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Acquisitions Boost Rollins' Revenue

By Joe Tenebruso - Jul 25, 2019 at 4:30PM

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CEO Gary Rollins says the pest control specialist will remain on the hunt for new deals.

Rollins (ROL -2.08%) reported second-quarter financial results on July 24. The owner of Orkin and other pest control businesses completed the integration of a major acquisition, which is helping to drive its revenue and cash flow higher.

Rollins results: The raw numbers

Metric

Q2 2019

Q2 2018

Change

Revenue

$524 million

$480.5 million

9%

Net income

$64.3 million

$65.5 million

(2%)

Earnings per share

$0.20

$0.20

0%

Data source: Rollins Q2 2019 earnings release.

What happened with Rollins this quarter?

Rollins' revenue rose 9.1% year over year to $524 million. The pest specialist's recent purchase of Clark Pest Control and other smaller acquisitions accounted for 5.5 percentage points of this growth, while price increases and organic growth accounted for the rest. 

Pest control worker spraying in a house

Image source: Getty Images.

Broken down by segment, revenue in Rollins' residential pest control, commercial pest control, and termite and ancillary services increased by 11.1%, 7.7%, and 9.2%, respectively. 

Rollins' mosquito business is enjoying particularly strong growth. "Although a relatively small part of our overall business at this point, this service line continues to grow and is in part driven by increased concern and public awareness around" mosquito-borne infections, "including Zika, West Nile, and other diseases," President and Chief Operating Officer John Wilson said during a conference call with analysts. "Year over year, our mosquito service has grown over 35%, and we expect continued growth in the future as we gain greater cross-sell penetration of our large pest control customer base."

Still, Rollins' investments in technology and improved employee benefits are weighing on its profitability. Gross margin declined slightly to 51.7% from 52% in the year-ago quarter. Rollins' leadership, however, is adamant that these investments will bear fruit.

"We ended 2018 with the best employee retention we'd experienced in our recent history, and in the first two quarters of 2019 continued on that trajectory," Wilson said. "Further, as you would expect, employee retention directly correlates with customer retention." 

All told, Rollins' non-GAAP (adjusted) earnings per share -- which exclude acquisition-related costs and currency exchange expenses -- increased by 5% to $0.21.

Looking forward

CFO Paul Northen said that Rollins expects its free cash flow to increase by approximately $40 million in 2019, due in part to benefits related to the Clark deal. Rollins plans to use some of this cash to pay off the debt it incurred to finance its acquisitions. The company expects to be debt-free by early 2022. 

Additionally, CEO Gary Rollins said the pest control leader would remain on the hunt for new value-creating deals. "With the Clark acquisition complete, we will continue to evaluate other acquisition prospects as adding great companies and brands will remain one of our primary objectives," Rollins said. 

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