Rollins Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Tim Mulrooney - William Blair & Company, L.L.C. - Analyst : Jerry, good morning.

Question: Tim Mulrooney - William Blair & Company, L.L.C. - Analyst : Yeah, congrats on a nice quarter. My first question is about your residential business, which I know the organic growth up 6.5% in the fourth quarter. I think that was better than what we were expecting and certainly better than what the Street was expecting. I think the Street was a little concerned based on some web traffic data and credit card data and other things that were floating out there. But there really doesn't seem to be much of a correlation there at all. Can you talk about what drove this better-than-expected result? Was there a big surge in one-time sales or surge in lead flow? Just any color would be helpful.

Question: Tim Mulrooney - William Blair & Company, L.L.C. - Analyst : Okay. That's really helpful. Thank you. For my follow-up, I actually want to switch gears completely and ask a question on sales and marketing. I appreciate the extra disclosure that you gave for your different expense buckets in the press release, where I noticed that sales and marketing expense really jumped up about 70 basis points in the fourth quarter, I think, 40 basis points in 2024. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 1:30PM, ROL.N - Q4 2024 Rollins Inc Earnings Call Now a skeptical investor might look at that and say, you're just having to spend more on leads. Your cost per lead is going up. I'm curious what would be your response to that. What data can you share to prove that the increased spend is more about growth investments rather than just your check is going up? Thank you.

Question: George Tong - Goldman Sachs - Analyst : Hi, thanks, good morning. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 1:30PM, ROL.N - Q4 2024 Rollins Inc Earnings Call

Question: George Tong - Goldman Sachs - Analyst : Hi. Can you detail how much auto claims activity impacted EBITDA margins in the quarter?

Question: George Tong - Goldman Sachs - Analyst : Got it. That's helpful context. And then in your commercial business, the growth there decelerated a bit in the quarter despite easier comps. Can you elaborate on trends you're seeing there that may be driving that?

Question: George Tong - Goldman Sachs - Analyst : Got it. Very helpful. Thank you.

Question: Ronan Kennedy - Barclays - Analyst : Hi, good morning. This is Ronan Kennedy, on for Manav. Thank you for taking my questions. Can I just confirm in response to the question posed by George on the auto claims. Does that imply that there's potential for this to continue versus it being a one-time event? Can you give some further insight there?

Question: Ronan Kennedy - Barclays - Analyst : Okay. Thank you. And for my follow-up, please. Could I just -- you touched on this to a certain extent, but an assessment of the progress made in the modernization of back office and the centralizing of services and processes. So I think the intent there is, amongst the benefits, to be a better acquirer of businesses, but also the ability to fund sales and marketing investments. I think you referenced 50 bps of leverage there since '22 from takeout of those admin costs. To what extent is that happening now? And when can we expect to see that ramp?

Question: Ronan Kennedy - Barclays - Analyst : Thank you. Appreciate it. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 1:30PM, ROL.N - Q4 2024 Rollins Inc Earnings Call

Question: Ashish Sabadra - RBC Capital Markets - Analyst : Thanks for taking my question. I had a question on the pricing increases in 2025. A number of business services companies are talking about normalization of price increases. I was just wondering if you could comment on your ability to continue to drive 3% to 4% price increase in 2025 on the consumer side, but also if you could comment on the pricing trends within the commercial business. Thanks.

Question: Ashish Sabadra - RBC Capital Markets - Analyst : That's great color. And then maybe just switching gear about the growth investments. Obviously, very high ROI on those investments. But how do we think about those investments going into 2025? You've guided to roughly 30% incremental margins. But I was just curious if you could provide some color on the quarterly cadence there. How should we think about the timing of those investments? Thanks.

Question: Ashish Sabadra - RBC Capital Markets - Analyst : Very helpful color, and congrats on such a strong top-line momentum. Thank you.

Question: Jason Haas - Wells Fargo Securities, LLC - Analyst : Hi, good morning. Thank you for taking my question. I was curious if you could comment on what you're seeing from an organic growth perspective so far this year. And then we've heard some concern in the industry that there was a pretty severe cold weather in January that, essentially, I guess, killed off the eggs and larvae from some of the pests and I guess -- I don't know -- the rodent populations as well in January. So there's a concern that we could see a muted spring selling season. So I was curious if that's a dynamic that you're seeing and if you agree with that?

Question: Jason Haas - Wells Fargo Securities, LLC - Analyst : Got it. That's great to hear. And then can you -- I just wanted to ask you again on the incrementals. I think you have said that it was a 40-basis-point headwind from the auto claims. So it was getting like a little over $3 million. So excluding that in 4Q, I was getting incrementals of about 23%. I guess, the other piece that keeps -- because I know you said the underlying business was approaching 30%. So I guess, the other piece was the investments that you're making. So can you just help us bridge to getting closer to the 30% incrementals for 2025? Because it sounds like some of those investments -- maybe the auto claims don't all repeat. But it sounds like some of those investments will continue. And then even more just like bigger picture, I know the long-term target is 30% to 35%. Can you help us bridge to that as well, and what can increase incremental margins over time? Thanks.

Question: Jason Haas - Wells Fargo Securities, LLC - Analyst : Got it. Thank you. That's great to hear.

Question: Aadit Shrestha - Stifel Nicolaus and Company, Incorporated - Analyst : Good morning. Thanks for taking my questions. You mentioned outside deal contribution again in 2025, I think, about 2% to 3%. How much of that is already in hand from rollover from deals you already did in '24 and what you've already done in '25?

Question: Aadit Shrestha - Stifel Nicolaus and Company, Incorporated - Analyst : Okay. Great. And just as a follow-up, the investment-grade rating in hand. So now you have access to cheaper capital and [runs] -- versus historically now, you're more comfortable with debt. So does this open up a larger pipeline opportunities for M&A that maybe in the past, you may have decided not to pursue just because -- now the return on the capital will be fit within your requirements?

Question: Aadit Shrestha - Stifel Nicolaus and Company, Incorporated - Analyst : Great. Thank you for taking my question.

Question: Karan Singh - UBS - Analyst : Hi, good morning. This is Karan Singh, on for Josh. If I could ask a question maybe on what you're seeing on the cost inflation side. What you're seeing, maybe just across the board, with labor material and equipment, and what are your expectations for 2025 versus what you saw in 2024? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 1:30PM, ROL.N - Q4 2024 Rollins Inc Earnings Call

Question: Karan Singh - UBS - Analyst : Got it. That's helpful. And maybe for my follow-up, if I can ask a question on the different channels. What are your priorities for 2025 with respect to those areas? And how do you expect that to drive like volume performance for the year?

Question: Karan Singh - UBS - Analyst : Sorry, yeah, sure. So basically, I wanted to ask you about the different channels that you have. And how are you thinking about that for 2025? And like how do you expect those to drive some volume performance over there?

Question: Karan Singh - UBS - Analyst : Understood. Thanks for the color.

Question: Peter Sullivan - Jefferies - Analyst : Hey, good morning, guys. This is Peter Sullivan, on for Stephanie Moore.

Question: Peter Sullivan - Jefferies - Analyst : So, how's it going? I was just curious about your strategy for continuing momentum in new business wins. What are you guys seeing in your end when it comes to through digital versus door to door? And then also, is there a dispersion in retention for gaining customers through these avenues? Thanks.

Question: Peter Sullivan - Jefferies - Analyst : Appreciate it, guys. And then for my follow-up, I was curious a little bit on -- to switch it up to the labor side. And then looking at kind of the consolidation of the competitive landscape, are you guys seeing any noticeable change in, say, technician turnover and then some context on what the technician hiring environment currently is? Thank you.

Question: Peter Sullivan - Jefferies - Analyst : Appreciate the color here. Thank you.