Q3 2025 Rollins Inc Earnings Call

Our presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Lyndsey Burton. Thank you you may begin.

Thank you and good morning, everyone. And 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 <unk> Dot 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.

Speaker #3: Greetings and welcome to the Rollins , Inc. . Third quarter 2020 Earnings Conference Call . At this time , all participants are in a listen only mode .

Operator: To the Rollins, Inc. third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lyndsey Burton. Thank you. You may begin.

The Companys 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.

Speaker #3: A 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 .

Please refer to yesterday's press release, and the company's SEC filings, including the risk factors section of our Form 10-K for the year ended December 31 2024.

Speaker #4: and good morning , everyone . In addition to the earnings release that we issued yesterday , the company has also prepared a supporting slide presentation .

[Company Representative]: 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 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. 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 Factors section of our Form 10-K for the year ended December 31, 2024.

On the line with me today are speaking are Jerry <unk>, President and Chief Executive Officer, and Ken Krause Executive Vice President and Chief Financial Officer.

Speaker #4: The earnings release and presentation are available on our website at Rollins . Com . We have included certain non-GAAP financial measures as part of our discussion this morning .

Management will make some opening remarks, and then we'll open the line for your questions. Jerry would you like to begin. Thank you Lindsay and good morning, everyone. I am pleased to report Rollins delivered exceptional third quarter results.

Speaker #4: 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 .

Overall, we continue to see solid growth across all major service lines with total revenue growth of 12% and organic growth of seven 2%.

Speaker #4: These forward looking statements and all other statements that have been made on this call , including historical facts , are subject to a number of risks and uncertainties and actual results may differ materially from any statement we make today .

Growth from acquisitions was bolstered by the performance of sailor.

Speaker #4: Please refer to yesterday's press release and the company's SEC filings , including the risk Factors section of our form 10-K for the year ended December 31st , 2020 .

Which continues to exceed our expectations.

Gration a sale has progressed very smoothly thanks to the efforts of our collective teams.

Speaker #4: For on the line with me today and speaking are Jerry Gahlhoff President and Chief Executive Officer and Ken Kraus , Executive Vice President and Chief Financial officer .

As you know we believe in the combination of Oregon, and our strong group of regional brands is a competitive differentiator for Rollins, giving us multiple bites at the Apple with potential customers, while also providing some balance and diversification with respect to customer acquisition.

[Company Representative]: On the line with me today and speaking are Jerry Gahlhoff, President and Chief Executive Officer, and Kenneth Krause, Executive Vice President and Chief Financial Officer. Management will make some opening remarks and then we'll open the line for your questions. Jerry, would you like to begin?

Speaker #4: Management will make some opening remarks , and then we'll open the line for your questions . Jerry , would you like to begin ?

Speaker #5: Thank you . Lindsay . Good morning everyone . I'm pleased to report Rollins delivered exceptional third quarter results . Overall , we continue to see solid growth across all major service lines with total revenue growth of 12% .

Kenneth Krause: Thank you, Lyndsey. Good morning, everyone.

The addition of sale of further strengthens these competitive advantages for us.

Jerry Gahlhoff: I'm pleased to report Rollins delivered exceptional third quarter results. Overall, we continue to see solid growth across all major service lines, with total revenue growth of 12% and organic growth of 7.2%. Growth from acquisitions was bolstered by the performance of Saela, which continues to exceed our expectations. The integration of Saela has progressed very smoothly thanks to the efforts of our collective teams. As you know, we believe the combination of Orkin and our strong group of regional brands is a competitive differentiator for Rollins, giving us multiple bites at.

Our investments in strategic M&A opportunities are also complemented by ongoing investments to drive organic growth we've.

We've made a number of investments on the commercial side of the business and remain encouraged by the momentum we're seeing as a result.

Speaker #5: And organic growth of 7.2% . Growth from acquisitions was bolstered by the performance of Salah , which continues to exceed our expectations . The integration of Salah has progressed very smoothly thanks to the efforts of our collective teams .

Over the last year, we have strategically added resources to support our dedicated commercial division within Oregon. These resources are paying off as orphan commercial delivered double digit recurring growth in the corporate in the third quarter.

Speaker #5: As you know , we believe in the combination of Orkin and our strong group of regional brands is a competitive differentiator for Rollins , giving us multiple bites at the Apple with potential customers , while also providing some balance and diversification with respect to customer acquisition .

As a reminder, while commercial takes a little more upfront investment to drive growth. It's also the highest retention business amongst our service lines, making the lifetime value of these customer relationships very attractive.

Kenneth Krause: The apple with potential customers while also.

Jerry Gahlhoff: Providing some balance and diversification with respect to customer acquisition. The addition of Saela Pest Control further strengthens these competitive advantages for us. Our investments in strategic M&A opportunities are also complemented by ongoing investments to drive organic growth. We've made a number of investments on the commercial side of the business and remain encouraged by the momentum we're seeing as a result. Over the last year, we have strategically added resources to support our dedicated commercial division within Orkin. These resources are paying off as Orkin Commercial delivered double-digit recurring growth in the third quarter. As a reminder, while Commercial takes a little more upfront investment to drive growth, it's also the highest retention business amongst our service lines, making the lifetime value of these customer relationships very attractive. Beyond growth, our dedication to operational efficiency and continuous improvement is an important part of our strategy and culture.

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

Speaker #5: The addition of sale of further strengthens these competitive advantages for us . Our investments in strategic M&A opportunities are also complemented by ongoing investments to drive organic growth .

Tim will discuss in more detail, but we were pleased with our margin performance in the quarter, which was supported by some favorability related to insurance and claims as well as leverage in other key cost areas.

Speaker #5: We've made a number of investments on the commercial side of the business and remain encouraged by the momentum we're seeing as a result .

Speaker #5: Over the last year , we have strategically added resources to support our dedicated commercial division within Orkin . These resources are paying off as Orkin Commercial delivered double digit recurring growth in the in the third quarter .

Currently we continue to see tremendous improvements in teammate retention as a result of our ongoing initiatives.

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We also leverage sales and marketing expenses. Despite ongoing investments we continue to make in support of long term growth objectives.

Speaker #5: As a reminder , while commercial takes a little more upfront investment to drive growth , it's also the highest retention business amongst our service lines , making the lifetime value of these customer relationships very attractive .

We're also proud of the significant investments, we're making at our people to support the future growth of our company and establish consistent leadership behaviors across the enterprise our talent development team has designed a program called the co lab.

Speaker #5: The on growth . Our dedication to operational efficiency and continuous improvement is an important part of our strategy and culture . Kim will discuss in more detail , but we are pleased with our margin performance in the quarter , which was supported by some favourability related to insurance and claims , as well as leverage in other key cost areas .

Three five day experience for all people managers, our teammates meeting cross brand branded groups for best practice sharing and networking servant leadership as the foundation of these sessions, which are designed to help leaders enhanced skills for personal development team development and business growth.

Jerry Gahlhoff: Kim will discuss in more detail, but.

Kenneth Krause: We were pleased with our margin performance.

Jerry Gahlhoff: In the quarter, which was supported by some favorability related to insurance and claims as well as leverage in other key cost areas, encouragingly, we continue to see tremendous improvements in teammate retention as a result of our ongoing initiatives, which benefits us from a people cost perspective. We also leverage sales and marketing expenses despite ongoing investments we continue to make in support of long-term growth objectives. We're also proud of the significant investments we're making in our people to support the future growth of our company and establish consistent leadership behaviors across the enterprise. Our talent and development team has designed a program called the CO Lab leadership program, a three and a half day experience for all people managers. Our teammates meet in cross-branded groups for best practice sharing and networking.

Speaker #5: Encouragingly , we continue to see tremendous improvements in teammate retention as a result of our ongoing initiatives , which benefits us from a people cost perspective .

After the initial session leaders participate in additional guidance practice peer coaching and ongoing learning.

Speaker #5: We also leveraged sales and marketing expenses despite ongoing investments . We continue to and support of long term growth objectives . We're also proud of the significant investments we're making in our people to support the future growth of our company and establish consistent leadership behaviors across the enterprise .

Our efforts here are intended to create a marketplace of cross brand cross functional talent, where teammates can seamlessly trial transfer between brands divisions, our home office and field operations.

Further enhanced career opportunities for our teammates and create a robust pipeline of future leaders that will not only sustain our growth, but also help us reach our full potential.

Speaker #5: Our talent and development team has designed to program called the Co-lab , a three and a half day experience for all people , managers .

The co lab initiative began this summer and will continue well into next year as we put over 2000 additional people leaders through this development experience.

Speaker #5: Our teammates meeting cross branded groups for best practice , sharing and networking . Servant leadership is the foundation of these sessions , which are designed to help leaders enhance skills for personal development .

Jerry Gahlhoff: Servant leadership is the foundation of these sessions, which are designed to help leaders enhance skills for personal development, team development, and business growth. After the initial session, leaders participate in additional guided practice, peer coaching, and ongoing learning. Our efforts here are intended to create a marketplace of cross-brand, cross-functional talent where teammates can seamlessly transfer between brands, divisions, our home office, and field operations. This will further enhance career opportunities for our teammates and create a robust pipeline of future leaders that will not only sustain our growth, but also help us reach our full potential. The CO Lab leadership program initiative began this summer and will continue well into next year as we put over 2,000 additional people leaders through this development experience. In closing, we're excited about where our business stands today as we look to close out 2025.

In closing, we're excited about where our business stands today as we look to close out 2025, we remain well positioned for continued growth both organically and through acquisitions and are focused on continuous improvement initiatives to develop our people and enhance profitability throughout our business.

Speaker #5: Team development and business growth . After the initial session , leaders make participate in additional guided practice , peer coaching and ongoing learning .

Speaker #5: Our efforts here are to create a marketplace of cross brand , cross-functional talent where teammates can seamlessly travel , transfer between brands divisions .

I want to thank each of our teammates for their ongoing commitment to their customers.

Speaker #5: Our home office and field operations . This will further enhance career opportunities for our teammates and create a robust pipeline of future leaders that will not only sustain our growth , but also help us reach our full potential .

I'll now turn the call over to Ken Ken Thanks, Gerry and good morning, everyone. The third quarter reflects continued strong execution by our team.

The team delivered exceptional financial performance throughout a few highlights to start.

Speaker #5: The Co-lab initiative began this summer and will continue well into next year as we put over 2000 additional people leaders through this development experience .

Growth was robust again this quarter, we delivered revenue growth of 12% year over year with organic growth of seven 2% versus last year across our service offerings.

Speaker #5: In closing , we're excited about where our business stands today as we look to close out 2025 . We remain well positioned for continued growth , both organically and through acquisitions , and are focused on continuous improvement initiatives to develop our people and enhance profitability throughout our business .

Adjusted EBIT margin improved 120 basis points to 25, 2% driven by the leverage across the P&L with incremental margins of approximately 35%.

Jerry Gahlhoff: We remain well positioned for continued growth both organically and through acquisitions and are focused on continuous improvement initiatives to develop our people and enhance profitability throughout our business.

Our GAAP earnings were up over 21% to <unk> 34 per share and excluding certain purchase accounting expenses, primarily associated with larger acquisitions like Fox from 2023 and sale of this year earnings were <unk> 35 per share and.

Speaker #5: I want to thank each of our teammates for their ongoing commitment to their customers. I'll now turn the call over to Ken.

Kenneth Krause: I want to thank each of our

Jerry Gahlhoff: Teammates for their ongoing commitment to their customers. I'll now turn the call over to.

Kenneth Krause: Thanks Jerry and good morning everyone. The third quarter reflects continued strong execution by our team. The team delivered exceptional financial performance throughout. A few highlights to start: growth was robust again this quarter. We delivered revenue growth of 12% year over year with organic growth of 7.2% versus last year across our service offerings. Adjusted EBITDA margin improved 120 basis points to 25.2% driven by leverage across the P&L, with incremental margins of approximately 35%. Our GAAP earnings were up over 21% to $0.34 per share and excluding certain purchase accounting expenses primarily associated with larger acquisitions like Fox Pest Control from 2023 and Saela Pest Control this year, earnings were $0.35 per share. Finally, we delivered over 30% improvement in operating cash flow while free cash flow was up 31% versus the same period a year ago.

Speaker #5: Ken . Thanks , Jerry , and good morning , everyone . The third quarter reflects continued strong execution by our team . The team delivered exceptional financial performance throughout a few highlights to start .

And finally, we delivered over 30% improvement in operating cash flow, while free cash flow was up 31% versus the same period a year ago.

Speaker #5: Growth was robust again this quarter . We delivered revenue growth of 12% year over year with organic growth of 7.2% versus last year .

This is enabling another strong increase in our dividend here in the fourth quarter.

Speaker #5: Across our service offerings . Adjusted EBITDA margin improved 120 basis points to 25.2% , driven by leverage across the PNL with incremental margins of approximately 35% .

Diving further into the quarter, we saw double digit growth across each of our service offerings in the third quarter residential revenues increased 11, 2% commercial pest control rose 11, 8% and termite and ancillary increased by 15, 2%.

Speaker #5: Our GAAP earnings were up over 21% to $0.34 per share , and excluding certain purchase accounting expenses primarily associated with larger acquisitions like Fox from 2023 and sale this year , earnings were $0.35 per share .

Organic growth was also healthy across the portfolio with growth of five 2% and residential eight 3% and commercial and 10, 8% and termite and ancillary.

Speaker #5: And finally , we delivered over 30% improvement in operating cash flow , while free cash flow was up 31% versus the same period a year ago .

Organic growth remained healthy in the quarter across our service offerings with growth rates that were in line or ahead of the first half.

We finished with a strong September and are heading into Q4 with a healthy backlog.

Speaker #5: This is enabling another strong increase in our dividend here in the fourth quarter . Diving further into the quarter , we saw double digit growth across each of our service offerings .

Kenneth Krause: This is enabling another strong increase in our dividend here in the fourth quarter. Diving further into the quarter, we saw double-digit growth across each of our service offerings in the third quarter. Residential revenues increased 11.2%, commercial pest control rose 11.8%, and termite and ancillary increased by 15.2%. Organic growth was also healthy across the portfolio with growth of 5.2% in residential, 8.3% in commercial, and 10.8% in termite and ancillary. Organic growth remained healthy in the quarter across our service offerings with growth rates that were in line or ahead of the first half. We finished with a strong September and are heading into Q4 with a healthy backlog. Turning to profitability, our gross margins were healthy at 54.4%, a 40 basis point increase versus last year. We saw improvements in materials and supplies, insurance and claims, and fleet expenses excluding vehicle gains, while people costs were neutral.

Turning to profitability, our gross margins were healthy at 54, 4%, a 40 basis point increase versus last year.

Speaker #5: In the third quarter , residential revenues increased 11.2% . Commercial pest control rose 11.8% , and termite and ancillary increased by 15.2% . Organic growth was also healthy across the portfolio , with growth of 5.2% in residential , 8.3% in commercial , and 10.8% in termite and ancillary organic growth remained healthy in the quarter across our service offerings , with growth rates that were in line or ahead of the first half .

We saw improvements in materials and supplies insurance and claims and fleet expenses, excluding vehicle gains while people costs were neutral.

People costs were negatively impacted by increased reserves for medical related claims compared to a year ago quarterly SG&A cost as a percentage of revenue improved by 60 basis points versus last year, we saw leverage across most key cost categories, including sales and marketing administrative costs and insurance and claims.

While fleet with neutral.

Speaker #5: We finished with a strong September in are heading into Q4 with a healthy backlog . Turning to profitability , our gross margins were healthy at 54.4% , a 40 basis point increase versus last year .

Third quarter GAAP operating income was $225 million up 17, 3% year over year.

Adjusted operating income was $232 1 million up 18, 4% versus prior year.

Speaker #5: We saw improvements in materials and supplies , insurance and claims , and fleet expenses , excluding vehicle gains . While people costs were neutral .

Third quarter, EBITDA was $257 6 million up 17, 1% and represent a and representing a 25, 1% margin. Our adjusted EBITDA was $258 3 million up just under 18% and representing a 25, 2% margin.

Speaker #5: People costs were negatively impacted by increased reserves for medical related claims compared to a year ago . Quarterly G&A costs as a percentage of revenue improved by 60 basis points versus last year .

Kenneth Krause: People costs were negatively impacted by increased reserves for medical-related claims compared to a year ago. Quarterly SG&A costs as a percentage of revenue improved by 60 basis points versus last year. We saw leverage across most key cost categories including sales and marketing, administrative costs, and insurance and claims, while fleet was neutral. Third quarter GAAP operating income was $225 million, up 17.3% year over year. Adjusted operating income was $232.1 million, up 18.4% versus prior year. Third quarter EBITDA was $257.6 million, up 17.1% and representing a 25.1% margin. Our adjusted EBITDA was $258.3 million, up just under 18% and representing a 25.2% margin. Incremental margins were 35.4% for the quarter driven by our direct cost leverage. As previously mentioned, we benefited from a net $5 million of favorable adjustments related to auto and medical related claims. Excluding these adjustments, incremental margins still approximated 31%.

Incremental margins were 35, 4% for the quarter driven by our direct cost leverage as previously mentioned, we benefited from a net $5 million of favorable adjustments related to auto and medical related claims excluding these adjustments incremental margins still approximated 31%.

Speaker #5: We saw leverage across most key cost categories , including sales and marketing , administrative costs and insurance and claims . While fleet was neutral .

Speaker #5: Third quarter GAAP operating income was $225 million , up 17.3% year over year . Adjusted operating income was 232.1 million , up 18.4% versus prior year .

As we previously discussed we expected to see an improvement in the second half of the year as a result of the improved performance in Q3 year to date incremental margins are now approaching 25%.

Speaker #5: Third quarter EBITDA was 257.6 million , up 17.1% , and represent a and representing a 25.1% margin . Our adjusted EBITDA was 258.3 million , up just under 18% and representing a 25.2% margin .

<unk> tax rate was 24, 8% in the quarter below our rate a year ago, a 26, 1% our tax planning efforts are paying off and are helping reduce our effective rate. We expect our effective rate an effective tax rate to continue to benefit from this longer term.

Speaker #5: Incremental margins were 35.4% for the quarter , driven by our direct cost leverage . As previously mentioned , we benefited from a net $5 million of favorable adjustments related to auto and medical related claims .

Quarterly GAAP net income was $163 5 million or <unk> 34 per share increasing from 28 per share in the same period a year ago.

Speaker #5: Excluding these adjustments , incremental margins still approximated 31% as we previously discussed . We expected to see an improvement in the second half of the year .

For the third quarter, we had non-GAAP pre tax adjustments, primarily associated with the Fox Ann Taylor acquisition related items totaling approximately $7 million of pre tax expense in the quarter accounting for these expenses adjusted net income for the quarter was $168 5 million or <unk> 35 per share.

Kenneth Krause: As we previously discussed, we expected to see an improvement in the second half of the year. As a result of the improved performance in Q3 year to date, incremental margins are now approaching 25%. The effective tax rate was 24.8% in the quarter, below our rate a year ago of 26.1%. Our tax planning efforts are paying off and are helping reduce our effective rate. We expect our effective tax rate to continue to benefit from this longer term. Quarterly GAAP net income was $163.5 million or $0.34 per share, increasing from $0.28 per share in the same period a year ago. For the third quarter, we had non-GAAP pre-tax adjustments primarily associated with the Fox Pest Control and Saela Pest Control acquisition related items totaling approximately $7 million of pre-tax expense in the quarter.

Speaker #5: As a result of the improved performance in Q3 . Year to date , incremental margins are now approaching 25% . The effective tax rate was 24.8% in the quarter , below our rate a year ago of 26.1% .

Greasing over 20% from the same period a year ago.

Speaker #5: Our tax planning efforts are paying off and are helping reduce our effective rate . We expect our effective rate , effective tax rate to continue to benefit from this longer term .

Turning to cash flow and the balance sheet operating cash flow increased 30% to $191 million.

We generated $183 million of free cash flow, increasing approximately 31% cash.

Speaker #5: Quarterly GAAP net income was $163.5 million , or $0.34 per share , increasing from $0.28 per share in the same period a year ago .

Cash flow conversion as a percent of income that was converted into operating cash flow was strong at 112% for the quarter and for the nine months first nine months of the year, we converted 120% of income into operating cash flow.

Speaker #5: For the third quarter , we had non-GAAP pre-tax adjustments primarily associated with the Fox and Selah acquisition related items totaling approximately $7 million of pre tax expense in the quarter , accounting for these expenses , adjusted net income for the quarter was $168.5 million , or $0.35 per share .

We made acquisitions totaling $35 million and we paid $80 million in dividends in the quarter dividend payments increased 10% from the prior year and are in a healthy and sustainable rate at approximately 44% of free cash flow in Q3, and 49% of free cash flow year to date, we also just announced another 11.

Kenneth Krause: Accounting for these expenses, adjusted net income for the quarter was $168.5 million or $0.35 per share, increasing over 20% from the same period a year ago. Turning to cash flow and the balance sheet, operating cash flow increased 30% to $191 million. We generated $183 million of free cash flow, increasing approximately 31%. Cash flow conversion, the percent of income that was converted into operating cash flow, was strong at 112% for the quarter and for the nine months. For the first nine months of the year, we converted 120% of income into operating cash flow. We made acquisitions totaling $35 million and we paid $80 million in dividends in the quarter. Dividend payments increased 10% from the prior year and are at a healthy and sustainable rate at approximately 44% of free cash flow in Q3 and 49% of free cash flow year to date.

Speaker #5: Increasing over 20% from the same period a year ago . Turning to cash flow in the balance sheet . Operating cash flow increased 30% to $191 million .

Percent increase to our quarterly cash dividend earlier this week, including this recent increase we have raised our regular dividend by more than 80% since the beginning of 2022.

Speaker #5: We generated $183 million of free cash flow , increasing approximately 31% cash flow conversion . The percent of income that was converted into operating cash flow was strong at 112% for the quarter and for the nine months first nine months of the year .

Year to date, we have made acquisitions of almost $300 million, we paid dividends of approximately $250 million, we've invested in capex of almost $25 million and have only borrowed approximately $100 million.

Speaker #5: We converted 120% of income into operating cash flow . We made acquisitions totaling $35 million , and we paid 80 million in dividends in the quarter .

Cash flow performance has been exceptional this year and is enabling a very attractive and balanced approach to capital allocation.

Speaker #5: Dividend payments increased 10% from the prior year and are at a healthy and sustainable rate at approximately 44% of free cash flow in Q3 and 49% of free cash flow year to date .

As part of our modernization efforts, we accessed the public debt markets earlier, this year and established a $1 billion commercial paper program, despite higher debt balances associated with the sale of acquisition. Our interest costs have declined by approximately 7% on a year to date basis, our leverage ratio stands at point in time.

Speaker #5: We also just announced another 11% increase to our quarterly cash dividend earlier this week , including this recent increase , we have raised our regular dividend by more than 80% since the beginning of 2022 .

Kenneth Krause: We also just announced another 11% increase to our quarterly cash dividend earlier this week. Including this recent increase, we have raised our regular dividend by more than 80% since the beginning of 2022. Year to date, we have made acquisitions of almost $300 million. We paid dividends of approximately $250 million. We've invested in CapEx of almost $25 million and have only borrowed approximately $100 million. Cash flow performance has been exceptional this year and is enabling a very attractive and balanced approach to capital allocation. As part of our modernization efforts, we accessed the public debt markets earlier this year and established a $1 billion commercial paper program. Despite higher debt balances associated with the Saela Pest Control acquisition, our interest costs have declined by approximately 7% on a year to date basis. Our leverage ratio stands at 0.8 times.

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We are positioned well and have access to cost efficient capital to grow our business. This enables us to continue to execute our execute our balanced approach to capital allocation.

Speaker #5: Year to date , we have made acquisitions of almost $300 million . We paid dividends of approximately $250 million . We've invested in CapEx of almost $25 million and have only borrowed approximately $100 million .

Reinvest in the business grow our dividend as earnings and cash flow compound and pursue share repurchases opportunistically.

Speaker #5: Cash flow performance has been exceptional . This year and is enabling a very attractive and balanced approach to capital allocation . As part of our modernization efforts , we assessed the public debt markets earlier this year and established a $1 billion commercial paper program .

As Jerry mentioned, we closed the sale acquisition earlier in April and are excited about this strategic growth opportunities. This acquisition provides us.

<unk> has performed exceptionally well since the acquisition growing double digits year to date versus last year, while margins were accretive to our margin profile and slightly accretive to EPS on a GAAP basis.

Speaker #5: Despite higher debt balances associated with the sale acquisition , our interest costs have declined by approximately 7% on a year to date basis .

Speaker #5: Our leverage ratio stands at 0.8 times . We are positioned well and have access to cost efficient capital to grow our business . This enables us to continue to execute our execute our balanced approach to capital allocation , reinvest in the business , grow our dividend as earnings and cash flow compound and pursue share repurchases opportunistically .

As we look to the remainder of 2025, we remain encouraged by the strength of our markets our opportunities for growth and the execution of our teams.

Kenneth Krause: We are positioned well and have access to cost efficient capital to grow our business. This enables us to continue to execute our balanced approach to capital allocation, reinvest in the business, grow our dividend as earnings and cash flow compound, and pursue share repurchases opportunistically. As Jerry Gahlhoff mentioned, we closed the Saela Pest Control acquisition earlier in April and are excited about the strategic growth opportunities this acquisition provides us. Saela Pest Control has performed exceptionally well since the acquisition, growing double digits year to date versus last year. Margins were accretive to our margin profile and slightly accretive to EPS on a GAAP basis. As we look to the remainder of 2025, we remain encouraged by the strength of our markets, our opportunities for growth, and the execution of our teams.

We are seeing healthy levels of growth margins are expanding our tax rate is improving while earnings and cash flow continues to compound at very healthy rates.

We are positioned extremely well to deliver on our financial objectives and continue to expect organic growth in the 7% to 8% range for the year with growth from M&A of 3% to 4%. We remain focused on driving double digit growth in earnings improving our incremental margin profile, while investing in growth opportunities.

Speaker #5: As Jerry Gahlhoff mentioned, we closed the sale acquisition earlier in April and are excited about the strategic growth opportunities this acquisition provides us.

Speaker #5: Salah has performed exceptionally well since the acquisition , growing double digits year to date versus last year . While margins were accretive to our margin profile and slightly accretive to EPs on a GAAP basis .

And we anticipate the cash flow will continue to convert at a rate that is above 100% for 2025.

Speaker #5: As we look to the remainder of 2025 , we remain encouraged by the strength of our markets , our opportunities for growth and the execution of our teams .

With that I'll turn the call back over to Gerry. Thank you, Ken we're happy to take any questions at this time.

Speaker #5: We are seeing healthy levels of growth , margins are expanding . Our tax rate is improving . While earnings and cash flow continues to compound at very healthy rates .

Kenneth Krause: We are seeing healthy levels of growth, margins are expanding, our tax rate is improving while earnings and cash flow continues to compound at very healthy rates. We are positioned extremely well to deliver on our financial objectives and continue to expect organic growth in the 7% to 8% range for the year, with growth from M&A of 3% to 4%. We remain focused on driving double digit growth in earnings, improving our incremental margin profile while investing in growth opportunities, and we anticipate the cash flow will continue to convert at a rate that is above 100% for 2025. With that, I'll turn the call back over to Jerry Gahlhoff.

Thank you we will now be conducting a question and answer session.

I'd like to ask a question. Please press star one on your telephone keypad.

Your line is in the question queue, you may price starts to move yourself. Thank you.

Speaker #5: We are positioned extremely well to deliver on our financial objectives and continue to expect organic growth in the 7 to 8% range for the year , with growth from M&A of 3 to 4% .

Participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys to allow everyone in the queue to ask a question.

Speaker #5: We remain focused on driving double digit growth in earnings , improving our margin profile while investing in growth opportunities . And we anticipate the cash flow will continue to convert at a rate that is above 100% for 2025 .

Ask that everyone limit them.

So only one question and one follow up.

Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Speaker #5: With that , I'll turn the call back over to Jerry . Thank you Ken . We're happy to take any questions at this time .

Okay very good morning, congrats on a nice quarter.

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

Good morning, Tim Good morning, Tim Thank you.

Speaker #3: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .

Yes, I wanted to just.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing these star keys to allow everyone in the queue to ask a question. We ask that everyone limit themselves to only one question and one follow up. Our first question comes from the line of Tim Mulrooney with William Blair.

You talked about.

The performance in residential you talked about accelerating trends coming out of June and into July was that momentum largely sustained through the rest of the quarter and can you talk about how things look in October.

Speaker #3: A confirmation tone will indicate your line is in the question queue . You may press star two to remove yourself from the queue .

Speaker #3: For participants using speaker equipment and may be necessary to pick up the handset before pressing the star keys to allow everyone in the queue to ask a question .

Speaker #3: We ask that everyone limit themselves to only one question and one follow up . Our first question comes from the line of Tim Mulrooney with William Blair .

Yes.

<unk> did well.

When we go back to Q2, Tim and we continue to execute well throughout the quarter in.

In fact, we actually saw even more improvement here in the month of September to early to tell on October early indications are that it continues to be a healthy pace of growth.

Speaker #3: Please proceed with your question .

Kenneth Krause: Please proceed with your question, Ken. Jerry, good morning.

Speaker #6: And Jerry, good morning. Congrats on a nice quarter.

Jerry Gahlhoff: Congrats on a nice quarter. Morning, Tim.

Speaker #5: Good morning . Good morning Tim . Thank you .

But we feel really good about that five 2% residential revenue number.

Kenneth Krause: Good morning, Tim. Thank you. I wanted to just, you know, talk about the performance in residential. You talked about accelerating trends coming out of June and into July. Was that momentum largely sustained through the rest of the quarter? Can you talk about how things look in October? Yes, we exited well. When we go back to Q2, Tim, we continue to execute well throughout the quarter. In fact, we actually saw even more improvement here in the month of September. It's too early to tell in October. Early indications are that it continues to be a healthy pace of growth. We feel really good about that 5.2% residential revenue number because when you unpack that number and you look at the more recurring business that we have, it's approaching 6%. Those are really good metrics.

Speaker #6: Yeah , I wanted to just , you know , talk about the the performance and residential . You talked about accelerating trends coming out of June and into July .

Because when you unpack that number and you look at the more recurring business that we have it's approaching 6% and those are really good metrics. Those are metrics that will enable us to continue to deliver on our financial commitments.

Speaker #6: Was that momentum largely sustained through the rest of the quarter ? And can you talk about how things looked in October ?

Got it yep that recurring piece being at 6% is that does some healthy.

Speaker #5: Yeah , we we exited . Well , when we go back to Q2 , Tim , and we continue to execute well throughout the quarter .

So thats good to hear I also I wanted to switch gears real quick and just ask about CLO.

Speaker #5: In fact , we actually saw even more improvement here in the month of September . It's too early to tell . On October or early .

Yes.

I heard you say that the business is performing ahead of your expectations.

Speaker #5: Indications are that it continues to be a healthy pace of growth , but we feel really good about that . 5.2% residential revenue number , because when you unpack that number and you look at the more recurring business that we have , it's approaching 6% .

Hoping you could dig into that in just a little more detail here what that actually means like are they growing.

Faster than you expected.

Did they have a stronger summer selling season than what you expected when you acquired them.

Speaker #5: And those are really good metrics . Those are metrics that will enable us to continue to deliver on our financial commitments .

Kenneth Krause: Those are metrics that will enable us to continue to deliver on our financial commitments.

This past April or where the margins higher than what you were expecting or is it just a smoother integration like what is it about this acquisition Thats made it so accretive to EPS so quickly.

Speaker #6: Got it . Yep . That recurring piece being at 6% is is that does sound healthy . So that's good to hear . I also I wanted to switch gears real quick and just ask about Salah .

[Analyst]: Got it.

Kenneth Krause: Yep. That recurring piece being at 6% is, that does sound healthy. That's good to hear. I also wanted to switch gears real quick and just ask about Saela Pest Control. You know, I heard you say that the business is performing ahead of your expectations. I was hoping you could dig into that in just a little more detail here. What that actually means, like are they growing faster than you expected or did they have a stronger summer selling season than what you expected when you acquired them this past April? Were the margins higher than what you were expecting? Is it just a smoother integration? What is it about this acquisition that's made it so accretive to EPS so quickly?

Yes, so Tim when we.

When we did our analysis of the sale transaction.

Speaker #6: I you know , I heard you say that the business is performing ahead of your expectations . I was hoping you could dig into that in just a little more detail here .

We actually expected revenue in the first in the first 12 months of ownership to be in that probably mid 60 range in there.

Outpacing that really well there are probably a year one looking in.

Speaker #6: What that actually means , like , are they growing faster than you expected , or did they have a stronger summer selling season than what you expected when you acquired them ?

Mid seventies kind of range instead of the mid <unk>. So we're really happy with what they've done and yes to everything that you just talked about we bought a really good business.

Speaker #6: This this past April ? Or were the margins higher than what you were expecting ? Is it just a smoother integration ? Like , what is it ?

They're firing on all cylinders. They also like we talked about the diversity amongst our brands they acquire customers.

Speaker #6: About this acquisition that's made it so accretive to EPs ? So quickly ?

Customers different ways as well.

While they do some door to door theyre not reliant on door to door only about a third of their growth comes from the door to door segment.

Speaker #5: Yeah . So Tim , when we when we did our analysis of the sale of transaction , we actually expected revenue in the first in the first 12 months of ownership to be in the probably mid 60 range .

Jerry Gahlhoff: Yeah, so Tim, when we did our analysis of the Saela Pest Control transaction, we actually expected revenue in the first 12 months of ownership to be in the probably mid-$60 million range and they're outpacing that really well. They're probably year one looking in the mid-$70 million kind of range instead of the mid-$60 million. We're really happy with what they've done. It's everything that you just talked about. We bought a really good business. They were firing on all cylinders. They also, like we talk about the diversity amongst our brands, acquire customers different ways as well. While they do some door to door, they're not relying on door to door. Only about a third of their growth comes from the door to door segment. The others, like us, comes from cross selling their existing customers additional pest and termite and ancillary services.

The others like us comes from cross selling their existing customers additional pest and termite and ancillary services and then they also do some some digital marketing marketing in the markets that they're in so they like our overall portfolio have a very balanced approach to in terms of how they grow the business.

Speaker #5: In there , outpacing that really . Well , there probably year one looking in the mid 70s , kind of range instead of the mid 60s .

And they were really excited about the opportunity to be part of Rollins.

Speaker #5: So we're really happy with what they've done . And yeah it's everything that you just talked about . We bought a really good business .

And we give them the freedom and autonomy to execute.

Speaker #5: They they were firing on all cylinders . They also like we talked about the diversity amongst our brands . They acquire customers different ways as well .

And do their jobs and when we talk about integration there is not a lot of quote side for maybe some back office stuff things like.

Speaker #5: They're while they do some door to door , they're not relying on door to door . Only about a comes from door to door segment .

Maybe helping them with <unk>.

<unk> systems and things like that.

We're not we're not interfering with the day to day operations of the business, we want to let them run and we want to let them go.

Speaker #5: The others , like us , come from cross-selling . Their existing customers . Additional pest and termite and ancillary services . And then they also do some some digital marketing , marketing in the markets that they're they're in .

And that's that's our approach to.

Jerry Gahlhoff: They also do some digital marketing in the markets that they're in. They, like our overall portfolio, have a very balanced approach in terms of how they grow the business. They were really excited about the opportunity to be part of Rollins and we give them the freedom and autonomy to execute and do their jobs. When we talk about integration, there's not a lot of quote aside from maybe some back office stuff with things like maybe helping them with some HRIS systems and things like that. We're not interfering with the day to day operations of the business.

New buy good businesses, that's exactly what you want out of them and that's exactly what we're getting out of this the team at sailor they've done a great job.

Speaker #5: So they like our overall portfolio have a very balanced approach to terms of how they grow third of their growth and we give them the freedom and autonomy to to execute and and do their jobs .

The only thing I would add Jerry to that is that the sailor and Fox acquisitions are giving us some new geographies and exposure to very favorable regions of the country.

And we're seeing really good benefits associated with that one.

Speaker #5: And , and when we talk about integration , there's not a lot of quote , aside from maybe some back office stuff with things like maybe helping them with some HR systems and things like that .

Two.

When you think about earnings accretion to have an acquisition to be neutral or slightly accretive to GAAP earnings in the first six months.

Is really very uncommon these days with the cost of borrowing around 4% and so it's really good to see that the margin profile is really strong we're not seeing any significant.

Speaker #5: We're not we're not interfering with the day to day operations of the business . We want to let them run and we want to let them go .

Kenneth Krause: We want to let them run.

Jerry Gahlhoff: We want to let them go, and that's our approach to when you buy good businesses. That's exactly what you do.

Speaker #5: And that's that's our approach to to when you buy good businesses , that's exactly what you want out of them . And and that's exactly what we're getting out of this team at Salah .

Changes in churn churn is healthy.

And so we feel like we've got a really good business with a great team.

Kenneth Krause: Want out of them.

Jerry Gahlhoff: That is exactly what we're getting out of the team at Saela. They've done a great job.

Speaker #5: They've done a great job . The only thing I would add Jerry , to that is that the the Salah and Fox acquisitions are giving us some new geographies and exposure to very favorable regions of the country .

We're excited about the future.

Kenneth Krause: The only thing I would add, Jerry, to that is that the Saela Pest Control and Fox Pest Control acquisitions are giving us some new geographies and exposure to very favorable regions of the country. We're seeing really good benefits associated with that. When you think about earnings accretion, to have an acquisition be neutral or slightly accretive to GAAP earnings in the first six months is really very uncommon these days with the cost of borrowing around 4%. It's really good to see that the margin profile is really strong. We're not seeing any significant changes in churn. Churn is healthy. We feel like we got a really good business with a great team. We're excited about the future. All sounds great. Thanks for the color, guys.

All sounds great. Thanks for the color guys.

Thank you.

Our next question comes from the line of Manav Patnaik with Barclays. Please proceed with your question.

Speaker #5: And we're seeing really good benefits associated with that . One , two , you know , when you think about earnings accretion , to have an acquisition to be neutral or slightly accretive to GAAP earnings in the first six months , is really very uncommon these days , with the cost of borrowing around 4% .

Hi, Good morning. This is running Kennedy on for <unk>. Thank you for taking my question can.

Can you please talk about the investments in commercial and further elaborate on the timing of an.

And impact to demand drivers. Thank you had alluded to double digit recurring in Oregon, and then anything to note on competitive dynamics within the commercial space. Please.

Speaker #5: And so it's really good to see that the margin profile is really strong . We're not seeing any significant changes in churn . Churn is healthy .

Speaker #5: And so we feel like we've got a really good business with a with a great team . And we're excited about the future .

Yes, we continue to see good results. There we've made investments if you go back to our investment Investor day in 2024 in the spring, we had talked about commercial being an area of focus and Scott and the team are doing exceptional we've made significant investments we've pulled commercial branches out of residential branches.

Speaker #6: All sounds great . Thanks for the color guys .

Speaker #3: Thank you . Our next question comes from the line of Manav Patnaik with Barclays . Please proceed with your question .

Operator: Thank you. Our next question comes from the line of Manav Patnaik with Barclays. Please proceed with your question.

We placed the disproportionate focus on that business and we've made investments with feet on the street and other sorts of areas and it's helping us drive very strong levels of growth.

Speaker #7: Hi . Good morning . This is Ronan Kennedy on for . Thank you for taking my questions . Can you please talk about the investments in commercial and further elaborate on the timing of an impact to the demand drivers ?

Kenneth Krause: Hi, good morning. This is Ronan Kennedy.

Operator: I'm from Manop.

Kenneth Krause: Thank you for taking my questions. Can you please talk about the investments in commercial and further elaborate on the timing of an impact to the demand drivers? I think you had alluded to double digit recurring in Orkin, and then anything to note on competitive dynamics within the commercial space, please?

For the quarter, we were just north of 8% at accelerated from where it was in the second quarter and the first half.

Speaker #7: I think you had alluded to double digit recurring in Orkin and then anything to note on competitive dynamics within the commercial space . Please ?

And also from where it finished last year and so we feel really good about the investments, we're making we're getting productivity from the investments, we're seeing benefits and we're continuing to grow in a very attractive space. So.

Speaker #5: Yeah , we continue to see good results there . We've made investments . If you go back to our investment day in 2024 , in the spring , we had talked about commercial being an area of focus and Scott and the team are doing exceptional .

Jerry Gahlhoff: Yes, we continue to see good results there.

Kenneth Krause: We've made investments. If you go back to our Investor Day in 2024, in the spring, we had talked about commercial being an area of focus and Scott and the team are doing exceptional. We've made significant investments. We've pulled commercial branches out of residential branches. We've placed a disproportionate focus on that business. We've made investments with feet on the street and other sorts of areas, and it's helping us drive very strong levels of growth. For the quarter we were just north of 8%. It accelerated from where it was in the second quarter and in the first half, and also from where it finished last year. We feel really good about the investments we're making. We're getting productivity from the investments. We're seeing benefits and we're continuing to grow in a very attractive space.

So one of the.

Or have a investments may we've made about a year ago is continuing to ramp up in the commercial sales side.

Speaker #5: We've made significant investments . We've pulled commercial branches out of residential branches . We've placed the disproportionate focus on that business , and we've made investments on with feet on the street and other sorts of areas , and it's helping us drive very strong levels of growth for the quarter , we were just north of 8% .

And when you do that there's training training time.

Longer sales process and commercial compared to residential so those are those those kinds of investments take a little longer too.

Pan out, but we're seeing some of that leverage when we talk about getting leverage in the sales.

Speaker #5: It accelerated from where it was in the second quarter . And in the first half , and also from where it finished last year .

Sales side this quarters because productivity of those additional staff is ramping up.

Speaker #5: And so we feel really good about the investments we're making . We're getting productivity from the investments . We're seeing benefits and we're continuing to grow in a very attractive space .

We're getting the benefits of that we have particularly at Oregon.

Mentioned growing double digit recurring revenue growth on that side.

Speaker #5: Yeah . So one of the other one of the investments we made about a year ago was continuing to ramp up in the commercial sales side .

Jerry Gahlhoff: One of the investments we made about a year ago was continuing to ramp up in the Commercial sales side. When you do that, there's training time. It's a longer sales process in commercial compared to residential. Those kinds of investments take a little longer to pan out. We're seeing some of that leverage. When we talk about getting leverage in the sales side this quarter, it's because productivity of those additional staff is ramping up. We're getting the benefits of that, particularly at Orkin. I mentioned growing double digit recurring revenue growth on that side. That is being driven by feet on the street, getting our marketing teams aligned to help those salespeople be successful in their jobs. That's just really going. All the engines are firing, or all the cylinders in the engine are firing, and they're just doing a great job there.

That is.

That isn't being.

Being driven by the feet on the street getting our marketing teams aligned to help those salespeople be successful in their jobs.

Speaker #5: And when you do that , you know , there's training , training time , it's a longer sales process in commercial compared to residential .

And.

That's just really go on all the engines are firing on all cylinders in the engine and a fire and they're just doing a great job there and that's what we've said it's interesting Ronan.

Speaker #5: So those are those those kinds of investments take a little longer to , to to pan out . But we're seeing some of that leverage when we talk about getting leverage in the in the sales side .

Last year, when we finish and even the first half of this year, we talked about incremental margins and we said that we needed some time for those folks to become more productive and that's exactly what we've seen here as we start the third quarter. We finished the third quarter and start the fourth quarter incremental margins coming in well above 30% is indicative of what we had indicated.

Speaker #5: This quarter is because productivity of those additional staff is is ramping up . We're getting the benefits of that . We have , particularly at Orkin , where I mentioned growing double digit recurring revenue growth in that side .

<unk> would happen and so it's really good to see the margin profile.

Speaker #5: That is that is being driven by feed on the street , getting our marketing teams aligned to help those salespeople be successful in their jobs .

<unk> higher here in the second half and Theres still room for improvement right.

Thank you very much and that's a good segue to my second question is just to unpack that incremental margin a little further please I think 31% ex insurance auto and medical.

Speaker #5: And that's that's just really going . And all the engines are firing on all cylinders in the engine are firing , and they're just doing a great job there .

<unk> touched on it now can you just.

Speaker #5: And that's what we said . It's interesting . Ronan , you know , last year when we finished and even the first half of this year , we talked about incremental margins and we said it we needed some time for those folks to become more productive .

Kenneth Krause: That's what we said. It's interesting, Ronan, you know, last year when we finished and even the first half of this year we talked about incremental margins and we said that we needed some time for those folks to become more productive. That's exactly what we've seen here. As we start the third quarter, we finish the third quarter and start the fourth quarter, incremental margins coming in well above 30% is indicative of what we had indicated would happen. It's really good to see the margin profile inflecting higher here in the second half and there's still room for improvement. Thank you very much. That's a good segue to my second question. Just to unpack the incremental margin a little further, please. I think 31% exit insurance, auto and medical, you just touched on it now.

A little deeper on whether it's pricing or productivity, where you are seeing the greatest leverage.

Across SG&A categories, and how we should think about how that will trend and the trajectory over the coming quarters. Please.

Speaker #5: And that's exactly what we've seen here , as we start the third quarter , we finished the third quarter and start the fourth quarter .

Certainly pricing and productivity are both having apart.

Speaker #5: Incremental margins coming in well above 30% is indicative of what we had indicated would happen . And so it's really good to see the margin profile inflecting higher here in the second half .

<unk> always has a part in the incremental margin and the margin improvement we are positive on price cost across the business and so thats certainly, helping but the productivity is certain certainly paying off as well when you start to see leverage across all substantially all aspects of SG&A.

Speaker #5: And there's still room for improvement right .

Speaker #7: Thank you very much . And that's a good segue to my second question . Just to unpack the incremental margin a little further , please .

Speaker #7: I think 31% X insurance auto and medical , you just touched on it . Now , can you just dive a little deeper on whether it's pricing or productivity , where you are seeing the greatest leverage across G&A categories and how we should think about how that will trend in the trajectory over the coming quarters .

When you think about the business and I've talked about it a few times, but incremental gross margin.

When you're in the high <unk> like we are this quarter with 58% incremental gross margin you expect to deliver a 30 plus percent sort of profile, because youre getting productivity youre getting leverage on SG&A and the incremental SG&A generally only roughly 23 or so percent. So so you're seeing really good performance.

Kenneth Krause: Can you just dive a little deeper on whether it's pricing or productivity where you are seeing the greatest leverage across SG&A categories and how we should think about how that will trend and the trajectory over the coming quarters, please. Certainly pricing and productivity are both having a part. Pricing always has a part in the incremental margin and in the margin improvement. We are positive on price cost across the business and that's certainly helping. The productivity is certainly paying off as well. When you start to see leverage across all, substantially all aspects of SG&A, when you think about the business and I've talked about it a few times, incremental gross margin, when you're in the high 50s like we are this quarter, with 58% incremental gross margin, you expect to deliver a 30% plus sort of profile because you're getting productivity, you're getting leverage on SG&A.

Speaker #7: Please .

Speaker #5: Certainly , pricing and productivity are both having a part . Pricing always has a part in the incremental margin , and the margin improvement .

Up and down the P&L.

Price cost from productivity and it's paying off in both gross and SG&A.

Speaker #5: We When you start to see leverage across all substantially all aspects of a when you think about the business and I've talked about it a few times , but incremental gross margin when you're in the high 50s , like we are this quarter with 58% incremental gross margin , you expect to deliver a 30 plus percent sort of profile because you're getting productivity , you're getting leverage on SG&A and the incremental SG&A is only only roughly 23 or so percent .

Speaker #5: are positive on price . Cost across the business . And so that's certainly helping . But the productivity is certainly paying off as well .

Thank you very much appreciate it.

Thank you.

Our next question comes from the line of Toni Kaplan with Morgan Stanley. Please proceed with your question.

Hi, Good morning. This is Yehuda Silverman online for Toni Kaplan just had a question about how conversations with customers have been going regarding pricing heading into next year.

Some customers have been more or less willing to accept any price increases and do you see typically an increase more or less in one segment versus another.

Kenneth Krause: The incremental SG&A is only roughly 23% or so. You're seeing really good performance up and down the P&L from price costs, from productivity and it's paying off in both gross and SG&A. Thank you very much. Appreciate it.

Speaker #5: So so you're seeing really good performance up and down the PNL from price costs , from productivity , and it's paying off in both gross and G&A .

Okay.

I think when you look at pricing we are currently meeting right now.

<unk> been meeting for the last month or two internally looking at all of the data that we benefit from.

Speaker #7: Thank you very much . Appreciate it .

We feel like our pricing strategy is working.

Speaker #3: Thank you . Our next question comes from the line of Toni Kaplan with Morgan Stanley . Please proceed with your question .

Operator: Thank you. Our next question comes from the line of Tony Kaplan with Morgan Stanley. Please proceed with your question.

And we feel like it will continue to work as we head into 2026, and our focus we've said consistently it's consumer price inflation, plus so CPI, plus and Thats kind of what we're targeting and we're thinking about how as we go into next year.

Speaker #8: Hi . Good morning . This is Yehuda Silverman on for Toni Kaplan . Just had a question about how conversations with customers have been going regarding pricing heading into next year .

[Analyst]: Hi, good morning. This is Yehuda Silverman online for Tony Kaplan. Just had a question about how conversations with customers have been going regarding pricing heading into next year. Have some customers been more or less willing to accept any price increases, and do you see typically an increase more or less in one segment versus another?

Speaker #8: Have some customers been more or less willing to to accept any price increases ? And do you see typically an increase more or less in one segment versus another ?

And so this year, it's at 3% to 4% and we're evaluating that same sort of level as we go into next year, we're not ready to talk about exactly what level, but we feel like it will continue to be a contributor to margins as we think about 2026.

Speaker #8: Thanks .

Lyndsey Burton: Thanks.

Speaker #5: I think the you know , when you look at pricing , we are currently meeting right now , we're we're been meeting for the last month or two internally looking at all of the data that we benefit from .

Kenneth Krause: I think when you look at pricing, we are currently meeting right now. We've been meeting for the last month or two internally, looking at all of the data that we benefit from. We feel like our pricing strategy is working, and we feel like it will continue to work as we head into 2026. Our focus, we've said it consistently, is consumer price inflation plus, so CPI+, and that's kind of what we're targeting. We're thinking about how as we go into next year, and this year it's at 3% to 4%, and we're evaluating that same sort of level as we go into next year. We're not ready to talk about exactly what level, but we feel like it'll continue to be a contributor to margins as we think about 2026.

Got it and just a quick follow up on lead conversion.

Speaker #5: We feel like our pricing strategy is working and we feel like it will continue to to work as we head into 2026 . You know , our focus , we've said it consistently .

Curious, how youre focusing on targeting.

Younger demographic.

Our customer base and.

Just an update on if <unk> been able to convert leads into faster than a typical season or if it's.

Speaker #5: It's consumer price inflation plus . So CPI plus . And that's kind of what we're targeting . And we're we're thinking about how as we go into next year .

Garden items expected with this newer SaaS you brought on.

Yes, our lead closure is up.

So.

We're very very happy with the performance, whether it's on the residential side through the call Center.

Speaker #5: And so this year it's at 3 to 4% . And we're evaluating that same sort of level as we go into next year .

Speaker #5: We're not ready to to talk about exactly what level , but we feel like it'll continue to be a contributor to margins as we think about 2026 .

Creative leads those kinds of things so.

Testament to not only good sales processes.

<unk> everything that we invest in ramping up ramping up our new.

Speaker #8: Got it . And just a quick follow up on lead conversion . I was curious how you're focusing on targeting this younger , younger demographic of of customer base and just an update on if you've been able to convert leads faster than a typical season or if it's it's going as expected with this newer staff you've brought on ?

[Company Representative]: Got it.

[Analyst]: Just a quick follow up on lead conversion. I was curious how you're focusing on targeting this younger demographic of customer base, and an update on if you've been able to convert leads faster than a typical season or if it's going as expected with this newer staff you've brought on.

Our new teammates that we add we add to our brands.

But if you take a look at what Orkin does and the messaging the marketing where they place their ads the way those the way or.

Media look who are trying to appeal to as exactly that we're looking at how do we how do we how do we target the <unk>.

Speaker #5: Yeah , our lead closure is up . So we're very , very happy with the performance . Whether it's on the residential side through the call center , creative leads , those kinds of things .

Jerry Gahlhoff: Yeah, our lead closure is up, so we're very, very happy with the performance, whether it's on the residential side through the call center, creative leads, those kinds of things. It's a testament to not only good sales processes, the training, everything that we invest in, ramping up our new teammates that we add to our brands. If you take a look at what Orkin does and the messaging, the marketing, where they place their ads.

30, something year old, possibly first time homebuyer, maybe the maybe the maybe the second time homebuyer Thats in the 40 to 45 year range. So when you look at.

Speaker #5: So it's a testament to not only good sales processes , the training , everything that we invest in ramping up , ramping up our our new our new team teammates that we add , we add to our brands .

How we design our ads.

Messages that we are portraying in where we place those ads, whether it's orange tick tock, and Facebook and those kinds of things, we're 100% targeted towards towards those kinds of folks because we know that those are the folks that are buying homes.

Speaker #5: If you take a look at what Orkin does and the messaging , the marketing , where they place their ads , the the way , the the way our media look who we're trying to appeal to is exactly that .

And we'll need pest control in the future and.

Kenneth Krause: The way.

Jerry Gahlhoff: Our media look, who we're trying to appeal to is exactly that. We're looking at how do we target the 30-something year old, possibly first-time home buyer, maybe they're the second-time homebuyer that's in a 40 to 45 year range. When you look at how we design our ads, the messages that we are portraying, and where we place those ads, whether it's on TikTok and Facebook and those kinds of things, we're 100% targeted towards those kinds of folks, as we know that those are the folks that are buying homes and will need pest control in the future. Rather than doing it themselves, we know they're also the ones that want to use a professional. We hope to make sure that we're positioned to fulfill that need for them.

Rather than do it themselves. We know there are also the ones that want to use a professional so we hope to make sure that we're positioned to fulfill that need for them.

Speaker #5: We're we're looking at how do how do we how do we target the , the 30 something year old , possibly first time home buyer , maybe the maybe the maybe they're the second time home buyer .

Thank you.

Thank you.

Our next question comes from the line George Tong with Goldman Sachs. Please proceed with your question.

Speaker #5: That's in the 40 to 45 year range . So when you look at how we design our ads , the messages that we are portraying and where we place those ads , whether it's on , you , TikTok and Facebook and those kinds of things , we're 100% targeted towards towards those kinds of folks because we know that those are the folks that are buying homes and , and we'll we'll need pest control in the future .

Hi, Thanks, good morning.

As you look at exit rates in comps from the prior year can you discuss which segments have the most opportunity for organic growth acceleration in <unk> and what the primary drivers are.

Thanks for the question George This is Ken we feel good about our exit rate with respect to our business.

Speaker #5: And , and rather than doing it themselves , we know they're also the ones that want to use a professional . So we hope to make sure that we're positioned to fulfill that need for them .

We're reluctant to talk too much about Q4, just yet.

But what I would say is we feel really good about how we left in the quarter from two fronts, one backlog really good demand level, especially in some of the termite and ancillary business, but also in some of the other areas.

Speaker #8: Thank you .

Lyndsey Burton: Thank you.

Speaker #3: Thank you . Our next question comes from the line of George Tong with Goldman Sachs . Please proceed with your question .

Operator: Thank you. Our next question comes from the line of George Tong with Goldman Sachs. Please proceed with your question.

And then just general growth commented earlier around the recurring revenue in residential and we exited we exited Q3 very strongly there as well so all fronts feel really good about it as we start the fourth quarter.

Speaker #9: Hi . Thanks . Good morning . As you look at exit rates and comps from the prior year , can you discuss which segments have the most opportunity for organic growth acceleration in four ?

Kenneth Krause: Hi, thanks. Good morning.

Jerry Gahlhoff: As you look at exit rates and comps from the prior year, can you discuss which segments have the most opportunity for organic growth, acceleration in Q4?

Speaker #9: Q and what the primary drivers are?

Kenneth Krause: What the primary drivers are? Thanks for the question, George. This is Ken. We feel good about our exit rate with respect to our business. We're reluctant to talk too much about Q4 just yet, but what I would say is we feel really good about how we left the quarter from two fronts. One, backlog, really good demand level, especially in some of the termite and ancillary business, but also in some of the other areas, and then just general growth. I commented earlier around the recurring revenue in residential, and we exited Q3 very strongly there as well. All fronts feel really good about it as we start the fourth quarter and really excited as we think about all the opportunities we have ahead of us. Got it. That's helpful.

And really excited as we think about all the opportunities we have ahead of us.

Speaker #5: Thanks for the question , George . This is Ken . We feel good about our exit rate with respect to to our business .

Got it that's helpful. And then you mentioned several areas of the business has surprised to the upside in the quarter relative to expectations were there any parts of the business that perhaps surprised to the downside compared to what you were expecting heading into the quarter.

Speaker #5: We're reluctant to talk too much about Q4 . Just yet . But what I would say is , is we feel really good about how we left the quarter from two fronts .

Ladies and Ken I can't think of anything that.

Speaker #5: One backlog , really good demand level , especially in some of the termite and ancillary business , but also in some of some of the other areas .

It was just look at it.

Really great quarter.

Super proud of our team's performance I think they knocked it out of the park.

Speaker #5: And then just general growth . You know , I commented earlier around the recurring revenue in residential , and we exited . We exited Q3 very strongly there as well .

So all of that said, though there are still opportunities that we have to continuously improve and make things better.

So.

Speaker #5: So all fronts feel really good about it . As we start the fourth quarter and really excited as we think about all the opportunities we have ahead of us .

<unk>.

I wouldn't think there is any expense issues that that that where their fleet overall still contained.

To me a little bit of a tailwind when you factor in the vehicle game, but.

Speaker #9: Got it . That's helpful . And then you mentioned several areas of the business that surprised the upside in the quarter relative to expectations .

[Analyst]: You mentioned several areas of.

We're continuing to make some strides there.

Kenneth Krause: The business that surprised to the upside in.

Jerry Gahlhoff: The quarter relative to expectations.

So I feel really good George about the quarter.

Speaker #9: Were there any parts of the business that perhaps surprised the downside compared to what you were expecting heading into the quarter ?

[Analyst]: Were there any parts of the business that perhaps surprised to the downside compared to.

Jerry Gahlhoff: What you were expecting heading into the quarter? What do you think, Ken? I can't think of anything that we. It was a really great quarter. I'm super proud of our team's performance. I think they knocked it out of the park. All that said, though, there's still opportunities that we have to continuously improve and make things better.

For numbers I always point to here in the quarter was 712, 20, and 37% organic plus organic growth, 12% total growth, 20% earnings growth and 30% cash flow growth.

Speaker #5: What do you think , Ken ? I can't think of anything that that we you know , it was look , it was a really great quarter .

Speaker #5: I'm I'm super proud of our teams performance . I think they knocked it out of the park . So at all that said , though , there's still opportunities that we have to continuously improve and make better .

Really exceptional and not only do you see that type of growth, but we still see opportunities from a price cost perspective, we see opportunities on the SG&A front as we benchmark that and now you can't help but notice the tax rate and all the things that our tax team is doing it really driving improvements in our tax effective tax rate.

Speaker #5: So there I wouldn't think there was any expense issues that that that were there fleet overall still continued , continues to be a little bit of a tailwind when you factor in the vehicle gains .

Kenneth Krause: So.

Jerry Gahlhoff: I wouldn't think there was any expense issues that were there. Fleet overall still continues to be a little bit of a tailwind when you factor in the vehicle gains, but we're continuing to make some strides there.

Down 120, 130 basis points in the quarter, we're hopeful that we'll start to see that more long term and coming through and we think there's a plan. There. So so theres just a lot that we feel good about and Theres very little.

Speaker #5: But we you know , we're continuing to make some strides there . Yeah . So I feel really good . George , about the quarter for numbers .

Kenneth Krause: Yeah, no. I feel really good, George, about the Q4 numbers. I always point to here in the quarter: 7, 12, 20, and 37% organic plus organic growth, 12% total growth, 20% earnings growth, and 30% cash flow growth. Really exceptional. Not only do you see that type of growth, but we still see opportunities from a price-cost perspective. We see opportunities on the SG&A front as we benchmark that. You can't help but notice the tax rate, you know, and all the things that our tax team is doing, really driving improvements in our effective tax rate. It's down 120, 130 basis points in the quarter. We're hopeful that we'll start to see that more long term and coming through, and we think there's a plan there. There's just a lot that we feel good about and there's very little.

Jerry you talked about the headwind on fleet with respect to vehicle gaze, we feel like that's transitory, it's temporary where we're not seeing that impact our business longer term. So we feel good about about where we sit exiting Q3.

Speaker #5: I always point to here in the quarter seven 12 , 20 and 37% organic plus organic growth , 12% total growth , 20% earnings growth and 30% cash flow growth .

Speaker #5: Really exceptional. And not only do you see those types of growth, but we still see opportunities from a price cost perspective.

Very helpful. Thank you.

Thank you.

Speaker #5: We see opportunities on the front as we've benchmarked that . And now you can't help but notice the tax rate . You know , and all the things that our tax team is doing .

Our next question comes from the line of Tomo Channel with Jpmorgan. Please proceed with your question.

Hello, everyone.

Speaker #5: It really driving improvements in our tax effective tax rate . You know it's down 100 2130 basis points in the quarter . We're hopeful that we'll start to see that more long term .

Hello.

Thank you. Thank you. Thank you for taking my questions could you provide an update on the current competitive landscape in the pest control industry. How have your modernization in April to help to differentiate it rolled in from competitors and why.

Speaker #5: And coming through . And we think there's a plan there . So so there's just a lot that we feel good about . And there's very little you know , Jerry talked about the headwind on fleet with respect to vehicle gains .

Are your expectations for DSD initiatives, and maintaining or expanding your market.

Kenneth Krause: Jerry talked about the headwind on fleet with respect to vehicle gains. We feel like that's transitory, it's temporary. We're not seeing that impact our business longer term. We feel good about where we sit exiting Q3. Very helpful.

Speaker #5: We feel like that's transitory . It's temporary . We're not seeing that impact our business longer term . So we feel good about about where we sit exiting Q3 .

Going forward please.

So this is Jerry.

We've got a very healthy competitive landscape and I wouldn't say anything has changed materially in that regard over the last couple of years, we still have.

Speaker #9: Very helpful . Thank you .

[Analyst]: Thank you.

Speaker #3: Thank you . Our next question comes from the line of Thomas Sarno with J.P. Morgan . Please proceed with your question .

Operator: Thank you. Our next question comes from the line of Tomo Sano with JP Morgan. Please proceed with your question.

Large or larger regional competitors that.

Speaker #10: Hello , everyone .

Kenneth Krause: Hello everyone.

That do a fantastic job and make us all better.

Speaker #5: Hello . Hello .

Operator: Hello.

Speaker #10: Thank you . Thank you for taking my questions . Could you provide an update on the current competitive landscape pest control industry ? How have your modernization efforts helped the differentiate it ?

Kenneth Krause: Thank you. Thank you for taking my questions. Could you provide an update on the current competitive landscape in the pest control industry? How have your modernization efforts helped to differentiate Rollins from competitors, and what are your expectations for these initiatives in maintaining or expanding your market position going forward?

<unk>.

As well as local call mom and Pops, where there is lots of them and are in a.

Speaker #10: Rollins from competitors ? And what are your expectations for these initiatives and maintaining or expanding your market position going forward ? Please .

A really healthy industry. So not much there has changed where we are continually trying to take share.

Our approach is to do that through our multi multiple brands multiple bites at the Apple lots of different ways to acquire new customers, whether it's home team acquiring through the builder channel or.

Speaker #5: So this is Jerry . You know , we've got a very healthy , competitive landscape . And I wouldn't say anything has changed materially in that regard over the last couple of years .

Jerry Gahlhoff: This is Jerry. We've got a very healthy competitive landscape, and I wouldn't say anything has changed materially in that regard over the last couple years. We still have large regional competitors that do a fantastic job and make us all better, as well as local, call them mom and pops, where there's lots of them in this really healthy industry. Not much there has changed. We are continually trying to take share. Our approach is to do that through our multiple brands, multiple bites at the apple, lots of different ways to acquire new customers, whether it's HomeTeam Pest Defense acquiring through the builder channel or Fox Pest Control heavy in door to door or Orkin.

Fox heavy in door to door or Oregon.

Speaker #5: We still have large , large regional competitors that that do a fantastic job . And in the make us all better . And as well as local , call a mom and pops where there's lots of them in our in this really healthy industry .

There the brand the power of their brand name and doing a performance marketing to supplement that so we have those strategies for ensuring that we continue to grow our business units and I think that's reflected in our numbers at the end of the day.

You see the power of our brands you see the power of our business model, what we're able to do.

To me it speaks for itself.

Speaker #5: So not much there has changed . We're we're we're continually trying to take share . We are approach is to do that through our multi multiple brands .

Ken I would agree as a first world last week and it's an honor to represent the company in that setting because I really do feel we have a great competitive landscape and competitors said, it's great to interact with all of the various competitors that we have out there, but it's great also to be a leader in growth and really helping set the tone.

Speaker #5: Multiple bites at the Apple . Lots of different ways to acquire a new customers . Whether it's home team acquiring through the builder channel or or a Fox heavy and door to door or or and they're they're brand the power of their brand name and doing performance marketing to supplement that .

And all the teammates we have around around our business.

Operator: And.

Jerry Gahlhoff: The power of their brand name and doing performance marketing to supplement that. We have those strategies for ensuring that we continue to grow our business units, and I think that's reflected in our numbers. At the end of the day, you see the power of our brands, you see the power of our business model.

We feel great about I feel great about our position and excited to be a part of this team.

Speaker #5: So we have those strategies for ensuring that we continue to grow our business. I think that's reflected in our numbers. At the end of the day, you see the power of our brands.

Thank you, Jamie and again congrats on the quarter.

Thank you.

Thank you.

Our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.

Kenneth Krause: What we're able to do.

Jerry Gahlhoff: To me, it speaks for itself.

Hi, good morning, and nice results guys.

Kenneth Krause: Ken, I would agree. I was at Pest World last week and it's an honor to represent the company in that setting because I really do feel we have a great competitive landscape and competitor set. It's great to interact with all of the various competitors that we have out there. It's great also to be a leader in growth and really helping set the tone and all the teammates we have around our business. I feel great about it. I feel great about our position and excited to be a part of this team. Thank you. Jerry and Ken, congrats on the quarter.

Wanted to dig into the cash flow.

The accelerating growth is rather impressive, but I was hoping you could just unpack the drivers to that improvement and are those drivers sustainable.

Yes, Thanks for the question Peter It's Ken.

When we look at the growth in free cash flow I think it's around 24% year to date.

There are some benefits there and when you look at the cash paid for taxes for example.

It's down about 2000 $22 million.

If you set that aside we still are growing cash flow and it's compounding at roughly 18%.

[Analyst]: Thank you.

Operator: Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.

What we're seeing there is a better focus on receivables.

Receivables arent growing nearly as fast as maybe they were a year ago.

Kenneth Krause: Hi, good morning and nice results, guys. I wanted to dig into the cash flow which the accelerating growth is rather impressive and I was hoping you could just unpack the drivers to that improvement and are those drivers sustainable? Thanks for the question, Peter. It's Ken. When we look at the growth in free cash flow, I think it's around 24% year to date. There are some benefits there and when you look at the cash paid for taxes, for example, that's down about $20 million, $22 million. If you set that aside, we still are growing cash flow and it's compounding at roughly 18% what we're seeing. There is a better focus on receivables. Receivables aren't growing nearly as fast as maybe they were a year ago. As a result, that's certainly having some benefit in the portfolio and the cash flow results.

And so as a result that certainly had some benefit in the in the in the portfolio and the cash flow results. We feel though we certainly feel like a mid teens sort of growth and cash flow and compounding cash flow.

Is not out of question I'm not out of the question.

<unk> to do more around that but that level of growth is is I think sustainable it gives us the opportunity to continue to invest in our business grow the dividend participate in share repurchase from time to time.

And and grow the business.

Okay very good and then.

I wanted to follow up on an earlier question regarding the incremental margin.

So it was quite impressive in Q3, particularly with the quantification that.

31% when you adjust for the claims so it seems like you've had a step up as you move past the growth investments from the last 12 months I guess.

Kenneth Krause: We feel though we certainly feel like a mid teens sort of growth in cash flow and compounding cash flow is not out of question, not out of the question. Continuing to do more around that. That level of growth is I think sustainable.

At the heart of my question is you've kind of guided for a range of 25% to 30 and you're stair stepped up above 30 is this something that you think is now sustainable.

Sustainable for at least the foreseeable future.

I think when you post a 35% number it validates what the business can do.

Jerry Gahlhoff: It gives us the opportunity to continue.

Kenneth Krause: To invest in our business, grow the dividend, participate in share repurchase from time to time, and grow the business. Okay, very good. I wanted to follow up on an earlier question regarding the incremental margin. It was quite impressive in Q3, particularly with the quantification that it was 31% when you adjust for the claims. It seems like you've had a step up as you've moved past the growth investments from the last 12 months. I guess the heart of my question is you've kind of got it for a range of 25% to 30% and you've stair stepped up above 30%. Is this something that you think is now sustainable for at least the foreseeable future? I think when you're post the 35% number it validates what the business can do. I don't know that the business is going to do that every quarter.

I don't know that the business is going to do that every quarter, we're going to make investments for growth business and our focus is growing double digit revenue and growing double digit earnings converting that into compounding cash flow at the pace I just mentioned and so so youre going to see that jump around from time to time.

But we do certainly focus on expanding margins. This year, we've talked about 25% to 30% incremental margin targets for the year were approaching that year to date and so as we go through the fourth quarter will continue to evaluate that but we feel good about where our current level of incremental margins are.

Okay very helpful. Thanks, so much.

Thank you.

Our next question comes from the line of Jason Hahn with Wells Fargo. Please proceed with your question.

Kenneth Krause: We're going to make investments. We're a growth business and our focus is growing double digit revenue and growing double digit earnings. Converting that into compounding cash flow at the pace I just mentioned and you're going to see that jump around from time to time. We do certainly focus on expanding margins this year. We've talked about 25% to 30% incremental margin targets for the year. We're approaching that year to date. As we go through the fourth quarter, we'll continue to evaluate that. We feel good about where our current level of incremental margins are. Okay, very helpful. Thanks so much.

Hi, guys. This is <unk> on for Jason time, maybe.

Maybe you can talk about the strength in termite and ancillary you saw a bit of an acceleration there on an organic basis and it was on a tougher comp as well. So curious if there's anything driving that momentum what the sales environment is like and if that momentum is sustainable. Thank you.

Okay.

This is Jerry.

No.

I think thats.

The performance that we continue to see and termite and ancillary is also a sign that the residential consumers healthy and they're willing to buy and spend for these types of essential services.

And they are both preventative services as well as <unk>.

Operator: Thank you. Our next question comes from the line of Jason Haas with Wells Fargo. Please proceed with your question.

Oftentimes termite as preventative some maybe exclusion workers preventative and sometimes it's also a remedial treatments that needed to be done. So that continues to go well again those are investments, we make and in people adding people.

[Analyst]: Hi guys, this is Jun Yi on for Jason Haas. Maybe we can talk about the strength in termite and ancillary. You saw a bit of an acceleration there on an organic basis, and it was on a tougher comp as well. Curious if there's anything driving that momentum, what the sales environment is like, and if that momentum is sustainable. Thank you.

And.

Sure.

Cross selling to our existing customer base is one of the least expensive.

Kenneth Krause: This is Jerry.

Jerry Gahlhoff: I think that's the performance that we continue to see in termite. Ancillary is also a sign that the residential consumer is healthy and they're willing to buy and spend for these types of essential services. They're both preventative services as well as oftentimes termite is preventative, some maybe exclusion work is preventative and sometimes it's also remedial treatments that need to be done. That continues to go well. Those investments we make in people, adding people and cross selling to our existing customer base is one of the least expensive, if you call it lead gen opportunities that you have, is cross selling to your existing customers. We know that when they have more than one service with us, they're stickier and they're more loyal to the brand. It's just such a wonderful business model, great opportunity.

We call it lead Gen offer opportunities that you have as cross selling to your existing customers.

No that when they have more than more than one service with us.

They're stickier.

They're more more loyal to the brand. So it's just such a wonderful business model with great opportunity and when we look at.

Allocating capital to grow our business, that's an area that makes all the sense in the world to keep driving.

Great and you guys lapped over some vehicle sale gain this quarter, which you guys called out with the peak headwind in <unk> and that should alleviate a bit and for it to so assuming insurance and claims holdup.

Maybe exclusion work is preventive and sometimes it's also remedial treatments that need to be done. So that continues to go. Well the again those Investments we make in uh, in people adding people and, um,

We see similar if not stronger margin expansion in <unk> or is that not how we should think about it.

Yeah, it's hard to it's hard to say, we are going to see stronger margin expansion in Q4 than 35, plus or so percent incremental margins our focus is to improve margins.

Going to your existing customers. Uh we know that when they have more than more than 1 service with us.

We will continue to focus on that as we go forward.

We still see a little bit of vehicle gains coming through the P&L in Q4, maybe not at the same level as Q3, but we certainly still see some of that headwind in the P&L, but the focus is growing revenue as I said earlier double digit revenue double digit earnings growth and so so that's the focus as we think about this business and.

Jerry Gahlhoff: When we look at allocating capital to grow our business, that's an area that makes all the sense in the.

Kenneth Krause: World to keep driving.

Uh, they're stickier. Uh and they're, they're more more loyal to the brand. So it's just such a wonderful business model, great opportunity. And when we look at uh, allocating and capital to to grow our business, that's an area that makes all the sense in the world to keep driving.

[Analyst]: Great. You guys lapped over some vehicle sale gains this quarter, which you called out would be a peak headwind in Q3 and that should alleviate a bit in Q4. Assuming insurance and claims hold up, could we see similar, if not stronger, margin expansion in Q4 or is that not how we should think about it?

We also are we also do feel like the price that we're charging is providing the opportunity to get some leverage to the P&L and just remember this is a short cycle business, especially on the residential side alright that commercial side is a little less vulnerable to that but when you look at.

Kenneth Krause: Yeah, it's hard to say we're going to see stronger margin expansion in Q4 than 35% plus or so incremental margins. Our focus is to improve margins. We'll continue to focus on that as we go forward. We still see a little bit of vehicle gains coming through the P&L in Q4, maybe not at the same level as Q3, but we certainly still see some of that headwind in the P&L. The focus is growing revenue, as I said earlier, double-digit revenue, double-digit earnings growth. That's the focus as we think about this business. We also do feel like the price that we're charging is providing the opportunity to get some leverage through the P&L. Just remember this is a short.

Great. And you guys lapped over some vehicle sale. Gains this quarter, would you guys call that would be a peak headwind in 3Q and that should alleviate a bit in 4 q. So assuming insurance and claims hold up, could we see similar if not stronger margin expansion, in 4 q or is that not how we should think about it?

Other impacts early storms hurricanes all of those kinds of things can affect.

Our business in the short cycle, usually it doesn't affect it for a long term usually there is a recovery.

Thing.

We tend to recover quickly.

From those types of events you just never know what can happen so.

I want to temper.

Temper any any of your thoughts because you just we just never know what can happen, especially this time of year, while you're still in hurricane season.

Got it thank you.

Thank you.

Our next question comes from the line of Stephanie more with Jefferies. Please proceed with your question.

Jerry Gahlhoff: Cycle business, especially on the residential side.

Kenneth Krause: All right.

Jerry Gahlhoff: That commercial side is a little less vulnerable to that. When you look at, you know, weather impacts, early storms, hurricanes, all those kinds of things can affect our business in the short cycle. Usually it doesn't affect it for a long term. Usually there's a recovery and we tend to recover quickly from those types of events. You just never know what can happen. I want to temper any of your thoughts because we just never know what can happen, especially this time of year while you're still in hurricane season.

Yeah, it's hard to. It's hard to say. We're going to see stronger margin expansion in Q4 than 35 Plus or so percent incremental margins. Uh, our focus is to improve margins. Uh, you know, we'll continue to focus on that as we go forward. Uh, we still see a little bit of vehicle gains coming through the p&l and Q4, maybe not at the same level as Q3, but we certainly still see some of that headwind in, in the p&l. Uh, but the focus is growing Revenue. As I said earlier, double digit, Revenue, double-digit earnings growth, and so, uh, so that's the focus as we think about this business. And and you know, we also are, are we also do feel like the the price that we're we're charging is is providing the opportunity to get some leverage to the, you know. And just remember, this is a short cycle business especially on the residential side. All right? That

Hi, good morning, Thank you.

Good morning.

Great. Good morning, I wanted to touch on the M&A pipeline.

Raul environment. Thank you.

Talk a little bit about your current pipeline and expectations kind of at the end and 2025 and enter 2026, but also maybe you could just touch on maybe the competitiveness competitiveness of the M&A environment.

That commercial side is a little less vulnerable to that. But when you look at, you know, whether impacts early storms hurricanes, all those kinds of things can affect affect our business in the short cycle. Usually, it doesn't affect it for a long term. Usually there's a recovery and, uh, thing. And we, we, we tend to recover quickly,

Especially as you look at yes, I think there's some opportunities whether its door to door and some other interesting aspects to the end.

History that a bit burns and if you're seeing any increased competition with them.

Um, those types of events, you just never know what can happen. So, you know, I I want to uh, temper any uh, any of your thoughts because you just, we just never know what can happen. Especially at this time of year while you're still in hurricane season.

[Analyst]: Got it.

Operator: Thank you. Thank you. Our next question comes from the line of Stephanie Moore with Jefferies. Please proceed with your question.

Certain aspects.

Got it. Thank you.

So as evidenced by our performance in the third quarter.

We closed seven deals in the third quarter, Ken and Thats following sailor usually.

Thank you. Our next question comes from the line of Stephanie Moore with Jeffrey's please proceed with your question.

Lyndsey Burton: Hi, good morning.

[Company Representative]: Thank you.

Lyndsey Burton: Great. Good morning. I wanted to touch on the M&A pipeline and overall environment.

Hi, good morning. Thank you.

We we.

We slow down a little bit after a large deal we actually didn't.

I think Thats a testament that the pipeline is still strong there's still opportunities out there.

[Company Representative]: If you could talk a little bit.

Lyndsey Burton: About your current pipeline and expectations kind of to end 2025 and into 2026. Also, if you could just touch on maybe the competitiveness of the M&A environment, especially as you look at, I think there's, within pest, some opportunities, whether.

Certainly there are more entrants into the market space and more people interested in that.

Which is fine and we've always had a number of competitors out there.

Looking for similar opportunities as we are.

[Company Representative]: It's door to door and some other.

Lyndsey Burton: Interesting aspects to the industry that have emerged, and if you're seeing any increased competition within some of those certain aspects. Thanks.

But keep in mind, what sort of 19000 pest control companies in North America. So there is still a lot out there is still a lot of opportunity to continue both on the on the tuck in side as well as the platform side. So.

Great, good morning. I wanted to touch on the m&a pipeline and in in overall environment, if you could talk a little bit about your current Pipeline and, you know, expectations kind of to end, end 2025 and, and into 2026. But also, if you could just touch on maybe the competitive competitiveness of the m&a environment. Um, especially as you look at, you know, I think there's, you know, within past some some opportunities, whether it's door to door and some other interesting aspects to to the industry that have emerged. And if you're seeing any increase competition within some of the certain aspects,

Jerry Gahlhoff: As evidenced by our performance in the third quarter, we closed, was it seven deals in the third quarter, Ken, and that's following Saela. Usually we slow down a little bit after a large deal. We actually didn't. I think that's a testament that the pipeline is still strong. There's still opportunities out there. Certainly there are more PE entrants into the market space and more people interested in that, which is fine. We've always had a number of competitors out there looking for similar opportunities as we are. Keep in mind, what's there, 19,000 pest control companies in North America. There's still a lot out there. It's still a lot of opportunity to continue both on the tuck-in side as well as the platform side. We see lots of opportunities out there.

Lots of opportunities out there we also recognize that as we grow.

We've talked about how do we continue to get 2% to 3% of.

Revenue.

From M&A.

And that means as we grow we're going to have to build some capacity to do more deals over time. So we're working on our own infrastructure. So that we can.

We can process deals do pro forma quickly analyze them choose the best ones that are the best fit for us and go into our portfolio well. So that's an investment that we've been making in our business over the last 12 months and are going to continue to do so to build that capacity. So that we are even more competitive.

In that space as we grow and what I would add Stephanie as we've talked about a number of times. It is competitive, but it's an incredibly attractive market in space.

Jerry Gahlhoff: We also recognize that as we grow, we talk about how do we continue to get 2 to 3% of revenue from M&A. That means as we grow, we're going to have to build some capacity to do more deals over time. We're working on our own infrastructure so that we can process deals, do performance quickly, analyze them, choose the best ones that are the best fit for us, and go into our portfolio. That's an investment that we've been making in our business over the last 12 months and are going to continue to do so to build that capacity so that we're even more competitive in that space as we grow.

So uh as evidenced by our performance in the third quarter and that you know we we close. What was it? 7 deals in the third quarter can and that's following sailor. Usually we uh we we slow down a little bit after a large deal, we actually didn't so that I I think that the Testament that the pipeline is still strong is there's still opportunities out there. Um, certainly there are more PE entrance into the market space and and more people interested in that, uh, which is fine. And, uh, we've always had a number of competitors out there, uh, looking for the, for similar opportunities as we are. Uh, but I, you know, keep in mind. What what's their 19,000 pest control, companies in North America. So there there's still a lot out there. It's still a lot of opportunity to continue both on the, on the tuck-in side as well as the, the platform side. So, uh, we see lots of opportunities out there. We, we also recognize that as we grow

But what we enjoy is.

As being the acquirer of choice oftentimes because.

you know, we talked about how do we continue to get 2 to 3% of

Our willingness to pay a fair price, but also take care of the employees and the teammates we're acquiring the brands we're acquiring.

And so that's a really important part of the equation and has helped us compete in.

Revenue uh, from m&a. And that means as we grow we we're going to have to build some capacity to do more deals over time. So we're working on our own infrastructure so that we can um,

<unk> successfully closed the number of the deals that we've closed so far and expect to close going forward recent deals with Fox in Salar are perfect. Examples of continuing to build our reputation as an acquirer of choice exactly right.

I just had one thank you that's very helpful. I had one question when it comes to just overall investments in customer acquisition.

Kenneth Krause: What I would add, Stephanie, as we've talked about a number of times, it is competitive. It's an incredibly attractive market and space. What we enjoy is being the acquirer of choice, oftentimes because of our willingness to pay a fair price, but also to take care of the employees and the teammates we're acquiring, the brands we're acquiring. That's a really important part of the equation and has helped us compete and successfully close the number of the deals that we've closed so far and expect to close going forward.

<unk> one of the marketing expenses.

One aspect that I know utilized would be.

Search engine optimization, and I think just the obvious kind of being at the top of the list. When it comes to within search engine have you seen any impact to your business just from some of the AI initiatives, where you're starting to see AI kind of takeover takeover in the search engine optimization and thing left.

Or maybe less.

Jerry Gahlhoff: Recent deals with Fox Pest Control and Saela Pest Control are perfect examples of continuing to build our reputation as an acquirer of choice. Exactly.

Version within those search engine optimization I.

I don't know if that was clear or not yes, no no.

It's a common question that we get especially our market marketing teams get and for sure. It has caused some disruption in that space earlier this year.

For acquiring the brands were acquiring. Um, and and and so that's a really important part of the equation and has helped us compete and, uh, successfully closed the number of the bills that we've closed, uh, so far and and expect to close going forward, a recent deals with with Fox and sailor are perfect examples of continuing to build our our reputation as an acquire, a choice. Exactly. That's right.

Lyndsey Burton: Thank you. That's very helpful. I had one question. When it comes to overall investments and customer acquisitions, various forms of marketing expenses, one aspect that I know gets utilized would be search engine optimization. I think just the obvious, kind of being at the top of the list when it comes to within search engines. Have you seen any impact to your business just from some of this AI initiatives where you're starting to see AI kind of take over in the search engine optimization and seeing less clicks or maybe less conversion within the search engine optimization? I don't know if that was clear or not.

We saw that shift to impact more but as I mentioned earlier, we talk about close rates being higher.

Those rates are higher because we are actually getting higher quality leads fewer window shoppers coming in looking around.

Shopping things like that so our close rate is gone.

<unk> actually improved our marketing team continues to make adjustments for the AI side.

And whether it's Google's AI agent and those kinds of things, we're continuing to make adjustments to that.

We can.

I just had 1. Thank you. That's very helpful. I had 1 question when it comes to just overall Investments and and customer Acquisitions, you know, various forms of marketing expenses. Um, you know, 1 aspect that I know gets utilized would be, um, search engine optimization and, you know, I think just the obvious, you know, kind of being at the top of the list when it comes to, you know, within, you know, search engines, have you seen any impact to your business? Just from, you know, some of this AI initiatives where you're starting to see AI kind of take over take over in the search engine optimization, and seeing less clicks or maybe less, um, conversion, uh, within those search engine optimizations,

Hopefully capitalize on those things.

Kenneth Krause: Yep.

Jerry Gahlhoff: No, we know it's a common question that we get, especially our marketing teams get. It has caused some disruption in that space early this year. We saw that shift of impact more. As I mentioned earlier, we talked about close rates being higher. Close rates are higher because we're actually getting higher quality leads, fewer window shoppers coming in, looking around, price shopping, things like that. Our close rate has actually improved. Our marketing team continues to make adjustments for the AI side and whether it's Google's AI agent, those kinds of things. We're continuing to make adjustments so that we can hopefully capitalize on those things. Every once in a while the game changes there and we're amidst another one of those game changers where we're having to make adjustments.

Once in a while the game changes there and we're in the midst of another one of those game changers, where we're having to.

Make adjustments, but also keep in mind that.

It still goes back to where we don't we don't ever want all our eggs in the performance marketing basket.

Our <unk>.

<unk> differentiated.

Kind of broad based.

I don't know if that was clear or not. Yeah, no, we know it's a common question that that we get, especially our Market marketing teams, get and sure it has caused some disruption in that space early this year. Um, you know, we, we saw that that shift of impact more, uh, but I, as I mentioned earlier, we talked about close rates being higher, uh, close rates are higher because we're actually getting higher.

Methods of acquiring customers means that we don't have to be beholden, just to Google or just.

Some some search.

Only that we can acquire customers and allocate dollars to.

Different to different strains of generating new customer growth, whether thats as I mentioned in termite and ancillary cross selling are devoting resources more to commercial.

Quality leads to a window Shoppers coming in looking around uh Price shopping, things like that. So, our close rate is gone. It has has actually improved our marketing team continues to make adjustments for for the AI side. Um, and and whether it's, you know, Google's AI agent, those kinds of things, we're continuing to make

Adjustments. So that, um,

So we're looking at all of those opportunities and deciding where it makes sense for us to allocate or allocate our marketing dollars across the business and where we can get the biggest bang for our Buck in that regard Jerry I think that's the most important part of this businesses. The diversification we have in the brands and the ability.

we can you know hopefully capitalize on those things every once in a while the game changes there and we're in a midst of another 1 of those game changers where we're having to, um,

Jerry Gahlhoff: Also keep in mind that it still goes back to we don't ever want all our eggs in a performance marketing basket. Our differentiated kind of broad-based methods of acquiring customers means that we don't have to be beholden just to Google or just to some search, only that we can acquire customers and allocate dollars to different streams of generating new customer growth, whether that's, as I mentioned, termin ancillary cross selling or devoting resources more to commercial. We're looking at all those opportunities and deciding where it makes sense for us to allocate our marketing dollars across the board business and where we can get the biggest bang for our buck in that regard.

Make adjustments, but also keep in mind that uh, it still goes back to where we don't, we don't ever want all our eggs in a Performance Marketing basket. Our our, our

<unk> to acquire customers.

Especially in an era that we're in with the changing dynamics around AI and technology.

To be able to have been able to pivot into different areas is certainly paying off in driving significant results for our business.

differentiated, uh, kind of broad-based methods of acquiring customers means that we don't have to be beholden just to Google or just to, you know, some some search

Super interesting. Thank you guys appreciate it.

Thanks.

Thank you.

Our next question comes from the line of Brian <unk> with Canaccord Genuity. Please proceed with your question.

Good morning. This is Madison counted on for Brian Thanks for taking our questions.

A large competitor.

Kenneth Krause: Jerry, I think that's the most important part of this business, the diversification we have in the brands and the ability to acquire customers. Especially in an era that we're in with the changing dynamics around AI and technology, to be able to pivot into different areas is certainly paying off and driving significant results for our business.

A large competitor of yours in North America appears to be finally financing strategy.

Uh, only that we can acquire customers and, and allocate dollars uh, to different uh, to different streams of generating. New customer growth. Whether that's as I mentioned, in termine, ancillary cross-selling, or or devoting resources more to commercial. Uh, so we we're looking at all those opportunities and deciding where it makes sense for us to allocate, our allocate, our marketing dollars across the business and where we can get the, the biggest, uh, bang for our buck in that regard. So I think that's the most important.

But their volumes remain negative.

Same time this is a small gap we've seen in terms of your relative outperformance in a while.

I know an earlier question you mentioned the.

Competitive intensity in North America.

This change anything Youre doing.

Mr. Survival has legs. So would you expect to lose share in that scenario. Thanks.

Part of this business is the diversification, we have in the brand and the ability to acquire customers, um, especially in an era that we're in, with the changing Dynamics around Ai and Technology, um, to be able to have able to Pivot into different areas. It's certainly paying off and driving significant results for for our business.

Lyndsey Burton: Super interesting. Thank you, guys.

<unk>.

[Company Representative]: Appreciate it.

We feel really good about our business.

Kenneth Krause: Thanks.

Super interesting. Thank you, guys. I appreciate it.

Thanks.

Operator: Thank you. Our next question comes from the line of Brian McNamara with Canaccord Genuity. Please proceed with your question.

We are delivering.

Excess of 7% organic revenue growth, that's not changing in fact, it's getting better.

In Q3, our commercials up termite and ancillary is up.

Thank you. All right, next question comes from the line of Brian mcnamera with Kord genuity please proceed with your question.

Lyndsey Burton: Good morning, this is Madison Callanan on for Brian. Thanks for taking our question. A large competitor of yours in North America appears to be finally finding footing with a new strategy, but their volumes remain negative. At the same time, this is the smallest gap we've seen in terms of your relative outperformance in a while. I know an earlier question mentioned the current competitive intensity in North America, but does this change anything you're doing? If this revival has legs, who would you expect to lose share in that scenario?

<unk> hanging in there.

So we feel really good about our position we enjoy.

A very favorable position across the landscape, we don't see any shifts.

And share impacting us and we're focused on executing our strategy, which has worked for the last two or three decades.

We are internally focused on what we do how we do it how we go to market.

And.

I would.

And this has been true for Rollins for many many years. So we're not reactive to what one competitor does much less a whole bunch of them. So.

Kenneth Krause: Thanks.

Good morning. This is Madison counting on for Brian. Thanks for taking our questions. Um, a large competitor. Good morning, a large competitor of yours in North, America appears to be finally finding its setting with a new strategy, um, but their volumes remain negative at the same time, this is a small Gap. We've seen in terms of your relative outperformance in a while. Uh I know an earlier question mentioned the current competitive intensity in North America. But does this change anything you're doing uh is this revival has legs? Who would you expect to lose? Share in that scenario? Thanks.

Jerry Gahlhoff: We feel really good about our business.

Kenneth Krause: We are delivering in excess of 7% organic revenue growth. It's not changing. In fact, it's getting better in Q3. Commercial is up, termite and ancillary is up, and residential is hanging in there.

We have a very experienced management team in the field.

That know this industry know this market than we are.

They are empowered to run the business the way we know how.

Jerry Gahlhoff: We feel really good about our position.

Kenneth Krause: We enjoy a very favorable position across the landscape. We don't see any shifts in share impacting us, and we're focused on executing our strategy, which has worked for the last two or three decades.

Alright, thank you.

Yeah.

Thank you.

Our next question comes from the line.

Josh Chan with UBS. Please proceed with your question.

Jerry Gahlhoff: We are internally focused on what we do, how we do it, how we go to market. This has been true for Rollins for many, many years. We're not reactive to what one competitor does, much less a whole bunch of them. We have a very experienced management team in the field that know this industry, know this market, and they're empowered to run the business.

Hi, Good morning. This is <unk> on for Josh Thanks for taking our questions.

Can you just touch a little bit on maybe what you're seeing on the cost inflation side. What are you seeing just across the board with equipment.

Equipment, but especially <unk> and <unk>.

Any thoughts on expectations for 2026.

Yes, we're not seeing any really significant changes with inflation on materials and supplies.

People or other cost inputs.

Kenneth Krause: Way we know how.

I would and this has been true for Rollins for many, many years. We're not reactive to what 1 competitor does much less. Uh, a whole bunch of them. So um you know we have a very experienced management team in the field uh that that know this industry know this market and we are uh they're empowered to to run the business. The way we know how

Our 3% to 4% pricing is paying off our CPI plus focus is paying off we're getting leverage through the P&L.

Lyndsey Burton: Great. Thank you.

Great. Thank you.

Operator: Thank you. Our next question comes from the line of Josh Chan with UBS. Please proceed with your question.

And so it's not it's not as big of an issue as maybe it was a year or two ago and we're seeing if anything you see youre seeing inflation moderate slightly here across the economy and kind of what you saw most recently in some of the the fed statements that were made around inflation and so we continue to see a 3% to 4% price we can.

Thank you.

All right. Next question comes from the line of Josh Chan with EBS, please proceed with your question.

[Analyst]: Hi, good morning, this is Aaron Sonano on Free. Josh, thanks for taking our question. Can you just touch a little bit on maybe what you're seeing on the cost inflation side, what you're seeing just across the board with material and equipment, especially with labor. Any thoughts and expectations for 2026 as well?

Hi, good morning. This is turns na on free. Josh. Um, thanks for taking a question.

Continue to expect to get margin improvement.

Only thing that's the hardest for us to control is likely fleet right, if gas prices move up or down or next year, the price of a vehicle or something like that or something changes at the auction markets or vehicles other than that things appear to be relatively stable.

Kenneth Krause: Yeah, we're not seeing any really significant changes with inflation on materials and supplies, people, or other cost inputs. Our 3% to 4% pricing is paying off. Our CPI+ focus is paying off. We're getting leverage through the P&L, and it's not as big of an issue as maybe it was a year or two ago. We're seeing, if anything, inflation moderate slightly here across the economy. That's kind of what you saw most recently in some of the Fed statements that were made around inflation. We continue to see at 3% to 4% price, we continue to expect to get margin improvement.

Uh, can can you just touch a little bit on maybe what? He's seeing in the cost inflation site? What you seeing just across the board with material and Equipment but especially with labor and any thoughts and expectations for 2026 as well?

Got it that's helpful and maybe as my follow up.

I think you kind of pointed to this in one of your previous answers, but just curious on your plans for sales and marketing investment going into Q4.

26%.

Yeah, we're not seeing any really significant changes with inflation on materials and supplies, uh, people or or other uh, cost inputs. Um, our 3 to 4% pricing is paying off, our CPI, plus focus is paying off or getting leverage through the p&l. Um, and, uh, and, and so it's not, it's not as big of an issue, as maybe it was a year or 2 ago. And, and we're seeing, you know, if anything, you see you're seeing inflation moderate flow,

I know that you've generated around like 10 basis points of deleverage for two consecutive quarters now.

Just wondering if.

More room for that region with that going forward.

I think your question was around marketing investments and selling investments and leverage there.

Jerry Gahlhoff: The only thing that's the hardest for us to control is likely fleet, right. If gas prices move up or down or next year, the price of a vehicle or something like that or something changes at the auction market for vehicles, other than that things appear to be relatively stable.

Heard you correctly.

But I think what we're seeing is we're seeing leverage in across the portfolio with some of those investments we made in the past.

Going to continue to evaluate making additional investments were again as I said earlier, we're in a growth market, we're seeing great growth getting high single digit sort of growth organically on a constant currency basis is really hard to come by for a lot of folks, but we're we're continuing to execute in a market, where we can get that kind of growth and so.

Slightly here across the economy. And that's kind of what you saw most recently in some of the the FED uh statements that were that were made around inflation. And so so we continue to see at 3 to 4% price, we continue to to expect to get margin Improvement. And the, the only thing that's the hardest for us to control is likely Fleet, right? If gas prices move up or down, or, uh, next year, the, the price of a vehicle or something like that, or something changes at the auction markets for vehicles. But other than that, things appear to be relatively stable.

[Analyst]: Got it.

Kenneth Krause: That's helpful.

[Analyst]: Maybe as my follow up, I think you kind of alluded to this in one of your previous answers. I am just curious on your plans for sales and market investment going into Q4 and in 2026 as well. I know that you've generated around 10 basis points of leverage for two consecutive quarters now. I am just wondering if there is more room for leverage over there going forward.

We're going to continue to make investments to go out and acquire customers and grow our share and improve our position I would add Ken that from a marketing standpoint.

Kenneth Krause: I think your question was around marketing investments and selling investments and leverage there, if I heard you correctly. I think what we're seeing is we're seeing leverage across the portfolio with some of those investments we made in the past. We're going to continue to evaluate making additional investments. As I said earlier, we're in a growth market. We're seeing great growth. Getting high single digit sort of growth organically on a constant currency basis is really hard to come by for a lot of folks. We're continuing to execute in a market where we can get that kind of growth. We're going to continue to make investments to go out and acquire customers and grow our share and improve our position.

Got it, that's helpful. And maybe as my follow up, uh I think kind of for you to this in 1 of your previous answers but just just curious on your plans for seasons and Market investment going into Q4 and and 2026 as well. Uh, I know that you've generated around like 10 basis points of Leverage for 2 consecutive quarters now. So just just wondering if like, more room for leverage or that are going forward.

As I've said over the years as we will continue to spend our marketing dollars, we allocate a budget for it we'll use those dollars and then.

Based on what we know what we know about the market we allocate those dollars appropriately. So we will typically tend to spend into the marketing channel and continue to invest there as we plan.

Is that kind of the range of a percent of revenue, where we find the most leverage opportunities is really a productivity on the sales side. So when you look at SG&A SaaS part of that the selling productivity as you make those investments that's where.

I think your question was around marketing Investments and selling Investments and leverage their, um, if I heard you correctly, um, but but I, you know, I think what we're seeing is we're seeing leverage in the across, the, the portfolio, uh, with some of those Investments we made in the past. Uh, we're going to continue to evaluate making additional Investments. Uh, we're again, as I said earlier, we're in a growth Market, we're seeing great growth. Getting high single digits sort of growth. It's organically on a constant currency. Basis is really hard to come by for a lot of

Occasionally we'll go through some cycles, where you work with as productivity rises we have to then way what what what's the next level of investment that we need to make and that may cause some short term.

Jerry Gahlhoff: I would add, Ken, that from a marketing standpoint, as I've said over the years, we'll continue to spend our marketing dollars. We allocate a budget for it, we use those dollars, and then based on what we know about the market, we allocate those dollars appropriately. We will typically tend to spend into the marketing channel and continue to invest there as we plan as kind of the range of a % of revenue. Where we find the most leverage opportunities is really in productivity on the sales side. When you look at SG&A, it's the S part of that, the selling productivity as you make those investments. That's where, you know, occasionally we'll go through some cycles where as productivity rises, we have to then weigh what's the next level investment that we need to make. That may cause some short term challenges on the S side.

Challenges with on the S side, but then long term. We have also noted that pays off through accelerated growth.

In a relatively high margin a nice margin business. So that's the balancing act that we're constantly.

Evaluating right.

As you produce incremental gross margins of 58 or so percent high fifty's.

You get leverage on the G&A you want to make those investments you want to go out and grow and.

That's exactly that's our focus I think as Jerry and I are completely aligned that we want to continue to invest in the business and grow the business and.

Folks, but we're going to we're we're continuing to execute in a market where we can get that kind of growth. And so, uh, so we're going to continue to make investments to go out and acquire customers and grow our share and, and improve our position. I I would add Ken that, you know, from a marketing standpoint, as I've said over the years is, we'll continue to spend our marketing dollars, we allocate a budget for it. We use those dollars and then based on what we know, uh, what we know about the market, we allocate those those dollars appropriately. So we will typically tend to spend into the marketing channel and continue to invest there as we plan. Uh, you know, as a kind of the, the range of a percent of Revenue where we find the most leverage opportunities is really in productivity on the sales side. So when you look at sgna, it's the S part of that the selling productivity. Is you make those Investments? That's where

Growth is fine.

Makes sense. Thank you.

Okay.

Thank you.

And we have reached the end of the question and answer session I would like to turn the floor back to management for closing remarks.

Jerry Gahlhoff: Long term, we also know that pays off through accelerated growth in a relatively high margin, a nice margin business. That's the balancing act that we're constantly evaluating.

Thank you everyone for joining us today, we appreciate your interest in our company and look forward to speaking with you on our Q4 earnings call.

Thank you and this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Kenneth Krause: As you produce incremental gross margins of 58% or so, high 50s, you get leverage on the G and the A. You want to make those investments, you want to go out and grow. That's our focus. I think Jerry and I are completely aligned that we want to continue to invest in the business and grow the business. Growth is fun.

Um, you know, occasionally we'll go through some Cycles where where, as productivity Rises we we have to then weigh. Well what it what what's the next level of investment that we need to make? And that may cause some short-term uh challenges with on the S side. But then long term, we also know that that pays off through accelerated growth, uh, in a, in a relatively, high margin, a nice margin business. So that's the balancing act that we're we're constantly, uh, about evaluating, right? But as you as you produce incremental growth, margins of 58 or so percent.

50s. Um, you get leverage on the on the G and the a you want to make those Investments you want to go out and grow. And and that's exactly, that's our Focus. I think it's Jerry and I are completely aligned that. We want to continue to invest in the business and grow the business and uh, growth is fun.

[Analyst]: Makes sense. Very helpful. Thank you.

Makes sense right outside? Thank you.

Operator: Thank you. We have reached the end of the question and answer session. I would like to turn the floor back to management for closing remarks.

Thank you.

Jerry Gahlhoff: Thank you everyone for joining us today. We appreciate your interest in our company.

The end of the question and answer session, I would like to turn the floor back to management foreclosed remarks.

Kenneth Krause: We look forward to speaking with you on our Q4 earnings call.

Everyone for joining us today, we appreciate your interest in our company and look forward to speaking with you on our Q4 earnings call.

Operator: Thank you. This concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.

Thank you. And this concludes today's conference and you may disconnect your line at this time. Thank you for your participation.

Kenneth Krause: Sam.