Rollins 10-Q 2022-06-30

Filed 2022-07-28. 8 sections, 113K characters. Original on sec.gov · Markdown · JSON

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

Commission File Number 1-4422

ROLLINS, INC.

(Exact name of registrant as specified in its charter)


Delaware	51-0068479
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2170 Piedmont Road, N.E.****, Atlanta**,** Georgia

(Address of principal executive offices)

30324

(Zip Code)

(404) 888-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		ROL		NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐
Yes	☐	No	☒

Rollins, Inc. had 492,417,332 shares of its $1 par value Common Stock outstanding as of July 15, 2022.

ROLLINS, INC. AND SUBSIDIARIES

PART 1 FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF JUNE 30, 2022, AND DECEMBER 31, 2021

(in thousands except share data)

(unaudited)


	June 30,		December 31,
	2022		2021
ASSETS
Cash and cash equivalents	$	220,964	$	105,301
Trade receivables, net of allowance for expected credit losses of $13,666 and $13,885, respectively		162,755		139,579
Financed receivables, short-term, net of allowance for expected credit losses of $1,657 and $1,463, respectively		29,822		26,152
Materials and supplies		29,515		28,926
Other current assets		63,942		52,422
Total current assets		506,998		352,380
Equipment and property, net of accumulated depreciation of $324,788 and $315,891, respectively		130,424		133,257
Goodwill		742,019		721,819
Customer contracts, net		318,015		325,929
Trademarks & tradenames, net		111,040		108,976
Other intangible assets, net		10,004		11,679
Operating lease right-of-use assets		252,355		244,784
Financed receivables, long-term, net of allowance for expected credit losses of $2,897 and $2,522, respectively		52,961		47,097
Other assets		43,666		34,949
Total assets	$	2,167,482	$	1,980,870
LIABILITIES
Accounts payable	$	50,702	$	44,568
Accrued insurance		37,724		36,414
Accrued compensation and related liabilities		95,948		97,862
Unearned revenues		165,220		145,122
Operating lease liabilities - current		77,867		75,240
Current portion of long-term debt		15,000		18,750
Other current liabilities		75,283		73,206
Total current liabilities		517,744		491,162
Accrued insurance, less current portion		32,470		31,545
Operating lease liabilities, less current portion		178,021		172,520
Long-term debt		219,858		136,250
Other long-term accrued liabilities		73,822		67,345
Total liabilities		1,021,915		898,822
Commitments and contingencies (see Note 11)
STOCKHOLDERS’ EQUITY
Preferred stock, without par value; 500,000 shares authorized, zero shares issued		—		—
Common stock, par value $1 per share; 800,000,000 shares authorized, 492,417,332 and 491,911,087 shares issued and outstanding, respectively		492,417		491,911
Additional paid in capital		109,070		105,629
Accumulated other comprehensive loss		(31,149)		(16,411)
Retained earnings		575,229		500,919
Total stockholders’ equity		1,145,567		1,082,048
Total liabilities and stockholders’ equity	$	2,167,482	$	1,980,870

The accompanying notes are an integral part of these condensed consolidated financial statements.

ROLLINS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(in thousands except per share data)

(unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
REVENUES
Customer services	$	714,049	$	638,204	$	1,304,729	$	1,173,758
COSTS AND EXPENSES
Cost of services provided (exclusive of depreciation and amortization below)		336,780		297,862		632,158		559,414
Sales, general and administrative		219,987		183,482		398,772		345,690
Depreciation and amortization		24,325		23,306		49,172		46,902
Total operating expenses		581,092		504,650		1,080,102		952,006
OPERATING INCOME		132,957		133,554		224,627		221,752
Interest expense, net		880		506		1,448		1,112
Other (income), net		(1,911)		(891)		(3,190)		(33,151)
CONSOLIDATED INCOME BEFORE INCOME TAXES		133,988		133,939		226,369		253,791
PROVISION FOR INCOME TAXES		33,689		35,085		53,625		62,294
NET INCOME	$	100,299	$	98,854	$	172,744	$	191,497
NET INCOME PER SHARE - BASIC AND DILUTED	$	0.20	$	0.20	$	0.35	$	0.39
Weighted average shares outstanding - basic		492,327		491,999		492,270		491,950
Weighted average shares outstanding - diluted		492,440		491,999		492,382		491,950
DIVIDENDS PAID PER SHARE	$	0.10	$	0.08	$	0.20	$	0.16

The accompanying notes are an integral part of these condensed consolidated financial statements.

ROLLINS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(in thousands)

(unaudited)


	Three Months Ending				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
NET INCOME	$	100,299	$	98,854	$	172,744	$	191,497
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(16,913)		704		(13,786)		283
Unrealized loss on available for sale securities		(362)		—		(952)		—
Change in derivatives		—		(439)		—		(276)
Other comprehensive income (loss), net of tax		(17,275)		265		(14,738)		7
Comprehensive income	$	83,024	$	99,119	$	158,006	$	191,504

The accompanying note

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7.A of our 2021 Form 10-K. There were no material changes to our market risk exposure during the three and six months ended June 30, 2022.

Item 4. CONTROLS AND PROCEDURES

The Disclosure Committee, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of June 30, 2022 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the Evaluation Date to ensure that the information required to be included in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in Internal Controls Over Financial Reporting

Management’s quarterly evaluation identified no changes in our internal control over financial reporting during the second quarter that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II OTHER INFORMATION

**ITEM 1.**LEGAL PROCEEDINGS

In the normal course of business, the Company and its subsidiaries are involved in, and will continue to be involved in, various claims, arbitrations, contractual disputes, investigations, litigation, and tax and other regulatory matters relating to, and arising out of, our businesses and our operations. These matters may involve, but are not limited to, allegations that our services or vehicles caused damage or injury, claims that our services did not achieve the desired results, claims related to acquisitions and allegations by federal, state or local authorities, including taxing authorities, of violations of regulations or statutes. In addition, we are parties to employment-related cases and claims from time to time, which may include claims on a representative or class action basis alleging wage and hour law violations. We are also involved from time to time in certain environmental and tax matters primarily arising in the normal course of business. We evaluate pending and threatened claims and establish loss contingency reserves based upon outcomes we currently believe to be probable and reasonably estimable.

Management does not believe that any pending claim, proceeding or litigation, regulatory action or investigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity; however, it is possible that an unfavorable outcome of some or all of the matters could result in a charge that might be material to the results of an individual quarter or year.

Item 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2021.

ROLLINS, INC. AND SUBSIDIARIES

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Shares repurchased by Rollins during the second quarter ended June 30, 2022 were as follows:


				Total number of
		Weighted-		shares purchased as	Maximum number of
	Total number of	average		part of publicly	shares that may yet be
	shares	price paid		announced	purchased under the
Period	purchased (1)	per share		repurchases (2)	repurchase plan (2)
April 1 to 30, 2022	14,540	$	31.60	—	11,415,625
May 1 to 31, 2022	113		32.17	—	11,415,625
June 1 to 30, 2022	3,518		31.90	—	11,415,625
Total	18,171	$	31.66	—	11,415,625

(1)	Represents repurchases from employees for the payment of taxes on vesting of restricted shares.

(2)	The Company has a share repurchase plan, adopted in 2012, to repurchase up to 16.9 million shares of the Company’s common stock. The plan has no expiration date.

Item 5. OTHER INFORMATION

As this Quarterly Report on Form 10-Q is being filed within four business days from the date of the reportable events, we have elected to make the following disclosures in this Quarterly Report on Form 10-Q instead of in a Current Report on Form 8-K under Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers:

On July 27, 2022, the Company announced that its Board of Directors has unanimously approved the Company’s long-term leadership succession plan.

The plan provides that effective January 1, 2023, the Company’s current President and Chief Operating Officer, Jerry Gahlhoff Jr., is expected to become Rollins’ President and Chief Executive Officer. Gary W. Rollins, current Chairman and Chief Executive Officer, is expected to remain as Chairman of the Board of Directors.

The additional information required to be disclosed under Items 401(b), (d), (e) and Item 404(a) of Regulation S-K regarding Mr. Gahlhoff is incorporated by reference from the Company’s Proxy Statement on Schedule 14A filed with the SEC on March 15, 2022.

ROLLINS, INC. AND SUBSIDIARIES

Item 6. EXHIBITS


Exhibit No.	Exhibit Description	Incorporated By Reference			Filed Herewith
		Form	Date	Number
2.1	Stock Purchase Agreement by and among Rollins, Inc., Clark Pest Control of Stockton, Inc., the Stockholders of Clark Pest Control of Stockton, Inc. the Principals and the Stockholders Representative	10-Q	April 26, 2019	10.1
2.2	Asset Purchase Agreement among King Distribution, Inc., a Delaware corporation, Geotech Supply Co., LLC, a California limited liability company, and Clarksons California Properties, California limited partnership	10-Q	April 26, 2019	10.2
2.3	Real Estate Purchase Agreement by and between RCI – King, Inc., and Clarksons California Properties, a California limited partnership	10-Q	April 26, 2019	10.3
3.1	Restated Certificate of Incorporation of Rollins, Inc., dated July 28, 1981	10-Q	August 1, 2005	(3)(i)(A)
3.2	Certificate of Amendment of Certificate of Incorporation of Rollins, Inc., dated August 20, 1987	10-K	March 11, 2005	(3)(i)(B)
3.3	Certificate of Change of Location of Registered Office and of Registered Agent, dated March 22, 1994	10-Q	August 1, 2005	(3)(i)(C)
3.4	Certificate of Amendment of Certificate of Incorporation of Rollins, Inc., dated April 26, 2011	10-K	February 25, 2015	(3)(i)(E)
3.5	Certificate of Amendment of Certificate of Incorporation of Rollins, Inc., dated April 28, 2015	10-Q	July 29, 2015	(3)(i)(F)
3.6	Certificate of Amendment of Certificate of Incorporation of Rollins, Inc., dated April 23, 2019	10-Q	April 26, 2019	(3)(i)(G)
3.7	Certificate of Amendment of Certificate of Incorporation of Rollins, Inc., dated April 27, 2021	10-Q	July 30, 2021	(3)(i)(H)
3.8	Amended and Restated By-laws of Rollins, Inc., dated May 20, 2021	8-K	May 24, 2021	3.1
4.1	Form of Common Stock Certificate of Rollins, Inc.	10-K	March 26, 1999	(4)
4.2	Description of Registrant’s Securities	10-K	February 28, 2020	4(b)
10.1+	Membership Interest Purchase Agreement by and among Rollins, Inc., Northwest Exterminating Co., Inc. NW Holdings, LLC and the stockholders of Northwest Exterminating Co., Inc. dated as of July 24, 2017	10-Q	October 27, 2017	10.1
10.2*	Rollins, Inc. Amended and Restated Deferred Compensation Plan	S-8	November 18, 2005	4.1
10.3*	Form of Plan Agreement pursuant to the Rollins, Inc. Amended and Restated Deferred Compensation Plan	S-8	November 18, 2005	4.2
10.4*	Written description of Rollins, Inc. Performance-Based Incentive Cash Compensation Plan for Executive Officer	8-K	February 1, 2021	10(a)
10.5*	Forms of award agreements under the 2013 Cash Incentive Plan	10-K	February 24, 2017	10(d)
10.6*	2018 Stock Incentive Plan	DEF 14A	March 21, 2018	Appendix A
10.7*	Form of Restricted Stock Grant Agreement	8-K	April 28, 2008	10(d)
10.8*	Form of Time-Lapse Restricted Stock Agreement	10-Q	April 27, 2012	10.1
10.9*	Summary of Compensation Arrangements with Executive Officers	10-K	February 25, 2011	(10)(q)
10.10*	Summary of Compensation Arrangements with Non-Employee Directors	10-K	February 25, 2015	10(i)
10.11	Revolving Credit Agreement dated as of April 30, 2019 between Rollins, Inc. and SunTrust Bank and Bank of America, N.A.	10-K	February 28, 2020	10.1
10.12	Amended Credit Agreement dated as of January 27, 2022 between Rollins, Inc. and Truist Bank in its capacity as Administrative Agent and as a Lender and Bank of America, N.A. as a Lender	10-K	February 25, 2022	10.12

ROLLINS, INC. AND SUBSIDIARIES


Exhibit No.	Exhibit Description	Incorporated By Reference			Filed Herewith
		Form	Date	Number
10.13	Annex A to the Credit Agreement dated as of January 27, 2022 between Rollins, Inc. and Truist Bank in its capacity as Administrative Agent and as a Lender and Bank of America, N.A. as a Lender	10-K	February 25, 2022	10.13
10.14	Annex B to the Credit Agreement dated as of January 27, 2022 between Rollins, Inc. and Truist Bank in its capacity as Administrative Agent and as a Lender and Bank of America, N.A. as a Lender	10-K	February 25, 2022	10.14
10.15*	Form of Rollins, Inc. 2022 Executive Bonus Plan	10-K	February 25, 2022	10.15
10.16*	Rollins, Inc. 2022 Executive Bonus Plan - Jerry Gahlhoff	10-K	February 25, 2022	10.16
10.17*	Confidential Settlement and General Release Agreement dated as of April 5, 2022 between the Company and Paul E. Northen	10_Q	April 28, 2022	10.17
31.1	Certification of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
31.2	Certification of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
32.1**	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
101.INS	Inline XBRL Instance Document				X
101.SCH	Inline XBRL Schema Document				X
101.CAL	Inline XBRL Calculation Linkbase Document				X
101.LAB	Inline XBRL Labels Linkbase Document				X
101.PRE	Inline XBRL Presentation Linkbase Document				X
101.DEF	Inline XBRL Definition Linkbase Document				X
104	Cover Page Interactive Data File (embedded with the Inline XBRL document)				X

+	Certain portions of this document that constitute confidential information have been redacted in accordance with Regulation S-K, Item 601(b)(10)

*	Indicates management contract or compensatory plans or arrangements.

**	Furnished with this report

ROLLINS, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ROLLINS, INC.
	(Registrant)

Date: July 28, 2022	By:	/s/ Gary W. Rollins
		Gary W. Rollins
		Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date: July 28, 2022	By:	/s/ Traci Hornfeck
		Traci Hornfeck
		Chief Accounting Officer
		(Principal Accounting Officer)