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RI

ROLLINS INC (ROL)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered solid top-line and earnings growth: revenue $822.5M (+9.9% YoY), organic growth +7.4% despite a 40 bps FX headwind and one fewer business day; diluted EPS $0.22 (+15.8% YoY) and operating cash flow $146.9M (+15.3% YoY) .
  • Gross margin reached 51.4% (+20 bps YoY), the “highest first quarter gross margin in recent history,” while EBITDA margin moderated on intentional growth investments; management expects margin profile to improve in 2H25 .
  • Guidance updates: FY25 organic growth maintained at 7–8%; M&A contribution raised to 3–4% (from 2–3% prior); Q2 interest expense guided to $8–$10M; FY25 effective tax rate ~26% (Q1 was 23.5% due to vesting timing) .
  • Strategic M&A: Saela acquisition closed in April; expected to add $45–$50M revenue in 2025 (~$15M in Q2), margin profile neutral to ROL and accretive in its first full year; mix ~95% residential .
  • Near-term catalysts: recurring commercial growth near 10% organically, improving gross margin trajectory, and integration of Saela; watch Q2 interest expense and normalization of onetime services post the lost workday .

What Went Well and What Went Wrong

What Went Well

  • Gross margin execution: “Gross margin of 51.4% is the highest first quarter gross margin that we have recorded in recent history,” supported by pricing and efficiency, offset partially by higher fleet expense .
  • Commercial momentum: double-digit commercial revenue growth (+10.2% total; nearly ~10% organic on recurring base) driven by dedicated commercial resources and sales productivity .
  • Cash generation: operating cash flow $146.9M (+15.3% YoY), free cash flow $140.1M (+16.5% YoY), FCF conversion 133% enabling balanced capital allocation (dividends $79.9M, acquisitions $27.2M) .
  • Strategic M&A: Saela strengthens multi-brand reach across key geographies; CEO: “We are thrilled to welcome our Saela teammates… and look forward to the positive contributions” .

What Went Wrong

  • Margin compression from growth investments: operating margin 17.3% (-40 bps YoY); adjusted EBITDA margin 20.9% (-60 bps YoY), reflecting elevated selling/marketing and refreshed TV ad spend .
  • Fleet cost pressure: cost-of-service fleet expenses up to 4.5% of revenue (from 4.1%); SG&A fleet expenses also higher, partially offsetting gains in people, materials, insurance .
  • Onetime services softness: one fewer business day and FX headwind reduced onetime commercial fumigation and termite/ancillary activity; management emphasized the lost-day impact on onetime work .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$916.3 $832.2 $822.5
Diluted EPS ($USD)$0.28 $0.22 $0.22
Net Income ($USD Millions)$136.9 $105.7 $105.2
Gross Margin (%)54.0% 51.3% 51.4%
Operating Margin (%)20.9% 18.1% 17.3%
Adjusted EBITDA Margin (%)24.0% 21.8% 20.9%
Operating Cash Flow ($USD Millions)$146.9 $188.2 $146.9
Free Cash Flow ($USD Millions)$139.4 $184.0 $140.1

Segment breakdown

Segment Revenues ($USD Millions)Q3 2024Q4 2024Q1 2025
Residential$428.3 $369.1 $356.3
Commercial$299.6 $280.4 $284.4
Termite & Ancillary$177.7 $172.4 $172.1

KPIs

KPIQ3 2024Q4 2024Q1 2025
Organic Revenue Growth (%)7.7% 8.5% 7.4%
Adjusted Operating Margin (%)21.4% 18.6% 17.9%
Adjusted EBITDA Margin (%)24.0% 21.8% 20.9%
Free Cash Flow Conversion (%)101.8% 174.1% 133.1%

Versus estimates

MetricQ3 2024Q4 2024Q1 2025
Revenue Actual ($MM)$916.3 $832.2 $822.5
Revenue Consensus Mean ($MM)$911.5*$817.5*$816.0*
Surprise ($MM)+$4.8*+$14.7*+$6.5*
EPS Actual ($)$0.28 $0.22 $0.22
Primary EPS Consensus Mean ($)$0.301*$0.232*$0.217*
Surprise ($)-$0.021* (miss)-$0.002*+$0.003*
Adjusted EBITDA Actual ($MM)$219.5 $180.2 $171.9
EBITDA Consensus Mean ($MM)$227.3*$186.0*$173.6*
Surprise ($MM)-$7.9* (miss)-$5.9*-$1.8*

Estimate values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic revenue growthFY 20257–8% (ongoing commentary) 7–8% Maintained
M&A contribution to revenue growthFY 20252–3% 3–4% Raised
Interest expenseQ2 2025N/A$8–$10M New/Higher
Effective tax rateFY 2025~26% ~26%; Q1 at 23.5% on vesting timing Maintained
Cash flow conversionFY 2025>100% (management framework) >100% Maintained
Saela revenue additionFY 2025N/A$45–$50M ($~15M in Q2) New
Dividend per shareQ2 pay date (declared 4/22/25)$0.165 in Q4’24 $0.165 declared April 22, 2025 Maintained
Leverage ratio (pro forma post Saela)FY 2025~0.8x at Q1 Not expected to exceed 1.0x Confirmed headroom

Earnings Call Themes & Trends

TopicQ3 2024 (prior)Q4 2024 (prior)Q1 2025 (current)Trend
Organic growth7.7% with hurricane disruption Strong 2H organic acceleration; 2025 strong outlook 7.4% despite lost day and FX; expect 7–8% for FY25 Stable at high-single-digit
Commercial investmentsInvesting to capitalize on healthy market Underlying incremental margins ~30% Double-digit commercial recurring growth; benefits from dedicated division Strengthening
Marketing/advertising spendContinued investment Modernization initiatives Pulled-forward TV ad spend; selling/marketing up; margins to improve through year Front-loaded costs, improving 2H
Macro/tariffs & fleetHurricane Helene impact Auto claims pressure in Dec Limited tariff exposure; fleet ~5% of P&L (auto leases ~3%); can extend truck life if needed Manageable risk
Tax & interest—FY25 focus on pricing, margins Q1 ETR 23.5% (vesting timing), FY ~26%; Q2 interest $8–$10M Transitory Q1 tax benefit; higher Q2 interest
M&A pipeline & Saela—Robust pipeline Saela closed; $45–$50M FY25, ~95% resi; pragmatic integration Accretive, neutral margin
Cash flow$147M OCF $188M OCF; FCF up 30% $147M OCF; FCF $140M; >130% conversion Strong, enabling capital return

Management Commentary

  • CEO: “Our results for the first quarter reflect our resilient business model and our teammates’ ongoing focus on operational excellence… [Saela] strengthens the breadth and depth of the Rollins portfolio” .
  • CFO: “Gross margin of 51.4% is the highest first quarter gross margin that we have recorded in recent history… we anticipate an improving margin profile as we move through the back half of the year” .
  • CFO on outlook: “We continue to expect organic growth in the 7% to 8% range… [Saela] will take anticipated growth from M&A to 3% to 4%… cash flow will continue to convert at a rate above 100% in 2025” .
  • CEO on commercial: “Orkin Commercial delivered double-digit recurring revenue growth in the first quarter” .

Q&A Highlights

  • Demand trends: No slowdown; January–February tougher, improved in March; residential and commercial recurring strong; termite/ancillary supported by technician sales .
  • Commercial investments: Benefits materializing; longer B2B cycle means back-half improvements; focus on sales force productivity .
  • Onetime services: Lost day disproportionately impacted termite/ancillary and commercial onetime work; FX headwind of ~40 bps .
  • Saela mix & integration: ~95% residential; pragmatic synergy playbook (fleet, materials, back-office modernization, sales tech) akin to Fox’s growth enablers .
  • Incremental margins: Ex-selling/marketing, Q1 incremental margin would have been ~25–30%; expected to improve through 2025 as investments lap .
  • Marketing flexibility: Multi-brand, multi-channel approach enables pivot if digital costs spike; ability to reallocate spend .
  • Fleet & tariffs: Limited exposure; options to extend truck life or adopt lighter-duty vehicles to manage costs .
  • Employee retention: Double-digit improvement in first-year retention reducing new-hire needs; ongoing progress .

Estimates Context

  • Q1 2025: Revenue beat (~$822.5M vs $816.0M*), EPS slight beat ($0.22 vs $0.217*), EBITDA slight miss ($171.9M vs $173.6M*) .
  • Q4 2024: Revenue beat (~$832.2M vs $817.5M*), EPS slight miss ($0.22 vs $0.232*), EBITDA miss ($180.2M vs $186.0M*) .
  • Q3 2024: Revenue beat (~$916.3M vs $911.5M*), EPS miss ($0.28 vs $0.301*), EBITDA miss ($219.5M vs $227.3M*) .
    Estimate values retrieved from S&P Global.

Where estimates may need to adjust:

  • Commercial recurring strength and highest Q1 gross margin suggest margin expectations for 2H25 could be revised upward, while near-term Q2 estimates should incorporate guided interest expense and stable ~26% tax rate .
  • Saela revenue addition ($45–$50M for FY25) implies modest upward revisions to FY revenue and EPS, with neutral EBITDA margin impact near term and accretion in first full year .

Key Takeaways for Investors

  • Pricing and efficiency drove the highest Q1 gross margin in recent history, supporting a constructive margin outlook for 2H25 despite front-loaded marketing costs .
  • Commercial recurring growth near ~10% organically validates the dedicated commercial strategy; expect continued contribution as B2B cycles mature .
  • Q2 watch items: guided interest expense ($8–$10M) and normalization of onetime services after the lost workday; FY tax rate anchored at ~26% .
  • Saela fortifies the residential franchise in key regions; ~$45–$50M FY25 revenue with neutral margin and accretive in the first full year .
  • Cash generation remains robust (OCF $146.9M; FCF $140.1M; 133% conversion), supporting dividends ($0.165/share) and ongoing M&A .
  • Near-term trading lens: modest beats on revenue/EPS vs consensus and strong gross margin are positives; EBITDA softness from investment spend should abate as growth ramps and spending laps .
  • Medium-term thesis: recession-resilient demand, diversified multi-brand acquisition engine, and continued modernization support durable high-single-digit organic growth and improving incremental margins .