The operator welcomes participants to the Rollins, Inc. Fourth Quarter and Full-Year 2023 Earnings Call and introduces Lyndsey Burton, Vice President of Investor Relations. The company has prepared a slide presentation and will be discussing non-GAAP financial measures. The company's earnings release and SEC filings contain forward-looking statements and potential risks. Jerry Gahlhoff, President and CEO, and Ken Krause, CFO, will be speaking and will then open the line for questions. Fiscal 2023 was a successful year for Rollins, with $3.1 billion in revenue.

The company experienced strong demand from customers in all major service offerings, leading to a 14% increase in revenue and 18% growth in earnings per share. They attribute this success to consistent execution of operating strategies and a commitment to continuous improvement. The company also saw sustained strength in the pest control markets and achieved share gains through various marketing and sales methods. They have also invested in the commercial side of the business and have seen 11% growth in commercial revenue. The company has also made strategic acquisitions, including the second largest in their history, and integration has been successful.

During the fourth quarter, we divested our lawn care business and recognized a gain of $15 million. This aligns with our strategy to focus on profitable growth in core pest control operations. We also focused on developing talent and investing in our teams, resulting in improved hiring and strong results. Safety was a key focus, and we implemented an app to monitor driving behaviors and saw a 30% increase in average driver safety score. We are continuously working on improving our safety culture and have set ambitious goals. We also made efforts to modernize our back office and support functions by upgrading talent and systems.

The company's efforts to increase productivity and focus on growth priorities have resulted in strong performance in 2023, with a 14% increase in revenue and double-digit growth in all service offerings. There was also significant progress in profitability, with gross margins and adjusted operating margin improving. This led to an 18% increase in GAAP EPS and a 20% increase in adjusted earnings per share. The company remains committed to providing the best customer experience and investing in its team for future growth.

In the fourth quarter, the company saw strong performance with revenue increasing by 14%. The team delivered a balanced growth between organic and inorganic activities, with organic revenue up by 7% and acquisitions accounting for the remaining growth. The company also divested certain non-core businesses, which resulted in a pretax gain of $15 million. Going forward, there are no significant divestitures planned. In terms of revenue growth, Residential, Commercial Pest Control, and Termite and Ancillary all saw healthy organic growth. There was also an acceleration in organic growth compared to the previous year. Overall, the company's strong cash flow performance allowed for a balanced capital allocation strategy, with investments for growth and returning cash to shareholders through dividends and share repurchases.

In the fourth quarter, gross margin improved by 40 basis points, with Fox contributing 30 basis points and organic margins improving by 10 basis points. SG&A costs as a percentage of revenue increased by 10 basis points, but decreased by 10 basis points when excluding the Fox acquisition earnout adjustment. GAAP operating income increased by 16% year-over-year, while adjusted operating income increased by over 20%. EBITDA and EBITDA margins also saw increases, but were negatively impacted by lower non-operational gains on property and vehicle sales. The effective tax rate remained consistent at 25.8%.

In 2024, the company is expecting an effective tax rate of 26%. GAAP net income for the quarter was $109 million, with non-GAAP adjustments for the Fox acquisition and a gain from the sale of a non-core business. Cash flow increased by 24% and the company remains committed to funding its growing dividend. They anticipate another year of growth and are focused on effectively pricing their services and managing their rate cards.

The company's focus is on driving growth, delivering margins, and compounding cash flow. They will be holding an investor and analyst conference in May to share more about their strategic priorities. The resi organic growth decelerated from 7% to 5% in the fourth quarter, which is a normal seasonal trend. The business has a high degree of recurring revenue.

The company's revenue growth was impacted by a deceleration in their one-time service business, but they were encouraged by the healthy growth in their recurring business. The previous year's hurricane season had pushed some business into the fourth quarter, making it a tough comparison. The company's main source of revenue is their recurring pest control services, with one-time services being an added bonus. The divestiture of their lawn care business also had an impact on revenue. Despite these challenges, the company's recurring revenue growth was above their stated organic growth in the fourth quarter.

Jerry and Ken discuss the company's digital marketing performance in the fourth quarter, noting modest increases in digital queries which resulted in healthy increases in lead starts and sales. They attribute this to a diversified approach and cross-selling efforts. Jerry also jokes about using the company's driver monitoring system for his teenage kids.

The operator introduces a question from Jason Haas of Bank of America, who asks about the company's price increase and customer sensitivity to it. Kenneth Krause explains that they had a 3-4% price increase last year and have implemented a similar one this year. They monitor metrics such as churn and cancellations to ensure the increase is at a healthy level. Jason also asks about competitive dynamics in the industry and Jerry Gahlhoff states that the market remains highly fragmented and competitive, but they continue to focus on their business and strive for success.

Kenneth Krause, CEO of a company, discusses the growth of the business in the past quarter, which was over 7% organically. He expresses satisfaction with the growth and optimism for the future. In response to a question about the Residential business, Krause mentions that recurring revenue growth has been consistent and above what it was a year ago. He also talks about the company's focus on bundling, cross-selling, and door-to-door sales, and how these priorities will drive volume performance in the future.

The company expects to continue raising prices and managing their rate cards effectively. They are confident in their ability to deliver healthy growth in line with previous years, with a focus on cross-selling, expanding services, and growing their commercial business. The company's diversity in their brand strategy contributes to their overall success.

The company's various brands use different strategies to acquire customers, such as Northwest and Home team focusing on the homebuilding market and Fox using door-to-door sales. The company plans to expand its door-to-door sales by incorporating strategies from its other brands. This diversity of brands contributes to the company's expected growth in the future. In response to a question about the impact of M&A on the company's model, the speaker states that they expect around 2% carryover from M&A in 2024, with a healthy pipeline and recent activity indicating continued growth in this area.

During a recent earnings call, the company's CFO discussed the incremental margin profile and their target of 30% for 2029. They have been focused on driving improvements in this area and have seen quarters with margins as high as 35-40%. The gains from asset sales will also contribute to the margin line, with $3 million in the fourth quarter alone. The CFO also mentioned that recurring revenues and digital inquiries in the residential sector are performing well.

The speaker asks if there has been any change in the demand environment due to competitors increasing their marketing spend in the fourth quarter. They also inquire about the impact of cicadas emerging in 2024. The response indicates that there was an increase in competitive spending in the fourth quarter, but it is unclear how it affected sales. The speaker also mentions that cicadas are not a common household pest.

The speaker discusses the nuisance of cicadas and how their emergence can create awareness about pests. They also mention the progress of back-office modernization and the potential impact on EBITDA margins in the future. Congratulating the company on their strong performance in commercial and ancillary services.

Josh Chan asks a question about the company's SG&A performance and whether there is room for improvement. Kenneth Krause responds that there is potential for improvement in SG&A, but the company is also focused on investing in advertising and customer acquisition. Josh then asks about the slowdown in onetime services in the Residential side, and Jerry Gahlhoff explains that it is likely due to a slowdown in bed bug and wildlife work, but the exact reason is not known.

The company has seen a fluctuation in bed bug business, which has been down in recent months. However, they are not seeing any major deterioration in growth with their customers. They have been proactive in tightening credit and raising minimum credit levels. The company has also been successful in hiring and training sales teams, especially on the Commercial and Residential side.

The speaker discusses the importance of getting salespeople productive early on in the sales cycle to drive long-term retention. They are proud of their high-performing sales team and attribute their success to hiring, training, and investing in them. The company is happy with their current geographic coverage, but sees potential for growth in the Midwest and in expanding their international operations.

The company is pleased with the progress they have made in expanding internationally and plans to continue focusing on those countries. They are also seeing leverage in their cost structure, particularly in labor, materials, and fleet costs. However, they do have some concerns about rising truck prices and potential fluctuations in fuel prices. Overall, they are confident in their ability to improve gross margins and control costs going forward.

The company recently completed an RFP for insecticides and termiticides to ensure pricing is in line and offset price increases from suppliers. They will continue to focus on managing costs throughout the year. It is still too early to tell if inflation will decrease in 2024. There has been no significant change in M&A activity and the company is currently ahead of last year's pipeline for potential acquisitions.

The speaker discusses the company's focus on the Fox deal last year and how they are now back to business as usual. They also mention the improvements in driver safety and how it can potentially lead to lower insurance-related costs, although it is difficult to predict the exact timing. The company's priority is the safety of their employees and communities, and they believe that by prioritizing safety, the financials will improve in the future.

The speaker expresses appreciation for the participants of the call and looks forward to the company's future, including the upcoming Investor Day. They mention the focus on growth and strategic priorities, and express excitement for the future of the company. The call is concluded with a thank you and an invitation to disconnect.

This summary was generated with AI and may contain some inaccuracies.