Greetings. Welcome to Rollins' Third Quarter 2022 Earnings Conference Call. Please note, this conference is being recorded. I will now turn the conference over to Joe 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 the release and make sure you're on the company's distribution list. There will be a replay of the call, which will begin one hour after the call and run for one week. The replay can be accessed by dialing (877) 660-6853 with the passcode 13733118. Additionally, the call is being webcast at www.rollins.com and a replay will be available for 90 days. The company is also offering investors a supporting slide presentation, which can be found on Rollins' website at www.rollins.com. We'll be following the slide presentation on our call this morning and encourage you to view that with us. On the line with me today and speaking are Gary Rollins, Rollins' Chairman and Chief Executive Officer; John Wilson, Vice Chairman; Jerry Gahlhoff Jr., President and Chief Operating Officer; Kenneth Krause, Executive Vice President, Chief Financial Officer and Treasurer; and Julie Bimmerman, Group Vice President, Finance and Investor Relations. Management will make some opening remarks and we'll open your line for questions. Gary, would you like to begin?

Yes. Thank you, Joe, and good morning. We appreciate all of you joining us for our third quarter 2022 investor call. Julie will read our forward-looking statement 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 results may differ materially from any statement we make today. Please refer to today's press release and our SEC filings, including the Risk Factors section of our Form 10-K for the year ended December 31, 2021, for more information and the risk factors that could cause actual results to differ.

Thank you, Julie. I'm pleased to report that Rollins' third quarter performance was highlighted by continued growth and solid financials. As we look ahead, the company remains well positioned to continue the accomplishment of our long-term business objectives. I'm also proud to welcome Rollins' new Chief Financial Officer, Kenneth Krause. Ken is a highly regarded business executive with more than two decades of financial and accounting experience. Ken is already contributing to our success. We welcome him to our team. Jerry will share more about Ken later. Let me now turn the call over to John Wilson, our Vice Chairman, who will provide some business updates. John?

Thank you, Gary. Good morning, everyone. Rollins delivered another strong performance this quarter, reflecting solid execution of our operating strategies. I want to continue to emphasize that Rollins' success is a direct result of the efforts of the dedicated and caring people that work for our company. This incredible team works hard every day to achieve our objectives and take great care of our customers. At Rollins, our people are our most valuable asset. Pursuant to that, we are always looking to improve our employee training and benefit offerings, as well as providing a workplace where they are respected and able to grow professionally. Last quarter, we announced a new partnership with Everside Health to offer an on-site health center providing primary care at our Atlanta home office and virtually nationwide. This new program offers free or reduced cost primary care for all employees. We're pleased to share that since its opening four months ago, this effort has registered over 500 employee visits and filled over 300 prescriptions. We are very focused on enabling our employees to live healthier lives at home and at work, while enjoying multiple benefits within this effort. With same day and next day appointments, this health center handles everything from routine screenings to chronic disease management. It also offers on-site lab draws, medication prescriptions, immunizations, mental health services, as well as the ability to reach a care team 24/7 for urgent needs. Further, we plan to expand this free primary care offering to the covered dependents of our team members starting January 1st. Feedback to date has been extremely positive with a very high satisfaction rate. Ultimately, we believe that by providing easier access to these kinds of services, we are facilitating better health outcomes and happier, healthier employees. We also recently expanded our employee stock purchase plan. This plan allows employees the option to purchase shares of Rollins' common stock at a 10% discounted price through payroll deductions. Since we launched the plan in July 2022, we are pleased that over 2,200 employees have enrolled. This represents greater than 130% growth in employee stock ownership participants compared to our previous program. Most importantly, we want to encourage employee ownership in Rollins as we want everyone to think and act like owners in our company. In summary, guided by our commitment to employees and our culture, we feel these types of benefit programs are important to our long-term success, not only by retaining and incentivizing our valued employees at all levels and for them to have a vested interest in our performance, but also to effectively position Rollins brands as a leading contender for top talent. Last, I would like to discuss Hurricane Ian. Thank goodness, all of our employees in Ian's path are safe, but they have needed assistance. Through our Rollins Employee Relief Fund, our team provided over 170 emergency grants to impacted employees within the first 10 days following the hurricane to enable team members to address essential needs. Since then, the relief team has been processing multiple full grants to address employees who have endured even greater hardship. Our hearts go out to those affected by the hurricane, but I must acknowledge how excited we were about all our team members who have jumped in to assist those impacted in various ways. They quickly volunteered their time and energy often after work hours to gather, load, and deliver supplies to those most in need. This was a total team effort and we are tremendously proud of their care, compassion, and commitment to help one another. Overall, while Ian shut down a total of 28 branch offices, 18 were only closed for a day or two, while the remainder opened by the end of the following week. Between these few location closures and the loss of several vehicles within our fleet, the impact to our employees in the days following the storm was far worse than the impact to our business. I'd like to now turn the call over to Jerry, who will provide more details on our quarter.

Thank you, John. Good morning, everyone. In early August, we announced that Ken Krause will be joining Rollins as our new Chief Financial Officer effective September 1st. Ken has many years of finance experience, most recently as the CFO of a large publicly traded global manufacturer. You'll hear from him in a little bit, but for anyone who hasn't had the pleasure of speaking with him yet, he is passionate about business, very experienced, and has a unique combination of strategic, operational, and financial expertise. We are extremely pleased to have him as a member of our leadership team. I'd now like to walk through our 2022 third quarter performance, focusing on items that directly impacted our operations during the period. Ken will address the financials in more detail in a moment. Looking at our financial results, Rollins' third quarter 2022 was highlighted by revenue growth of 12.2% to $730 million compared to $650 million in last year's third quarter. Net income was $108 million or $0.22 per diluted share. This is compared to $94 million or $0.19 per diluted share for the same period in 2021. Operationally during the quarter, all of Rollins' business lines continued to experience solid growth. Residential pest control increased 9.8%, commercial pest control was up 11.4%, and termite increased 18.9%. Overall, organic presented a strong 8.6% total growth for the quarter. Next, I'd like to turn to the expense side. During the last few conference calls, we have discussed various inflationary pressures, primarily fleet-related costs, specifically fuel and vehicle repairs and materials and supplies. We've also provided insights into the proactive actions we've been implementing to mitigate these pressures. In this context, I'm pleased to note that during Q3, we're beginning to see a gradual improvement in fuel prices. We've also been reducing our overall mileage per service visit through routing and scheduling initiatives. Overall, when compared to last quarter, Q3 presented a 5% reduction in fuel expense. On the fleet side, as we discussed previously, we're keeping our trucks longer, resulting in higher than normal costs for items like basic maintenance and tires, as well as some repairs outside of the norm. Recently, a small amount of new fleet vehicles are beginning to arrive from our primary manufacturers, which certainly will help. However, the quantities are less than what we historically received by this point of the year. Looking ahead, we're being told by our manufacturers that the supply environment is improving and that potentially we could expect an uptick in inflow levels for new vehicles in the coming quarters. As we've received similar assurances last year, we're certainly keeping a watchful eye on this and we'll keep you updated on future conference calls. On the labor side, even though the tight labor market, Rollins remains well positioned in effectively attracting, retaining, and deploying talent by prioritizing employee well-being, workplace inclusion, and professional development opportunities, while also providing attractive employee benefit offerings. We have a track record of being a premier destination for talent. As we headed into the peak hiring season this year, we successfully integrated a recruiting software platform to allow our hiring managers to more efficiently recruit and engage with potential new candidates. This talent recruitment platform makes it easier for prospective team members to explore open positions on our career portals and apply for open positions in just a few minutes, and they can do so easily from a mobile device. Our hiring managers can more easily pre-screen candidates, communicate with them, and schedule interviews in a more streamlined way. As a result of this new improved process, we averaged 35,000 job applicant submissions per month for the third quarter. And over the last five months, we have almost matched the total year 2021 application submissions. In short, by offering candidates an enhanced hiring experience, we've been able to successfully source and add qualified talent across the country despite the tight labor market. Next, I'd like to turn to acquisitions. Year-to-date, we have completed 27 acquisitions. Five of these were completed in the third quarter across Canada, Australia, and the U.S. In August, we announced the acquisition of Bug House Pest Control. Bug House Pest Control was founded by Mike Prosperi in 1993 and has grown to be one of the largest pest control companies in Georgia. Bug House serves residential and commercial customers throughout Central and South Georgia. We are proud to welcome their more than 220 team members to Rollins. We continue to pursue potential opportunities as we look ahead to the remainder of the year and into 2023; our pipeline remains strong. Before I turn the call over to Ken, I want to emphasize how pleased we are with Rollins' strong third quarter performance. We are confident in our ability to continue driving growth and improving profitability in the business. I'll now turn the call over to Ken.

Thanks, Jerry, and good morning, everyone. It's great to be here, and I look forward to working with Jerry and the team across Rollins as we continue to drive value for all of our stakeholders. During my first 60 or so days, I've had the opportunity to spend time with several of our key stakeholders. I've spoken with investors and attended investor conferences. I've spent time at industry trade shows and visited with our teams in the field. It has been beneficial to interact with our investors, employees, vendors, and customers. As I reflect on my experiences thus far, I want to highlight two key observations. First, Rollins has a strong commitment to doing what is right and best for all of our stakeholders. Our commitment to our customers and employees is second to none. The company places a tremendous amount of effort on promoting a culture that is focused on solving our customers' problems the first time and providing our employees with a workplace where they can build a long and rewarding career. Second, our strategy is driving strong results. We have a very valuable business model, well-recognized brands, and a strong financial position by which we can drive profitable growth. Let me start by highlighting a few key accomplishments in the quarter. First, revenue growth was strong with organic revenue growing just under 9% on an as-reported basis. Second, EBITDA margins were healthy at 23.3%, up 10 basis points versus the same period a year ago, despite incurring higher casualty reserve charges. These charges weighed down EBITDA margins by approximately 140 basis points in the quarter. I will spend more time on the casualty reserve in a bit, but it was good to see the strong margin performance in this challenging inflationary period. Earnings per share improved 15% to $0.22 per share and free cash flow was very healthy, with operating cash flow growing over 60% versus the same period a year ago. Let's now dive into the quarterly results in more detail. Quarterly revenue was $730 million, up just over 12% on a reported basis. This includes approximately 4% of growth from acquisitions. Currencies reduced sales growth by 50 basis points on the stronger dollar, notably versus the Canadian dollar, the Australian dollar, and the British pound. It was good to see strong organic growth across our service lines. All services, commercial, residential, and termite services grew at a double-digit growth rate, with very strong organic growth in commercial and termite businesses. Residential revenues increased approximately 10%, with growth stemming from both acquisitions and organic activity. We also had strong growth across substantially all of our brands. We are not seeing any significant signs of slowing and retention rates are not changing materially. Overall, demand for our services remains robust to start the fourth quarter. Turning to profitability. Gross profit was 52.3% of sales in the quarter, down 70 basis points from the same quarter a year ago. The decline is driven primarily by an increase in our casualty reserve related to auto claims. As I said earlier, this increase drove EBITDA margins down by 140 basis points in the quarter, with the most significant impact on gross profit. This expense in the quarter was driven by a number of auto-related claims that matured in the quarter. These claims tend to change from time to time and we either reached resolution or received additional information about the nature of the claim that provided for a better estimation of the total liability associated with the claim in the quarter. Excluding this, we saw improvement in gross profit as pricing more than offset inflationary pressures and increases associated with people, fleet, and other areas. Pricing and managing our margins remains at the top of our agenda. SG&A expense in the quarter was just under $214 million or 29.3% of sales, up approximately $20 million from the prior year. As a percent of revenue, we realized 60 basis points of leverage in SG&A on the double-digit sales growth, which helped to offset the gross profit headwinds. GAAP operating income was $145 million or 19.7% of revenue, up 20 basis points from the year ago period. EBITDA margin was 23.3%, up 10 basis points over the prior year. As I indicated, the increased expense associated with claims activity negatively impacted EBITDA margins by 140 basis points. I like to look at the business using incremental margins, or what percent of every additional dollar of revenue growth is converted to EBITDA. And in the quarter, on an as-reported basis, we generated 24% incremental margins, but over 35% when you consider the quarter included the higher expense associated with the claims activity. GAAP net income was $108 million or $0.22 in earnings per share, increasing 15% versus the same period a year ago on the 12% increase in reported revenue. Turning to cash flow and the balance sheet. Quarterly free cash flow was very strong in the quarter. We generated over $120 million of free cash flow on $108 million of earnings in the quarter. Free cash flow increased by over 60% in the quarter. We made acquisitions totaling approximately $60 million in the third quarter, and we paid just under $50 million of dividends. Debt remains negligible and debt-to-EBITDA is well below 1 times on a gross level. Cash balances approximate debt balances to end the quarter. Year-to-date, we have made acquisitions totaling just over $110 million and paid dividends of approximately $148 million. Debt balances are down $30 million since the beginning of the year, and cash is up over $16 million, finishing at $122 million to finish the third quarter. Speaking of dividends, we increased our regular quarterly dividend last night to $0.13 per share, an increase of 30% versus the third quarter a year ago. With this announcement, this will enable us to realize an increasing dividend again in 2022. We are well positioned to continue to maintain our balanced approach to capital allocation. Our focus is to consistently fund a regular dividend that increases as our business grows, while continuing to use our balance sheet to fund additional acquisition-related growth. Our third quarter performance demonstrated the strength of our business model. Organic demand remains robust and we are well positioned to continue to use our balance sheet to grow our business. The acquisition pipeline is very healthy and our strong cash flow and balance sheet positions us well to invest in our business. We continue to focus on execution and driving a long-term profitable growth for our shareholders. With that, I will turn the call back over to Gary for closing remarks.

Thank you, Ken. We're happy to take any questions at this time.

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

Yes. Good morning, everybody. So, first I wanted to ask on the residential business. Well, first I should say congratulations on a great quarter, but I wanted to dig into the residential business for just a second, because there is some concern right now about the state of the consumer, and I was hoping that you could comment on the trends that you're seeing with respect to volumes in your residential business specifically. Are you starting to see any slowdown as we move from August to September to October, given the increased macro uncertainty, and could you maybe comment on how lead generation these days compares to last year?

Tim, this is Jerry. The residential business remains strong. Certainly, leads are down a little bit. It's hard to always attribute it to economic or weather-driven factors. Despite that, we still have our challenges keeping up with the lead volume that we get in the quarter. And when you also look at the quarter on the residential side, we were impacted at the end of the quarter by Hurricane Ian, which was a revenue drag in Southwest Florida and parts of Florida, where we're heavily weighted on the residential side. So, that - to end the quarter was challenging but that had more of a drag on residential revenue than necessarily some change in demand. John, do you have anything to add there?

The only thing I would add, Tim, is that leads for residential have been down for some time. Quality of lead and lead closure have been up, leading to increased sales and increasing organic revenue but lead closure or leads received is not necessarily a good yardstick to measure the strength of the residential business. We continue to close at a higher rate and despite labor challenges, our teams are getting to the work. So we're still seeing strength in it. Is it as strong as it was over the last couple of years? Maybe not, but we're very optimistic still about residential.

The only thing I would add is that from a revenue perspective, as Jerry pointed out, we had good revenue growth throughout the quarter. It was interesting that when we look at the revenue growth by month throughout the quarter in the residential area, we saw a little bit of weakness in July associated with some COVID exposures, but August was exceptionally strong and September was very healthy as well. Unfortunately, our ability to deliver services was hampered by Hurricane Ian, which hit us late in the quarter. So overall, business remains pretty well intact on the residential side.

And let's not forget that hurricane also impacted South Carolina as well, which is another area where we have a very large presence on the residential side.

Okay. That's really helpful. Thanks for all the color everybody. So, it sounds like there might be much more related to the hurricane than anything else and still a very strong result. My last question is maybe for Ken or Julie. It's just a quick one. The 8.6% organic growth figure, does that just exclude acquisitions? In other words, if I exclude the 50 basis points of foreign currency headwind, would organic growth have been more like 9.1% for the quarter?

You're thinking about that correctly, Tim. We had a 50 basis point headwind on revenues. The 8.6% is an as-reported organic number. So adding back the currency headwind, your organic growth would have been just north of 9%.

Thank you, everybody.

Thank you.

Thank you.

Our next question is from Ashish Sabadra with RBC Capital Markets. Please proceed.

Thanks for taking my question, and again, let me add my congratulations on the solid quarter. I just wanted to focus more on the cross-selling opportunities. I was wondering if you could talk about how much traction you’re getting on cross-selling into your existing customer base? And also, as the technicians are more appropriately staffed, how is that helping drive better sales momentum among your existing but also new customers? Thanks.

A lot of what you see in the termite ancillary growth is a result of cross-selling to your existing customer base, so that's where we get a lot of the lift on the termite ancillary side; that continues to remain strong and be a great opportunity for us. We have seen a nice uptick this year in technician sales that has in some ways offset our lead declines, and the better we are staffed with technicians, the more technicians will actively sell. So getting that formula right is good, and we have certainly seen an uptick in technician-involved sales, whether it's upgrades on the commercial side or on the residential side as well. We do see sales productivity ticking up with technicians.

That's great. And maybe if I can just have a follow-up question on the margins. The incremental margins of 35% excluding the one-time item looks like a very strong margin growth profile. As we think about going forward, not necessarily from a guidance perspective, but as we consider some of the puts and takes with inflation rolling over and revenue momentum being strong, is that the right way to think about the incremental margins going forward? Thanks.

Ashish, I don't want to commit to something too early here. I am only 60 days or so in, but what I can tell you is the gross margin profile of over 50% is certainly appealing and gives me some confidence in our ability to generate that type of margin profile, but what I'd ask for is a little bit of time to better understand the business and some of the drivers that we have. Nonetheless, that gross margin profile and the pricing opportunities we have in our business gives me some confidence in our ability to continue to improve our margins going forward.

That's great. Congrats once again on such a good quarter.

Thank you.

Thank you.

Our next question is from Seth Weber with Wells Fargo Securities. Please proceed.

Hey. Good morning, everybody, and welcome, Ken. I guess, I just wanted to ask a question on pricing. Can you just kind of catch us up on where you're at with pricing? I think you pushed through increases in April and May, and I think on the last call, you talked about that being it for the year, but can you talk to us about your thoughts on pricing going forward, whether you might take another shot at raising pricing if the inflationary environment continues, and just whether there has been a little bit of pushback or if you're seeing any kind of customer churn based on the pricing actions you've taken? Thanks.

We feel like our price increase program was very successful this year and certainly, as Ken noted, it attributed some of our success in the third quarter to pricing, not only through rate increases but also in increasing our rate cards and new sales pricing. Our strategy will be to get through the rest of this fiscal year. In January, we'll all meet again, and we'll have a discussion about our pricing strategy for 2023 and assess what the economic environment looks like. Part of that process in January will also be a detailed look back into our pricing campaign this year, what the impacts on rollbacks and customer retention were, and we'll use that data to help us determine what our plan will look like in 2023. We've monitored that and haven't noticed any significant jump in retention due to pricing, so we feel pretty good about where we are right now.

Okay. That's helpful. Thanks. And then, can you touch on what you're seeing in the international markets? I know it’s not a big part of your business, but if there's any notable changes in trends internationally versus the U.S.? Thanks.

In the international market, we feel some of the impact in the U.K. of their inflationary pressures, but our business in the United Kingdom is doing quite well; that team there is thriving. The same in Australia. They're performing very well. So we're very happy with the results that we're getting internationally. Singapore is a little down; they've faced some challenges on the revenue growth side, largely because they were engaged during the peak of COVID with a lot of disinfection services and those have disappeared. Overall, internationally, our Canadian operations are also doing fantastic and growing well. So it's all very positive on that front.

Great. Okay. Thank you very much, guys. Appreciate it.

Our next question is from Stephanie Moore with Jefferies. Please proceed.

Hi. This is Hans Hoffman filling in for Stephanie. Thank you for taking my question, and congrats on the quarter. I was just wondering, could you maybe dive in a bit on what drove the strength in the commercial and termite business?

A lot of that is having feet on the street and staffing; having the quality team on both the commercial and the number of home inspectors we have in the field is really about being staffed to handle demand and drive the sales results that we get. You look at our headcount of commercial account managers and the volume of home inspectors that we've added over the last 12 to 18 months. That's by far the largest driver of the growth that we're seeing.

Yes. I think you hit the nail on the head, Jerry. It's all about having the right number of people to handle the production of the sales needed to grow those service lines. That only grows by having feet on the street; it’s not lead driven like the residential side.

Got it. Thanks.

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

Okay. Well, thank you for joining us today. We appreciate your interest in our company, and we look forward to updating you in February for our fourth quarter earnings. Thanks again.

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