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RI

ROLLINS INC (ROL)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered double‑digit top‑line growth and strong operating leverage: revenue $1.03B (+12% YoY), GAAP EPS $0.34 (+21% YoY), adjusted EPS $0.35 (+21% YoY); gross margin expanded 40 bps to 54.4% and operating margin rose 100 bps to 21.9% .
  • Results modestly beat Wall Street: EPS $0.34 vs $0.329 consensus (+3%), revenue $1.026B vs $1.019B (+0.7%), EBITDA $258.3M vs $249.8M (+3%); adjusted EBITDA margin 25.2% (+120 bps YoY) as incremental margins approached mid‑30s on cost leverage. Values retrieved from S&P Global.*
  • Cash generation accelerated: operating cash flow $191.3M (+30% YoY), FCF $182.8M (+31% YoY); leverage remains low at 0.8x, supporting balanced capital allocation .
  • Dividend raised ~11% to $0.1825 per share for the December payment, extending >80% dividend growth since 2022; management reiterated FY organic growth of 7–8% and M&A contribution of 3–4% .

What Went Well and What Went Wrong

What Went Well

  • Broad‑based growth across service lines: Residential +11.2%, Commercial +11.8%, Termite & Ancillary +15.2%; organic growth healthy at 7.2% overall, with Commercial +8.3% and Termite +10.8% .
  • Margin execution: adjusted EBITDA margin up 120 bps to 25.2%; management cited “leverage across the income statement” and insurance & claims favorability as drivers. “We delivered a strong third quarter with record revenue and an improving margin profile…” — CEO Jerry Gahlhoff .
  • Cash flow strength: operating cash flow +30% YoY and FCF conversion 112% in the quarter; CFO highlighted a “balanced capital allocation program enabled by compounding cash flow” .

What Went Wrong

  • Fleet and vehicle gains remained a headwind; while moderating into Q4, management cautioned some residual impact persists .
  • People costs were neutral overall but saw higher reserves for medical‑related claims vs last year, partially offset by insurance/claims favorability elsewhere .
  • Franchise & other revenue declined 4.3% YoY, the only sub‑line item down; a small portion of the mix .

Financial Results

Quarterly Trend (Q1 → Q2 → Q3 2025)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$822.5 $999.5 $1,026.1
GAAP EPS ($)$0.22 $0.29 $0.34
Adjusted EPS ($)$0.22 $0.30 $0.35
Gross Margin (%)51.4% 53.8% 54.4%
Operating Margin (%)17.3% 19.8% 21.9%
Adjusted EBITDA Margin (%)20.9% 23.1% 25.2%
Operating Cash Flow ($USD Millions)$146.9 $175.1 $191.3
Free Cash Flow ($USD Millions)$140.1 $168.0 $182.8

YoY Comparison (Q3 2024 → Q3 2025)

MetricQ3 2024Q3 2025YoY Change
Revenue ($USD Millions)$916.3 $1,026.1 +12.0%
GAAP EPS ($)$0.28 $0.34 +21.4%
Gross Margin (%)54.0% 54.4% +40 bps
Operating Margin (%)20.9% 21.9% +100 bps
Adjusted EBITDA Margin (%)24.0% 25.2% +120 bps
Operating Cash Flow ($USD Millions)$146.9 $191.3 +30.2%
Free Cash Flow ($USD Millions)$139.4 $182.8 +31.1%

Segment Breakdown (Q3 2025)

SegmentRevenue ($USD Millions)YoY Growth (%)Organic Growth (%)
Residential$476.3 +11.2% +5.2%
Commercial$335.0 +11.8% +8.3%
Termite & Ancillary$204.7 +15.2% +10.8%
Franchise & Other$10.2 −4.3% −4.3%

KPIs and Operating Metrics

KPIQ1 2025Q2 2025Q3 2025
Organic Revenue Growth (%)7.4% 7.3% 7.2%
Adjusted Incremental EBITDA Margin (%)14.9% 19.6% 35.4%
Free Cash Flow Conversion (%)133.1% 118.8% 111.8%
Effective Tax Rate (%)——24.8%
Leverage Ratio (x)—0.9x 0.8x

Results vs Wall Street (Q3 2025)

MetricConsensusActualSurprise
EPS ($)0.329*0.34 +3% (beat)
Revenue ($USD Millions)1,019.1*1,026.1 +0.7% (beat)
EBITDA ($USD Millions)249.8*258.3 +3.4% (beat)
Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Revenue GrowthFY 20257–8% (management target discussed earlier in 2025) 7–8% (reiterated) Maintained
M&A Contribution to GrowthFY 20253–4% 3–4% Maintained
Incremental Margin TargetFY 202525–30% (for the year) 25–30% (for the year; Q3 above 30%) Maintained (Q3 stronger)
Pricing StrategyCY 2026CPI‑plus (~3–4%) CPI‑plus (~3–4%) Maintained
Effective Tax RateLong termImproving trend (no numeric prior)24.8% in Q3; expect continued benefit longer term Trending lower
Regular Quarterly DividendQ4 2025 payment$0.165/share (prior run‑rate) $0.1825/share (+~11%) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q1)Current Period (Q3 2025)Trend
Commercial growth initiativesDouble‑digit growth across service lines; investments ongoing Orkin Commercial double‑digit recurring growth; productivity ramp driving leverage Improving
Margin trajectory & incremental marginsQ2 margins pressured by legacy auto claims; adjusted incremental ~19.6% Adjusted incremental ~35.4% (31% ex favorable claims); broad SG&A leverage Strongly improving
Pricing and inflationNo explicit pricing level in Q1/Q2 PRsTarget CPI‑plus (~3–4%) into 2026; inflation moderating Stable/positive
Marketing/AI and lead qualityNot discussedAI changes in search improved close rates; diversified customer acquisition mitigates SEO volatility Adapting effectively
Fleet/vehicle gainsQ2 headwind noted Still a headwind; moderating into Q4 Easing
M&A pipeline & integrationSaela closed in April; active pipeline 7 deals in Q3; Saela outperforming and accretive; acquirer of choice positioning Robust

Management Commentary

  • CEO: “We delivered a strong third quarter with record revenue and an improving margin profile… well‑positioned for continued growth, both organically and through acquisitions” .
  • CFO: “Adjusted EBITDA margins improved 120 basis points… we continue to execute a balanced capital allocation program enabled by compounding cash flow” .
  • On Commercial: “Orkin Commercial delivered double‑digit recurring growth… highest retention business amongst our service lines” .
  • On Saela integration: “They’re outpacing [our expectations]… year one looking in the mid‑$70 million range… margins accretive to our margin profile and slightly accretive to EPS on a GAAP basis” .
  • On pricing: “Our focus… is consumer price inflation plus… 3% to 4%… contributor to margins as we think about 2026” .

Q&A Highlights

  • Commercial investments and productivity ramp: Management emphasized double‑digit recurring growth at Orkin Commercial and SG&A leverage as sales productivity improves .
  • Saela acquisition: Revenue tracking mid‑$70M in year one vs mid‑$60M expected; EPS neutral to slightly accretive despite higher borrowing costs; churn healthy .
  • Pricing strategy/tax rate: CPI‑plus pricing (~3–4%), with effective tax rate falling to 24.8% and expected longer‑term benefits from tax planning .
  • Lead conversion and AI: Higher‑quality leads and improved close rates amid AI shifts; diversified acquisition across brands reduces reliance on search .
  • Termite & Ancillary momentum: Strong demand/backlog into Q4; cross‑selling drives stickier customers and attractive unit economics .

Estimates Context

  • Q3 2025 beat vs S&P Global consensus: EPS $0.34 vs $0.329 (+3%), revenue $1,026.1M vs $1,019.1M (+0.7%), EBITDA $258.3M vs $249.8M (+3.4%). Values retrieved from S&P Global.* Actuals per company: EPS $0.34, revenue $1,026.1M, adjusted EBITDA $258.3M .
  • Estimate depth: 11 EPS estimates and 9 revenue estimates for Q3; forward quarters show typical seasonal downtick in Q4 and Q1. Values retrieved from S&P Global.*
  • Implications: Modest beats likely support upward tweaks to margin/EBITDA forecasts given stronger incremental margins and lower effective tax rate; revenue trajectory in Commercial and Termite may prompt modest revenue raises, especially for FY 2025 exit and early 2026. Values retrieved from S&P Global.* .

Key Takeaways for Investors

  • Revenue quality and breadth: Double‑digit growth across Residential, Commercial, and Termite with healthy organic contributions, supporting durable top‑line momentum into Q4 .
  • Margin inflection: Adjusted incremental EBITDA margins stepped up to mid‑30s on cost leverage and claims favorability; operational initiatives and pricing underpin sustained margin expansion ambitions .
  • Cash flow and balance sheet: FCF +31% YoY and leverage 0.8x enable continued dividend growth (now $0.1825) and M&A capacity without stressing credit metrics .
  • Saela accretive and pipeline active: Integration smooth, revenue ahead of plan, and multiple Q3 tuck‑ins reinforce roll‑up strategy and geographic expansion .
  • Watch items: Fleet/vehicle gains as lingering headwind; monitor claims normalization and the sustainability of SG&A leverage as sales investments continue .
  • Pricing/tax tailwinds: CPI‑plus pricing and lower effective tax rate (24.8%) bolster EPS power into 2026, offering cushion against macro variability .
  • Near‑term catalyst: Dividend increase and demonstrated beat on revenue/EPS/EBITDA with stronger margins; Commercial recurring growth narrative is a positive stock‑reaction driver .

Citations: Q3 earnings press release and 8‑K ; Q3 earnings call transcript ; Q2 press release ; Q1 press release ; Dividend increase press release .

Values retrieved from S&P Global.*