these shoulder seasons of pest activity, you've got generally warmer environments.

Speaker Change: That curve is kind of softened in the middle and we put more of our dollars on both tails of that curve where we're now starting a lot of those processes on the digital side are now starting in March and running well into October , maybe even early November if the weather holds up.

Kenneth D. Krause: So we really spread it out a little differently than we used to do, just because of some of the climate-weather dynamics that are out there. But at the same time, even within those quarters, even within that, call it, nine-month period of time where we spend most of our marketing, it's still a pretty dynamic decision-making process. Yeah, dynamic to the point where, like, when you look at this quarter and you try to understand the impact of that, you see a little bit less.

Speaker Change: We really spread it out a little differently than we used to do just because of some of the climate weather dynamics that are out there. But at the same time, even within those quarters, even within that

Speaker Change: Call it a nine-month period of time where we spend most of our marketing.

Speaker Change: It's still a pretty dynamic decision-making process.

Speaker Change: Yeah dynamic and to the point of like when you look at this quarter and you try to understand the impact of that

Kenneth D. Krause: You saw some leverage in our selling and marketing costs, and some of that was in the advertising area, as we had pointed out in our presentation that's posted online. What we're seeing, though, is we're ramping that investment here in Q3. And so to take advantage of that longer shoulder season, so we're expecting to see a bit of an uptick in these advertising efforts here as we go throughout July because the markets are very healthy for us.

Speaker Change: You saw a little bit less. You saw some leverage in our selling and marketing costs, and some of that was in the advertising area.

Speaker Change: As we had pointed out in our presentation that's posted online.

Speaker Change: What we're seeing, though, is we're ramping that investment here in the Q3. And so to take advantage of that longer, shorter season, we're expecting to see a bit of an uptick in these advertising efforts here as we go throughout July , because the markets are very healthy for us.

Speaker Change: Thank you very much.

Joshua K. Chan: Our next question comes from Josh Chan from UBS. Please proceed. Hi, good morning.

Speaker Change: Our next question comes from Josh Chan from UBS. Please proceed.

Joshua K. Chan: Hi, good morning, Jerry and Ken. Maybe sticking with marketing, I know that across your brand, you do a variety of different channels of marketing. Are there certain channels that are more successful this particular year than other channels that you've noticed?

Joshua K. Chan: Hi, good morning Jerry and Ken. Maybe sticking with marketing, I know that across your brands you do a variety of different channels of marketing. Are there certain channels?

Speaker Change: There are more successful this particular year than other channels.

Jerry E. Gahlhoff: I don't think any of the channels are necessarily any better or any worse. I think we're doing well on all of them, and it's really about having a balanced approach, a balance of how you spend, making sure that we're spending our money wisely, getting the return on investment that we want. We don't want to just drive leads for the sake of driving leads, where we don't have the capacity to fulfill demand, and all those things come into play.

Speaker Change: Thank you.

Speaker Change: I don't think any of the channels are necessarily any better or any worse. I think we're doing well in all of them, and it's really about having a balanced approach.

Speaker Change: A balance of how you spend, making sure that we're spending our money wisely, getting the return on investment that we want.

Speaker Change: We don't want to just drive leads for the sake of driving leads, where we don't have the capacity to fulfill demand, and all those things come into play.

Jerry E. Gahlhoff: So I think our brands and our businesses have done a pretty good job of ensuring that what we do, we're disciplined about, we execute on it, and we measure our results, and we measure our return on investment. So it's been pretty solid across all those channels. That's great to hear.

Speaker Change: So, I think our brands and our businesses have done a pretty good job of ensuring that what we do we're disciplined about, we execute to it, and we measure our results and we measure our return on investment. So, it's been pretty solid across all those channels.

Joshua K. Chan: Okay, that's great to hear. And for my follow-up question, are there any geographic differences in growth within the country that is notable, or are the regions growing pretty similarly this quarter?

Speaker Change: Okay, that's great to hear. And for my follow-up, is there any geographic differences in growth within the country that is notable, or are the regions growing pretty similarly this quarter? Thank you.

Kenneth D. Krause: I think, Ken, you know, we've seen pretty solid growth across the business. Geographically, I wouldn't say there's been any significant difference where there's some market that's radically lagging another market or part of the country or even international. So I don't, I would, I would say, generally, across the board, it tends to be fairly healthy. No, I would, I tend to agree as well.

Joshua K. Chan: I think, Ken, we've seen pretty solid growth across the business. Geographically, I wouldn't say there's been any significant difference where there's some market that's...

Kenneth D. Krause: I mean, sure, we have things we're doing with certain brands and trying to drive improved performance in certain areas. But overall, the market seems pretty healthy, whether it be the Western United States or the Southeastern United States. I mean, what we saw earlier in the quarter was, you know, there was maybe a slower start in certain parts of the Southeast, but they came right online as we went throughout the quarter and saw some good demand levels.

Speaker Change: But overall, the market seems pretty healthy, whether it be the western United States, the southeastern United States.

Joshua K. Chan: I mean, what we saw earlier in the quarter was, you know, there was maybe a slower start in certain parts of the southeast, but they came right online as we went throughout the quarter and saw some good demand levels.

Kenneth D. Krause: Canada and our commercial business up there continues to do well. So, generally, you know, we're seeing really good performance in the business. Yeah. And usually, if you see those differences, they usually come on the edges, the back edges of those shoulder seasons or in the wintertime when, when weather may, extreme weather may impact them more. It's usually when we see more of those differences geographically. That's a great color. Thanks for your time.

Joshua K. Chan: Canada and our commercial business up there continues to do well. So generally, you know, we're seeing we're seeing really good performance in the business. Yeah, and usually if you see those differences, it usually comes

Kenneth D. Krause: On the edges, the back edges of those shoulder seasons are in the wintertime when weather may, extreme weather may impact it more. It's usually when we see more of those differences geographically.

Joshua K. Chan: Thanks for the time and congrats on a good quarter.

Joshua K. Chan: That's great, Kyler. Thanks for the time, and congrats on a good quarter. Thank you, Josh.

Aadit Lall Shrestha: Our next question comes from Aadit Shrestha from Stifel. Please proceed.

Speaker Change: Our next question comes from Aadit Shrestha from Stifel. Please proceed.

Kenneth D. Krause: Hi Jerry and Ken. Thanks for taking my questions. Just going back to gross profit, it was up 80 basis points this quarter, so it's another strong quarter, but could you maybe break out how much of that was driven by the overall price-cost spread versus the tailing from insurance and claims and fees?

Aadit Lall Shrestha: Hi Jerry and Ken. Thanks for taking my questions.

Aadit Lall Shrestha: Just going back to gross profit, it was up 80 basis points this quarter, so it's another strong quarter, but could you maybe break out how much of that was driven by

Speaker Change: Overall price, cost, spread, versus the tailing from insurance and claims and fees.

Speaker Change: Yeah, thanks for the question. I want to say the 80 basis points of gross margin leverage, roughly 30 of that is

Kenneth D. Krause: roughly 30% of that is your insurance and claims activity, and the remainder is just good leverage across the gross margin categories, and the cost categories. So Fleet, for example, we saw some good leverage there. And so, just generally, we're seeing a combination, as I said earlier, a good combination of some of the more favorable experience on the claims in the quarter, coupled with some operational leverage. Yeah, and prices certainly contributed to that as well.

Speaker Change: Your insurance and claims activity.

Speaker Change: And the remainder is just good leverage across the gross margin categories, or cost categories. So Fleet, for example, we saw some good leverage there.

Speaker Change: And so, just generally, we're seeing a combination, as I said earlier, a good combination of, you know, some of the more favorable experience on the claims in the quarter, coupled with some operational leverage. Yeah, and price has certainly contributed to that as well.

Aadit Lall Shrestha: Okay, great. And just to follow up, and not really a follow-up, it's completely not related, but the 11% organic growth seems to have accelerated with the terminated cell research. How did that split up between the two? Was one better than the other?

Speaker Change: Okay, great. And just a follow-up, and not really a follow-up, it's completely not related, but the 11% organic growth, that seems to have accelerated with the termite ancillary services.

Speaker Change: How did that split out between the two? Was one better than the other?

Kenneth D. Krause: So, I can give you a little color on that. Both those service lines continue to grow very well. Some of the ancillary business does tend to be sort of a higher dollar amount, higher ticket price, and is a little easier to grow at a somewhat faster rate than just pure termites. But generally, both are growing quite well. Both are in the double digit range, and both have been very healthy for us. Yeah, they've both been really good performers for us here, especially in the corridor, and we continue to see good demand levels. Great, thanks.

Speaker Change: So, I can give you a little color on that.

Speaker Change: Both those service lines continue to grow very well.

Speaker Change: The some of the ancillary business does tend to be sort of a higher.

Speaker Change: $1 amount or a higher ticket.

Speaker Change: Ticket pricing is a little easier to grow at a somewhat faster rate than just pure termite. But generally, both are growing quite well. Both are in the double-digit range, and both have been very healthy for us.

Speaker Change: Yeah, they've both been really good performers for us here, especially in the corridor, continue to see good demand levels.

Aadit Lall Shrestha: Great. Thank you. Congratulations on a great quarter.

Speaker Change: Great. Thanks. Congratulations on a great quarter.

Speaker Change: Thank you.

Stephanie Lynn Benjamin Moore: Our next question comes from Stephanie Moore from Jeffries. Please proceed.

Speaker Change: Our next question comes from Stephanie Moore from Jeffries. Please proceed.

Kenneth D. Krause: Hi, good morning. Thank you. I wanted to touch on acquisitions quickly here, you know, maybe any heightened competition for deals that you're seeing, and then from a strategic standpoint, maybe any areas within PEST that are particularly attracted to you guys at the moment.

Stephanie Lynn Benjamin Moore: Hi, good morning. Thank you. I wanted to touch on the acquisitions quickly here, maybe any heightened competition for deals that you're seeing, and then from a strategic standpoint, maybe any areas within PEST that are particularly attractive to you guys at the moment. Thanks.

Kenneth D. Krause: We continue to be very acquisitive. I think we closed 26 deals in the first half. If you go back a few years, you were seeing 30, 35 deals on a full year basis.

Speaker Change: We continue to be very acquisitive. I think we closed 26 deals in the first half. If you go back a few years, you were seeing 30, 35 deals on a full year basis. So we continue to see good demand levels.

Stephanie Lynn Benjamin Moore: Certainly always going to be competition. This is an incredibly attractive market and space.

Stephanie Lynn Benjamin Moore: And a lot of people were interested in it.

Stephanie Lynn Benjamin Moore: But we feel like our brand of acquirer of choice that we talked about in May at Investor Day and how we take care and invest in our people.

Kenneth D. Krause: So we continue to see good demand levels. But there's certainly always going to be competition. This is an incredibly attractive market and space, and a lot of people are interested in it. But we feel like our brand of acquirer of choice that we talked about in May at Investor Day and how we take care of and invest in our people and preserve brands is certainly paying off for us. We continue to be very active in evaluating additional opportunities.

Stephanie Lynn Benjamin Moore: and Preserve Brands.

Stephanie Lynn Benjamin Moore: It's certainly paying off for us. We continue to be very active in evaluating additional opportunities. Jerry and I have spent some time on the road.

Kenneth D. Krause: Jerry and I have spent some time on the road the last month or so, and we continue to look for new and interesting ideas. And it's not just looking for new and interesting ideas, but it's also investing in relationships with people that might consider selling their business in the future. This is a long-term approach. It's not really focused on an auction or anything like that. It's about developing relationships with people so they're comfortable turning the keys over to something that is incredibly important and valuable to them. And so we're trying to take the time to continue to develop that. And we think we're seeing some good results.

Jerry: that is incredibly important and valuable to them. And so we're trying to take the time to continue to develop that. And we think we're, you know, we're seeing some good results.

Ken: Paul, thank you. And then, just as my follow-up, sorry if I missed it, but did you say how July order organic growth has trended? We haven't; we've consistently said it's that it's, you know, continuing to see, you know, we're seeing business that is coming in to give us confidence in our ability to deliver on the ranges that we've set for ourselves, and so we feel pretty good about our ability to do that.

Stephanie Lynn Benjamin Moore: Got it. Thank you. And then, just as my follow up, sorry if I missed it, but did you say how July organic growth has trended?

Speaker Change: Got it. Thank you. And then just as my follow-up, sorry if I missed it, but did you say how July organic growth has trended?

Kenneth D. Krause: We haven't. We've consistently said that we are seeing business that is coming in to give us confidence in our ability to deliver on the ranges that we've set for ourselves, and so we feel pretty good about our ability to do that.

Speaker Change: We haven't. What we've consistently said is that it's, you know, continuing to see, you know, we're seeing business

Timothy Mulrooney: Understood, thanks so much. Thank you.

Stephanie Lynn Benjamin Moore: I understand. Thanks so much.

Speaker Change: Understood. Thanks so much. Thank you.

Jerry E. Gahlhoff: This concludes our question and answer session. I would like to turn the floor back over to management for closing comments. Thank you.

Unknown Executive: This concludes our question and answer session.

Unknown Executive: I would like to turn the floor back over to management for closing comments. Thank you, everyone, for joining us today. We appreciate your interest in our company. And look forward to speaking with you on our third quarter earnings call later this year. Thanks a lot.

Speaker Change: This concludes our question and answer session. I would like to turn the floor back over to management for closing comments.

Operator: Thank you everyone for joining us today. We appreciate your interest in our company and look forward to speaking with you on our third quarter earnings call later this year. Thanks a lot. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Unknown Executive: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: [inaudible]

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