Greetings. Welcome to Rollings Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Joseph Calabrese. Thank you. You may begin.

Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact our office at 212-827-3746, and we'll send you a release and make sure you're on the company's distribution list. There will be a replay of the call, which will begin 1 hour after the call and run for 1 week. The replay can be accessed by dialing 844-512-2921 with the passcode 13720627. Additionally, the call is being webcast at www.viavid.com, and a replay will be available for 90 days. On the line with me today are Gary Rollins, Rollins' Chairman and Chief Executive Officer; John Wilson, Vice Chairman; Jerry Gahlhoff Jr., President and Chief Operating Officer; and Julie Bimmerman, our Interim Chief Financial Officer, Vice President, and Treasurer. Management will make some opening remarks, and then we'll open the line for your questions. Gary, would you like to begin?

Thank you, Joe, and good morning. We appreciate all of you joining us for our second quarter 2021 conference call. Julie will read our forward-looking statement and disclaimer, and then we'll begin.

Our earnings release discusses our 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 risks may differ materially from any statement we make today. Please refer to today's press release and other SEC filings, including the Risk Factors section of our Form 10-K for the year ended December 31, 2020, for more information and the risk factors that could cause actual results to differ.

Thank you, Julie. Before we get started, you probably noticed that Eddie Northen is not joining us today on the call. John Wilson will share with you more about that now.

Good morning. Yesterday, our Board of Directors appointed Julie Bimmerman, who many of you know, as our Interim Chief Financial Officer and Treasurer. Eddie Northern has been moved into an operational role as Senior Vice President focused on sustainability. Julie has significant experience, both in finance and our industry as described in the press release we issued this morning. She has been with us since 2004, having most recently been Vice President of Finance and Investor Relations. Prior to joining Rollins, Julie worked in corporate accounting, internal audit, and corporate tax audit roles. She's known to many of you already and she will be available to analysts and institutional investors after the call as per usual. We also filed an 8-K updating developments in our SEC investigation this morning. I will now turn the call back over to Gary.

Now to the exciting news. I'm very pleased to report that Rollins delivered a strong financial performance in the second quarter, and we remain well-positioned for 2021. John will share with you our recent additions to our Board of Directors, while Jerry and Julie will give you details of our financial results shortly. These results were made possible by the continued dedication and contribution of our incredible field and corporate teams. We truly appreciate their customer focus that has generated significantly higher than normal growth and profitability so far in 2021. Now let me turn the call over to John.

Thank you, Gary. Over the past year, we have enhanced and diversified Rollins' Board of Directors with several new additions. I'd like to spend a moment today welcoming our two newest Board members, Gregory Morrison and Donald Carson. As detailed in our May press releases, Greg was the former Chief Information Officer, who led the information technology operations for Cox Enterprises, and he will add cyber expertise to our Board. Don, having worked for many years in investment and commercial banking, including Wachovia Bank, brings a high level of knowledge and strategic financial transactions to the company. We're thrilled to add these individuals to the outstanding group of leaders on our Board, and we look forward to their counsel and contributions to our company. Now I will turn the call over to Jerry to provide an overview of the strong quarter just completed.

Thanks, John. And good morning, everybody. As Orkin begins their 120th year of service, we thought it was an opportune time to spend a few minutes highlighting some of the recent successes of the brand. For those who have followed us over the years, you may recall that Orkin was acquired by Rollins in 1964 and as the original company that first started our venture into pest control. Today, Orkin remains our largest brand, employing over 8,000 team members and completing millions of services annually worldwide. Orkin is very involved in the communities they serve, maintaining a strong commitment to education, public health, and environmental responsibility. From collaborations with the centers for disease control and prevention and major universities to their work with the National Science Teachers Association, Orkin fosters a deeper understanding and appreciation of the natural world around us. As we have previously shared with you over the past few years, Orkin has adopted new technologies, which have improved communications with customers, optimized routing and scheduling, and increased technician efficiencies to name a few. Through the years, Orkin has grown, adding both new customers and new customer service offerings like bed bug, flea and tick, mosquito, and most recently, VitalClean, our service designed to fight COVID-19. Overall, Orkin has significantly contributed to the long-term success of Rollins. As Gary mentioned earlier, we're very pleased with our results for the second quarter. Revenue increased 15.3% to $638.2 million compared to $553.3 million for the second quarter of last year. Net income grew to $98.9 million, or $0.20 per diluted share, compared to $75.4 million, or $0.15 per diluted share for the same period in 2020. Julie will review the GAAP and non-GAAP results shortly. For the quarter, we experienced solid growth in all our business lines with residential increasing 13.6% and termite 16.3% over the second quarter of 2020. Additionally, commercial, excluding fumigation delivered an impressive 17.4% growth over the second quarter last year. This is also an improvement of 11.3% growth over 2 years ago when we weren't experiencing COVID-related shutdowns. As you may recall, last year, we thought it was prudent to forgo our annual price increase during the pandemic. Now encouraged by the economic recovery that’s underway, we have rolled out our 2021 annual price increases at all our brands. Implemented at the end of the second quarter, we expect that we will see the benefits of these increases as we move throughout the remainder of the year. Additionally, we're especially pleased with our commercial pest control growth, which has not only benefited from the economy reopening but also from our InSite commercial technology. Through the use of InSite, Orkin's web reporting tool, our commercial customers have the ability to monitor pest activity and treatments within their facilities, reduce service tickets, and receive specific pest alert notifications. This allows for quality assurance checks to be easily completed at the customer level. It also gives the customer the ability to produce timely reporting as necessary for regulatory or third-party audits. We get great feedback from customers on InSite and are confident that this feature will strengthen our relationships with commercial clients. Overall, we've made strong progress during the first six months of 2021. And as we look ahead, we are confident in our ability to continue driving growth and profitability in our business. Now let me turn the call over to Julie to discuss our financials.

Thank you, Jerry. At Rollins, we are constantly looking for ways to improve in all areas of our business. As many of you know, continuous improvement is an important part of our culture. We have a lot of opportunity for the remainder of 2021. But I would like to recognize that the significant financial gains from this quarter are on top of the strong gains that we experienced during 2020. Even as we were all entering a different economic time back in Q2 of last year, our revenue grew at a steady 5.6%. That was converted into net income growth of 17.2%. Both of these 2020 numbers were at or above our historic averages. So for the second quarter 2021, as Jerry noted, all business lines presented strong revenue growth. Keys to the quarter included pricing strength positively impacting revenue growth, continued mosquito service revenue improvement over 30%, and commercial pest control revenue improving significantly. Additionally, for the first time, our mosquito service revenue has surpassed our bedbug revenue in this quarter was over 3% of our total revenue. Looking at the numbers, the second quarter revenues of $638.2 million was an increase of 15.3% over the prior year's second quarter revenue of $553.3 million. Our income before income taxes was $133.9 million, or 29.4% above 2020. Our net income was $98.9 million, up 31.2% compared to 2020. Our earnings per share were $0.20 per diluted share compared to $0.15 in 2020, or a 33.3% increase. As a reminder, we reported both GAAP and non-GAAP financials for the first quarter of 2021. The non-GAAP results were positively impacted by our gain on sales of several of our properties. For the first six months of 2021, revenues were $1.174 billion, which was an increase of 12.7% over the prior year's first six months revenue of $1.014 billion. Our GAAP income before income taxes was $253.8 million or 59.7% above 2020. Our GAAP net income was $191.5 million or 61.4%, compared to 2020. Our GAAP EPS or earnings per share were $0.39 per diluted share compared to $0.24 per diluted share in 2020. Overall, like some companies that were negatively impacted by the pandemic, demand in most areas of our business in both 2020 and 2021 was strong. We maintained consistent revenue growth of 5.6% in 2020, followed by a healthy increase of 15.3% in 2021. It does not seem that pent-up demand or stimulus checks have impacted our residential revenue growth but rather a new awareness of pest needs based on more time spent at home. It would be difficult to predict what these new demand levels will look like in the future, but we remain optimistic. Our total revenue increased for the quarter, up 15.3%, and included 1.7% from significant acquisitions with the remaining 13.6% from pricing and new customer growth. Residential pest control made up 40% of our revenue; commercial pest control, 33%; and termite and other services made up approximately 21% of our revenue. In addition, our wildlife service continued to see strong double-digit growth. Again, total revenue less significant acquisitions was up 13.6%. From that, residential was up 12.3%; commercial, excluding fumigation, increased 14.8%; and termite and ancillary grew by 14.9%. In total, our gross margin decreased to 53.3% from 53.8% in the prior year's quarter. Improvements were made in total payroll but were negatively offset by higher overall fleet costs and a write-down of inventory of $2.7 million related to our PPE, or personal protective equipment. We will continue to assess our fluctuating future needs and market value for our PPE in the coming quarters. In addition to our continued Orkin US mileage savings, our Orkin Canada and Western Pest brands are making progress regarding their BOSS and routing and scheduling implementation. Each company has improved their on-day and on-time delivery since the project started. These savings will help support improvements in our overall fleet cost in the future quarters. Depreciation and amortization expenses for the quarter increased $1.4 million to $23.3 million, an increase of 6.3%. Amortization of intangible assets increased $1.3 million due to several acquisitions, including McCall Service in December 2020 and Adams Pest in Australia in July of last year. Sales, general, and administrative expenses presented a 7.1% improvement for the quarter over 2020, decreasing from 30.9% of revenues to 28.7% of revenues in 2021. The quarter produced savings in administrative and sales salaries and benefits, as well as telephone savings from better-negotiated contracts. As for our cash position, for the six months ending 6/30/2021, we spent $28.4 million on acquisitions compared to $56 million in the same period last year. We paid $79.7 million on dividends and had $13.2 million of CapEx compared to $12.4 million in 2020. We ended the period with $128.5 million in cash, of which $73.6 million is held by our foreign subsidiaries. Before I close out, I would like to mention our recent press release, where Rollins was named to the top 50 green fleet list as pushed by Automotive Fleets 2021 ranking. As part of our continuous improvement that I mentioned in my opening, we have lots of opportunity in the future in this area, but we are proud of this recognition by the industry. Yesterday, the Board of Directors approved a regular cash dividend of $0.08 per share that will be paid on September 10th, 2021, to stockholders of record at the close of business August 10th, 2021. Gary, I'll turn it back to you.

Thank you, Julie. And we're happy to take your questions at this time.

Thank you. Our first question is from Tim Mulrooney with William Blair. Please proceed.

Gary, John, Jerry, Julie, good morning. Thank you for taking the questions.

Good morning.

Good morning.

So just a real quick housekeeping here. On the residential pest, can you give us those numbers again for total residential pest growth and organic? I think I missed that.

Okay.

Yes. You got that Julie?

Yes. Let me get that for you real quick, Tim.

Okay. While you're looking that up, Julie, I'll just ask this next question to the broader group. This is my follow-up question. Last year, around this time, you guys highlighted the record level of new account sales, I think, particularly in residential. And I think that you had many all-time record high new sales days throughout the quarter. Can you talk about how new account sales have trended through the second quarter of this year, now a year later? And how that compares to the really strong period that you had during the second quarter of last year? Thank you.

So Tim, this is John Wilson. I'll take a stab at that. Our brand that we best track and that is, of course, Orkin being our largest. And for the second quarter, that continued to be up again this year. But of course, not by near the same record number, but we are improved over a year ago in new customer accounts.

Okay. Okay. Thanks very much. And Julie, were you able to get the residential organic growth and total growth?

Okay. Yes. So we're talking about the total growth and that may have been unclear. We actually had Jerry talk about the total, then I did talk about the organic, so from that standpoint. So for the quarter, we experienced the growth in residential increasing to 13.6%, the termite 16.3% and the commercial, excluding fumigation delivered an impressive 17.4% growth over second quarter last year. You're listening?

Okay. Got it. I'm with you.

Okay. I just wanted to make sure. And then - not a problem, not a problem. Just bear with me, Tim. This is new for me. And then talking on the organic side for the residential was the 12.3%, commercial, excluding fumigation 14.8%, and termite at the 14.9%.

Okay, okay. Perfect. Thanks so much, Julie. Thank you everybody…

Yes. Thanks, Tim.

Thank you.

Our next question is from Mario Cortellacci with Jefferies. Please proceed.

Hi. Thank you for the time. I guess maybe just asking Tim's question a slightly different way. I guess how much of your organic growth - or maybe you can help us understand the organic growth build-up this quarter of how much was new customers, how much was cross-sell or new products introduced to existing customers? Was there any improvement on retention that contributed to organic growth as well? And then it sounds like you turned pricing back on, was that still in like the 1% to 2% range for the quarter as well?

Okay. I will start on this and then anyone else, if you want to jump in feel free. First of all, on the pricing, we put in our normal price increase that we normally would have. So we did not do something additional because we held the price increase last year. So it would be within the normal ranges in answer to that. As to our retention rate, we have seen a consistent incremental growth on our retention over the last 5 years and still do see that trend continuing this year.

Yes. So I'll add on to that, Mario. This is John Wilson. Pricing amounted to about 1.2%, which is kind of in line with our historic norm of what pricing adds. And the real answer to your question is all of the above. So cross selling had a piece of that, we don't track what that may add. So I don't - I can't give you a number on that. Retention improved, as Julie mentioned. And then, of course, we did have an increase, again, as I mentioned a minute ago with Tim, on our new accounts added.

Got it. Thank you. And then just, I guess, a follow-up on the pricing and maybe whatever inflation that could potentially show up. I have been following you guys as long as some other guys. But I don't know maybe what you've done historically in a higher inflation environment. If we do see inflation or wage and labor inflation kind of rear its ugly head for you, would you go above that range, that historical 1% to 2% range, like you did 1.2% this quarter? If you're seeing wages really ramp a lot higher, you're finding it a lot harder to find talent over the following - over the next year, would you kind of flex that pricing up a little higher to offset the increased costs?

Yes. So we could. I mean, the market will, obviously, dictate what we can do. But we've always pointed to our call center that we have is a wonderful laboratory to test what our pricing elasticity is with our various close rates and what we're capable of getting there. So we would absolutely look at that, Mario. Right now, we don't feel a need to, but we'll take a look at it.

Got it. And then just a quick housekeeping, and maybe I missed it in the prepared remarks, did you guys disclose or say how many deals you closed in Q2 or year-to-date so far?

I don't know that number.

We just gave you the dollars on that.

Got it. Okay. Thank you.

Thanks, Mario.

Our next question is from Michael Hoffman with Stifel. Please proceed.

Thank you very much. And since the others have focused more on sales, I'm going to focus on cost. So there's a little giveback in gross margin, but a meaningful improvement in SG&A. And on the gross margin, I'm trying to understand, is there not wage inflation as well versus - or is that embedded in fleet? And then on the SG&A, can you sustain less than 29% of revenues from this point forward, given where you are?

Hey, Michael. So within the gross margin, we did - I mean, we actually did see an improvement in our total payroll in answer to that. So overall, you've got to remember that technicians are directly tied with the work that they're producing. So their wages are tied to - at the - when they go through and complete their jobs, if you recall on that front. As far as the fleet cost, the fleet cost, yes, as you know, we did have an increase in that, and that was improved predominantly within the fuel.

Okay. And then the G&A?

On the G&A side, as you said, though, we definitely saw some SG&A improvements over the same quarter last year. And it was really administrative in sales salaries, and then also with our new contracts for our telephone that we were able to work on some better pricing.

This is Jerry, Michael. The other thing I would say is we've been very careful about adding costs back into our business over the past year. We made some changes in our business a year ago. And from an operations standpoint, we've been very careful about what we're adding back in terms of our cost structure. So - and a lot of that has to do with our - controlling our overhead expenses.

Well, on revenue and schedule, and this is Gary. Certainly, has given us an opportunity to get more done. And as Julie said, the vast majority of our pest control technicians are on a productivity pay plan. So as they do more, they make more and that helps with turnover reduction. So all those elements are coming together fortunately.

Terrific. And then my follow-up, you released a supplemental 8-K after the earnings release and made reference to an SEC investigation. Have they completed that because they never tell you when they're completing it? So can you tell us if they completed it?

Yes. Michael. So I think the 8-K referred is that it's ongoing, and it is ongoing. It is not completed, no.

Okay. Thank you very much.

Thank you.

We have reached - we do have a follow-up question from Tim Mulrooney with William Blair. Please proceed.

Hey. Thanks for squeezing me in. I just wanted to ask about your virus side spending because this is a topic across my services coverage universe. I know virus side spending has been elevated across your customer base, as folks are still highly sensitive to the issues of hygiene and virus protection. But with vaccination rates on the rise, I would assume that this offering would moderate over time. So am I right about that? Can you talk a little bit about demand for your virus side offering and how that's trending?

My best. This is Jerry, Tim. My best barometer for that is talking to Freeman Elliott at Orkin. And while we have seen it moderate, I think that's the right term. There is also places where there is demand, still where people are coming back to office spaces and people are still concerned about their workers being in there and want that kind of disinfection service still occurring. So it's still there. Some markets are better than others where they've returned more people to the offices and things like that. So it's still a viable business, although, to your point, it has moderated.

Okay. And while you got me here, maybe I'll try to squeeze one more in, but thanks for the color on that, Jerry. I wanted to ask about your M&A pipeline, and this is like big picture. So how would you say your pipeline looks today compared to say 5 years ago? Is it smaller given how much consolidation we've seen over the last 5 years? Or is it the other way? Is it larger because more pest control companies are emerging every day? Really curious how you all would characterize the M&A pipeline relative to 5, 10 years ago?

Yes, Tim, so this is John. I'll take a stab at that at the start and maybe Jerry can add to it. I've used the word frothy in the past, and I think it's still that way. Our pipeline is - I would - I don't have that number from 5 years ago, but I would guess it's similar. And a big driver of late has been contemplated tax changes coming out of Washington, D.C., whether it's to you know, state taxes or whatever. And so some of that's driving some of the conversations that we've had. So Jerry, if you have anything to add to that?

Yes. We're still seeing plenty of deals looking at things and evaluating what makes sense to us at an appropriate price. So we still have plenty of action going on there.

Okay. And let me jump on to that real quick, and this actually goes back to, I think, it was Mario's question. We have closed 18 deals through the end of Q2.

Okay. That’s helpful. Thanks for the color, everybody…

And I do want to throw one other thing out there. Jerry just put a note in front of me. It sounds like when I said that residential pest control made up, I believe, I said 40% of our revenues, that is incorrect. It is 46% of our revenues.

I can't believe you're understating it.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Okay. Well, thank you for joining us today. We appreciate your interest in our company. And look forward to reporting in October, our third quarter results and updating you on our progress. Thanks, again.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.