Rollins (ROL) risk factors, FY2024 10-K

Other

1. 01” of Part I, Item 7 “Management’s Discussion and Analysis of Financial condition and Results of Operations” of Part II, and elsewhere in this Annual Report on Form 10-K for our fiscal year ended December 31, 2024 and may also be described from time to time in our future reports filed with the SEC
2. 02We saw healthy margins in 2024, with gross margin improving 50 basis points to 52.7% in 2024 compared to 52.2% in 2023. Operating margin was 19.4% of revenue, an increase of 40 basis points over 2023 and adjusted operating income margin* was 19.9%, an increase of 20 basis points over the prior year
3. 03Impact of Economic Trends
4. 04However, the Company cannot reasonably estimate whether these strategies will help mitigate the impact of these economic disruptors in the future
5. 05Tax Legislation Developments
6. 06(2) Amounts are non-GAAP financial measures. See "Non-GAAP Financial Measures" below for a discussion of non-GAAP financial metrics including a reconciliation to the most directly comparable GAAP measure
7. 07Revenue $ 3,388,708 100.0 % $ 3,073,278 100.0 %
8. 08Total cost of services provided (exclusive of depreciation and amortization below) 1,603,197 47.3 % 1,469,871 47.8 %
9. 09Gross Profit (exclusive of Depreciation and Amortization)
10. 10For the twelve months ended December 31, 2024, sales, general and administrative (SG&A) expenses increased $99.8 million, or 10.9%, compared to the twelve months ended December 31, 2023. The increase is driven by expenses associated with growth initiatives aimed at capitalizing on the health of our underlying markets
11. 11Depreciation and Amortization
12. 12Reconciliation of GAAP and non-GAAP Financial Measures
13. 13Adjusted operating income and adjusted operating margin
14. 14Adjusted net income and adjusted EPS
15. 15EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, incremental EBITDA margin and adjusted incremental EBITDA margin
16. 16Free cash flow and free cash flow conversion
17. 17Adjusted sales, general and administrative ("SG&A")
18. 18Gain on sale of businesses (4)
19. 19Loss (gain) on sale of assets, net (3)
20. 20(6) In some cases, the sum of the individual EPS amounts may not equal total non-GAAP EPS calculations due to rounding
21. 21The Company’s $89.6 million of total cash at December 31, 2024 is held at various banking institutions. Approximately $48.5 million is held in cash by foreign subsidiaries and the remaining $41.1 million is held at domestic banks
22. 22On February 24, 2023, the Company entered into a revolving credit agreement with, among others, JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), as administrative agent (in such capacity, the “Administrative Agent”), which refinanced its previous credit facility
23. 23Cash Provided by Operating Activities
24. 24Cash Used in Investing Activities
25. 25Cash Used in Financing Activities
26. 26Critical Accounting Estimates

Market Risk

1. 27MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
2. 28Opinion on Internal Control over Financial Reporting
3. 29Definition and Limitations of Internal Control over Financial Reporting
4. 30Opinion on the Financial Statements
5. 31NET INCOME $ 466,379 $ 434,957 $ 368,599
6. 32(Benefit) provision for deferred income taxes (10,336) (7,644) 1,595
7. 33Cash and cash equivalents at end of period $ 89,630 $ 103,825 $ 95,346
8. 341. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9. 35Subsequent Events—The Company evaluates its financial statements through the date the financial statements are issued. Refer to Note 20, Subsequent Events for further details
10. 36Nature of Goods and Services and Performance Obligations
11. 37The Company extends terms to certain customers on higher dollar termite and ancillary work, as well as to certain franchisees for initial funding on the sale of franchises. These financed receivables are segregated from our trade receivables
12. 38Incremental Costs of Obtaining a Contract with a Customer
13. 39We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed
14. 40Cash and Cash Equivalents—The Company considers all investments with an original maturity of three months or less when purchased to be cash equivalents
15. 41Marketable Securities—From time to time, the Company maintains investments held by various financial institutions. The Company’s investment policy does not allow investment in any securities rated less than “investment grade” by national rating services
16. 42Other Current Assets—Other current assets include prepaid expenses, the current portion of capitalized costs to obtain a contract, divestiture receivables and an international bond investment
17. 43depreciable lives assigned to long-lived assets, including customer contracts and assets that may be subject to a management plan for disposition
18. 44Other Assets—Other assets is mostly comprised of deferred compensation assets, the non-current portion of capitalized costs to obtain a contract, and an international bond investment
19. 45Other Long-term Accrued Liabilities—Other long-term accrued liabilities include long-term balances for deferred compensation, acquisition holdback and earnout liabilities, deferred tax liabilities, contingency accruals, and the long-term portion of unearned revenue
20. 46Comprehensive Income (Loss)—Other Comprehensive Income (Loss) results from foreign currency translations, minimum pension liability adjustments, and unrealized gains and losses on available for sale securities
21. 47Recently adopted accounting standards
22. 48Accounting standards issued but not yet adopted
23. 49Assets acquired and liabilities assumed $ 182,753
24. 50The Company also made payments of $0.4 million related to prior year acquisitions during the year ended December 31, 2024
25. 51Fox Pest Control Acquisition
26. 52Assets acquired and liabilities assumed $ 339,514
27. 53Pro Forma Financial Information
28. 54Net income 424,735 358,930
29. 55Included in the total consideration of $76.7 million were acquisition holdback liabilities of $7.8 million
30. 56Total Revenues $ 3,388,708 $ 3,073,278 $ 2,695,823
31. 57Ending balance $ 223,872 $ 210,059
32. 584. ALLOWANCE FOR EXPECTED CREDIT LOSSES
33. 59The carrying amount of notes receivable approximates fair value as the interest rates approximate market rates for these types of contracts
34. 60Balance at December 31, 2024 $ 19,770 $ 8,686 $ 28,456
35. 615. EQUIPMENT AND PROPERTY, NET
36. 62Equipment and property, net $ 124,839 $ 126,661
37. 63Total future minimum lease payments, net of interest $ 417,218
38. 648. CUSTOMER CONTRACTS, TRADENAMES AND TRADEMARKS, AND OTHER INTANGIBLE ASSETS
39. 65Customer contracts, net $ 383,092 $ 386,152
40. 66Other intangible assets include non-compete agreements and patents. Non-compete agreements are amortized on a straight-line basis over periods ranging from 3 to 20 years and patents are amortized on a straight-line basis over 15 years
41. 67Total amortization expense was approximately $79.2 million in 2024, $66.5 million in 2023 and $55.7 million in 2022
42. 689. FAIR VALUE MEASUREMENT
43. 69On February 24, 2023, the Company entered into a revolving credit agreement ("the Credit Agreement") with, among others, JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), as administrative agent (in such capacity, the “Administrative Agent”), which refinanced its previous credit facility described below
44. 70Defined Benefit Pension Plans
45. 71Defined Contribution 401(k) Savings Plan
46. 72Nonqualified Deferred Compensation Plan
47. 73Cash and cash equivalents, which are used to pay benefits and deferred compensation plan administrative expenses, are held in money market funds
48. 7412. COMMITMENTS AND CONTINGENCIES
49. 75During the year ended December 31, 2024, the Company paid $298.1 million, or $0.615 per share, in cash and stock dividends compared to $264.3 million, or $0.540 per share, during the same period in 2023
50. 76The Company did not repurchase shares on the open market during the years ended December 31, 2024 and 2023
51. 77Time-Lapsed Restricted Shares and Performance Share Unit Awards
52. 78pool. At December 31, 2024, approximately 4.6 million shares of the Company’s common stock were reserved for issuance
53. 79Compensation expense $ 28,795 $ 24,222 $ 20,816
54. 80Employee Stock Purchase Plan
55. 8114. ACCUMULATED OTHER COMPREHENSIVE LOSS
56. 82Balance at December 31, 2021 $ (322) $ (16,089) $ — $ (16,411)
57. 83Balance at December 31, 2022 (322) (30,304) (936) (31,562)
58. 84Balance at December 31, 2023 (537) (25,488) (730) (26,755)
59. 85Total income from continuing operations before income taxes $ 630,230 $ 586,257 $ 498,917
60. 86Total current tax expense 174,187 158,944 128,723
61. 87Total income tax provision $ 163,851 $ 151,300 $ 130,318
62. 88Net deferred tax assets $ 194,959 $ 159,031
63. 89Deferred tax assets are included in "Other assets" and deferred tax liabilities are included in "Other long-term accrued liabilities" on the balance sheet
64. 90December 31, 2024 $ 7,792
65. 91The Company’s policy is to record interest and penalties related to income tax matters in income tax expense. Accrued interest and penalties were $0.6 million, $0.6 million and $0.2 million as of December 31, 2024, 2023 and 2022, respectively
66. 92Aircraft and Administrative Arrangements
67. 93Related Party Franchise Agreement
68. 94Registration Rights Agreement and Secondary Offering
69. 95LOR of 8,724,100 of the shares of Common Stock offered in the Offering for approximately $300 million at the same per share price paid by the Underwriters to LOR in the Offering, or $34.39 per share
70. 96Net income available to stockholders $ 466,379 $ 434,957 $ 368,599
71. 97Undistributed earnings for the period $ 168,248 $ 170,609 $ 156,981
72. 98Weighted-average outstanding common shares 482,117 487,480 489,719
73. 99Total weighted-average shares outstanding – diluted 484,295 490,130 492,413
74. 10019. SEGMENT AND GEOGRAPHIC INFORMATION
75. 101Revenue $ 3,388,708 $ 3,073,278 $ 2,695,823
76. 102Total cost of services provided (exclusive of depreciation and amortization below) 1,603,197 1,469,871 1,308,399
77. 103See the consolidated financial statements for other financial information regarding the Company’s reportable segment. See Note 3, Revenue for further information on revenue
78. 104Evaluation of Disclosure Controls and Procedures
79. 105Item 9B. Other Information
80. 1063.Amended and Restated Deferred Compensation Plan
81. 107Securities Trading Plans of Directors and Executive Officers
82. 108Sales to occur on or after February 21, 2025, if certain limit prices are met and if restricted stock has vested
83. 109Item 10. Directors, Executive Officers and Corporate Governance
84. 110Item 11. Executive Compensation
85. 111of Certain Beneficial Owners and Management and Related Stockholder Matters
86. 112Item 13. Certain Relationships and Related Party Transactions, and Director Independence
87. 113Item 14. Principal Accounting Fees and Services
88. 114104 Cover Page Interactive Data File (embedded with the Inline XBRL document) X