Operator
Greetings and welcome to Rollins, Inc. second quarter 2026 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lindsay Burton, Vice President of Investor Relations. Thank you. Please go ahead.
Thank you, Donna, 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 factor section of Reform 10K for the year ended December 31st, 2025. On the line with me today and speaking are Jerry Galoff, President and Chief Executive Officer, and Will Harkins, Executive Vice President and Chief Financial Officer. Management will make some opening remarks, and then we'll open the line for your questions. Jerry, would you like to begin?
Thank you, Lindsay. Good morning, everyone. Our second quarter results did not meet our expectations, driven primarily by slower growth within certain portions of our residential pest control business. The pressure was concentrated in brands such as Orkin that rely more heavily on consumer-initiated demand through search, digital media, and inbound calls. The lead environment got progressively worse as we moved through the quarter before showing signs of improvement at the very end of June. Our experience with respect to a slowdown in underlying residential demand was not broad-based across the portfolio. Brands that generate customers through relationship-based channels like direct sales with home builders delivered organic growth above our targeted 7% to 8% range for the quarter. For example, Home Team experienced double-digit residential growth, as did Fox, who leveraged their door-to-door sales force to grow in the high teens organically during the quarter. This is a testament to the importance of our diversified, multi-brand approach. And beyond residential, our termite and ancillary business delivered solid double-digit growth, while commercial grew high single digits, demonstrating that strategic investments we have made in support of these service areas continue to pay off. We've spent a great deal of time evaluating the drivers of the slowdowns in parts of our residential business, and candidly, we don't believe there is a single explanation. It's important to note that the underlying health of our customer base remains strong, and there were no notable shifts or deterioration in customer retention trends. While precise drivers are difficult to isolate, what we do know is that customer demand patterns have been more variable to start peak season than we've experienced in the better part of it. Regardless of the underlying drivers, our focus is on the actions needed to drive improved performance. We have implemented organizational and operational changes designed to strengthen accountability, improve execution, and better align our resources with current demand conditions. We recently promoted Scott Weaver to Chief Operating Officer of Oregon North America. Responsibility for all ends of his scope of responsibility to include both residential and commercial operations for the U.S. as well as Canada. This will provide a better span of control, with all division presidents now reporting to Scott, who will continue to report to Pat. Acquisition results, sales productivity, local market execution, and labor efficiency, while maintaining the customer service standards that have differentiated us as the leader in the market. With respect to near-term trends, we were encouraged that inbound lead flow and call center volumes improve towards the end of June and have continued a positive trajectory through the first few weeks of July. Confidence in the long-term opportunity remains unchanged. We operate in a large and fragmented market with a diversified portfolio of leading brands, strong customer relationships, a significant recurring revenue base, and a team that has the experience needed to successfully navigate near-term market conditions and improve performance. I'd like to thank our 20,000 plus teammates around the world for the hard work and dedication to serving our customers every day. I'm now pleased to turn the call over to Will. This marks his first earnings call as CFO. We're excited to have his leadership at Rollins and I'm personally grateful for the partnership we're building. Will, take it away.
Thanks Jerry and good morning everyone. I'm pleased to join you today for my first earnings call. I look forward to providing a clear view of our second quarter results, our updated outlook, and the actions we are taking to improve performance. I will begin with our quarter revenue increased 7.9 percent, while organic growth was already mentioned the primary. We delivered growth across each of our service offerings. In the second quarter, residential revenues increased 6.6 percent, commercial pest control increased 8.6 percent. Growth across the portfolio was 3.6 percent in residential, 7.2 percent in commercial, and 8.9% in termite and ancillary. Turning to profitability, as the measure remained aligned with the stronger growth outlook we anticipated, the margin was 52.8%, a decrease of 100 basis points. Lower-than-expected volume in the quarter, coupled with higher people-related costs, including medical plan expenses and service salary deleverage, which together represented 70 basis points, represented an additional 20 basis points of headwind, driven primarily by fuel. Fuel costs represented approximately 1.8% of sales, expected to remain below 2% of sales, and at a 10 basis point of headwind. The remaining pressure was attributable to other general and administrative. Operating income was $201 million, an increase of 1.5% year-over-year. Adjusted operating income was $210 million, an increase of 2% compared with the prior year. And second quarter adjusted EBITDA was $236 million, an increase of 2.2% versus last year. which represented a 21.9% margin. The effective tax rate was 24.2% in the quarter, compared with an even 26% last year, reflecting the work our tax team has done to improve our ETR. We expect our effective tax rate to come in under 25% for the year, down approximately 100 basis points from historical levels. Quarterly GAAP net income was $144 million, where we had non-GAAP pre-tax adjustments associated with acquisition-related costs and other items totaling approximately $10.8 million in the quarter. Accounting for these expenses, adjusted net income for the quarter was $152 million, or $0.32 per share, an increase of 6.7% from the same period a year ago, $3 million, and free cash flow of $166, the percentage of income converted into cash flow, was above 115% for the quarter. growth was negatively impacted by the continues to deliver meaningful benefits and is contributing to significant improvements in our ETR. We expect the timing-related headwinds to cash flow growth that we have experienced year-to-date to reverse as we move through the remainder of the year, particularly in the fourth quarter. We completed acquisitions totaling $117 million and paid $88 million in dividends. We continue to expect M&A to contribute 2% to 3% of revenue growth for 2026. At one times, and our balance sheet remains strong and positions us well to continue executing against our growth priorities while returning capital. Under 2026, we remain encouraged by the strength of our markets and the engagement and execution of our teams. At the same time, we recognize that our performance fell short of our targets, and our immediate focus is on improving the trajectory of the business through disciplined execution and operational improvement. the balance of the year with discipline, transparency, and a clear focus on the controllable actions that will improve performance. Given our first half results and the visibility we have today, we are updating our full year outlook. We now expect organic growth of at least 6% for the year and incremental margins of at least 10% for 2026. With implied margin improvement in the back half of the year to be Q4 for 2 to 3% of growth, from our expectation, the cash flow will continue to convert at a rate above 100% remain unchanged for the year. The revision to our 2026 expectations reflects our current assessment of near-term operating conditions rather than any change to the medium-term algorithm we outlined at our investor day in May. We continue to believe this business is capable of generating organic growth of at least 7% while delivering meaningful margin expansion. The operational opportunities that underpin our longer-term margin framework remain ahead of us. Our ability to achieve incremental margins, sources by demand, and demonstrate consistent operational improvement. The actions we are taking, together with the growth and productivity initiatives outlined at our recent investor day, position us to deliver profitable growth and attractive shareholder returns.
Operator
Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We do ask that you please limit yourself to one question and one follow-up. Again, that is star 1 to register a question at this time. Today's first question is coming from Tim Mulrooney of William Blair. Please go ahead.
Yeah, good morning. Just a couple questions about top-line growth here real quick. The first one is just on the components of organic growth. Have you seen any changes in retention or pricing, or is this primarily just new sales that are pressured right now?
We've not seen any hesitancy from our customers on pricing. And as I mentioned in the remarks, our customer retention remains strong. Parts of the business that have made slight improvements in customer retention in the second quarter. So those two elements aren't drivers of anything that gives us any pause or any cause.
I thought that was the case, Jerry. I just wanted to make sure, so I appreciate that. So it sounds like it is just the top of the funnel issue, so maybe we could dig into that a little bit. But I'm curious, you know, why you think digital leads are slowing so much right now. I mean, I know they've been under pressure for a while. Sounds like, though, something really shifted in April and May. So I'm just curious, have there been any changes in SEO or from the LLM overviews that are impacting leads? Like, do you think this is an AI thing or do you think it's a softer consumer? or just curious what you think is going on here.
Tim, if you could be in the room to hear the number of hours and the amount of time and the research and the amount of effort that's gone into trying to explain that. That's why I called out that I think it's truly April was okay. April wasn't far off, did not start out great. And we thought, well, it's coming. We looked at lots of factors. You think, okay, May is when gas prices spiked, and maybe there's a little lack of consumer confidence. But yet, at the same time, we were still able to drive termite and ancillary with our existing customer base, and those close rates weren't impacted. So we felt like, well, maybe the consumer is still healthy. Then you look at birds, and just pets started diving into what's going on, especially in the one-time space. we look at data that shows certain there's certain tests what was the reason at one time they also tested the search environment we look different level levers to see hey can we change it can can we juice this can we create more demand can we and we were doing that you know testing only it just picked driven demand act for me and get it because having to go represent our operations in front of Randall Rollins operating operating meeting with Randall rollins and it was just like it just didn't come i'd rather have conversations with you about this than i would have uh with gary and randall at that period of time exactly what this felt like it just felt like a really what we attribute it to i think it's all kinds of things i think it's all these things it's a confluence of all these things likely uh and we also in terms of income maybe gets gets a little tougher so we're seeing those things but it's really not not one thing that we can put our finger on. It is what we're seeing now, and we're going to continue to make adjustments. We're also going to be disciplined about our spend and make sure we don't overspend and making sure we're...
Okay. Thank you, Jerry. I appreciate all that extra color. Good luck in the back half of the year.
Operator
Thank you. The next question is coming from Manav Patniak of Barclays. Please go ahead.
Thank you. I was hoping you'd just help us size, you know, Orkin and maybe all the other brands that collectively make up this, what you said was brands more reliant on consumer-initiated demand, and I guess even within that, how much is kind of self-help on your part versus you're just waiting for the consumer to reach out to you?
Yeah, thanks for the question, Manav. I mean, obviously, Orkin has a large residential customer base. Other brands like a Home Team and a Fox Residential, a lot of our other brands are not quite as focused. The larger ones are not quite as focused just on residential. They may do a lot of termite ancillary. They may also do a lot of commercial. And so the vast majority of the residential sits in between Orkin, Fox, Home Team on the residential pest control space and and the Orkin piece of that is very sizable in the whole, and so whereas they are more likely right now than Orkin, but the headwinds in volume and what Orkin is getting that effect is dragging that number down, that 3.6% range, just because they are.
Right, because it will cross the other specialty brands, that relationship.
That's right, Lindsay, and they're much like a home team brand, depends on what they do.
And then, you know, the 2Q17 analogy that you pointed out, maybe you could just help us with, you know, kind of what were some of the similar, you know, what caused that, I guess, back then, and then kind of how along perhaps it took you guys to come out of that.
Yeah, so that was one of those, I remember, because our Q2 close meeting was in early July, just like we had the same kind of meeting here. It's kind of like deja vu. What happened in that situation was that July came back and we were in pretty decent shape in Q3. It wasn't like a long recovery because once you got into the heat and the peak season again, it just sort of took back off. and it was a really awkward sort of pregnant pause of a waiting for that, as though we thought it was never going to come, but then it finally did. It happened around the 4th of July that year. It hit, and then all of a sudden we were off and running again, but it was a pretty painful. It was from I have scars. It was a pretty painful Q2, but we came right out of it in Q3.
Operator
Thank you. The next question is coming from Greg Parrish of Mork & Stanley. Please go ahead.
Thanks for taking my question. Good morning. So you talked about the improvement in late June and that persisting into July here.
Maybe can you give us a sense of kind of what that exit rate was and where you're at here in July to start? we we basically saw the the gap narrow back to being very similar rather than being down to prior year to being very similar felt to prior year that's that's the narrowing of of that that we saw and you're talking about lead flow there right in terms of the volume of inbound leads was uh was uh more in part from where we were a year ago that's right very very much in in comparison and and look we still we still are getting better quality leads i think the team is driving better quality leads so we're making some of it up in closure and start rate and still still managing to to get price uh in that so that that seems very healthy so we can deal with the if regionally if there's some pockets where the lead volume is down we can usually still make that up by lead closure but in months like may and parts of june where there was a just a massive gap we can't make that up through in closing efficiency yep okay that's helpful and i mean maybe just to turn to margin um your updated incremental margin guide is uh plus 10 you did eight in the first half so it doesn't imply a whole ton of improvement in second half you talked a lot
about margin, focus on margin, efficiency efforts, so just trying to reconcile those two, kind of what's in your control, what could lead to upside in the second half. Thanks.
Yeah, Greg, we, you know, as we look through the back half of this year, so through the first half, we're sitting at, you know, just below 8% of incremental margins, and so, you know, all those things that we outlined at Investor Day, talking through improvements with our fleet, talking about how we can better utilize, our procurement function from an M&S perspective, talking about employee retention, all those things still remain fully intact, but we're also really cautious because we realize Q3 of last year had a lot of, so we've got a pretty difficult number to hurdle as we go into Q3 of this year. We think we've got some good benefits that we may be able to pull through in the fourth quarter, but we're just trying to be cautious with what we know today, what we're seeing today. You know, we didn't expect to be posting an incremental margin of 6.5% in the second quarter, so that certainly, you know, changes our outlook for the full year. But, you know, we still think all the things that we've talked about, there's plenty of opportunity sitting here.
Yeah, there's opportunity that we have in the back half efficiency. We have no intention of staffing up the way better as we move forward. We're going to be working on that.
Operator
Thank you. The next question is coming from Curtis Nagel of Bank of America. Please go ahead.
Great. Thanks so much for taking the question. One, and apologies if I just missed this, any commentary on recurring sales within residential, you know, what did that look like?
Could you restate that question, Curtis?
Yeah, of course, Jerry. Yeah, just recurring revenue versus one time within residential. What did that look like in the quarter and, you know, How is that trending so far to start 3Q?
Yeah, the recurring has been healthier. We've been able to sell and convert and retain better on the recurring side. The one-time, when we started looking at the one-time categories, that has been the brunt of it, of the myth. So there were some parts of the second quarter where it could be down, was that kind of demand, which is often one-time, you know, see a rat, catch a rat, kill a rat, is down, could be, you know, 30 to 50 percent, and it's just like some of that kind of call volume and for what we would call occasional invaders and one-time type of pest, like stinging insects, just down, so whereas we did see much better growth on the residential recurring and the interest from the consumer was still there. The one time actually went negative throughout the quarter, and that's a significant drag to organic growth because especially brands like Orkin that are more pest pressure-driven versus prevention-driven, they're the ones that are going to have a larger impact from that, and that also affects things in the digital space.
Oh, okay. Maybe just to put a kind of final point and then I'll follow up, If you could quantify that, I think recurring in resi was somewhere around 7%, 1Q, what did that look like, and 2Q, and then just, it sounds like, you know, for the remainder of the year, I think fuel costs are supposed to be around, I think, under 2%, but, you know, I guess, you know, with costs, you know, rising even today, right, you know, I guess how that contemplated, and anything you're seeing on chem costs, is that, you know, are we seeing any pressure there? Is that in the guide? A lot of questions.
On the one-time volume, it went negative, like, mid-single digits. It wasn't steep in total, but it's still also, in the Orkin brand, a pretty sizable piece of their business. It went negative, you know, low to mid-single digits. When we think about fuel, I think the guide there is still towards under 2%. Under 2%. We experienced in the second quarter fuel costs were up 30% in total, and I think we managed that pretty well. One of the metrics I look at is, you know, fuel, we're helping to stop. We're helping to mitigate some of that through routing efficiencies and efficiencies in the fleet. We're helping to mitigate that. And our procurement team, you know, it's great. I get a monthly report from our procurement team about how they're looking through our materials and supply spend and continue to try to drive savings every single month on it. I think we have continued upside there to leverage our size, leverage our brand, make Rollins-wide decisions about some of the products that we use that continue to lead us down the road.
And, hey, Curtis, I would just say that, you know, we continue to anticipate those that we're seeing today from fuel and from medical. And then we don't really know where insurance and claims will go as well. I mean, we continue to see that, you know, as we have activity that we've had from years ago where we're encouraged by the benefits that we're receiving from our staff. But today what we see in our insurance and claims and certainly what we may see in the future months, we still have that as headwinds, but they're all contemplated in that 10 percent incremental that we provided. Maybe one thing to also add, you know, we see it as relatively consistent with our overall – Is it recurring somewhat – it sounds a little bit lower, but I guess somewhere around 7 percent.
But relatively consistent with our overall organic growth rate.
Organic – okay. Okay. Thank you.
Operator
Thank you. The next question is coming from George Tong of Goldman Sachs. Please go ahead.
Hi, thanks. In terms of the reasons behind the slowdown in areas of resi, relying on search, digital media, and inbounds, you mentioned looking at competitive trends. To what extent did your competitors also face this issue? In other words, what market share changes did you observe?
Yeah, you know, we do our best to monitor what's going on in the space as a whole. We try to monitor everything from our competitors that are, you know, direct and national competitors, regional competitors, mom and pops and activities that they're driving. And then we also try to monitor what's going on in the DIY space as well to see if there's, you know, factors there that could drive people towards that side of things. But we did not notice anything competitively that stuck out to us that somehow we're getting beat or somebody's taking more share. Again, we just went right back to it feels like the consumer for the better part of six, maybe eight weeks was just not seeing a problem and needing to solve a problem. It was just a little different there. And we have heard it from others of friends of mine in the industry that it felt softer. I don't want to speak for all of them and just say that that's the truth. But, you know, that's been the pulse that I've gotten is that it's softer across, which also validates research that it seems like it was a different consumer for a period of time.
That's helpful. And then you mentioned testing and experimenting with various strategies to try to counter the slowdown in the quarter. How much did your actions move the needle, or is this purely exogenous and not responsive to changes that you've tried?
Yeah, so that's, again, what points us back to the consumer, because we tried a lot of things, and it points to not being able to move the needle very much. So, you could take off limits. You could move dollars into other channels. We experimented with a lot of things, and it did not make much move to volume. Even if you wanted to increase your spend, it didn't move volume. So, again, it came back to it. It would move it incrementally because maybe I'm taking a little bit from a competitor, but it perhaps wouldn't have been worth the investment that we made in it. So this is also the reason for our multi-brand strategy, what we do. That's where we want to put dollars into more efficient routes. In the way we're running door-to-door, we get nice, sticky customers, and we can reallocate some resources and do a better job in door-to-door because that's where the better opportunity was. We're not hoping the consumer is going to call us because they see a pest problem. We're out there knocking on doors and selling.
Operator
Thank you. Our next question is coming from Josh Chan of UBS. Please go ahead.
Hi, good morning, Jerry. Well, thanks for taking my question. I guess on the channels, you know, does it make sense to you that the consumer would slow down only on the digital side but not the other side? Is it because the digital side kind of overwhelmingly, you know, skews one time as well?
Like, is that the alignment for why that channel particularly is softer? so i look at it like a lot of digital is see a problem solve a problem and you have something that you need to get taken care of or i've got ants in my pantry and i've tried to do it myself it didn't work now i'm going to call a pro i'm going to call the orkin pro and that that is and that's why we do brand you know a lot of the brands been in orkin to to invest in name recognition the power that brand. That's very responsive. When you're out selling door-to-door or we're selling through the Home Builder channel, those other things, that's your home type of a sale. You may not see any bugs. Well, we want to stop you from ever seeing any bugs. We want to be the people that protect your home from pests as well as termites and whatever, and mosquitoes, whatever else. And we sell that as a prevention if you're a new homeowner. And we also index in door-to-door indexes a little more on the higher end side of household income bands in terms of where they want to sell to so it's a it's a it's you're talking about a consumer the same consumer but it both are being met at a different place in time fulfilling a different need does that make sense okay yeah yeah absolutely that that makes a lot of things thanks and it's not that it's not Not that digital is necessarily more than one time, but it is more see something, see something, deal with something.
Okay. Yep. That makes a lot of sense. Okay.
And then I guess my other question is I know a lot of attention being paid today on residential, but it looks like the commercial and maybe termite ancillary growth were both a little slower than Q1.
Is that just normal fluctuations or do you make anything out of those movements in those businesses? yeah so the termite ancillary was a little slower as well in primarily in may it was strong in april strong in june may was just miserable um and and it was even a little bit a tad bit softer in the commercial side but commercial everything we see in commercial all the lead indicators when we're looking at sales efficiencies. We're looking at new accounts for landing, nothing but positive there. And that's one of the reasons we're so positive on our outlook in the second half is I know the commercial and the investments we make there are going to pay off. And I think we have opportunity to execute better and leverage returns on those commercial investments even better as moving to the back half and into next year.
Okay, great. I appreciate the callers of the day. Thank you.
Operator
The next question is coming from Jason Haas of Wells Fargo. Please go ahead.
Hey, good morning, and thanks for taking my questions. Are you able to give us any sense of, like, what the exit rate was in June or what you're seeing in July? I'm just trying to reconcile the comments that it sounds like things got better, but then the guidance is calling for 6% organic revenue growth. So, like, are you running the 6% range or, you know, what to make of that?
But, Jason, we were pleased with what the end of June showed us in our results, and we're pleased with what we're seeing so far in July, but we're trying to be cautious because I would say that we've seen now a couple of quarters of this, and we've had a quick shift. We've seen quick shifts, that's right. But certainly we're pleased with what we're seeing so far, but we are only two weeks into the quarter. And so it's just we've tried to make sure that we are going to, with the visibility we have today, Uh, we tried to factor all of that in and given that six plus for the full year, I would remind you that it's for the full year, but, um, yeah.
Okay, great. That, thanks. That, that makes sense. And then, um, sticking with the idea that maybe, uh, customers are, I guess, using an LLM first to try to solve their problem, if that is like weighing on the business, do you think that's because they're, um, able to resolve it with like a DIY method by getting like advice from an LLM on how to resolve it? And therefore, they're less likely to, like, you know, pick up the phone and call and get a professional in there to help, you know, diagnose and fix the problem? Or do you think the issue would be more that, like, you're using an LLM and that LLM is routing them to, like, a local provider rather than, like, an organ professional? And I guess, like, what's the, like, how do you, like, resolve that problem? Like, what can you do to change your, like, I guess, SEO to, like, show up better in those LLM results if that is the case? Curious, like, how are you thinking that through? I know it's pretty early, but I wanted to hear your thoughts on that.
Yeah, so I have seen for myself in the LLMs about how they kind of help you, direct you, and is that having an impact? Can I do this myself? Look, as an expert myself in that space, I know firsthand that, you know, there are a lot of problems that you may think you can control yourself, but you can't. So I look at that as I have ants in my pantry, and, yeah, I can find something and kill them there today, but it doesn't mean that they're not going to be back because you didn't find the source or you're not doing it quite the right way, that in three weeks they're not just going to be back and you're going to be calling us to some point because you can't do it yourself. And so, you know, the data also show that a lot of people don't want to do it themselves, but you're right. The LLMs can lead them that way. I don't know if that's a significant impact. We haven't seen that, but we are working, and we have some metrics that tell us how we show up in the LLM space and the things that we're working on there, and we're continuing to put effort and energy behind how we show up in those spaces. um you know there there's also coming a time here i think really soon as google's going to start uh and all of them are going to start monetizing that and so you know that'll be a whole different shift probably within a matter of months or weeks a great deal of confidence in our team that we're we're doing in that regard but is it possible and that when tim asked his question of all those things that's another one of those things that could possibly be coming together in a confluence on the resident. I can't say it's this percent or is it possible? Yeah, but I don't know exactly.
Okay, that's very fair. Thank you.
Operator
Thank you. Our next question is coming from Peter Keith of Piper Sandler. Please go ahead.
Hey, thanks. Good morning, everyone. So you're not the only company to talk about weakness in May. Tractor Supply out today, they had a tough May as well and lawn and garden. One thing we've been looking at is a significant uptick in drought conditions throughout much of the East Coast. We think drier conditions would prevent the spread of mosquitoes. I guess you did talk a bit about weather, but how do you feel about the drier ground conditions this year as a potential headwind on the business?
Peter, it's a great question, and I promise you we have dug into that one we went really deep both regionally we looked at top 50 markets and weather conditions and we tried to do a lot of attribution to what was going on saying most of which got it couldn't be proven as as as real what we what we do know is that it and i believe the pest pressure wasn't there. Now, is that weather-driven? Is it somehow weather-driven from something that got experienced four or five months ago? Did harsh winter knock down some populations that didn't overwinter? All these kinds of variables that are out there does have me more interested these days in predictive weather models, especially with This is something we tried years ago, trying to forecast demand in the future. But it does make me wonder if we have an opportunity for better models, given the processing power and the data that we have today. Those are things that we're looking at. But the month of May completely baffled me. And I had the same hypothesis that you did about, I said, weather. And it may just be pest pressure, and we don't know what pest pressure was driven by. It may have been weather, or it could have been weather months ago that affected it, that came to fruition in May. And just some year-over-year change there, it's odd. That's all I can do for you, Peter.
Okay, that's fair. And I guess I think what you're saying, too, is there wasn't really much regional variability in the business where weather could have had an impact.
That was the other side of it, is the volume challenges we saw were across the entire United States. There wasn't one place that just stood out as exceptionally well, and that's not normal. It's like the entire U.S., and that's, again, I think why our weather hypothesis did not hold up.
Okay. Thank you very much. I appreciate the insights.
Operator
Our next question is coming from Tomo Sano of J.P. Morgan. Please go ahead.
Hi. Good morning, everyone. Good morning. Thank you. So given the recent headwinds and analysis you've conducted around the slowdown in residential, just curious, how are you thinking about strengths of the organizations going forward, particularly with respect to demand forecasting and the design of your culture structure, please?
Yeah, so one thing I want to make crystal clear is that we are a very people-oriented organization, and we want to continue to invest in our people. We'll continue to invest in training, continue to invest in doing all the right things. And the reality is we need to execute better. At the end of the day, we need to be very internally focused to execute and execute better as we move through the rest of this year and into next. And I think we're not going to approach this in a short-sighted way and make irrational adjustments that are going to affect our business rooted in our people-focused culture. And we continue to invest in our programs like CoLab, I mean, you could have a debate that some of the training that is costing us a lot of money and the investments we're making in the business could be halted in the meantime, but we're not willing to discontinue those investments in our future and investments in our people. So if you have any concerns about that, please don't. We're going to continue to do the right thing, to have the right culture and invest in our people.
And Tomo, maybe just to mention one thing, you talked about the slowdown in residential, but we just want to remind you that it's not uniform across our business. So we saw a slowdown in certain parts of residential in the business, but not across all of our brands, which is why we feel confident in our multi-brand, multi-go-to-market approach.
And in some situations, for example, if the business isn't as great in one market and it's better in another and they have more demand. For example, we moved some work into the Fox price and our people invest in their trade.
Thank you, Jaylee. Well, just one follow-up. We understand they appreciate the company's long-term operating philosophy, which has been a key driver of its success over time. If you could give us like 10% updated incremental EBITDA margins, it's something like we should think about floor. Like when we think about the scenarios of more downside of the demand, in some of the areas in residentials or anything like you're thinking about stop, slow, continue to protect near-term margins on this level?
So Tomo, when we thought about that 10% incremental margin piece, that is really related to the fact that we've got to get our cost structure corrected for the demand that we're seeing right now. And so we are, again, outlining all the things that were already put out there at Investor Day. There are a number of actions we are going to take over the course of the back half of this year that we've been taking but that will drive even further. You know, 10%, the reason we said greater than 10%, we believe that's going to be the floor. So you just should make sure if you're trying to model this out, I hope you caught the part in my comments around the fact that it will be weighted to the fourth quarter. We are expecting to have a difficult cycle for Q3 or a number that we need to cycle.
Yeah, we had a perfect Q3 last year.
We had a great Q3 last year.
It's going to be challenging to lap, but we're going to work on it. We're absolutely going to try our darndest to get there. That's right. It's a more difficult quarter to lap, but Q4 certainly presents some upsides.
But for the full year, 10% are comfortable being able to.
Thank you. I appreciate it. Thank you.
Operator
Thank you. the next question is coming from Ashish Shabhadra of RBC Capital Markets. Please go ahead.
Thanks for taking my question. Just given the recent choppiness and revenue and margin, my question is more around the medium-term outlook philosophy. Why maintain that current guidance rather than lowering the bar and embedding some conservatism to making it easier to meet those in a tough environment, but also beating those expectations in a good market? So just question on the philosophy there.
You know, Ashish, thanks for the question. I, you know, as we look at it, we didn't feel like we needed to come off of it from the medium term perspective, because we still feel really confident in our ability to drive revenue growth. And so what we haven't seen in the last couple of quarters is the revenue to come through. And if you don't get that seven to eight percent revenue, it's going to be much more difficult to be able to see the flow through down through the P&L from a margin perspective. And so, you know, we again feel comfortable with the 10% for the year. I think we tried to model in, you know, the headwinds that we're already expecting, but also some offsets. We expect offsets in our fleet just as we start to cycle the gains that we had in the prior couple of years with the used car market. But, you know, from a medium-term perspective, when we think about that 30% plus, it really does feel like something that we have seen in the past and something that we will get back to because we've got so many things that are in the pipeline right now from a from a procurement perspective i mean jerry outlined a couple of these and sitting in my shoes i just know from an operational standpoint i don't think we were at our best we have we have opportunity in the back half of the year and and on a day-to-day basis and it's on the table in the second i just know that there's we've
identified those things and we're very very helpful color and maybe just a quick follow-up on And with the stock dislocation here, are there things from a capital allocation perspective that you can do, like take advantage of this market dislocation?
You know, Ashish, we, I mean, our capital allocation strategy is still very much the same as it has been for the past, you know, several years. And so, you know, we're reinvesting in the business. We will, you know, continue to think about M&A opportunities. That's where we see, you know, great use of our capital. Certainly, there is this dislocation that's going on right now. You'll see in our queue that we filed later today that we have done some pretty nominal repurchases related to we're trying to, you know, offer the burn rate to the market. Thanks, Ashish.
Operator
Thank you. The next question is coming from Stephanie Moore of Jefferies. Please go ahead.
Good morning. This is Harold Anto on for Stephanie Moore. So I guess you, on the margin front, you discuss people costs being a part of the headwind. So I guess just, you know, on the hiring side, I guess which inning are we in in the hiring side? Could you talk about retention in the hiring that you've seen? Do you still see a $50 million opportunity to improve margins? and then just, I guess, you know, anything on the salaries that we're ahead with, anything that would be helpful.
Yeah, thank you for the question. Maybe to just point out one thing. So we definitely, you know, see opportunities still for our retention, our employee retention, and, you know, the fewer people we have to hire because we keep the employees that we currently have, that's going to be a great opportunity for us in the future. We do not think that that has gone anywhere. This quarter in particular, and what we're even forecasting in our 10% incrementals for the remainder of the year, you know, it really was more around medical expense. So not so much just around the additional expense we're seeing from a medical perspective. We've heard that in our industry and other industries. I mean, medical is certainly a significant headwind for a lot of companies. And so that's where you heard us not so much employer retention.
Upside, you know, our seasonal hiring amounts, as slow as Q2 was on the residential side, resulted in some lower hiring.
That's all for me today. Thanks, Harold.
Operator
Thank you. Our next question is coming from Connor Sonelia of Bernstein. Please go ahead.
Great. Thank you for having me. Could you all speak a little bit about some of the difficult comparables you're lapping next quarter from last year? I know you commented that Q4 is where you'll really see the improvement. But just looking at insurance and claims last year, it was a pretty big tailwind. I think it was 1.8% of sales. More recently, it's been the 3% to 3.5% range. Am I right in thinking that there's a pretty stark difference in margins between Q3 and Q4, or is my math wrong on that front?
You have not done your math wrong. That is exactly right, Connor. I would just say that, you know, yes, we hope that we're going to have a more favorable Q4. But we know in Q3 that we definitely, everything went in our favor in Q3. I mean, our insurance claims, everything aligned. I mean, it was a really wonderful Q3 last year. So we just, our crystal ball is a little bit fuzzy, but we certainly hope that the rest of the year we will kind of be at the numbers that we've told you and we'll be continuing to progress. But Q3 is going to be the more difficult to come by far.
Okay, great. Just want to make sure expectations are correct there. That's it for me. Thanks for your time.
Operator
Thank you. Our final question today is coming from Anthony Chocomba of Loop Capital Markets. Please go ahead.
Good morning. Thank you so much for taking my question.
So I actually had a question on M&A specifically. If you could just provide some color on the acquisitions that you did in the second quarter.
So, Anthony, thanks for the question. We acquired Romex in the quarter. That was the largest of the acquisitions that we had. And, you know, I would tell you that we find our pipeline to still be very healthy as we look towards the future. I mean, Romex is doing well in the quarter, already providing good results for us. But we remain disciplined in how we evaluate our M&A targets, and so we have a really healthy pipeline for the future.
Yeah, we closed several other tuck-in M&A deals in the quarter, all nice deals. really good companies there's still plenty of companies out there that are good culture fits and that we would like to add to our family of brands here at Rollins nothing fundamentally has changed or shifted both between the PE space or anything else there that gives us any pause that we can't continue to drive 2-3% That's helpful, thank you so much Thanks Anthony Thank you.
Operator
At this time, I would like to turn the floor back over to Mr. Gelhoff for closing comments.
Thank you, everyone, for joining us today. We look forward to speaking with you again on our Q3 call later this fall. See you.
Operator
Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines or log off the webcast at this time and enjoy the rest of
