Earnings Call Transcript
ROLLINS INC (ROL)
Earnings Call Transcript - ROL Q1 2026
Operator, Operator
Greetings, and welcome to the Rollins, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. The operator provided instructions. Please note, this conference is being recorded. I will now turn the conference over to your host, Lyndsey Burton, Vice President of Investor Relations. Please go ahead.
Lyndsey Burton, Vice President, Investor Relations
Thank you, 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, 2025. On the line with me today and speaking are Jerry Gahlhoff, President and Chief Executive Officer; and Ken Krause, 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?
Jerry Gahlhoff, President and Chief Executive Officer
Thank you, Lyndsey. Good morning, everyone. I'm pleased to report Rollins delivered strong first quarter results. We saw sequential acceleration through the quarter and continue to see solid growth across all major service lines with total revenue growth of 10.2% and organic growth of 6.6%. Demand was a little slower to start the quarter, particularly given some unfavorable weather in January. But we exited with well over 8% organic growth in March. Spring sprung quickly for our teams as we are experiencing healthy growth in recurring and onetime services. As expected, we continued our investments in incremental sales staffing and marketing activities ahead of peak season to ensure that we are positioned top of mind for the consumer as pest season begins. We are well staffed on the sales, technician and customer support front with our teammates onboarded, extensively trained and ready to provide an exceptional level of service for our customers. Earlier this month, we announced our acquisition of Romex Pest Control, a top 40 pest management company according to PCT Top 100 rankings. Romex provides us with entry points into new markets, while enabling them to further scale their operations and expand service offerings to their existing customer base. Most importantly, they have a strong people and customer-focused culture and we were thrilled to welcome our new Romex teammates to the Rollins family. As you know, we believe the combination of Orkin and our strong group of regional brands is a competitive differentiator for Rollins, giving us multiple bites at the apple with potential customers, while also providing some balance and diversification with respect to customer acquisition. The addition of Romex is another example of our successful M&A playbook in action as we continue to add high-quality businesses to our premier portfolio of brands through a disciplined and strategic approach. On the commercial side of the business, we're encouraged by our momentum. Overall, we delivered solid commercial growth for the first quarter. Over the last year, we have strategically added resources to support our dedicated commercial division within Orkin. These resources are paying off as Orkin Commercial continues to deliver new customer wins across key verticals. Beyond growth, our dedication to operational efficiency and continuous improvement is an important part of our strategy and culture. Kim will discuss in more detail, but we saw headwinds to profitability from higher insurance and claims as well as some pressure from head count given lower volume earlier in the quarter. As we discussed last quarter, it's important that we maintain healthy staffing levels ahead of peak season, so we aren't hiring, training and onboarding a large number of new teammates at the same time seasonal demand ramps up. We've learned that extreme swings in hiring activity drives teammate turnover rates higher and have potential negative impacts on the customer experience. This hinders profitability in the short term but is the right decision for the business long term and sets us up to capitalize on peak season demand as evidenced by our performance in March. In closing, we're excited about where our business stands today. The year is off to a solid start and demand from our customers remains strong. Our teams in the field are ready to support our customers as peak season ramps up. And I want to thank each of our 20,000-plus team members around the world for their ongoing commitment to our customers. I'll now turn the call over to Ken. Ken?
Kenneth Krause, Executive Vice President and Chief Financial Officer
Thank you, Jerry, and good morning, everyone. Diving into the quarterly financial statement and starting first with revenue. Revenue growth was solid to start the year. It was very encouraging to see an improving growth profile as we move throughout the quarter. In total, we delivered revenue growth of 10.2% year-over-year. Organic growth of 6.6% was negatively impacted by unfavorable weather, particularly in January, but we saw a very strong sequential improvement in each month moving through the quarter. We were especially pleased with approximately 12% total growth and over 8% organic growth in the month of March. Overall, organic growth of 6.6% in the quarter represents a 90 basis point improvement versus the fourth quarter of 2025. We realized good growth across each of our service offerings. In the first quarter, residential revenues increased 9.3%. Commercial pest control rose 9.6% and termite and ancillary increased by 13.5%. Organic growth was also healthy across the portfolio, with growth of 4.2% in residential, 7.7% in commercial and almost 10% in termite and ancillary. Turning to profitability and our gross margins. They were 50.8%, a decrease of 60 basis points. The lower volume in the first part of the quarter, coupled with higher insurance and claims activity were headwinds to quarterly margins. Looking at our four major buckets of service costs — people, fleet, materials and supplies, and insurance and claims — first and foremost, lower vehicle gains within our fleet line on the income statement created 50 basis points of headwinds to gross profit margin. We should see this start to improve as we go into the second quarter. Insurance and claims drove an additional 30 basis points of headwinds to gross margins, while service payroll costs provided 20 basis points of headwinds as we carry more technicians ahead of the start to peak season in March. Fuel costs represent approximately 1.5% of sales, and we saw a relatively neutral impact from fuel in the quarter. We currently expect fuel costs to continue to track below 2% of sales in 2026. We are seeing good receptivity on our recent price increase and expect price to contribute 3% to 4% of growth for the year, ahead of CPI, and we expect to be positive on price/cost for the year at that level of price realization. Gross margins are usually at their lowest point in Q1 given revenue seasonality, but we anticipate improving margins in our underlying operations as we move through peak season. Quarterly SG&A costs as a percentage of revenue increased by 70 basis points versus last year. Incremental selling investments provided 50 basis points of headwind while higher insurance and claims cost contributed 20 basis points of headwinds on the SG&A line. First quarter GAAP operating income was $145 million, up 2% year-over-year. Adjusted operating income was $153 million, up 4% versus prior year. First quarter adjusted EBITDA was $179 million, up 4.4% versus last year and represents a 19.8% margin. The effective tax rate was 21.3% in the quarter versus 23.5% and reflects the benefits of both the improvement associated with windfall tax benefits as well as the work our tax team has done to improve our effective tax rate. 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 $108 million or $0.22 per share. For the first quarter, we had non-GAAP pretax adjustments associated with acquisition-related and other items totaling approximately $7 million of pretax expense in the quarter. Accounting for these expenses, adjusted net income for the quarter was $113 million or $0.24 per share, increasing 9.1% from the same period a year ago. Turning to cash flow and the balance sheet. We delivered operating cash flow of $118 million and free cash flow of $111 million. Free cash flow conversion, the percent of income that was converted into cash flow was over 100% for the quarter. Cash flow performance was negatively impacted by the timing of tax payments associated with our tax credit planning strategy. This strategy has delivered meaningful benefits and is enabling very strong improvements in our effective rate. Also, our year-over-year cash performance was impacted by our transition to semiannual interest payments on our 2035 senior notes that we issued a year ago. Excluding these items, free cash flow would have increased 14% versus Q1 2025, and free cash flow conversion would have been approximately 140%, all very healthy, enabling us to continue our balanced capital allocation strategy. During Q1, we made acquisitions totaling $18 million, and we paid $88 million in dividends in the first quarter. We continue to expect M&A to contribute 2% to 3% of revenue growth for 2026. Our leverage ratio stands at 0.9x. Our balance sheet remains very healthy. Ladies and gentlemen, please stand by. It appears that our speakers have disconnected. Please stay on the line.
Operator, Operator
Technical difficulty. The operator provided instructions.
Kenneth Krause, Executive Vice President and Chief Financial Officer
I'll actually go back through and just redo my area recap here and just cover the areas, but just starting over here, diving into the quarterly financial statement and starting first with revenue. Revenue growth was solid at the start of the year. It was very encouraging to see an improving growth profile as we move through the quarter. In total, we delivered revenue growth of 10.2% year-over-year. Organic growth of 6.6% was negatively impacted by unfavorable weather particularly in January, but we saw very strong sequential improvement in each month moving through the quarter. We were especially pleased with approximately 12% total growth and over 8% organic growth in the month of March. Overall, organic growth of 6.6% in the quarter represents 90 basis points of improvement versus Q4 of 2025. We realized good growth across each of our service offerings in the first quarter. Residential revenues increased 9.3%, commercial pest control rose 9.6% and termite and ancillary increased by 13.5%. Organic growth was also healthy across the portfolio, with growth of 4.2% in residential, 7.7% in commercial and almost 10% in the termite and ancillary area. Turning to profitability. Our gross margins were 50.8%, a decrease of 60 basis points. The lower volume in the first part of the quarter, coupled with higher insurance and claims activity were headwinds to quarterly margins. Looking at our four major buckets of service costs of people, fleet, materials and supplies and insurance and claims — vehicle gains, lower vehicle gains within our fleet line on the income statement created 50 basis points of headwind to our margins and we should start to see this improve as we go into the second quarter. Insurance and claims drove an additional 30 basis points of headwind to the gross margin line, while service payroll costs provided 20 basis points of headwinds as we carry more technicians ahead of the start to peak season in March. Fuel costs represent approximately 1.5% of sales, and we saw a relatively neutral impact from fuel in the quarter. We currently expect fuel costs to continue to track below 2% of sales in 2026. We are seeing good receptivity on our recent price increase and expect price to contribute 3% to 4% of growth for the year, ahead of CPI, and we expect to be positive on price/cost for the year at that level of price realization. Gross margins are usually at their lowest point in Q1 given revenue seasonality, but we anticipate improving margins in our underlying operations as we move through peak season. Quarterly SG&A costs as a percentage of revenue increased by 70 basis points versus last year. Incremental selling investments provided 50 basis points of headwind, while higher insurance and claims costs contributed 20 basis points of headwinds. First quarter GAAP operating income was $145 million, up 2% year-over-year. Adjusted operating income was $153 million, up 4% versus prior year. First quarter adjusted EBITDA was $179 million, up 4.4% versus last year and represents a 19.8% margin. The effective tax rate was 21.3% in the quarter versus 23.5% and reflects the benefits of both the improvement associated with windfall tax benefits as well as the work our tax team has done to improve our effective tax rate. We expect our effective tax rate to come in under 25% for the year. That's down approximately 100 basis points from historical levels. Quarterly GAAP net income was $108 million or $0.22 per share. For the first quarter, we had non-GAAP pretax adjustments associated with acquisition-related and other items totaling approximately $7 million of pretax expense in the quarter. Accounting for these expenses, adjusted net income for the quarter was $113 million, or $0.24 per share, increasing 9.1% from the same period a year ago. Turning to cash flow and the balance sheet. We delivered operating cash flow of $118 million and free cash flow of $111 million. Free cash flow conversion, a percent of income that was converted into cash flow was over 100% for the quarter. Cash flow performance was negatively impacted by the timing of tax payments associated with our tax credit planning strategy. That strategy has delivered meaningful benefits and is enabling very strong improvements in our effective rate. Also, our year-over-year cash performance was also impacted by our transition to semiannual interest payments on our 2035 notes that we issued a year ago. Excluding these items, free cash flow would have increased 14% versus the first quarter of 2025 and free cash flow conversion would have been approximately 140%, all very healthy, enabling us to continue our balanced capital allocation strategy. During the first quarter, we made acquisitions totaling $18 million, and we paid $88 million in dividends. We continue to expect M&A to contribute 2% to 3% of revenue growth for 2026. Our leverage ratio stands at 0.9x, our balance sheet is very healthy and it positions us well to continue to execute on our growth priorities while returning capital to our shareholders. As we look to the remainder of 2026, we remain encouraged by the strength of our markets, our recession-resilient business model and the engagement and execution by our teams. We are positioned extremely well to deliver on our financial objectives. We continue to expect organic growth in the 7% to 8% range for the year with growth from M&A up 2% to 3%. We remain focused on improving our incremental margin profile while investing in growth opportunities, and we anticipate that cash flow will continue to convert at a rate that is above 100% in 2026. With that, I'll turn the call back over to Jerry.
Jerry Gahlhoff, President and Chief Executive Officer
Ken, that was much better the second time around. You really paid off on the Milligan play. So — thank you for that great recovery. We're happy to take any questions you have at this time.
Operator, Operator
The operator provided instructions. Our first question will come from Manav Patnaik with Barclays.
Ronan, Analyst, Barclays (on behalf of Manav Patnaik)
This is Ronan on for Manav. How should we think about the sustainability of that March exit rate as we move through peak season? Does it primarily reflect normalization from the early quarter weather-induced softness? Or is it underlying demand trends that suggest the higher organic base going forward for the rest of the year? And as volume ramps through into peak season, how should we think about the incremental margin flow-through relative to 1Q given the cost set up and the margin drivers and dynamics you described for the quarter?
Kenneth Krause, Executive Vice President and Chief Financial Officer
We feel good about the exit rate. We feel good about our business. The improvement of 90 basis points from Q4 to Q1 reaffirms the confidence we have in our outlook. Our outlook is rooted in that 7% to 8% organic growth. We remain committed to that level of organic growth across the business, coupled with the 2% to 3% of M&A growth. When we think about our exit rate at 8.4% or so as we think about March, yes, you had an extra day there, but you also just had a really good month, just really good demand. The residential area, which in the quarter grew at something around 4% to 4.2%, in the month of March we saw over 7%. So we continue to see good demand for our services, which gives us confidence in our outlook at that 7% to 8% organic growth. Regarding margins, Q1 is usually our low point just because of seasonality, and it came through in that manner. We fully expect improvements to start as we ramp into Q2 and Q3. We should see improvements going into the second and third quarters of 2026. We remain committed to the outlook we have on our incrementals. The business is intact and provides us a sense of confidence in what we can deliver from an incremental margin profile.
Operator, Operator
The operator provided instructions. Our next question comes from Sam Kusswurm with William Blair.
Sam Kusswurm, Analyst, William Blair
I think you just touched on this already, but maybe to help us bridge to that 7% to 8% organic growth for the remainder of the year, can you just share how April has trended so far relative to exiting March here?
Kenneth Krause, Executive Vice President and Chief Financial Officer
We're early in April, Sam. But looking at our projections and forecasts that we continue to look at, we still have a lot of confidence in that 7% to 8% organic growth, and as I said before, the 2% to 3% of M&A growth. So we feel like the business is very much intact and should continue to deliver that sort of growth profile for our investors.
Sam Kusswurm, Analyst, William Blair
That's helpful. Maybe pivoting a little bit. We saw that the insurance and claims expense was 3.7% of sales in the quarter. This compares to the full year rates of 2.9% and 2.5% and 3.2% in 2024. I guess I'm curious how we should think about this expense line as we move through the remainder of the year, and if you're expecting it to remain at this elevated level?
Kenneth Krause, Executive Vice President and Chief Financial Officer
That's a hard one to predict. When we think about insurance and claims, it's an area with a lot of volatility. We do our best every quarter to put the most accurate number on the financials, and that's what we did in Q1. We unfortunately had some claims that continue to mature and go through the maturation process, and that was a headwind for us. It's really hard to predict what that line will look like as we go forward. We're hopeful that we'll see it moderate as we go into the second half of the year and improve, but circumstances change each quarter. With that said, we are still holding strong to our incremental margin profile as well as our ability to grow earnings in the double-digit range. Despite facing headwinds in insurance and claims, our outlook for the incremental margin profile remains unchanged.
Jerry Gahlhoff, President and Chief Executive Officer
Long term, how we approach safety and insurance and claims has to do with investments that we're making today and investments we made last year that are going to continue to pay off for us long run by reducing our collision frequency rate and our injury frequency rate. Long term, that should be able to help us drive our costs down. We're piloting a lot of programs, making investments especially in driving safety to avoid these types of situations that hopefully can begin to change the arc or the trajectory of that component on our P&L.
Operator, Operator
The operator provided instructions. Moving next to Greg Parrish with Morgan Stanley.
Gregory Parrish, Analyst, Morgan Stanley
Congrats on the quarter. Maybe to touch on Romex which you acquired a few weeks ago — could you touch on the strategic rationale, what attracted you to their culture and that business? Any early expectations for that?
Jerry Gahlhoff, President and Chief Executive Officer
We got to know the team at Romex over some period of time and had a number of meetings with them — kind of, as I described it, a dating process where you get to know each other. They have some really talented people on the team that we met, and we were very impressed with their operations, how closely they were aligned with us, how they treated people and how they approach customer service. They also operated in some very complementary markets where they had strong positions and continued growth. We saw a great opportunity to leverage some of the things we do to add additional services to customers; they were focused pretty heavily on residential pest control and a little bit of ancillary services, and we saw an opportunity to leverage our knowledge and expertise to help them expand their depth of relationship with their customers over time as well. We're really excited about the team at Romex, especially the talent. When we add brands to our group we're often getting very talented people, and that really helps shape our company. We're proud of that.
Gregory Parrish, Analyst, Morgan Stanley
Great. And then on fuel costs, I appreciate the additional disclosure. Just remind us the limited exposure that you do have — is that hedged at all? Did that have any impact, albeit small, on margin in the quarter?
Kenneth Krause, Executive Vice President and Chief Financial Officer
On fuel costs, we do not hedge that cost. It's a relatively minor cost in our P&L — about 1.5% of sales in terms of total exposure. We will continue to evaluate it, but for now, we don't see a meaningful exposure that would require extensive hedging outside of making sure our price increases reflect volatility. We enjoy a highly variable cost structure with a low amount of exposure to fuel.
Operator, Operator
The operator provided instructions. Moving on to Tomo Sano with JPMorgan.
Tomohiko Sano, Analyst, JPMorgan
Good morning. You mentioned that residential organic growth in March was about 7%. Could you provide more detail on the trends you saw in March across each segment as well? Additionally, are there any notable differences in growth rates or demand recovery by region?
Kenneth Krause, Executive Vice President and Chief Financial Officer
Overall, the business was very healthy in March. Residential probably showed the greatest improvement. Commercial was also stronger relative to January and February, and termite and ancillary hung in there. Our onetime business certainly benefited as we went throughout the quarter; Q4 had been negatively impacted by a very weak onetime number, and we saw improvements as we went through the quarter. All told, we feel good about where we are to start Q2 across all of our major service offerings, with residential improving the most quarter-to-quarter, which makes sense as you get into season — residential typically pops more than the commercial side that is much more stable through the year.
Tomohiko Sano, Analyst, JPMorgan
A follow-up: you have continued to invest in people, service and infrastructure even during periods of unfavorable weather and revenue softness to ensure continuity and improvement in customer service. When you look at the market today, do you see this as a strategy that clearly differentiates Rollins from competitors? Are there specific ways in which your approach to investment and service stands out versus peers?
Jerry Gahlhoff, President and Chief Executive Officer
I wouldn't comment directly on how it compares versus peers. This is our strategy. When you look at the investments we make — for example, when I started in this business a decade ago it was a lot simpler; today we have many more services and options. We have what Ken calls nine shots on goal. Training people to be experts both on the service and sales side for the complexity of what our team does takes time and experience. You can't just get somebody up and running in a few weeks like it was 30 years ago. These are investments we make because it's the right thing to do for customers — to ensure trained people who have seasonal experience and can solve customer problems quickly. It's about improving customer retention and the lifetime value of a customer. The more we invest to improve long-term value, the better off we are.
Kenneth Krause, Executive Vice President and Chief Financial Officer
The only thing I would add is that some in the industry pare back headcount quickly when times get tough. We take a long-term-oriented approach. When we think about January, some might have pared back, but we decided to hold in there because we were confident in the ability to drive growth. We knew the weather-related weakness was temporary. We kept and invested in our people, and that's paying off as we start peak season.
Operator, Operator
The operator provided instructions. Our next question comes from Curtis Nagle with Bank of America.
Curtis Nagle, Analyst, Bank of America
Apologies if I missed this. Would you be able to break out the growth rate for recurring and onetime in the quarter? And then I have a follow-up.
Kenneth Krause, Executive Vice President and Chief Financial Officer
Overall, when you look at recurring and onetime compared to what we've seen historically, January and February were weaker and March was very healthy at about a 7% range on the recurring business. The onetime business continued to accelerate and improve as well. In November and December we were contracting in onetime because of weather; January was flat, and we saw a strong improvement in March. The onetime business didn't go away; we were able to recover that and exited with a pretty healthy backlog. Ancillary — the more of the nine shots on goal — showed double-digit solid growth in March. Overall, we saw healthy performance across recurring, onetime and ancillary.
Curtis Nagle, Analyst, Bank of America
Okay. And then could you give an update on efforts to improve retention rates going into the spring season, both from raw retention and some of the cost savings you've talked about?
Kenneth Krause, Executive Vice President and Chief Financial Officer
When we think about retention there are two aspects: technician turnover/retention and customer retention. On technician turnover, it's about short-term people in the first year and improving that. We're making great strides. At our Investor Day on May 14 we'll talk about what we're doing around culture, investments, results and the potential to move the needle on margins by spending less on onboarding because we're keeping people through that first year. On the customer side, we're making changes and putting leadership around that; we'll talk more at Investor Day. We didn't see major changes in the quarter for customer retention, but it's an opportunity — we lose too many customers every year and we're making investments to improve that.
Jerry Gahlhoff, President and Chief Executive Officer
The commercial side of retention remains very strong and stable. We did make modest improvements in residential retention as we exited the first quarter. We see a lot of potential upside there — hence the investments we mentioned.
Operator, Operator
The operator provided instructions. Moving on to Stephanie Moore with Jefferies.
Stephanie Benjamin Moore, Analyst, Jefferies
I wanted to ask on the margin improvement opportunity as the year progresses. Maybe if you could just talk about what gives you confidence that you'll be able to see some improvement and comment on areas of opportunity outside of just inherent operating leverage as volumes accelerate?
Kenneth Krause, Executive Vice President and Chief Financial Officer
Thanks, Stephanie. When we look at Q1, about 100 basis points of the headwind was associated with insurance and claims and lower gains on the sale of fleet vehicles. If you exclude those two items, you would have had closer to a 20% incremental margin profile, which is about what we would expect in Q1 given the lower volume. Regarding those two areas, the gain on sale of assets should stop being a headwind as we go into Q2, and we should start to see improvements there year-over-year. Continued improvements in overall growth should yield solid results as we carry higher technicians into peak season. Considering these points, we are confident that in Q2, Q3 and Q4 we should see improvements in the margin profile to get us back into the range we're targeting.
Jerry Gahlhoff, President and Chief Executive Officer
When you look at how much we spend on people, when growth is there you get leverage on the people side, and that's probably the biggest opportunity we have for the rest of the year.
Operator, Operator
The operator provided instructions. We'll go next to Peter Keith with Piper Sandler.
Peter Keith, Analyst, Piper Sandler
On gross margin, you quantified negatives adding to about 100 basis points versus the 60 basis point decline. What were the positives that offset some of that? I'm assuming pricing played into that, but could you elaborate?
Kenneth Krause, Executive Vice President and Chief Financial Officer
We saw good performance in materials and service lines and improvements across broad categories like branch rent, professional services and other cost categories. The 3% to 4% pricing allowed us to leverage those areas since they are not as variable as other costs. Those items produced positive improvement in gross margin, which was offset by the items we discussed earlier.
Peter Keith, Analyst, Piper Sandler
Helpful. And on free cash flow, thanks for the details on the one-time items. As we think about the timing of credits and the semiannual interest payments, should we expect the Q1 headwinds on free cash flow to reverse in Q2 with an abnormal year-on-year increase?
Kenneth Krause, Executive Vice President and Chief Financial Officer
Yes. As you go throughout the year you'll see those items moderate. The interest expense is paid semiannually, so Q2 won't have that year-over-year headwind. The tax payments are front-loaded in the first half, and we fully expect by Q4 to see a nice improvement in cash use related to this. You may see improvement in Q2 and Q3 versus Q1, with full-year mid-teens cash growth being the target we have confidence in delivering.
Operator, Operator
The operator provided instructions. Next we will hear from Josh Chan with UBS.
Joshua Chan, Analyst, UBS
Jerry and Ken, maybe for Jerry: in prior years where the weather is tougher to start the year, from your experience by what month does everything kind of normalize and you move past the slowness and maybe catch up? When does it usually get back to normal?
Jerry Gahlhoff, President and Chief Executive Officer
There have been times where we've had slow Marchs and it was right around this time of year in April when it suddenly broke and business picked up. We were fortunate in March to have had favorable conditions by the end of the first week of March when business really popped. Oftentimes it's end of March or beginning of April; sometimes it's the third week of April. We can tell based on phone call volumes when it's official, and for us that happened at the end of the first week of March.
Joshua Chan, Analyst, UBS
Okay. And regarding retention improvements, the industry retention has historically been low. What do you think you could change about something that has been this way for a while?
Jerry Gahlhoff, President and Chief Executive Officer
It's about a mindset of continuous improvement. For example, when we acquired Fox Pest Control three years ago, their customer retention was average. Partnering with our HomeTeam brand helped them improve residential retention by five percentage points over three years — that's big movement. That demonstrates there's always room for improvement. We're pushing hard on that lever across all business units. Even if you're good, the expectation is to make modest improvements compared to others. It's a huge opportunity that could accelerate organic growth, and we'll unpack more at our investor conference in May.
Operator, Operator
The operator provided instructions. Our next question comes from Ashish Sabadra with RBC Capital Markets.
David Paige, Analyst (for Ashish Sabadra), RBC Capital Markets
I had a question on commercial. It looks like solid growth continued. You mentioned some wins and other investments. Could you comment on how trends are going in commercial and, as a follow-up, what is the competitive environment you're seeing in commercial?
Jerry Gahlhoff, President and Chief Executive Officer
We haven't seen any significant change in the commercial competitive environment. We feel positioned with scale to service customers across North America. We began the year with almost 80 more commercial account sales managers than we had a year ago, and they're putting wins on the board. We see it in local sales — branches and regions — and among national accounts, driving growth across verticals we focus on. Those investments on the commercial side take a little longer to pay off, but they are a reason we're optimistic about the rest of the year because recent sales will turn into recurring revenue growth over time.
Operator, Operator
The operator provided instructions. Moving on to George Tong with Goldman Sachs.
George Tong, Analyst, Goldman Sachs
You mentioned with insurance and claims that certain claims are going through the maturation process. Can you elaborate on whether this was from a specific vintage or period when claims activity was particularly high? And how quickly do your safety investments translate into improved claims performance?
Kenneth Krause, Executive Vice President and Chief Financial Officer
These claims can go back several years. Post-COVID, when people returned to highways, accidents increased — you saw claims from that vintage as well as more near-term claims. It's hard to pinpoint a single period; they're across multiple years. Safety investments are already paying off — we see improvements in our safety experience — but it takes time to cycle through because some claims are three to five years old. We expect to deal with experience like this for a while but the lead indicators — accident and injury frequency rates — are coming down, which is the best predictor for volume decline. At the same time, the cost of insurance has been a headwind for several years.
George Tong, Analyst, Goldman Sachs
Got it. With respect to fuel costs, can you discuss the strategy to pass along cost to customers? How real-time can your prices adjust to changes in fuel costs?
Kenneth Krause, Executive Vice President and Chief Financial Officer
We have two ways of charging for cost in our business. We think about the value through annual price increases and we also have rate cards. As we go throughout the year, we can adjust rate cards based on what we're experiencing with cost inputs. We've done that historically and will continue to do so going forward.
Jerry Gahlhoff, President and Chief Executive Officer
For us, it's more about how we avoid fuel costs: reduce idling time, use apps on phones to find efficient routes and best gas prices, leverage fleet team relationships to negotiate rebates with fuel providers. We're focused on efficiency across the fleet system and let our normal price increase programs help offset volatility.
Kenneth Krause, Executive Vice President and Chief Financial Officer
We also build denser routes through acquisitions like Fox, Sala or Romex, which is a proactive way to reduce fuel exposure. It's not just about reacting; it's about proactively making the business more efficient.
Operator, Operator
The operator provided instructions. Next question comes from Seth Weber with BNP Paribas.
Christina, Analyst (for Seth Weber), BNP Paribas
I wanted to touch on how you target around 2% to 3% revenue growth from M&A. After the acquisition activity in the first quarter and the Romex acquisition, do you expect M&A contribution to push full-year M&A contribution above 3%? How does this change the overall M&A pipeline for the rest of the year?
Kenneth Krause, Executive Vice President and Chief Financial Officer
In the first quarter M&A contributed 3.6% of revenue growth, bolstered by the Sala acquisition last year. We expect that to moderate as we go through the year. Right now we're solidly in the 2% to 3% range. There's opportunity to go higher, and our pipeline is very active, but we're not ready to raise the target yet. We are confident in the 2% to 3% range.
Christina, Analyst (for Seth Weber), BNP Paribas
As a follow-up, termite and ancillary was up almost 10%. What's driving this and are you seeing customer demand for bigger-ticket ancillary services? How is cross-selling going across the brand portfolio?
Kenneth Krause, Executive Vice President and Chief Financial Officer
Ancillary and termite are doing well. Ancillary includes some of the 'nine shots on goal' and we've seen double-digit growth in March. Cross-selling is going well and will be a big topic at Investor Day in May. We have brands that aren't fully leveraging ancillary today, so there's opportunity across the portfolio.
Jerry Gahlhoff, President and Chief Executive Officer
We moved Ed Donahue, who was VP of Sales for Orkin, over to our non-Orkin brands to help scale ancillary services, leveraging in-house financing and sales training. That's moved the needle quickly and we'll share more in May.
Operator, Operator
The operator provided instructions. We'll go next to Jason Haas with Wells Fargo.
Analyst (for Jason Haas), Analyst, Wells Fargo
We've heard that one of your competitors is being more aggressive with marketing. Are you seeing any change in the competitive environment and are you adjusting your marketing strategy in response?
Kenneth Krause, Executive Vice President and Chief Financial Officer
Not really. We're seeing great growth and good performance.
Jerry Gahlhoff, President and Chief Executive Officer
We're continuing to focus on how we spend our marketing dollars efficiently, move them to effective channels and target our best customers. We have many competitors in this space, but staying on brand and getting the right customers to our brands is when we win. The 90 basis point improvement in organic growth from Q4 to Q1 shows the investments we're making are yielding strong results.
Analyst (for Jason Haas), Analyst, Wells Fargo
That's helpful. As a follow-up, within residential, was the acceleration in March a result of work shifting from earlier in the quarter into March or was it strong underlying demand?
Jerry Gahlhoff, President and Chief Executive Officer
There may have been a little carryover from backlog in February into March, but February wasn't nearly as tough as January in terms of branch closures. March saw significant pickup — by the first week it started going and phone calls increased. So much of the organic acceleration was new demand in March and we had time to complete scheduled work in the month.
Operator, Operator
The operator provided instructions. This now concludes our question-and-answer session. I would like to turn the floor back over to management for closing comments.
Jerry Gahlhoff, President and Chief Executive Officer
Well, thank you, everyone, for joining us today. As a reminder, we will be hosting our Investor and Analyst Conference on May 14 at the New York Stock Exchange. We're excited about what we have to share and look forward to seeing many of you in person. Thanks.
Operator, Operator
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.