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DATE
Thursday, April 23, 2026 at 8:30 a.m. ET
CALL PARTICIPANTS
- President and Chief Executive Officer — Jerry E. Gahlhoff
- Chief Financial Officer — Kenneth D. Krause
- Vice President, Investor Relations and Communications — Lyndsey Burton
TAKEAWAYS
- Total Revenue Growth -- 10.2% growth, with sequential acceleration across the quarter.
- Organic Revenue Growth -- 6.6%, with March exiting over 8% organic growth.
- March Performance -- Approximately 12% total growth and over 8% organic growth during March.
- Service Line Performance -- Residential up 9.3%, commercial pest control up 9.6%, and termite and ancillary up 13.5%.
- Segment Organic Growth -- Residential 4.2%, commercial 7.7%, and termite and ancillary nearly 10%.
- Gross Margin -- 50.8%, down 60 basis points, with insurance and claims and higher staffing cited as headwinds.
- Insurance and Claims Expense -- Accounted for 3.7% of sales, higher than 2.9% for 2025 and 3.2% for 2024.
- SG&A Costs -- Increased by 70 basis points as a percentage of revenue, with 50 basis points from selling investments and 20 basis points from insurance and claims.
- GAAP Operating Income -- $145 million, up 2%.
- Adjusted Operating Income -- $153 million, up 4%.
- Adjusted EBITDA -- $179 million, representing a 19.8% margin and up 4.4%.
- Reported Net Income -- $108 million GAAP ($0.22 per share); adjusted net income $113 million ($0.24 per share), up 9.1%.
- Operating and Free Cash Flow -- $118 million operating cash flow and $111 million free cash flow, with conversion over 100%.
- Acquisition Spend -- $18 million deployed for acquisitions in the quarter.
- Dividends Paid -- $88 million distributed to shareholders.
- Leverage Ratio -- 0.9x, reflecting a strong balance sheet.
- Romex Acquisition -- Acquired Romex Pest Control, providing entry into new markets and expanding residential and ancillary offerings.
- M&A Contribution Guidance -- Management expects 2%-3% revenue growth from M&A for the year.
- Organic Growth Guidance -- Company projects 7%-8% organic growth for the full year, supported by March's high exit rate.
- Effective Tax Rate -- 21.3% in Q1, management expects under 25% for the year, a decline of 100 basis points from historical levels.
- Price Increase Contribution -- Expected to add 3%-4% to growth in 2026, outpacing CPI.
- Headcount Strategy -- Company maintained higher technician staffing in Q1 to meet anticipated peak demand despite short-term margin impact.
- Cash Flow Guidance -- Free cash flow conversion anticipated above 100% for 2026.
- Commercial Sales Investments -- Nearly 80 additional commercial account sales managers onboarded at the start of the year compared to last year.
- Termite and Ancillary Growth Drivers -- Double-digit growth tied to expanded offerings and internal talent investment.
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RISKS
- Insurance and Claims Cost Volatility -- Kenneth D. Krause said, "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." Insurance and claims expense rose to 3.7% of sales from prior full-year rates.
- Profitability Headwinds -- Gross margins declined by 60 basis points due to "lower volume in the first part of the quarter" and increased insurance and claims activity, with SG&A also affected by incremental sales and marketing investments ahead of peak season.
SUMMARY
Management delivered detailed guidance, specifying 7%-8% organic growth and 2%-3% M&A contribution for the year, with cash flow conversion expected above 100%. The effective tax rate decreased to 21.3%, reflecting ongoing tax strategy benefits, and price increases are forecast to contribute 3%-4% to revenue growth in 2026. Strategic staffing was emphasized, with the company holding higher headcount despite early softness to ensure readiness for peak demand and lower turnover, contributing to improved March growth. The acquisition of Romex Pest Control added new markets and expanded Rollins (ROL +1.54%)'s service breadth, aligning with the stated disciplined M&A approach. Free cash flow was affected by tax payment timing and interest expense, with management describing these impacts as limited to the first half and projecting "mid-teens growth" for the year.
- Kenneth D. Krause said, "gains on sale of assets should not be a headwind as we go into Q2; we should see improvements year over year, helping us regain traction on margins."
- Residential recurring business experienced a "healthy" 7% growth rate in March, while one-time services rebounded compared to late 2025 softness.
- Price-cost dynamics are expected to remain positive, as management said, "We expect to be positive on price-cost for the year at that level of price realization," referencing the planned price increases.
- The company's approach to differentiated training and long-term investment in personnel was credited with improved technician retention and is cited as a factor for potential incremental margin gains.
- The M&A pipeline remains "very active," with the company "not ready to raise" its 2%-3% guidance but expressing confidence in sustaining that level.
- Investments in commercial sales staff and cross-selling initiatives have generated notable new business wins and set up recurring revenue tailwinds in later quarters.
- Insurance claim maturities span "a number of years," with post-COVID claims still impacting present expense lines; proactive safety and training efforts were highlighted as ongoing cost mitigation strategies.
INDUSTRY GLOSSARY
- "Nine shots on goal": Company-specific term for diversified ancillary revenue streams and cross-sell opportunities within Rollins' service portfolio.
- Recurring business: Ongoing, contract-based pest control services provided at set intervals to customers.
- One-time business: Non-recurring pest or termite services conducted outside of long-term contracts, often as needed by clients.
Full Conference Call Transcript
Jerry E. Gahlhoff: Thank you, Lyndsey. Good morning, everyone. I am pleased to report Rollins, Inc. delivered strong first quarter results. We saw sequential acceleration through the quarter and continued to see solid growth across all major service lines with total revenue growth of 10.2% and organic growth of 6.6%. Demand was a little slower to start the quarter, particularly given some unfavorable weather in January, but we exited with well over 8% organic growth in March. Spring sprang quickly for our teams as we are experiencing healthy growth in recurring and one-time services.
As expected, we continued our investments in incremental sales staffing and marketing activities ahead of peak season to ensure that we are positioned top of mind for the consumer as pest season begins. We are well staffed on the sales, technician, and customer support front with our teammates onboarded, extensively trained, and ready to provide an exceptional level of service for our customers. Earlier this month, we announced our acquisition of Romex Pest Control, a top-40 pest management company according to the PCT Top 100 ranking. 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, Inc. family. As you know, we believe the combination of Orkin and our strong group of regional brands is a competitive differentiator for Rollins, Inc., 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 are 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. Ken will discuss in more detail, but we saw headwinds to profitability from higher insurance and claims as well as some pressure from headcount given lower volume earlier in the quarter.
As we discussed last quarter, it is important that we maintain healthy staffing levels ahead of peak season so we are not hiring, training, and onboarding a large number of new teammates at the same time seasonal demand ramps up. We have learned that extreme swings in hiring activity drive 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 are excited about where our business stands today.
The year is off to a solid start and demand from our customers remains strong. Our teams in the field are ready to support our customers as peak season ramps up, and I want to thank each of our 20,000-plus team members around the world for their ongoing commitment to our customers. I will now turn the call over to Ken. Ken?
Operator: Ladies and gentlemen, please stand by. It appears that our speakers have disconnected. Please stay on the line while we reconnect their line.
Lyndsey Burton: Hey, I am sorry, everybody. I think what we understand is that our line dropped right around the time when Ken was speaking about leverage. Ken, do you want to start from that point, and we can go from there? And then we will open the line for questions. Apologies, everybody.
Kenneth D. Krause: I will actually go back through and just redo my area and cover the key points. Diving into the quarterly financial statements and starting first with revenue, revenue growth was solid to start the year. It was very encouraging to see an improving growth profile as we moved 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 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 termite and ancillary. 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 four major buckets of service costs—people, fleet, materials and supplies, and insurance and claims—lower vehicle gains within our fleet line on the income statement created 50 basis points of headwinds to gross profit margin, 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 headwinds to gross margins, while service payroll costs provided 20 basis points of headwinds as we carried more technicians ahead of the start to peak season in March. Fuel costs represent approximately 1.5% of sales and we saw a relatively neutral impact from fuel in the quarter.
We currently expect fuel costs to continue to track below 2% of sales in 2026. We are seeing good receptivity on our recent price increase and expect price to contribute 3% to 4% of growth for the year, ahead of CPI. 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 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 pre-tax adjustments associated with acquisition-related and other items totaling approximately $7 million of pre-tax expense. 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. That 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 notes that we issued a year ago. Excluding these items, free cash flow would have increased 14% versus 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 0.9 times. 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 of 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 will turn the call back over to Jerry.
Jerry E. Gahlhoff: Ken, that was much better the second time around. You really paid off on the mulligan shot. Thank you for that great recovery. We are happy to take any questions you have at this time.
Operator: Thank you. We will now be conducting a question-and-answer session. Our first question will come from Ronan Kennedy on behalf of Manav Patnaik with Barclays.
Ronan Kennedy: Hi, good morning. 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 a higher organic base going forward for the rest of the year?
Kenneth D. Krause: We feel good about the exit rate and about our business. The improvement of 90 basis points from Q4 to Q1 reaffirms the confidence we have in our outlook, which is rooted in that 7% to 8% organic growth. We remain committed to that level of organic growth across the business, coupled with 2% to 3% of M&A growth. When we think about our exit rate at roughly 8.4% in March, yes, you had an extra day there, but you also just had a really good month with really good demand. The residential area in the quarter grew around 4% to 4.2%; in the month of March, we saw over 7%.
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 Kennedy: That is helpful. Thank you. And then as volume ramps into peak season, how should we think about the incremental margin flow-through relative to 1Q given the cost setup and the margin drivers and dynamics you described for the quarter?
Kenneth D. Krause: Thank you for the question. Q1 is usually our low point for margins because of the seasonality of the business, and it came through in that manner. We fully expect to see improvements as we ramp into Q2 and Q3. We should see improvements in the second and third quarter of 2026. We remain committed to the outlook we have on our incrementals. The business is intact and provides us confidence in what we can deliver from an incremental margin profile.
Operator: Our next question comes from Analyst with William Blair.
Analyst: Thanks for taking my questions. I think you just touched on this already, but to help us bridge to that 7% to 8% organic growth for the remainder of the year, can you share how April has trended so far relative to exiting March?
Kenneth D. Krause: We are early in April, but looking at our projections and forecasts, we still have a lot of confidence in that 7% to 8% organic growth, plus 2% to 3% M&A growth. We feel like the business is very much intact and should continue to deliver that growth profile for our investors.
Analyst: That is helpful. Pivoting a little bit, we saw that the insurance claims expense was 3.7% of sales in the quarter. This compares to full-year rates of 2.9% in 2025 and 3.2% in 2024. How should we think about this expense line as we move through the remainder of the year? Do you expect it to remain at this elevated level?
Kenneth D. Krause: That is a hard one to predict. Insurance and claims often has volatility. We do our best every quarter to put the most accurate number on the financials, and that is 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. It is hard to predict what that line will look like going forward. We are hopeful that we will see it moderate as we go into the second half of the year and improve, but facts and circumstances can change each quarter.
With that said, we are still holding strong to our incremental profile and our ability to grow earnings in a double-digit range, despite those headwinds in insurance and claims. And I would add that long term, how we approach safety, insurance, and claims has to do with investments we are making today and investments we made last year that should continue to pay off by reducing our collision frequency rate and injury frequency rate. That should help drive our costs down over time. We are piloting a lot of programs and making investments, especially in driving, to avoid these types of situations that can begin to change the trajectory of that component on our P&L.
Analyst: Great. Thanks.
Operator: Moving next to Greg Parrish with Morgan Stanley.
Greg Parrish: Hey, guys. Good morning. Congrats on the quarter. Maybe you just touch on Romex, which you acquired a few weeks ago. What is the strategic rationale, what attracted you to their culture and business, and any early expectations?
Jerry E. Gahlhoff: Yes. This is Jerry. We got to know the team at Romex over some period of time through a number of meetings—kind of a dating process where you get to know each other. They have some really talented people on the team. We were very impressed with operations, how closely they were aligned with us, how they treated people, and how they approached customer service. They also operated in complementary markets where they had strong positions and continue to grow and expand. We saw a great opportunity to leverage some of the things that we do as we add additional services to customers.
They were focused heavily on residential pest control and a little bit of ancillary service offerings, and we saw an opportunity to leverage our knowledge and expertise to help them expand their depth of relationship with their customers over time. We are really excited about the team at Romex, especially the talent that we know is there. Often, when we add brands to our group, we are getting super talented people, and that really helps shape our company and has formed who we are today. We are really proud of that.
Greg Parrish: Great. Thanks for that. And then on fuel costs, I appreciate the disclosure. You have fairly low exposure, but is that hedged at all? And did that have any impact, albeit small, on margin in the quarter?
Kenneth D. Krause: On fuel costs, we do not hedge that cost. It is a relatively minor cost in our P&L—about 1.5% of sales in the quarter and about one point of total exposure in the P&L. We will continue to evaluate it, but we do not see a meaningful exposure that would require extensive approaches outside of ensuring our price increases reflect the volatility we might be in. We continue to enjoy a highly variable cost structure with low exposure to fuel.
Operator: Moving on to Tomohiko Sano with JPMorgan.
Tomohiko Sano: Hello, everyone.
Kenneth D. Krause: Good morning, Tomo.
Tomohiko Sano: You mentioned that residential organic growth in March was about 7%. Could you provide more detail on the trends you saw in March for the commercial and termite segments as well? Additionally, are there any notable differences in growth rates or demand recovery by region?
Kenneth D. Krause: Overall, Tomo, the business was very healthy in March. Residential probably showed the greatest improvement. Commercial was stronger relative to January and February, and termite and ancillary hung in there. Our one-time business certainly benefited as we went throughout the quarter. If you recall, Q4 was negatively impacted by a very weak one-time number, and we saw some improvements in that area as we went throughout the quarter. We feel good about where we are to start Q2 across all major service offerings, with residential improving the most quarter to quarter, which makes sense as you get into season. The residential side usually pops more than the commercial side, which is more stable through the year.
Tomohiko Sano: Thank you. As a follow-up, you have continued to invest in people and service infrastructure even during periods of unfavorable weather and revenue softness to ensure continuity and improvement in customer service. Do you see this as a strategy that clearly differentiates Rollins, Inc. from competitors? Are there specific ways in which your approach to investment and service stands out versus peers?
Jerry E. Gahlhoff: I would not comment on how it compares versus peers. This is our strategy. The best example I can give you is that when I started in this business decades ago, the business was a lot simpler. Today, you have heard Ken talk about having nine shots on goal. Training people to be knowledgeable on both service and sales across the complexity of all the things our team does takes time and experience. You cannot just get somebody up and running in a few weeks like it was thirty years ago. Those are investments that we make that likely differentiate us.
We do it because it is the right thing to do for our customers: ensuring we have trained people who have been through a season and have experience so when they are dealing with a problem in April or May, we are able to put more experience at the door to help them solve their problems. It is about the long game, lifetime value of a customer, and investing to improve that long-term value. Kenneth?
Kenneth D. Krause: The only thing I would add is that we take a long-term-oriented approach. Some industries might pare back headcount quickly. When we think about January, some may have decided to pull back on headcount. We decided to hold in there because we were confident in the ability to drive growth. We knew there was a transitory weather challenge. We kept our people, invested in them, and that is paying off now as we start peak season.
Operator: The next question comes from Analyst with Bank of America.
Analyst: Thanks for taking the question. Would you be able to break out the growth rates for recurring and one-time in the quarter? And then I have a follow-up.
Kenneth D. Krause: Overall, when you look at recurring and one-time relative to what we have seen historically, January and February were weaker. March was very healthy at around 7% on the recurring business. The one-time business continued to accelerate and improve as well. If you recall, in November and December, we were contracting in that area due to challenging weather. In January, we were flat. We saw a nice, strong improvement in March, showing that business did not go away; we were able to recover it, and we exited with a pretty healthy backlog. Ancillary—the nine shots on goal—delivered solid double-digit growth in March. Overall, all signs point to a healthy portfolio across recurring, one-time, and ancillary.
Analyst: Thanks. And then could you give an update on efforts to improve your retention rates going into the spring season, both from raw retention and some of the cost savings you have talked about?
Kenneth D. Krause: Certainly. There are two aspects of retention: technician turnover and retention, and customer retention. On technician turnover, especially first-year turnover, we are making great strides. We will have an Investor Day on May 14 where we will talk about our culture investments, results, and the potential to move margins by spending less on onboarding because we are keeping our people through that first year. On the customer side, we are also making changes. We are putting leadership around that, and we will talk more at Investor Day. We are not seeing major changes in the quarter on customer retention; it is not prohibiting growth.
But there is an opportunity—we lose too many customers every year—and we are making investments there as well.
Jerry E. Gahlhoff: The commercial side of retention remains very strong and stable. We did make some modest improvements in the residential side across our business as we exited the first quarter. We still see a lot of potential upside and are making the investments we have discussed.
Operator: Moving on to Stephanie Benjamin Moore with Jefferies.
Stephanie Benjamin Moore: Hi, good morning. I wanted to ask about the margin improvement opportunity as the year progresses. What gives you confidence you will be able to see improvement, and can you comment on areas of opportunity outside of inherent operating leverage as the top line accelerates?
Kenneth D. Krause: Thanks for the question. In the first quarter, the incrementals came in at a pretty low point. When I analyzed the results, roughly 100 basis points of headwinds were associated with insurance and claims and the gains on sales in the fleet. Excluding those two items, you would have had closer to a 20% incremental margin profile, which is about what we would expect in Q1. On those two areas, gains on sale of assets should not be a headwind as we go into Q2; we should see improvements year over year, helping us regain traction on margins. The continued improvement in overall growth should also yield solid results as we carried higher technician counts into peak season.
Considering those points, we have a lot of confidence that in Q2, Q3, and Q4 we should see improvements in the margin profile to get back into our targeted range. Given how much we spend on people, when growth is there, we get leverage on the people side, and that is probably the biggest opportunity for the rest of the year.
Operator: We will go next to Peter Keith with Piper Sandler.
Peter Keith: Sorry about that. Good morning, everyone.
Kenneth D. Krause: Good morning, Peter. Hopefully, you were not having the same issues we had earlier.
Peter Keith: No. But, Ken, you sounded fabulous on the second go around. On the gross margin topic, I was curious because you quantified all the negatives at roughly negative 100 basis points in sum versus the 60 basis point decline. What were the positives that offset? I am assuming pricing played into that.
Kenneth D. Krause: We saw good performance in the materials and supplies line. We also saw improvements across a broad category of items you normally leverage, like branch rent and professional services. Across those areas, the 3% to 4% pricing allowed us to leverage them because they are not as variable as some other costs. Those produced the positive improvements in gross margin, which were unfortunately fully offset by the items we discussed.
Peter Keith: Understood. And on free cash flow, thanks for the details on the one-time items. As we think about the timing of credits and the semiannual interest payments, do the headwinds on free cash flow in Q1 reverse in Q2 so we see an abnormal year-on-year increase?
Kenneth D. Krause: As you go throughout the year, yes. The interest expense will; it is paid semiannually, so Q2 will not see that as a year-over-year headwind. On tax payments, we fully expect that by Q4 you will see a nice improvement in the use of cash. Some of this is front-loaded in the first half, so you will likely see improvement in Q2 and Q3 from where we are in Q1, with full potential in Q4. For the full year, that mid-teens growth rate in cash is something we continue to target and have a lot of confidence in delivering.
Operator: We will hear now from Joshua K. Chan with UBS.
Joshua K. Chan: Hi, good morning, Jerry and Ken. Maybe for Jerry: in prior years where the weather is tougher to start the year, by what month does everything normalize and you move past the slowness?
Jerry E. Gahlhoff: Ken and I were talking about this yesterday. There have been times where we have had slow Marches and it was right around this time in April when it suddenly broke and business picked up. We were fortunate in March to have favorable conditions, and by the end of March it really popped—it felt like things were heating up. Often it is March or the beginning of April when it starts to go. Sometimes it is delayed to the third week of April, and we are really sweating when that happens. We can tell based on daily phone call volumes when it is official, and that happened for us at the end of the first week of March this year.
Joshua K. Chan: Thanks for the color. You mentioned earlier that you want to improve retention. Retention in the industry has not been incredibly high historically. What do you think you could change about something that has been this way for a while?
Jerry E. Gahlhoff: Our mindset is continuous improvement. There is always something that can be made better. For example, Fox Pest Control—when we acquired Fox three years ago, their customer retention was what I would call normal. They partnered with our HomeTeam brand, which has best-in-class retention, and over three years have moved their residential retention by five percentage points. That is big movement over a few years and demonstrates there is always room for improvement. We will push hard on that lever across all business units—even if you are really good, the expectation is to make modest improvements, and for parts that lag, make more.
We see it as a huge opportunity to potentially accelerate our organic growth rate, and we will unpack that more at our Investor Day in May.
Operator: Our next question comes from Analyst with RBC Capital Markets.
Analyst: Hi, good morning. This is David Page on for Ashish. I had a question on commercial. It looks like continued solid growth. You mentioned some new business wins and other investments. Can you double click on how trends are going in commercial? And as a follow-up, what is the competitive environment you are seeing in commercial?
Jerry E. Gahlhoff: We have not seen any significant change in the competitive environment in commercial. We are positioned with scale to service customers anywhere in North America, which creates great opportunity. We have continued to invest in feet on the street. We began the year with almost 80 more commercial account sales managers than in the first quarter of last year, and they are putting wins on the board. We see it in local sales among branch and regional account managers and in national accounts. We are getting great growth from both channels, driving growth through different verticals we focus on.
Those investments take a little longer to pay off, and it is one reason we are optimistic about the rest of the year, because recently sold business turns into recurring organic revenue throughout the remainder of the year.
Operator: We will go next to George Tong with Goldman Sachs.
George Tong: Hi, thanks. Good morning. 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 should your safety investments translate into improved claims performance?
Kenneth D. Krause: These claims can go back a number of years. Post-COVID, when people came back on the highways, accidents started to happen, so you saw claims from that vintage and more near-term claims as well. It is hard to pinpoint any specific period—claims pertain to a number of years. On safety, it is already paying off; we are seeing great improvements in our safety experience. It just takes time to see its way through the cycle. Some claims are three, four, five years old. You will probably continue to see experience like this in the next several years, hopefully tailing off as you move forward with more improvements in safety experience.
The lead indicators are positive—accident and injury frequency rates are coming down—which is the best predictor for volumes. At the same time, the cost of insurance and the market has been a headwind for several years.
George Tong: With respect to fuel costs, can you discuss your strategy to pass along costs to customers? How real-time can your prices adjust to changes in fuel costs?
Kenneth D. Krause: We have two ways of charging—our annual price increase, and rate cards. As we go throughout the year, we can adjust rate cards based on what we are experiencing in our cost inputs, and that is something we have done historically and will continue to do.
Jerry E. Gahlhoff: For us, it is more about how we avoid fuel costs: reducing idling time; using apps installed on our phones to direct us to nearby locations with the best gas prices; leveraging relationships where our fleet team negotiates deals with large fuel providers to get rebates. We focus on efficiency in our model and fleet system and let our normal price increase programs do their part, along with building dense routes and acquiring businesses like Fox, Zeba, or Romex that have very dense routes. It is not just about reacting, but proactively making our business better.
Operator: And Analyst from BNP Paribas has our next question.
Analyst: Hi, good morning. This is Christina Bittink on for Seth Weber. You target around 2% to 3% revenue growth from M&A. After the acquisition revenue in the first quarter and the Romex acquisition, do you expect full-year M&A contribution to move above 3%? And how does this change the overall M&A pipeline for the rest of the year?
Kenneth D. Krause: In the first quarter, M&A contributed about 3.6% of revenue growth. We expect that to moderate as we go throughout the year, supported by last year’s Sela acquisition. Right now, we are solidly in the 2% to 3% range. There is an opportunity to go higher; there is low likelihood it would be below that. We are very confident in 2% to 3%. We are not ready to raise it yet, but we are very active with a strong pipeline. For now, 2% to 3% is the right range.
Analyst: Got it. Thanks. As a follow-up, termite and ancillary was up about 9.8%. What is driving this? Are you seeing customer demand for bigger-ticket ancillary services? How is cross-selling going across the rest of the brand portfolio?
Kenneth D. Krause: It is going well and will be a big topic in May. Termite and ancillary includes the nine shots on goal. We continue to see great demand there. Ed Donahue, who helped develop our approach with Orkin, will be joining us as part of the panel in May. We have seen great improvements there. It is a great business with good demand and a huge opportunity across the portfolio because a number of brands are not doing much with that part of the business today.
Jerry E. Gahlhoff: We moved Ed Donahue, who was VP of Sales for Orkin for many years, over to our non-Orkin brands this year. He and that group have been moving the needle, adding services using our RAC in-house financing and training teams on how to leverage that throughout their businesses. We have seen really nice improvements very quickly, and we are excited about that. You will see and meet Ed in May at the Investor Day.
Operator: Moving next to Analyst with Wells Fargo.
Analyst: Good morning. This is Jenny on for Jason Haas. We have heard that one of your competitors is being more aggressive with their marketing. Are you seeing any change in the competitive environment, and are you adjusting your marketing strategy in response?
Jerry E. Gahlhoff: We are continuing to focus on what we do and how we do it—spending efficiently, moving dollars to efficient channels, and making adjustments. We have many competitors all looking to gain the same customers. The more we target our best customers, stay on brand, and focus on getting the right types of customers to our brands, the more we win. We feel very comfortable and confident in what we are doing from a marketing standpoint.
Kenneth D. Krause: The fact that we saw 90 basis points of improvement in organic growth from Q4 to Q1 stands out and shows the investments we are making continue to yield strong results in our markets.
Analyst: That is helpful. As a follow-up, within the residential segment, was the March acceleration caused by any business from earlier in the quarter shifting into March, or was it all strong underlying demand?
Jerry E. Gahlhoff: There may have been a little carryover from backlog in February into March, but February was not nearly as tough as January in terms of branch closures and lost days. We carried more backlog into February than into March. March started going by the first week, the phones started ringing, and things picked up. A lot of that organic was coming at us in the quarter, and we also had time to get all of our scheduled work done in the month.
Operator: This concludes our question-and-answer session. I would like to turn the floor back over to management for closing comments.
Jerry E. Gahlhoff: 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 are excited about what we have to share and look forward to seeing many of you in person.
Kenneth D. Krause: Thanks.
Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
