Rollins, Inc. (ROL) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance, with a focus on organic growth, healthy margins, and a robust M&A pipeline. Despite some weather-related challenges, the company maintains optimistic guidance and emphasizes recurring revenue strength. Positive factors include Saela's strong performance, improved new hire retention, and strategic ancillary service growth. The cautious Q1 outlook due to weather is balanced by long-term tailwinds and a focus on digital and cross-brand strategies. Overall, the sentiment is positive, projecting a 2%-8% stock price increase.
Key Financial Performance
Revenue for Fiscal 2025 $3.8 billion, representing double-digit growth. Organic growth was 6.9% for the year. Growth was driven by strong performance across all service offerings and acquisitions.
Revenue for Q4 2025 Increased by 9.7% year-over-year. Organic growth was 5.7%. Growth was impacted by softer onetime revenues due to erratic weather patterns.
Recurring Revenue and Ancillary Services Over 80% of total revenue, grew at over 7% organically for both the quarter and the year. Stability in this area provides confidence in long-term growth.
Onetime Business Revenue for Q4 2025 Declined by almost 3% year-over-year, impacted by early winter weather in the Midwest and Northeast.
Adjusted EBITDA for Fiscal 2025 $854 million, up 10.8% year-over-year. Growth achieved despite significant growth investments.
Operating Cash Flow for Fiscal 2025 $678 million, up 11.6% year-over-year. Negatively impacted by a $22 million out-of-period tax payment.
Free Cash Flow for Fiscal 2025 $650 million, up 12.1% year-over-year. Excluding the tax payment, free cash flow growth was approximately 20%.
Gross Margin for Q4 2025 51%, a decrease of 30 basis points year-over-year. Fleet expenses and lower volume contributed to the decline.
SG&A Costs for Q4 2025 Increased by 50 basis points as a percentage of revenue year-over-year, due to investments in the business and lower volumes in onetime business.
GAAP Operating Income for Q4 2025 $160 million, up 6.3% year-over-year. Adjusted operating income was $167 million, up 8.1%.
Quarterly EBITDA for Q4 2025 $194 million, with an EBITDA margin of 21.2%.
Effective Tax Rate for Fiscal 2025 24.9%, down from 26% in 2024. Improvement attributed to tax team efforts.
GAAP Net Income for Q4 2025 $116 million or $0.24 per share. Adjusted net income was $121 million or $0.25 per share, up nearly 9% year-over-year.
Operating Cash Flow for Q4 2025 Decreased by 12.4% year-over-year to $165 million, impacted by a deferred tax payment from 2024.
Dividend Payments for Q4 2025 $88 million, up 11% year-over-year. Regular dividend increased by over 80% since 2022.
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Operating Highlights
Revenue milestone: Achieved $3.8 billion in revenue for fiscal 2025.
Recurring business growth: Organic growth in recurring and ancillary services was above 7% for both the quarter and the year.
Acquisitions: Closed the acquisition of Saela and completed 26 additional tuck-in deals in 2025.
M&A pipeline: Actively evaluating a robust pipeline of opportunities for additional growth.
Employee retention: Improved retention of newer teammates (1 year or less) by approximately 8% in 2025 and nearly 18% since 2023.
Leadership development: Launched 'The Co-lab' program to enhance leadership skills and cross-brand collaboration.
Cash flow: Generated $678 million in operating cash flow and $650 million in free cash flow, up 11.6% and 12.1% respectively.
Capital allocation: Deployed over $880 million in 2025 for growth investments, dividends, and share repurchases.
Long-term growth outlook: Committed to 7%-8% organic growth and 2%-3% growth from M&A in 2026.
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Risk or Challenges
Weather Impact: Erratic weather patterns, particularly early winter weather in the Midwest and Northeast, caused demand to soften for onetime and seasonal projects, impacting revenue and profitability in the fourth quarter.
Onetime Business Decline: Revenue from onetime business declined by almost 3% in the fourth quarter, compared to year-to-date growth of 4% through the first 9 months of the year. This decline was attributed to weather disruptions and lower demand.
Staffing Challenges: Maintaining healthy staffing levels ahead of peak season led to short-term productivity impacts in the fourth quarter. Extreme ramp-ups in hiring were avoided to prevent higher turnover rates, but this decision affected short-term operational efficiency.
Fleet Expenses: Fleet expenses increased as a percentage of revenue due to timing of vehicle gains, representing an 80 basis point headwind in the fourth quarter.
SG&A Costs: SG&A costs as a percentage of revenue increased by 50 basis points in the fourth quarter, driven by lower volumes in the onetime business and ongoing investments in the business.
Cash Flow Impact: Operating cash flow in the fourth quarter decreased by 12.4%, partly due to a $22 million out-of-period tax payment associated with disaster relief measures.
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Guidance & Outlook
Revenue Growth: The company expects organic growth in the range of 7% to 8% for 2026, with additional growth from M&A of at least 2% to 3%.
Cash Flow: Cash flow is anticipated to convert at a rate above 100% again in 2026.
Market Position and Investments: The company remains bullish on its markets and is making investments to enable long-term value creation despite lower volumes in the onetime business.
Recurring Revenue: Recurring revenue and ancillary services, which represent over 80% of the business, are expected to continue growing at over 7% organically.
Weather Impacts: While weather impacts may occur from time to time, the company remains committed to its long-term growth outlook.
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Shareholder Return Plan
Dividend Payments: Dividend payments increased 11% from the prior year and are at a healthy and very sustainable rate. Including the recent increase announced in Q4, we've raised our regular dividend by more than 80% since the beginning of 2022.
Share Repurchases: Approximately $200 million was invested in share repurchases in the quarter, affirming the long-term view on the value of the company.
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Key Q&A
Q:Can you expand on the 7% growth in recurring and ancillary business and its sustainability heading into 2026?
A:Management highlighted several factors supporting the sustainability of the 7% growth, including stable customer retention, improved net gains in customer base (e.g., Orkin's best performance since the COVID era), and strong closure rates on customer leads. Ancillary business customers were noted as not being overly price-sensitive, and financing options were available to support customer needs. Additionally, recurring revenue, which constitutes 75% of the business, showed strengthening between Q3 and Q4.
Q:Can you dive into the weather disruption by segment and its impact?
A:Weather disruptions impacted onetime business more significantly than recurring business. The commercial recurring business grew at 7.3%, but onetime commercial business, including commodity fumigation, faced challenges. Residential recurring business held strong, but onetime wildlife and seasonal pest services were affected by shorter seasonal windows. Termite pretreat services also saw some weakness, though recurring termite business remained healthy.
Q:Can you provide segment-specific numbers for the year-to-date and Q4 performance, and discuss the margin profile of onetime business?
A:Onetime business has a better margin profile than recurring business due to higher pricing for one-off services. However, it constitutes only 15% of the business. Management noted that residential onetime services, such as wildlife and road work, were more impacted, while some ancillary and termite services carried backlog into January. Full-year organic growth guidance remains at 7%-8%, though Q1 may start slower due to weather-related branch closures.
Q:What are the tailwinds for margins in 2026 and beyond?
A:Tailwinds include healthy pricing (3%-4% increases), improved retention and onboarding of new hires, reduced fleet costs (a $17 million headwind in 2025 is expected to ease), and back-office efficiencies from a company-wide financial systems implementation. These factors are expected to support a 25%-30% margin profile.
Q:Have there been any changes in the competitive environment?
A:Management did not observe significant shifts in the competitive environment in 2025. They continue to invest in the business, including digital marketing and door-knocking strategies, to maintain a strong market position.
Q:What is the outlook for Q1 and the rest of 2026?
A:Q1 may start slower due to weather-related challenges, but management remains confident in achieving 7%-8% organic growth for the year. They emphasized the importance of recurring revenue and ancillary business as key growth drivers.
Q:What are the key ancillary opportunities for 2026?
A:Ancillary services, growing at 20%, present significant opportunities due to low penetration (3%-4% of customers). Management is focusing on cross-brand collaboration and leveraging technology to expand these services.
Q:Can you provide details on Saela's performance and the M&A pipeline for 2026?
A:Saela contributed $16 million in Q4 revenue and $55 million year-to-date, with $0.02 adjusted EPS accretion. The M&A pipeline remains strong, with expectations of 2%-3% revenue growth from acquisitions in 2026.
Q:How are digital leads performing, and are there changes to the marketing strategy?
A:Digital leads remain a focus, though costs are increasing. Management is reallocating resources within a set budget to optimize results. They also leverage other customer acquisition channels, such as door-knocking, to reduce reliance on digital leads.
Q:Does onetime business translate into recurring customer relationships?
A:While some onetime customers transition to recurring services, many prefer recurring onetime services (e.g., 1-2 services per year). Management avoids pushing recurring services on customers who prefer onetime services to maintain satisfaction.
Q:What are the key factors affecting onetime revenue performance?
A:Onetime revenue is influenced by weather patterns and specific pest issues (e.g., bedbugs). It is not tied to macroeconomic factors and constitutes a small portion of the business. Management focuses on recurring and ancillary revenue as primary health indicators.
Q:How has new hire retention improved, and what are the financial implications?
A:New hire retention improved by 8%, reducing the need to hire approximately 600 fewer people year-over-year. This saved $5-$10 million in onboarding costs and is expected to improve customer retention as well.
Q:Are there any IT investments planned to drive cross-brand collaboration?
A:Management is exploring the use of AI to link systems and improve collaboration across brands. While some CRM changes may be needed, the focus is on layering technology rather than overhauling systems.
Q:Review of Unclear Management Responses
A:Management avoided providing specific Q1 onetime revenue expectations, citing the unpredictability of weather and its impact. They also did not provide detailed metrics or leading indicators for onetime revenue performance, emphasizing its small contribution to overall business health.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Co lab
Deleverage people
Demand service
Director milestone
Form today
Helene tax
Instructions conference
Investor Relations
Midwest Northeast
Northeast project
President Investor
Quarterly margin
Relations release
SGA percentage
Saela expectation
Saela tuck
States location
category
customer experience
development
digit cash
disaster relief
highlight
insurance claim
investment grade
leader
outlook margin
payment cash
relief measure
retention
share repurchase
talent
tax payment
value
volume
winter weather
ROL Transcript
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Rollins, Inc. (ROL) Q4 2025 Earnings Call Transcript
Positive2-12
The earnings call highlights strong financial performance, with a focus on organic growth, healthy margins, and a robust M&A pipeline. Despite some weather-related challenges, the company maintains optimistic guidance and emphasizes recurring revenue strength. Positive factors include Saela's strong performance, improved new hire retention, and strategic ancillary service growth. The cautious Q1 outlook due to weather is balanced by long-term tailwinds and a focus on digital and cross-brand strategies. Overall, the sentiment is positive, projecting a 2%-8% stock price increase.
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The earnings call summary and Q&A indicate strong financial performance, with significant growth in organic revenue, earnings, and cash flow. The company exhibits a robust market strategy with effective customer acquisition and a promising M&A pipeline. Despite some reluctance to provide specific guidance, the overall sentiment is positive, supported by sustainable cash flow growth and successful margin management. The lack of significant underperformance and the healthy competitive landscape further reinforce a positive outlook.
ROL Slides
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