Rollins (ROL) Q2 2026 earnings call transcript

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. One, 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, door-to-door models, and relationships with home builders delivered organic growth above our targeted 7% to 8%. 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 a decade.

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. At Orkin, for example, we recently promoted Scott Weaver to Chief Operating Officer of Orkin North America.

Scott most recently had responsibility for all Orkin's commercial operations in the U. S. His newly expanded role expands 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 Sronoski. We are focused on improving customer 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.

Although we're cautious 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. Stepping back, our 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 as CFO. 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 quarterly financial results, starting with revenue. Total revenue increased 7.9%, while organic growth was 5.7%, both below our expectations for the quarter.

As Jerry mentioned, the primary driver was slower growth in portions of our residential business. We delivered growth across each of our service offerings. In the second quarter, residential revenues increased 6.6%, commercial pest control increased 8.6%, and termite and ancillary increased 10.5%. Organic growth across the portfolio was 3.6% in residential, 7.2% in commercial, and 8.9% in termite and ancillary.

Turning to profitability, as demand trends softened in certain areas of the business during the quarter, our cost structure remained aligned with the stronger growth outlook we anticipated entering peak season. Gross margin was 52.8%, a decrease of 100 basis points. Lower than expected volume in the quarter, coupled with higher medical-related costs and fuel headwinds, pressured quarterly margins. The primary drivers were higher people-related costs, including medical plan expenses and service salary deleverage, which together represented 70 basis points of pressure.

Fleet represented an additional 20 basis points of headwind, driven primarily by fuel. Fuel costs represented approximately 1.8% of sales in the second quarter and are expected to remain below 2% of sales for 2026. Customer response to our recent price increase has been favorable, and we continue to expect to be positive on price costs for the year. Quarterly SG&A costs as a percentage of revenue increased 30 basis points compared with the prior year.

Incremental selling investments represented a 10 basis point headwind, while higher fleet costs contributed an additional 10 basis points of headwind. The remaining pressure was attributable to other general and administrative expenses. Second quarter GAAP 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, or $0.30 per share. For the second quarter, 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.

Turning to cash flow in the balance sheet, we generated operating cash flow of $173 million and free cash flow of $166 million. Free cash flow conversion, which is measured as the percentage of income converted into cash flow, was above 115% for the quarter. Cash flow growth was negatively impacted by the timing of tax payments associated with our tax credit planning strategy. This strategy 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, resulting in a neutral impact on full-year cash flow growth. During the second 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. Our leverage ratio stands at one times, and our balance sheet remains strong and positions us well to continue executing against our growth priorities while returning capital to 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 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. We are approaching 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 weighted.

Our expectation for 2% to 3% of growth from acquisitions, as well as our expectation that cash flow will continue to convert at a rate above 100%, remain unchanged for the year. Thank you. of at least 30% over time. Our priorities are clear. Improve customer acquisition, increase productivity, align resources by demand, and demonstrate consistent operational improvement quarter by quarter. We believe 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 that have been the hallmark of our financial performance for decades.

We are focused on execution, accountability, and consistent improvement, and I look forward to updating you on our progress in the quarters ahead. With that, I'll turn the call back over to Jerry.

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

We've not seen any hesitancy from our customers on pricing. And as I mentioned in the remarks, our customer retention remains strong. We have also some 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 for concern.

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 a multitude of factors. April was okay. April wasn't far off. It was really, we were expecting by mid-May that it would have made a turn. May did not start out great, and we thought, oh, well, it's coming, it's coming, it's coming.

We looked at lots of factors. You think, okay, May is when gas prices spiked, and maybe consumers are tightening their belts. Maybe there's a little lack of consumer confidence, but yet, at the same time, we were still able to drive termite ancillary with our existing customer base and those close rates weren impacted So we felt like maybe the consumer is still healthy Then you look at you know is it regional weather or is it just pest pressures And we started diving into what's going on, especially in the one-time space. We look at data that shows there are certain categories of pests that we measure a lot of different pests and the reasons we get calls for, and things like mosquitoes, mosquito calls were significantly down year over year.

And other kind of one-time services like residential rodent and residential carpenter ant were down fairly significantly, which leads you to believe, well, maybe there's something going on with pest pressure in the month. And we look at the mosquito, and that's kind of a bellwether pest to say what's going on from a pest pressure standpoint. And it seemed like mosquito season started really late.

We also tested the search environment. We looked across the competitive space. We pulled a lot of different levers to see, hey, can we juice this? Can we create more demand? And we were doing that, you know, testing a variety of things and adjustments to how you play in the digital space. None of those things really moved the needle a lot, and it led us to believe that quite heavily that we just had fewer people year over year actively searching the digital channel for pest control needs. It says, that's the conclusion that we came to, that it just seemed fewer.

And I think if we thought it was the LLM or the AI, it doesn't explain. We didn't do something radically different at the end of June to change our approach, and suddenly it just picked back up again. And then through the first few weeks of July, we saw the same thing again. So it's not like our strategy changed. Just like pest pressure and consumer-driven demand was the part that was off of there.

And it was, I know I'm going all along here, Tim, but this is, like I said, we've spent a lot of time analyzing this. And all I could, this whole scenario harkened back for me in the second quarter of 2017 was the last time I remember seeing this kind of a start in the season. And I'll never forget it because it was my first time having to go represent our operations in front of Randall Rollins and Gary Rollins, and we had a rough Q2.

And it was like the season just never started. And, you know, that was a very difficult first time operating meeting with Randall Rollins, and it was just like it just didn't come until much later. And trust me, I'd rather have conversations with you about this than I would have with Gary and Randall at that period of time.

And, you know, so that's exactly what this felt like. It just felt like a really super late start. 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. And we also look at brands like Orkin, and you think, oh, it's the consumer. There's probably, you know, Orkin drives a lot more diversity in terms of income bands that they get customers from, and we've checked across those income bands, and there's likely some impact from lower income bands, but, you know, affordability maybe gets a little tougher. So we're seeing those things, but it's really not one thing that we can put our finger on.

I'm going to turn the call over to management for a while, and I'm going to turn the call over to management for a while.

Thanks.

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 are primarily 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 to some degree also Northwest exterminating. And the Orkin piece of that is very sizable.

And so whereas they are able to grow a little more rapidly right now than Orkin, but the headwinds in volume and what Orkin is getting that effect volume-wise is dragging that number down that 3.6% range just because they are more sizable.

There's almost nothing in the digital channel. It's just not what they do. So they're much more insulated from those kinds of what I would call consumer-driven demand channels, where they're going and creating through selling prevention to homebuyers.

Yeah, so that was one of those, I remember it was 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 ended up 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.

Thanks, Manal.

Good morning. Thanks. Good morning.

We basically saw the gap narrow back to being very similar, rather than being down to prior year, to being very similar to prior year. That's the narrowing of that that we saw. And you're talking about lead flow there, right, in terms of the volume of inbound leads was more in par from where we were a year ago. That's right. Very much in comparison. And look, 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 managing to get price in that. So that seems fairly 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 just a massive gap, we can't make that up through pricing and closing efficiency.

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 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 realized Q3 of last year had a lot of favorability in the numbers. And 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 to greatly improve sales efficiency. We have no intention of staffing up the way we staffed up last year, so there's some opportunity there in the SG&A side. We just entered into a great new agreement with our fleet supplier, Wheels, that will help us continue to manage our fleet costs considerably better as we move forward. We have opportunities in the procurement side. Will pointed out in his remarks about some of the headwinds that we're having in medical.

We're going to be doing our best to push our people to use lower-cost options like our telehealth option and our on-site clinics that we have available for people to use because we can drive cost savings just through education And a more convenient way for our people to get medical care. There's been a lot of challenges in the medical cost side. And so we've got some efforts that we need to make towards continuing to drive those costs down. We've identified those, and we're going to be working on those.

Could you restate that question, Curtis?

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, for example, residential rodents could be down with 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%. 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 pets 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 a large part of 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. And that also affects things in the digital space as well.

Yeah, so 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 guy 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 fuel was up 30%, but our miles driven per vehicle per month improved 8%. So 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. 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 be a potential help to us down the road.

And, hey, Curtis, I would just say that, you know, we continue to anticipate those pressures from the ones 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 are talking through some of the claim activity that we've had from years ago, where we're encouraged by the benefits that we're receiving from our safety programs and thinking about what's going to come in the future. 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% incremental story or outlook that we provided.

Maybe one thing to also add just from a residential recurring perspective, you know, we see it as relatively consistent with our overall recurring growth. And so what we didn't do was we didn't add value because of the lead environment that Jerry talked about in his prepared remarks. You know, so we just didn't add them at the same pace as we have been. And the one time was just volatile. I mean, back to the comment around we have seen negative one-time performance in a few of the months that we've had. So far this year, and certainly within the quarter. But hopefully that provides enough color or a little bit of color around that.

But relatively consistent with our overall organic growth rate.

Thanks, Curtis.

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. 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's the truth, but that's been the pulse that I've gotten. Is that a softer cross, which also validates some of our research that it seems like it was a different consumer for a period of time.

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. All right, so again, it came back to, 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, you know, this is also the reason why when we think about our multi-brand strategy, what we do, that's where we want to put dollars into door-to-door.

Door-to-door can build more efficient routes. It's more, they are, and 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 prevention.

Thank you.

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. So, and that is, and that's why we do brand, you know, a lot of the brand spending work to invest in name, recognition, the power of 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 is 100% a protect your asset, protect 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 all the residential pests as well as termites and mosquitoes or 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 you're talking about a consumer, the same consumer, but both are being met at a different place in time, fulfilling a different need. Does that make sense?

Yeah, so the termite ancillary was a little slower as well, primarily in May. It was strong in April, strong in June. May was just miserable. 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. 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 is moving to the back half and into next year.

Thanks, Josh.

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, We tried to factor all of that in and given that six-plus organic growth expectation for the full year. I would remind you that it's for the full year, but yeah.

Yeah, so I have seen for myself in the LLMs about how they kind of help you, direct you to do it yourself.

And is that having an impact, especially in a tighter economy, or somebody figuring out, can I do this myself? Look, as an expert myself in that space, I know firsthand that 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. Okay, that in three weeks they're not just going to be back and you're going to be calling us at 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.

There's also coming a time here, I think, really soon, is Google's going to start, and all of them are going to start monetizing that, and so that'll be a whole different shift. Probably within a matter of months or weeks that we'll be faced with as well to see on those changes. And we continue to monitor it. I have a great deal of confidence in our team that we're doing everything that we can in that regard. But is it possible? And that is amongst all the variables. And 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 residential space.

I can't quantify it. I can't say it's this percent, or is it possible? Yeah, but I don't know exactly.

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. I had a lot of hypotheses, most of which couldn't be proven as real. And so what we do know is that, 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 overwinter All these kinds of variables that are out there It does have me more interested these days in predictive weather models especially with AI 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 looking at but the month of May completely baffled me and I had the same hypothesis And 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 the best I can do for you, Peter.

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 why, and that's, again, I think why our weather hypothesis did not hold up.

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 for the long term. And that is 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. 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 folks from Orkin into the Fox brand where they needed more help and we had capacity in Orkin to move people around. We can do those kinds of things. When we invest in our people, invest in their training, we do our best to try to make sure they can remain part of Rollins.

So, Tomo, you know, 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. We had a perfect 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 upside. That's right.

But for the full year, 10% is the number we felt confident in or comfortable being able to guide for as a floor. That's right.

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 a 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 8% 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've 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 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 opportunity in the back half of the year and leading into early next year to operate more efficiently and do better on a day-to-day basis in our operations. There's some things we left on the table in the second quarter that I just know that there's opportunity to do better.

We've identified those things, and we're taking some actions.

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 file later today that we have done some pretty nominal repurchases related to we're trying to offset the dilution that comes from a stock conference, the burn rate for our stock expense. As far as, you know, we played meaningfully when we had the secondary last November, so we certainly have gone into the market, but as of now, I would not expect to see us deviate from the allocation strategy that we've had over the past several years.

And cash flow generation is really strong. Absolutely, yes. Still at, you know, above 100%, 115% in the quarter. But we do, you know, we always are, we talk with our board, we'll have our board meeting next week, so we talk to the board regularly about this very topic. So, you know, I think, but we feel comfortable with where we are, where we have been, and continue that way. Continue to keep going.

Thanks, Ashish.

Yeah, thank you for the question. Maybe to just point out one thing. So we definitely, you know, see opportunity 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 our core salaries, but 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 speak about the margin degradation related to medical, not so much employee retention.

Yeah, we still have upside. Our seasonal hiring amounts, as slow as Q2 was on the residential side, resulted in some slightly less hiring volumes, somewhat lower hiring volumes across Rollins. And certainly within Orkin, there were a lot fewer hires. But we continue to focus on our short-term retention and making sure that it's those teammates in the first year on the job that are trying to stay. That continues to be an opportunity for improvement. That we know that there's a cost to that, what we call churn of people, and so we're mindful of that. I also would say that continues to be an opportunity for us.

And our team is continuing to focus and do a good job on that.

You have not done your math wrong. That is exactly right, Connor. I would just say that, 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 earnings claims, everything aligned. I mean, it was a really wonderful Q3 last year, so 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.

Thanks, Connor.

Thank you, Connor.

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. We have a, as Will said, we have a good pipeline, and 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. So 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% to 3% of revenue from the M&A side.

Thanks, Anthony.

Thank you, everyone, for joining us today. We look forward to speaking with you again on our Q3 call later this fall. See you.