Greetings and welcome to the Rollins, Inc. Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ken Krause. Thank you. You may begin.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rollins third quarter 2023 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, Thursday, October 26, 2023. Good morning everyone and welcome to our third quarter call. This is Ken Krause. Before we begin, I'd like to take just a moment to formally introduce Lyndsey Burton. Lyndsey is our new VP of Investor Relations joining us most recently from Home Depot. She brings a very strong background in Investor Relations and we're excited to have her join our team at Rollins. I look forward to introducing her to many of you in Q4 as we attend several investor conferences. Welcome Lyndsey.

Thank you Ken, and good morning everyone. In addition to the earnings release that we issued yesterday, the company has also prepared a supporting slide presentation. The earnings release and presentation are available on our website at www.rollins.com. We have included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation as well as in our earnings release. The company's earnings release discusses the 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 yesterday's press release and the company's SEC filings including the Risk Factors section of our Form 10-K for the year ended December 31, 2022 and our Form 10-Q for the quarterly period ended September 30, 2023, which will be filed later today. On the line with me today on speaking are Jerry Gahlhoff, President and Chief Executive Officer; and Ken Krause, Executive Vice President, Chief Financial Officer and Treasurer. Management will make some opening remarks, and then we'll open the line for your questions. Jerry, would you like to begin?

Thank you, Lyndsey. Good morning everyone. I'm pleased to report that Rollins delivered another good quarter of growth and profitability, reflecting consistent execution of our operating strategies and continuous improvement in our business. Our financial performance for the third quarter was highlighted by an increase in revenue of over 15% to $840 million. I'm pleased to report that we continue to see organic growth of over 8%. Further, this reflects a solid performance across all major service lines, as Residential increased approximately 20%, Commercial Pest Control rose approximately 12% and Termite was up 11% this quarter. Revenue performance in the quarter was robust following the slower June activity that we discussed in the last quarter. We saw consistent growth in the mid-teens each month of the third quarter. We have observed continued underlying strength in the pest control markets year-to-date, particularly within North America. Additionally, our addressable markets are large and fragmented and supported by several key secular trends including: a shift from DIY to do-it-for-me; population migration to warmer climates; changing weather patterns; and the stickiness of hybrid work schedules leading to people spending more time at home. As we look at our competitive position in these attractive markets, we believe we continue to benefit from several key elements of our business model. Over the last 15 years, we've consistently grown revenues through the great recession in 2009 and on through the industrial slowdown in the mid-teens. We reliably grew mid-single digits year-in and year-out. Revenue growth accelerated pre-COVID, and that has generally continued. We delivered high single-digit organic growth in each of the last 11 quarters. Let me highlight four key areas that we believe have differentiated us in the market and positioned us well to continue outpacing a market where secular trends should support mid-single-digit growth over the next several years. First, our leading portfolio of pest control companies gives us a unique position in our markets. The combination of Orkin and our strong group of regional brands gives us multiple bites at the apple with potential customers and additional cross-sell opportunities. Second, we use a variety of methods to acquire new residential customers and strengthen our relationships with existing customers. Digital marketing, cross-selling, service bundling, and door-to-door sales methods all help us reach new customers or drive further engagement with existing customers. We have important relationships within the homebuilding and real estate market communities through brands like HomeTeam and Northwest. We're able to capitalize on this multi-channel approach to drive residential customer growth. Third, we're investing in commercial customer acquisition targeting key strategic verticals that are the most profitable. This is paying off, with 12% growth in the quarter. And lastly, we have clarity of focus and have been consistently executing our strategy in our core market for a very long time. This focus ensures we don't make unnecessary changes and enables us to continue to grow our share in a very attractive pest control market. These points of differentiation have positioned Rollins to achieve a healthy level of organic growth, further complemented by strategic M&A. Regarding the recent acquisition of Fox Pest Control, the integration remains on track. The Fox teams are executing and doing well, and we continue to be excited about the growth opportunities ahead for the Fox brand. Additionally, through the first nine months of this year, we closed 18 tuck-in deals in addition to Fox. The M&A pipeline remains healthy and we're actively evaluating acquisition opportunities both domestically and internationally. Acquisitions are an important component in helping us expand our market position while also helping to accelerate recurring organic growth. We remain disciplined in evaluating M&A opportunities and are confident in our ability to invest in the right strategic acquisitions while delivering strong organic growth across the business. Our dedication to continuous improvement is a significant part of our strategy and culture. As we've discussed previously, we're constantly looking to improve our service levels and operating efficiencies. In August, we took an important step towards increased efficiencies in our Atlanta Support Center to accelerate our growth goals. For the first time in about 20 years, we executed a restructuring program designed to support our modernization efforts and flatten our overhead structure. We plan to reinvest cost savings into initiatives that further enable our growth priorities and allow us to serve our frontline operations more efficiently. We continue to see opportunities for margin expansion as we move forward and execute our strategy. Ken will provide more detail regarding the margins in the quarter shortly. Operationally, we're committed to developing talent and investing in our teams. Hiring has been healthy, and we put energy into onboarding the right people in both support functions and the customer-facing side of our business. Effective sales and service staffing helped us capitalize on continued strength in demand and achieve high levels of organic growth both in the quarter as well as year-to-date. We remain focused on safety and I'm pleased to report that we have seen our average mentor driver safety score increase over 25% since the beginning of the year. You'll recall that this driving score is derived from an app we implemented to monitor driving behaviors while our vehicles are in motion. Improving the safety culture isn't something done overnight, but we are making strides and we're encouraged that our claims activity had less of a negative impact on our financial results compared to a year ago. We are working hard in the field to increase safety awareness and training while recognizing and rewarding those that are the safest. We believe these efforts will keep our people safe and mitigate negative financial impacts to our business. We remain focused on creating value and returning capital to our shareholders. We're pleased to be in a position to increase our dividend by 15%, and we are committed to a growing and sustainable dividend. Additionally, in the third quarter, we completed $300 million in share repurchases. The moves we made earlier this year in modernizing our capital structure by refinancing and expanding our revolver gave us the flexibility to participate in a repurchase at a very attractive price. Our modernization efforts continue to progress well, but we're not done yet. We look forward to sharing additional developments on this front over the coming quarters. In closing, before I turn the call over to Ken, we are excited about where our business stands today. We're well-positioned for the remainder of the year and remain focused on robust organic growth delivering healthy incremental margins and continuing to attract, hire, and retain top talent across the business. I'll now turn the call over to Ken.

Thanks, Jerry, and good morning, everyone. The third quarter reflects continued strong execution by the Rollins' team. Let me begin with a few highlights. First, we delivered robust revenue growth of over 15% year-over-year. We saw good growth across each of our service offerings. Organic revenue was up over 8%. Acquisitions drove the other 7% of the total revenue growth. Second, our gross margins were healthy, approaching 54% this quarter. We continue to be positive on the price-cost equation and saw good performance across several key cost categories. Adjusted EBITDA margin of 24.8% was strong, improving 150 basis points driven by leverage across the P&L. Our GAAP earnings were $0.26 per share, and excluding certain expenses related to the Fox acquisition and severance costs for the restructuring that Jerry just mentioned, adjusted earnings per share were up 27% to $0.28 per share. And last but not least, we delivered operating cash flow of $127 million and free cash flow of $121 million, both up slightly versus last year. Cash flows were impacted by the timing of certain payables at the quarter-end. Let's look at the quarterly results in a little more detail. Quarterly revenue was $840 million, up 15% on a reported basis. Currencies reduced revenue growth by 10 basis points. Organic revenue growth was very healthy at above 8% this quarter, improving from the second quarter levels. We continue to see good demand for our services and our acquisitions, most notably Fox, continue to deliver value in the third quarter. Turning to profitability, we realized a 150 basis point improvement in gross profit margin as pricing more than offset inflationary pressures. While Fox was accretive to gross margins by about 30 basis points, we saw a 120 basis point improvement in organic margins in the quarter. Setting aside improvements associated with the more favorable claims experience and the contribution of Fox, we saw a 50 basis point improvement in gross margin as leverage from people costs as well as materials and supplies more than offset pressure from fleet due to lower gains on the sales of leased vehicles versus a year ago. We are pleased with our ability to leverage our cost of services as we continue to benefit from a more consistent pricing discipline across all of our brands this year. SG&A costs as a percentage of revenue decreased by 20 basis points in the quarter. Excluding the earn-out adjustment for the Fox acquisition, SG&A costs as a percentage of revenue decreased by 30 basis points in the quarter. Peeling back the SG&A layers a bit more, people costs, advertising and selling costs along with insurance and claims, make up the bulk of our SG&A spend. Margins benefited year-over-year associated with improved claims experience but were negatively impacted by increased advertising and selling expenses as we invested to drive growth in our business. As Jerry mentioned, for the first time in 20 years we executed a restructuring program at our Atlanta Support Center to further support our modernization efforts. Roughly 15% of our back-office employee population was impacted and we intend to reinvest associated cost savings in both people and systems to drive further change and increase productivity as we work to become a better, more efficient provider of shared services for our frontline operations. As I mentioned earlier, we had non-GAAP adjustments this quarter for restructuring costs and Fox acquisition-related items. These totaled approximately $10 million on a pretax basis and were related primarily to Atlanta Support Center severance costs along with purchase accounting amortization and the fair value of contingent consideration on the Fox acquisition. GAAP operating income was $177 million, up 22% year-over-year. Adjusted operating income was $187 million, up approximately 29% versus the prior year on 15% total revenue growth. EBITDA was $202 million, up 19% year-over-year and EBITDA margin was a healthy 24.1%. Our adjusted EBITDA was $208 million, up over 22% and representing a 24.8% margin. Margins were up 150 basis points versus a year ago primarily related to the improvements in gross margin discussed previously. Fox was neutral to EBITDA margins in the quarter. Year-to-date, our adjusted EBITDA margins improved 90 basis points versus a year ago with 20 basis points of that improvement coming from the Fox acquisition. Excluding this, 70 basis points, was driven across the remainder of the business. As we've consistently indicated, we like to look at the business using incremental margins, meaning what percentage of every additional dollar of revenue growth is converted to EBITDA. On an as-reported basis, we generated incremental margins of over 29% and excluding the restructuring costs and the additional costs associated with the earn-out on our recent acquisition, incremental margins were almost 35%. Year-to-date, we generated incremental margins on an as-reported basis of over 27%. And on an adjusted basis, incremental margins were almost 30%. Quarterly GAAP net income was $127 million or $0.26 per share, increasing from $0.22 per share in the same period a year ago. Adjusted net income was $136 million or $0.28 per share. The effective tax rate was approximately 26% in the quarter and for the first nine months the ETR was 26% as well, up over 100 basis points compared with 2022 driven by higher foreign income taxes. Turning to cash flow and the balance sheet. Quarterly free cash flow remained healthy. We generated $121 million of free cash flow in the quarter versus $119 million a year ago. As previously discussed, quarterly free cash flow was impacted by the timing of certain payables primarily related to our door-to-door sales. Year-to-date free cash flow was $354 million, an increase of 11% versus last year. During the quarter, we made acquisitions totaling $21 million. We paid $64 million in dividends, and we completed a share repurchase of $300 million at below $35 a share. We repurchased 8.7 million shares and used our revolver to fund this purchase. We expect this to be less than 1% dilutive to results in the first year and minimally accretive in the second year. Debt remains negligible and debt-to-EBITDA is below one time on a gross and net level. Our strong cash flow profile has enabled us to execute a very balanced capital allocation strategy this year. Year-to-date, we have invested approximately $350 million in acquisitions, repurchased $300 million of our shares, and paid $192 million in dividends, a 30% increase year-to-date. Additionally, we just announced another 15% increase to our dividend earlier this week. This marks over two decades of consecutive increases in annual cash dividend payments. We remain active in pursuing additional acquisitions. Looking at multiples, we remain very disciplined. Year-to-date we have invested approximately $350 million in acquisitions and the market remains highly fragmented; we continue to be an acquirer of choice and a very active participant in our markets. In closing, our performance this quarter continues to demonstrate the strength of our business model and the engagement level of our team. Our family of brands are driving profitable growth, and we are focused on continuous improvement across the business. We remain focused on providing our customers with the best customer experience and driving growth both organically and through disciplined acquisitions. With that, I'll turn the call back over to Jerry.

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

Thank you. Our first question comes from the line of Ashish Sabadra with RBC Capital Markets.

Thanks for the question. It's great to see the business gaining strong momentum. I wanted to clarify something. You mentioned various ways to attract new customers, but I am curious about the current demand environment. Have you noticed any slowdown in demand? You've indicated that month-to-month performance has been consistently strong, but have you observed a greater emphasis on certain selling strategies compared to others? Thank you.

This is Jerry. Thanks for the question. I think some people think the entire market demand is driven by whatever someone's seeing in digital. And that's not always the case, especially for our business. When you look at the digital side, it was relatively flat or maybe even slightly down. And that's really where our strategy to have lots of approaches for how we acquire customers plays a differentiating factor for us. So while the digital segment was certainly, I think, on the flat to slightly downside, our diversified strategy is really what's paying off for us.

The only thing I would add there are two points. One, the growth across the business is quite impressive. When I look at the business in the quarter, we saw broad-based growth, not only on a quarterly basis but consistent growth across all of our family of brands. So that was really good to see, first. And second, we exited the quarter and went into October, we continue to see a really healthy demand level. If you might recall, a year ago we saw a lot of business from a really tough hurricane season in September get pushed into October. So to see good momentum into October also gives us a bit of optimism as we think about the future.

I think it's also important to mention that what we've seen across, say, the US and Canada in particular, across North America, is that all of our businesses are doing well, and geographically, not only from an individual brand strategy but also from a geographic strategy, they're really all doing quite well.

That's great color. And just maybe on my follow-up. I wanted to talk about the solid incremental margins that we've seen of 35%. As we think about the modernization efforts that you've worked on, how should we think about the incremental margins going forward? Is that 30% to 40% sustainable going forward? Thanks.

It's a great question, Ashish, and thank you for that question. Our focus is to continue to deliver a very healthy incremental margin profile. This quarter, you're correct in saying that we were 35%. We continue to see an opportunity to deliver 30% incremental margins upwards of 35% to 40%, depending on a multitude of factors. We certainly have confidence in our ability to deliver a 30% incremental margin and continue to see EBITDA margins lift as we go into the future. It's a great business. It's an essential service. It's got pricing, and we're focused on continuous improvement across our business, not just in our back office. So with all those points, we continue to focus on delivering a very healthy incremental margin profile.

That's great color, and congrats on the solid quarter.

Thank you.

Thank you. Our next question comes from the line of Vicki Lu with Bank of America. Please proceed with your question.

Hi, good morning. Thank you for taking my question. This is Vicki on for Jason Haas. To start off, I'm just curious, have you seen any pushback from the 4% price increase, or is it more business as usual as you see?

Price increase has been – it's been a very healthy environment as what we've seen from a standpoint of price increase. You may see certain zip codes where you might see challenges, but you see other zip codes where you don't see much challenge at all. But overall, we see it as a very healthy environment for our essential services.

Yes. Thank you. And then to follow up, do you think your customers can take another price increase on a similar scale in 2024?

We're going to – this is Jerry. We're going to evaluate that. We're here in the fourth quarter when we start really taking a look at our price increase data that results from the last nine or 10 months and say what happened? What did we learn? And create our strategies for next year. And I guess my best advice to you would be to stay tuned. We'll probably update you on that at some point in the first quarter.

Yes, thank you so much.

Thank you. Our next question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Ken, Jerry, good morning.

Good morning.

Good morning, Tim.

Thank you for taking my questions. Two quick ones. So on customer acquisition, Jerry I think in your response to another question, you said the digital channel was kind of flat to down in the third quarter. My question on that is: is that new? Was it up in the first and second quarters of this year? Just trying to get a sense for how consumer demand in this particular channel has trended through the year?

I would characterize it in the first five months of the year as somewhat up. I wouldn't say it was something that – we didn't see any double-digit increases very consistently. We may have had some better months than others, but it wasn't up at a significantly higher level than prior year. There were ups and downs. June is where we saw that almost double-digit decrease for those three weeks in June that was out of character, but then it just rebounded in July. So I would say it's been dynamic and maybe the word is a little volatile over the summer but then it's now seemed to stabilize consistently over the past few months in terms of flat year-over-year. So I don't know if that helps, but I think that's the story of the last nine or 10 months.

No, that's extremely helpful. There's a lot of folks out there trying to figure it out on their own and looking at your trends. Hearing it from you directly is very helpful. I fully appreciate that you have many different channels in which you acquire customers, but thanks for the detail on that. The other thing I want to ask about is customer acquisition costs. Customer acquisition costs in the digital channel I know have risen over time just like they have for everybody – I'm curious if you're seeing a narrowing, I guess, in the gap of customer acquisition cost between digital and door-to-door? And if so, do you plan to expand the usage of that D2D channel more extensively in future periods?

So yes, that is something – that is a trend that we've seen as more pest control companies have matured in the digital space. We have seen say the Googles of the world be able to pass along higher costs to us in terms of – especially for things like pay-per-click and those kinds of services. So you see that rise. And I also want to point out just because demand is flat through Google search data or something like that or it's down 1% year-over-year or somewhere along those lines doesn't mean you as a company can't perform or take a larger share of that demand. We have great marketing teams, certainly at Orkin and throughout some of our other brands as well that do some of the digital activity, and they can achieve more with the dollars spent in that market. But back to your original question, we certainly have seen over time over the last several years an increase in digital customer acquisition cost that narrows the gap between door-to-door and digital. When you look at the door-to-door model, you think that can be a pretty good model if you sell it right, and especially when you consider that door-to-door is selling you density because they're working neighborhoods and you're picking up a much denser population compared to the onesie-twosie stuff coming in from all over a metropolitan area on the digital side. So when you factor the efficiencies that door-to-door bakes in long term, even though it's a little bit more money upfront, it is a really strong offering from a long-term standpoint.

Got it. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Josh Chan with UBS. Please proceed with your question.

Hi, good morning Jerry and Ken. Congrats on a good quarter. I guess I wanted to ask about the customer acquisition split, I guess. You mentioned digital and door-to-door mostly on this call, but I guess of the ways that you acquire customers, could you just give us like a rough ballpark on how what channels they typically come through?

Got it. You're asking like what percent of customers come through which channel?

Yes, exactly.

Yes, we really don't disclose that information.

But I would say that today, a much larger portion comes through a digital channel or more comes outside of door-to-door than comes from door-to-door.

Yes. There's digital. There's the consumer awareness that makes the phone ring when they call us; they know our brands. They know our name and they call us automatically, never have to go to Google to do a search because they've seen our name, phone number, or they see a vehicle in the neighborhood and they make the phone call, right? So the word of mouth is still a powerful channel. So it's really all those things that come into play to drive that, but certainly digital is an important part. But we also don't like to over-rely on it as well. We also think about technician sales. We've put a great deal of emphasis. One of the things you learn in this business is when you're not staffed, your technicians don't sell. If they're too swamped with too much work to do, they're not going to go out. When somebody down the road talks to them, they're going to be a little less hesitant to want to sell that new job because it's just more work for them. But when you're staffed and your technicians get engaged, we see increases in our technician sales and their activities as a result of our better staffing levels. So it’s all these ways that we can acquire customers.

Right. Thanks, Jerry. And then I guess on the restructuring side of things, is there a way to think about the payback period of the cost? And what kind of savings do you expect to generate from those efforts?

Yes, it's an attractive payback, Josh. Thanks for the question. When you look at the spend, the $5 million or so of spend, there's probably close to $8 million to $10 million of compensation associated with that. My experience has been a one-year payback is very acceptable. You can see a six-month payback on the spend associated with the restructuring here. That said, I think if you look at the prepared commentary, we're focused on reinvesting as well. There is an opportunity to reinvest in new talent like Lindsey. She kicked off the call today, our new Head of IR, new folks across all of finance and accounting IT; we're making significant changes in as well. Other back-office functions as well. So we're looking at how to upgrade the talent and how to modernize what we do. Some of that is going to take some reinvestment of that $8 million to $10 million.

Sure. That makes a lot of sense. Thanks, Ken. Thank you both for your time.

Thank you.

Thank you. Our next question comes from the line of Aadit Shrestha with Stifel. Please proceed with your question.

Good morning. Thanks for taking my questions and congratulations on a strong quarter again. So, what was the internal cost inflation? Is it still predominantly fleet related? And how has this trended through the year? And just kind of related to that you talked about price/cost spread; it remains positive. I think it was around 50 basis points. How has that trended versus Q2 or Q1? And how do we think about it for the remainder of the year and into 2024?

So, it's Ken. Our focus is to continue to positively manage the price/cost equation. If you look at the input costs in our business, a large percentage of the cost of services provided are people costs, materials, and fleet. For the most part, we've done a really good job at leveraging and improving the efficiency over those costs throughout 2023. If I go back to Q2, for example, we saw improvements in margin. Some of that was related to Fox. We also had headwinds if you remember from the casualty reserve. But when you separate those two, in the second quarter, we saw improved margin similar to what we saw this quarter. What we saw this quarter was outsized improvement associated with the casualty claims and insurance costs. If you go back to last year in the third quarter we were very transparent in talking about a very unfavorable headwind associated with insurance and claims. So we were able to see improvement from what we saw last year. But our focus is to continue to be positive on the price/cost equation. The only headwind we saw in the quarter within our organic cost was in fleet, which specifically was related to lower gains on the sale of leased vehicles. We discussed that in Q2 and highlighted that we would see some of that in Q3, and we did see it, but we were able to fully offset that and see improvements. That's our focus – continued improvement in margins as we go forward.

Alright, thank you so much. Just as a follow-up, I think free cash flow conversion and you pointed out there was a significant payment; you brought it down to 94% conversion. I think year-to-date, you're tracking around 110%. Historically, it averages around 120%. So do you expect Q4 to pick up and you actually get back to that 120% conversion for the year? How do we think about it long term, like beyond 2023 and maybe into 2024, how much more can it improve?

Yes. It's a business that's very capital light. When you look at the cash flow profile, it's hard to find a business that this investing 7% to 8% in working capital has very little CapEx and enjoys the benefits of that and has been compounding cash flow at 10% to 15%. Our focus is just that: how do we continue to compound cash flow in that teen range? How do we continue to convert net income and earnings at above 100% of net income? The third quarter had an impact; we saw payables come down considerably. We paid some payables as we closed out the third quarter. Our focus is to improve that as we go into Q4 and beyond. That continues to be our focus. We're focusing on driving high levels of cash flow performance and compounding in the ranges I previously discussed.

Thanks a lot.

Thank you. Our next question comes from the line of Stephanie Moore with Jefferies. Please proceed with your question.

Hello. This is Harold Antor filling in for Stephanie Moore. I have a quick question. How did the weather trend during the quarter? Additionally, in 2021, there was an increase in the hiring of sales professionals. Are those individuals working at full productivity? How does that impact organic growth in the quarter? Thank you.

So on the weather side, we had a pretty good weather quarter. Last year, as Ken mentioned, we had a hurricane that came through at the end of September that affected the Southwest Florida region. So we didn't have that type of event. I would categorize it as favorable. And then as it relates to hiring of salespeople, we've been very effective. When you look at our commercial growth, a lot of the investments we've made both in commercial and to some degree certainly in the residential side, and our termite and ancillary services have been the result of the effectiveness and efficiencies that we're getting from a sales productivity standpoint of those sales teams that we've added. Looking back over the third quarter of 2022, we've added over 60 more commercial account managers into the Orkin brand alone over the past year that's really helping us; that's an investment we make in the business. It's helping us drive that growth. We see a great opportunity in the commercial space.

Thank you. And then just on M&A. Given where interest rates are in a certain markets, are you seeing more willing sellers? How much TV is in the market? For your acquisition strategy, are you acquiring more traditional companies or more companies similar to Fox Pest Control that are door-to-door?

We're seeing everything still in the market. Businesses are still owners are still interested in selling their businesses and the pipeline flow remains good, and we're open to looking at all types of businesses that fit our model that help us continue the growth pattern that we strive to achieve. These businesses that are accretive to our margins that will help us grow in a healthy positive way, all seem to be positive.

Yes. The only thing I would add is pricing, which everybody is always focused on what we’re paying for acquisitions. Two points I want to raise with respect to that. One is we don't compete on price. Our focus is to be the acquirer of choice, and we've been successful being the acquirer of choice for a very long period of time. When people are ready to sell their business and are focused on brand preservation and their people, they sell to our business. When we look at the business this year, we've invested $350 million in acquisitions. I would say that the multiples we've paid for that $350 million investment is probably below the overall long-term average from a multiples perspective. So we feel good about what we're spending, how we're competing, and the success that we're driving through acquisition.

Thank you. Our next question comes from the line of John Mazzoni with Wells Fargo. Please proceed with your question.

Hey, good morning. Thanks for squeezing me in. Maybe just to double click quickly on the commercial side. Could you maybe just talk more about the target vertical strategy as well as anything on technology that really is accelerating the kind of organic growth profile? And maybe also just again, the 60 kind of added reps have been helpful. But just to talk about the kind of sustainability of that growth going forward? Thanks.

So, on the commercial side with targeted verticals, we've talked about this over the last few years especially as we come out of the tail end of COVID and the investments that we've made there. Our research on our customer database shows there are certain much more highly desirable verticals that we like to sell into and service into; things like hospitality or health care, hospitals, logistics, warehouses, distribution centers. Not that we don't want everything commercial, but we have really targeted our focus on certain verticals. When we bring on new commercial account managers at Orkin, we're really getting them focused on working with those types of target customers from a B2B standpoint. I’ve also discussed some of our tools like Marketo that help us from a B2B standpoint that help our outside salespeople on the commercial side with warmer leads, making them more productive and more effective quicker. That’s a relationship sell. It takes some time. So we've been very deliberate about that since we started this program, probably midway through COVID, seeing that opportunity coming once we were on the backside of COVID and that would be a great opportunity for us to capitalize on. We're again taking a long-term view and a long-term approach to our business, and that’s what you're seeing – the results and the payoff of that now.

Great color. Thank you. And then maybe just to quickly touch on competition. Have you seen any change in the competitive landscape? And perhaps has there been any pullback in either smaller regional players or large national players?

It's still a healthy competitive market, highly fragmented, with many players involved. We haven't observed any significant changes in the competitive landscape that are noteworthy. It's still competitive out there.

Thank you. Perfect. Thanks again. Congratulations on the strong results.

Thank you.

Thank you. Our next question comes from the line of Oliver Davies with Redburn Atlantic. Please proceed with your question.

Yes. Good morning, guys. Just a couple of questions for me. You mentioned on the Q2 call that organic growth is running at about 10% in July, which sort of implies that the rest of the quarter is about 7.5%. Can you just talk through the sequential movement you sort of witnessed through the months and into quarter-end? And then just another one on gross-before margin. Are you able to give a split of organic growth between kind of new customers and cross-selling into the existing customer base?

Regarding the second point about the margin profile of customers, we do not track that level of detail in our business. However, I can tell you that cross-selling remains a significant part of our strategy. It is crucial to offer multiple services to a single customer for various reasons, and it continues to be a focus for us. We are seeing positive momentum in that area of our business.

Yes. When you look sequentially between July, August, September from a growth rate, you're right; July was a pretty big month where we saw higher levels of organic. But then as we move through the quarter, it remained strong too. It was more in line with our historical averages. It was strong organic growth to close out the quarter as well.

I want to add that when we look at Q2, we discussed a weak June at the end of that quarter. It's reasonable to consider that some of the business from Q2 may have shifted into Q3 in July, which could have slightly increased that number. However, aside from that, there was nothing unusual regarding the growth, which remained healthy throughout.

Thanks. Sorry, I mean just can you give a split of organic growth between new customers and cross-selling?

No, we don't. Unfortunately, we don't track that level of detail to a point where I could provide that to you right now. But I can tell you that the growth is healthy. I mean the growth is healthy across both of those areas. It's been healthy for us.

Okay. Thanks. And then just on adjusted EBITDA last year. I think it was negatively impacted by 140 basis points on the casualty reserve increase. So I guess if you add that back to last year's margin, you sort of get 24.7% versus the 24.8% delivered this quarter. Can you just talk about the moving parts? Is that still a pretty big drag on margin?

The main issue to consider is that the insurance markets have faced significant challenges. While claims are one aspect, the insurance environment continues to tighten. Last year, we experienced a negative impact on claims, which has, unfortunately, not improved this year in Q3, as insurance costs remain high. However, we are seeing substantial progress in our underlying business. The improvement is not as high as 150 basis points, and that's why we clearly communicated that during the quarter, excluding the Fox improvement, we saw a 50 basis point enhancement in underlying margins. We are optimistic about our capacity to keep improving margins moving forward.

Okay. Thanks very much.

Thank you.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to management for any final comments.

Thank you everyone for joining us today. We appreciate your interest in our company and we look forward to updating you on our fourth quarter earnings call early next year. Thanks again.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.