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RI

ROLLINS INC (ROL)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue grew 12.1% YoY to $999.5M, beating S&P Global consensus by ~$11.1M (~1.1%); adjusted EPS was $0.30 vs consensus ~$0.302 (essentially in line), GAAP EPS $0.29 . Values retrieved from S&P Global for consensus and “actual” estimate comparisons.
  • Gross margin held at 53.8% (-20 bps YoY) and adjusted EBITDA margin was 23.1% (-50 bps YoY), with margin pressure primarily from legacy auto insurance claims (~70 bps headwind to EBITDA margin) offset by leverage in direct costs and sales/marketing .
  • Commercial delivered double-digit recurring growth; termite and ancillary grew 13.9% YoY, and Saela (acquired in April) was accretive to margins and added ~$226M of Q2 acquisition spend .
  • Management reiterated FY 2025 algorithm: organic growth 7–8%, M&A 3–4%, incremental margins 25–30%, and cash flow conversion >100%, with confidence in improving margins in H2 and strong June backlog carrying into Q3 .
  • Dividend maintained at $0.165 per share (declared July 22, payable Sept 10); FCF rose 23% YoY to $168.0M and leverage remained low at ~0.9x, supporting balanced capital allocation .

What Went Well and What Went Wrong

What Went Well

  • Double-digit growth across all service lines: residential +11.6%, commercial +11.4%, termite & ancillary +13.9%; organic growth +7.3% overall with June strength and strong backlog into July .
  • Commercial momentum: Orkin Commercial delivered double-digit recurring growth; leadership elevated to COO of Commercial Operations to sustain focus and execution .
  • Integration success and accretion: Saela exceeded expectations, accretive to margins and added non-GAAP EPS of ~$0.01 in the quarter; pipeline remains healthy despite competitive M&A market .
    • “Saela performed exceptionally well… margins were accretive… about a penny in the quarter” .

What Went Wrong

  • Margin headwinds: Insurance claims developments reduced incremental margins; EBITDA margin pressured ~70 bps, and SG&A deleveraged ~40 bps YoY as insurance claims rose .
  • Weather-related choppiness: Cold/wet May in Southeast and Northeast slowed seasonal start; demand re-accelerated in June .
  • Digital marketing adjustments: Google AI/LSA shifts softened lead volumes; teams pivoted to quality over quantity (higher close/start rates), but require ongoing adaptation .
    • “Google’s AI agent and AI overviews… our marketing team has had to make some adjustments… higher quality leads… higher close rates” .

Financial Results

Headline Results vs Prior Periods

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($USD Millions)891.9 832.2 822.5 999.5
GAAP EPS ($)0.27 0.22 0.22 0.29
Adjusted EPS ($)0.27 0.23 0.22 0.30
Gross Margin (%)54.0% 51.3% 51.4% 53.8%
Operating Margin (%)20.4% 18.1% 17.3% 19.8%
Adjusted EBITDA Margin (%)23.6% 21.8% 20.9% 23.1%

Estimates vs Actual (S&P Global)

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue Consensus Mean ($USD Millions)894.655817.505815.982988.457
Actual Revenue ($USD Millions)891.920832.169822.504999.527
Primary EPS Consensus Mean ($)0.26540.231830.21720.30213
Actual EPS (Primary EPS) ($)0.270.230.220.30
Values retrieved from S&P Global.

Segment Revenues

SegmentQ2 2024Q1 2025Q2 2025
Residential ($USD Millions)408.4 356.3 455.7
Commercial ($USD Millions)287.8 284.4 320.5
Termite & Ancillary ($USD Millions)186.0 172.1 211.9

Segment Organic Revenues and Growth (Q2 2025)

MetricQ2 2024Q2 2025
Residential Organic Revenue ($USD Millions)408.4 428.5 (+4.9%)
Commercial Organic Revenue ($USD Millions)287.8 311.8 (+8.4%)
Termite & Ancillary Organic Revenue ($USD Millions)186.0 205.2 (+10.3%)
Total Organic Revenue ($USD Millions)891.9 956.9 (+7.3%)

Operating Expense Mix (Q2 2025 vs Q2 2024)

Category (% of Revenue)Q2 2024Q2 2025
Cost of Services Provided46.0% 46.2%
SG&A30.4% 30.8%
Depreciation & Amortization3.1% 3.2%
Insurance & Claims (COGS)1.7% 2.1%
Insurance & Claims (SG&A)1.0% 1.3%

KPIs

KPIQ2 2024Q1 2025Q2 2025
Operating Cash Flow ($USD Millions)145.1 146.9 175.1
Free Cash Flow ($USD Millions)136.4 140.1 168.0
FCF Conversion (%)105.4% 133.1% 118.8%
Dividends Paid ($USD Millions)72.6 79.9 79.5
Dividends per Share ($)0.150 0.165 0.165
Leverage Ratio (Period End)0.8x (FY24) 0.8x (Mar-25) 0.9x (Jun-25)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Revenue GrowthFY 2025Not explicitly quantified7–8%Introduced numeric range
M&A Contribution to GrowthFY 2025Not explicitly quantified3–4%Introduced numeric range
Incremental MarginsFY 2025“Approximating ~30%” in prior commentary25–30%Narrowed/lowered range
Cash Flow ConversionFY 2025Not explicitly quantified>100%Reaffirmed strong conversion
Effective Tax RateFY 2025N/A~26% in Q2 (in line)Informational (no formal FY guide)
DividendQ3 2025 payout$0.165 most recent$0.165 declared for Sept 10Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 & Q1 2025)Current Period (Q2 2025)Trend
Commercial momentumContinued investment; margin profile attractive Orkin Commercial double-digit recurring growth; new COO for Commercial Ops Improving
Insurance/claims impactDecember legacy auto claims pressured incrementals ~70 bps EBITDA margin headwind from legacy auto claims; reserve adjustment ~$6M Persistent headwind (manageable)
Digital/AI marketingNot discussedGoogle AI/LSA shifts; pivot to lead quality and higher close/start rates Adaptive transition
PricingN/ACPI+ pricing targeted at ~3–4% Consistent discipline
Weather/seasonalityN/ACold/wet May slowed start; strong June backlog into July Normalizing
Regulatory/legalN/AState-level variation manageable with technical/government relations teams Neutral
Tariffs/macroN/ALimited tariff exposure; materials leveraged; fleet gains normalized Neutral-to-positive
Labor/retentionDouble-digit improvements noted in Q1Continued double-digit improvement; fewer hires, better wage leverage Improving
M&ARobust pipeline; investment-grade platform 9 transactions including Saela; competitive market, but accretive returns Active, disciplined

Management Commentary

  • “The demand environment is healthy, and we saw double-digit revenue growth across all major service lines… focused on driving growth while also improving profitability” — Jerry Gahlhoff (CEO) .
  • “Adjusted earnings growth, cash flow compounded at a healthy rate… EBITDA margins were pressured from developments on legacy auto claims by 70 basis points… underlying operations yielded healthy margin performance” — Ken Krause (CFO) .
  • “Orkin Commercial delivered double-digit recurring growth… promoted Scott Weaver to Chief Operating Officer of Commercial Operations” — Jerry Gahlhoff (CEO) .
  • “Organic growth in the 7–8% range for the year… M&A 3–4%… anticipate improving margin profile in the back half… cash flow will continue to compound and convert above 100% in 2025” — Ken Krause (CFO) .
  • “Marketing team navigated changes from Google’s AI… higher quality leads, higher close and start rates… daily sales records in June” — Jerry Gahlhoff (CEO) .

Q&A Highlights

  • Residential dynamics and AI/search: Lead volumes softened with Google AI shifts, but quality improved, driving higher close/start rates; June daily sales records cited .
  • Pricing framework: CPI+ pricing (~3–4%) across brands/geographies; volume growth outpacing market, supporting the growth algorithm .
  • Incremental margins: Ex-insurance claims, Q2 incremental margins ~25%; with selling/marketing lapping, sustainable 28–30% is achievable; FY range set at 25–30% .
  • M&A valuations/returns: Competitive market with PE, but Saela case shows strong organic growth, margin accretion, non-GAAP EPS neutrality to GAAP and accretive returns above cost of capital .
  • Claims predictability: Legacy auto claims are long-tail and episodic; reserves informed by actuaries; safety initiatives reducing claim frequency over time .
  • Weather normalization: Cold/wet May across Southeast/Northeast; by early June, activity re-accelerated sharply with backlog into July .
  • Commercial focus and tariffs: Continued investment in staffing, verticals and markets; limited impact from tariffs; materials leveraged, fleet gains normalized from last year’s vehicle dispositions .

Estimates Context

  • Q2 2025: Revenue beat ($999.5M vs $988.5M consensus), Primary EPS essentially in line ($0.30 vs ~$0.302), pointing to a top-line catalyst with contained margin headwinds from claims. Values retrieved from S&P Global.
  • Prior quarters: Q1 2025 and Q4 2024 both modestly exceeded consensus on revenue and EPS, supporting upward bias in the multi-quarter growth algorithm. Values retrieved from S&P Global.
  • Potential estimate revisions: Management’s confidence in H2 margin improvement (lapping investments, lower insurance headwinds) and strong commercial/ancillary demand could support modest upward revisions to H2 EBITDA margins and cash flow conversion, while pricing discipline (3–4%) and ongoing M&A (3–4%) underpin revenue trajectories .

Key Takeaways for Investors

  • Revenue beat with broad-based strength; EPS effectively in line as claims pressured margins, but underlying operational leverage remains intact .
  • Commercial momentum and termite/ancillary growth, plus Saela accretion, reinforce multi-pronged growth drivers into H2 .
  • FY 2025 algorithm intact: organic +7–8%, M&A +3–4%, incrementals 25–30%, FCF conversion >100%; expect sequential margin improvement as Q3/Q4 lap prior spend .
  • Watch insurance claims volatility; management is implementing safety/driver tech and reserving discipline to mitigate long-tail risk .
  • Marketing pivot to higher-quality digital leads is improving close/start rates despite AI search changes; operational throughput benefited in June .
  • Balanced capital allocation: dividend maintained at $0.165, strong cash generation, low leverage (~0.9x) provides flexibility for M&A and returns .
  • Near-term trading: Revenue beat and strong June backlog are supportive; any selloff on margin optics could be opportunistic given expected H2 margin uptick and resilient demand .