Q2 2018

A Rollins, Inc. (NYSE: ROL), divulgou seus resultados na quarta-feira, 25 de julho. A empresa registrou lucro de US $ 0,30 por ação no trimestre, abaixo da estimativa de consenso, que era de US $ 0,31, por US $ 0,01. Teve receita de US $ 480,46 milhões durante o trimestre, ao passo que a estimativa de consenso era de US $ 470,15 milhões. A Rollins teve um retorno sobre o patrimônio líquido de 30,79% e uma margem líquida de 10,97%. A receita da empresa cresceu 10,8% em relação ao mesmo período do ano anterior. Durante o mesmo trimestre do ano passado, a empresa gerou US $ 0,25 EPS.

NYSE:ROL - Rollins Stock Price, Price Target & More | MarketBeat

Company posts 49th consecutive quarter of improved revenues and earnings

- Revenue increase of 10.8% for the quarter driven by accelerated residential and commercial pest control growth
Gary W. Rollins, Vice Chairman and Chief Executive Officer of Rollins, Inc. stated, "We are confident that our strategy of investing to improve our market share will prove to be beneficial long-term. The acquisition of Aardwolf Pestkare announced earlier this month will expand our international presence to Singapore. The addition of this terrific company in tandem with our other leading brands strengthens Rollins as the largest worldwide pest control provider."
http://www.rollins.com/news/2018/07-25-2018-123034839

Continua em velocidade de cruzeiro.

Gary Rollins - Vice Chairman and CEO

"We’re very pleased to report our 49th consecutive quarter of improved revenue and earnings. For the quarter, our revenues grew 10.8% to 480.5 million compared to 433.6 million for the same period last year. Net income increased 21.1% to 65 million or $0.30 per diluted share compared to 53.7 million or $0.25 per diluted share for the same quarter last year. Revenues for the first 6 months rose 9.9% to 889.2 million compared to 808.8 million for the same period last year. Net income increased 20.9% to approximately 113.6 million with earnings per share at $0.52 per diluted share compared to 94 million or $0.43 per diluted share for the same period last year. We experienced good growth in all of our business lines, with residential up 11.6%, commercial pest control rose 6% and Termite & Ancillary services rose 16.9%. Eddie will provide greater detail on our financial results in a few moments.

We’re extremely pleased with the expansion that we continue to make with our global footprint. During the quarter, we made two significant acquisitions in this regard. In May, we acquired Guardian Pest Control in the United Kingdom. Guardian was founded in 2002 and is a well-recognized for its pest control services, legionella disease control and hygiene services. These services are provided to commercial customers throughout the UK’s midlands. This acquisition, our fourth in the UK, will help us to expand our footprint within this country. As in the past, we look forward to sharing best practices with one another.

On July 2nd, we marked another important company milestone, having closed on the acquisition of Aardwolf Pestkare, our first company owned acquisition in Singapore. Founded in 1997, Aardwolf is a highly regarded company and known for its superior pest control and specialty services to both residential and commercial customers. In selecting to partner with Rollins, founders John Ho and Patrick Chong shared that it has taken them 3 years to find a company that had the same business philosophy that they had. Both of our companys share a commitment to quality service and care for our employees. We're most pleased that Patrick Chong will remain in a leadership role and we look forward to working with him and his fine team with the goal of becoming the dominant pest control provider in Singapore.

The landmark acquisition expands our residents now into 54 countries worldwide. John will provide greater details on this acquisition. We received an overwhelmingly positive response from our employees, resulting from the tax related benefit improvements announced last quarter. If you look around, we granted Rollins’ stock to over 7,000 employees based on tenure with the company. This was a one-time charge for the second quarter P&L. On a going forward basis, our 401(k) plan was improved, which benefited all participating employees. This was complemented by an additional floating holiday and an enhanced college scholarship program. Investing in our people is always beneficial and critical to our mission to become the world's best service company.

Before turning the call over to John, I'd also like to acknowledge HomeTeam is receiving for the 7th time in a row, David Weekley’s highly coveted Partners of Quality award. David Weekley Homes is the largest privately held builder in the country, implementing its rigorous supply feedback platform as a way to measure world class lender excellence. And to demonstrate their commitment to partner with our suppliers, believing that when a partner improves his relationship with them, they both become better providers in the marketplace. HomeTeam performs thousands of services for David Weekley Homes at 13 cities where they conduct this. This award confirms HomeTeam’s commitment to providing exceptional service to its business partners."
Rollins Inc. (ROL) CEO Gary Rollins on Q2 2018 Results - Earnings Call Transcript | Seeking Alpha

John Wilson - President and COO

"I’m often asked about whether the tight labor market and the competition for talent is impacting our business. As you well know, in April and May, the unemployment rate reached lows not seen since 2000. However, Im pleased to report that our brands are dealing fairly well with this issue. We believe the strength of our various brands recognition and their reputation has helped, evidenced by the volume of applicants we continue to get for employment opportunities at Rollins companies.

Through the first half of this year, our number of applicants per job opening was similar to a year ago. And for March and April, when unemployment figures hit their lowest, our applicant flow remained comparable to 2017 levels as well. That said, we recognize a strong applicant flow is not enough. We also have to ensure that our hiring processes are efficient and that we select the right people. Towards that end, we have made a few changes to our assessment tools and pre-employment screening processes to reduce the time it takes to get someone on board and begin their training programs.

Any reduction in time we can implement around these processes reduces the risk that we lose a good candidate to some other employer. Most importantly, it allows us to review hard and ultimately choose well. One of the most important ways we do that is by having our top job candidates complete what we call, an observation day, where the candidate spends time shadowing one of our top employees who performs really well in the same type of work. This helps a candidate to decide whether the work we do in our company is a good fit for them. We get to see how they interact with co-workers and their likelihood to fit into the team.

This additional step also helps to ensure we select the best people. One other added benefit of taking the time for the observation period is that it keeps the candidate engaged and active during the process and gives our managers a bit more time to check background and references on their candidates. 4.5 years ago, we pledged to hire 1,000 veterans over 5 years and we’ve put more effort into recruiting military veterans. These folks are returning from Iraq, Afghanistan and other places around the world and are well trained, very motivated and very disciplined. I am happy to report that we have exceeded that goal by 177 new team members prior to the 5th year being completed.

At the end of last year, we also hired a human resources consulting company to review the effectiveness of our compensation programs. They found that our company is in the top quartile in compensation with comparable industries. However, they have also shown us areas to improve. We feel strongly that being the employer of choice for the pest control industry and even for the service industry at large will continue to provide us with a good supply of candidates to choose from. In addition to ensuring we get the right people on our team, we also want to get them up to speed more quickly.

As I mentioned on a previous earnings call, we were evaluating the best way to move forward. Prior to making any ill advised decisions, we decided to survey our new hires to see how well we were doing with their on-boarding experience. We found out we weren’t always doing a very good job of providing these folks with an experience that would help them to be successful and leave our customers happy.

In late 2017, we implemented new on-boarding processes to improve the experience. We wanted them to feel a part of the team from day one and to quickly get the training and development they need to learn their jobs more quickly. By making these changes based on this survey feedback, we have made improvements. Today, our on-boarding surveys tell us that 93% of our new hires are proud to work for our brand and over 90% said they would recommend our company as a great place to work.

Of course, there is a lot more to this than just selecting and hiring new team members, we have to train them exceptionally well, provide them with all the tools necessary, show them that there is plenty of opportunity with our company, compensate them well and most importantly, treat them well. There are certainly a lot of moving parts to it, but it is well worth that extra effort to ensure that we build and maintain a strong team. So while the labor market is tight, we're continuing to adjust. We know talented people have choices and we want the Rollins brands to be a leading contender for the best talent.

Following up Gary’s remarks on our acquisition of Aardwolf and Guardian, I wanted to reiterate how pleased we are to have them join our company. The depth and talent of the leadership team at Aardwolf played a major factor in our desire to join with this organization. With the strong history of growth and leadership in the industry, Aardwolf shares many similarities with the Rollins family of brands. Gary mentioned that Patrick Chong remains with us to lead this talented team forward. We wish John Ho well as he transitions into retirement and begins to travel and spend quality time with his family. We look forward to working and learning from these new members of the Rollins family for years to come."

Rollins Inc. (ROL) CEO Gary Rollins on Q2 2018 Results - Earnings Call Transcript | Seeking Alpha

Eddie Northen - SVP and CFO

"The hiring method that John discussed is extremely timely, with the historic revenue growth rate that weve seen this quarter, which followed a very strong Q1. While M&A made up roughly half of the 10.8% growth rate that Gary mentioned, the remaining 5.4% organic growth rate drove the need for accelerated hiring and additional service payroll to get these new accounts, up and running with a quality service. Our financial results continue to show the impact of our extremely high level of acquisitions over the past six months, as depreciation and amortization impacted both our income before taxes and net income. That said, we look forward to the related profit improvement in the future.

For the quarter, all of our service lines showed significant growth and keys to the quarter included historic commercial organic revenue growth, substantial increase in depreciation and amortization, as a result of multiple acquisitions and thirdly, fleet expense increase, which was impacted by lease cost and a significant increase in fuel price per gallon.

Looking at the numbers, the second quarter revenues of 480.5 million was an increase of 10.8% over the prior year’s second quarter revenue of 433.6 million. Income before taxes increased 4.7% to 90.2 million from 86.1 million in 2017. Net income rose 22.1% to 65.5 million and earnings per share increased 20% to $0.30 per diluted share in the second quarter of 2017.

As we discussed last quarter, there were two unusual items that affected the profit numbers compared to the typical quarter, as they will continue to do for the remainder of 2018. The first was the enhanced employee benefit that Gary referred to earlier. This impacted the second quarter by about a penny due in part to the expense related to our enhanced 401(k) match and the one-time stock grants to many of our US based employees. We received very positive feedback from our workforce on this tremendous use of a portion of our tax savings.

Additionally, the second significant item is the increase in recent acquisition, which has increased our amortization of intangible assets for the quarter by 27.3%. Over the past five years, our average increase of amortization of intangible assets year-over-year has been 9.5%. Compared to last year, this significant increase also impacted the earnings per share by a penny and is a tremendous investment for our future.

With our strong increase in pest control revenue generated, there is an aspect of our business that we have not spent a lot of time discussing in the past. This is related to start-up costs for new recurring businesses. This would include initial sale, materials and supplies, sales commissions and labor costs, all of which falls in the first month of service with only a portion of the revenue recognized.

For commercial customers, this would include equipment need such as rodent trap, fly lights and base station, just to name a few. The time to get this equipment in place and to provide the needs of the new account reduced the profit contribution for the first three to four visits. Once we are at that four to five visit level, the profitability significantly improved and this is a key reason that we concentrate on high levels of customer service to ensure that we retain these customers for years to come.
Because of the consistency of our organic revenue growth over the years, this has not been readily visible in our quarterly numbers. With the recent significantly accelerated organic growth, especially on the commercial side, the revenue growth of over 4% in Q1 and Q2, we felt that this was a timely discussion for us to have.

A deeper look into our organic growth rates reveals that in Q2, our recurring revenue grew greater than 10%, well above our historic norm. We believe that our investments in technology, training and our employee base are paying these dividends. In comparison, we know that one time revenue is immediately profitable, but the recurring revenue will ultimately generate excellent profitability. With strong residential and commercial retention rate, this investment will pay dividends for years to come.

Let's take a look through the revenue by service line for the second quarter. As discussed earlier, our total revenue increase of 10.8% included 5.4% from several acquisitions and the remaining 5.4% was from pricing and organic growth. In total, residential pest control, which made up 42% of our revenue, was up 11.6%. Commercial pest control, which made up 37% of our revenue was up 6% and termite and ancillary services, which made up approximately 20% of our revenue was up 16%. Our commercial growth has trended higher over the past five years, but as I’ve mentioned, this quarter is the fastest growth that has occurred during that time period. Again, total revenue less acquisitions was up 5.4% and from that, residential was up 6.1%, commercial increased 4.2% and termite improved 3.3%.

When we take a look at the quarter, taking out the impact of foreign companies and currency, in total, we grew 10.9%, residential grew 11.5%, commercial pest control was up 5% and termite and ancillary improved 16.7%. In total, gross margin for the quarter was 52%, down from 52.8% in prior year’s quarter. A large impact was felt from gasoline costs that were up on average $0.39 per gallon compared to last year. However, our efforts around route optimization to our virtual route management system continues to see improvement and partially offsets the fuel increase.

The second quarter and specifically June revealed the best improvement in stops per mile since we completed our rollout of the virtual route management system in 2017. Fleet expenses in total increased 3.5 million or 21.5% for the quarter, driven by fuel price increases that I mention and leased vehicle expense. Personnel related costs were up due to the 401(k) plan company match and stock grant that we began to amortize this quarter. Depreciation and amortization expense for the second quarter increased 2.8 million to 16.4 million, an increase of 20.8%.

Depreciation increased 936,000 due to acquisitions, vehicle leases and equipment purchases as mentioned before. Amortization of intangible assets increased 1.9 million, due mostly to amortization of customer contracts included in the various acquisitions. Sales, general and administrative expenses for the quarter increased 13.7 million or 10.6% to 29.8% of revenues, down one-tenth of a percentage point from 29.9% for the first quarter last year. The decrease in the percent of revenue is due to lower salaries, which increased slower than revenue and reduced professional services, as we wrapped up various projects.

As for our cash position, for the quarter ended June 30, 2018, we spent 14.2 million on acquisition compared to 11.2 million the same quarter last year, as we continue to deploy higher levels of cash on acquisitions year-over-year and 61.1 million on dividend, an increase of 22%. We had 14.2 million of CapEx, which was up 27% from 2017, primarily from planned IT upgrades and the Northwest acquisition. We ended the quarter with 87.9 million in cash, of which 40.1 million is primarily held in non-interest bearing account at various domestic banks.

There is one other item to note related to our cash flow moving forward. We have initiated a process to transition our pension plan to an insurance provider. The time allotted will take the next 16 to 18 months, for which the pension plan over 100% funded, interest rates rising and pricing very attractive, we felt this was the best time to move forward. On an annual basis, historically, we have made a $5 million contribution to the pension plan. This means that we do not have any plans to make this payment moving forward in time.

Last night, the Board of Directors declared a regular cash dividend of $0.14 per share that will be paid on September 10, 2018 to stockholders of record at the close of business, August 10, 2018. The cash dividend is a 22% increase over the prior year. This marks the 16th consecutive year the board has increased our dividend by a minimum of 12%.

Before I turn the call over to Gary, I'd like to ensure that you are all aware of our Analyst/Investor Day on August 10 at the New York Stock Exchange, recognizing the 50th anniversary of Rollins, as a publicly listed company on the New York Stock Exchange. Gary, John, Julie and I will be giving an update on several parts of our business as we see them today and moving forward.

Rollins Inc. (ROL) CEO Gary Rollins on Q2 2018 Results - Earnings Call Transcript | Seeking Alpha