ThirdQuarter 2023 Earnings
Webcast Presentation
Rollins, Inc.
October 26, 2023
SAFE HARBOR
Statements made in this earnings presentation may contain forward-looking statements that involve risks and uncertainties concerning the Company's business and financial results. We have based these forward-looking statements largely on our current opinions, expectations, beliefs, plans, objectives, assumptions and projections about future events and financial trends affecting the operating results and financial condition of our business. Such forward looking statements include, but are not limited to, statements regarding the Company's belief that the demand environment is healthy, the Company is focused on delivering strong growth in incremental--.-% margins, the Company remains well positioned to continue to drive growth through acquisition, the Company is focused on driving growth while evaluating severalGrossinitiatives aimed at improving productivity, the Company is well positioned to continue to deliver strong results, that the Company is focused on executing additional programs that it believes will improve the efficiency of its business model, improvement in gross margin and current demand environment provides a sense of optimism, that the CompanyMargincontinues to focus on implementing continuous improvement initiatives that it believes will improve the efficiency of its business, the Company is evaluating a number of initiatives that are aimed at improving performance, the Company plans to invest for growth while actively maintaining balance across all categories of capital allocation, the Company's current staffing levels respond to favorable demand trends and to accelerate modernization efforts, and the Company's belief that it has a healthy pipeline of acquisitions and the Fox acquisition is leading to robust growth in M&A.
Our actual results could differ materially from those indicated by the forward-looking statements because of various risks, timing and uncertainties including, without limitation, the failure to maintain and enhance our brands and develop a positive client reputation; our ability to protect our intellectual property and other proprietary rights that are material to our business and our brand recognition; actions taken by our franchisees, subcontractors or vendors that may harm our business; general economic conditions; the effects of a pandemic, such as the COVID-19 pandemic, or other major public health concern on the Company's business, results of operations, accounting assumptions and estimates and financial condition; adverse economic conditions, including, without limitation, market downturns, inflation and restrictions in customer discretionary expenditures, increases in interest rates or other disruptions in credit or financial markets, increases in fuel prices, raw material costs or other operating costs; potential increases in labor costs; labor shortages and/or our inability to attract and retain skilled workers; competitive factors and pricing practices; changes in industry practices or technologies; the degree of success of our termite process reforms and pest control selling and treatment methods; our ability to identify, complete and successfully integrate potential acquisitions; unsuccessful expansion into international markets; climate change and unfavorable weather conditions; a breach of data security resulting in the unauthorized access of personal, financial, proprietary, confidential or other personal data or information about our customers, employees, third parties,>-- or of our proprietary confidential information; damage to our brands or reputation; new or proposed regulations regarding climate change; any noncompliance with, changes to, or increased enforcement --of.-various% government laws and regulations, including environmental regulations; possibility of an adverse ruling against us in pendingFreelitigation, regulatory action or investigation; the adequacy of our insurance coverage to cover all significant risk exposures; the effectiveness of our risk management andCashsafety program; general market risk; management'sEBITDA substantial ownership interest and its impact on public stockholders and the availability of the Company's common stock to the investing public; and the existenceMarginof certain anti-takeover provisions in our governance documents, which could make a tender offer, change in control or takeover attemptFlow that is opposed by the Company's Board of Directors more difficult or expensive. All of the foregoing risks and uncertainties are beyond our ability to control, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. The Company does not undertake to update its forward-looking statements.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL MEASURES
The Company has used the non-GAAP financial measures of organic revenues, organic revenues by type, adjusted net income, adjusted earnings--.-%per share ("EPS"), earnings before interest, taxes, depreciation and amortization ("EBITDA"), EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, incremental EBITDA margin, adjusted incremental EBITDA margin, free cash flow, free cash flow conversion, net debt, and net leverage ratio in this earnings presentation. Organic revenue is calculated as revenue less acquisitionGrossrevenue. Acquisition revenue is based on the trailing 12-month revenue of our acquired entities. Adjusted net income and adjusted EPS are calculated by adding back to the GAAP measuresMarginthose expenses resulting from the amortization of certain intangible assets and adjustments to the fair value of contingent consideration resulting from the acquisition of Fox Pest Control and restructuring costs related to restructuring and workforce reduction plans and by further subtracting the tax impact of those expenses. EBITDA is calculated by adding back to net income interest, taxes, depreciation and amortization and EBITDA margin is calculated as EBITDA divided by revenue. Adjusted EBITDA and adjusted EBITDA margin are calculated by adding back to EBITDA those expenses resulting from the adjustments to the fair value of contingent consideration resulting from the acquisition of Fox Pest Control and restructuring costs related to restructuring and workforce reduction plans. Incremental EBITDA margin is calculated as the change in EBITDA divided by the change in revenue. Adjusted incremental EBITDA margin is calculated as the change in adjusted EBITDA divided by the change in revenue. Free cash flow is calculated by subtracting capital expenditures from cash provided by operating activities. Free cash flow conversion is calculated as free cash flow divided by net income. Net debt is calculated as total long-term debt less cash and cash equivalents. Net leverage ratio is calculated by dividing net debt by trailing twelve-month EBITDA. These measures should not be considered in isolation or as a substitute for revenues, net income, earnings per share or other performance measures prepared in accordance with GAAP.
Management uses adjusted net income, adjusted EPS, EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, incremental EBITDA margin, and adjusted incremental EBITDA margin as measures of operating performance because these measures allow the Company to compare performance consistently over various periods. Management also uses organic revenues and organic revenues by type to compare revenues over various periods excluding the impact of acquisitions. Management uses free cash flow to demonstrate the Company's ability to maintain its asset base and generate future cash flows from operations. Management uses free cash flow conversion to demonstrate how much net income is converted into cash. Management uses net debt as an assessment of overall liquidity, financial flexibility, and leverage. Net leverage ratio is useful to investors because it is an indicator of our ability to meet our future financial obligations. Management believes all of these non-GAAP financial measures are useful to provide investors with information about current trends in, and period-over-period comparisons of, the Company's results of operations. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.
>-- | the effect | |
A non-GAAP financial measure is a numerical measure of financial performance, financial position, or cash flows that either 1) excludes amounts, or is subject to adjustments that have --.-% | ||
EBITDA | ||
of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in theFreestatement of operations, balance sheet or statement | ||
Cash | ||
of cash flows, or 2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and | ||
presented. | Flow | Margin |
See the appendix for a reconciliation of non-GAAP financial measures used in this presentation with their most comparable GAAP measures.
THIRD QUARTER OVERVIEW
Q3 2023 FINANCIALS1
HIGHLIGHTS
Revenue
$840M
Gross
Margin
53.8%
Adjusted Earnings
Per Share1
$0.28
Revenue Growth
15.2%
Adjusted
EBITDA Margin1
24.8%
Free Cash
Flow1
$121M
Delivered double-digit revenue growth across all service lines, organic revenue1 was up over 8% and M&A drove 7% growth
150 bps improvement in gross margin. Organic and inorganic contributions
Adjusted EBITDA1 also improved 150 basis points driven by leverage across the P&L
Free cash flow of $121 million impacted by timing of payments at quarter end
Strong Q3 Performance; Organic Revenue +8% and Margins Expanded by 150 bps
1These amounts are non-GAAP measures (see Appendix)
BALANCED 2023 OUTLOOK
WHAT WE ARE SEEING
Organic Growth
Healthy market growth and strong execution driving strong organic growth with good performance across all major service areas
Healthy Margin Performance
Good leverage across the income statement
Staffing Remains Strong
Entering the fourth quarter with very good staffing levels to respond to favorable demand trends
WHAT WE EXPECT
Continued Growth
Focused on delivering strong growth in Q4
Margin Expansion Opportunities
Continued execution of modernization program in Q4 and beyond
Disciplined Capital Allocation
Investing for growth while actively maintaining balanced approach to capital allocation
Focused on Delivering Continued Growth in the Fourth Quarter
REVENUE GROWTH TRENDS
YOY REVENUE GROWTH | COVID Pandemic | |
Great Financial Crisis | Industrial Slowdown |
HIGHLIGHTS
Resilient business that has grown through economic cycles
Growth acceleration began pre- COVID and has continued
- Consistently delivered HSD organic growth over the last 11 quarters
Leveraging multiple avenues to attract new customers
12.2% 11.2% 11.4%
Acquired
Organic
14.9% 15.2% 14.0%
- Digital marketing
- Door-to-Door
- Home builders and R/E
- Brand cross-selling
- Investing in Commercial
- Targeted verticals
Disciplined M&A, and a strong industry reputation makes Rollins an acquiror of choice
Resilient Business Model Drives Consistent Growth
QUARTERLY REVENUE GROWTH
+19.7% |
+11.8% |
+11.0% |
+15.2% |
$840 |
$12M organic1 $25M organic1 $4M acquisition1 $4M acquisition1
$23M organic1
$43M acquisition1
Double-Digit Revenue Growth Across All Three Service Lines
1These amounts are non-GAAP measures (see Appendix)
QUARTERLY ADJUSTED EBITDA MARGIN 1
+150 bps |
24.8% |
150 bps Margin Expansion; Adjusted Incremental Margins Almost 35%
HIGHLIGHTS
Gross Profit
- Gross margin 53.8%
- Pricing continues to outpace inflation +50 bps
- More favorable auto claims experience drives +70 bps
- Fox acquisition +30 bps accretive
SG&A
- Benefits from leverage on people costs and improved auto claim experience more than offset headwinds from increased advertising and selling expenses
Other
- Lower gains on asset sales
1These amounts are non-GAAP measures (see Appendix)
CASH FLOW AND USE OF LIQUIDITY
HIGHLIGHTS
Cash Generation
CASH FLOW FROM
OPERATIONS
$128M$127M
Q3 2022 | Q3 2023 |
CASH FLOW AND
LIQUIDITY
CAPEX ($7M)
DIVIDENDS ($64M)
SHARE REPURCHASE ($300M)
ACQUISITIONS
0.7x ($21M)
NET DEBT TO EBITDA 1
- Free Cash Flow Conversion was ~94%
- Strong balance sheet with modest levels of debt
Acquisitions
- Closed 4 acquisitions in Q3 and 19 year to date
Dividends
- Healthy dividend +30% yoy Q3 YTD
- 53% of Free Cash Flow paid in Q3
- Increased dividend another 15% in Q4
Net Leverage
Solid Cash Flow Generation and Balanced Capital Allocation Strategy
- Well below 1x of EBITDA
- Expect to maintain a balanced capital allocation approach
1These amounts are non-GAAP measures (see Appendix)
KEY TAKEAWAYS
Focus on Modernization
Broadened banking relationships and expanded revolver from $200 million to $1 billion in early 2023
Executed restructuring program in home office to improve back-office efficiencies
Hiring key talent across the organization to accelerate modernization efforts
Margins Remain a Focus
Focus on pricing and productivity has resulted in increased margins across a number of key income statement categories
Strong improvement in margins with and without acquisitions
Exceptional Performance
Healthy pipeline of acquisitions, Fox acquisition leading to robust growth from M&A
Robust organic growth across all service areas
Essential nature of services provides consistency in business growth across all cycles
Balance Sheet Provides Flexibility
Strong balance sheet with modest levels of debt post Fox acquisition and recent share repurchase
Timing of payables impacting quarterly cash flow; YTD conversion well above 100%
Balanced approach to capital allocation
Attachments
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Disclaimer
Rollins Inc. published this content on 26 October 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 October 2023 12:35:39 UTC.