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ROLLINS INC (ROL)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue rose 10.4% year-over-year to $0.832B, with the strongest organic growth rate of the year at 8.5%; GAAP EPS was $0.22 (flat YoY), while adjusted EPS increased 9.5% to $0.23 .
  • Gross margin expanded 40 bps YoY to 51.3%, but adjusted EBITDA margin compressed 20 bps to 21.8%, reflecting deliberate growth investments and a late-quarter headwind from legacy auto claims; operating margin was 18.1%, down 30 bps YoY .
  • Free cash flow surged 29.9% YoY to $184M in Q4; cash flow conversion was elevated in part due to a deferred ~$32M tax payment tied to Hurricane Helene relief (now payable in Q2 2025) .
  • Management introduced 2025 qualitative framework: organic growth of 7–8% plus 2–3% from M&A, pricing “CPI+,” effective tax rate ~26%, and continued cash conversion >100%; Fitch BBB+ and S&P BBB investment-grade ratings and a $1B commercial paper program enhance capital flexibility .
  • Street consensus from S&P Global was unavailable at time of analysis due to rate-limit errors, so formal “beat/miss” determinations vs estimates are not provided; qualitative color from William Blair suggests residential growth surprised to the upside .

What Went Well and What Went Wrong

  • What Went Well

    • Strong top-line and organic momentum: “Momentum is strong as we finish 2024 with the highest quarterly organic growth rate that we saw all year” .
    • Residential and termite outperformance: Residential organic +6.5% and termite and ancillary +14.9% in Q4; diversified demand drivers (including rodent surge) supported lead volume and conversion .
    • Cash generation and balance sheet strength: Q4 operating cash flow +23% YoY; full-year operating margin improved 40 bps; investment-grade ratings secured, enabling $1B commercial paper program .

  • What Went Wrong

    • Margin pressures from legacy auto claims: ~40 bps loss of leverage across P&L (20 bps gross, 20 bps SG&A) tied to developments on legacy auto claims; management noted ongoing mitigation but potential volatility .
    • SG&A deleverage from growth investments: Selling and marketing (people costs) increased ~70 bps in Q4; while strategic, near-term EBITDA margins were negatively impacted .
    • Lack of formal quantitative guidance ranges for 2025 beyond directional targets limits precision for near-term estimate modeling; Street comparisons unavailable from S&P Global due to rate-limit constraints .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$754.1 $891.9 $916.3 $832.2
GAAP EPS ($)$0.22 $0.27 $0.28 $0.22
Adjusted EPS ($)$0.21 $0.27 $0.29 $0.23
Gross Margin (%)50.9% 54.0% 54.0% 51.3%
Operating Margin (%)18.4% 20.4% 20.9% 18.1%
Adjusted EBITDA Margin (%)22.0% 23.6% 24.0% 21.8%

Segment revenue breakdown

Segment ($USD Millions)Q4 2023Q2 2024Q3 2024Q4 2024
Residential$340.5 $408.4 $428.3 $369.1
Commercial$256.7 $287.8 $299.6 $280.4
Termite & Ancillary$147.9 $186.0 $177.7 $172.4
Organic Growth (YoY, %)Resi: 6.5%; Comm: 7.2%; Termite: 14.9% (Q4 2024) ——Resi: 6.5%; Comm: 7.2%; Termite: 14.9%

Key KPIs

KPIQ4 2023Q2 2024Q3 2024Q4 2024
Operating Cash Flow ($USD Millions)$152.8 $145.1 $146.9 $188.2
Free Cash Flow ($USD Millions)$141.6 $136.4 $139.4 $184.0
Cash Flow Conversion (%)130.2% 105.4% 101.8% 174.1%
Effective Tax Rate (%)———27.3% (quarter); 26% (FY)
Long-term Debt ($USD Millions)$490.8 $502.0 $445.2 $395.3
Leverage Ratio (FY, x)0.9x ——0.8x

Estimate comparison (S&P Global)

MetricQ4 2024 ActualQ4 2024 S&P Global Consensus
Revenue$832.2M N/A (S&P Global data unavailable due to rate-limit)
GAAP EPS$0.22 N/A (S&P Global data unavailable due to rate-limit)
Adjusted EPS$0.23 N/A (S&P Global data unavailable due to rate-limit)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Revenue GrowthFY 2025Not previously quantified in PRs7–8% organic growth Initiated quantitative framework
M&A Contribution to GrowthFY 2025Not previously quantified in PRsAt least 2–3% Initiated quantitative framework
PricingFY 2025Not previously quantified“CPI+” pricing; similar to last 1–2 years Clarified approach
Effective Tax RateFY 2025Not stated~26% New explicit rate
Incremental MarginsFY 2025LT target 30–35% referenced historicallyAim to improve; underlying ops ~30%; 1H comps more challenging Maintained LT target; near-term cadence outlined
Cash Flow ConversionFY 2025>100% aspirationRemains >100% Maintained
LeverageOngoingInvestment-grade lensMaintain well under 2x; revised calc at 0.8x currently Reinforced policy
DividendOngoingRegular quarterly dividendRegular dividend continued (Q4 paid $0.165) Maintained policy

Earnings Call Themes & Trends

TopicQ2 2024 (Previous Mentions)Q3 2024 (Previous Mentions)Q4 2024 (Current)Trend
Organic Growth7.7% organic; demand strong 7.7% organic; high end of range 8.5% organic; strongest of year Improving into 2H
MarginsEBITDA +140 bps; disciplined investment Gross +20 bps; growth investments tempered margins Gross +40 bps; EBITDA margin -20 bps; claims headwind Mixed; investments + claims pressure
PricingNot detailedNot detailedCPI+ pricing planned in 2025 Firming pricing framework
Safety/Auto ClaimsNot discussedHurricane Helene operational disruption Legacy auto claims drove ~40 bps loss of leverage New headwind; mitigation ongoing
Modernization/Back OfficeOngoing improvement Continued investments Credit ratings achieved; CP program; admin cost leverage ~50 bps since 2022 Advancing; capital structure enhanced
M&A PipelineRobust Ongoing tuck-ins 44 tuck-ins in 2024; 2025 carryover ~2%; pipeline includes Fox-sized deals Strong visibility
Capital AllocationBalanced; dividend, M&A Balanced CP program, IG ratings, FCF strength Increasing flexibility
Inflation/FleetNot detailedNot detailedFleet lease costs rising; overall inflation manageable Specific fleet headwind emerging
Tax RateNot discussedNot discussed2025 ETR ~26% New explicit guidance

Management Commentary

  • “Our team delivered a strong finish to the year, exceeding our own revenue expectations and delivering healthy earnings growth for the full year… We are capitalizing on this momentum as we start 2025” — Jerry Gahlhoff, CEO .
  • “Growth investments and pressure from developments on legacy auto claims… impacted our incremental margins; our underlying operations continue to deliver incremental margins approximating thirty percent” — Kenneth Krause, CFO .
  • “We delivered operating cash flow of $608 million and free cash flow of $580 million… deploying almost $500 million of capital in 2024” — Kenneth Krause .
  • “We continue to expect organic growth in the range of 7% to 8% with additional growth from M&A of at least 2% to 3%” — Kenneth Krause .

Q&A Highlights

  • Residential demand surprised positively versus Street concerns; rodent activity drove elevated call volume late in the year, supporting outperformance without excessive marketing spend .
  • Sales & marketing spend increase reflects people investments (sales staffing and cross-sell capabilities), not higher cost-per-lead; admin cost leverage since 2022 (~50 bps) redeployed to fund growth .
  • Legacy auto claims reduced leverage by ~40 bps; volatility may persist but safety programs and truck technologies aim to mitigate exposures over time .
  • Commercial growth deceleration in Q4 tied to lapping large one-time jobs (bird, fumigations); January start was strong, no structural concern indicated .
  • 2025 cadence: elevated growth investments in 1H with more challenging comps; fleet costs rising; pricing “CPI+” expected to support gross margin leverage .

Estimates Context

  • S&P Global Wall Street consensus data was unavailable at the time of analysis due to a rate-limit error, so formal comparisons vs consensus cannot be provided. Qualitatively, William Blair noted residential growth was better than the Street expected, but no numeric consensus was available to validate a beat/miss .
  • If consensus becomes available, we would update revenue and EPS comparisons versus S&P Global to assess estimate revision risk.

Key Takeaways for Investors

  • Organic momentum strengthened into year-end (Q4 organic +8.5%), with residential and termite leading; pricing “CPI+” and diversified demand drivers (including rodent pressure) support 2025 top-line .
  • Near-term margin watch: growth investments (sales staffing, commercial division build-out) and legacy auto claims constrained EBITDA margin; underlying incremental margins remain ~30%, with expectation to improve as growth investments lap in 2H 2025 .
  • Capital structure upgraded: Fitch BBB+ and S&P BBB ratings plus planned $1B CP program reduce funding costs and broaden liquidity; subsequent $500M 5.25% senior notes due 2035 priced for debt optimization .
  • Cash generation robust: Q4 FCF +30% YoY; note temporary boost from deferred ~$32M tax payment (shifts to Q2 2025) when modeling Q1/Q2 cash flows .
  • Segment mix resilient: Commercial lapping of one-time jobs explains Q4 moderation; early 2025 indications are strong; termite cross-sell momentum continues .
  • 2025 setup: Organic 7–8% plus 2–3% M&A, ETR ~26%, CPI+ pricing, >100% cash conversion and leverage well under 2x support continued compounding; monitor fleet lease costs and claim trends .
  • Trading implication: Narrative favors durable organic growth and improved capital optionality; stock reaction likely sensitive to confirmation of margin cadence in 1H versus 2H and any updates on claims mitigation and fleet inflation trajectory .

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