Rollins, Inc. Aktie

Greetings, and welcome to Rollins, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Lyndsey Burton, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Donna, and good morning, everyone. In addition to the earnings release that we issued yesterday, the company has 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 31, 2025.

On the line with me today and speaking are Jerry Gahlhoff, President and Chief Executive Officer; and Will Harkins, Executive Vice President and Chief Financial Officer. Management will make some opening remarks, and then we'll open the line for your questions.

Jerry, would you like to begin?

Thank you, Lyndsey. Good morning, everyone. Our second quarter results did not meet our expectations, driven primarily by slower growth within certain portions of our residential pest control business. The pressure was concentrated in brands such as Orkin that rely more heavily on consumer-initiated demand through search, digital media and inbound calls. The lead environment got progressively worse as we moved through the quarter before showing signs of improvement at the very end of June.

Our experience with respect to a slowdown in underlying residential demand was not broad-based across the portfolio. Brands that generate customers through relationship-based channels like direct sales, door-to-door models, and relationships with homebuilders delivered organic growth above our targeted 7% to 8% range for the quarter. For example, HomeTeam experienced double-digit residential growth as did Fox, who leveraged their door-to-door sales force to grow in the high teens organically during the quarter. This is a testament to the importance of our diversified multi-brand approach.

And beyond residential, our termite and ancillary business delivered solid double-digit growth, while commercial grew high single digits, demonstrating that strategic investments we have made in support of these service areas continue to pay off. We spent a great deal of time evaluating the drivers of the slowdown in parts of our residential business. And candidly, we don't believe there is a single explanation. It's important to note that the underlying health of our customer base remains strong, and there were no notable shifts or deterioration in customer retention trends. While precise drivers are difficult to isolate, what we do know is that customer demand patterns have been more variable to start peak season than we've experienced in the better part of a decade.

Regardless of the underlying drivers, our focus is on the actions needed to drive improved performance. We have implemented organizational and operational changes designed to strengthen accountability, improve execution, and better align our resources with current demand conditions.

At Orkin, for example, we recently promoted Scott Weaver to Chief Operating Officer of Orkin North America. Scott most recently had responsibility for all Orkin's commercial operations in the U.S. His newly expanded role expands his scope of responsibility to include both residential and commercial operations for the U.S. as well as Canada. This will provide a better span of control with all division presidents now reporting to Scott, who will continue to report to Patrick Chrzanowski.

We are focused on improving customer acquisition results, sales productivity, local market execution and labor efficiency, while maintaining the customer service standards that have differentiated us as the leader in the market. Although we're cautious with respect to near-term trends, we were encouraged that inbound lead flow and call center volumes improved towards the end of June and have continued a positive trajectory through the first few weeks of July.

Stepping back, our confidence in the long-term opportunity remains unchanged. We operate in a large and fragmented market with a diversified portfolio of leading brands, strong customer relationships, a significant recurring revenue base and a team that has the experience needed to successfully navigate near-term market conditions and improve performance.

I'd like to thank our 20,000-plus teammates around the world for their hard work and dedication to serving our customers every day. I'm now pleased to turn the call over to Will. This marks his first earnings call as CFO. We're excited to have his leadership at Rollins, and I'm personally grateful for the partnership we're building.

Will, take it away.

Thanks, Jerry, and good morning, everyone. I'm pleased to join you today for my first earnings call as CFO. I look forward to providing a clear view of our second quarter results, our updated outlook and the actions we are taking to improve performance. I will begin with our quarterly financial results, starting with revenue.

Total revenue increased 7.9%, while organic growth was 5.7%, both below our expectations for the quarter. As Jerry mentioned, the primary driver was slower growth in portions of our residential business. We delivered growth across each of our service offerings. In the second quarter, residential revenues increased 6.6%. Commercial pest control increased 8.6% and termite and ancillary increased 10.5%. Organic growth across the portfolio was 3.6% in residential, 7.2% in commercial and 8.9% in termite and ancillary.

Turning to profitability. As demand trends softened in certain areas of the business during the quarter, our cost structure remained aligned with the stronger growth outlook we anticipated entering peak season. Gross margin was 52.8%, a decrease of 100 basis points. Lower-than-expected volume in the quarter, coupled with higher medical-related costs and fuel headwinds pressured quarterly margins. The primary drivers were higher people-related costs, including medical plan expenses and service salary deleverage, which together represented 70 basis points of pressure. Fleet represented an additional 20 basis points of headwind, driven primarily by fuel. Fuel costs represented approximately 1.8% of sales in the second quarter and are expected to remain below 2% of sales for 2026.

Customer response to our recent price increase has been favorable, and we continue to expect to be positive on price/cost for the year. Quarterly SG&A cost as a percentage of revenue increased 30 basis points compared with the prior year. Incremental selling investments represented a 10 basis point headwind, while higher fleet costs contributed an additional 10 basis points of headwind. The remaining pressure was attributable to other general and administrative expenses.

Second quarter GAAP operating income was $201 million, an increase of 1.5% year-over-year. Adjusted operating income was $210 million, an increase of 2% compared with the prior year and second quarter adjusted EBITDA was $236 million, an increase of 2.2% versus last year, which represented a 21.9% margin. The effective tax rate was 24.2% in the quarter compared with an even 26% last year, reflecting the work our tax team has done to improve our ETR. 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 $144 million or $0.30 per share. For the second quarter, we had non-GAAP pretax adjustments associated with acquisition-related costs and other items totaling approximately $10.8 million in the quarter. Accounting for these expenses, adjusted net income for the quarter was $152 million or $0.32 per share, an increase of 6.7% from the same period a year ago.

Turning to cash flow and the balance sheet. We generated operating cash flow of $173 million and free cash flow of $166 million. Free cash flow conversion, which is measured as the percentage of income converted into cash flow, was above 115% for the quarter. Cash flow growth was negatively impacted by the timing of tax payments associated with our tax credit planning strategy. This strategy continues to deliver meaningful benefits and is contributing to significant improvements in our ETR. We expect the timing-related headwinds to cash flow growth that we have experienced year-to-date to reverse as we move through the remainder of the year, particularly in the fourth quarter, resulting in a neutral impact on full year cash flow growth.

During the second quarter, we completed acquisitions totaling $117 million and paid $88 million in dividends. We continue to expect M&A to contribute 2% to 3% of revenue growth for 2026. Our leverage ratio stands at 1x, and our balance sheet remains strong and positions us well to continue executing against our growth priorities, while returning capital to shareholders.

As we look to the remainder of 2026, we remain encouraged by the strength of our markets, our recession-resilient business model and the engagement and execution of our teams. At the same time, we recognize that our performance fell short of our targets and our immediate focus is on improving the trajectory of the business through disciplined execution and operational improvements. We are approaching the balance of the year with discipline, transparency, and a clear focus on the controllable actions that will improve performance.

Given our first half results and the visibility we have today, we are updating our full year outlook. We now expect organic growth of at least 6% for the year and incremental margins of at least 10% for 2026, with implied margin improvement in the back half of the year to be Q4-weighted. Our expectation for 2% to 3% of growth from acquisitions as well as our expectation that cash flow will continue to convert at a rate above 100% remain unchanged for the year. Importantly, the revision to our 2026 expectations reflects our current assessment of near-term operating conditions rather than any change to the medium-term algorithm we outlined at our Investor Day in May.

We continue to believe this business is capable of generating organic growth of at least 7%, while delivering meaningful margin expansion. The operational opportunities that underpin our longer-term margin framework remain ahead of us, and we maintain conviction in our ability to achieve incremental margins of at least 30% over time.

Our priorities are clear: improve customer acquisition, increase productivity, align resources by demand and demonstrate consistent operational improvement quarter-by-quarter. We believe the actions we are taking together with the growth and productivity initiatives outlined at our recent Investor Day, position us to deliver profitable growth and attractive shareholder returns that have been the hallmark of our financial performance for decades. We are focused on execution, accountability and consistent improvement, and I look forward to updating you on our progress in the quarters ahead.

With that, I'll turn the call back over to Jerry.

Thank you, Will. We're happy to take any questions at this time.

[Operator Instructions] Today's first question is coming from Tim Mulrooney of William Blair.

Just a couple of questions about top-line growth here real quick. The first one is just on the components of organic growth. Have you seen any changes in retention or pricing? Or is this primarily just new sales that are pressured right now?

We've not seen any hesitancy from our customers on pricing. And as I mentioned in the remarks, our customer retention remains strong. We have also some parts of the business that have made slight improvements in customer retention in the second quarter. So those 2 elements aren't drivers of anything that gives us any pause or any cause for concern.

I thought that was the case, Jerry. I just wanted to make sure, so I appreciate that. So it sounds like it is just the top-of-the-funnel issue. So maybe we could dig into that a little bit. Curious why you think digital leads are slowing so much right now. I mean, I know they've been under pressure for a while. It sounds like, though, something really shifted in April and May. So I was just curious, have there been any changes in SEO or from the LLM overviews that are impacting leads? Like do you think this is an AI thing? Or do you think it's a softer consumer? Just curious what you think is going on here?

Tim, if you would -- could be in the room to hear the number of hours and the amount of time and the research and the amount of effort that's gone into trying to explain that. That's why I called out that I think it's truly a multitude of factors. April was okay. April wasn't far off. It was really -- we were expecting by mid-May that it would have made a turn. And May did not start out great. And we thought, oh, well, it's coming, it's coming, it's coming. We looked at lots of factors. You think, okay, May is when gas prices spiked, and maybe consumers are tightening their belts. Maybe there's a little lack of consumer confidence. But yet, at the same time, we were still able to drive termite and ancillary with our existing customer base and those close rates weren't impacted. So we felt like maybe the consumer is still healthy.

Then you look at -- is it regional weather, or is it just pest pressures. And we started diving into what's going on, especially in the onetime space. We look at data that show certain -- there are certain categories of pests that we measure a lot of different pests and what the reasons we get calls for. And things like mosquitoes, mosquito calls were significantly down year-over-year and other kind of one-time services like residential rodent and residential carpenter ant were down fairly significantly, which leads you to believe, well, maybe there's something going on with pest pressure in the month. And we look at the mosquito and that's kind of a bellwether pest to say what's going on from a pest pressure standpoint. And it seemed like mosquito season started really late.

We also tested the search environment. We looked across the competitive space. We pulled a lot of different levers to see, hey, can we juice this? Can we create more demand? Can we -- and we were doing that testing a variety of things and adjustments to how you play in the digital space. None of those things really moved the needle a lot and it led us to believe that quite heavily that we just had fewer people year-over-year, actively searching the digital channel for pest control needs. That's the conclusion that we came to that it just seemed fewer.

And I think if we thought it was the LLM or the AI, it doesn't explain. We didn't do something radically different at the end of June to change our approach and suddenly, it just picked back up again. And then through the first few weeks of July, we saw the -- we're seeing the same thing again. So it's not like our strategy changed, it's like pest pressure and consumer-driven demand was the part that was off of there. And it was -- I know I'm going on long here, Tim, but this is -- like I said, we've spent a lot of time analyzing this.

And all I can -- this whole scenario harkened back for me, and second quarter of 2017 was the last time I remember seeing this kind of a start in the season. And I'll never forget it because it was my first time having to go represent our operations in front of Randall Rollins and Gary Rollins, and we had a rough Q2. And it was like the season just never started. And that was a very difficult first time operating meeting with Randall Rollins and it was just like -- it just didn't come too much later. And trust me, I'd rather have conversations with you about this than I would have with Gary and Randall at that period of time.

And so that's exactly what this felt like. It just felt like a really super late start. What we attribute it to, I think it's all kinds of things. I think in all these things, it's a confluence of all these things likely. And we also look at brands like Orkin and you think, oh, it's the consumer, there's probably -- Orkin drives a lot more diversity in terms of income bands that they get customers from. And we've checked across those income bands, and there's likely some impact from lower income bands, but affordability maybe gets a little tougher.

So we're seeing those things, but it's really not one thing that we can put our finger on. There's a lot of factors. We're encouraged by what we're seeing now, and we're going to continue to make adjustments. We're also going to be disciplined about our spend and make sure we don't overspend, especially in the back half of the year on driving customer acquisition. So we're going to be focused on efficiency, focused on having -- making sure we're efficient through the right lead channels and making the best decisions we can to add customers to the customer base.

Okay. I appreciate all that extra color, and good luck in the back half of the year.

The next question is coming from Manav Patnaik of Barclays.

I was hoping you could just help us size Orkin and maybe all the other brands that collectively make up this -- what you said was brands more reliant on consumer-initiated demand. And I guess even within that, how much is kind of self-help on your part versus you're just waiting for the consumer to reach out to you?

Yes. Thanks for the question, Manav. I mean, obviously, Orkin has a large residential customer base. Other brands like a HomeTeam and a Fox are primarily residential. A lot of our other brands are not quite as focused at the larger ones are not quite as focused just on residential, they may do a lot of termite and ancillary, they may also do a lot of commercial. And so the vast majority of the residential sits in between Orkin, Fox, HomeTeam on the residential pest control space and to some degree also Northwest Exterminating. And the Orkin piece of that is very sizable in the whole. So whereas they are able to grow a little more rapidly right now than Orkin, but the headwinds in volume, and what Orkin is getting net effect volume-wise is dragging that number down to that 3.6% range just because they are more sizable than those other brands. That helps add a little color because we don't...

And across the other -- the specialty brands, that business performed quite well, right? Where there's proactive protection-focused sales relationships at the doorstep, for example, with [indiscernible], with the customers...

Totally different business model, yes, that's right, Lyndsey. And some of those brands are much less dependent and spend very little marketing dollars like a HomeTeam brand spends almost nothing in the digital channel. It's just not what they do. So they're much more insulated from those kinds of, what I would call, consumer-driven demand channels, where they're going and creating through selling prevention to homebuyers.

Got it. And then the 2Q '17 analogy that you pointed out, maybe you could just help us with kind of were there some of the similar -- what caused that, I guess, back then, and then kind of how long perhaps it took you guys to come out of that?

Yes. So that was one of those -- I remember it because our Q2 close meeting was in early July, just like we had the same kind of meeting here. It's kind of like deja vu. What happened in that situation was that July came back and we ended up in pretty decent shape in Q3. It wasn't like a long recovery because once you got into the heat and the peak season again, it just sort of took back off. And it was a really awkward sort of pregnant pause of a waiting for that. As though we thought it was never going to come, but then it finally did. It happened around the 4th of July that year. It hit. And then all of a sudden, we were off and running again. But it was a pretty painful. It was from -- I have scars. It was a pretty painful Q2, but we came right out of it in Q3.

The next question is coming from Greg Parrish of Morgan Stanley.

So you talked about the improvement in late June and that persisting into July here. Maybe can you give us a sense of kind of what that exit rate was and where you're at here in July to start?

We basically saw the gap narrow back to being very -- rather than being down to prior year to being very similar to prior year. That's the narrowing of that, that we saw.

And you're talking about lead flow there, right? In terms of the volume of inbound leads was more on par from where we were a year ago.

That's right. Very much in comparison. And look, we still are getting better quality leads. I think the team is driving better quality leads. So we're making some of it up in closure and start rate and still managing to get price in that. So that seems very healthy. So we can deal with -- if regionally, if there are some pockets where the lead volume is down, we can usually still make that up by lead closure. But in months like May and parts of June, where there was just a massive gap, we can't make that up through pricing and closing efficiency.

Yes. Okay. That's helpful. And then maybe just to turn to margin. Your updated incremental margin guide is plus 10%, you did 8% in the first half. So it doesn't imply a whole ton of improvement in second half. You talked a lot about margin, focused on margin efficiency efforts. So just trying to reconcile those 2, kind of what's in your control, what could lead to upside in the second half?

Yes, Greg, we -- as we look through the back half of this year, so through the first half, we're sitting at just below 8% of incremental margins. And so all those things that we outlined at Investor Day talking through improvements with our fleet, talking about how we can better utilize our procurement function from an M&S perspective. I talked about customer or employee retention, all those things still remain fully intact, but we're also really cautious because we realized Q3 of last year had a lot of favorability in the numbers. And so we've got a pretty difficult number to hurdle as we go into Q3 of this year.

We think we've got some good benefits that we may be able to pull through in the fourth quarter, but we're just trying to be cautious with what we know today, what we're seeing today, we didn't expect to be posting an incremental margin of 6.5% in the second quarter. So that certainly changes our outlook for the full year. But we still think all the things that we've talked about there's plenty of opportunity sitting here.

Yes, there's opportunity that we have in the back half to greatly improve sales efficiency. We have no intention of staffing up the way we staffed up last year. So there's some opportunity there on the SG&A side. We just entered into a great new agreement with our fleet supplier Wheels, that will help us continue to manage our fleet costs considerably better as we move forward. We have opportunities in the procurement side. Phil -- or Will pointed out in his remarks about some of the headwinds that we're having in medical. We're going to be doing our best to push our people to use lower-cost options like our telehealth option and our on-site clinics that we have available for people to use because they can drive -- we can drive cost savings through -- just through education and a more convenient way for our people to get medical care. There's been a lot of challenges in the medical cost side. And so we've got some efforts that we need to make towards continue to drive those costs down. We've identified those, and we're going to be working on those.

The next question is coming from Curtis Nagle of Bank of America.

One, and apologies if I just missed this. Any commentary on recurring sales within residential? What did that look like?

Could you restate that question, Curtis?

Yes. Of course, Jerry. Yes, just recurring revenue versus one-time within residential, what did that look like in the quarter? And how is that trending so far to start 3Q?

Yes. The recurring has been healthier. And we've been able to sell and convert and retain better on the recurring side. The one-time, when we start looking at the one-time categories, that has been the brunt of it, of the miss. So there were some parts of the second quarter where, for example, residential rodent could be down with that kind of demand, which is often one-time, see a rat, catch a rat, kill a rat is down, could be 30% to 50%. And it's just like some of that kind of call volume and for what we would call occasional invaders and one-time type of pest like stinging insects, just down. So whereas we did see much better growth on the residential recurring and the interest from the consumer was still there. Though, the one-time actually went negative throughout a large part of the quarter, and that's a significant drag to organic growth because especially brands like Orkin that are more pest pressure driven versus prevention driven. They're the ones that are going to have a larger impact from that. And that also affects things in the digital space as well.

Okay. And maybe just to put a kind of finer point and then I'll follow-up. Just if you could quantify that, I think recurring in resi was, I don't know, somewhere around 7% in 1Q. What did that look like in 2Q? And then just it sounds like for the remainder of the year, I think fuel costs is supposed to be around, I think, under 2%. But I guess with cost rising even today, right? I guess how is that contemplated? And anything you're seeing on chem costs? Are we seeing any pressure there? Is that in the guide?

Yes. On the onetime volume, it went negative like mid-single digits. It wasn't steep in total, but it's still also in the Orkin brand, a pretty sizable piece of their business. It went negative low to mid-single digits. When we think about fuel, I think the guide there is still towards under 2%. We experienced in the second quarter. Fuel costs were up 30% in total. And I think we managed that pretty well. One of the metrics I look at is, fuel was up 30%, but our miles driven per vehicle per month improved 8%. So we're helping to stop -- we're helping to mitigate some of that through our routing efficiencies and efficiencies in the fleet. We're helping to mitigate that.

And our procurement team, it's great. I get a monthly report from our procurement team about how they're looking through our materials and supply spend and continue to try to drive savings every single month. And I think we have continued upside there to leverage our size, leverage our brands, make Rollins-wide decisions about some of the products that we use, that continue to be a potential help to us down the road.

And Curtis, I would just say that we continue to anticipate those pressures from the ones that we're seeing today from fuel and from medical. And then we don't really know where insurance and claims will go as well. I mean we continue to see that as we are talking through some of the claim activity that we've had from years ago, where we're encouraged by the benefits that we're receiving from our safety programs and thinking about what's going to come in the future. But today, what we see in our insurance and claims and certainly what we may see in the future months, and we still have that as headwinds, but they're all contemplated in that 10% incremental story or outlook that we provided.

Maybe one thing to also add just from a residential recurring perspective, we see it as relatively consistent with our overall recurring growth. And so what we didn't do is we didn't add value because of the lead environment that Jerry talked about in his prepared remarks, so we just didn't add them at the same pace as we have been. And the onetime was just volatile. I mean, get back to the comment around we have seen negative onetime performance in a few of the months that we've had so far this year, and certainly within the quarter. But hopefully, that provides enough color or a little bit of color around that.

Right. So recurring somewhat -- it sounds a little bit lower, but I guess, somewhere around 7%. Is that fair?

But relatively consistent with our overall organic growth rate.

The next question is coming from George Tong of Goldman Sachs.

In terms of the reasons behind the slowdown in areas of resi relying on search, digital media and inbounds, you mentioned looking at competitive trends. To what extent did your competitors also face this issue? In other words, what market share changes did you observe?

Yes. We do our best to monitor what's going on in the space as a whole. We try to monitor everything from our competitors that are direct and national competitors, regional competitors, mom-and-pop and the activities that they're driving. And then we also try to monitor what's going on in the DIY space as well to see if there's factors there that could drive people towards that side of things. But we did not notice anything competitively that stuck out to us that somehow we're getting beat or somebody is taking more share. Again, we just went right back to, it feels like the consumer for the better part of 6, maybe 8 weeks was just not seeing a problem and needing to solve a problem. It was just a little different there. And we have heard it from others of friends of mine in the industry that it felt softer. I don't want to speak for all of them and just say that, that's the truth. But that's been the pulse that I've gotten is that it's softer across, which also validates the -- some of our research that it seems like it was a different consumer for a period of time.

Got it. That's helpful. And then you mentioned testing and experimenting with various strategies to try to counter the slowdown in the quarter. How much did your actions move the needle? Or is this purely exogenous and not responsive to changes that you've tried?

Yes. So that's, again, what points us back to the consumer because we tried a lot of things, and it pointed to not being able to move the needle very much. So you could take off limits, you could move dollars into other channels. You could -- we experimented with a lot of things and it did not make much move to volume even if you wanted to increase your spend, it didn't move volume, right? So again, it came back to -- it would move it incrementally because maybe I'm taking a little bit from a competitor, but it perhaps wouldn't have been worth the investment that we made in it.

So this is also the reason why when we think about our multi-brand strategy, what we do, that's where we want to put dollars into door-to-door. Door-to-door can build more efficient routes. It's more -- they are -- in the way we're running door-to-door, we get nice sticky customers. And we can reallocate some resources and do a better job in door-to-door because that's where the better opportunity was. We're not hoping the consumer is going to call us because they see a pest problem. We're out there knocking on doors and selling prevention.

Our next question is coming from Josh Chan of UBS.

I guess on the channels, does it make sense to you that the consumer would slow down only on the digital side, but not the other side? Is it because the digital side kind of overwhelmingly skews onetime as well? Like is that the alignment for why that channel particularly is softer?

So I look at it like a lot of digital is, we see a problem, we solve a problem. And you have something that you need to get taken care of, or I've got ants in my pantry, and I've tried to do it myself. It didn't work. Now I'm going to call a pro. I'm going to call the Orkin Pro. And that is -- and that's why we do -- a lot of the brand spend in Orkin to invest in name recognition, the power of that brand, that's very responsive. When you're out selling door-to-door or we're selling through the homebuilder channel, those other things, that is 100% a protect your asset, protect your home type of a sale. You may not see any bugs.

Well, we want to stop you from ever seeing any bugs. We want to be the people that protect your home from all the residential pest as well as termites and whatever and mosquitoes or whatever else, and we sell that as a prevention. If you're a new homeowner or -- and we also index -- and door-to-door indexes a little more on the higher-end side of household income bands in terms of where they want to sell to. So it's -- you're talking about a consumer -- the same consumer, but both are being met at a different place in time, fulfilling a different need. Does that make sense?

Yes, yes, absolutely. That makes a lot of sense...

And it's not that digital is necessarily more than one-time, but it is more see something, deal with something.

Okay. Yes. That makes a lot of sense. Okay. And then I guess my other question is, I know a lot of attention is being paid today on residential, but it looks like the commercial and maybe termite and ancillary growth were both a little slower than Q1. Is that just normal fluctuations? Or do you make anything out of those movements in those businesses?

Yes. So the termite, ancillary was a little slower as well in -- primarily in May. It was strong in April, strong in June. May was just miserable. And it was even a little bit -- a tad bit softer in the commercial side. But commercial, everything we see in commercial, all the lead indicators when we're looking at sales efficiencies, we're looking at new accounts we're landing, nothing but positive there. And that's one of the reasons we're so positive on our outlook in the second half is, I know the commercial and the investments we make there are going to pay off. And I think we have opportunity to execute better and leverage returns on those commercial investments even better as we move into the back half and into next year.

The next question is coming from Jason Haas of Wells Fargo.

Are you able to give us any sense of like what the exit rate was in June or what you're seeing in July? I'm just trying to reconcile the comments that it sounds like things got better, but then the guidance is calling for 6% organic revenue growth. So like are you running in the 6% range? Or yes, what to make of that?

Jason, we were pleased with what the end of June showed us in our results, and we're pleased with what we're seeing so far in July, but we're trying to be cautious because I would say that we've got -- we've seen now, a couple of quarters of this. And we...

We've seen quick shifts.

And we've seen quick shifts. That's right. But certainly, we're pleased with what we're seeing so far, but we are only 2 weeks into the quarter. And so it's just we've tried to make sure that we are going to -- with the visibility we have today. We tried to factor all of that in and given that 6% plus organic growth expectation for the full year. I'd remind you that it's for the full year, but -- yes.

Okay. Great. That makes sense. And then sticking with the idea that maybe customers are, I guess, using an LLM first to try to solve their problem. If that is weighing on the business, do you think that's because they're able to resolve it with a DIY method by getting advice from an LLM on how to resolve it. And therefore, they're less likely to pick up the phone and call and get a professional in there to help diagnose and fix the problem? Or do you think the issue would be more of that like you're using an LLM and that LLM is routing them to like a local provider rather than like an Orkin professional? And I guess, what's the -- how do you resolve that problem, what can you do to change your, I guess, SEO to show up better in those LLM results, if that is the case? I'm curious how you're thinking that through. I know it's pretty early, but I wanted to hear your thoughts on that.

Yes. So we -- I have seen for myself in the LLMs about how they kind of help you direct you to do it yourself. And is that having an impact, especially in a tighter economy, or if somebody is figuring out, can I do this myself? Look, as an expert myself in that space, I know firsthand that you -- there are a lot of problems that you may think you can control yourself, but you can't. So I look at that as I may -- I have ants in my pantry, and yes, I can find something and kill them there today, but it doesn't mean that they're not going to be back because you didn't find the source or you're not doing it quite the right way. That in 3 weeks, they're not just going to be back and you're going to be calling us at some point because you can't do it yourself.

And the data also shows that a lot of people don't want to do it themselves. But you're right, the LLMs can lead them that way. I don't know if that's a significant impact. We haven't seen that, but we are working, and we have some metrics that tell us how we show up in the LLM space and the things that we're working on there, and we're continuing to put effort and energy behind how we show up in those spaces. There's also coming a time here, I think, really soon as Google is going to start and all of them are going to start monetizing that. And so that will be a whole different shift probably within a matter of months or weeks that we'll be faced with as well to see on those changes. And we continue to monitor it. I have a great deal of confidence in our team that we're doing everything that we can in that regard.

But is it possible, and that is amongst all the variables. And when Tim asked his question of all those things. That's another one of those things that could possibly be coming together in a confluence on the residential space. I can't quantify it. I can't say it's this percent or is it possible? Yes. But I don't know exactly.

Our next question is coming from Peter Keith of Piper Sandler.

So you're not the only company to talk about weakness in May. Like Tractor Supply out today, they had a tough May as well, Lawn & Garden. One thing we've been looking at is a significant uptick in drought conditions throughout much of the East Coast. We think drier conditions would prevent the spread of mosquitoes. I guess you did talk a bit about weather, but how do you feel about the drier ground conditions this year as a potential headwind on the business?

Peter, it's a great question. And I promise you, we have dug into that one. We went really deep, both regionally. We looked at top 50 markets and weather conditions. And we tried to do a lot of attribution to what was going on, saying, I had a lot of hypotheses, most of which got -- it couldn't be proven as real. And so what we do know is that, and I believe, the pest pressure wasn't there. Now is that weather-driven? Is it somehow weather-driven from something that got experienced 4 or 5 months ago? Did harsh winter knock down some populations that didn't overwinter? All these kinds of variables that are out there, it does have me more interested these days in predictive weather models, especially with AI. This is something we tried years ago trying to forecast demand in the future. But it does make me wonder if we have an opportunity for better models given the processing power and the data that we have today.

Those are things that we're looking at. But the month of May completely baffled me. And I had the same hypothesis, and that you did about -- I said weather and it may just be pest pressure, and we don't know what pest pressure was driven by. It may have been weather, or it could have been weather months ago that affected it, that came to fruition in May. And just some year-over-year change there. It's odd. That's the best I can do for you, Peter.

Okay. That's fair. And I guess I think what you're saying, too, is there wasn't really much regional variability in the business where weather could have had an impact...

That was the other side of it is the volume challenges we saw were across the entire United States. There wasn't one place that just stood out as exceptionally well, and that's not normal. It's like the entire U.S. And that's again, I think why our weather hypothesis did not hold up.

Our next question is coming from Tomo Sano of JPMorgan.

So given the recent headwinds and analysis you've conducted around the slowdown in residential, just curious, how are you thinking about strength of the organization is going forward, particularly with respect to demand forecasting and the design of your cost structure, please?

Yes. So one thing I want to make crystal clear is that we are a very people-oriented organization, and we want to continue to invest in our people. We'll continue to invest in training, continue to invest in doing all the right things. And the reality is we need to execute better. At the end of the day, we need to be very internally focused to execute and execute better as we move through the rest of this year and into next. And I think we're not going to approach this in a shortsighted way and make irrational adjustments that are going to affect our business for the long term, and that is rooted in our people-focused culture, and we continue to invest in our programs like Co-Lab. I mean, you could have a debate that some of the training that is costing us a lot of money and the investments we're making in the business could be halted in the meantime, but we're not willing to discontinue those investments in our future and investments in our people. So if you have any concerns about that, please don't. We're going to continue to do the right thing to have the right culture and invest in our people.

And Tomo, maybe just to mention one thing. You talked about the slowdown in residential, but we just want to remind you that it's not uniform across our business. So we saw a slowdown in certain parts of residential in the business, but not across all of our brands, which is why we feel confident in our multi-brand, multi go-to-market approach, so...

And in some situations, for example, if the business isn't as great in one market and it's better in another and they have more demand. For example, we moved some folks from Orkin into the Fox brand, where they needed more help, and we had capacity in Orkin to move people around. We can do those kinds of things. When we invest in our people, invest in their training, we do our best to try to make sure they can remain part of Rollins.

Jerry and Will, just one follow-up. We understand and appreciate the company's long-term operating philosophy, which has been a key driver of its success over time. If you could give us like 10% updated incremental EBITDA margins, is something like we should think about floor, like when we think about the scenarios of more downside of the demand in some of the areas in residentials? Or anything like you're thinking about [ stop slow ], continue to protect near-term margins on this level?

So Tomo, when we thought about that 10% incremental margin piece, that is really related to the fact that we've got to get our cost structure corrected for the demand that we're seeing right now. And so we are -- and again, outlining all the things that we've already put out there at Investor Day, there are a number of actions we are going to take over the course of the back half of this year and that we've been taking, but that will drive even further. 10% -- the reason we said greater than 10%, we believe that's going to be the floor. So you just should make sure if you're trying to model this out, I hope you caught the part in my comments around the fact that it will be weighted to the fourth quarter. We are expecting to have a difficult cycle for Q3 or a number that we need to cycle. But...

Yes, we had a perfect Q3.

We had a great Q3 last year. That's right.

It's going to be challenging to lap, but we're going to work on it. We're absolutely going to try our darndest to get there. It's a more difficult quarter to lap, but Q4 certainly presents some upside.

That's right. But for the full year, 10% is the number we felt confident in or comfortable being able to guide for as a floor. That's right.

The next question is coming from Ashish Sabadra of RBC Capital Markets.

Just given the recent choppiness in revenue and margin, my question is more around the medium-term outlook philosophy. Why maintain that current guidance rather than lowering the bar and embedding some conservatism to making it easier to meet those in a tough environment, but also beating those expectations in a good market. So just a question on the philosophy there?

Ashish, thanks for the question. As we look at it, we didn't feel like we needed to come off of it from a medium-term perspective because we still feel really confident in our ability to drive revenue growth. And so what we haven't seen in the last couple of quarters is the revenue to come through. And if you don't get that 7% to 8% revenue, it's going to be much more difficult to be able to see the flow-through down through the P&L from a margin perspective.

And so we, again, feel comfortable with the 10% for the year. I think we tried to model in the headwinds that we're already expecting but also some offsets. We expect offsets in our fleet just as we start to cycle the gains that we had in the prior couple of years with the used car market. But from a medium-term perspective, when we think about that 30% plus, it really does feel like something that we have seen in the past and something that we will get back to because we've got so many things that are in the pipeline right now from a procurement perspective, I mean, Jerry outlined a couple of these...

And sitting in my shoes, I just know from an operational standpoint, I don't think we were at our best. We have opportunity in the back half of the year and leading into early next year to operate more efficiently and do better on a day-to-day basis in our operations. There are some things we left on the table in the second quarter that I just know that there's opportunity to do better. We've identified those things, and we're taking some actions.

Very helpful color. And maybe just a quick follow-up on with the stock dislocation here, are there things from a capital allocation perspective that you can do like take advantage of this market dislocation?

Ashish, we -- I mean, our capital allocation strategy is still very much the same as it has been for the past several years. And so we're reinvesting in the business. We will continue to think about M&A opportunities. That's where we see great use of our capital. Certainly, there is this dislocation that's going on right now. You'll see in our Q that we file later today that we have done some pretty nominal repurchases related to -- we're trying to offset the dilution that comes from a stock comp...

The burn rate, yes.

The burn rate from our stock expense. As far as we played meaningfully when we had the secondary last November. So we certainly have gone into the market. But as of now, I would not expect to see us deviate from the allocation strategy that we've had over the past several years.

And cash flow generation is really strong.

Absolutely, yes. Still above 100%, 115% in the quarter. But we do -- we always are -- we talk with our Board. We'll have our Board meeting next week. So we talk to the Board regularly about this very topic. So I think -- but we feel comfortable with where we are, where we have been and...

Continue that way.

Continue to keep going.

The next question is coming from Stephanie Moore of Jefferies.

This is Harold Antor on for Stephanie Moore. So I guess you -- on the margin front, you've discussed people costs being a part of the headwind. So I guess just on the -- I guess, on the hiring side, which inning are we in, in the hiring side? Could you talk about retention in the hiring that you've seen? Do you still see a $50 million opportunity to improve margins? And then just, I guess, anything on the salaries that were a headwind. Anything that would be helpful.

Yes. Thank you for the question. Maybe to just point out one thing. So we definitely see opportunity still for our retention, our employee retention and the fewer people we have to hire because we keep the employees that we currently have, that's going to be a great opportunity for us in the future. We're not -- we do not think that, that has gone anywhere. This quarter, in particular, and what we're even forecasting in our 10% incrementals for the remainder of the year. It really was more around medical expense. So not so much just our core salaries, but around the additional expense we're seeing from a medical perspective. We've heard that in our industry and other industries, I mean, medical is certainly a significant headwind for a lot of companies. And so that's where you heard us speak about the margin degradation related to medical, not so much employee retention.

We still have upside. Our seasonal hiring amounts as slow as Q2 was on the residential side, resulted in some slightly less hiring volumes, somewhat lower hiring volumes across Rollins and certainly, within Orkin, there were a lot fewer hires. But we continue to focus on our short-term retention and making sure that it's those teammates in the first year on the job that are trying to stay that continues to be an opportunity for improvement, that we know that there's a cost to that, what we call churn of people, and so we're mindful of that. I also would say that continues to be an opportunity for us. And we -- our team is continuing to focus and do a good job on that.

Our next question is coming from Connor Cerniglia of Bernstein.

Could you speak a little bit about some of the difficult comparables you're lapping next quarter from last year? I know you commented that Q4 is where you'll really see the improvement. But just looking at insurance and claims last year, it was a pretty big tailwind, I think it was 1.8% of sales. More recently, it's been in the 3% to 3.5% range. Am I right in thinking that there's a pretty stark difference in margins between Q3 and Q4? Or is my math wrong on that front?

You have not done your math wrong. That is exactly right, Connor. I would just say that, yes, we hope that we're going to have a more favorable Q4. And so -- but we know in Q3 that we definitely -- everything went in our favor in Q3. I mean our -- our insurance and claim, everything aligned. I mean it was a really wonderful Q3 last year. So we just -- our crystal ball is a little bit fuzzy, but we certainly hope that the rest of the year, we will kind of be at the numbers that we've told you, and we'll be continuing to progress, but Q3 is going to be the more difficult comp by far.

Okay. Great. I just want to make sure expectations are correct there.

Our final question today is coming from Anthony Chukumba of Loop Capital Markets.

So actually, I had a question on M&A, specifically, if you could just provide some color on the acquisitions that you did in the second quarter.

So Anthony, thanks for the question. We acquired Romex in the quarter. That was the largest of the acquisitions that we had. And I would tell you that we find our pipeline to still be very healthy as we look towards the future. I mean, Romex is doing well in the quarter, already providing good results for us. But we remain disciplined in how we evaluate our M&A targets. And so we have a really healthy pipeline for the future. And...

Yes. We closed several other tuck-in M&A deals in the quarter. All nice deals, really good companies. We have a -- as Will said, we have a good pipeline, and there's still plenty of companies out there that are good culture fits and that we would like to add to our family of brands here at Rollins. So nothing fundamentally has changed or shifted both between the PE space or anything else there that gives us any pause that we can't continue to drive 2% to 3% of revenue from the M&A side.

At this time, I would like to turn the floor back over to Mr. Gahlhoff for closing comments.

Thank you, everyone, for joining us today. We look forward to speaking with you again on our Q3 call later this fall. See you.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Okay. Good morning, everyone. I'm Justin Hauke. I'm the senior analyst covering facility and industrial services. And presenting next, we have the pleasure of hosting Rollins, which is the largest pest elimination company in the United States and then probably beyond that, too. So -- but yes, so presenting is going to be -- we've got Lyndsey Burton, who leads IR, and then Will Harkins, who is the very newly appointed Chief Financial Officer, but not a stranger to the company.

So I'll let you guys do some little introductory remarks, and then we'll go into Q&A, a small room. So I've got questions, but when we open it up, we can also just take questions from the audience. So I'll let you guys start.

Sure. Well, thanks for having us. It's great to be here. Yes. So we are -- it's an honor to be here representing our 20,000-plus teammates around the world. We are a provider of essential services across a number of different offerings in both the residential and commercial space. Fantastic business model, a fantastic culture with a very long history and a pretty exceptional track record of performance. We -- 100 -- nearing in on 100 straight quarters of growth, 75% recurring business. And at the end of the day, I think what we're really proud of is just how our teammates continue to evolve. Our portfolio of brands is pretty exceptional. It's been built and curated very thoughtfully over many, many years. And so we think that's a very distinct competitive advantage.

And from a financial perspective, recession-resilient model has proven to grow through a number of different cycles. And really is just a compounder. And so it's an honor to be here, and we're happy to just kind of focus in on any questions. I'm sure there's quite a few.

Yes. Why don't we start off? Will, just since it is a new role for you, just what's your kind of primary focus on day 1, things that are different, new, whatever, just kind of how you go about that?

Absolutely. So one of the good parts about this transition is that Ken hired me into the company back in March of 2025. And so it was something that when I got hired in this was very much on the agenda that he was looking for a successor. And so nobody knew that June 2026, this was going to happen. And so it wasn't exactly that well timed out. But it was something I always knew about. So when we think about, is there going to be a big change in strategy, a big change in what we're focused on, there's none because I've been around that table for the last year, helping support the mission of the company.

And so the entire finance leadership team is relatively new within the last 2 or 3 years. Ken hired all of us. And so we're all very much aligned. We just had an Investor Day 2 weeks ago. And so nothing that was presented at that Investor Day is going to be different than what you're going to hear me say today. And so I think that's a really good thing.

The other piece is known about Rollins is I've never met a business that didn't run on relationships, but certainly at Rollins relationships matter even more than any other company that I've worked for in the past just because the operators need to trust you. They need to have respect that you are in it for the full business. And so I think some of the big initiatives we have running, this is going to be a much more seamless transition than what Ken inherited when he first came in because Ken came in from outside of the business and he stepped into the CFO role on day 1. And so I think we'll have a much better -- it's more seamless transition this year.

Yes. And I agree. I mean for the background of where Ken is going, I think that's been kind of a focus. He's going to a pre-IPO data center AI play, just really unique and awesome opportunity for him that we're thrilled for him that he has. And so, yes, I think it's interesting that we were with Jerry yesterday at a number of meetings, who's the CEO, and he kind of talked about, again, how, Will, in a lot of ways because he's kind of starting a year end with those relationships.

And this is a decentralized business in a lot of ways with different -- I mean the cultures are similar across the brands, but they all have their kind of unique nuances and things that you kind of have to work through that can add some complexity. So having someone that's already been there for a year and been intimately involved in a lot of the projects that we have that are already in flight gives me and others a lot of confidence that the momentum that we have is going to continue. Ken has built an incredible team, and we're incredibly thankful to him for that.

Great. No, I appreciate that. I just figured that we'd start there because that seems the most topical and relevant and just to kind of baseline everyone. So I think in your prepared remarks, you talked about just the consistency of the business, which has been something very obvious as an outsider watching you guys over the years. So the organic growth, I mean, you've very consistently been kind of high single digits, 7%, 8%. Maybe you can just decompose that a little bit in terms of how much is pricing, how much is volume, new customers? What is the algorithm?

So it was a few years ago that the company made an intentional change to where they moved to a CPI plus model, knowing that it's an essential service, it's something that people value allowed us to be able to do that. And so you think CPI is in the 2% to 3% range. So we're ahead of that from a pricing perspective. Certainly, from a volume perspective, we see that we are continuing to see improvements there as well. So we -- overall -- and then M&A, of course, tucks on. We say 2% to 3%. It's been 4% last year was north of that range. We see ourselves being around the 3% range for this year.

And so I think the 7% to 8% that we have consistently guided to, that is something that people have asked, are you going to come off of that? Not at all. Ken mentioned during the Investor Day that some quarters are going to be lower and some quarters are going to be higher. But from the full year perspective, you should expect 7% to 8% growth at the top line from us. And so far this year, I mean, we did see a choppy start. Everybody saw in Q1, it was 6.6% organic growth. And so we still see choppiness in April and then some into May, where we're getting our numbers for May right now. But certainly, the best months are ahead of us. And so when we think about that, thinking about June and all those peak summer months, we do not see any reason to come off of that 7% to 8% guidance.

Yes. And I think the other thing you mentioned, too, and I think it's obvious, but like you talked about recession resistance and the fact that you've been able to grow throughout cycles. Maybe just talk about the peaks and troughs, and how discretionary is it, particularly on the residential versus commercial side maybe?

That's probably where you see some of the choppiness that we talked about in the first quarter and even now as we go through is that in more of the onetime business that we've had in the 75% is recurring and it is essential. So people aren't really going to live with pests. So it's something that they can -- and it's a fairly small ticket item if you're thinking about $100 of service.

But in the onetime items, that's where those ancillary services, those are really high ticket values. I mean those are quite expensive for people. And so in this moment, if you see any pressure on a consumer, that might be where we're trying to dig into that. We've got to do some more work there to figure out what could be driving some of that onetime choppiness. But certainly, it stands to reason that maybe people are feeling a little bit more pressure and so some of the onetime services that we have, those are not growing as fast as they had in the past?

Yes. In general, I think we have a very healthy subset of the consumer economy in terms of most of the people that we have are homeowners, [ gainfully ] employed, have seen home price appreciation in a pretty meaningful way over the last decade plus. So it's a healthy consumer. I think there's brands like Orkin that covers such a vast footprint that can have more exposure to some of the lower income brands -- lower income bands from a consumer perspective.

But in general, the resilience of the model has been that it's an essential service. It's a low-ticket item. And for many people, it's kind of a set it and forget it, at least on the residential side. I think on commercial, arguably even more essential, right? Essentially, there's regulatory components involved there. That's been an area of the business that we've certainly invested more meaningfully. We've always been focused on commercial, but I think we see this opportunity in the marketplace as there's -- the pest control space, particularly on the residential side is incredibly fragmented, 30,000-plus players, more consolidation at the top on the commercial side.

But we have seen opportunities in areas within verticals that we've been targeting to go after that business in a more meaningful way and have -- put the resources towards it over the last several years. And are now kind of -- there's a longer cycle that's more upfront investment for that commercial business before you can really drive some of the returns, but we think we're there. And seeing those returns flow through, and that should continue. But across the board, very essential, arguably, commercial may be a little bit more so.

Go ahead, please.

One other piece that I would just say is that some people don't realize that we have a financing arm of our business for especially residential customers called Rollins Acceptance Corporation (sic) [ Rollins Acceptance Company ]. And when you get into these big ticket items, it's something that we are trying to drive more uptake on. It's around the fact that you can -- if you have a $10,000 bill that shows up on your front door, we do have a financing opportunity for people. And so 90 days same as cash. And so that is often helpful to folks as well. So we're trying to do more of that to alleviate some of the strain that people are seeing.

Are the ancillary -- is that -- do you manage that all kind of centrally or do the different brands kind of offer their own?

It's all managed centrally. And so -- and what we're doing is that we haven't seen a lot of our -- so the business is broken up into Orkin, which is about 50% of the business and then all of our other brands, which are about 50% of the business. And so our other brands have not done as much of the RAC, the Rollins Acceptance Corporation (sic) [ Rollins Acceptance Company ] offering. And so that is something that we're trying to expand today.

Well, and as you heard at our Investor Day, that's one of the levers of growth that we're really excited about is if you think about the ancillary business, which has been growing really solid double digits for a number of years at this point, that's really been concentrated in the Orkin portfolio, right? Some of the exclusion work that we do there, some of the installation work, those types of bigger ticket projects that are really aimed at either preventing a pest issue or remediating after a pest issue, which havoc on your attic as was the case for a friend who had a rat infestation recently, not pretty at all.

But those are larger ticket, but really, again, concentrated in the Orkin portfolio. There's no reason as we continue to drive collaboration and share best practices across the portfolio of brands that you can't see other brands really meaningfully step into that ancillary side of the business, right? If you think about Northwest that has really fantastic customer relationships, like I look at ancillary as a proxy for our ability to deepen our relationship with our existing customer base. And so we're excited about that opportunity ahead. Ed Donoghue is a long tenured at Orkin -- long-tenured career with Orkin has moved over to the brand side to kind of help them get some of the ancillary and sales force focus going and have seen really nice results coming out of that.

Yes. And I mean, if I'm not mistaken, I think even some of those other brands like we're exclusively more of a niche ancillary service to begin with in terms of...

Wildlife and [indiscernible]. Yes, absolutely.

Yes. Okay. I guess I want to talk about M&A. Obviously, that's been a really important thing. I think you said, what, 3 or 4 percentage, 2% to 3%...

I mean it was 4% in 2025. Yes.

Yes. So maybe just talk about -- it's a fragmented market, but the depth of it, why people choose to join at, Rollins, how you incentivize things like that?

Yes. So you've heard Jerry talk a lot. I mean the one thing that's been impressive to me since I joined was just I come from companies where there are 2 heavy hitters at the very top, and they just trade share back and forth and they are sworn enemies to each other. Whereas in this business, it does feel like you've got 30,000 different competitors out there. And Jerry is like one of the -- he's a mayor of the town, essentially everybody knows Jerry. And so it's a very collegial atmosphere.

So you go to Pest World and there are a lot of people that are right there very friendly towards each other. And folks that come for -- or who are trying to sell their business. I mean, you think about the Northwest story. So Stanford Phillips and his father and grandfather, they built this tremendous business in the Northwest portion of Atlanta. That's why it's called Northwest. It happens to sit in the Southeast portion of the United States, but it is the Northwest portion of Atlanta. And so they built this amazing business.

And when it came time to sell, Rollins was the place that they wanted to go to. And that's because we are a business that you still have the Northwest brand out there. You still have all of those great associates that had supported and built that business. They still are wearing the Northwest shirts and logos. And so families who have built their -- these businesses can still go into their communities and not feel like they completely sold out to their associates.

And so, I think when you think of the competitive landscape of who's coming to us and how are we buying businesses, folks we're an acquirer of choice is what you'll hear Jerry talk about. And that's because people are looking for Rollins to come and be where they sell their business.

Yes. And it's interesting, the opportunity set, if you look at the PCT top 100 list of companies that's a trade magazine for the industry, as acquisitive as this industry has been over the last 10, 15 years, the pipeline continues to get refreshed, right? I mean I think about a business like Fox that we bought in 2023, Fox was a $200 million business when it didn't exist 10 to 12 years prior to when we bought it. So it's just -- I think the industry is so attractive. The market is so attractive. There are secular tailwinds at the back of everybody in terms of just general climate and do-it-for-me kind of shifts and things like that.

And so the pipeline continues to get refreshed. Rising tide kind of lifts all boats. I think the CAGR on that PCT 100 2014 to 2024 was almost 10%. I think it was right around 9%. So it tells you, again, just an incredibly attractive market. I think the beauty is that we can be -- because the opportunity set is so vast and continues to refresh, we can be very selective in terms of what we choose to bring in, particularly when we're looking at a stand-alone brand, right, which is going to be a larger, more platform-type acquisition that's going to stand on its own, keep its brand name and whatnot.

So it all kind of starts with the cultural gating factor you've heard us talk about, right? It has to be a business that's been obsessed with taking care of its people and taking care of its customers. And then from a financial perspective, high level, all the KPIs we look for accretively growing businesses. If you're going to be a stand-alone brand, you have to be growing faster than the overall average essentially is the way we think of it and just have kind of nice accretion and return profile up and down the P&L, not cash intensive, not dilutive from a retention standpoint. And we've been fortunate to partner with really great businesses. And I think that's also inflected, by the way, our organic growth over the last 10 years. I think that's been a contributing factor. And so we'll continue to do that and see the opportunity set in front of us continues to be very attractive.

When you -- I understand the platform wants, but the more tuck-ins. So economically, is there a route density aspect to it? Or how do you think about like what's the accretion that comes from those?

It's more -- I mean, you think in a route business, they're never really fully optimized. And so I mean, a lot of the ones that we tuck in, I mean, they're going to be, of course, the smaller businesses. So it's going to be -- the stand-alone ones are going to be of a certain size, certain value. They're going to cover a certain geography. But certainly, it's around route density in those tuck-ins.

It's just building out, and building out that localization and that closeness to the customer in a particular geographic area. But yes, the route density is a huge piece of that and the accretion is pretty attractive right off the bat.

Yes. I mean you guys have done a lot on the margin efficiency stuff over the last -- the system that you guys put in a few years ago that's...

BOSS.

Yes, BOSS, right, that kind of improve things. But where are you on kind of like the technology rollout and additional stuff that you guys are working on that?

So one of the things that I actually in my Chief Accounting Officer role, the largest -- one of the big 4 projects that the company was working on was about putting in an EPM, so an enterprise performance management tool. And so you think the size of business we had, we needed that we've got -- our systems were not -- they were fairly old. And so -- and then they worked for us for many, many years. But we have, this year, been working heavily to be able to put in at the top of the house, a consolidation tool and a better planning tool that's also going to be able to utilize AI features.

And so as we think about how we forecast for the future and we look at our business as a total, there's a lot of data that's sitting there, but we just haven't been able to pull it all in to be able to really analyze it and to be able to make sure that we are making better decisions as a result of the data that's sitting there. And that's what this tool is going to really be able to enable for us going forward. And so that's a technology aspect.

We spend a lot of time forecasting a 75% recurring business. And so there's no reason that we should spend as much time as we do and involve as many people as we involve. So that is one of the things that we're looking forward to most as we roll out this new tool. But there's a lot of opportunities around margin. So think about procurement. A lot of people see Rollins as multiple different brands. And so they don't necessarily look at the Clark brand or the Northwest brand or the Western brand, and think of that all under the Rollins umbrella when it's a vendor that we're negotiating with.

And so we're really trying to drive a lot of improvement around how we purchase our materials and our supplies and do that centrally so that we're getting the benefit of our breadth and the volume that we're purchasing across all of our brands. So that's going to be a nice improvement for our partner stores.

What are some of those bigger categories -- I mean, labor is obviously your biggest cost factor. But like in terms of the procurement side, what are some of the...

Yes. Some of it's technology that we're using across all of our different brands. But a lot of the materials, we're -- the different brands are using the same materials, many of the same materials as they go and they service all of the customers that we have. So it's not that they're all using specialized secret sauce materials for each of those brands. We're purchasing those from providers that provide to all of them. So that's going to be a heavy.

We're just not leveraging our scale as well as we could today. And I think that's the opportunity that's ahead of us. And I also think our procurement function, it serves a purpose, but we could also add -- continue to leverage data and tools to continue to evolve that and to add an even higher level of rigor and sophistication to the function. So that's one of the areas. There's -- you asked about the technology question. I mean, I think we look at technology through the lens of how does it enable a better customer experience or how does it enable the technician experience? How does it make their life easier.

So that's where we're focused. That's kind of the anchor at which we look at every investment that we make from a technology standpoint. We get the AI question a lot. We are not AI developers. We can partner with the large massive R&D budgets of the people that we work with to introduce AI into the business. And there's so many areas that it's ripe for. But you think about route optimization, we've had machine learning models and AI components that for years. And I think in a route optimization business, you're never done with route optimization and making sure technology is continuing to advance that. So that's -- on that side of the house, that's where we're focused.

What's your average number of stops per day for tech?

It can depend -- I mean it can depend. We actually have a preference to kind of keep it probably more towards the lower end because we want to make sure that the tech has a sufficient amount of time to really spend with customers. We optimize it, but it's going to depend on the market. It's obviously going to -- is it commercial, residential. But we really want to make sure that we're optimized from a route perspective, but also allowing time for that technician to develop that relationship.

I think that's a really good point, too. I mean even my wife recently sent me a text and said, all right, so the guy who was doing the weeds in our lawn shows up and 3 minutes later, he's already gone. And she's like, what are we paying for? Because I see a lot of weeds in our yard, but I yet do not see the person that's doing this and really working through it.

We talk about the fact that we want our technicians to spend time with the customers because in an AI world, people want to see the service that you're providing. They want that personal connection. And I think that makes our solutions...

I'd say sticky.

I mean you realize and they walk you around and they show you where things are, potential opportunities for ancillary services being added on in the future. So, yes.

This business focuses a lot and has continued, and that was the message that hopefully came through in Jerry's presentation at our investor conference is -- we are really focused, particularly in a world where the headlines are dominated by AI on developing the soft skills in our people throughout the organization. So empathy, listening, emotional intelligence, just making sure that we are investing in training and development programs that actually teach those skills because I do think that's what will differentiate us with our customers. I do think that lends to the stickiness that we have with the customer base that we have.

And so it sounds soft, but it is very, very important and has been a huge focus and push of ours for the last several years, because at the end of the day, for me, that's what's memorable about my experience with my pest control technician who I have a great relationship with. He truly views himself as a partner in my home, right? He saved me a massive headache by just walking around, he happened to be behind the water heater noticed that there was a leak that was starting and that could have flooded my entire basement and caused a problem. He didn't have to do that. But that's just -- that's what we're trying to develop and what we're trying to encourage and incentivize people to bring to their relationships as this partner -- home protection partner mindset.

Yes. No, I mean you've got people in intimate areas of your house. So like you want to have that trust, obviously. With about 5 minutes left, I want to make sure that anyone from the audience that has a question before I continue. Okay. Feel free to stop me if one does come up.

Maybe a little bit more shorter cycle, but there are some seasonal elements to the business, like especially on the termite side and kind of the summer selling door knocking or whatever. Maybe just kind of what are you seeing on -- in terms of the swarm this year and trends as we're moving into the warmer months?

Yes. I mean, I wish Jerry was here, he's our resident entomologist, he would have a much more scientific answer to this question. But from what we're seeing, the environment and conditions have lend itself to be a very healthy and active season. And so we're ready for it. We're staffed for it.

As Will mentioned, there has been, I would say, a little bit of choppiness to start the year, certainly, but we have our best months ahead of us, and we're ready. So what we're seeing right now gives us encouragement that the demand environment is intact and solid. And so that's where we're focused.

The one thing we know is the pests aren't going anywhere, right? I mean -- and as temperatures rise, I mean, and it gets warmer and warmer. I mean it's quite warm in Atlanta today. I mean it's going to -- you're going to see more and more pests. I mean kind of the peak season is when those evening temperatures are 70 degrees and above, right? And so as that happens, you're going to see a lot more activity. And so they're not going anywhere. They don't.

And that's something that I think we've seen. The shoulder season, the lengthening of the shoulder seasons in general over the last several years is something we've seen relatively consistent -- with consistency, right? It's not that it peaks in July and August and then kind of goes downhill from there. We've actually seen those seasons really extend into the October month. Sometimes in a couple of years -- recent years here, October has been one of our stronger months because you are getting some of these longer shoulder seasons, which is a benefit to the business overall.

I wanted to maybe move over on the commercial side, going back to the technology question, but some of your peers, if you will, have been using more like Internet of Things type connected devices and like that. So maybe just talk about the opportunity there to kind of reduce labor or what you're doing on that front?

And we are -- you might have heard Scott Weaver, who leads our commercial division. He talked at Investor Day about the fact that we are doing the same thing. I mean, so there are customers who want that, customers who don't want that, right? They want to have that hands-on touch in their business. But certainly, as you think about the build-out of AI data centers, that is going to be something that you probably could use some of that remote monitoring...

Because there's not many people there.

There's not as many people there. That's exactly right. You've got these massive warehouses that you were trying to take care of because certainly, you don't want rodents in that kind of an environment where they could be eating through wires. And so we use it as well. I think that we also have benefited from the fact, Lyndsey mentioned we're not the ones. We don't have the R&D budget that we're not the ones out there that are developing this. We are using our partners and purchasing it. But because we weren't such a fast early adopter to it per se, we are benefiting from the fact that technology has gotten better and technology has gotten cheaper. And so -- but it's not something that I guess we're as vocal about, but it certainly doesn't mean that we're not doing it just like our competitors are.

Again, I think what we would say is that we kind of follow the customer preference on that, right? And just because we have remote monitoring doesn't mean that you're not going to see us, right? Our expertise, our value proposition is that we are the experts. So that's one aspect of pest management, this remote monitoring side. How can we redeploy the technicians' time more effectively to do other value-added things around a customer account, because there's so much that goes into managing the pest environment at a 100,000 square foot fulfillment center, right? So this is one component of the service, but it is not. I think at the end of the day, it's important to stress this is not the service. And we -- again, we kind of look at it as how can it enable a better customer technician experience and allow us to redeploy that time into other value-added service offerings that we can provide.

Yes. Last 1.5 minutes that we have here or whatever, maybe just, I don't know, a final note on just capital allocation. You guys have been pretty disciplined on it, but just where the balance sheet is, anything that you want to kind of stress on that?

We're at a turn of leverage right now. And so -- and I don't see any -- just to say it directly, I don't see any change happening in the way that we have been allocating our capital in the past. So we continue, I think, over the last I don't know what the number of years is, but since 2022, I believe, our dividend has increased 80%. So you're going to continue to see that. You're going to continue to see share repurchases when the time is right. You're going to continue to see, I think, the best use of our capital is M&A. That's what we've proven many times over. So that's where you're going to see us just continue to focus. But no meaningful changes in the way that the way we've been doing that.

Well, with that, I mean, I think we're kind of out of time unless there's anyone else from the audience that has a quick one that they want because we're not doing a breakout. I don't think so. And I think we'll just leave it there, and thanks very much.

Thank you guys very much for your interest.

Thank you. We appreciate it.

Okay. We're going to get started here. Thank you, everybody, for joining us today and on the webcast. Yes. My name is Tim Mulrooney, and I'm the research analyst here at William Blair that covers Rollins. I'm required to inform you that for a complete list of research disclosures and conflicts of interest to visit our website at williamblair.com. Very excited to have Rollins here. We have a lot of folks.

We got CEO, Jerry. So thanks for coming all the way out. I appreciate it. CFO, Ken Krause, Chief Accounting Officer, Will Harkins, who was recently named as the incoming CFO, very excited. And of course, Head of IR, Lyndsey Burton. So thank you all for joining today. We've covered Rollins for a long time. And it's no secret that I think that the pest control industry is a very interesting and exciting and attractive market from a long-term perspective.

I think of Rollins as a high-quality, long-term compounder of free cash flow, and I think that's borne out in the data. But every once in a while, you get these situations where there's a weather issue. I remember this happened in the second quarter of 2019. Spring didn't come as fast as expected. But of course, you ramp up on investments ahead of time because you don't want to be caught not having the people in place. And so you ramp up in investments and then spring doesn't come and the quarter is a little bit below what you expect and these high multiple stocks, they kind of -- they'll pull back on even minor misses.

And so we've had 2 quarters of a row here where they're hitting -- where they've gone below their organic growth target because of weather-related issues and the stock has pulled back. And we'll dig into that as -- in addition to some other potential reasons why the stock has pulled back. And I just think it's a very, very interesting time to look at the company because from my perspective, these are the types of situations that creates opportunity. This is a going to be more of a fireside chat, but I ask Jerry, since this is a generalist conference to spend just a couple of minutes providing an overview on the business, and then we can get into a conversation.

Nice job. Well, good afternoon, everybody. Thanks for coming and hearing our story. Here at Rollins, we have a fantastic story to tell. Recently, just a couple of weeks ago, we were in New York doing our every other year Investor Day, very successful event. Hopefully, in preparation for this, if you have some time, go pull those slides and a lot of -- to prevent us from going back through all those details, you can really get caught up to speed very quickly by looking at that.

As we've talked about our past, we also talked about the present. And then we also continued to reinforce how optimistic and how much opportunity that we have across Rollins. For those of you who don't know, Rollins is a pure-play pest control company. We operate throughout North America. We have operations also in the United Kingdom, Singapore and in Australia. When I talk about pest control, I mean commercial, residential as well as termite and other ancillary services. We stay pretty focused on things that are inside around -- inside or around the home or business that are direct pest control or directly related to pest control.

So for example, things like exclusion, which could involve light construction work that may keep rodents or wildlife or other animals or even pests from entering your home in the first place. So the field of pest control covers all of that. We're in a great market. We operate in great markets. The demand for our services has been there, and I suspect always will be. If you've studied us for a long time, one of the legends in our company is Gary Rollins. Obviously, that's the Rollins diamond that you see here. Gary Rollins has a saying -- it's actually 2 sayings, I think I'll use.

He says, first and foremost, roaches and rats don't read the Wall Street Journal. So they don't know when the economy is struggling or what's going on because they're going to keep coming. And then he also said, "Hey, the roaches and other pests survived the ice age. right? " They're going to outlast us in everything that we do. So there's always going to be this need in the future for pest control. It's just one of the fantastic attributes of our industry. And when you couple that with people don't want to live with pest anymore.

And our tolerance levels as humans of our living conditions over the last, call it, 100 years has changed dramatically about what we're willing to share our living space with. So these are examples of some, but not all of the tailwinds that we continue to have and success at Rollins. I'm going to turn it back over to Tim, he's got some great questions, and I think you guys are going to have some great questions that I think it will be a better use of our time to talk about that give you some greater context and detail aside from what may be obvious to you through our Investor Day or other context. Tim?

Thank you, Jerry. Thanks for the overview, too. That was great. So I wanted to start out. Maybe we could start out with the big news that came out last week, Ken. I mean you announced your decision to leave and pursue another opportunity. I think that, that's had an impact on the stock. I alluded to the weather-related issues, but I think this is another issue that's maybe impacting the stock, which I guess is a complement to your tenure here at Rollins, but I was hoping you can provide a little more detail around your decision to leave, where you're going, et cetera?

Sure, Tim. Thanks for the question. Honored to be here with Rollins and continue to represent the company and work with Will and help transition him into the role. Super excited for Will and all that the company has ahead of it. So as you indicated, I will be leaving the company on June 15. I have a transition arrangement in place where I'm going to help Will from time to time, just from a consulting perspective. And -- but the opportunity that presented itself was one that I just couldn't pass up.

It's an AI data center IPO that we're working through. And so came to me very quickly and worked through the process and really, really excited about the opportunity to go over there and make a big impact and really help that management team take that story public and really grow it and help it reach its full potential. But nonetheless, also very heavily invested in Rollins. Rollins is a phenomenal business. And Tim mentioned the fact that the stock was down 15% or 20% in the last week.

What I would say is this company has grown for 100 straight quarters. Ken Krause has not been here for 100 straight quarters. And so this business is going to be a great business regardless of any individual and their part in the process. I continue to be a shareholder. I continue to be one as I think about the foreseeable future. And it's a business that I wouldn't have any concern investing in. It's just a great business with a great amount of people in a market that it's just really hard to find. The growth, the margins, the cash flow, just a great business.

Yes. Thanks, Ken. I mean I think that, that's a really good point, too. I mean you and Jerry -- I mean, when did you become CEO, Jerry, 2023?

3.5 years ago.

3.5 years ago and Ken...

Adding a little color to that. It was about 4 years ago that Ken and I started talking because I was still the Chief Operating Officer of Rollins at the time. I worked for Gary. And most people didn't know this, but I was Gary's direct report, but all those functions had reported to me for a couple of years leading up to my transition to CEO. And Ken and I started talking about this business and we had a lot of meetings and a lot of discussions at my office about what we could do together.

And Ken has been an absolutely fantastic partner. I'm very fortunate to have had him for as long as I have. And so I think back to how far we've come, and we have done a lot together. I'm very appreciative for that. At the same time, when I look at what's happened with the stock price and what's going on in the market, I sort of scratched my head, like this is odd. This is odd to me. As an insider, it's odd to me, I guess, because I know the whole story. I know everything about the team as an insider.

So to give you a little more color on that. I first met Will here about 18 months ago. Will had a great job working for a great company, and we were looking to build bench strength and add to our team. I met Will, the first time I met Will, I walked out of that meeting and because Ken told me, you got to meet this guy. And I walked out meeting and I said, he's going to be a CFO someday. He'll either do it where he's at. He'll do it -- if we can attract him to Rollins, he'll be a CFO here someday or he's going to be a CFO somewhere someday down the line. I just knew that about you, Will, when I first met you.

And so -- and then we continued our conversations. It took us a few months to get you were gainfully employed and had a good opportunity. It took us a few months to get the Rollins story and share our vision and create alignment from the get-go 18 months ago, we created alignment with Will. Here's where we're going. Here's how we see the business. Here's how we view the business long term. Will got behind that story, believed in it and what we're coming in and took that leap with us. And I didn't think this was going to happen quite this soon with Ken, but the reality is it did.

And over the years, we built a great team. And one thing that Ken that has done exceptionally that a lot of you see the external stuff when we talk about our -- the capital structure and other things that he's brought to the table, what's probably not as evident to most people is the quality of the team we've built. We've got Andrew Light in tax, Brady Knudsen in the treasury side. We brought in Lyndsey. You've continued to will bring add people, add talent to the portfolio. It's a night and day difference today compared to what it was.

And then I think back when Ken started, you and I used to meet -- used to give me PowerPoint presentations every 90 days about your observations, the relationships that you were building, the things that you saw, the opportunities that you saw. It was about a year before we really started going forward and doing something. And I look at this transition, I'm like he's got a year head start. He's already out ahead. He's got -- he's come in. He's been here over a year. He's got the relationships. He already sees the vision, has a really strong foundation to work from that Ken and team have built. And so to me, I look at this like this should be just one of the easiest transitions we would ever make. But sometimes the market maybe reads more into it than what.

The market always reads more into everything. They shoot first and they ask questions later. But the point I think that you're making is that there was an active recruitment of Will. There was an intention to eventually get Will into the CFO role. Maybe it happened a little faster than expected, but this was all basically part of the design.

And also I think, yes, you -- I mean, Ken, you've done a lot since you took over alongside Jerry, like you got Rollins, the investment-grade credit and you organize these secondaries and you smooth out the dividend and you built out this great finance team. And I mean wonderful working with Lyndsey, like the professionalism of the finance department is incredible. And I mean there's so much that you've done, but you're not out there killing bugs. Are you driving the 7% to 8% organic...

I haven't killed any bugs lately. Well, I made a few sales. My own home is protected by Northwest and Orkin. So I have made a few internally but those are inside sales.

You don't get commissioned on those.

You don't get commissioned on those.

On top of it, Tim, I look at that. And Ken, when you and I came together 4 years ago, almost 4 years ago, we have this great mix of I'm an insider, I know the business. I've grown up around the business. You came in with this outside perspective that I didn't have. And you said, you know what, we could do this. Well, what if we did this, right? And we -- it was very complementary in that regard. And I get the same thing with this guy.

I get the same thing with Will. Background at companies like Coca-Cola has been here a year, it's not ingrained. He's also going to bring that perspective and I think at an accelerated rate, right? Because his learning curve is going to be quite a bit less. So we're -- I'm actually -- I'm excited about it. Ken, you have done wonderful things, and I want to thank you for that. But at the same time, Congratulations, Will. I look forward to you in the future. So we're talking over Will's head here quite a bit...

We're going to jump in there.

That's right...

Listen, I'm trying not to take it personally that we've gone down so much in the last week since I've been announced. I'm really trying not to take that personally. I won't. But thank you for the good words. And it's -- I knew when I joined a year ago, I did not know it's going to be June of 2026, but I certainly appreciated at that time, all the conversation we had around the fact that this was the next step for me, and I saw the opportunity at Rollins. I see the value of Rollins. I never thought I was going to end up in the pest control industry.

I'm not an entomologist, so I would not have felt that naturally. But when you look at this business, it's a great, great business. And so we just had the Investor Day. I think a couple of questions that we have received in every single conversation has been, well, gosh, when Ken leaves, is there going to be some shift in strategy? Is there going to be some change in the targets that you put out there? That would assume that Ken was doing all that, like we said, on his own. The finance leadership team that has been developed, we have worked tirelessly to align on this. And so there's not going to be a big shift in what we've already communicated and what we see as the opportunity in the future. And I think that's great. I mean we will...

That environment was created in the beginning.

That's right from the very beginning. And so...

Yes. So 7% to 8% organic growth, long-term incrementals, 30 -- 25% to 30% short term, 30% to 35%, you see no reason to stray from any of that. I mean the strategy is bigger than one person.

That's right. That's right. And then of course, there are going to be times like you saw in the first quarter where we didn't hit some of those targets. But that's going to happen to any business. Long term, those targets are absolutely intact and in what we see for the future of the business.

Yes. Got it. Okay. And I guess the last thing to cover on this topic would be sometimes when CFOs leave, it's because the market is worried that there's some sort of accounting issue or some other thing. That's probably why the market dropped the initial days, they're like, oh, is there some concern over accounting issues? My reaction to that is Will, probably the Chief Accounting Officer is not stepping into the CFO role in that scenario.

That's exactly right. So let's be very clear with everybody, no accounting issues, no financial reporting disagreements, anything like that. I would not be the one stepping in. And if so, I'd be the one that would be leaving. Absolutely. So that is 100% not the case here. We have a great team. I thank you for acknowledging them as well. We've built out a great accounting team. They continue to do good work for us. And so no issues on that front at all.

Well, that's great. And Will, I'm very excited to work with you.

Thank you. Staying here.

Yes. Okay. Let's move on to some other stuff. Growth was 5-point something in the fourth quarter. There was some weather-related issue. It was 6.6% in the first quarter. So you showed that acceleration, though still below your 7% to 8% target. Our pest index didn't show significant movement upward in April, but there's still 2 months left in the quarter. Curious how you're thinking about the long term or the organic growth targets for the full year.

Yes. I think when you look at the business, I'll start, and I'll ask Will to comment too. But what I said at the Investor Day was through the first 4 months of the year, we were growing 6.5% or so percent. And so we had a tough January, a tough start, but the business remains intact. And you're going to have a quarter here that's up, down. But long term, this is a 7% to 8% grower.

I don't have any doubt in that, especially in the U.S. International markets might be challenged from time to time, and they might be a headwind to our overall growth. But the U.S. market where we're heavily focused is going to continue to grow at that 7% to 8% growth rate.

This is -- yes, yes, I agree with. I mean, there's no secret about why certain of your large strategic competitors have invested so much money in the United States over the last decade, right? They know where the growth is. They know where the opportunity is. So you still see that 7% to 8% as a good thing to anchor to. We talked about shooting first and asking questions later, why you shouldn't take offense, Will, is because also like when Rollins' organic growth slowed down, you heard others that maybe don't understand the industry as well or others just coming out of the woodwork saying, "Oh, well, this is because of some change in the competitive dynamic.

It's not weather related. What do you guys say to that? And I'd be very interested in Jerry, too, how you think about that? Do you run into one company in every market a lot? Or just what do you think about -- how do you think about this competitive conversation?

Yes. We have so many competitors. And -- and at the same time, we have all this competition, but yet so much of the market is still underserved when you -- especially on the residential side, when so few U.S. households still take residential pest control on a recurring basis. There's tons of opportunity out there. And I don't -- there's no one -- I would say, if you -- if I had to say who are the more formidable competitors out there, it's some of the large regional competitors that have been in business for 60, 70 years.

Doing very well.

And they are doing well. They're the ones that we look to. And when we think about competition, we have to look at it very regionalized. And that's why. It's because if you're in Florida, you got these 2 or 3 that are super strong. But then at the same time, you got 3,000 others that are also there nipping at you, too. And it's always been that way in this industry. And frankly, I think it always will be that way in this industry.

This idea that we somehow have 2 or 3 big competitors that lock horns on things, just really isn't the case. I mean it's further evidence amongst our brands because we have brands that compete with Orkin in some of the same markets, and they don't even go head-to-head because there's just so much opportunity out there for all of us. And so we're often thinking about those regional competitors that are out there that are really -- there's really good competition out there. They're the ones that carry a lot of the weight.

Yes. Yes. Some of those are growing quite a bit faster than some of the large ones and are run by some really good teams that I know you know them well. And yes, we estimate the market penetration rate in the U.S. for residential at around 13%. So just to your point, like it seems like the runway is significant. And I think that's up from 10% a decade or so ago. So -- but when you're talking about 85 million homes, [indiscernible] like a serious, is there any reason that you don't think that 13% could go to 16% over the next decade?

Absolutely not. I mean I wanted to go to 20%, all right.

Okay. So -- but things change. And so one thing that we're seeing changing right now is the digital channel. And you got AI in here with the AI overview that's maybe impacting digital leads a little bit and maybe impacting your competitors more than you because of the way you go to market. But can you just talk a little bit about, a, how you go to market differently than your competitors; and b, more importantly, what you're seeing in terms of changes in the digital channel? And is that impacting your business?

Absolutely. The changes in the digital channel have impacted our business. And it's not all necessarily for -- on the negative side. So for example, we can drive efficiencies in the sales model if leads are softer and it appears demand is less, but the quality of those leads and our close rate and the long-term value because you're retaining those higher quality leads for a longer period of time, you get a better return on your ad spend, right?

So that's not necessarily all bad. You can't just look at one number and say, what's going on with leads? Because you get a lot of leads, that's a lot of window shoppers, tire kickers, people that are just curious that may not be real buyers. And that puts noise in your system. That takes efficiency out of our call center operations for them to be able to be as efficient as they could. So by driving higher quality leads, we can do that. And our marketing team has done a really good job making adjustments to the LLM and adjustments in LSA and all those kinds of things. And that's constantly changing environment.

I mean these guys are making changes every single day, every single week to be able to adjust to that. I think, though, more importantly, what's critical to anchor to is that performance in digital marketing isn't our only -- we're not a one-trick pony. We don't rely on that. We don't put all our eggs in that basket. We -- across our brands, across our portfolio of brands, we have lots of ways to acquire customers on the residential space. They have door-to-door real estate, real estate inspections, the homebuilder channel. There's all these ways that we can continually grow the business.

And we just have to look at it from a capital allocation standpoint, where do we want to put our dollars to maximize our investment. And maybe that means that we shouldn't be putting as much in performance marketing, and we're going to get a better return in something else. We're going to make those decisions real time because we can and we have the levers to pull across our business to be able to do that. And I think that's one of the things that differentiates us a great deal is that we don't have to rely on that. We have lots of different channels. And I think it's what makes our organic growth more sustainable for a longer period of time. The fact that we're not just tied to one way to acquire customers.

Yes. I mean I think that that's probably part of the Rollins story that's maybe underappreciated or less appreciated is I spend a lot of my time speaking to private players in the industry. I know that a lot of them are shoot 80%, 90% dependent upon the digital channel. And I think Rollins is well below that. So I think that that's an interesting part of the story. You being -- you are not a Google company in the same way that some of the others that folks might know about that are highly dependent upon that channel. And if there's better efficacy there, you're doing well. But if not, it can be a real challenge. And that challenge doesn't leak into your business in the same way.

Right. And we're still focused on efficiency. And can you get the right return on ad spend and spend your marketing dollars wisely to maximize long-term return on investment.

Yes. And have you had to change your marketing strategy significantly for this -- the dawn of AI?

There's tactics within the marketing strategy that have changed. There's changes that you make, for example, Cam in Orkin marketing is take -- we have tons of video content and you'll take -- and it's really important in the LLM models to be able to convert that video to text. So it can be translated over and consolidated over and then you get cited because video is one of the main ways they do.

So we have these resources that are taking a lot of our video content and converting it also to text and have it narrated that way. These models, these AI models can pick that up, and cite you and get you near the top. So tricks and tools like that, that you can deploy to make your position yourself better, and those are the kinds of things that we're focused on.

Got it. Okay. That's helpful. And I mean, we have a couple of minutes left. I have a lot more questions that we can hit in the breakout. Is there any burning question from the audience, raise your hand to ask. Otherwise, I'll keep going. But I just want to make sure there wasn't anything that anyone was -- that I missed that you think is critical.

Okay. Great. Just wanted to make sure because the other thing that I think is interesting is on the commercial business. I mean that business used to grow 3%, 4% organic pre-pandemic. And then it was screaming fast 10%, but it's still settled in this mid- to high single-digit organic growth rate. It's clearly accelerated. Curious what you think is the sustainability of that type of growth because there isn't the penetration story in commercial or there shouldn't be if everyone is complying with the law that there is on the residential side, yet you guys have been able to show good growth there. Can you talk a little bit about the growth strategy and how you think about growth from a longer-term perspective on that one?

We just see this as a huge opportunity. The competitive landscape in this side has shifted dramatically over the last 5 to 10 years. And you have fewer scaled players that are able to cover large commercial accounts across a large geographic territory. Whereas years ago, I can list off a number of competitors that could say that they could do that, but through consolidation and other things, that has changed.

So when you position Orkin as this truly national brand that can service anyone anywhere in the U.S. and Canada, it offers a really nice competitive advantage in that space, coupled with the fact that we see great opportunity to -- when you see in the commercial space, people want to protect their brands and they want to protect their brands through relationships with other brands that are also really good. Orkin this year celebrates 125 years in business. 125 years, Orkin has been around.

So when you talk about trust, that's more critical than ever on the commercial space. And so we see that as another great opportunity. So we've been deliberately investing a little bit. We've talked to it some, but we have been very deliberate. We probably haven't outpaced investment. If you look at it as a percent of revenue on residential versus commercial, which is smaller than residential.

We've invested significantly more in the marketing and sales teams to drive commercial growth. And that has very long-term return on investment. They're stickier customers than the residential side, lasting on average 8 to 10 years instead of 4 to 5 years. And so you get a much better return. So in the short run, it's something that has affected our incremental margins. But in the long run, we know that, that's an investment that will pay off for us.

Because there's a productivity ramp associated with those commercial folks, but that's something that you make these investments now and then there's a ramp, so you should see the benefit or the leverage on that as we move through 2027.

The residential side, if we hire a home sales inspector, they can be ready to be productive in 2 to 3 months. On a commercial account manager, that can take 6 to 12 months before that payoff is there and before they get really capable and confident in their jobs.

Got it. Well, thank you very much for your time today, Jerry. It was very helpful seeing Will and Ken and Ken, congratulations on the new role. I'm really excited for you. And Will, congratulations to you, too. Thank you very much.

Good morning, and welcome to Rollins Inc. 2026 Investor and Analyst Conference. My name is Lindsay Burton, and I'm the Vice President of Investor Relations for Rollins. This morning, you'll be hearing from members of our leadership team.

Following their presentations, all of our presenters will be available for a question-and-answer session. Also joining us today, we have several of our brand and field leaders with us. We're honored to have them representing our 22,000-plus teammates from across the world. Please take the time to introduce yourself to them.

Our field leaders are wearing white button downs with their respective logos on them. And we're so appreciative that so many of our teammates have taken the time to be here today.

Before I turn it over to Jerry, I'd like to remind everyone that today's presentations made by our team include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

These risks and uncertainties include, but are not limited to, the factors identified on this slide. and in our filings with the Securities and Exchange Commission. Today's presentations also include certain non-GAAP measures. Reconciliation of these measures can be found in the appendix of today's presentation, which will be posted to our website. It's now my pleasure to introduce our President and CEO, Jerry.

Good morning, everyone, and thank you all for taking the time to join us for our 2026 Investor and Analyst Conference. As you probably know, I joined Rollins through the acquisition of HomeTeam in 2008. And I'm now in my third year as CEO, and I'm tremendously proud to be here representing our 22,000-plus teammates.

Today, we're going to review some of the progress we have made over the past few years and we'll highlight some of the opportunities for our business going forward. As you know, we have a strong track record of performance going back several decades.

We are obsessed with longevity. Orkin, which was acquired by Rollins over 60 years ago, celebrated 125 years this year. Northwest and Clark are each celebrating their 75th anniversary.

Also, HomeTeam celebrated their 30th anniversary last year. Our Western Pest Services brand is nearing 100 years of service. And Waltham Pest Services celebrates over 130 years.

We've been at this a long time. And while we are proud of our legacy, we're also cautious of complacency. We must always be working to improve our craft. Throughout our history, we have demonstrated our ability to navigate changing business environments, competitive dynamics, macro pressures and technological advancements.

We've done this by consistently prioritizing what is most important in our business: our customers and our teammates. We've shared with all of you the work we've been doing to unify the cultural touch points that all our brands share through the creation of the Rollins way. Six words, three 2-word couplets that comprise our recipe for continued sustainable growth and long profitable relationships with our customers and teammates.

They are the enabler to help us become a better company as we become a bigger company. Once again, we find ourselves in the midst of significant change. Everywhere you look, there is a headline about AI and the impact it's having and will have on the world.

Here's the reality. AI is making certain types of knowledge cheaper and easier to acquire. But in a world where information is free, human interaction becomes more valuable than ever before. AI can't show up faster than in person when a customer has a rat in the kitchen.

That's heroic impact. AI can't sympathetically wedge in an urgent service request for a customer in distress over bed bugs. But our technicians and customer service specialists can work together to make that happen. That's being essential together.

AI can't bring up the trash cans from the street or give your Golden Retriever Benny, a dog treat. That's being remarkable. AI can't do any of the things that leave a lasting impression on a customer to drive the loyalty we desire. That doesn't mean that AI doesn't have a place in our business. It absolutely does.

We view it as an enabler for better customer and teammate experiences, which you'll hear Renee discuss in her presentation. If the Rollins way is our how, then our strategic objectives are the specifics of what we are focused on to make our company better while we become bigger.

These are consistent with what we spoke to you about in May of 2024 and helped drive alignment throughout our organization. Taking the long-term view, we believe that the most impactful investment we can make is in our people, not just in their technical skill set, but in their empathy, emotional intelligence creativity and problem-solving skills.

These are the skills that will appreciate in value in an AI world because they drive meaningful human connections. This is why we focused our efforts on training and development programs aimed at addressing these skills head on. These investments in our people are critical because our teammates are the connection to our customers.

We teach concepts around servant leadership to our teams and have begun measuring our impact. Approximately 80% of our teammate population participated in our recent employee engagement survey and score us an 85% in servant leadership.

While overall teammate engagement is at 86%. These are best-in-class engagement scores, and we are proud of these results. There's always work to do as this is an important area of focus for a company like Rollins whose purpose is to serve customers and support one another.

Safety is another key initiative when it comes to putting people first. There's nothing more important than ensuring that our people make it home safely at the end of the day. We're encouraged by improvements that we have seen in collision frequency rates and injury frequency rates as we have implemented new tools and training to reinforce our safety culture here at Rollins.

Higher costs and insurance from insurance and claims can impact our profitability from time to time. Claims associated with auto accidents can take several years to resolve, which is why we are focused on reducing the number of claims going into the pipeline over time.

Improvements in our collision frequency rates are positive signals that we are gaining traction here, and we can hopefully reduce the number and severity of claims in the future.

We have strong brands talented people and a large customer base. But we also know there are areas where the experience can be better and more consistent. In order to make more meaningful and measurable progress, we have recently made structural changes within our organization.

We've created a customer experience team led by Chief Customer Experience Officer, Thomas Tech. Thomas' team has a clear purpose to materially improve the customer experience in ways customers can feel.

The scope of the team will touch all 3 of the main components of service itself. The first is operational. Working through the logistics of getting a professional in a truck where they need to be, when they need to be there. This also encompasses other things like payments, billing and scheduling.

Next, we have the opportunity to improve the execution of treatment protocols. This work will focus on providing the right service using the right protocols, products and procedures with an emphasis on consistency. You'll hear more from -- about these efforts from Clay and his technical team who are partnering with Thomas in this area.

And finally, we need to focus on relationships and communication. Going above and beyond to deliver a remarkable experience through every touch point we have with our customers. This is about the soft skills, listening, empathy, communicating effectively as we work to remove friction from all aspects of the customer experience.

The work of the customer experience team will translate into meaningful results. Every percentage point of improvement translates to top line sustainability and millions of dollars of impact to our bottom line, while increasing the lifetime value of a customer.

Improving customer loyalty isn't just the responsibility of one group. It requires all of us. The customer is at the center of every decision we make and today, you'll hear about a number of different initiatives aimed at improving the depth and breadth of our relationships with customers.

This is the foundation of our growth mindset, a growth mindset starts with constantly striving for self-improvement. Improving oneself sets the stage for us to help one another get better, so that we can deliver excellent service and grow our relationships with customers.

In addition to expanding our customer base and increasing customer retention, we're also focused on increasing our depth of relationship with them. We have made significant progress in bundling and cross-selling our services to earn more of our customers' wallet.

But with an average number of services per customer of less than 2 today, there remains significant opportunity. Our ancillary service offerings touch less than 5% of our customer base today and are largely concentrated in Orkin.

We have the opportunity to continue to expand that area of our business by penetrating more of our current customer base and by offering more of these services throughout our portfolio of brands. Another aspect of growth mindset is how we structure ourselves operationally.

I have a short video for you that illustrates our brand strategy, which favors smaller, more nimble branches with close proximity to our customers.

[Presentation]

As the video describes, smaller branches are less complicated and are more intimate for our teammates, resulting in a family like field. While this is great for organic growth, our culture has also strengthened along the way.

And finally, as a complement to our growth mindset, our dedication to continuous improvement and operational efficiency is another key tenet of our strategy. You'll hear this message reinforced throughout many of the presentations today as we are constantly striving to improve service levels and optimize our business.

Our teammates are the foundation of a performance culture that has been ingrained in our business from our earliest days. It is reflected in every aspect of our business from how we compensate our people to the positive peer culture we seek to foster across our portfolio of brands.

You'll hear from the team today about the progress we've made in driving collaboration. We're better today than we've ever been at sharing best practices, talent, competitive insights and even business leads.

In recent months, we've had 68 teammates transfer between our brands. Several years ago, that was a rare occurrence. We continue to break down walls and initiate collaboration efforts that will benefit all of Rollins.

There's more work to be done in this area, but we continue to evolve. Balancing a decentralized model and the entrepreneurial spirit that makes our multi-brand approach so successful while also harnessing the scale of Rollins and the power and benefits that our portfolio of brands yields.

Doing this will unlock our full potential. It's our superpower. There are 5 main points we hope to leave you with today that reinforce why we believe we are positioned to continue our long track record of success.

Our ability to effectively combine our scale with local execution, helps us extend our leadership position in a large and fragmented market.

We invest for growth while embracing a culture of continuous improvement, further enhanced by our modernization journey. And finally, our financial engine of compounding cash flow to reinvest in our business, coupled with a strong balance sheet and disciplined approach to capital allocation enables industry-leading financial performance and value creation.

Before I turn it over to the team, I want to thank you again for joining us and for your interest in our company. I know you will walk away with a strong understanding of our powerful model for shareholder value creation and why we believe we are well positioned to extend our leadership position in our market. Thank you.

Ladies and gentlemen, please welcome Chief Operating Officer, Scott Weaver.

Good morning, everyone. I'm Scott Weaver, Chief Operating Officer of Orkin, USA. For more than a decade, I've had the honor of serving Orkin and leadership roles across both our residential and commercial businesses, including helping transform and scale Orkin's commercial business into a significant growth engine for Rollins.

With more than 30 years in the consumer services space, leading service, sales and operations, I've learned that what makes Roland special isn't just our 125-year history -- it's our ability to continue evolving, innovating and executing at a high level while remaining relentlessly focused to our customers, our people and long-term growth.

Orkin's 125th anniversary is a milestone that reflects not just longevity, but the strength of a durable, resilient business model built on consistent execution, trusted relationships and a category with long-term relevance and we're one of, just one of 1% of publicly traded companies that have withstood this test of time.

As we look ahead, our focus is simple: continue building on that foundation while evolving the business to capture the next phase of growth. At our investor conference in 2024, we outlined a strategy focused on strengthening our revenue model, building disciplined execution and accelerating growth in commercial.

Since that time, we've seen that strategy translate into tangible results across our teammates and our culture, residential execution and commercial sales. This consistent performance, margin expansion and scalable growth reinforces our confidence in both the direction of the company and the scalability of our model.

Today, I'm going to share an update on our progress and how we're positioned to win across our business, supported by our teammates, our culture and our residential advantages, along with our commercial differentiators.

We're guided by our Orkin Ethos, a set of values that guide how we operate internally and externally. Since we launched our Orkin Ethos, Jerry and team have introduced the Rollins way.

It embodies the culture of servant leadership, and it's shared throughout the Rollins family of brands. These 2 cultural touch points are complementary and additive to one another. One reminds us that we're part of a powerful portfolio of brands, which is our superpower. The other is unique to Orkin and celebrates our distinct culture and history.

When we talk about why we win in the market, it starts with our culture and our teammates. We've made meaningful investments in training and people-first initiatives, in addition to over 160 hours of first year training. We've expanded our grow mentor program, giving every branch manager level and hire a mentor to help build our future leadership pipeline.

Our teammates can also participate in a variety of employee research resource groups, such as the Orkins Women Impact Network and Missionst Veterans Resource group. Teammates can participate in Orkin serves, which is our corporate social responsibility initiative.

Since launching in 2022, nearly 9,000 teammates have given more than 14,000 hours of service to their communities. We've also aligned performance more directly to customer outcome with a compensation plan tied to a scorecard that measures customer satisfaction and service metrics.

The scorecard provides actionable coaching insights for our leaders to help our teammates provide a better customer experience and creates a clear link between field execution and financial performance.

We believe that these 3 things: training, people first initiatives and performance-based compensation are enabling us to improve first year teammate retention by 12% year-over-year and ultimately to execute on our growth goals.

One of our core advantages is our ability to combine national scale with local execution. Our national footprint provides consistency, infrastructure and investment capacity, while our local teams drive accountability and responsiveness in the markets we serve.

Our 7 division presidents have nearly 200 years of combined leadership experience at Orkin. Supporting our scale is the strength of our brand. Our national awareness builds trust before the first interaction, and our consistent service reinforces that trust over time.

That brand strength allows us to invest in technology and capabilities like our redesigned Orkin my Account platform for residential customers which improves the customer experience while increasing efficiency across our operations.

On the commercial side, we're investing in Orkin Insight a comprehensive customer portal that provides service data and analysis on a customizable dashboard to help businesses manage all aspects of pest management.

When you bring it together, our people, our brand and our operating model, it creates a highly scalable foundation for growth. At the center of our strategy is a single operating model supporting 2 complementary growth engines, residential and commercial.

Both are built on recurring service, which creates consistency in cash flow and a resilient foundation across economic cycles. Our shared infrastructure and disciplined local execution also result in a highly predictable revenue base with strong visibility, stability and embedded pricing opportunities.

It also provides an occasion to sell additional ancillary services to these customers, which increases stickiness and share of wallet. Residential provides scale and frequency while commercial represents a higher value, more complex opportunity with meaningful upside in both growth and margin.

Looking forward, our strategy is clear. We're refining our structure into smaller, more agile operating units to increase focus, speed and accountability while strengthening leadership alignment and investing in technical expertise.

This is reflected in our branch strategy, which generally favor smaller, more nimble branches near our customers and enables a more local approach to execution.

Since 2024, we've added 27 new branch locations, both net new and from branch splits. A large majority of these locations are co-located, so we didn't have the additional costs required to open new physical locations these operations.

Across the board, we've seen that, that tighter execution, clear accountability and a more refined operating structure are directly translated into stronger growth and improved operating performance.

In Kentucky, we have a great example of executing this strategy with strong results. After separating residential and commercial operations, we saw a significant acceleration in the rate of growth across both segments, with commercial growth increasing materially before the -- following the split.

The residential PC business grew by 2.6x. Termite and ancillary services grew by 4.5x, and our commercial business grew by 4.4x. Together, the average acceleration was 4.2x what it was when the branches were a combo, residential and commercial location.

This reinforces a key point. Focused operating structures drive better outcomes because our training and technology infrastructure is already in place, these new locations find success quickly.

Importantly, much of this growth is generated from within our current markets, allowing us to scale efficiently while expanding operating margins over time. We're seeing this kind of success across our dedicated commercial operations.

Over the past 2 years, we've seen a 25% CAGR in dedicated commercial field sales, specifically and it validates our decision to continue having a dedicated focus on this portion of our business. I'll touch a little more on the reasons why we win in commercial shortly.

Now I'd like to spend a few moments focusing on our residential business. Our advantage here has always been grounded in our brand strength, consistency, experience and most importantly, trust. In addition to having investments in training, which are driving greater consistency across the organization, our enhancements to routing and scheduling technology are improving efficiency and elevating the customer experience.

At the same time, we're introducing -- reducing nonproductive time, increasing capacity per technician and improving route density. The result is greater trust from our customers and a more efficient, higher performing model driving stronger retention, improved customer outcomes and increased revenue per customer.

Together, these dynamics strengthen in the economic profile of the residential business and support sustained margin-accretive growth. Cross-sell opportunities for additional home services represent an important growth opportunity within our existing residential customer base.

Today, only a relatively small share of our customers use complementary non-past management services creating meaningful room to share -- to grow share of wallet and deepen the customer relationship.

What makes this especially attractive is that the opportunity is not just in from rental revenue. It's proven to increase retention and strengthen lifetime value, so when we think about growth, we're not only thinking about new customers, we're also thinking about how to create more value from the customer relationships we already have.

One example of this is our mosquito service. In 2020, we began focusing on increasing this service with both existing and new customers. Since that time, mosquito sales have grown more than 100%. Additionally, it's been the biggest driver of growth for the overall customer value, helping it increase by 34% over the last 5 years.

Today, bundling mosquito control with our traditional pest control service is our lead offering for new customers calling to start service with us. A little later, [indiscernible] will share how Orkin made this transformation and focus the brands have on it today. Transitioning to our other growth engine, commercial, remain uniquely positioned to grow. This is a nondiscretionary highly fragmented market, creating a meaningful opportunity for scale providers to take share.

We're disciplined in how we compete, not on price but on expertise, reliability and outcomes. We're prioritizing growth in high-value verticals like food processing, logistics, health care and hospitality, where expertise and consistency matter most.

While these segments are more complex, they deliver strong retention, larger accounts and greater long-term value. To support this, we've invested deeper into technical expertise, including dedicated entomologists with strong commercial experience enabling us to solve more complex challenges in highly regulated environments.

To fully capture this opportunity, our commercial business is structured across 2 complementary channels, national accounts and local accounts. Our national accounts business focuses on large multi-location customers, and we're benefiting from a clear shift towards vendor consolidation.

As customers look for single-source partners who can deliver consistent, high-quality service at scale, we're well positioned to win larger, longer duration contracts with meaningful expansion potential. At the same time, our local accounts teams continue to drive share within existing markets leveraging strong relationships and brand presence to deepen penetration and expand services at the branch level.

The result is a more scalable, higher-quality growth model built on larger accounts deeper relationships and increasing lifetime value, supporting sustained growth and margin expansion over time.

Commercial growth is also coming from within the customer base, similar to our residential business. As relationships deepen, we're expanding into adjacent services, increasing share of wallet and driving higher revenue per customer.

In addition to our standard pest control agreements, our customers are finding value in services such as bird control, drain care and scent services. These areas are seeing anywhere from double to quadruple sales growth over the past year.

Leading with expertise, being proactive and delivering national scale with local execution, paired with deep vertical knowledge sets us apart in the market. We reinforced this with the Orkin Triple guarantee ensuring accountability, responsiveness and customer satisfaction.

The result is a premium position in the market, supporting durable growth and margin expansion over time. When you step back, our story is straightforward. We've built a durable recurring revenue model in a growing resilient category.

We've made meaningful progress by improving execution, strengthening our commercial business and expanding our capabilities. And looking ahead, we see significant runway to continue gaining share, expanding margins and compounding value over time.

Underpinning all of this is our ethos, a consistent set of values that shape how we serve customers, support our teammates and execute across the business. So while 125 years is a milestone we're proud of, it's really just the foundation for what comes next. We're excited about the opportunities ahead and confident in our ability to capture them.

To close, I'd like to share a video that we've created for our teammates to kick off our year-long celebration highlighting our strong legacy and casting a vision for the next 125 years. Thank you.

[Presentation]

Ladies and gentlemen, please welcome President, Rollins Brands USA, Stanford Phillips.

Good morning. I'm Stan Philips, and I have the privilege of leading Rollins U.S. brands. I've been on both sides of acquisitions. As part of a family business that was acquired and now helping steward acquisitions at scale.

From an investor standpoint, our focus is simple: protect the 2 drivers of durable returns in local service, teammate retention and customer trust. We do that by keeping strong local brands leaders, adding capability and multiplying performance through collaboration across the family.

Let me start with the Northwest story and what it taught me. That's me in the photo along with my brother, our dad and our grandfather. And for a long time, I wasn't sure I want to be in this business. I grew up in it, work summers in the field, then went to college and explore other pass.

A couple of years into studying marketing, I realized I want to apply what I was learning to something I care to belt. So I came back to Northwest to see if I could help build something special.

Northwest is my family's business. My grandfather started in 1951 in Northwest Atlanta with a simple idea, earned trust one home at a time. My dad took over in the '90s with a focus on growing the business so that my brother and I can join one day.

When our brother Steven and I joined in the early 2000s, we worked to model the servant leadership and relationship focus, our Dad and Green built the business on. We doubled down on culture, leadership and developing people because we believe that we took care of teammates, they would take care of customers.

That focus fueled growth across Georgia and into neighboring states. I still remember being out in the field early and realizing how much of the job is relationship. You're not just solving a pest problem. You're being invited to someone's home or business. You keep promises, notice details and represent a local brand people talk about in the community.

That's why brand is never just marketing for us. It's the live experience that teammate delivers day after day. When we started to consider partnering with Rollins, our biggest questions weren't about financials. They were about people and legacy.

What our teammates be honored and valued. With the Northwest brand remain something our teammates could still be proud of, would there be a real opportunity to grow, develop and build careers. And would Rollins want the leadership that got the business here, to stay and keep leading.

When you're the one being acquired, it's personal. So we kept asking, what will this feel like for our teammates on Monday morning? That became our North store, and it's the same lens we use today when Rollins welcomes a new company into the family.

What we learned through that process change the way I think about acquisitions forever. The very things that we were trying to protect, culture, teammates, local reputation and the brand or the exact reasons Rollins wanted to acquire Northwest.

We kept our filter clear. How do we make this a great experience for our teammates? We earn trust quickly. Our teammates stay focused on customers. The brand stayed strong and Northwest has thrived every year since.

When you get that part right, results follow. Customers fill continuity, teammates stay engaged, and you can invest in capabilities without disrupting identity.

Since joining Rollins, I've grown Northwest has grown and the broader organization has grown. Stephen continues to lead Northwest today alongside Jeff Dan, that you will get to hear from later.

I now have the honor of leading the Rollins U.S. brands alongside incredible leaders, all of whom joined Rollins the same way I did through an acquisition. And that share been their experience is a big reason our approach feels different when we welcome a new company into the family.

So my experience in Jerry's experience are being acquired shapes how we approach acquisitions today. We don't view M&A as buying revenue or integrating locations. We view it as joining families, welcoming new teammates, stewarding the legacy brand and earning trust market by market.

We start with culture. We look for companies with strong values, strong local trust and leaders who have built something their team are proud of. We put people first. because they didn't choose Rollins. They chose the company we're acquiring.

So we put ourselves in their shoes, acknowledge uncertainty and show through actions that we're here to invest, not a race. We protect the brand, the name on the truck matters, keeping brand identity and local pride helps retain teammates and customers.

We add capability without taking away ownership, shared resources, tools, training and best practices make great local businesses even stronger. When teammates fill valued, customers fill value.

Retention and performance follow and that's what drives durable returns. If you remember nothing else, remember this, we built acquisitions through culture, people and brands. Protect those 3 and loyalty and performance take care of themselves.

When we do that well, we don't just add companies, we expand the reach and the strength of the entire family. Here's what makes the U.S. brands platform durable. We're a family of strong regional brands with broad U.S. coverage and more than one way to win.

Different brands succeed in different markets, geographies and go-to-market models, giving us diversification, resiliency and reach. We serve customers through multiple entry points, residential and commercial, recurring programs, specialty services, inbound demand, proactive outreach and new construction relationships.

Each channel is supported by the go-to-market approach that fits best. For marketing, call center sales, door-to-door, builder partnerships and field-driven prospecting so we can meet customers how they prefer to buy.

As expectations change, the question is, how do we meet customers where they are and expand the services they want. We do that through collaboration, share what works and scale it quickly.

One brand pilots, another adds training or messaging, another brings operational expertise while keeping the local brand relationship in tech. That's the sweet spot.

Local trust plus shared capability. And it sets up the next opportunity using that shared capability to expand into new services. When our brands share insights, talent and capabilities, we move faster and unlock growth that no single brand could create alone.

Here are examples of brands helping each other grow without each team starting from scratch. Northwestern, HomeTeam are sharing best practices around the customer experience, with Net Promoter Scores above 90.

Fox and Saler helping other brands like HomeTeam introduced door-to-door tactics with proven playbooks and training, leading to HomeTeam growing termite sales 90% in Q1.

HomeTeam is passing qualified wildlife leads to CriterControl and Trutech, to serve customers end to end. During a 6-week pilot in South Florida, this collaboration led to a 45% increase in revenue growth.

Our Western brand is partnering with the working call center to leverage leadership, tools and processes to expand sales capability, resulting in 40% growth in call center sales over the prior year. Fox's call center sales team is performing outbound cross-sell initiatives for other brands to add services and strengthen the depth of relationship.

And we are learning from Orkin sales playbook to better utilize Rollin's in-house financing option, which is up 70% across the brands, growing ancillary services to meet customer needs.

Last year, all at Rollins worked together to improve the first year teammate experience by identifying key moments that matter across our brands. This resulted in an onboarding road map that enhanced retention enabling us to hire 550 fewer teammates while still achieving our growth and talent targets.

That's the advantage of a family of brands, test in one place, learn fast, and scale what works. This creates value not only for Rollins but for our shareholders as well. On the left, you see a collection of larger platform acquisitions that we've done throughout our history.

Their collective value at the time of acquisition was $1.1 billion. Today, their collective value is over $8 billion. That $7 billion of value that's being created just from a handful of the larger acquisitions we made.

When you combine that, we're protecting people and brands, the result is clear. teammates grow and advancing their careers. Brands become bigger and better.

Acquisitions delivered true value creation and legacy's last positioning us to be the acquirer of choice in our industry. So as we look ahead, the runway is significant. More markets to add more services to deliver and more value to unlock as best practices travel faster brand to brand.

We've proven the model works, and we're building the next chapter with the same discipline we started with. Take care of teammates, honor the brand and serve customers exceptionally well. This is the Rollins way, and we are just getting started.

Thank you. Ladies and gentlemen, please welcome Executive Vice President, Chief Financial Officer, Ken Krause.

Good morning, everyone. Before I start to walk through some of my prepared commentary, I just want to take the time in the spirit of essential together to recognize the events team, Rachel and Melanie and the team and as well as the Investor Relations team with Lindsay and Alex, for all they've done to put together such a great day.

So thanks for everything you're doing. I appreciate that. I know Jerry began the day thanking each of you for taking the time to join us, but I'd also like to thank you for spending time with us to learn more about our business and interacting with some of our teammates that are here with us today.

I'd like to spend the next 20 or so minutes and discuss our differentiated brand strategy. I'd like to moderate a discussion with several of our brand leaders that are here with us today as well.

As Stanford mentioned, we have an exceptional track record when it comes to M&A. We have a culture focused acquisition strategy and invest in the companies we acquire to catalyze further growth in the brand, but also further growth in our people. We started over 60 years ago when Rollins acquired Orkin, and we've been adding high-quality businesses to the portfolio ever since.

We compete in a large and very fragmented market. In the U.S. alone, we have well over 30,000 competitors. These competitors range in size from under $1 million in annual revenue to over $1 billion.

There's been a lot of consolidation in our space in the last decade. But even with this consolidation, the market and the pipeline of potential acquisition targets continues to expand. It's interesting.

When you compare the PCT Top 100 list today versus a decade ago, you can see that the number of scaled players and revenue have grown considerably. The revenue CAGR of the top 100 companies is over 8% for the past 10 years.

Comparatively, in the same time period, our revenue CAGR at Rollins is over 9%. We continue to see a very healthy and growing opportunity set in this very fragmented market.

And we've been successful growing through M&A throughout our history and are often times as Stanford had mentioned, are referred to as the acquirer of choice in the industry due to our focus on preserving brands and investing in our people.

We focus on investing in the new team members that come on board while keeping many of our acquired brands intact. Our playbook is focused on finding targets that we can partner with to grow, and you'll hear from a few of our brand leaders shortly when we discuss how we're investing in the growth of the acquired brands.

We execute with great discipline, and we don't need to have any single opportunity, which puts us in a very enviable spot. We have a playbook that's working and we continue to see opportunities to execute this strategy across an expansive opportunity set.

Over the past 3 years, we've invested just under $1 billion in almost 100 acquisitions, bringing in approximately $400 million of revenue and $90 million of EBITDA at the date of acquisition. This has helped us exceed our target of 2% to 3% annual growth from M&A during this time period.

The acquisitions we've executed on since 2023 have created just under $3 billion of value for our shareholders. You've heard me talk about the key financial criteria that we use when evaluating potential M&A, but let's look at those criteria through the lens of 2 of our more recent platforms, the FOX and Sala acquisitions.

We want partners that are accretive to our organic growth and that don't dilute our customer retention metrics, which is a really important attribute and factor for us.

We focus on acquiring brands and businesses that provide margin accretion post synergies. Year 1 earnings accretion is certainly important and ensuring we acquire businesses that are not any more capital intensive, than our business and can improve our already strong cash flow profile is certainly important for us.

And last but certainly not least, return on invested capital is very critical. Our focus is on acquiring brands that can drive ROIC above our cost of capital by year 3, if not sooner.

And as you can see, both Fox and Sala have met or exceeded or are on track to meet or exceed each of these factors. As we transition to our panel discussion, I want to highlight 3 important aspects of our multi-brand approach.

First, we believe our multi-brand approach is a unique competitive differentiator, the combination of Orkin and our strong group of regional and specialty brands enables multiple bites at the apple with potential customers.

Second, our brands provide us with multiple channels through which we can access customers. Digital marketing, cross-selling, service bundling, local advertising and door-to-door programs enable a balanced and very disciplined approach to customer acquisition.

We also have important relationships with homebuilders and real estate market communities through brands like HomeTeam and Northwest. We've successfully capitalized on this multichannel approach to drive strong customer growth.

And finally, you heard both Scott and Stanford discussed the cross-sell opportunity in their presentations. But you'll hear from our field leaders shortly on how this is taking shape throughout the portfolio.

So now if I can ask Ed Donau, Jamie Hole, Mitch Smith and Jeff Dunn to join me on stage for our annual discussion.

Great to have you on the stage with me. It's always lonely up here when you're by yourself, but no, Ed Donna, who joins us here today. Ed's been with the company. I've been with Orkin for over 4 decades and has been a really important contributor to building out our ancillary sale opportunities and all the growth we've seen around ancillary.

So we're going to spend a little bit of time with Ed talking about that. Jamie Hole joined us from Fox. So Jamie heads up our Fox business. He has been the leader behind that business and leading all of our teammates and delivering such exceptional results.

So we're going to spend a little bit of time going into detail around the door-to-door business and the culture that we have at Fox. Mitch has been with -- Mitch Smith that joins us as well.

Mitch was actually an Orkin employee going back in some time. And Mitch came to us again through the Sala acquisition, kind of a boomerang. And so he came back to the organization, but he's leading such a great business with what we're doing out at Sala and all the great performance we're seeing there.

And then, of course, Jeff done, if you were here 2 years ago, you got the opportunity to interact with Jeff. And Jeff is doing a great job on the Northwest business. And we're going to spend a little bit of time talking about that business as well.

And so why don't we just start with Ed and start to talk through the ancillary opportunity. And a lot of times, people look at us and they ask, well, is this really pest control what are we doing for the customer?

Like how does it connect with our underlying core pest control business. People sometimes look at it and say, -- is it really something that's that valuable for the customer, Ed. Could you help clarify that?

Yes. I think at the end of the day, it's just kind of closing the gap on what we're trying to solve. The problems we're trying to solve. Often, the customers are called with answers, spiders or termites and any of those things are rodents.

And basically, what it comes down to is, oftentimes, that's just the symptom, that's not really what's going on. And if we really want to fix the problem permanently, we got to look a little deeper and they look a little further.

So all the ancillary services that we've positioned at Orkin and now into the brands all really fall into -- just chasing some conducive condition, stuff that will fix the problems permanently and give us a puncher's chance

Yes. it's interesting. That's very helpful, Ed. And it's interesting, in Stanford's conversation and the presentation, you talked a lot about collaboration you've been really an important driver behind the ancillary opportunity in Orkin and how it's grown.

You've started to work across work more extensively with the brands and driving more awareness around this and best programs to drive growth and so it's been great to see that.

But one thing that I think people want to understand around this area is how we sell it? Like how do you get a customer to actually enter into the relationship to procure these types of services from us at?

It's really not just responded to that initial call it's taken a big picture view of it. Whole home inspections are a big piece that we go in. We try to get in there and get our home inspectors in there to look at the house from top to bottom to uncover these issues that may be contributing to the problem again and -- or things that we can fix.

Maybe there's been rodents in theatic or there's been wild life in the attic and there's some remediation work that needs to be done -- and that's kind of the space that we fill in, closing and sealing up the holes and making that all work -- that's the real crux of what we try to do and teach.

Yes, that's great. It's interesting. I remember a few years ago, Ed, maybe 2 years ago now, we were in a quarterly business review, and I was looking at the performance in ancillary an organ, and I was kind of scratching my head and thinking how long is this runway?

What does this runway look like? and you responded and you kind of clarified a few things for me. But maybe if you could help the audience also understand the runway around ancillary opportunities.

Yes. I think the runway isn't so much oftentimes a demand problem, it's an execution opportunity, right? So we have all these customers out there. We bring new customers in every day. .

Certainly, the Orkin folks continue to bring new customers and my peers up here, they're bringing new customers in like crazy. We've got these opportunities that are out there.

So when you ask me the question, you know I kind of chuckled back at you and I said, I don't see an end to it, and I still don't sitting here today. I mean the opportunity is immense.

That's interesting. There's a slide behind us that shows some of those opportunities, and it's really focused on the residential area of our business. But today, the thing that I always say about this area and how I've gotten comfortable with it is that it represents less than 10% of our overall revenue, but it has a ticket price, it's 10x roughly the price of pest control.

So the utilization in our customer base is exceptionally low and knowing that we really don't see much use of this thus far in the brands. More of the adoption is on Orkin. So there's so much -- it just feels like there's so much opportunity to do more on the brands.

And onr thing that if you -- there was a recent study put out by Harris Williams around residential services, and in that study, they talked about the use of options -- financing options for customers. That's a tool you use and you've used at Orkin for some time. Isn't it Ed?

Yes. RAC, our in-house financing is probably, I think, the biggest lever in being able to open the door for our customers to #1 afford these services. And because when we go out there and we find some of these issues that need fixed, it's an unexpected, unplanned expense, right?

And they can get a big ticket item for sure, and they're not prepared to do that. What our in-house financing allows us to do is allow the customer to take advantage of those services without a big hit upfront.

They can budget it out, they can space it out. And that's the key and that's when Stanford shared the number about the REC sales being up that's the indicator that this is starting to really hit hold.

Right? And it's so exciting. And we talk about our growth algorithm of 7% to 8%. This is 1 of those things that could certainly lift the growth algorithm higher as we think about the future.

And speaking about growth, FOX has been an exceptional add to the portfolio. All the teammates that we've brought on from that combination back in 2023. and Jamie leads up the efforts there. And there's always this discussion around door-to-door.

And I remember even when we were evaluating coming into this market more extensively, the retention around customers. And there was a lot of concern about churn.

It's interesting. What I found when I looked at Fox and I'm looking at Sala is that we don't see as much churn as what people thought we would see. And in fact, it's better than some of our other brands. What -- how do we do that? Like how do you deliver such an exceptional retention rate when you think about Fox?

Ken, we just did a 5-year look back at our customer base just do a comparison between our main acquisition channels.

We have a strong inside sales that sell it over the phone. We have technicians that sell it, they love relief when they're servicing accounts. And then we looked at our door-to-door accounts.

And actually, over that 5 years, year-over-year, door-to-door customers, we retained them 1% to 2% better than those other acquisition channels. And so I really think it's about relationships. At FOX, our #1 core value is relationships first.

We want those door-to-door reps to be on the door with that customer, building a relationship of trust, being able to recognize the pest pressures that they're having and bring awareness of the need of professional level pest control.

I just think it's an opportunity for us to really cement the need but also to actually fill that need that same day, which is unique to us as we're in markets, and we have the opportunity to have technicians with us.

We can solve those problems that same day. And if we follow it up with a really great service, then we have a sticky customer, and we want to always build the FOX family in every interaction, and we want them to be Fox for life. So I think that's our approach and that's part of the reason why we retain.

Yes, the relationship you form on the doorstep and then following that up with high-quality service earns you the right to keep those customers, and it's paying off you talk about not only what we're doing with Fox, but when we bring a company like Fox into the fold, we want to start to share what you're doing with other brands in the portfolio.

For example, HomeTeam. Can you talk a little bit about what you did to kind of share what your access to customers and help HomeTeam become an even -- it's already a very strong business would help it become an even better business.

Yes.Wel, we love the partnership with HomeTeam. HomeTeam does a really great job on the profit side. We grow fast. We do a nice job on the revenue side. But that relationship has been really great for us. We've been able to share with -- HomeTeam has a great builder relationship.

They have 2 million homes with TX tubes already in the walls. And so we've been able to share how door-to-door teams might be able to help with the recapture of some of those dead tubes that are in those walls.

And so that's been an advantage for them also were able to share with them a third-party marketing company that uses door-to-door to upsell termite to customers. And like Stanford said, HomeTeam's Q1, 90% over last year's Q1 with using that strategy.

It's interesting. That PCT Top 100 slide that was up on the screen previously. If you go back to 2014, I don't think either one of the brands, Fox or sale were even in existence back in 2014.

And it's interesting, who knows where this business and market goes, but it's incredible to see the growth I mean there's roughly several hundred million dollars of revenue coming through those 2 brands, really valuable revenue and with a ton of great people in them as well.

So really great to see that. If we go to the Sala and we think about sale of Mitch and the culture at Sala, you heard Jamie talk about the culture and you hear them talking about relationships. And talk a little bit about how Sala has been able to perform so well and retaining customers and growing its business.

Yes, absolutely. And you know I love talking about this stuff. So when I think about cohesive relationships and behavior, I know that there's a culture that drives that.

And I think sometimes the best way to talk about that is maybe I start with an example of what that looks like in the field. And I'll tag on to what Jamie just talked about. And then if we have time, maybe we can talk about the culture that's driving.

So right now, what's really important to us and we're spending a lot of time on is the onboarding experience through our door-to-door marketing arm. So you think about that, Jamie talked about relationships there. I'm face-to-face with you on the door talking -- listening to you talk about your pest control experience, your concerns, I can start painting color, helping you understand how we're going to solve that problem and keep you safe.

It's really a wow factor, Ken, when you think about it. This is where -- I have to say this is where relationship starts, connections begin. That's the first wow factor. The second one is now that I've got you signed up for the service, I need to get my service technician on time, on schedule so that you're not waiting there to the end of that time block. I want them there now.

And when you think about that, we not only know where our sales are coming from down to the neighborhood every day, but we know approximately how many and what time they flow throughout the day.

And when you have that kind of data, you can really dial in with exactness on getting that service specialist there on time, on schedule.

The third piece can be a little bit subtle unless you don't get it, but it's super important and that is that service team.

And this is where we're getting into this connection, this cohesiveness, the sales professional has to download that experience they just had, including all the expectations that were set for that customer into the CRM so that my service technician shows up on time, on schedule and can walk you through with confidence how we're going to meet all of your expectations, and it really closes the loop on the start of this relationship.

That's awesome. There was 2 slides up behind me. They were both kind of deal slides associated with the acquisitions.

And the Fox acquisition, I think we paid over 13x for it. It's now valued at probably under 8x. You look at the Sala acquisition. I think we also paid over 13x or so. And today, it's about 10 -- and a lot of companies talk about synergy-adjusted opportunities. And a lot of it comes through cost takeout and really reducing people.

But it's been quite the opposite. When we think about your 2 businesses, it's been about growth. Like the reason those multiples are so attractive is because our customer churn is healthy and our growth is exceptional.

And so it's really good to see that culture paying off through that growth algorithm. Jeff, if we could go to Jeff and talk a little bit about Northwest and Jeff does not do -- he's not in the the door business. So maybe a perspective, Jeff, on door-to-door.

And what you've learned after interacting with some of our new teammates that came to us through these acquisitions.

Yes. So relatively new guys up here, and I feel like yesterday, we were the new guide here we are 8.5 years into it now. And Initially, we thought these door-to-door guys are really good at sales and they grow through sales, and that's obvious they do.

But what we've learned is their services is stellar. And that's certainly something locally we pride ourselves on. But the collaboration that we've been able to have with these guys and learn about the sales.

But I would say, more importantly, the service and how the retention is much higher than we would have ever thought it would be. And it's because of the focus on the teammate on the culture like they talk about.

We're a local company, and we face our customers locally with several different brands that are represented. We have green services that we take through new construction, through real estate, through local involvement.

So yes, we've not done the door-to-door, but goodness we've learned a lot from these guys and speaking and learning a lot Ed coming over to the brands this year has made a big impact for us. We would crawl through or walk past opportunities that now we take advantage of with a Ed has been very valuable in helping our gas understand how to utilize RAC.

Yes. That's a great point on the collaboration with Ed coming over. And I was with Randy Wilhite not long ago and we were talking about collaboration. .

And I remember that we were talking and he was so excited about his strip out to Jamie's organization. Northwest has a Net Promoter Score of 90, very hard to find companies with a Net Promoter Score of 90.

And so taking some of that experience and interacting with Jamie, who's very growth-oriented. I mean that's -- I think that's a really special thing and provides a lot of optimism as I think about the future, Jeff.

It really does. And that Net Promoter Score starts with the focus on the teammates. We start each week with a service standard that's centered around service.

And we have lots of different interpretations of what extraordinary service looks like but our teammates look to outdo 1 another. And Randy did a great job going out there and talking to Fox and the team about how we're able to achieve that 90-plus NPS score.

That shows up with our customer retention as well when we have high Net Promoter Scores, we tend to have customer retention that's high too. And ultimately, it starts with teammate when we're able to hire and keep high-quality teammates, both of those sore.

Yes. The other thing I just wanted to double click with you on, Jeff, is the growth at Northwest. From 2017 to today, it's 4x the size it was back in 2017. And we're doing what we would do for a full year in one quarter now.

And it's exceptional to see that. What's been -- how have we been so successful in growing that business, Jeff?

First, we've got an extraordinary team at Northwest family of brands. We've got leaders that were with us prior to the acquisition. You heard from Stanford about the intention to steward forward this legacy, and it's very personal to our teammates.

We're celebrating 75 years in business this year. And our goal is to be healthier for 75 more. There's a real focus on stewardship amongst our team but it started when Jerry came in on day 1 and said, Just trust us, give us a chance and see how it goes and the runway opened for so many of our teammates.

We're in states that we never would have thought we would have been in. So the empowerment from Rollins to grow the business with additional acquisitions has been key.

Certainly, keeping our focus on the organic revenue growth piece as well has propelled that -- but yes, just a lot of gratitude from our team to Rollins for the way the acquisition was handled.

And then it gives us empathy when we take on new companies, and we know exactly how they're feeling in that moment and help them steward their legacies forward as well.

Great. Well, thanks, guys. I really appreciate the time and great to talk about all the wonderful opportunities we have ahead of us. .

I think we're going to transition to a break here and take a few moments, and we'll be back with you momentarily.

Ladies and gentlemen, we're going to take a 15-minute break. Our conference will resume back at 10:25. Enjoy the break.

[Break]

[Operator Instructions]

Ladies and gentlemen, please welcome back to the stage, Ms. Lindsey Burton.

Hi, everyone. We're planning to restart our conference and webcast. So please take your seats. And now I'd like to introduce our Vice President of Marketing for Orkin USA, Cam Glover.

Thank you. Good morning. My name is Cam Glover, Vice President of Marketing Orkin. In addition to my role at Orkin, I have the privilege of serving as a lead marketing adviser across our Rollins brands.

That gives me the opportunity to work closely with our brand marketing leaders and help shape how we connect with customers, strengthen our brands, and drive growth across the entire organization.

At Rollins, marketing is about so much more than advertising or campaigns. It's about creating meaningful connections, building trust with our customers and helping power the continued success of every brand in our portfolio.

Today, I'm looking forward to sharing more about the critical role marketing plays and driving growth across the enterprise. Marketing at Rollins is a real driver of growth across our portfolio.

We measure that growth not only by sales volume, but also by the quality of the customers we bring in, how well we keep them and the value they create over time.

Marketing should help us grow effectively, but it should also help us grow efficiently. That is where the Rollins model is so powerful. Our brands know their local markets and understand their customers.

At the same time, we have an opportunity to share stronger tools, better data and proven practices across the portfolio. That combination matters. It allows us to preserve the local connection customers value while still benefiting from the scale, discipline and shared expertise of Rollins.

One of the core strengths of Rollins is the breadth of our portfolio. We serve different geographies, customer types and market needs through multiple brands. That gives us broader reach than any single brand could achieve on its own.

Each brand maintains its own positioning and local relevance. That matters because not all customers respond to the same message, channel or go-to-market approach. The opportunity is to combine that local strength with shared expertise.

By sharing marketing analytics, customer insights, media learnings, and measurement practices, we can move faster, reduce duplicated effort and make better investment decisions across the portfolio.

It also gives each brand access to a larger base of learnings that it could build on its own. This slide highlights another advantage of the Rollins portfolio. We are not dependent on any single way to acquire customers. Our marketing investment is spread across brands and across channels. Some brands lean more heavily into performance marketing, Others place greater emphasis on brand building, B2B, door-to-door, local partnerships or other demand sources. That diversification is a strength.

First, it reduces risk. We are not overly dependent on 1 channel, 1 audience or 1 source of demand. Second, it helps us learn faster because our brands operate in different markets, we can see what is working, compare results and apply those lessons in a more disciplined way.

Over time, that creates a stronger platform for collaboration with better systems, common measurement and share best practices. We can also allocate dollars and more effectively scale what works and still give each brand the flexibility to operate in a way that fits its model.

The point is not just to spend more across more channels, it is to build a marketing system that is more resilient, more informed and better positioned to drive growth across the portfolio.

Orkin is a flagship brand in the Rollins family brands, and it's a meaningful marketing asset. It brings together national awareness, customer trust and service credibility at scale. Those strengths support the full customer journey from the first moment of awareness to conversion to retention.

Orkin also gives us a strong platform to test, learn and improve because the Rollins has scale, we can see what is working, measure the impact and apply those learnings selectively across the broader portfolio.

The awareness and consideration trends on this slide are a good reminder that the brand continues to be an asset that Rollins can leverage.

Before I move on, I want to show a short montage of Orkin's advertising. What it shows is that Orkin can be both credible and memorable. The work has personality, but it still reinforces the trust and expertise that the brand is known for.

[Presentation]

Hope you like this as much as we do. We've been really encouraged by the response to this campaign. The feedback has been positive, and we're proud of the work because it reflects what strong brand marketing should do.

Build familiarity, trust and confidence before the customer ever needs us. This is important because as the marketing environment involves, brand strength and influence matter more than ever. We do not see branded performance as separate choices.

They work together. Brand builds trust, authority and consideration. -- performance marketing helps capture customers when they are ready to act. That connection is becoming even more important as a search landscape continues to change. Customers are no longer finding service providers only through a traditional list of search results. Increasingly, they are getting answers and recommendations directly through AI-driven search, MAP listings local results and other zero-click digital environments.

So success is no longer measured only by website traffic. It's also about being visible, trusted and recommended wherever customers are searching. Our response is to protect the fundamentals of search while preparing for the next generation of search experiences.

That means maintaining strong site health, creating expert content, building local market coverage and strengthening the brand authority signals that help our companies show up as trusted answers.

For Orkin, we are already seeing strong visibility in these emerging environments. That visibility is supported by the SEO authority and search prominence we have built over many years.

Recent reporting show that Orkin holds the leading share of AI visibility among pest control brands, ranking #1 in AI-driven search answers and #1 in citation share of voice.

This is significant because stronger visibility in these evolving search experiences can improve lead quality, conversion efficiency and customer acquisition performance.

As search continues to evolve, the brands that are most visible, authoritative and trusted will have a structural advantage. They'll be more likely to stay in the customer's decision set no matter how the search experience changes.

In residential, the opportunity is to capture demand with greater local precision, improve conversion and expand lifetime value. In the home, success comes down to trust, urgency and local relevance. Customers often have an immediate need.

They know the brand -- they want to know the brand can solve the problem quickly, professionally and reliably. That is where marketing plays an important role. We can use high-intent channels and market level activation to reach customers at the moment they need us the most.

We can also improve the digital experience with clear selling propositions that make it easier for customers to understand the value, take action, and move through the sales process faster.

And through life cycle marketing, we can support recurring plan adoption, retention and stronger customer relationships over time. So the opportunity is not just to acquire more customers, it has acquired them more efficiently, keep them longer and increase their long-term value.

That is especially important and residential where an initial need can become the start of a recurring relationship. In commercial, the approach is different from residential.

Commercial customers are often looking for a partner who understands their specific operating needs, a restaurant, health care facility, school, warehouse or multi-location accounts may all need pest control but the priorities and proof points can be different.

That is why growth in commercial depends on industry relevance, lead quality and strong sales support.

Marketing helps the field tell a compelling story about our expertise, responsiveness, and the outcomes we can deliver. That includes relevant case studies, industry-specific content, targeted account reach and tools that help the sales team communicate value more effectively.

The biggest opportunities in national accounts, multi-location customers in high-value vertical segments, as Scott covered earlier.

With better segmentation, more relevant content and strong support for the sales process, we can improve both conversion and expansion in the commercial division. Across the portfolio, the goal is not to make every brand operate the same way.

Each brand still needs to serve its own customers, markets and growth priorities. The opportunity is to share what works. That includes measurement standards, test design, media and vendor learnings, creative best practices and better ways to evaluate performance. When teams learn from one another, we can move faster, make better decisions and improve the quality of execution.

It also helps us use marketing dollars more effectively. This is practical collaboration, sharing the tools, tests and lessons that help each brand perform better. And over time, that creates a real portfolio advantage for Rollins.

The best marketing outcome is not simply more leads. It is more loyal customers. That means customers who are more likely to convert, stay with us, use recurring services and create greater lifetime value over time.

This is why we focus not just on lead volume but conversion quality, retention, recurring revenue and lifetime value. AI is already influencing this dynamic. It may put pressure on total lead quantity but it can also improve lead quality.

The funnel is becoming more efficient and more intentional with fewer low-intent inquiries and more prospects who are ready to buy. That is a better outcome for the business. It also means marketing must stay closely aligned with sales and operations.

We want to generate demand that the business can serve well and serve profitably. A low-quality lead can create cost and distraction. A higher-quality customer can support revenue, retention and margin. This also matters for capital allocation.

When measurement is disciplined, we can make better decisions about where to invest across channels, across brands and across the customer journey. The goal is to move beyond lead volume alone and focus on the outcomes that matter most, loyal customers, stronger retention and more durable growth.

To bring this all together, marketing is not just supporting growth at Rollins. It is helping to shape the future of our business. Today, marketing drives performance through stronger positioning, smarter customer engagement and disciplined execution across our brands.

What makes this especially exciting is the opportunity ahead. As we continue to grow, we can share learnings more effectively, improve execution across the portfolio and scale the strategy is already delivering results.

The model is simple. Strong brands build trust, share processes extend impact and better customer quality drive stronger retention and long-term customer loyalty. Thank you.

Ladies and gentlemen, please welcome Senior Vice President, Operational Support. Clay.

Good morning, everyone. I want to start by introducing myself a bit. Prior to joining Rollins, I spent the last 25 years researching and developing new products for use in the pest control industry.

As a scientist, it was very rewarding working with pest control operators across the U.S. as well as in key overseas markets, Australia, Japan, the U.K. and Europe, Southeast Asia and China and South America to solve pest problems by delivering new tools for the service industry.

Working with the Gates Foundation, we created novel interventions in the fight against malaria in sub-Saharan Africa.

Now 1.5 years into my role at Rollins, it is really special to be part of the service industry, bringing the combined offer of product technology and service protocol to the ultimate customer.

I refer to this as the solution journey from idea and concept through testing and development, training, refinement, culminating in an optimized customer experience. It's a real joy to be part of the end-to-end process and to be here with everyone today.

Over the last year, we have restructured some key operational support functions to enhance customer experience through improvements in service delivery. I'd like to share a few of these today.

First, pests are at the core of our business. Pest infestations present significant human health threats and can cause damage to structures or impact operations in commercial businesses. These are dynamic and complex systems rooted in the science of entomology, specifically urban entomology.

Access to technical expertise is critical in enabling frontline staff to properly identify, diagnose, prescribe, treat and solve pest problems. We recently took steps to ensure all divisions have dedicated entomology technical expertise.

Among our entire field organization, we have over 200 certified entomologists including 10 PhDs dedicated to ensuring our frontline staff are fully trained, prepared and supported to serve our customers.

While ramping up and investing in our people and teams it became clear that Rollins is an employer of choice among the urban and topology community. The Rollins way has become visible externally, and has resonated within the industry and technical experts want to be a part of it.

We have been able to recruit and build the best technical organization in the industry. Top talent wants to be here. And that's something we are proud of and excited about.

Second, with a focus on continuous improvement, we have redesigned our technical training model. We created a new role dedicated to leading technical training across Rollins, bringing together best practices, which can be shared and quickly integrated where needed.

Training has evolved to include multilayered and multi-format assets to form an end-to-end experience for our service technicians. Learning occurs through traditional classroom style, computer-based modules, digital tools, including AI-based tools as well as on the job.

Through this learning journey, we feel our teammates are best prepared to meet our customers' expectations. For those teammates desiring additional development, we have formalized career path opportunities based on experience and additional certifications leading to increased job satisfaction and improved retention.

Third, as part of a continuous feedback loop, our full-time quality assurance teams provide real-time evaluations of branch operations. This team is brand agnostic and allows for an arm's length objective review.

We recently expanded our 2 teams dedicated to termite and commercial to 16 professionals contributing to a company-wide total of nearly 50 QA experts conducting comprehensive performance assessments, including identifying areas for improvement before they become problematic.

While making an immediate impact at the branch level, these learnings are also shared directly with the training team to be addressed by or incorporated into subsequent training curriculum.

Let's talk about innovation for a moment. We are a service company enabled by science. We have to be prepared for new or invasive pest species or integrate adjacent technologies into our service delivery such as robotics, drones or remote monitoring.

Fortunately, we don't have to invest in expensive brick-and-mortar R&D facilities and staff to accomplish this. We are proud to have excellent relationships with a long list of key strategic partners and university researchers and hardest their multibillion-dollar research and development budgets to keep us on the cutting edge of new developments and pest management.

In order to maximize this benefit, we have created a new innovation lead role focused on our partnerships and continued innovation. We celebrate these partnerships every year with an annual partner summit to share success in exchange ideas.

We now have the right talent, expertise and structure to maximize this advantage. We have formalized a process engine, which allows for piloting new tools and procedures with a rapid iterative field testing cycle.

We start with an idea and flush out the business case or opportunity followed by developing and pilot testing the solution and if successful, we proceed to launch.

If a concept doesn't meet our expectations, it's dropped. It's the classic method of failed fast than scale the winning solution.

The entire effort is guided and governed by our multifunction Corporate Innovation Committee to ensure the right balance of risk and reward. This new stage-gated process allows us to efficiently progress concepts into customer offers.

Our innovation pipeline is currently filled with over 40 projects, several of which originate from frontline teammates. We also have projects which have been baking for a bit longer.

Remote monitoring and pest management is a great example. Utilizing a fast follower model, we can best balance cost and benefits of technology adoption.

Monetizing data collected via remote systems has been a challenge across many industries for years. Everyone has been trying to figure this out.

Creating value from the data has remained stubbornly elusive. Only recently have we seen evidence that customers can be better served through integration of remote pest monitoring, resulting in exceptional service and greater value delivery.

Combining recent improvements in sensor technology and modern data analytics to predict conducive conditions and potential pest origins before they become infestations, reduces risk to our customers and creates value.

Remote monitoring brings incremental improvements in operational efficiency, but it's the increased service and value that our customers will reward us for. We may not be a traditional R&D company, but we are surely an innovation company by listening to our customers and working closely with partners to deliver solutions.

Lastly, I want to mention that we operate in a highly regulated industry. At least 4 agencies on the federal level and multiple regulatory departments in every state.

As the industry leader, we have the responsibility to engage with the regulatory authorities to help shape the future. We must be proactive and anticipate industry shifts and evolving in policies by taking a leadership first approach.

As examples, we drive policy to ensure practical and safe use directions for pesticidal products develop best practices and lead the industry into more sustainable solutions.

Combined, our regulatory and policy professionals have over 50 years of experience working closely with officials and trade organizations to navigate the most appropriate course for the entire industry.

In closing, I'm thrilled to be part of Rollins. I think we have a world-class technical organization -- the best way to retain service technicians is to ensure they are as prepared for their role as possible, a competent and confident service technician delivers the best service.

Our team will be focused on this execution. Thank you.

Ladies and gentlemen, please welcome Senior Vice President, Chief Information Officer, Renee Pearson.

Good morning. I'm Renee Pearson and currently serve Rollins' Chief Information Officer. I've been with the company now for a little over 3 years. So it's great to be back again. for another Investor Day.

I joined Rollins because I believed in the company culture and was excited to be on the journey currently underway. In my time at Rollins, we've integrated approximately 100 acquisitions, launched the Rollins Way.

And I get to lead and partner in the fastest and most transformative digital movement artificial intelligence. I've also experienced our field services firsthand through personal experiences, treating flying squirrels and that was in my attic. So thank you for your control.

And let's just say I know a lot more now about squirrels and pests than I ever thought I would. As I mentioned, it's great to be back. And at our last Investor Day, you heard about Rowan's technology investment strategy focused on strengthening our service capabilities, improving customer and teammate experiences and supporting disciplined growth through M&A.

That strategy still holds true today. And today, I'll provide an update on how we're executing against that strategy and demonstrate how AI is accelerating progress across our technology and business initiatives.

AI is not a stand-alone initiative at Rollins, but rather integrated across our business strategies and initiatives, all of which are focused on 3 clear outcomes, increasing operational efficiency and cost savings, delivering superior customer and teammate experiences that drive retention and growth and building a modern technology and data foundation that scales with our business.

Let's start by getting focused on operational efficiencies and cost savings. Rollins continues to invest in growth, both organically and disciplined M&A. Each year, Rollins acquires 30 to 40 brands integrated as either tuck-ins or stand-alone brands such as Sala and most recently, Romax.

To support this pace, we established a dedicated M&A technology team, Rollins IT shared services, standardized integration playbooks and created a repeatable technology migration plan.

AI has enhanced key steps in this playbook, particularly in CRM data migrations and conversions, leveraging AI data conversion tasks have been reduced from days down to minutes.

Data accuracy has improved, reducing testing cycles and therefore, outcomes delivered sooner. We also previously discussed the modernization of the Orkin call center by moving from a legacy homegrown platform to a modern AI-enabled solution that provides a more seamless teammate experience and omnichannel capabilities.

That investment continues. And today, AI is delivering even more through intelligent call routing, automated call transcription summaries and call log analytics for greater and faster insights into not only our customers but our call center agent performance as well.

Using conversational AI versus traditional reporting, call log analysis can be done in bulk versus call log by Callog. This is just another example of greater efficiencies and actionable insights enabled by AI.

We are often asked about routing and scheduling optimization, given the nature of our business. We've always had strong capabilities using traditional AI and machine learning. As AI models and algorithms have matured, they've continued to deliver incremental efficiency gains.

As such, we continue to drive adoption of routing and scheduling capabilities across our portfolio of brands each year. This capability also helps mitigate the rising fuel costs and increase in operational expenses.

We have also delivered new communication channels to engage with our customers and sell additional services. By engaging via text or SMS powered by AI, we are able to reach large volumes of customers through targeted campaigns.

This example not only provides efficiencies in our customer engagement and communication, but results in increased sales and revenue as well.

HomeTeam has already realized value, leveraging AI and texting campaigns to grow mosquito sales and Fox through win-backs. Beyond efficiency, cost savings and revenue generation, we are empowering teammates by putting AI directly into their everyday work, helping them work smarter and more efficiently.

Over the past 6 months, we've conducted many enterprise-wide AI training sessions with approximately 90% of those teammates continuing to use AI on a regular basis. Training is not only driving adoption, but strengthening AI proficiency. From corporate roles to branch and field operations, teammates can create their own AI agents to support field performance analysis, task optimization and day-to-day productivity, personalized for them, their day and how they work.

We want to continue to empower our teammates through AI capabilities with chatbots being a great way to do so. We recently launched ASK HR to answer common HR questions. With the use of the HR chatbot, not only are we delivering a more seamless experience for our teammates to get HR-related information, we also expect at least a 25% reduction in HR-related calls to our help desk, especially during peak periods like benefits enrollment or tax season rather than scaling head count to handle routine questions or spikes in call volume.

We're delivering self-service solutions that put answers directly in our teammates hands. The creation of the HR chatbot also served as the framework for rapidly deploying future chatbots.

We have a technician chatbot currently underway, focused on providing technicians with fast accessible information needed in the field. Once deployed this chat out, we'll quickly and easily provide on-the-job answers regarding pests, chemicals or standard operating procedures.

This is expected to improve teammate retention, particularly for technicians in the first year, ensuring they have any information needed to complete service orders and better serve our customers.

The vision for improving our technician experience goes well beyond a chatbot. Advances in AI have created an opportunity to fundamentally transform how technicians work. This includes building personalized, interactive, onboarding and training with AI, creating tailored training for technicians based on topics that need additional focus or to cater specifically to an individual style of learning, a virtual technician assistant to prepare for upcoming services and customer interactions.

Not only will this prepare our technician for service order, but it will also equip the technician with customer information. Imagine being a customer and your technician understands everything from your current services to your golden retrievers name like Benny.

And lastly, voice-enabled service order updates and automated work order completion. The less time a technician is in front of a device, the more time they can engage with customers or deliver more services.

Each of these capabilities is designed to help technicians perform their best, empower them in the field and create differentiated technician and customer experiences.

I've spoken today about many examples that demonstrate how we're using AI to drive tangible cost savings, gain efficiency and deliver better experiences to achieve business outcomes.

But 9 of this is possible without a strong data foundation. Data remains central to our strategy. It underpins analytics, insights and every AI capability we deploy.

In a multi-brand enterprise like Rollins, AI and advanced analytics deliver exponential value when built upon shared foundations and not fragmented point solutions.

Our focus is enterprise readiness in supporting both today's AI use cases and future innovation while enabling deeper insight across our portfolio. Specifically, we are investing in unified enterprise data foundation. This includes master data across customers, services, pests and suppliers.

Master data eliminates those brand data silos across systems, specifically CRMs to truly provide holistic customer and service insights.

We have a major project underway to modernize our financial platforms and implement enterprise performance management to enhance planning, forecasting, consolidation as well as deliver enterprise-level financial insights.

We've been very intentional about driving cross-brand data sharing and collaboration to strengthen customer insights and grow revenue, truly building operations to foster multiple bites of the apple.

You heard Stanford mention earlier the results of a 6-week pilot in South Florida, where HomeTeam passed qualified wildlife leads to Crete Control and TruTech, resulting in 45% revenue growth.

In closing, Rollins technology and AI strategy is tightly aligned to our business strategy focusing on improving operational efficiency, enhancing customer and teammate experiences and building data foundations that scale across our multi-brand model.

AI is embedded across the business and processes from M&A, call center operations and self-service and field enablement. We will continue to be disciplined in our technology investments to drive strong ROI and business results. Thank you.

Ladies and gentlemen, please welcome back to the stage, Ken Krause.

It's hard to believe that I'm coming up on my fourth anniversary with the company. It's been a wonderful journey to be part of so much positive change while having so much opportunity and momentum going forward is truly exciting for all of us at Rollins. .

I'm confident in our future, and I'm sure that after your interactions with our teammates today, you share in my confidence. I have the privilege of closing out the day and speaking to you on behalf of our 22,000-plus teammates about our performance, our strategy and our long-term value creation opportunity.

If you were with us in our last Investor Day, we described ourselves as a compounder. And since then, we have continued to realize compounding growth. We compound revenue, earnings and cash flow by acquiring investing and growing market-leading pest control businesses. We have a very capital-light business model.

Our revenue is highly recurring, and we have consistently performed through various economic cycles. Today, I want to walk you through how we got here. How the team is thinking about growth and margins going forward and why?

And why we believe our value creation algorithm remains both compelling and sustainable. We are a recession-resilient business. We have delivered 25 years of consecutive growth. We're coming up on our tenth consecutive quarter of revenue growth.

Let me say that again, 100 straight quarters of revenue growth. We've grown through the great financial crisis, we've grown through the industrial recession when oil went from over $100 a barrel down to $25 back in 2015, and we grew during the pandemic as well.

The consistency we have delivered stems from the essential nature of the service we're providing and the recurring relationships that we have with our customers. Rollins has been a compounder for many years.

Since 2000, a our revenue growth has been compounding at a 7% CAGR. Adjusted EBITDA has grown at a 14% CAGR, while operating cash flow has compounded at 18%.

And that performance has paid off. It's provided our shareholders, many of which our team are represented by our teammates, it's provided them with an average annual TSR of 19%.

Since 2000, Rollins has delivered over an 8,000% total shareholder return. Putting that into context, the S&P 500 has delivered under 700% and during that same time period.

This performance puts us at the 99th percentile of public companies comprising the S&P 500 over this time period. Said another way, we have performed better than 99% of the S&P 500 during this time period.

We've compounded total shareholder return over a very long period. And maybe just as importantly, we've continued to invest in the teammates and delivered these results through periods of uncertainty.

We're very proud of these results and the teammates that have driven these very solid results. So if you could just go back to that slide for a second. It's interesting. Oftentimes, you don't -- nobody describes pest control as sexy. But I must say that is a sexy chart.

Before discussing some of the opportunities ahead of us, I wanted to take a moment to revisit the targets we set in our last Investor Day back in 2024.

We spoke about our goal to deliver 7% to 8% organic growth, 2% to 3% growth from M&A free cash flow conversion of over 100% and incremental margins of 30% to 35%.

I'm pleased with our progress towards these goals as we have been able to meet or exceed most of them. And while incremental margins are not yet at the level that we know they can get to, our primary focus is on double-digit revenue, earnings and cash flow growth, which is precisely what we've delivered over the last 3 years.

During this period, we have made significant investments in areas that have tempered incremental margins in the short term, but have enabled significant growth in revenue and earnings.

While we did not issue a target for free cash flow growth at our last Investor Day, cash flow has been compounding at a double-digit pace since our last Investor Day. And it goes to show that the investments we've been making in growth are certainly paying off.

I previously shared a similar chart to what you see here, highlighting key milestones and achievements. We've bought businesses like Fox, Sala and Rome, which we just added earlier this year, in addition to over 90 other tuck-in acquisitions just in the last 3 years alone.

Our dividend is up over 80%, and we've deployed over $500 million in share repurchases. We've continued to modernize our capital structure beginning in early 2023, and when we upsized our revolver.

And then in 2025, when we debuted on the bond market, under my Treasurer's leadership, Brady Kanodzen, issuing $500 million in bonds with an investment-grade credit rating from both Fitch and S&P.

I might add that less than 10% of companies our size have such a rating. We've also established a commercial paper program providing an efficient source of short-term capital.

We've made a lot of positive changes with respect to investor transparency under Lindsay Burton's leadership, and the time spent here with all of you today hopefully reinforces that.

As a result, we've seen a number of positive developments with respect to sell side coverage and our shareholder base. These have benefited us by increasing our liquidity and has enabled us to execute 2 successful equity offerings, the most recent taking place in November of last year.

Perhaps most importantly, we continue to elevate our talent profile by making meaningful investments in our people. Importantly, we have a lot of tenure and experience in our business, which we value greatly.

We've coupled this experience by strategically adding new teammates that are bringing new ideas and diverse experiences. It's exciting to see the interplay of these 2 groups and all that they're doing to drive our performance.

I look at our organic growth through 5 primary drivers: market growth, pricing, recurring revenue, commercial growth and ancillary services. I'd like to take a closer look at each one of these, starting with market growth.

Industry consensus for nominal growth inclusive of prices in our market is in the range of 4% to 7%. Our ability to outpace this is driven by investments we make to fuel our recurring revenue base, drive commercial growth and expand our ancillary service offerings.

We operate in a highly attractive market, estimated at over $20 billion but we believe the opportunity is much higher. With less than 20% of U.S. households utilizing these services, we believe the potential for pest control adoption to be significantly greater than where it stands today. supported by some of the tailwinds you see here, such as increasing awareness, a shift towards do-it-for-me and changing lifestyle trends, just to name a few.

Additionally, evolving consumer preferences for home services should continue to benefit the pest control market. According to our recent home services consumer study conducted by Harris Williams, of the 1,000-plus homeowners surveyed were more likely to hire a professional today for home services than they were 2 to 3 years ago.

85% of survey respondents plan to maintain or increase spend on home services, even during a recession. 96% of respondents say a well-known brand is very important to them. While 79% indicated a preference for hiring local underscoring the importance of our multi-brand strategy.

And 94% of respondents indicated how important financing options are when it comes to making a decision around services, reinforcing our Valens Acceptance Corp and the importance of that and how much of a competitive differentiator that is in our markets.

These secular tailwinds and evolving consumer preferences have the potential to drive market growth above 5% over the next 10 years. Transitioning to pricing, we continue to expect pricing to positively contribute to our financial results.

We believe the essential nature of our services warrants a service CPI-plus pricing model. This model uses data-driven analytics for both new and existing customers, factoring in demographics, performance trends. geography, service mix and consumer behavior, enabling us to be more targeted in our approach to pricing.

This is not a broad-based approach, but one that is highly individualized or tailored. Our approach allows us to realize the full benefit of our pricing actions. 75% of our business is recurring, and that creates a predictable base of revenue and the opportunity to form valuable long-term relationships with our customers.

The average customer life in our residential business is 4 to 5 years. And for commercial, it's even longer. The acquisition cost of a customer as incurred once in the revenue and value is realized over many years.

This combination provides exceptional returns and stability. Our commercial opportunity is 1 that we have been especially focused on in the past few years as we stood up 2 dedicated commercial divisions, as Scott mentioned earlier.

Commercial continues to be an exceptional business for us with a customer life that can be in excess of 10 years. We have a multipronged approach to customer access as we go to market through national accounts, as well as strong local execution.

And we continue to have great opportunities in front of us for cross-sell as there are 10-plus opportunities to expand wallet share with any given commercial customer.

One of the levers that continue to excite us is our ancillary opportunity. Today, ancillary services, as I mentioned earlier, account for only 10% of our revenue but has an average ticket price of over 10x an annual residential pest control contract.

This means that less than 5% of our customers have engaged with our service offering, our ancillary service offering, which today are primarily offered through our Orkin brand.

Going forward, we have a great opportunity to grow this area of our business by penetrating more of our customer base at Orkin and expanding these service offerings across our portfolio of brands.

This could grow our ancillary services from a $300 million business today to well in excess of that over the next several years.

And as we discussed earlier, M&A serves as another important lever of growth for our business. There are a number of factors that provide confidence in our ability to deliver on our target for 2% to 3% growth from M&A.

We play in a large and fragmented market with a pipeline of potential opportunities that only continues to expand. We've earned a reputation as an acquirer of choice in our industry by partnering with exceptional businesses throughout our history and investing in them, their teams and driving further growth.

And as a result, over the last several years, it demonstrates the combination of our reputation in the market, coupled with a fragmented landscape in providing upside potential to drive M&A growth above the 2% to 3% watermark.

Let's shift gears and talk about earnings growth. We're focused on double-digit earnings growth and have a multitude of levers to hit that goal, as you can see here on this slide.

We believe that a combination of these levers and our revenue growth will provide sustainable double-digit earnings growth. There are 3 key areas that represent meaningful upside from gross margin -- from a gross margin perspective beyond our proactive pricing strategy that we discussed earlier.

First, you've heard us talk about our focus on improving our performance with respect to turnover, particularly among teammates who have been with us for a year or less. We lose too many people in the first year. We invest roughly $15,000 each year to onboard these new teammates.

When we lose them, that represents meaningful costs and inefficiencies in our financial results. We're making good strides here, but have opportunities ahead of us. By reducing hiring by improving retention of just 1,000 teammates that would represent a savings of almost $15 million.

Improving technician turnover has the opportunity to drive savings of $15 million to $20 million annually, corresponding to potential savings of 30 to 40 basis points.

Second, while our brand multi-brand strategy does have a certain degree of decentralization or autonomy when it comes to day-to-day operations for our brands.

There are opportunities to leverage our scale more effectively. We spent approximately $200 million of materials and supplies annually with some coordination across our brand portfolio with respect to procurement, but there remains opportunity to modernize this area much further.

Continued progress in this area could drive 15 to 25 basis points of improvement. This could easily equate to savings of $10 million. This will take some time and ongoing change management, but the opportunity is certainly there.

And finally, similar to synergies we can drive with respect to procurement, fleet is an area where we can also look to better leverage our scale, and we're very active in this area.

Turning to our SG&A opportunity. We still see a significant amount of untapped opportunity as we continue to modernize our business. Over the past few years, we've been able to take out admin expenses and reinvest it in the business. Over this time, we've increased our investment in selling and marketing by 200 basis points, but have driven savings of about 200 basis points in G&A costs.

We're helping pay for the growth by saving in general and administrative areas. We see an opportunity to continue to enact an incremental change in this area as there are countless opportunities to leverage our corporate functions more effectively to improve the efficiency across our business.

We've made significant progress over the past few years, getting the teams in place to implement these opportunities. We have a number of other areas that we continue to focus on, such as back-office efficiency reducing redundancy in our operations and modernizing our financial systems by putting in place new technology that provides greater visibility into the business, and we expect to make progress on this in the near term.

Through improvements of what we see on this slide, we see an opportunity to create 100 to 200 basis points of further margin improvement. Another lever of potential earnings growth comes from taking a more strategic and proactive approach to tax planning.

Our tax team headed up by Andrew Light, who is with us today, has done an excellent job over the past several years, driving meaningful improvements to our effective tax rate. And the opportunity to drive that rate even lower going forward is certainly tangible.

Transitioning to cash flow and our balance sheet. We've consistently compounded cash flow at a double-digit rate, which is enabled through our ability to consistently compound earnings at a very strong pace.

Second, we have a very capital-light business model. Net working capital is oftentimes negative. It's negative as customers pay us in advance of receiving their services. And the average CapEx requirement in our business is less than 1%.

As a result, earnings have continued to compound and convert to cash at well above 100%, which we then reinvest in our business and use to provide meaningful returns to our shareholders.

Looking closer at the balance sheet, our cash flow profile has enabled us to maintain very modest levels of leverage. We remain committed to our investment-grade policy of maintaining leverage under 2x.

As you can see, we sit at less than a turn of leverage today, which has moderately increased over the past 3 years with ample capacity to grow our business through acquisitions while maintaining that balanced and very disciplined approach the capital allocation.

Here's a look at our growth and free cash flow from 2015 to 2025. Cash flow has grown at a 15% annual CAGR. And you can see here how it has been deployed.

Let's start with dividends, which make up a little more than 40% of our capital allocation. Dividends have grown by about 128% over this period, with 80% of the growth coming since 2022, when we shifted our strategy.

We are committed to growing the dividend as earnings and cash flow compounds. We've invested 39%, just under 40% of our cash flow or $2 billion in M&A. We continue to prioritize buying great businesses with great people and cultures that attract -- that provide attractive returns.

We've deployed more than $600 million over the last decade in share repurchases with a majority of these repurchases occurring in the 2023 and 2025 secondary offerings. We have seen nice returns on those repurchases, and we'll continue to evaluate share repurchases from time to time.

Turning to our outlook. The underlying algorithm remains unchanged. Our medium-term outlook is 7% to 8% organic growth. 2% to 3% of growth from M&A, a 30% to 35% incremental margin from our core business and free cash flow that converts above 100%.

What we're ultimately striving for is to consistently deliver double-digit revenue, earnings and cash flow growth. So as I close, I want to again reinforce the key investment highlights that I hope have resonated with all of you today.

This is an exceptional business operating in a very attractive market with scale and other unique competitive advantages that position us to outpace the overall market growth rate.

Our modernization journey to further optimize our business is well underway with tremendous opportunities still ahead of us. And the hallmark of our business is that we are a compounder, and we'll continue to create shareholder value through disciplined capital allocation and a very strong balance sheet. Thank you for your time and interest in our company.

Ladies and gentlemen, we're going to take about a 14-minute break. We're going to start back here at 11:35. Enjoy your break.

[Break]

Ladies and gentlemen, we go ahead and get you back to your seats. [Operator Instructions Ladies and gentlemen, please welcome back, Lindsay Burton.

Okay. We will now be moving to our Q&A session with the broader team. We have 2 of my colleagues from the Investor Relations team that will have microphones. If you have a question, please raise your hand and wait until the microphone gets to you. We want those joining us on the webcast to be able to hear your questions.

So please limit yourself to 1 question, 1 follow-up. And if you could please state your name and the firm that you're with before asking your question. Thanks, everybody. Let's get started.

Tim or any William Blair. I wanted to ask about the commercial business. You guys talked about it a lot at the beginning of the day, all the investments that you've been making here over the last several years.

And I think that might be something that's underappreciated by -- the Street a little bit, just how much you've been investing there. I guess my question is, how far along are you on that journey?

Are we getting to the -- when you think about how much branch splitting or the investments in the sales folks, and as we think about that leveling off and the productivity ramping up from there, can you kind of just lay that out for us?

Great question for Scott. .

Yes. Thanks, Tim. We're at a phase right now where the last couple of years, we've really been building on the leadership group of it, and we feel we've flattened that out at this point.

As far as the branch locations, we're always evaluating that. In the presentation today, we talked about the Kentucky opportunity, we're continuing to look for those where they're laying without the organization.

But the thing with the commercial side of it, you just got to keep in perspective is that the runway on the salespeople is a little longer than it is on residential, longer sales cycle to build up to that.

But we think we've got the right ratio right now on the later -- with the leadership to frontline employee ratios.

They're not a curve. There's a curve, right? I mean we were talking about that at the break. There's a curve. So when you think about that, it's the line of growth and productivity.

And I think for a period of time, what Scott is alluding to is that you're not as productive. You're not seeing the returns but over 6 to 9 months and up to a year, you start to see it.

And then what you end up doing is being very positive on that curve. So your productivity is improving and your profitability also improves at the same time.

You think about these customers, they're with us for a decade. And so it's not about the first 6 or 9 or months or for even a year, it's about that 10-year period that we have a customer with us.

All right. That's really helpful. And my follow-up is just on your -- Ken, your gross margin slide, you kind of laid out 3 categories of COGS and what the annual opportunity is.

And of course, the sell-side analyst is just all those based point improvements and assume that you're committing to 70 basis points of improvement every year, but I know that's not actually I assume that's not actually what you're saying.

So that -- is that actually your annual target? Or more of an opportunity? Or can you just clarify a little bit what that slide was really meant to represent.

Yes. So when you think about gross margin, and thank you for the question, Tim. What we wanted to do is illustrate the opportunity set behind gross margin and cost of services.

But when I think about gross margin expectations, it starts with pricing at CPI plus much of our supply chain is at CPI. So naturally, you're going to get leverage at the CPIs line. That might be 25 to 40 basis points.

But these opportunities that are on this slide that you saw us present that equate to 60 to 80 basis points or so, represent upside opportunity.

And so if we can execute in these areas, you certainly could see our gross margins inflect even higher. Our already -- we already have a very solid business model that allows us to generate good improvements in gross margin, but these are additional layers that can come through the model and help make that incremental margin even more attractive.

Possibly the slowest thing that we may have to flow through maybe the procurement side of it, right, where that has a longer lead time, longer lag before you get things in the system.

But the other 2 are certainly things that we can action on quicker -- you heard Stanford talk about 500-and-some fewer people, right?

That's half the number of the -- just last year, that's half the number that Ken pointed out $15 million per 1,000 is an estimated savings. So that's what we're building towards and continuing to make 10%, 15%, 20% improvements in short-term retention of our teammates. We will make a big difference.

It definitely does. I mean, and I would say like if I rate this, I agree with exactly what precisely what Jerry was saying and alluding to, teammate turnover, we're making progress.

We're seeing benefits, but we should see even more benefits as we make even more focus to more of a focus. The fleet, we're going through a process there, and we see great opportunities to bring in some savings for our field operations but the procurement is taking a little bit longer, but all of them are very achievable and realistic.

The one area that has been a struggle for us is just on the claims side, insurance and claims. It's an area we're making great investments in to help improve safety and make sure that our teammates are getting home safe each and every day.

But boy, what a litigious society that we're in and the challenges we continue to see from the claims side.

All right. Monet Winik with Barclays. Ken, maybe just to ask that a different way, the 30% to 35% incremental margins that you put up in that you talked about, it's been closer to 25% right now. So when should we start holding you to delivering $30 million to $35 million and then the second question is more around the top line and maybe for this year, you had some weather-related hiccups to start the year. .

I know you put it on the slide, but just some color on how things are trending to get there by the end of the year.

Yes. Sure. Thank you for the questions. I'll handle the growth one first. We'll just go through the order of the P&L and start with growth. And so when we think about growth, we very much believe 7% to 8% organic growth is the right number for our business.

You're going to have quarters like you had in Q4, where it was a weather -- there were some challenges, but you saw Q1 ramp right back to 6.5% to 7% million. Through the first 4 months of the year, we're 6.5% to 7%. And so we feel really good about where we're at relative to our 7% to 8% goal. It was a challenging January. We talked about that. but the business has been pretty solid ever since.

And so that 6.5% to 7% intact, but 7% to 8% is really the number. And we think that's very achievable for 2026 and beyond. And in fact, when you think about the ancillary opportunity on the residential side, if you think about the commercial ancillary opportunity, you think about all we're doing around retention we haven't spent a lot of time talking about retention today.

It's not been a big headwind because it hasn't necessarily deteriorated on us. But man, we're losing way too many customers every single year. So what we're doing under Thomas efforts and retention and customer experience should also help pay off for us as we go forward.

So not to mention the market. You look at the market slide and you think about all those things that are making this market so attractive. All those forces just continue to get better -- and if the market does grow at 6%, that 7% to 8% is light.

And so I mean, I think there's more upside opportunity than there are downside pressures on the revenue growth, and that's how I think about it. And I think Jerry and the team share that view. I also, when we think about incremental margins, it's been a challenge admittedly on the incremental margin.

And some of it is just balancing that investments in growth with the margin -- the focus on margin. And so as we think about going forward, as we said in our deck, 25% to 30% this year is not unrealistic.

But as you go into '27, boy, we would hope that those investments in commercial are paying off for us, and we're seeing the returns come through on the productivity side.

We just met, gosh, last week with Scott, and we were really focusing on what are we doing to make sure that we're trimming where we need to trim and we're doubling down and investing where we need to invest from a productivity perspective.

And so that's a huge focus. But I think as we go into next year, those incremental margins should certainly start to improve for us.

Josh Chan with UBS. I appreciate the team's time today. I'll ask 2 questions. First on marketing, I think there was some allusion to AI.

So I was just -- and then different brands have different method to go to the market. I was wondering if the brands that have more performance marketing focus, have seen any change in terms of the effectiveness of performance marketing?

And then just secondly, in terms of numbers, obviously, you gave the guidance for '26 and the medium-term outlook wasn't super quantitative, but could we still assume that 7% to 8% organic and 2% to 3% M&A is really the right framework longer term, too.

Yes, I'll handle that first one. But when we think about medium-term outlook, I believe, is what it's called. It's the same outlook that we issued 2 years ago. And so there's no change. But I do -- there's a lot of puts and takes, but as I said earlier, I think there's more upside opportunity than there are downside pressures to the outlook.

I think 7% to 8% is very much intact. I think 2% to 3% is also very much intact. I mean if you look at the last 3 years, I think it's been closer to 4% on the M&A contribution. And so we've used the balance sheet more.

The leverage has stepped up a little bit more in a responsible manner. But I do think there's great opportunity on the M&A side to continue to inflect higher.

So we think those metrics, those targets are very much in line with what we've issued previously, might have some upside opportunity for us.

On the marketing side, maybe we could pivot to CAM, and you could talk a little bit about marketing efforts.

The question was those that are more reliant on performance? Are they seeing more of an impact on AI? And certainly, it would be more vulnerable. But -- what's important to note is that these aren't like set it and forget it plans across all of our brands. They're very agile.

They're making changes dynamically based on where they're seeing the greatest return on investment. So they may be more challenged in a given month, but they're making the adjustments necessary to how they retire turn.

Well, I think the one thing maybe Tim could talk about lead volume might be changing but closure rate on leads is improving. .

Yes, absolutely. And that's across all the brands. We're seeing website traffic, just like you guys know, website traffic is going down with content publishers or any home services providers.

But it's more -- it's a more motivated person that gets to your site. They've maybe satisfied their curiosity from an AI review or an AI search.

And now they're going to your site, they want to know what you offer, what can you do. And so we're seeing conversion rates increase significantly.

I will answer it another way. This is where our diversification of our brands really helps us -- so let's say something shifting in a month and we're responding to something on a day-to-day, week-to-week basis.

We have other brands that acquire customers in different ways that can offset where all our eggs are in that basket. And a lot of the performance marketing across our brands is in the Orkin brand, which is where they have the biggest the biggest team. They're the most agile things on those lines. They're the best at it.

And so as Orca moves that around, we've got other brands driving business other ways. And so we don't see that as some key risks to our business over time.

That slide that's in Cam's presentation we had here 2 years ago, and it just continues to expand. And that is one of the secret ingredients to our strategy is the ability to access customers in a different way. When markets change, we can double down in this area or that area.

Years ago, I mean, door-to-door has been around us for a long time. But 5 years ago, it wasn't as meaningful as it is today. Today, it's meaningful. We're driving great growth and high-quality growth. high-quality growth means it's good growth that doesn't churn.

We're not seeing major issues with churn in that business. And so it's you're spot on, Jerry, with that. That's really the -- I think that's what makes it so durable in terms of our growth and so consistent.

Jason Haas with Wells Fargo. I'm curious if you're seeing more customer interest on the resi side -- or I guess both on commercial and not really resi. On the smart traps and remote monitoring and if that requires any sort of like upfront investment before you see a return on it.

Scot, do you want to take that?

Yes, we're definitely seeing the interest from the commercial space. We don't see it as much today in the residential space. probably because of the -- just the unknown what the opportunities are within it.

You're seeing different segments of customers, particularly with it, larger facilities, areas that are challenged to get to. As far as the barrier of entry in it, it says, I don't really see that being something that's going to be prohibitive for our customers to do it.

We've got a lot of abilities and relationships with our vendors to be able to provide access to those services.

And cost of sensor -- cost of these things are coming down over the last several years. So we can do it more effectively. How are the customers funding that? We have thousands of these devices out in the field today. How have you found that customers are choosing to fund that those installations?

Yes. And we've looked at it a couple of different ways. Some of it is just simply upfront cost and some of it is how we spread those over it. And we try to make a solution that fits for both customers. We have some that have leveraged the RAC option that we've got with our financing arm, but it's just -- we try to come up with a solution that works best for them.

Okay. I have a follow-up question to that, and then I have one more. So is there a cost to train your employees to like sell that product more like how do the technicians be able to handle it better. So you talked more about like the cost of the devices, but I'm curious about the training and people side.

My follow-up second, but I was also curious just about what you're doing to really try to sell more ancillary products. So I know part of it is selling more ancillary products outside of Orkin.

But curious if you could talk to that and anything else that's going to drive continued growth in ancillary?

Yes. I think the needs for the customers, again, it's whatever the needs they have, and that will be how we react to that and how we respond to it. And then with the training perspective, the technology has a lot of its own intuitiveness that it responds and reports.

So for us, it's an add-on to the existing equipment we have, in most cases, so from the training perspective, it's not as drastic as you would think with technology in general.

The selling aspect of it, yes, it's -- you're creating just a different value proposition with it, a lot of you could look at it from several different positions, one being how do we have an efficiency perspective? Or is it -- do we have a better value proposition that we bring to it and bring value with it.

But the training side of it is we're always adding stuff into our portfolio. And so we've got a pretty good process in place when we introduce a new service offering, and we follow those same standards.

Clay, what do you think about the training side of it with what the inputs are in the mindset of one of our pros in the field and how they have to adjust? .

Yes. I think Scott said it very well. There's a lot of different technologies and tools and products that our teammates are utilizing the field. And any time there's a new process or a new tool, obviously, we have -- we have a great training program or a training session for folks to learn how to use them.

And it's no different with remote monitoring. So it's just another tool to utilize, and we plug it into the training modules.

Maybe talk about the ancillary opportunity, what we're doing to drive sales.

Jason, did you mean that within the commercial space or the residential space?

Within residential.

You may speak on that.

Sure. okay. So Jason, on the brand side, it's definitely, we have a big runway for that. And it really starts with having what I would call a total home protection mindset -- so when we get to the home, we're looking at everything like Ed was alluding to earlier.

And then we're building off those great customer relationships we have. So you heard about some of our brands are in the 80-plus Northwest, HomeTeam, 90 on the NPS score.

So you got customers that trust we're leaning into that. We're able to provide them a full solution and then bringing in the Rollins in-house financing, the RAC option, now we can make it affordable for our customers. So it really starts first with that mindset of looking at the total solution for the customers.

Yes. We should continue to see just double-digit consistent growth in the ancillary.

Out. And probably what was new to the group today maybe was the opportunity on the commercial side. We always talk about residential and the ancillary opportunity in the coin 9 shots on goal. We have 10 shots on goal, I think, on that sheet for commercial.

So I mean, we've got great opportunities on the residential as well as commercial on the ancillary side. And so we're excited about that.

And keep in mind, too, not all this ancillary , a lot of this ancillary has a recurring component to it. especially on the commercial side, a lot of the things that you saw on the slide on commercial, those are recurring services, drain treatments of special fly services that are the add-ons.

Those are recurring services that you continue to bolt on to your existing service agreement. In the residential side, we're looking for more and more ways to make those services renewable, maybe annual inspections.

So for example, you may have had Renee's flying squirrels may have nodded their way into her attic and found their way in and we remediated that and maybe did some exclusion for that one area or some other areas, that doesn't mean those flying squirrels didn't know their way back into another place.

And she doesn't want to go through the remediation of that again. So instead, maybe she's going to say, Hey, for $200 a year, we come out, do an inspection, seal up any other access points or anticipate where those little creators are getting in?

And I can say that's exactly how that played out.

Yes. Well good SP-16 They're going to keep coming. So we can turn those ancillary services into recurring businesses, and we're more and more focused on what those -- what that business model looks like over time as well, especially on the residential side, where -- it has historically been a little less recurring compared to commercial.

Great. Thanks very much, Curt Nagle, Bank of America. Appreciate the detail on the gross margin line in terms of the potential cost savings. I may have missed it, but in terms of SG&A, shared services and back office, I guess what's the opportunity there?

And then second question, just going back to the branch consolidation. Anything you could speak to in terms of the economics you're getting on that profit lift and again, kind of where we are in terms of that process?

The first part I'd take -- I didn't get the second part. But the first part on the SG&A opportunity, we're still spending roughly 30% of sales in SG&A.

And if anything, the selling area continues to go up because we see opportunity to go out and grow our business. So we're going to do that. But the G and the A area, the general administrative area is declining.

And I think as we go through this year and we finish the systems implementation that Renee had spoken about that we've been partnering with and Will Harkins is here as well. He is the Chief Accounting Officer, and he's leading that on his side.

We see an opportunity to streamline that area. And so if we can streamline that, that's a near-term opportunity on the G and the A area that we don't benefit from.

And we've done all these acquisitions, but we haven't brought them in, in the manner that we could do. And if we do that, I see a couple of hundred basis points.

And I think that's where AI can really play a role. You heard a lot of the examples I spoke about today around operational efficiency. You can automate the Agenetic AI that can start doing more sophisticated things, doing things that humans do today that we can now leverage AI to do and that opportunity right there.

So as we grow rather than adding people to do more work, we're able to automate and use AI to complete some of that work rather than adding more people.

I mean you just think about the reporting in the forecasting and all the manual work that's done without that system implementation that we're working on and the amount of man-hours spent that will go away or you can shift into more higher value-add work.

I mean that's really the game here. It's not necessarily about significant reductions in force, but it's about how do we help our people become more productive and service our customers. What is the second part of your question again?

Sure. Yes. Just you talked a bit in terms of the rents consolidation, the lift you see in terms of -- particularly on the commercial and ancillary side, but anything you could say in terms of the profit lift or economics you're getting out of that as you -- from each consolidated branch? .

There's a short window of time where you have some of that incremental expense. But when you're growing and you're operating at high margins, high gross margins, high margins, we can get out of that pretty quickly. .

And maybe, Scott, I add some color into how we're thinking about brick-and-mortar. So when you're seeing these branch splits, it may not be what you think it is. Talk a little bit about that.

Yes. So when you look at the commercial facilities that we've opened a majority of those have been taken up locations in our existing facilities.

So we don't have the brick-and-mortar investment in it. We don't have the IT infrastructure, the telecom structure that goes with it. So we're residing within existing facilities. So that allows us to do that a little bit quicker with less capital drain.

We were in that Miami branch last year, and they just put up a wall. And for $900, we split a branch. And the operating structure and the leadership structure and some of the infrastructure of the teammates that lead and manage it is really where the cost is for a period of time.

But as that growth starts to accelerate after about 4 to 6 months, it just starts paying for itself quickly through the growth that we see.

We've had -- at 1 point, we've had 4 facilities operating out of Columbus. We had the 2 commercial and the 2 residential all within the same 4 walls.

But it's meant to when people get together, they have to be more coordination and figure that out because we can't put all 4 branches they kind of all have a branch meeting same time right?

We can't have that many people in there, but if somebody's got a Tuesday morning meeting, somebody's got a Wednesday morning meeting, and they spread it out to make it work so we can try to avoid the brick-and-mortar.

The return on capital is phenomenal in that scenario. And the question, if I'm in your seat, I'd be asking is, why don't you do more of them? Like, why don't you accelerate them?

And really, what it comes down to is just our people and the bandwidth and our people. it's very much like acquisitions. I mean we could buy a lot more companies than we do currently.

But if you go too fast, it becomes disruptive and you take your eye off the ball. And so I think there's a talent bandwidth that we all have to manage through when we think about this.

But if you look at what the 27 branches you had or growth that you had in your slide deck, Scott, it was phenomenal to see that.

Yes, in Kentucky is a great example of that. Several years ago, we tried to make that move. We did it too fast. It caused too much disruption and we had to rethink the strategy to it.

We made sure we had the right leaders in place. We took the time for the training on them, and now we reopened it, and we've enjoyed some tremendous success out of it.

Thomas are from JPMorgan. I'd like to ask about the data center opportunities in commercial business. When you think about the new end markets like data centers, how do you differentiate yourself beyond the traditional pest control?

And if you could talk about some synergies from acquisitions to tackle with those kind of customers, please?

In the data center space, if you think about that, Scott, is that's where scale and being able to be where they are and having the service network that we have to be able to -- because there's a lot of them in very rural areas that are spread I live in Georgia, and it's kind of controversial there by where all the -- I'm sure it is elsewhere, too, about where all these data, and they're often go in remote areas.

So scale is really important, being able to have locations where you can get people there, and they're sensitive environments, right? Imagine -- we talked about this earlier today, imagine having rats inside one of those chewing on the wires and who knows how bad that could turn out.

So we think like we're pretty well positioned. And then you think about Orkin's triple guarantee and the customer service response rates and the -- our value proposition to those types of clients with the Orkin brand, for example, standing behind it, it's really powerful. What would you add to that?

Yes. I think the other advantage we have with it is if you look at most of these that are going up, they're not usually owned, they're not one-off organizations, right? It's the company owns multiple ones.

And so the big advantage that we bring to that is the ability to service all of them with one vendor. They have so much risk and exposure to it. As Jerry mentioned, you've got wires. You've got a water source somewhere near from a cooling perspective.

You've got facilities that don't have a lot of people on a lot of foot traffic in it. So they're the ideal harborage for these pests. We bring a unique proposition to it where either we've got an Orkin facility.

We've got a franchise or we've got one of the brands that's in a market that we can still be one single source provider for all of them.

Cost of failure is high and conditions are favorable. And so when you think about it, just through that simple lens, it makes it a potential market.

And so I mean, it fits with -- right within the middle of the fairway and where we're at.

Thank you. Conor Singla with Bernstein. You had some helpful slides with teammate turnover and employee attrition and 1 of them you pointed to, call it, 30 to 40 basis points of margin opportunity going forward. And more recently in the industry, there's been some kind of discussions around noncompetes and how that might impact employee turnover. Can you talk about how that might be a headwind?

Is it an overblown concern in the industry? Maybe some color there would be helpful.

Yes. My view of that is totally overblown. Our key messaging to our people has to do with nonsolicit agreements. The most important we -- when we invest in our business and spend a lot to acquire customers, -- and we teach our people and we train our people. We don't want our confidential information move.

And we don't want people that go and take our customers that we spent and invested so much in doing. So we've not been a company that's ever tried to stop if Scott worked for Orkin in Columbus and wanted to go work for a competitor somewhere else.

That's not where we've ever tried to stop Scott from doing something like that. Now Scott went to work for a competitor and then wanted to go solicit his customers that were working customers, that would be a problem for us.

And that's fair, and that's completely inbound within our agreements, the agreements that still exist today. And for us, the FTC still understands that.

So we've never been on those out there trying to enforce that say, Hey, you can't work somewhere else. Think about 2. Do you think there'd be 30,000 pest control companies if we didn't leave and go feel like you could go start on your own and work for yourself?

If you look at the people that I've known in this industry, I've grown up in it, I've been around it my whole life. Odds are, somebody started at Orkin or Terminex, and then they started their own business.

I mean that is just very common. So I don't see any of that as that's going to be status quo. People -- and it's one of the wonderful things about our business. It's a great business with great opportunities for people. So I think when I see the noise about that, it's just -- for me, it's much to do about nothing.

Yes. And I think the opportunity set that we try to describe are in those first year employees employees that come in and leave aren't coming in and leaving because they see this great opportunity to go start their own pest control business. They're getting in and they're leaving because they're like, "Oh my gosh, what did I sign up for? This is a really tough job. .

Or they just weren't onboarded the right way. So there's -- the noncompete thing does not really pertain to the opportunity set that we're looking at.

Alex, Alex Lake from Goldman Sachs. I want to ask on the residential side. So organic growth here has been the mid-single digits over the past few years. So could you just discuss some of the factors that could push residential growth above this range?

Yes, sure. When I think about the organic growth, I go down through the organic growth algorithm, and I start with pricing. It's going to be CPI plus and CPI is 2.5% to 3%.

It's going to be in that 3% to 4%. The market, if anything, has upside. I mean I really -- the adoption rate is really low. The essential nature of the service is only becoming even more essential.

People don't want to do this work themselves. They want to pay somebody to do this work. Third, the residential buildout of customers. If we can continue to share something we didn't talk about today, but collaboration was important in our business with the Rollins Way.

And if we can share lost customers across the portfolio, just think about that. We might lose a customer at Orkin, but if they go to Northwest, they're staying in the Rollins family.

So if we're able to reduce churn and turnover by keeping customers in the family and sharing these losses, that also will improve our your organic growth.

And then you look at ancillary, you look at the untapped opportunity on the brand side and the very low penetration rate on the Orkin side, huge opportunities.

And then last but not least, the commercial. So you go through all those things, and it's not like we have a replacement cycle or we have one thing that we're tied to, we've got so many tools in the toolbox that provide us a sense of optimism to deliver or potentially exceed those ranges we gave.

And as we wrap up our Q&A here, one thing, I hope that you all saw firsthand today. We have been very intentional over the last 2 or 3 years shifting.

We've been a family -- a family of brands for a long time. we have been deliberately shifting from being a cordial group of friendly competitors that waived it each other when we saw each other, driving down the road, and we knew who each other were, and we knew we were all part of Rollins to people that are truly collaborating that are getting along and finding a way to work together.

And I look right here and I see heads nod and here amongst our team that we have here because they see it and they feel it. They know that we've been very intentional about that.

And that's why Ken can speak so. So forward-looking on the opportunity, there's far more upside than there is downside risk in this category as we're able to harness the super power going forward.

I mean we didn't -- when I joined, I'll never forget in '22 talking to Jerry and people just didn't talk to one another.

Like the brands like people were sitting in their head agreeing. I mean, Orkin, did this and Northwest this and they had different cultures, and they wasn't -- you didn't incentivize people to talk to one another.

And now you're collaborating. So if you go down through today, collaboration is so important. Look at the teammate engagement score in this business at 86. How many businesses have a teammate engagement score at 86?

That's a hard one to beat. Teammates are transferring from brand to brand. We've never done that before. It sounds like a small number, but just think about where that can go and help us staff and help our people grow -- you think about the collaboration across the brands.

In Stanford's deck, he had this one slide that had all these tombstones I call it, which basically talk the talk about the things we're doing to really drive growth and collaborate.

Sharing wildlife leads are up 45%. The use of rack is up 70%. Like that's all indicative that we're doing more to collaborate. You think about the M&A, it speaks for itself. The upside, we're only limited by the amount of people we have and the processes we have to do these deals.

These deals aren't going away. The market is continuing to become even more attractive. And I've said this all along, Pest control is a science. There's a lot of service businesses that aren't based on science. You heard Clay talk about it. This is a science-oriented business.

We've got PhDs in our business. I mean when I joined in '22, I didn't even know what an entomologist was, but I've come to learn that it's -- there's a real science behind this business.

And then you have the AI stuff and the productivity that we're doing around that, but also the growth opportunities. Hey, look, I'm excited for it. I think it's a great business, and it will continue. This business will continue to do well.

So unfortunately, we are out of time. Time flies when you're having fun. So this concludes our question-and-answer session. Thanks for joining us today and for your interest in our company.

Thank you to our leadership team, to the members of the Rollins team that have been instrumental in execution of this day.

Thank you and to our production partners for their support as well. This concludes our presentation. Thanks, everybody.

Greetings, and welcome to the Rollins, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]

Please note, this conference is being recorded. I will now turn the conference over to your host, Lyndsey Burton, 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 has 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 31, 2025. On the line with me today and speaking are Jerry Geoff, President and Chief Executive Officer; and Ken Krause, Executive Vice President and Chief Financial Officer. Management will make some opening remarks, and then we'll open the line for your questions.

Jerry, would you like to begin?

Thank you, Lyndsey. Good morning, everyone. I'm pleased to report Rollins delivered strong first quarter results. We saw sequential acceleration through the quarter and continue 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 spring quickly for our teams as we are experiencing healthy growth in recurring and onetime 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 PCT Top 100 rankings. Romex 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 Romex 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 of 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, but we saw headwinds to profitability from higher insurance and claims as well as some pressure from head count 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 have 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 remain 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 statement 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 move 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 a 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 or headwinds to quarterly margins. Looking at our 4 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 carry 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/cost 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 cost 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 $0.22 per share. For the first quarter, we had non-GAAP pretax adjustments associated with acquisition-related and other items totaling approximately $7 million of pretax expense in the quarter.

Accounting for these expenses, adjusted net income for the quarter was $113 million or $0.24 per share, increasing 9.1% from the same period a year ago. Turning to cash flow and 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 into 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 0.9x. Our balance sheet remains very healthy.

Ladies and gentlemen, please stand by. It appears that our speakers have disconnected. Please stay on the line.

[Technical Difficulty]

I'll actually go back through and just redo my area [indiscernible] here and just just cover the areas, but just starting over here, diving into the quarterly financial statement and starting first with revenue. Revenue growth was solid at the start of the year. It was very encouraging to see an improving growth profile as we move through 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 90 basis points of improvement versus Q4 of 2025. We realized good growth across each of our service offerings in the first quarter.

Residential 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 the termite and ancillary area.

Turning to profitability. Our gross margins 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 4 major buckets of service costs of people, fleet, materials and supplies and insurance and claims vehicle gains, lower vehicle gains with our fleet line on the income statement created 50 basis points of headwind to our margins and we should start to see this improve as we go into the second quarter.

Insurance and claims drove an additional 30 basis points of headwind to the gross margin line, while service payroll costs provided 20 basis points of headwinds as we carry 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/cost 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. 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% 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. That's down approximately 100 basis points from historical levels. Quarterly GAAP net income was $108 million or $0.22 per share. For the first quarter, we had non-GAAP pretax adjustments associated with acquisition-related and other items totaling approximately $7 million of pretax expense in the quarter.

Accounting for these expenses, adjusted net income for the quarter was $113 million, or $0.24 per share, increasing 9.1% from the same period a year ago. Turning to cash flow and the balance sheet. We delivered operating cash flow of $118 million and free cash flow of $111 million. Free cash flow conversion, a percent of income that was converted into 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.

That strategy has delivered meaningful benefits and is enabling very strong improvements in our effective rate. Also, our year-over-year cash performance was also impacted by our transition to semiannual interest payments on our 2035 notes that we issued a year ago. Excluding these items, free cash flow would have increased 14% versus the first quarter of 2025 and free cash flow conversion would have been approximately 140%, all very healthy, enabling us to continue our balanced capital allocation strategy.

During the first quarter, we made acquisitions totaling $18 million, and we paid $88 million in dividends. We continue to expect M&A to contribute 2% to 3% of revenue growth for 2026. Our leverage ratio stands at 0.9x, our balance sheet is very healthy and it positions us well to continue to execute on our growth priorities while returning capital to our shareholders. As we look to the remainder of 2026, we remain encouraged by the strength of our markets, our recession-resilient business model and the engagement and execution by our teams.

We are positioned extremely well to deliver on our financial objectives. We continue to expect organic growth in the 7% to 8% range for the year with growth from M&A up 2% to 3%. We remain focused on improving our incremental margin profile while investing in growth opportunities, and we anticipate that cash flow will continue to convert at a rate that is above 100% in 2026.

With that, I'll turn the call back over to Jerry.

Ken, that was much better the second time around. You really paid off on the Milligan [indiscernible] play. So -- thank you for that great recovery. We're happy to take any questions you have at this time. .

[Operator Instructions] Our first question will come from Manav Patnaik with Barclays.

This is Ronan on for Manav. How should we think about -- how should we think about the sustainability of that March exit rate as we move through peak season? Does it primarily reflect normalization from the early quarter weather induced softness? Or -- is it underlying demand trends that suggest the higher organic base going forward for the rest of the year?

We feel good about the exit rate. We feel good about our business. The improvement of 90 basis points from Q4 to Q1, reaffirms the confidence we have in our outlook. Our outlook is rooted in that 7% to 8% organic growth. We remain committed to that level of growth and organic growth across the business. coupled with the 2% to 3% of M&A growth.

When we think about our exit rate at 8.4% or so percent as we think about March, Yes, you had an extra day there, but you also just had a really good month, just really good demand. The residential area, which in the quarter, I think, grew at something around 4% to 4.2%. In the month of March, we saw over 7%. So -- so we continue to see good demand for our services, which gives us confidence in our outlook at that 7% to 8% organic growth, Ronan.

That's helpful. And then as volume ramps through into peak season, how should we think about the incremental margin flow-through relative to 1Q given the cost set up and the margin drivers and dynamics you described for the quarter.

Yes. Thank you for the question. And really, when we think about margins, Q1 is usually our low point just because of the seasonality of the business, and it came through in that manner. We fully expect improvements to start to -- we start to see improvements here as we ramp into Q2 and Q3. We should see improvements going into the second and third quarter here of 2026. So we remain committed to the outlook we have on our incrementals. The business is intact. And and provides us a sense of confidence in what we can deliver from an incremental margin profile. .

Our next question comes from Sam Kusswurm with William Blair.

I think you just touched on this already, but maybe to help us bridge to that 7% to 8% organic growth for the remainder of the year. Can you just share how April has trended so far relative to exiting March here?

We're early, Sam, in April. But we really -- looking at our projections and forecasts that we continue to look at I mean we still have a lot of confidence in that 7% to 8% organic growth. And as I said before, the 2% to 3% of M&A growth. So we feel like business is very much intact, and should continue to deliver that sort of growth profile for our investors. .

Okay. That's helpful. maybe pivoting a little bit. We saw that the insurance and claims expense was 3.7% of sales in the quarter. This compares to the full year rates of 2.9% and 25% and 3.2% in 2024. I guess I'm curious how we should think about this expense line as we move through the remainder of the year. And if you're kind of expecting it to remain at this elevated level.

That's a hard one to predict. When we think about insurance and claims, it's an area with a lot of oftentimes volatility. We do our best every quarter to put the most accurate number on the financials, and that's what we did in Q1. We unfortunately had some claims that continue to mature and go through the maturation process. And that was a headwind for us. And -- but it's really hard to predict what that line will look like as we go forward. We're hopeful that we'll see it moderate as we go into the second half of the year and improve, but we also know that tax and circumstances change as we go through out each and every quarter.

With that said, we still are -- we are still holding strong to our incremental margin profile as well as our ability to grow earnings in that double-digit range. And so we continue, despite having and facing some of those headwinds in insurance and claims have a -- continue to have an outlook that remains unchanged with respect to the incremental margin profile.

And Ken, I would add that long term, how we approach safety and insurance and claims has to do with investments that we're making today and investments we made last year that are going to continue to pay off for us long run by reducing our collision frequency rate, our injury frequency rate, that long term should be able to help us drive our costs down. We're piloting a lot of programs making investments, especially in driving safety to avoid these types of situations that hopefully can begin to change the arc or the trajectory of that component on our P&L. .

Moving next to Greg Parrish with Morgan Stanley.

Congrats on the quarter. Maybe I covered some of the big topics. Maybe just to touch on Romex you acquired a few weeks ago. Maybe you could touch on the strategic rationale, what attracted you to their culture of that business? And any early expectations for that?

Yes, this is Jerry. We got to know the team at at Romex over some period of time and had a number of meetings with them and kind of as I've referred to it or described it as kind of a dating process for you, you just kind of get to know each other. And they've got some really talented people on the team that we had met, and we're very impressed with their operations, how they -- how closely they were aligned with us, how they treated people, how they approach customer service.

They also operated in some very complementary markets to that were good markets that were -- they had some really strong positions in and continue to grow and expand. And plus we saw a great opportunity to leverage some of -- the things that we do as we add additional services to customers, they were focused pretty heavily on pest control, residential pest control, primarily and a little bit of ancillary service offerings and and we saw an opportunity to be able to leverage our knowledge and expertise to help them continue to expand their depth of relationship with their customers over time as well. So we're really excited about the team at Romex, especially the talent that we know is there. And that's oftentimes one of the -- if you look across our portfolio of brands, oftentimes when we add brands to our group we're getting super talented people, and that really helps shape our company and has formed who we are today. So we're really proud of that.

Great. And then I wanted to ask on fuel costs. I appreciate the additional disclosure that you gave. I know you talked about your exposure in the past as well, and it's fairly low exposure. But just remind us the limited exposure that you do have, is that hedged at all? And did that have any impact, albeit small on margin in the quarter?

On the fuel costs, Greg, just to double-click on that, we do not hedge that cost. It's a relatively minor cost in our P&L. It's about 1.5 points in terms of total exposure in the P&L. We will continue to evaluate it. But for now, we don't see a meaningful exposure that would require us to take extensive approaches outside of just making sure that our price increase reflects this volatility and challenging environment that we might be in. But with that said, we continue to enjoy a highly variable cost structure with a very low amount of exposure to the fuel area. .

Moving on to Tomo Sano with JPMorgan.

[indiscernible], you mentioned that residential organic growth in March was about 7%. Could you provide more detail on the trends you saw in March [indiscernible] segment as well Additionally, are there any notable differences in growth rates or demand recovery by region?

Now overall, Tomo, the business is very healthy in March. -- residential probably showed the greatest improvement. Commercial also was stronger relative to January and February in termite and ancillary hang in there -- hung in there. Our onetime business certainly benefited as we went throughout the quarter. If you recall, Q4 negatively was negatively impacted by a very weak onetime number. and we saw some improvements in that area as we went throughout the quarter. So all told, we feel good about where we are to start Q2 across all of our major service offerings.

But it was probably residential that improved the most quarter-to-quarter, which makes sense as you get into season, it's usually going to be the residential side that pops more than the commercial side that is much more stable through the year. .

And a follow-up you have continued to invest in people, service and infrastructure even during the periods of unfavorable weather and revenue softness to ensure continuity and improvement in customer service -- so when you look at the market today, do you see this as a strategy that clearly differentiates the rolling from competitors? Are there specific ways in which you approach to investment and service stance out versus peers?

I don't -- I wouldn't comment about how it compares versus peers. I think this is our strategy. And -- when you look at the investments we make and the best example I can give you, when I started in this business a decade ago, this business was a lot simpler. And I did pest control, and I did termite work. And the options that we had to learn about and what I had to do, we're relatively simple 30 years ago. Today, you've heard Ken talk about having 9 shots on goal. And when you have to train people to be able to be experts and knowledgeable both on the service and the sales side for the complexity of all the things that our team does -- that takes time. It takes experience.

It's harder and harder. You can't just get somebody up and running in a few weeks, like it was 30 years ago when I started in this business, so those are investments that we make that we do think probably differentiate us from -- from our competitors, but we do it because it's the right thing to do. It's the right thing to do for our customers to ensure that our -- that we have trained people that have been through a season and have been experienced so that when they're dealing with a problem in the month of April or the month of May, we're able to put more experience at the door to help them solve their problem. So that's a big part of our strategy. It has to do with how do we improve customer retention by ensuring that we have a better service delivery offered through some of these kinds of investments that we make because this is not the long game.

It's about lifetime value of a customer. And the more that we can invest to improve the long-term value of the customers, the better off we are. Would you add anything to that, Ken?

Yes. The only thing I would add is when you look at industries, you might look at how people pare back head count quickly or change headcount. I mean, as Jerry had used the word, we take a long-term-oriented approach. We very much do. And so when we think about January, some may have decided to pare back and pulled back on headcount, we decided to hold in there because we were confident in the ability to drive growth in the business. We knew there was a temporary and transitory challenged with weather. We saw through that, and we kept our people, we invested in our people, and that's paying off now as we start peak season. .

Next question comes from Curtis Nagle with Bank of America.

Just one, apologies have missed this. if you'd be able to break out the growth rate for recurring and onetime in the quarter? And then I'll just have a follow-up.

Yes. Overall, when you look at the recurring and onetime and you compare that to what we've seen historically, as we had talked during the call, January, February were weaker. We saw weakness in January, February. March was very healthy at that 7% sort of range on the recurring business. The onetime business continue to accelerate and improve as well. If you recall, in November and December, we were contracting in that area because of the challenging weather. And in January, we were flat we saw a nice strong improvement in March.

And so it shows that, that business didn't necessarily go away, but we were able to go back and recover that. And we exited with a pretty healthy backlog. Ancillary, the more of the 9 shots on goal that I oftentimes refer to is double-digit solid growth in March. And so overall, all healthy -- all signs point to healthy a healthy portfolio across recurring onetime and the ancillary.

Okay. And then maybe, Ken, could you give an update on -- the efforts to improve your retention rates going into the spring season, both from just raw retention and then some of the cost savings you've talked about?

Certainly. When we think about retention, there's 2 aspects of retention. There's technician turnover and technician retention and then there's customer retention. On the technician turnover, it's more around short-term people that are coming in the business in the first year and how do we improve upon that. We're making great strides there. We're going to have an Investor Day on May 14. We're going to talk a lot about what we're doing around our culture and all the investments and the results we're seeing as well as the potential to move the needle when it comes to margins with spending less on onboarding because we're keeping our people through that first year. So continue to make progress there.

And then on the customer side, we're also making changes there. We're putting leadership around that, and we'll talk more about that in Investor Day. We're not seeing any major changes in the quarter per se when it comes to customer retention. It's not precluding or prohibiting us from growing our business, but there's an opportunity there. We just lose way too many customers every year, and we're making investments in that as well. And Jerry and the team and all of us, we're going to speak to that in our Investor Day in May.

Yes, the commercial side of retention remains very strong, very stable. We did make some modest improvements in the residential side, particularly across our business. as we exited the first quarter. So we were good to see that. But we still see that there's a lot of potential upside there and thus the investments that we've talked about making. .

Moving on to Stephanie Moore with Jefferies.

I wanted to ask on just the margin improvement opportunity as the year progresses. Maybe if you could just talk about what gives you confidence that you'll be able to see some improvement and maybe commenting on areas of opportunity outside of just inherent operating leverage as the volumes as the top line accelerates.

Thanks for the question, Stephanie. And when we think about it, when we look at the first quarter, you look at the incremental coming in at a pretty low point. But whenever you understand and whenever I took the time to really analyze and dig into the results, what I found was about 100 basis points in total of headwind was associated with insurance and claims and then the gains on sales that we had in the fleet. .

We talked about the fact that if we excluded those 2 items, you would have had a closer to a 20-or-so percent incremental margin profile. And that's about what we would expect in Q1. I mean a lower volume, and that's -- that's the kind of performance we would expect to see come through the model in a lighter revenue quarter. When we think about those 2 areas, we talked about the fact that the sales on leased asset or gain on sale of assets should change and not be a headwind as we go into Q2, we should start to see some improvements there year-over-year.

And so that certainly should help us regain some traction on the margin line. And the fact that we continue to see improvements in the overall growth of the business should also just yield solid results as we carried higher technicians and people into peak season. So considering those 2 or 3 points, I think it gives us a lot of confidence that in Q2, Q3 and Q4, we should see improvements in the margin profile to get us back into that range that we're targeting.

When you look at how much we spend on our P&L basis on people, when the growth is there, you get leverage on the people side as well. And that's probably the biggest opportunity that we have going in the rest of the year.

We'll go next to Peter Keith with Piper Sandler.

On the margin topic, I'll just stick with that. For the gross margin, I was curious because you quantified all the negatives at negative 100 basis points in some versus the 60 basis point decline. So -- what were the positives that offset and I'm assuming pricing played into that, but I was hoping you could answer the question.

Yes. No, thanks for the question. I mean we saw some good performance in the materials and service line. We also saw some improvements across a broad category of items that you normally would leverage like branch rent and professional services and and things like that, other cost categories, if you will. And so across those 2 or 3 areas, you had the materials and supplies and then you had the other areas, the 3% to 4% pricing allowed us to leverage those because they're not changing as much. They're not as maybe as variable as some of the other costs. And so we're able to leverage that through the P&L.

Those are the things that produce the positive improvement in the gross margin, which was unfortunately fully offset by the items we talked about.

Okay. Helpful. And then secondly for me, just on the free cash flow, thanks for the details on the onetime items. I guess as we think about those items going forward on the timing of credits and the semiannual interest payments, what you experienced as headwinds on free cash flow in Q1 reversed in Q2 where now we should see abnormal year-on-year increase.

Yes. They will -- as you go throughout the year, they will. The interest expense certainly will, that's paid [indiscernible] annually. So Q2, you won't see that come through year-over-year and be a headwind. The tax payments -- we fully expect that by Q4, you'll see a nice improvement in the use of cash with respect to this. Some of this is front-loaded in the first half of the year. So you might -- you probably see improvement in Q2 and Q3 from where we are in Q1. You won't see it reach a full potential until Q4. But for the full year, that mid-teens sort of growth rate in cash is something that we continue to target and have a lot of confidence in delivering. .

Helpful. And congrats on that March exit rate?

Thank you, Peter. .

We'll hear next from Josh Chan with UBS.

Jerry and Ken, maybe for Jerry, I guess in prior years where the weather is tougher to start the year, and your experience, by what month does everything kind of normalize and then you kind of move past the slowness and maybe catch up, I guess, when the things going to get back to normal usually?

Yes. So Ken and I were talking about this yesterday. There have been times where we've we've had slow marches and literally, it was right around this time of the year in April when it was suddenly break and business would pick up. We were very fortunate, I think, in March to have had very favorable conditions pretty -- by the end of the first week of March, it really popped. It felt like things were literally heating up. And -- but oftentimes, it's usually end of March, beginning of April that it starts to go. Sometimes that delayed like the third week of April, and we're really treating it when that happens. .

And once in a while, it does. And you're just waiting -- and we can tell based on phone call volumes on a day-to-day basis, we know when that's when it's official, so to speak, and it happened. And really, that happened for us at the end of the first week of March. So that was really good.

Okay. And then I think you mentioned earlier that you want to improve retention. I guess the retention in the industry has always been maybe not incredibly high. So I guess I wonder -- what is it that you think you could change about something that has been this way for a little while?

Well, I guess that goes back to the mindset of continuous improvement that there's always something that that can be made better that we ought to be able to improve. I mean for example, I give a shout out to our team at Fox Pest Control. When we acquired Fox 3 years ago, their customer retention was what I would call normalsh. They have partnered with our -- with the HomeTeam brand, who has some best-in-class retention. And over the last 3 years, have moved their residential retention by 5 percentage points. That's big movement over a few year period of time. So that demonstrates to us that there's always room for improvement, always opportunity to get better -- and we're going to be pushing hard on that lever across all of our business units. Even if you're really good. The expectation is we need you to also make some modest improvements compared to maybe some of the territories or brands or parts of the business that are -- lag a little further behind others.

So we see it as a huge opportunity -- it's an opportunity to also potentially accelerate our organic growth rate a little bit more. And so we'll probably unpack that. We'll definitely be unpacking that a little bit more for you at the investor conference in May.

Great. Thank you both for the color today and look forward to the Investor Day.

Thanks, Josh.

Our next question comes from Ashish Sabadra with RBC Capital Markets.

This is David Paige on for Ashish. I had a question on commercial. It looks like some solid growth continued solid growth. You mentioned maybe some business wins and some other investments. So I was wondering if you could just click on how trends are going in commercial -- and then maybe as a follow-up, what is the competitive environment that you're seeing in commercial?

We haven't seen any significant change in the competitive environment in commercial we still feel that we're positioned and just perfectly to have scale to be able to service customers anywhere in North America. And that creates great opportunity. We've continued to invest and feet on the street, looking at some reports recently. We began the year with almost 80 more commercial account sales managers than we had in the first quarter of last year, and they're putting wins on the board.

So we see it in both in local sales -- those are the account managers that are more in the branches and the regions and the territories that they're working in. We also see it amongst our national accounts. Getting great growth out of both those channels, driving growth throughout different verticals that we know that we like to focus on and so we're really excited about that. And so those investments on the commercial side take a little longer to pay off, but it's one of the -- it's also one of the reasons we're so optimistic about the rest of the year because we know that the business coming in that's that have recently been sold as it turns into that organic recurring revenue growth throughout the remainder of the year.

We'll go next to George Tong with Goldman Sachs.

You mentioned with insurance and claims that certain claims are going through the maturation process. Can you elaborate on whether this was from a specific vintage or period when claims activity was particularly high? And how quickly your safety investments translate into improved claims performance.

When you think about these claims, I mean, these claims have the potential to go back a number of years. I mean what you saw just generally across the business was post COVID, when people came back on the highways, accidents started to happen. And so you saw claims from that vintage. You also saw more near-term claims. And so it's not -- it's hard to pinpoint any specific period that these claims pertain to. They're across a number of years. And I mean when you think about the safety, I think it's already paying off. I mean, we're seeing great improvements in our safety experience.

But what happens is it just takes time for that to see its way through the cycle. As I described, some of these claims are 3, 4, 5 years old. So as you think about it, you're probably going to continue to see experience like this in the next several years, hopefully, tailing off and trailing off as you move forward and make even more improvements in the safety experience. But this is probably something we're going to deal with for -- unfortunately, for a while. The lead indicators are positive. That's the good news. So when you're accident and injury frequency rates are coming down long term, that is the best predictor that we have for those volumes.

But at the same time, we see the cost of insurance and kind of the crazy market that, that is has just been a headwind for us for several years now.

Got it. That's helpful. And then with respect to fuel costs, can you discuss what your strategy is to pass along the cost to customers? How real time can your prices adjust to changes in fuel costs?

So George, we have 2 ways of charging for cost in our business. And really, we don't think about -- we think about the value of our business there's there's just annual price increase that we always talk about. Then we have rate cards. And so as we go throughout the year, we have the ability to adjust the rate cards based upon what we're experiencing with -- in our cost inputs. And so that's something we -- I think we've done historically and we'll continue to do as we go forward.

And I would add that for us, it's more about how do we avoid the fuel costs, I believe, for example, reduce idling time, how do we use apps that are installed on all of our phones that help direct us to the location nearest stuff that has the best gas prices. How do we leverage relationships our fleet team is doing a good job negotiating deals with large providers of fuel to get rebates on fuel use that runs through their systems. Those are the things that we're more focused on is about efficiency in our model and efficiency in our entire fleet system, and we'll let our normal price increase programs do their part to help us also offset.

Or even how we build out dense routes, like or we acquire businesses like Fox Sala or Romex who have very dense routes. And like those are really good points, Sherry, that you highlight. And it's not just about reacting, but it's how do we proactively do things to make our business better.

Seth Weber from BNP Paribas.

This is Christina [indiscernible] for SEth Weber. So I wanted to touch a bit about how you guys target around 2% to 3% revenue growth from M&A. And after the acquisition revenue in the first quarter and the Romex acquisition, I was wondering if you guys expect this to -- this acquisition to push the full year M&A contribution above the 3%? And how does this change the overall M&A pipeline for the rest of the year?

Thank you for the question. In the first quarter, I think M&A contributed 3.6% of revenue growth for M&A. And we expect that to moderate as we go throughout the year. That was certainly bolstered last year by the the Sala acquisition. And so right now, we're solidly in that 2% to 3% range. There's an opportunity to go higher. There's probably very low likelihood that it would be below that. We are very confident in 2 to 3. We're not ready to raise it yet, but we also just know that we're very active and we have a very strong pipeline. And -- but right now, step 2 to 3 is probably the right range to be in. .

Got it. And as a follow-up, so termite and ancillary was up about 9% to 8%. So I was wondering what's actually driving this and if you guys are seeing any customer demand for bigger ticket ancillary services? And I guess how cross-selling is going for selling these services across the rest of the brand portfolio.

Going well. That will be a big topic that we talked about in May. The ancillary termite ancillary includes ancillary, which is this hockey season we're in here and playoff season, the 9 shots on goal. We continue to see great demand there. I think Ed Donahue will be joining us as part of a panel in May and he actually was really instrumental in developing our approach with Oregon and we've seen great improvements there. But it's a great business. We continue to see good levels of demand, and it's a huge opportunity across the portfolio because we have a number of brands that aren't doing much with that part of the business today.

Yes, it's a great point, Ken. We moved Ed Donahue, who is VP of Sales for Orkin for many years. And we've moved him over to our non-Orkin brands this year and the group and brands has been moving the needle a great deal and adding services using our RAC, our in-house financing, teaching them how to -- and training them, how to how to leverage that throughout their businesses, and we've seen some really nice improvements in that regard very, very quickly, and we're excited about that.

And like Ken said, you guys will see and meet at in May at the Investor Day. You'll hear more about that.

Moving next to Jason Haas with Wells Fargo.

This is [indiscernible] for Jason Haas. We've heard that one of your competitors is being more aggressive with their marketing. So I'm wondering if you're seeing any change in the competitive environment and if you're adjusting your marketing strategy and response.

Not really. We're seeing great growth there and good performance.

Yes. I don't -- we're continuing to focus on what we do, how we do it. spending our money efficiently, moving it to efficient channels and making adjustments. I'm sure that, that team has to monitor and see what a variety of competitors -- we have so many competitors in this space, all looking to gain the same customers. But the more we try to target, who our best customers are, what we're doing and the marketing team stays on brand and focused on getting the right types of customers to our brands, that's when we win. And we still feel very comfortable and confident in everything that we're doing from a marketing standpoint. .

I mean the fact that we saw 90 basis points of improvement in organic growth from Q4 to Q1, and I think that stands out and shows that the investments we're making continue to yield really strong results in our markets.

That's helpful. And then as my follow-up, I'm curious within the residential segment, if the acceleration you saw in March was caused by any business from earlier in the quarter shifting into March? Or is all of that acceleration was just strong underlying demand?

There may be a little bit of carryover from backlog in February into March. But based on what I saw in February was not nearly as tough as January was in terms of branch closures and a number of days that we really couldn't get the work done. So we carried probably more backlog into February than we did March. So -- but March was -- Mark, as I mentioned, by the first week, I mean it started going and the phone started ringing and things just picked up.

So a lot of that organic was just coming at us right there in the quarter, and we also had time to get all of our work done that was scheduled to be done in the month.

This now concludes our question-and-answer session. I would like to turn the floor back over to management for closing comments.

Well, thank you, everyone, for joining us today. As a reminder, we will be hosting our Investor and Analyst Conference on May 14 at the New York Stock Exchange. We're excited about what we have to share and look forward to seeing many of you in person. Thanks.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Welcome to Rollins' session. This is Tomo Sano, SemiCap Industrials analyst at JPMorgan. With me today, we have Ken Krause, EVP, Chief Financial Officer. Ken, thank you for joining us.

Yes. Well, thank you for having me.

So to set the stage, I wanted to highlight why Rollins is such a compelling story for this conference. Rollins anchored by iconic Orkin brand has delivered over 20 years of consecutive growth with a resilient recurring revenue model and industry-leading margins and making it a standout in the pest control sector.

To kick things off, I think it'd be helpful to start with an introduction to Rollins. Who the company is, what you do and your stories for those who may not as familiar. So Ken, could you talk about that?

Sure. No. Great to be here. Thanks for having us, and thank you for all of your interest in Rollins and making time to attend the conference and also listen online. But Rollins is a premier services company. We've been providing services to residential homeowners as well as commercial businesses for well over 50 years.

Our focus is pest control. We are focused on protecting property and protecting health of our customers. We have -- as you had mentioned, we have consistently grown for 20-plus years, 24 years, I want to say, to be precise, that we've put up growth. We've grown through the great financial crisis. We've grown through the industrial recession. When oil was volatile back in 2015, and we grew during the pandemic as well.

I think it's something like 96 straight quarters that we have seen growth. So it's been -- it's certainly -- we are known as a compounder. Our focus is compounding revenue, double-digit revenue growth, double-digit earnings growth and double-digit cash flow growth. We enjoy a very capital-light business model, and we've got an incredible amount of highly engaged teammates. We employ over 20,000 teammates and they continue to execute each and every day with the Rollins way.

Thank you. And with a strong culture of operational discipline and technician training and customer focus, what have you been the most important cultural or organizational changes driving this transformation?

Yes. It's interesting. Something that I consistently talk about is modernization. Modernization of the business. I joined the company in '22, 2022. And Jerry Gahlhoff became the first nonfamily member CEO in the history of the company on January 1, 2023. And so Jerry and I are working together to really advance and implement a number of strategic programs across the business, whether it be growth programs that we're focused on our 9 shots on goal around the house and expanding our breadth of services with our customers or whether it be the focus on ancillary businesses and things like that or the margin profile, gross margin and pricing. We've talked a lot about our focus on pricing.

Since I joined, we became more focused on CPI plus pricing that's enabling us to continue to get paid for the essential nature and the value of our services. And then we continue to do a lot in the back office and modernizing our back office processes and teams and -- it's interesting. It's -- you sit back and reflect on the last 3 or 4 years, stock's up roughly 80-plus percent. The dividend is up over 80%. We've continued to see great results, and we're certainly really excited about what is yet to come.

Thank you, Ken. And then if you could talk about how do you ensure that operational discipline safety and people first culture remain embedded across your multi-brand and global footprint.

Yes. It's interesting. We focus on what we call the Rollins way. Jerry had led an effort to really roll out what we call the Rollins way. And there are 3 primary aspects of the Rollins way. It's essential together, focused on how we're creating an essential team and relying on each other being remarkable -- being remarkable for our customers and for our teammates. And having a heroic impact, our technicians are having a heroic impact with our customers each and every day when they go in and take care of the issues that the customer is needing to be taken care of, it's an incredible amount of impact we're having with our customers.

But -- it's interesting, you talk about safety. Safety is so important to us. When we think about there's nothing more important than getting our technicians home each and every day. They're out on the highways. And as you know, it can be dangerous. And getting them home safely is so important to us. And we've invested in safety technologies and our trucks to help enable that to mitigate exposures to accidents and other things like that.

And could you talk about your talent strategies. I was impressed. I had an opportunity to visit your one of the training center in Toronto and how do you maintain consistency and accountability across our network of 20,000 technicians become like heroic -- having a hero impact.

Yes, there's a very structured approach, and it's been something that the company has followed for a very long time. It's a consistent training program that we administer clear down through the organization, but certainly focused on the technicians. Because for us, the service to our customer and the consistency in the application is just so important. There's a science behind this business. And it's important that we share that science down through the organization, educate our technicians to ensure that they're being safe as they're also -- they're applying these services and applications at the customer level. But they're also troubleshooting and targeting the issue effectively. We get paid for providing an effective service. And so being -- making sure that it's consistent, it's effective, it's backed by science, and it's safe, is certainly areas that we continue to invest in. And the training that you saw when you were on site, is a really good example, how we're bringing people in. We continue to educate people and make sure they're current and up to speed with all of the various changes that might be occurring.

We also invested in leadership development. Last year, we've talked a lot about our co-lab initiative, and that's bringing together -- it's interesting. It's really exciting because it's bringing together our brands and Orkin for the first time. For so many years, the business was very much managed like a silo. So we had our Orkin brand and then we had all these other brands, and we weren't sharing. We weren't bringing people together. We weren't investing in development across that space. It was very much focused on Orkin or it was focused on the brands. We're making great strides with our colab. And it's really exciting to see the engagement because really I think there's a super power, so to speak, when we think about how we can collaborate across the brand portfolio.

We can collaborate and learning best practices to ensuring customers aren't leaving our family of brands. It might be okay to leave 1 of our brands, but what we want to do is make sure they're not leaving our family of brands. And if we can improve the collaboration across the brand portfolio, I think we can do a better job at keeping those customers and reducing churn in our business.

And let's talk about growth strategies in markets and you have about 80% recurring revenue business model and untapped market opportunity with household -- penetration is still only 15%, so what are the major drivers like for the revenue and margin growth like from here?

Sure. When I think about our business, I look at it, I was talking earlier today with some investors in one-on-ones. And the way that I look at our business is twofold. I look at the recurring ancillary one-time. So as you point out, the 75% to 80% of our business is recurring. It's under some form of service agreement that we have with our customers. 10% to 15% roughly is ancillary. And that's very much complementary to the recurring business. If you remember, our 9 shots on goal or 9 opportunities to do business with customers, that's that ancillary business. It's growing quite attractively. And then the last area is the onetime business. That's the area that's kind of slow growing. It's flattish, negative 2% to plus 2% sort of range. But for us, our focus is how do we continue to expand and increase the customer count, reduce churn around the recurring business, how do we increase the penetration rate of our ancillary business. That -- it's interesting.

When you look at ancillary, 10% to 15% of our business is ancillary, but it's, for the most part, all in Orkin, it's not in the brands. And so if we can better share practices across the brands, I think it's a great growth opportunity. And the thing that sometimes you miss when you just look at the 10% of the businesses, that it's only probably 2% to 3% of our customers. So we've got 95% to 97% of our customer base that's not using the ancillary services today. And if we can continue to expand that, that represents a very attractive growth opportunity for us on the ancillary area of the business.

Again, if you could talk about the market competitive dynamics. You are one of the market leaders in -- I think it is more fragmented market [ areas]. And how should we think about the market landscape from your perspective?

Well, it's an attractive market. As you had pointed out earlier, you had talked about a 15-or-so percent penetration rate in residential households. So market is big, but I really do believe the market has opportunities to continue to expand as that penetration rate comes up and increases, you're going to see more and more people using pest control. And we have seen that over the last 10, 15, 20 years. And I think that will continue. There's -- it's interesting when you look at the space, there's roughly 30-plus thousand competitors in our space. That gives us an incredible pipeline for acquisitions.

We have consistently acquired businesses. That's how we've built our portfolio. Even going back to Orkin. Orkin was a leveraged buyout back in 1963. That's a while ago, and that was before my time, so to speak here. But when we look at the last 10 to 15 years, we have certainly made investments in brands and acquiring. And right now, our focus is adding 2% to 3% of revenue growth from acquisitions each and every year. Now last 2 to 3 years, we've added 3 -- 1 year, it might be 3% to 4%. Another year, it might be 2% to 3%. But that 2% to 3% is very realistic, and we continue to see great opportunities to do that. That's what helps us get that double-digit revenue growth on a recurring basis.

And could you talk about the cross-sell opportunities based on our recurring services and especially termite and ancillary offerings.

Sure. It's interesting, so what I was alluding to earlier is that we have an incredible opportunity on the cross-sell. Two things I always talk about is, on average, every customer is using less than 2 services. And we've got 8, 9, 10 plus services that we could provide to customers. We have customers that are using pest control but aren't using termite control. So we can come in and bring them into the fold and add the termite control. We have customers that are doing termite, but they're not using pest control, again, another opportunity.

And then you look down through the broad array of services, mosquito. It's one of our fastest growing -- it's continued to be one of our fastest-growing service offerings. We're seeing more and more adoption of those services and using -- and people using these services. Ticks, Lyme's disease, we've all heard about that horrible disease. And by treating your lawn and reducing ticks in the lawn, you reduce the likelihood of contracting Lyme's disease. And so continuing to expand that service, you look at a home, you've got insulation. We're seeing great growth in insulation. We're not an insulation business. But what we do is we go in and we remediate.

If a pest gets into -- a rodent gets into the addict, they'll destroy the insulation. We'll go in, we'll replace that insulation. We'll put new insulation in. We'll also put work -- do work around exclusion. Keeping the pest out of the home is a really big important area for us. So we'll do exclusion work. We will encapsulate crawl spaces. That's an area that is just prone for insects or prone for rodents and other pest.

And if we can do a better job at encapsulating that area, certainly will reduce the likelihood of a pest problem in your home, and we're seeing good service offerings there. But the reason I say all that is because we've got so many different growth opportunities, it's just not a pest control, but it's not just a termite control, but it's all these various services that we go to market with. That's why we have consistently grown at 7% to 8% organically. We take care of the customer. We provide effective solutions, and we develop these relationships that stay with us for years. And those are the reasons why we've enjoyed such a such a consistent run from a growth perspective.

Thank you, Ken. If you could touch on the typical technicians, they and sales marketing strategies when it comes to knocking the door on the customer versus more digitalization kind of platform strategies you have.

Well, it's interesting. What you're pointing out there is how effective the business model is and really what makes it so special? It was one thing when we had the Orkin brand and Orkin is incredibly attractive and a great brand. But when we were able to acquire Northwest or Clark or HomeTeam or Fox or Saela more recently, what it does is it gives us a number of things. But 1 thing that is really important is it gives us new access to the customer. We're not overly dependent upon digital per se. We've got billboards. We've got cross-sell. We've got homebuilder relationships. We got door knocking. 3, 4 years ago, door knocking, a lot of people looked at door knocking, and they just didn't feel it was an attractive business model.

Quite frankly, those have been 2 exceptional acquisitions for us. Fox in '23 and then Saela last year, two incredibly attractive, accretive to growth, a couple of our most -- our fastest-growing businesses, very attractive margin profile, highest price point in the service offering and churn is not -- it's not diluting our overall growth rate. And so building the portfolio with a broad array of access points to the customer is what we've done, but we also have a broad array of services and diversified geographies that we're in. So when we think about these acquisitions going forward, we continue to vet these acquisitions through a number of lenses. Those 3 lenses are certainly important to us.

And then if you could talk about how do you see the balance evolving between residential, commercial and termite, ancillary segments and also if you could touch on the margin profile as well, like for overall portfolio perspective?

Yes, sure. I stated earlier, we're talking about recurring ancillary and one time. And that's 1 way of slicing the business and looking -- and analyzing the business. The other way of analyzing the business, as you had indicated, is through service offerings, residential, commercial and termite and ancillary. Residential, incredibly large market, incredibly fragmented market, pretty low barriers to entry, but that's okay. That allows us to continue to see new companies come into the mix and create a really strong pipeline for acquisition. But it's a really attractive market. I mean, 100-plus million homes in the U.S. and only 15% or so using pest control, huge opportunity, huge upside, great, great growth area around home services.

Commercial business and commercial pest control, it's probably one of the most attractive areas. It's highly valued by the customer. There's -- they'll certainly pay for the value that they are being provided. You're protecting a customer's brand. When you go in, you want to make sure that you're engaging with a brand like Orkin who has a very strong brand and a reputation for providing exceptional service to ensure that we continue to protect those brands.

The last thing our customers want to see are pest during entering their business when customers are there. That will destroy the brand immediately, social media will blow up, and it's a really horrible situation for our customers. So engaging with us, they pay for that value. They realize that value and they're willing to pay for that value. And they oftentimes stay with us for 8, 9, 10 years. And the churn -- so the churn is less than 10%. And so we have -- it's a really attractive business. That's why that business oftentimes is growing 8% or 9% or 10%, whereas residential might be growing more like a 4%, 5% or 6%. It's because the churn is not as great in the commercial side as it is on the residential side. It's not unattractive in the residential side.

It's -- it's just a different business. Diversity of which -- and diversification on the ZIP codes creates challenges from time to time from a churn perspective. But the commercial certainly is probably the most attractive. And then you've got termite and ancillary. And that's a sticky business, too. When you come in and you engage with us to do termite, you'll see it's a highly recurring business model.

You got to continue to treat those areas and treat those issues. You've got to have a strong quality control program in place. We have that and we help protect our homeowners. The largest investment oftentimes is their home. And so our customers' largest investment is their home. And so we help protect that with the termite business and the termite control.

And then the ancillary, I talked about earlier, it's all these different services we're providing and huge opportunity because the penetration rate and the customer base is relatively small. And so it provides us a lot of optimism as we think about the future.

Ken. And if you could talk about in Q4, you had weather disruptions for onetime factors for onetime business. How did you manage that kind of circumstances in Q4 as well as when it comes to 2026, we probably have another weather disruptions might be. So how actually would you tackle with those kind of conditions as the Rollins?

When we look at this, we look at it through a number of views. And when we think about the fourth quarter, again, going back, our recurring revenue, our focus is recurring revenue, our focus is ancillary revenue. The onetime is good business to have, but it's just that, it's one time. And sometimes it can be expensive to acquire when you think about that side of the business. But for us, when we look at Q4, the recurring business continued to be very strong. It actually -- recurring growth was slightly higher in Q4 than it was in Q3. Ancillary was down a little bit just because we couldn't get trucks out on the road, the lot of snowfall, a lot of icing conditions in November and then again in December. And when you have those situations occurring in the second or third month of the quarter, it can be challenging because you don't have time to make up for it.

If it occurs earlier in the quarter, like it did in Q1, you oftentimes have time to make up for that. And so -- but we didn't have time. And as soon as it started to get better in December, it got worse again. And so we didn't have time to make up for it. And so the ancillary was a little bit weaker in Q4. And then the onetime business went from growing 3% to 4% to be down to low single digits. And so that was probably -- that was the largest swing in the business in Q4. As we think about Q1 unfolding in 2026, we still, for the year, are committed to that 7% to 8% organic growth. That's our internal plan. That's what we're reflecting in our internal plans, and that's how we continue to talk externally in terms of our expectations.

Q1 is probably going to be a little bit more challenged relative to the rest of the year. We've talked about that. That's not new. The one thing that I would say is January was tough. We had a lot of closures of branches. February got better. The growth rate in February was better than the growth rate in January and March. March is the make-or-break month. we really view March favorably. We think it's going to be a good month. We're not done. We're only about halfway through the month right now.

But March is the start of a busy season. And it's the time where you start to see the calls pick up. You start to see improvement. Generally, you're seeing a 5% to 10% sequential improvement between February and March in terms of growth because these markets are coming online, it's interesting being in pest control, I noticed mosquitoes now. And it's funny in Atlanta, Georgia, I walked out over the weekend, and I couldn't help but see mosquitoes. And so you're seeing it. It was 75, 80 degrees last week in Atlanta, Georgia. And so you're seeing that start to occur. You're starting to see the calls come in to the call center, people are becoming more aware. And so we're hopeful that March will be a good month.

Again, that will really dictate the strength of the quarter, but what I would say is January was challenged, February got better, and we're hopeful that March will continue to show that trend going forward.

And Ken, if you could talk about the pricing strategy, since you joined the firm, it's now CPI plus pricing strategies. And when we initiated Rollins, we talk about the AI, it's difficult to replace the -- all the pest control industries. And how you actually you embrace the AI data-driven pricing models? And if you talk about the pricing strategy since you joined the firm.

That's a great question. Pricing is so important. Some businesses are at CPI, some are below CPI and some like ours is above CPI. And so when I came into the business and started to understand it more completely. What I identified was this is an essential service. You have to have it. If you live in certain parts of the country, you just have to have pest control in order to have a quality of life that we all deserve. You also have to have it to protect your assets in your home. Termite control in -- when I lived in Pittsburgh, Pennsylvania, didn't really need termite control. but I needed it to close on my new home in Atlanta, Georgia. And so really important for me and for homeowners that is having that service.

So I'm telling you all that to tell you that this is an essential service one. And the other aspect that when you think about pricing is, how sensitive are folks to it? Like how big of a ticket price is this? Is this a large percentage of a homeowner or a business's budget and no, it's not. It's a very small price to pay for an incredibly valuable service. So as a result, that's why we talk about our business through a CPI plus lens. So if CPI is at 2% to 3% like it is today, we should be getting 3% to 4% pricing. We're not in the business of surcharges or we're in the business for providing an effective price that will help us manage through the ups and downs of any economic cycle.

And the nice thing about our business, and I'm kind of going into a different area here now, but when I look at the business and I think about inflationary pressures in the business, a lot of times people today are talking about fuel costs. We don't really have inflationary pressures from fuel costs. And the reason we don't have those pressures is because it's a very small part of our cost structure. I want to say 1% of sales is spent in fuel. So a really small portion of the cost structure associated with that. So it's interesting when you think about all of the various cost structure components, the only area where we have a dependency upon is in our people. Over 50% of sales is reinvested in people. It's a people business.

And the way we pay our people helps our people not just depend upon a base salary, but it's a heavy incentive compensation structure. So when we grow, they grow. When we win, they win. When we become more profitable, they see it in their paychecks. And so it's a really -- it's quite frankly, a beautiful model. We're able to share with our teammates in our success. That helps us manage through inflation.

When I joined CPI was mid- to high single digits. People were giving merit increases in a lot of businesses at 6%, 7%, 8%, we were giving a 3% to 4% merit increase at that point. And I thought to myself, how are we doing that, but not losing people? Well, we were doing it because there was not an overdependence upon that base comp and being able to incentivize our folks and as we grew at 8%, 9%, 10%, they were growing at similar rates. It was -- it allowed us to manage through the inflationary cycle very effectively and not overly to rely upon price increases or surcharges or things like that, it's a business model that's built for the long term and that pay structure certainly helps us do that.

Very helpful. And if you could talk about international business opportunities, how you see the differences between the U.S., North America versus international, like the in terms of the end markets, competitive landscape and how you see opportunities in there?

I oversee the international business. It's a great business. That is -- in our business, that's Canada, the United Kingdom, Singapore and Australia. Great business. We built it through acquisition. But I'll tell you that the focus of our investments are in the U.S., U.S. and Canada. Those 2 markets make up a bulk of our business, there are 2 of the most attractive businesses. The market is enormous. It's very sizable. There's -- it's just a -- it's a great geography to be in.

As we think about international, we're continuing to evaluate that business and the footprint that we have across the international landscape. There's opportunities to grow there. But for us, our focus is the U.S. and Canada. And that's where you're going to see a bulk of the M&A dollars spent in the foreseeable future. That's where you're going to see the bulk of the growth coming through. That's our priority market.

And capital allocation, M&A with strong balance sheet, free cash flow, how do you prioritize between organic investment, bolt-on M&A, share repurchases and dividends?

Yes. It's interesting. So Brady Knudsen is here with me too, today, and he's our Treasurer. And so Brady came in and really did an exceptional job last year, taking us public in the investment-grade bond market. And when I joined company 3 or 4 years ago, we didn't have any debt. We had -- we were cash positive. Over the last 3 to 4 years, I think what we've done is a really good job at executing a balanced capital allocation strategy and opening up new opportunities to enable access to new sources of capital, sources of capital that we deserve, investment grade. Only 8% of companies at our size are investment grade, but we're 1 of that 8%. One of those companies will make up that 8%. And so for the last 3 to 4 years, we've been talking about balance.

And for us, it starts with -- we have an exceptional cash flow profile. We're growing cash flow mid-teens. I think last year, adjusted free cash flow was up 20%, doing an exceptional job there. So when I look at it, first and foremost, it's about growth. How do we continue to bring new brands and new teammates into the business and make those acquisitions. And we've spent upwards of $1 billion of capital the last 3 or 4 years on acquisitions. Fox and Saela, a big part of that, but there's also a lot of other brands and teammates that we brought into the business.

The second area is dividends. When we look at dividends, we -- when I joined the company, they were paying a special dividend. There wasn't this consistent approach to dividends that we see today. So over the last 3 or 4 years, I've worked to increase the dividend by upwards of 80% to 85%. And that dividend stream today represents roughly 50% of cash flow. We have an incredible amount of opportunity to continue to service that dividend. And our focus is to increase that dividend as cash flow increases. And so we're going to continue to do that. We've also executed on share repurchase the last 2 to 3 years.

When I joined -- it was interesting when I joined the company, we had a family that owned over 50% of the business of the outstanding stock. And we were trading -- I want to say we were probably trading $50 million or $60 million of stock a day. And they entered a point in their ownership timeline and a life cycle that they needed to diversify. They needed to execute state planning. There was a number of things, I think they were trying to accomplish.

And they were selling through blocks and 144s. And you know as well as I do, when you have an owner at that level, selling through that sort of mechanism, it creates a headwind to the share price. And so what I did after the first 3 or 4 months, we've started to work with that owner and that shareholder to put together a shelf program to register their entire position and to do a major secondary. And so we did our first major secondary in September of '23. The stock was $34 a share. It was down 8% to 10% roughly on the announcement. We bought back $300 million, so 20% of the deal at that point, and we executed that. Volume stepped up slightly.

We brought on some new sell-side analysts It was a success. I would call it almost like an IPO for the business. It just was -- it just helped us get out and tell our story. Two years later, well, the family locked up for a full year in that time -- at that time and weren't in the market until this past November. And so this past November, we did our second secondary. There was there was really very little, if any, discount on the stock when we did that secondary. We did a -- we bought back 20% of the deal again. We spent $200 million and we're excited about that.

And by doing those things, by participating, but also doing this sell-down and executing that, it allowed us to bring new investors into the stock. It's -- our volume is now approaching $150 million to $200 million a day, up from roughly $50 million a few years ago. And so we're seeing really good success, but it just took the structure. It took time and we were able to execute on that. But saying all that to say that we will use the balance sheet to buy our stock back. We see an attractive opportunities, and we will execute on that, especially during secondary offerings.

Last two questions. Other aspects of Rollins business, recurring revenue models, declination training, digital transformation, M&A pipework, you believe underappreciated by investors at this moment. And you have Investor Day coming up and anything that we are excited about, like for that?

Yes, there are so many different things, and we're excited about the Investor Day. I want to say that's May 14 that we're having that at the New York Stock Exchange. And so we're excited about the opportunity to get the team in front of the investment community. Again, we had one 2 years ago. But hey, there's opportunities on growth, organic growth, great opportunities, good pricing cross-sell opportunity, M&A, exceptional of M&A opportunities for us as we think about the future, back-office modernization. The tax rate has improved over the last couple of years. We're seeing great improvements there and trying to do more around that.

We've seen 100 basis points of improvement in the effective tax rate. That's meaningful when you look at our earnings profile. And then there's continued opportunities around cash flow. So it's -- there's so many different things, I think, to be excited about and we're looking forward to the Investor Day where we can highlight some of those things.

Thank you. very looking forward to it. So it's time. I'm going to wrap it up. So thank you very much, Ken, and thank you, everyone, for joining today.

Well, thank you.

Good morning, everyone. Thanks for joining us. Curt Nagle, the senior information and business services analyst here at BofA. This session is Rollins. Very pleased to welcome CFO, Ken Krause. Ken, thanks for joining the fireside discussion. If there's any time left, we'll open up to the audience. But with that, again, welcome, Ken.

Yes. Great to be here. Thank you for having me.

Yes. Glad to have you, and thanks for coming. So maybe starting at the top, we're not going to start with AI. [ Having ] most of these conversations. We'll maybe dip into that a little bit. But employee retention, among a handful of things, pretty important. Strategic focus, already starting to see some improvement. I think you called out maybe 18% or so retention versus past couple of years. At a high level, just from like an operational or kind of a cultural perspective, what's driving or how are you implementing this pretty important change?

Sure. If you recall, we finished last year, we had an event at the New York Stock Exchange where we introduced The Rollins Way. And that was an important topic to discuss because it really just emphasizes the culture that we have at Rollins and what we're -- all that we're doing at Rollins around our culture.

When we think about a technician and we think about turnover, we lose way too many technicians in the first year. So you join, and within the first year, our turnover is higher than it is. Once you get beyond year 1 into year 2, people tend to stay for 10, 15, 20-plus years. But that first year turnover can be challenging.

So to combat that, there's a couple of things we're doing. But one thing that we're doing is culturally introducing The Rollins Way. And what we're trying to do is create this essential together culture with our technicians because it's a tough job. It's a challenging job. And for somebody new coming in, having somebody that can support them and onboard them and integrate them into the business, I think, is starting to pay dividends.

And what we estimate is there's tens of millions of dollars of opportunity if we can cut or reduce the amount of turnover in those short-term employees, we'll have to hire less. In fact, last year, we estimate that we saved between $5 million and $10 million. And so that's one of many areas under the modernization brand that we -- or title that we continue to execute around, and it's having a big impact.

Okay. Maybe just a follow-up. One, it seems like you're starting to see an immediate effect. Tens of millions in terms of realization, right? How should we think about that?

Yes. I mean if you look at it -- and we have roughly, let's call it, 20,000-plus people that we employ across our business. And our customer churn might be 20% or 25% total, and we've talked about that. And so if you just...

Rep churn, not customer?

Yes. But if we just assume that our reps are churning at roughly the same pace, that means we're probably hiring upwards of 6,000 to 7,000 people a year. And if we're losing half of those people, that's 3,500 people. And it's costing us upwards of $15,000 per tech to onboard them. So if you think about that, 3,500 times 15,000, that's a $40 million or $50 million opportunity. Now that's not all going to go away. But if we can make small improvements like we made last year, that goes a long way in improving the margin profile.

Okay. Fair enough. And then maybe second order effects. Operationally, I mean, fairly clear, but in terms of service levels, maybe even retention, how should we think about it?

Certainly, yes. No, when we lose customer -- or when we lose technicians, that's when we stand the risk of potentially losing customers. And so if we can keep people in their jobs and invest in them and enable them to be the best tech possible, we stand a higher likelihood of keeping customers. And so there certainly is a high degree of relationship and correlation between when we lose technicians and when we lose customers.

Okay. Maybe kind of a higher level question, just staying on labor. In terms of maybe just kind of the pool, right, you're drawing from, I guess, what is -- what hiring looks like in terms of the available pool? Are you having to raise wages? Or -- again, just kind of all the things we talked about in terms of just a better working environment, getting people on and just getting them into the system.

Availability of talent is not an issue. We have been able to find and bring on really strong individuals to join our team, and we're seeing good progress there. And so no real issue there. We're getting the right amount of people. But if we had it our way, we'd hire less people. And in terms of if we can improve the churn and the turnover on the employee side, we will have -- it will result in us hiring less people, like it did last year when we look at the technician side.

Maybe be a little more selective, perhaps?

You could be more selective, more strategic. You certainly can. And so it certainly should help bring on and just improve the overall relationship. Because what we find is once those technicians get to a year or 2, we're really changing lives.

When we think about pay -- you mentioned pay earlier and inflation -- it's not been an issue. Inflationary pressures on payroll have not been an issue because of how we structured our compensation programs. Our technicians are not only paid a fixed base comp, but they also get paid through variable incentive. And you'll -- it's not unreasonable to see a technician who might be making near or upwards of $100,000. And so if our high-performing technicians, who -- some of them are going to be with us in a few short weeks at our President's Club out in Scottsdale, Arizona -- those people are doing exceptional. And it's -- not only do they do exceptional and see benefits in their paycheck, but they also invest in our stock.

And so when I walk into a room and I talk about Rollins, and I ask the question -- I always ask the question, how many of you are shareholders? Undoubtedly, 90% to 95% of the room's hands go up. People buy the stock. People invest in it. People believe in the mission, and they stay for a very long period of time. But you got to get into that 1-year mark. Once you get into that 1-year mark, you're not free and clear. You have to continue to invest in these people, but you stand the risk of keeping them for a very long time.

And what happens is they create long-tenured customer relationships. These technicians know the dog's name. They know the kids. They know the life events that are occurring at the home. They become part of the household. And so that's an important thing for us to continue to focus on.

Yes. And all the weird quirks in the house that -- mine certainly has.

Certainly. All of ours do.

So yes, so incentivization, ownership, right? How do you incentivize? Or what is it based on?

There's a number of targets. You got productivity incentives. But for example, when we raise prices, our technicians get the benefit of that. When we do a cross-sell. So we've oftentimes talked about having 9 shots on goal when we go to the home. And that's from insulation to ridge vents, to mulch, to encapsulating crawl space, exclusion work around the house to keep the pests out. If we're -- technicians have an opportunity to sell that. Or they have an opportunity to identify when that opportunity exists and then bring in somebody that can help sell that to the homeowner and explain the benefits and the value of that to the homeowner. And when they do that, they receive a part of that. They receive a commission. And so those are the kind of things. It's productivity initiatives, but it's also growth initiatives that they're tied to that they can receive benefits from.

Okay. Fair enough. Definitely want to go back to some of the adjacent opportunities in a bit. But sticking with the concept of margins, right? So fairly clear goals, right? Near term, kind of 25% or just defined by your guidance, 25% to 30%. Medium target is higher, right, 30% to 35%. I guess, in terms of specific internal levers or just kind of what you need to see to kind of get confidence to more clearly and more immediately kind of target that range? Or what needs to happen?

This business is very much capable of delivering 30% to 35% incremental margins. And the way the math works and the business model works is our incremental gross margin -- our reported gross margins are in the low to mid-50s. And our incremental gross margins are in the mid- to high 50s because a large part of our cost structure is variable. About 10%, we would say, is probably more fixed, 90% is more variable. So as a result, 55% to 60% on the gross. And then on the SG&A, if we're spending 29%, similarly, 90% and 10%, 90% is variable and 10% is fixed. So that means about 25% is in the contribution margin. So that means if you take 57% minus 25%, that gets you to 30 -- roughly 32% incremental margins.

The reason that we would not deliver that -- and we have delivered that from -- on a quarterly basis from time to time. But the reasons why we wouldn't deliver that are we're making investments. We see growth opportunities. We're going after and acquiring customers when there's an opportunity. Because as customers stay in the business and the relationship forms where we have a customer for 3, 4, 5-plus years, that's -- the lifetime value is enormous. And so we're focused on that, and we're excited about that. But the investments have to be made from time to time.

And then on the flip side, not only are we making investments, but from time to time, we'll see casualty losses, some claims that come into our business. Trucks on the highway get into an unfortunate accident, somebody gets hurt, and litigation ensues. And so we'll see that from time to time, and that will add volatility to the P&L. Last year, we had some gains on fleet vehicles returning back in. We're lapping that now. But really, it comes down to two things: investments that we're making to acquire customers; and two, claims that we may face from time to time in the business, unfortunate claims that we do.

Sure. Yes. Fair enough. I guess customer acquisition, maybe talk on that a little bit in terms of I think maybe making some changes. But in terms of where you're investing most, maybe think about brand strategy. And you've got a lot of brands, but just the framework for customer acquisition and maybe potential leverage or not.

That's what makes the business so special is it's such a diversified manner in which we acquire customers. We've got 10, 15, 20-plus brands across the business. And Orkin, we all know Orkin. But you may not know Northwest if you don't live in Atlanta, Georgia or in the Southeast. Or you may not know Clark if you're not in California. Or even HomeTeam, if you're not in the Sunbelt.

So what we do is we go to market across all of those brands. And not only are those brands different in terms of what the logo is on the truck, but how they acquire the customers is so different. Fox and Saela, we just acquired the last 2 to 3 years, door knocking, great businesses, one of -- some of our fastest-growing business, quite frankly, and very healthy business, good business coming in. Or HomeTeam with relationship with homebuilders, or Northwest in Atlanta with billboards, or Orkin through the digital means.

And so there's so many different ways we're acquiring customers that allows us to efficiently bring on new customers. And when the costs associated with digital advertising may be escalating, we can shift dollars elsewhere and capitalize in alternative ways of acquiring our customers.

Maybe just on a point in terms of very specific marketing strategies, fit to market, fit to brand. And I don't recall if it's something you've talked about, but in terms of maybe leveraging kind of best practices, or maybe not because you don't want to upset the apple cart and if it's working, it's working?

Yes. No. I mean, we do that all the time. And it's interesting, when I think about one of our untapped opportunities, it's the sharing, and it gets into The Rollins Way, the collaboration, the sharing of information across the brands. So many -- for so many years, it's been very much siloed. Every brand is unique and -- but what we've started to do is to share in communication and sharing best practices across the portfolio. And it's having an impact.

When I look at it, one area that is an opportunity for us is the cross-sell. So when we talk about ancillary, 9 shots on goal, 9 shots on the house, that really has been historically an Orkin-led initiative. But what we're doing right now is starting to train our folks over in the brand portfolio with some of the tools and tricks and areas that Orkin has invested in over the years to create a very valuable business. So we have a huge amount of untapped opportunity over in those brands associated with that ancillary business, which should help us continue to deliver that 7% to 8% organic growth.

And just remind me, the relative split between Orkin and sub brands?

Roughly half of the business is Orkin and roughly half of the business is the brand portfolio. And that's been built through acquisitions. Orkin was acquired in 1963. But over the last 10 to 15, we've really stepped up the acquisition area and made significant investments.

And that's -- oftentimes, people ask me, why do you think you trade for 30x or 35x? And there's a number of reasons. The market, there's so many different reasons. But one thing that I always point out is individual brands may be bought and sold for 10x to 15x or even 8x. And they're not as valuable by themselves as they are together. And so the sum of the parts at Rollins is much greater than any individual component because of that broad way that we're acquiring and then accessing customers and growing our business.

Yes. I guess the point I was trying to make is if 50% of your business is non-Orkin and there's an opportunity from under-indexed, right, adjacencies that...

Yes, it's interesting. That's a great, great point, Curt. When I look at the ancillary business, that's roughly 10% of our business. And the average ticket price on that is upwards of $6,000. So it's upwards of 10x to 12x what our average pest control contract is, but it represents less than 10% of our business. So that means on an absolute customer count basis, it has to be well below 5%. And that's just in Orkin.

So when you think about Orkin has untapped opportunity. And then the brands haven't done really anything when it comes to it. So there is so much untapped opportunity on the ancillary side, which is one of the reasons why we continue to make investments, and we're excited about it.

Maybe just remind us about the margin profile?

It's a great margin profile. Not dilutive at all to the pest control business, the more traditional pest control business. It's relatively neutral to the overall margin profile.

I guess higher ticket, higher...

Higher ticket, some more costs. More material costs that come into there than what you would see maybe in some of the more traditional pest control business.

Maybe more labor, too, right?

Yes. A little bit more labor, but it's a great business.

Economic sensitivity?

It's interesting when you look at it. We don't really see it. When you look at the last 20, 25 years, whether it be the pest control or whether it be the ancillary business, people are finding ways to buy this valuable service. It's a valuable service. I mean, the home is the largest investment many of us have, and people want to invest in that home. Even -- and so we benefit with -- when people are staying in homes longer. We also benefit when people change and move. And so I think from an economic sensitivity, it's -- we're neutral when it comes to the impact on our business.

Everyone wants pest control, right?

Yes. And nobody -- the question I always get too around pest control is what DIY forces are there? And the way I describe it -- or what AI forces are there? How can people learn how to do pest control? And I would say people don't do pest control because they don't know how to do pest control. They don't do it because they don't want to do it. It might be therapeutic to cut the lawn or take care of the swimming pool.

I did that once.

But to take care of the pests, it's a tough job. And you can't just do that once. You have to do that on a regular basis or the pests are going to come back.

I just look at the relative pricing, right, which is -- it's demonstrably different.

Pales in comparison.

Which I think proves your point in the value and who wants to spray for bugs every...

Yes. And deal with -- there are standards around it. There's regulation. There's -- and so we focus on employee safety. We invest in the safety of our employees when they're dealing with this sort of thing. And I think people don't -- they don't want to expose themselves to those risks.

Yes, for sure. And just -- who wants to do it?

Who wants to do it?

Pricing, right? That's been, I think, a very consistent part of the growth framework, helping margins. Organic growth, of course, has helped. But I guess in terms of just thinking about pricing -- I don't want to say sensitivity -- pricing power this year. Any difference? Where are you seeing kind of ebbs, flows, increases?

Well, it all gets down to -- if you're doing the work for the customer, you're taking care of the customer, the customer is going to take care of you, and they're going to value the service. And so for us, we've recently spent a lot of time in the last 3 or 4 years talking about our CPI plus approach. And so this is a valuable service. It's not a commodity. People aren't competing on price. People are competing on service. And if you do that, you get the right to charge a CPI plus sort of approach.

And so this year, we talked about 3% to 4% pricing. CPI, I think I saw 2.5% to 3%. So a little bit above. Not a huge amount, not an umbrella or a pricing umbrella that might be forming, but a healthy amount for the service we're providing our customers.

Yes. That's certainly not egregious. And pricing environment sounds like pretty rational for competitors that matter?

Certainly is. We -- you always have an irrational competitor from time to time. That's just what makes the market. But generally, it's a very rational market. And people aren't competing on price. They're competing on the relationship, very much how we compete with M&A. They're competing on the relationship they have with the customers.

Sure. Okay. Rollins Way, we'd like to spend a little more time on that. You outlined in December. To me, it seems like a pretty big opportunity, right? You've got this huge organization. It's executing well yet. You've got a cost base that maybe is a little more full than you'd like. So we talked about the retention side, that's pretty clear. But in terms of any other -- whether you want to find a low-hanging fruit or larger opportunities and the flow-through that we could see, any way you could size or dimensionalize that, I think, would be really helpful.

There's so many different opportunities. When you think about The Rollins Way or you think about the modernization journey, we've got growth initiatives. We talked about the ancillary sale across the portfolio, using our credit extension arm that we're using and working across the brands to help enable customers to buy these services also is a big growth opportunity for us.

But there's tons of -- and there's a significant amount of untapped opportunity when it comes to those cross-sell. On average, our customers have less than 2 services. And so there's an opportunity to bolster that and improve that as we go forward. There's an opportunity on margins. How do we procure? How do we do a better job of procuring material? It's very much left up to branches or regions or brands. And so how do we leverage the purchasing activity? Because the purchasing activity is no different, quite frankly, between brands. They're using the same materials. They're using the same insulation. They're using the same product. How do we leverage that? How do we take advantage of our economies of scale when it comes to the procurement side? How do we do a better job?

I talked about earlier about onboarding and keeping people, but also the back office. We've invested in a lot of great new talent in our back office and brought a lot of new folks on. That talent is having an impact. They're putting new technologies in place, new tools, helping us take out costs from the back office and be a better acquirer of some of these businesses as we think about synergies.

And so there's a tremendous amount of growth opportunities, productivity opportunities, profitability improvement opportunities. Last year, I started talking about our tax rate. Our tax team is doing an exceptional job there. We saw over 100 basis point improvement in tax rate last year, and we think that's sustainable as we think about the future. So we're looking at our state tax profile now and evaluating that. So there are tons of opportunities that we continue to evaluate.

Okay. Fair enough. And then in terms of -- so again, the company is operating very, very smoothly. Steady, high growth rates. As we maybe centralize or consolidate this, however you want to define it, how do you think about -- I guess I see like the risk in kind of maintaining the autonomy. Like maybe it's just we're talking about mostly back-office stuff, but that must be a consideration in terms of, again, just keeping things as they are and not upsetting operations from those changes.

It certainly is. When we look at our business, this is a decentralized business model. And that won't change. We want to be close to the customer. We want to be close to the communities we work in. We live, work and play in the same community. And so that's important to us for the relationship side of this business, and it's all about people and relationships.

But there's things that our home office and other areas, they can do to better serve our field operations. And that's exactly what we're doing when it comes to the EPM initiatives around technology or the procurement initiatives or the real estate initiatives. I haven't even talked about that, but we're looking at our real estate footprint, thinking about the branch of the future. The branch of today is different than the branch we needed 5 or 6 years or pre-COVID. People aren't going into the branch. So do we really need that footprint? And how do we go about improving that? So there's a tremendous amount of back-office things that will help enable our field to serve the customer more effectively. That's what it's about. How do we serve the field to ensure they're serving the customer.

Maybe touch a little bit more on the real estate opportunity in terms of -- I don't know, you think could be 20%, 10%, 15% lower?

Yes. I mean, we're evaluating that right now. And so there's an opportunity to do more around that. We'll have an Investor Day, I believe, in May. And I'm sure that will be one initiative of many that we'll talk about that -- but there's an opportunity. There's really an opportunity to improve the use of that footprint, maybe take an opportunity to just generally improve the profile.

Okay. Well, stay tuned, I guess. Just quickly touching back on the adjacent services. So I think it's, on average, 1 to 2 or so, call it, 2 average products per customer. If we were to look at maybe -- not necessarily high marks, but if it's by brand or within Orkin or particularly services, where you're really starting to see traction or maybe even within the demographic or market, what does that look like? What's the North Star?

Yes. Well, where we're at right now is certainly not the number we want to be at. It's less than 2. And I mean, if we look at it, 3 to 4 services per customer would not be unrealistic. There's -- not only do you have the basic pest control, but how do you get termite control? You want pest control and termite. Or you might have termite, how do you convert it into a recurring termite and then also bring on the pest control? That's 2 services there.

Then you got wildlife. Right now, you're seeing squirrels that are getting into homes. The last thing that -- I'm sure maybe you -- I don't want to assume you, Curtis, that you would want to do it, but I don't want to go in and try to remove a squirrel. And so we're seeing calls for stuff like that. So wildlife control, adding that into it. Mosquito control. Believe it or not, in New York City today, it's not 80 degrees. But when I left Atlanta yesterday, it was 80 degrees, and we were seeing mosquitoes. And mosquito is a huge amount of growth opportunity for us. It's one of the leading causes of illness from pests, and we're doing more work around improving that. So mosquito can easily be added. And we've got sustainable solutions in Northwest and other brands that are really appealing to some of our customer set. You've got ticks in the yard, Lyme disease is a horrible disease.

Out of control.

And so how do you prevent that from occurring? Well, you treat your lawn for ticks. And so there's 4 or 5 services there alone, not to mention the ancillary with the attic and keeping pests out. Once you have a pest infestation, you'll do anything to get that pest out of your house, remediate it and make sure it doesn't come back. So if we can add those services to help our customers, that's going to add additional revenue for us as well and help provide the customer with the solution they're desiring. So as you see, there's -- we're not where we want to be, but there's a lot of opportunity to continue to make headway on this.

Okay. Very good. Weather, right? That was -- yes. So recurring business seems like in totally fine shape, but drove a little bit of volatility in your nonrecurring business. I guess as we're going into the spring selling season, how are you feeling about kind of being past those headwinds and kind of getting back to a more stable...

We're certainly not giving up on the 7% to 8% organic growth. That's intact. Pricing is still intact, 3% to 4%. Markets are still very healthy. We're seeing good opportunities there. You're right, weather can impact it from time to time. And when weather impacts it, what you oftentimes see is it's in that last month or so of the quarter because you don't have time to make up the onetime business. The recurring business doesn't change, but the onetime business has an ability to impact a quarter worth of revenue.

And so what you saw in the fourth quarter is November, December, really tough weather months. Carried over into January, but we have sequentially improved. From January to February, we saw improvement. March is a make or break month for us. It's hard to say how March will turn out. We feel like we're positioned well in March, but it's the start of the busy season. It's the start of peak season for pests. And that's the month where it will give us a really good sense as to how good the year is going to be as we think about March. So we're looking at that closely. We'll evaluate that. We'll be reporting that, of course, in April.

But what we've seen is improvement as we went through the quarter. February was better than January. January is a tough month. I think we had more closures in the month of January than we had a year ago because of some of the really tough weather conditions that were out there. But we started to see some improvement in February, and we're hopeful that March will continue that positive trend.

Okay. Fair enough. Maybe shifting to M&A, and bolt-on is a really important part of the story. I guess, any changes in terms of -- look, you have a very specific strategy, right? You're not going to overpay, right, family business integration. But I guess just what does the M&A landscape look like? I mean, more competitive, less competitive? How are you adapting?

No. 30 -- I think we say 30,000 or so competitors across the space. And we meet once a week as an ELT on M&A, and we're looking at that. Pipeline is healthy. Our target is 2% to 3% this year. I don't think we're going to be below 2%. We're going to be in that 2% to 3%. There's a chance to be above that if we see some other deals come through.

But there's a good healthy pipeline. We're seeing good activity in Q1. We've got the benefits of Saela carrying over this year into the first quarter, but we also have a really good pipeline of activities we're executing on as we think about 2026. So 2% to 3% revenue growth associated with M&A is still very much intact. And we're continuing to -- the pipeline is good, and we see great opportunities there.

Okay. So maybe not so much on velocity of acquisition, right, that can be market-dependent or whatever. But thinking about some of all the process and operational controls that you've been talking about, the opportunity to maybe integrate quicker, more efficiently. Is that a focus?

Yes, it is. I mean, many of the things that I spoke about earlier on the modernization side apply in the acquisitions. We have bought countless numbers of businesses and partnered with so many over the years, but so many are on their own systems. So many are following their own approach. It's very much a decentralized portfolio sort of approach to the investments. And -- but as we make more progress in the back office, as we get better on procurement, as we get better on some of those functions, we're going to improve the realization of synergies on some of those deals that we're executing on here in the future.

Have you given numbers in terms of getting to -- from day 1 of integration to, I guess, maybe end of the year or just maybe how quickly it takes to ramp the margins? Or is that not really a consideration?

No, it definitely is a consideration. It's specially a consideration when we think about some of our bigger deals like Saela and Fox. Fox, I want to say we purchased Fox for 13x or 14x. And after year 1, I think we were below 10x. And so for us, 3, 4 turns of multiple is good. On some of the smaller deals, we might be buying them for 6x, 7x or 8x. We're immediately getting a pretty healthy return, but we're not happy with that, and we're focused on improving that. And so generally, we're seeing a 2 to 3 turn improvement over the first 12 to 18 months in the business. And it's allowing us to get a return on capital that's in excess of 10% here in the U.S. And so we're continuing to evaluate that.

But that's -- there's definitely opportunities to continue to make that better, but it certainly is a big target of mine. I mean when I look at acquisitions, I want to buy businesses that are going to grow faster than us organically because I don't want to jeopardize our organic growth. That's so valuable. I want to buy businesses that are going to be accretive to margins or there's a path to become accretive to margins. I want to buy businesses that are cash flow positive, meaning their cash flow and capital intensity is no greater than our business. Because you know as well as I do, what drives the valuation of the company is oftentimes the compounding of free cash flow.

100%.

And so us buying these businesses and investing in them, we want to make sure that they're an equivalent cash flow compounder. We want to accrete to earnings in the first year. We did that with Saela. Even with cost of debt at 4% or 5%, we still saw accretion to earnings in the first 12 months. And then return on capital is certainly a big part of what we do.

Okay. Running short of time. One really quick one, just AI utilization, how important is that in terms of improving internal efficiencies, procurement, stuff like that?

Yes. Yes. I mean, it is. I mean, we're looking at that. We continue to evaluate that. I think there's opportunities on growth and productivity when it comes to AI. When it comes to AI, when I think about AI in this business, oftentimes, I think about the data we have across the brand portfolio. And we lose too many customers every year from the portfolio. But if we can do a better job at predicting when a customer is going to leave us, and then if we could use that to redeploy those brands to proactively pursue those customers before they leave us, guess what, they're never going to leave the portfolio, the family of brands. They might leave Orkin or they might leave Northwest, but they won't leave the entire portfolio.

So I think there's -- that's something we're evaluating and something I think it's an opportunity for us as we think about the future when it comes to AI. There's all the other back office and call centers and things like that. But I think that's a unique one that might be very attractive for us as we think about the future.

Okay. Quickly, rounds association. Rollins Way?

Together.

Orkin? Whatever comes to mind first.

Great brand.

Weather?

Neutral.

Neutral. Okay. Margins?

Opportunity.

M&A?

Exciting. Growth opportunities. Yes.

Very good. All right. Thank you so much, Ken. Really enjoyed it.

All right. Good afternoon, everybody. Thank you for joining us here on Day 2 of our investor conference. I'm glad to hosting Rollins with us. We have Ken Krause, CFO on my right; Lyndsey Burton, head of IR, and Will Harkins, Chief Accounting Officer joining us here as well. Than you all for your time.

Ken, maybe, obviously, since you guys just reported last week and the stock had quite the reaction, maybe let's just start there in terms of the results. There was the weather-related surprises. Can you just talk through that? Like when did you notice that weather was an impact and how you quantify that, I guess?

Sure. Well, thanks for having us again, Manav, and great to be here, and thank you all for your interest in Rollins. And It's, again, great to be back here again for a second or third year in a row. And -- but Rollins continues to perform. We are a portfolio of pest control brands, but our performance continues to be exceptional. And last year, for example, was our third, I believe, consecutive year of double-digit revenue, double-digit earnings and double-digit cash flow growth.

It also marks our 24th consecutive year of annual revenue growth and our 97th quarter, consecutive quarter of revenue growth. So it continues to be an exceptional performer. And when you look at the business, I think the thing that is interesting about Rollins is that 75% of our business is under some form of contract. So it's recurring in nature. Roughly 10% of our business is in what we call ancillary, but that's a business with existing customers for the most part. And then the other 15% is more of what we call onetime.

And so when we look at the fourth quarter and we really analyze what happened, I think our business, our recurring business continued to hold in there, continue to be very healthy. In fact, it was slightly improved in terms of growth rate from Q3 to Q4 despite coming off of such strong growth a year ago.

The ancillary business, which is our 9 shots on goal around the house to do business with existing customers was still growing at 15%, 16-plus percent, good growth year-to-date growth was about 20%, a little bit lower in Q4 just because we couldn't get out onto roofs. We couldn't get into homes. We couldn't get our technicians safely to the customer site because weather -- and our other business, our onetime business is really where we felt the pain of the weather conditions.

That business, I believe, for the first 9 months was growing something like 4% and normally, we'll be a 1% to 2% grower, we actually saw a decline in that business. Again, we weren't getting the calls because the weather just wasn't cooperating. In fact, we saw challenging weather in the Midwest and the Northeast, the eastern half of the United States, starting back in November, we were in Chicago in early November, and there was already significant amount of snowfall on the ground. We were seeing temperatures in the single digits. And then it got warm and then it got cold again. So it was very erratic, and we just didn't have enough time to make up for that.

I think if we would have -- if we would have seen less challenges in weather in December, I feel like we could have probably made up for that. But come the middle part of December, we faced the really challenging weather conditions again. So we really feel like, one, business is intact, continue to be positioned to deliver strong double-digit growth, the growth across the P&L and the cash flow statement. And then we continue to see -- have a great amount of optimism on our ability to deliver that 7% to 8% organic growth, as we think about the future.

Got it. And just to help, I think the audience visualize this. Can you just give us a few examples of these onetime in residential and commercial, just to visualize why weather is such a big factor?

Yes, certainly. So what you'll have is -- so if you have an existing contract with us and you call us because you have bees or hornets or wasps, we'll often sometimes come out, and it will be a very small charge, if anything, because it might be covered by the existing contract. But if you have this issue and you call us one-off and we come out, we'll charge different amounts depending on the extensiveness of the service. But oftentimes, those amounts are higher because you're going to cancel, you're going to call us and you're having us take care of a unique issue for you. And we're not coming back after that.

And so it's very much onetime. It's wasps, hornets, rodents, often times we see this. Also, bedbugs and a number of different things certainly has a way of impacting it. But it's generally those things that are outside of that normal contract 1 or 2, there for the most part, new customers or customers that aren't part of an existing work arrangement.

Got it. And then when you look at 1Q, obviously, I think one of the reasons I think a lot of us are surprised by the 4Q print was, we didn't think the weather was that bad in 4Q. Obviously, you pointed out the regions it was, but 1Q looks really bad. So I think you said in December, you could have made up for it. Like I guess the question is, how should we think about 1Q? And how quickly can you make up some of these onetime things?

Yes, you can make up for them pretty quickly. It's -- but you can't -- where we find the biggest challenge is, if a hurricane, for example, impacts the business and it's late September. You just don't have those days to make up for it. Or for example, in Q4, we had December weather really hard to make up for it when you go into the holiday season. We had a tough January, certainly didn't. We've talked about that.

But again, that was very early on in the quarter. And quite frankly, we have a busy season, we call it, or peak season that starts middle part of February to end of March. So we think that we have an opportunity to continue to make progress here as we go throughout the quarter.

What I'll do is I'll continue to give you an update as we go through the quarter. We've got a number of different webcasts planned here in March and hopefully be able to give you a sense as to how things are shaping up for us as we go throughout the first quarter. But we remain really confident in our outlook. We remain confident in our ability to grow organically 7% to 8%, get 2% to 3% M&A and then deliver very healthy earnings and margins.

And just 1 last question on this on the margin front. I mean can you talk about the margin profile of this onetime business? And so when things come back, I guess, that starts looking better as well.

Certainly. So the onetime business is profitable because we know we're going out. We know that it's not going to recur and we price for it. We're doing something that's out of the ordinary for us. It's not necessarily core to our processes. So we're going to charge an appropriate price for that. And oftentimes, that might be multiples of the cost of the recurring service.

But the cost doesn't really change all that much. So the margins are actually very healthy. Jerry and I were looking at that as we prepared for the call and what we were looking at in determining was that onetime business could have a 70-plus percent sort of gross margin associated with it. And as a result, your incremental margin on that and the EBITDA line is much higher than the targets that we've talked about consistently.

Got it. Okay. Putting that to the side, let's talk about kind of the long-term growth rates that are similar to what you've guided to this year as well. And more around process improvement or modernization, like you guys call it, you talked about the Rollins way in December. But maybe just taking it in different pieces.

So maybe let's start with revenue first. Can you just talk about some of the modernization initiatives you have in there and why you think you can maintain 7% to 8%, maybe even do better than that somewhere down the road?

I mean we're really confident in our ability to deliver because there's not 1 initiative that we're dependent upon. We have a number of initiatives to enable growth. So when I think about the revenue growth opportunities, 1 opportunity that comes to mind is our opportunity to collaborate across our brands.

When you look at our business, we've got a collection of brands that we go to market with. But at times, we're not collaborating. So for example, our ancillary business, the business I spoke about previously, that's growing 15, 20-plus percent for us, that growth primarily is coming out of Orkin.

It's not -- we're not seeing as much of that growth because we haven't placed enough focus on that growth in our brands. We're starting to collaborate and use resources to share best practices across the portfolio that will enable us to see some more meaningful growth from that coming out of our brands, not to mention in Orkin those ancillary businesses -- that ancillary business represents a very small portion of our customers.

So I would estimate that less than well below 5% of our customers in Orkin are actually using that ancillary service. So tremendous amount of untapped area and opportunity to continue to reflect improved growth on the ancillary side. When we get calls, another area of growth opportunity. We get calls into a call center in Orkin. Oftentimes, we'll get calls on wildlife. Orkin doesn't do wildlife services, but we do have a brand that does wildlife services.

So how do we start to turn the response away from "no, we don't do that service" to, "yes, we don't do it at Orkin, but we have a brand, Wildlife that can provide the service that you need", and that will pick up additional opportunity.

Last area of growth opportunity that comes to mind immediately is the opportunity around churn. I mean we all lose customers every day, and we're disappointed by that. But what we're looking at is how do we share those losses with other brands. So when a customer turns away from Orkin for whatever reason it might be, how do we point them or how do we provide another brand an opportunity to go after that business. Right now, we're not doing that. And that's a great opportunity to reduce churn out of the portfolio of brands and improve revenue growth for us.

So it sounds like this multi-brand opportunity that's been a great boon for our business also has a lot of inefficiencies. And so how do you solve for this? How long or how hard is a system installation? Or is it an ERP? I don't know what the answer there is.

No. I think there's not 1 -- very much like the growth opportunity, there's not 1 solution to these problems but it starts with sharing. And for example, a key sales leader at Donahue for us, spent a tremendous amount of time in Orkin, has developed best practices when it comes to selling ancillary services, when it comes to using our Rollins Acceptance Corp. to extend credit to our customer base. And so he's actually -- we've taken him and he's agreed to move over into our brand portfolio to share those best practices.

So a lot of sharing of best practice is one. Two, we are putting together process improvements and technology improvements in some of the back office as well that will enable us to be able to share this more meaningfully across the business. Renee Pearson's doing an excellent job with respect to that. And so we're seeing good results coming out from that. So there's a number of different things we're doing to enable that sharing, enable that collaboration, which will then in turn enable more meaningful growth in the business.

Got it. All right. Let's move to margins. So maybe some of the modernization efforts there, maybe starting with potential opportunities on the gross margin side?

Yes. I mean, when you look at it, it's interesting. You're going down the P&L from growth from revenue and you look at gross margin, 66% or 2/3 of our cost of service is people. And in that people line is an opportunity that is reflective of our challenges with short-term turnover. It's a tough job. And people oftentimes will sign up for the job not really fully appreciating what it takes. And unfortunately, we lose way too many people in that first 6 months or first 9 months.

And so how do we improve upon that? We're spending tens of millions of dollars with turnover in the short-term area. And that -- those dollars are the cost of onboarding associates and teammates. When we bring people into the organization, we're investing in that relationship immediately. And if somebody elects to leave us in a short-term period, those are costs that we just can't -- we can't recoup and recover.

And so that's a great opportunity. We've seen some improvement in that area in 2025. We estimate that we saved $5 million to $10 million in that area in 2025, but there's so much more opportunity to come with respect to that.

Moving down through the other areas of cost of services, our materials and leveraging our supply chains, we have all these various brands, but we don't have a consistent approach to procurement and that's an opportunity. Because the [ CentraCom ] we're using in Northwest or in Clark or any of our brands is probably the same [ CentraCom ] that we're using over in Orkin. And there's an opportunity to leverage that spend more meaningfully and then in fleet, we continue to do a great job on the fleet side, but it represents an opportunity as we move forward as well.

Just to appreciate the labor aspect that you described, like how many field people do you have? How many are you hiring every year?

Yes. When we look at it, I mean, we estimate we have over 22,000 teammates across our business. And oftentimes, when you look at it, you have at least 2/3 to 75% of those employees that are servicing customers. And so if you look at that, you have roughly probably close to 15,000-plus techs and you're -- when we think about techs, it's not unreasonable to think that you're hiring 5,000 to 6,000 techs a year that you're bringing in. And we're losing way too many of those in that first year. And so when you size that, that turns into tens of millions of dollars opportunity for us as we think about reducing churn and improving retention.

Yes. And we significantly improved that this year, right? I mean we talked about probably roughly 600 people that we hired -- fewer people that we hired this year versus last year in terms of not hiring the same person from multiple jobs.

600 people is just a small dent. It's a small fraction. And I mean, if you're spending $15,000 on an average onboarding, that represents almost 900 -- or $9 million and so when you think about -- if you save 1,000 or 2,000, that turns into a very meaningful number in the P&L.

And I think once they pass year 1, the attrition rate drops meaning, so as you described, I mean, it is a tough job. It's not the most attractive job. So why do you retain so much better?

Because once you get in and you understand the job, you become part of our culture, and you become part of a larger family. We are able to provide -- it's interesting, I was in our home team meeting yesterday in Orlando, and I was presenting to the team, and I kicked the meeting off and I asked, "how many of you are shareholders?" and 95% of the room's hands went up. And so the benefits that they're seeing from being shareholders is just -- it's incredible.

And to think about how we're changing lives with the financial performance or how we're changing lives by creating these relationships across the business, I think that's what people get, but it takes a little bit of time. When you change jobs or you change locations, it takes a while to get what we call our sea legs under us.

And so our people take some time to really understand and appreciate the impact they're having and then the impact they're having on their families. And so I think that earmark certainly is that time where people start to realize that they can build a career. It's not just a job but they're building a career with Rollins.

Let's move down the line on the SG&A side. I think you've called out there's some structural room for improvement. Can you just talk about that?

Certainly. We spent 30% of sales in SG&A each year, of which roughly 60% of the spend is general and administrative. So we're spending roughly 12% on selling and marketing.

The opportunity is in at 18% and when we look at that, there's opportunities to leverage our corporate functions more effectively, to improve the efficiency of those corporate functions. We have spent a lot of time in the last 3 or 4 years. My entire team is new; Lyndsey's new, Will's new, my tax leader's new, Andrew and my Treasurer. We've made a significant amount of progress with bringing in, attracting, hiring and retaining really top talent and that's having an impact.

And Will is with us today, and one area that Will is working on in the back office is modernizing our financial systems. And so maybe Will, maybe you could just talk a little bit about the opportunity that we have with some of the modernization when it comes to the financial systems we have at Rollins?

I joined about a year ago, coming up next month. And I'll tell you 1 of the best things, Manav, that I've seen at Rollins is the fact that there is an appetite to invest where there is going to be a great return on investment. And we look at our systems, when I first got there, our systems are quite antiquated. I mean we are really good despite some of the things we have -- the processes that we have today. But we just recently signed with Workday. So we are studying an EPM journey. So at the top of the house to make sure that we are able to provide Ken and Jerry with better information that's going to allow them to make better decisions for our future.

And so we've got a lot of data at our fingertips. I mean all of our brands have a lot of data in those ERPs. We are -- everybody is on a different ERP today, but they've got all the data we need. We just need to be able to synthesize that. And so to think about what the future will look like in a year when we do have that ability, that's exciting from Chief Accounting Officers role. And then also just being able to have better controls in place and better -- I mean it's just -- it's going to take us to a different level from a back office.

Got it. And just magnitude, pace of change because usually when you say ERP, new EPM, there's always this questions, how long, could there be hiccups along the way, execution risk, just...

So what we've tried to do is we've tried to take a risk appropriate course here and start with EPM. EPM doesn't really impact the customer. ERP impacts the customer, impacts your supply chain, and it's much more disruptive, whereas EPM is something we can control in-house. We think it will be a 12- to 18-month exercise on EPM. And I think it will unpack and identify a tremendous amount of opportunities as we look at the business in a different way.

When you're looking at your business consistently for such a long time, sometimes you miss the obvious opportunities. Whereas if you start to look at it and slice and dice it in a different way, I think it allows you to unlock new ideas and also maybe even challenge the way that we're allocating capital. And so really looking forward to all the work that Will, his team and our broader organization is working on.

Got it. I think we covered most of the margins, I don't know if you're missing anything, but the next one I want to touch to is you talked about hiring a new tax head. I think you improved that this year. More room?

Yes. It's great progress. Andrew is doing a great job there. When I joined the company 3 or 4 years ago, there's been a lot of change, a lot of modernization, but I saw an opportunity working with my team to really take a few step, positive steps forward on the tax rate. We were paying roughly an effective rate -- recognizing an effective rate of 26% and as we looked at it, we saw a number of planning opportunities to reduce that meaningfully. And last year, we reduced that by 100 basis points.

So we're now under 25%. We're looking at ways that we can further optimize that. And so there might be more opportunity there, but certainly really proud of the 100-plus basis points of sustained improvement that we expect coming through the effective tax rate line.

Got it. I guess that takes us to capital allocation then. You guide to 2% to 3% of M&A a year. Last 2 years have been above that. Can you just talk about the -- like the 2% to 3%, I think, assumes 50-plus deals a year, but just the pipeline of some of these larger Fox or Sala-type deals, can that surprise us more?

I certainly believe it could provide some upside. We're not ready to sign up for that just yet. But we've got a new fresh approach to M&A. And that includes not only some of the work we're doing in our corporate functions, but also some of the work we're doing in the field. We're putting incentives in place that we're rolling out across the company that are creating a lot of alignment down through the company with bringing new ideas to the table.

The last 3 or 4 years, we've done over 100 acquisitions. Fox and Sala certainly are noteworthy, and it's been really good to see those teammates coming into the fore. But we've got a tremendous amount of opportunity ahead of us. We meet every other week on deals and looking at our pipeline. And you're right, to get 2% to 3%, you oftentimes will have to do 50 deals unless you're doing a larger deal like last year, we did 25 deals plus the Sala acquisition.

But we feel like there's runway left. To do 50 deals, you probably have to look at 150 deals and there's 30,000 competitors in our space. So that means we have to look at less than 1% of the population of companies in pest control each year to be able to deliver on that. We have a lot of confidence in our ability to do that. And we think we're positioned well as the acquirer of choice. When people sell to us, they know they're going to get paid a fair price, but they also know we're taking care of their teammates, we're investing in their teams, and we're taking a long-term oriented approach with the business. And so really excited about what we can do there. A lot of opportunity left and really confident in what we can deliver.

You talked about how the brands don't really share information with each other. Optimally, you talked about you got to have systems in the back office. So is the M&A engine also running manually, is there room for improvement there?

There's definitely some room for improvement. We're putting systems in place. We actually have done a value stream mapping exercise with the M&A area over the last, say, 6 to 12 months.

We've identified a lot of opportunities to improve that. And we're putting systems in place that will allow us to better manage that, but also potentially using AI to identify potential opportunities in the M&A landscape. So that's kind of a new area that we're exploring. But we feel like a lot of good opportunity to continue to deliver that 2% to 3%, which in turn will get us to that double-digit sort of revenue growth that we're all accustomed to seeing at Rollins.