Rollins, Inc.

Greetings and welcome to the Rollins Incorporated First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Lindsay Barton, Vice President of Investor Relations. Please go ahead.

Thank you and good morning, everyone. In addition to the earnings release that we issued yesterday, the company is also prepared a supporting slide presentation. The earnings release and presentation are available on our website at www.rollins.com. We have included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation as well as in our earnings release. The company's earnings release discusses the business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that have been made on this call, excluding historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially from any statement we make today. Please refer to yesterday's press release and the company's SEC filings, including the risk factors section of our Form 10-K for the year ended December 31st, 2025. On the line with me today and speaking are Jerry Galoff, President and Chief Executive Officer, and Ken Krause, Executive Vice President and Chief Financial Officer. Management, we'll make some opening remarks, and then we'll open the line for your questions. Jerry, would you like to begin?

Thank you, Lindsay. Good morning, everyone. I'm pleased to report Rollins delivered strong first quarter results. We saw sequential acceleration through the quarter and continued to see solid growth across all major service lines with total revenue growth of 10.2% and organic growth of 6.6%. Demand was a little slower to start the quarter, particularly given some unfavorable weather in January, but we exited with well over 8% organic growth in March. Spring sprang quickly for our teams as we were experiencing healthy growth in recurring and one-time services. As expected, we continued our investments in incremental sales staffing, and marketing activities ahead of peak season to ensure that we are positioned top of mind for the consumer as pest season begins. We are well staffed on the sales, technician, and customer support front with our teammates onboarded, extensively trained, and ready to provide an exceptional level of service for our customers. Earlier this month, we announced our acquisition of Romex Pest Control, a top 40 pest management company according to PCC top 100 rankings. RoMAX provides us with entry points into new markets while enabling them to further scale their operations and expand service offerings to their existing customer base. Most importantly, they have a strong people and customer-focused culture, and we were thrilled to welcome our new RoMAX teammates to the Rollins family. As you know, we believe the combination of Orkin and our strong group of regional brands is a competitive differentiator for Rollins, giving us multiple bites at the apple with potential customers, while also providing some balance and diversification with respect to customer acquisition. The addition of Romex is another example of our successful M&A playbook in action as we continue to add high-quality businesses to our premier portfolio brands through a disciplined and strategic approach. On the commercial side of the business, we're encouraged by our momentum. Overall, we delivered solid commercial growth for the first quarter. Over the last year, we have strategically added resources to support our dedicated commercial division within Orkin. These resources are paying off as Orkin Commercial continues to deliver new customer wins across key verticals. Beyond growth, our dedication to operational efficiency and continuous improvement is an important part of our strategy and culture. Kim will discuss in more detail what we saw headwinds to profitability from higher insurance and claims, as well as some pressure from headcount given lower volume earlier in the quarter. As we discussed last quarter, it's important that we maintain healthy staffing levels ahead of peak season so we aren't hiring, training, and onboarding a large number of new teammates at the same time seasonal demand ramps up. We've learned that extreme swings in hiring activity drives teammate turnover rates higher and has potential negative impacts on the customer experience. This hinders profitability in the short term, but is the right decision for the business long-term and sets us up to capitalize on peak season demand, as evidenced by our performance in March. In closing, we're excited about where our business stands today. The year is off to a solid start and demand from our customers remains strong. Our teams in the field are ready to support our customers as peak season ramps up, And I want to thank each of our 20,000 plus team members around the world for their ongoing commitment to our customers. I'll now turn the call over to Ken. Ken? Thank you, Jerry, and good morning, everyone.

Diving into the quarterly financial statements and starting first with revenue. Revenue growth was solid to start the year. It was very encouraging to see an improving growth profile as we moved throughout the quarter. In total, we delivered revenue growth of 10.2% year over year. Organic growth of 6.6% was negatively impacted by unfavorable weather, particularly in January, but we saw very strong sequential improvement in each month moving through the quarter. We were especially pleased with approximately 12% total growth and over 8% organic growth in the month of March. Overall, organic growth of 6.6% in the quarter represents a 90 basis point improvement versus the fourth quarter of 2025. We realized good growth across each of our service offerings. In the first quarter, resi revenues increased 9.3%, commercial pest control rose 9.6%, and termite and ancillary increased by 13.5%. Organic growth was also healthy across the portfolio, with growth of 4.2% in residential, 7.7% in commercial, and almost 10% in termite and ancillary. Turning to profitability and our gross margins, they were 50.8%, a decrease of 60 basis points. The lower volume in the first part of the quarter, coupled with higher insurance and claims activity, were headwinds to quarterly margins. Looking at our four major buckets of service costs, people, fleet, materials and supplies, and insurance claims. First and foremost, lower vehicle gains within our fleet line on the income statement created 50 basis points of headwinds to gross profit margin. We should see this start to improve as we go into the second quarter. Insurance and claims drove an additional 30 basis points of headwinds to gross margins, while service payroll costs provided 20 basis points of headwinds as we carried more technicians ahead of the start to peak season in March. Fuel costs represent approximately 1.5% of sales, and we saw a relatively neutral impact from fuel in the quarter. We currently expect fuel costs to continue to track below 2% of sales in 2026. We are seeing good receptivity on our recent price increase and expect price to contribute 3% to 4% of growth for the year ahead of CPI, and we expect to be positive on price costs for the year at that level of price realization. Gross margins are usually at their lowest point in Q1 given revenue seasonality, but we anticipate improving margins in our underlying operations as we move through peak season. Quarterly SG&A costs as a percentage of revenue increased by 70 basis points versus last year. Incremental selling investments provided 50 basis points of headwind, while higher insurance and claims costs contributed 20 basis points of headwinds on the SG&A line. First quarter GAAP operating income was $145 million, up 2% year over year. Adjusted operating income was $153 million, up 4% versus prior year. First quarter adjusted EBITDA was $179 million, up 4.4% versus last year, and represents a 19.8% margin. The effective tax rate was 21.3% in the quarter versus 23.5% and reflects the benefits of both the improvement associated with windfall tax benefits, as well as the work our tax team has done to improve our effective tax rate. We expect our effective tax rate to come in under 25% for the year, down approximately 100 basis points from historical levels. Quarterly GAAP net income was $108 million, or 22 cents per share. For the first quarter, we had non-GAAP free tax adjustments associated with acquisition-related and other items, totaling approximately $7 million of pre-tax expense in the quarter. Accounting for these expenses, adjusted net income for the quarter was $113 million, or 24 cents per share, increasing 9.1% from the same period a year ago. Turning to cash flow in the balance sheet, we delivered operating cash flow of $118 million and free cash flow of $111 million. Free cash flow conversion, the percent of income that was converted in the cash flow, was over 100% for the quarter. Cash flow performance was negatively impacted by the timing of tax payments associated with our tax credit planning strategy. This strategy has delivered meaningful benefits and is enabling very strong improvements in our effective rate. Also, our year-over-year cash performance was impacted by our transition to semiannual interest payments on our 2035 senior notes that we issued a year ago. Excluding these items, free cash flow would have increased 14% versus Q1 2025, and free cash flow conversion would have been approximately 140%. All very healthy, enabling us to continue our balanced capital allocation strategy. During Q1, we made acquisitions totaling $18 million, and we paid $88 million in dividends in the first quarter. We continue to expect M&A to contribute 2% to 3% of revenue growth for 2026. Our leverage ratio stands at 0.9 times. Our balance sheet remains very healthy and it positions

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