Rollins 10-Q 2022-09-30

Filed 2022-10-27. 7 sections, 119K 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 September 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 492,472,436 shares of its $1 par value Common Stock outstanding as of October 17, 2022.

ROLLINS, INC. AND SUBSIDIARIES

PART 1 FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

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

(in thousands except share data)

(unaudited)


	September 30,		December 31,
	2022		2021
ASSETS
Cash and cash equivalents	$	121,876	$	105,301
Trade receivables, net of allowance for expected credit losses of $13,783 and $13,885, respectively		170,274		139,579
Financed receivables, short-term, net of allowance for expected credit losses of $1,779 and $1,463, respectively		32,253		26,152
Materials and supplies		28,572		28,926
Other current assets		45,981		52,422
Total current assets		398,956		352,380
Equipment and property, net of accumulated depreciation of $330,173 and $315,891, respectively		130,362		133,257
Goodwill		772,325		721,819
Customer contracts, net		319,382		325,929
Trademarks & tradenames, net		114,016		108,976
Other intangible assets, net		9,807		11,679
Operating lease right-of-use assets		270,365		244,784
Financed receivables, long-term, net of allowance for expected credit losses of $3,121 and $2,522, respectively		58,634		47,097
Other assets		38,636		34,949
Total assets	$	2,112,483	$	1,980,870
LIABILITIES
Accounts payable	$	42,874	$	44,568
Accrued insurance - current		40,424		36,414
Accrued compensation and related liabilities		95,694		97,862
Unearned revenues		166,866		145,122
Operating lease liabilities - current		82,611		75,240
Current portion of long-term debt		15,000		18,750
Other current liabilities		66,300		73,206
Total current liabilities		509,769		491,162
Accrued insurance, less current portion		35,257		31,545
Operating lease liabilities, less current portion		191,565		172,520
Long-term debt		109,878		136,250
Other long-term accrued liabilities		69,463		67,345
Total liabilities		915,932		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, 492,472,436 and 491,911,087 shares issued and outstanding, respectively		492,472		491,911
Additional paid in capital		113,995		105,629
Accumulated other comprehensive loss		(43,566)		(16,411)
Retained earnings		633,650		500,919
Total stockholders’ equity		1,196,551		1,082,048
Total liabilities and stockholders’ equity	$	2,112,483	$	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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(in thousands except per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
REVENUES
Customer services	$	729,704	$	650,199	$	2,034,433	$	1,823,957
COSTS AND EXPENSES
Cost of services provided (exclusive of depreciation and amortization below)		348,158		305,474		980,316		864,888
Sales, general and administrative		213,581		194,261		612,353		539,951
Depreciation and amortization		24,282		23,617		73,454		70,519
Total operating expenses		586,021		523,352		1,666,123		1,475,358
OPERATING INCOME		143,683		126,847		368,310		348,599
Interest expense, net		846		222		2,294		1,334
Other (income), net		(1,980)		(447)		(5,170)		(33,598)
CONSOLIDATED INCOME BEFORE INCOME TAXES		144,817		127,072		371,186		380,863
PROVISION FOR INCOME TAXES		37,195		33,219		90,820		95,513
NET INCOME	$	107,622	$	93,853	$	280,366	$	285,350
NET INCOME PER SHARE - BASIC AND DILUTED	$	0.22	$	0.19	$	0.57	$	0.58
Weighted average shares outstanding - basic		492,316		492,069		492,285		492,058
Weighted average shares outstanding - diluted		492,430		492,069		492,398		492,058
DIVIDENDS PAID PER SHARE	$	0.10	$	0.08	$	0.30	$	0.24

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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(in thousands)

(unaudited)


	Three Months Ending				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
NET INCOME	$	107,622	$	93,853	$	280,366	$	285,350
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(12,417)		(7,207)		(26,203)		(6,924)
Unrealized loss on available for sale securities		—		—		(952)		—
Change in derivatives		—		632		—		356
Other comprehensive income (loss), net of tax		(12,417)		(6,575)		(27,155)		(6,568)
Comprehensive income	$	95,205	$	87,278	$	**

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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 nine months ended September 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

ROLLINS, INC. AND SUBSIDIARIES

of September 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 third 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.

The Company retains, up to specified limits, certain risks related to general liability, workers’ compensation and auto liability. The estimated costs of existing and future claims under the retained loss program are accrued based upon historical trends as incidents occur, whether reported or unreported (although actual settlement of the claims may not be made until future periods) and may be subsequently revised based on developments relating to such claims. The Company contracts with an independent third party to provide the Company an estimated liability based upon historical claims information. The actuarial study is a major consideration in establishing the reserve, along with management’s knowledge of changes in business practice and existing claims compared to current balances. Management’s judgment is inherently subjective as a number of factors are outside management’s knowledge and control. Additionally, historical information is not always an accurate indication of future events. The accruals and reserves we hold are based on estimates that involve a degree of judgment and are inherently variable and could be overestimated or insufficient. If actual claims exceed our estimates, our operating results could be materially affected, and our ability to take timely corrective actions to limit future costs may be limited.

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.

Rollins, Inc did not purchase any equity securities reportable under Item 703 of Regulation S-K during the period from July 1, 2022 to September 30, 2022.


				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	per share		repurchases (1)	repurchase plan (1)
July 1 to 31, 2022	—	$	—	—	11,415,625
August 1 to 31, 2022	—		—	—	11,415,625
September 1 to 30, 2022	—		—	—	11,415,625
Total	—	$	—	—	11,415,625

(1)	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.

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*	2018 Stock Incentive Plan	DEF 14A	March 21, 2018	Appendix A
10.6*	Form of Restricted Stock Grant Agreement	8-K	April 28, 2008	10(d)
10.7*	Form of Time-Lapse Restricted Stock Agreement	10-Q	April 27, 2012	10.1
10.8*	Summary of Compensation Arrangements with Executive Officers	10-K	February 25, 2011	(10)(q)
10.9*	Summary of Compensation Arrangements with Non-Employee Directors	10-K	February 25, 2015	10(i)
10.10	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
10.11	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
10.12	Annex A to the Credit Agreement dated as of January 27, 2022 between Rollins, Inc. and Truist Bank in its capacity as	10-K	February 25, 2022	10.13

ROLLINS, INC. AND SUBSIDIARIES


Exhibit No.	Exhibit Description	Incorporated By Reference			Filed Herewith
		Form	Date	Number
	Administrative Agent and as a Lender and Bank of America, N.A. as a Lender
10.13	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
10.14*	Form of Rollins, Inc. 2022 Executive Bonus Plan	10-K	February 25, 2022	10.15
10.15*	Rollins, Inc. 2022 Executive Bonus Plan - Jerry Gahlhoff	10-K	February 25, 2022	10.16
10.16*	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
10.17*	Form of Time-Lapse Restricted Stock Agreement for Non-Section 16 Reporting Person				X
10.18*	Form of Time-Lapse Restricted Stock Agreement For Section 16 Reporting Persons				X
10.19*	Offer Letter dated July 25, 2022, between Kenneth D. Krause and the Company				X
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: October 27, 2022	By:	/s/ Gary W. Rollins
		Gary W. Rollins
		Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date: October 27, 2022	By:	/s/ Traci Hornfeck
		Traci Hornfeck
		Chief Accounting Officer
		(Principal Accounting Officer)