ROLLINS INC

Rollins, Inc. is an international services company headquartered in Atlanta, Georgia that provides essential pest and wildlife control services and protection against termite damage, rodents and insects to more than two million residential and commercial customers from more than 800 Company-owned and franchised locations in approximately 70 countries. The pest control industry is characterized by a highly competitive environment with fragmented markets and low barriers to entry, where the principal factors of competition are quality and speed of service, customer proximity, customer satisfaction, brand awareness and reputation, terms of guarantees, safety, technical proficiency and price. The Company's business is affected by weather conditions, including climate change and the seasonal nature of pest and termite control services, with increased pest presence and activity in the spring and summer historically resulting in increased revenue during such periods.

Rollins believes it competes effectively and favorably as one of the world's largest pest and termite control companies. Its major competitors include Rentokil, Ecolab, Anticimex, and numerous other regional and local companies. The Company's competitive strengths include a robust operating platform with proprietary technology such as the Branch Operating Support System (BOSS) and InSite, a differentiated employee base with best-in-class training at the 27,000 square foot Rollins Learning Center, and an experienced management team. The Company has a significant shareholder group that as of December 31, 2025 beneficially held approximately 38 percent of its common stock, providing significant influence over operations.

The Company generates revenue through pest and termite control services performed pursuant to contracts that specify the pricing arrangement with the customer. As of December 31, 2025, approximately 75% of the business was recurring services, 10% was ancillary services, and 15% was one-time services. The contracted and recurring nature of the services provides visibility into a significant portion of future revenue. The Company operates under one reportable segment containing three service offerings: Residential, Commercial, and Termite and Ancillary. Customer relationships often extend over multi-year periods, and the Company serves both residential and commercial customers across diverse end markets such as healthcare, food service, and logistics.

Residential pest control services protect residential properties from common pests including rodents, insects and wildlife. Commercial pest control provides workplace solutions for customers across diverse end markets such as healthcare, food service, and logistics. Termite protection programs include liquid treatments, wet and dry foam applications, termite baiting and wood treatments. For the year ended December 31, 2025, residential revenues were $1,693,244,000 ¹, commercial revenues were $1,244,733,000 ², termite and ancillary revenues were $781,542,000 ³, franchise revenues were $16,034,000 ⁴, and other revenues were $25,497,000 ⁵. Residential pest control revenue increased approximately 10%, commercial pest control revenue increased approximately 11%, and termite and ancillary services grew approximately 14% including both organic and acquisition-related growth. Organic revenue growth was approximately 5% in residential, approximately 8% in commercial, and approximately 10% in termite and ancillary activity.

During 2025, the Company completed 26 transactions, including 22 acquisitions and 4 franchise buybacks. On April 1, 2025, the Company acquired 100% of Saela Holdings, LLC for $207.2 million ⁶, funded using cash on hand and borrowings under the commercial paper program. In February 2025, the Company issued ten-year notes with an aggregate principal amount of $500 million ⁷ due on February 24, 2035 at 5.25% ⁸ per annum. In March 2025, the Company established a commercial paper program under which it may issue unsecured commercial paper up to a total of $1 billion ⁹ outstanding at any time. On November 12, 2025, the Company completed the repurchase of 3,478,260 ¹⁰ shares of common stock for approximately $200.0 million ¹¹ in conjunction with a secondary offering. The Company also introduced The Co-Lab leadership development program in 2025, with approximately 300 ¹² leaders completing the program since its establishment.

For the fiscal year ended December 31, 2025, total revenues were $3,761,050,000 ¹³, an increase of 11.0% ¹⁴ over 2024 revenues of $3,388,708,000 ¹⁵. Net income was $526,705,000 ¹⁶ compared to $466,379,000 ¹⁷ in 2024, an increase of 12.9% ¹⁸. Diluted EPS was $1.09 ¹⁹ versus $0.96 ²⁰ in the prior year, an increase of 13.5% ²¹. Gross margin improved 10 basis points to 52.8% ²² in 2025 compared to 52.7% ²³ in 2024. Operating margin was 19.3% ²⁴ of revenue, a decrease of 10 basis points as compared to 2024. Net cash provided by operating activities was $678,107,000 ²⁵ compared to $607,653,000 ²⁶ in 2024, an increase of 11.6% ²⁷.

The Company expects to report 7% to 8% organic revenue growth in 2026. Management believes that while there may be a slower start to the year in the first quarter, the strength of recurring revenue and ancillary services gives confidence in the ability to meet the financial outlook for 2026. The Company expects interest expense to be approximately $30 million ²⁸ in 2026 associated with borrowings under the 2035 Senior Notes and commercial paper program. The Company expects to realize an effective tax rate of 24.5% to 25% ²⁹ in 2026.

The Company continues to expand its international presence through organic growth, acquisitions, and international franchise programs. In 2025, revenue growth was seen in company-owned operations in Canada, Australia, the United Kingdom, and Singapore. The Company believes geographic diversity allows it to increase brand recognition, meet demands of global customers, and draw on business and technical expertise from teams in several countries, offering an opportunity to access new markets. The Company's acquisition strategy targets high quality, profitable businesses with strong leadership, brand awareness, and customer loyalty that would benefit from incremental growth capital and have the potential to achieve organic growth and margin expansion. As of December 31, 2025, the Company had a total of 131 ³⁰ domestic franchise agreements and 66 ³¹ international franchise agreements.

The Company's focus on ongoing modernization efforts, a culture of continuous improvement, and pricing should support an improving margin profile. The Company saw healthy margins in 2025 with gross margin improving 10 basis points to 52.8% ³² compared to 52.7% ³³ in 2024. Adjusted operating margin was 20.0% ³⁴, an increase of 10 basis points over the prior year. The Company's 2025 operating margin reflected weaker volumes in the fourth quarter, but ongoing modernization efforts position the Company to deliver an improving margin profile as it looks to 2026.

The Company continues to invest in new systems and technology to implement new or improve existing business capabilities and streamline business processes, financial reporting, and acquisition integration. The majority of the business runs on the proprietary Branch Operating Support System (BOSS), which offers a back-end interface to facilitate service tracking and payment processing for technicians. The Company has made investments to evolve and modernize BOSS capabilities to standardize for efficiency while continuing to deliver differentiating customer and employee experiences. As of December 31, 2025, the Company had 21,946 ³⁵ employees, with approximately 19,700 ³⁶ located in the United States.

Compounding operating cash flow and a strong balance sheet should continue to enable a balanced capital allocation strategy. The Company invested $28,086,000 ³⁷ in capital expenditures during 2025. The Company has a share repurchase plan, adopted in 2012, to repurchase up to 16.9 million shares of common stock, and as of December 31, 2025, had a remaining authorization to repurchase 11.4 million ³⁸ shares. The Company paid $327,901,000 ³⁹ in cash dividends ($0.6775 ⁴⁰ per share) during 2025. The Company expects to continue to pay cash dividends to common stockholders, subject to earnings and financial condition and other relevant factors.

The Company faces challenges from continued disruption in economic markets due to inflation, changing interest rates, tariffs, trade disputes, business interruptions due to natural disasters and changes in weather patterns, employee shortages, and supply chain issues. The Company continues to execute various strategies previously implemented to help mitigate the impact of these economic disruptors, but cannot reasonably estimate whether these strategies will help mitigate the impact in the future. The Company's fourth quarter results were impacted by slower growth in certain parts of the business and a negative impact from weather, with weaker volumes in the fourth quarter due to weakness in one-time services associated with less favorable weather conditions.

The Company's business is affected by seasonality associated with pest and termite control services, with decreased pest presence and activity in the fall and winter historically resulting in decreased revenue and income during such periods. The Company's foreign operations accounted for approximately 7% of total revenues for the years ended December 31, 2025 and 2024. The Company is subject to various local and national legislative and regulatory enactments including environmental laws, antitrust laws, employment and benefit laws, and laws governing the pest and termite control industry, and noncompliance could result in substantial fines or damages.

The Company operates in a highly competitive industry with fragmented markets and low barriers to entry, competing with large companies like Rentokil, Ecolab, and Anticimex as well as numerous smaller companies and do-it-yourself options. Labor shortages and the ability to attract and retain skilled workers may impair growth potential and profitability, as the demand for skilled employees is high and supply is limited. The Company is subject to various federal, state, provincial, and local laws and regulations pertaining to environmental, public health and safety matters, including those related to the pest control industry, and noncompliance could result in criminal sanctions or civil remedies including cancellation of licenses, fines, and other corrective actions. The Company retains certain risks related to general liability, workers' compensation, and auto liability up to specified limits, and if actual claims exceed estimates, operating results could be materially affected. The Company's business is affected by weather conditions and climate change, including extreme weather such as hurricanes, wildfires, snow storms, and drought which can impact the ability to operate and reduce pest populations for extended periods.

Management's message emphasizes that the team delivered solid results in 2025, producing double-digit revenue, EPS, and operating cash flow growth for the full year. As the Company looks to 2026, demand for services is solid and the pipeline for acquisitions is robust. The Company expects to report 7% to 8% organic revenue growth in 2026 ⁴¹. Management notes that while there may be a slower start to the year in the first quarter, the strength of recurring revenue and ancillary services gives confidence in the ability to meet the financial outlook for 2026. The strategic priorities emphasized for the period ahead include a focus on ongoing modernization efforts, a culture of continuous improvement, and pricing to support an improving margin profile, with compounding operating cash flow and a strong balance sheet continuing to enable a balanced capital allocation strategy.