Item 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF MARCH 31, 2023, AND DECEMBER 31, 2022

(in thousands except share data)

(unaudited)

			March 31, 2023						December 31, 2022
ASSETS
Cash and cash equivalents			$	112,503					$	95,346
Trade receivables, net of allowance for expected credit losses of $12,476 and $14,073, respectively			150,426						155,759
Financed receivables, short-term, net of allowance for expected credit losses of $1,935 and $1,768, respectively			38,599						33,618
Materials and supplies			30,859						29,745
Other current assets			35,479						34,151
Total current assets			367,866						348,619
Equipment and property, net of accumulated depreciation of $339,885 and $333,298, respectively			124,117						128,046
Goodwill			852,800						846,704
Customer contracts, net			296,494						298,559
Trademarks & tradenames, net			111,353						111,646
Other intangible assets, net			7,402						8,543
Operating lease right-of-use assets			274,540						277,355
Financed receivables, long-term, net of allowance for expected credit losses of $3,541 and $3,200, respectively			62,962						63,523
Other assets			41,352						39,033
Total assets			$	2,138,886					$	2,122,028
LIABILITIES
Accounts payable			$	39,073					$	42,796
Accrued insurance - current			40,816						39,534
Accrued compensation and related liabilities			67,761						99,251
Unearned revenues			167,564						158,092
Operating lease liabilities - current			83,981						84,543
Current portion of long-term debt			—						15,000
Other current liabilities			68,161						54,568
Total current liabilities			467,356						493,784
Accrued insurance, less current portion			40,582						38,350
Operating lease liabilities, less current portion			194,860						196,888
Long-term debt			62,432						39,898
Other long-term accrued liabilities			85,904						85,911
Total liabilities			851,134						854,831
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, 492,787,005 and 492,447,997 shares issued and outstanding, respectively			492,787						492,448
Additional paid in capital			115,018						119,242
Accumulated other comprehensive loss			(31,303)						(31,562)
Retained earnings			711,250						687,069
Total stockholders’ equity			1,287,752						1,267,197
Total liabilities and stockholders’ equity			$	2,138,886					$	2,122,028

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 MONTHS ENDED MARCH 31, 2023 AND 2022

(in thousands except per share data)

(unaudited)

									Three Months Ended March 31,
															2023						2022
REVENUES
Customer services															$	658,015					$	590,680
COSTS AND EXPENSES
Cost of services provided (exclusive of depreciation and amortization below)															326,842						295,378
Sales, general and administrative															196,431						178,785
Depreciation and amortization															22,502						23,127
Total operating expenses															545,775						497,290
OPERATING INCOME															112,240						93,390
Interest expense, net															465						568
Other (income), net															(4,714)						(1,279)
CONSOLIDATED INCOME BEFORE INCOME TAXES															116,489						94,101
PROVISION FOR INCOME TAXES															28,255						20,335
NET INCOME															$	88,234					$	73,766
NET INCOME PER SHARE - BASIC AND DILUTED															$	0.18					$	0.15
Weighted average shares outstanding - basic															492,516						492,213
Weighted average shares outstanding - diluted															492,701						492,325
DIVIDENDS PAID PER SHARE															$	0.13					$	0.10

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 MONTHS ENDED MARCH 31, 2023 AND 2022

(in thousands)

(unaudited)

									Three Months Ended March 31,
															2023						2022
NET INCOME															$	88,234					$	73,766
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments															97						3,127
Unrealized gain (loss) on available for sale securities															162						(590)
Other comprehensive income (loss), net of tax															259						2,537
Comprehensive income															$	88,493					$	76,303

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

ROLLINS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(in thousands)

(unaudited)

			Common Stock												Paid-in- Capital						Accumulated Other Comprehensive Income / (Loss)						Retained Earnings						Total
			Shares						Amount
Balance at December 31, 2022			492,448						$	492,448					$	119,242					$	(31,562)					$	687,069					$	1,267,197
Net Income																											88,234						88,234
Other comprehensive income / (loss), net of tax:
Foreign currency translation adjustments			—						—						—						97						—						97
Unrealized gain on available for sale securities			—						—						—						162						—						162
Cash dividends			—						—						—						—						(64,053)						(64,053)
Stock compensation			601						601						5,346						—						—						5,947
Employee stock buybacks			(262)						(262)						(9,570)						—						—						(9,832)
Balance at March 31, 2023			492,787						$	492,787					$	115,018					$	(31,303)					$	711,250					$	1,287,752

			Common Stock												Paid-in- Capital						Accumulated Other Comprehensive Income / (Loss)						Retained Earnings						Total
			Shares						Amount
Balance at December 31, 2021			491,911						$	491,911					$	105,629					$	(16,411)					$	530,088					$	1,111,217
Net Income																											73,766						73,766
Other comprehensive income / (loss), net of tax:
Foreign currency translation adjustments																					3,127												3,127
Unrealized loss on available for sale securities																					(590)												(590)
Cash dividends																											(49,205)						(49,205)
Stock compensation			757						757						5,381												—						6,138
Employee stock buybacks			(207)						(207)						(6,227)												—						(6,434)
Balance at March 31, 2022			492,461						$	492,461					$	104,783					$	(13,874)					$	554,649					$	1,138,019

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

ROLLINS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(in thousands)

(unaudited)

			Three Months Ended March 31,
			2023						2022
OPERATING ACTIVITIES
Net income			$	88,234					$	73,766
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			22,502						23,127
Stock-based compensation expense			5,947						6,138
Provision for expected credit losses			3,896						4,257
Gain on sale of assets, net			(4,714)						(1,279)
Provision for deferred income taxes			6,929						2,445
Changes in operating assets and liabilities:
Trade accounts receivable and other accounts receivable			1,533						(1,440)
Financing receivables			(4,421)						(707)
Materials and supplies			(1,043)						151
Other current assets			(1,501)						(3,629)
Accounts payable and accrued expenses			(17,548)						(16,934)
Unearned revenue			8,656						11,294
Other long-term assets and liabilities			(7,697)						(9,657)
Net cash provided by operating activities			100,773						87,532
INVESTING ACTIVITIES
Acquisitions, net of cash acquired			(15,480)						(13,223)
Capital expenditures			(7,636)						(7,995)
Proceeds from sale of assets			8,886						1,290
Other investing activities, net			640						—
Net cash (used in) investing activities			(13,590)						(19,928)
FINANCING ACTIVITIES
Payment of contingent consideration			(4,098)						(3,051)
Borrowings under term loan			—						251,783
Borrowings under revolving commitment			180,000						11,000
Repayments of term loan			(55,000)						(4,000)
Repayments of revolving commitment			(115,000)						(118,000)
Payment of dividends			(64,053)						(49,205)
Cash paid for common stock purchased			(11,443)						(6,434)
Other financing activities, net			(1,488)						—
Net cash (used in) provided by financing activities			(71,082)						82,093
Effect of exchange rate changes on cash			1,056						3,340
Net increase in cash and cash equivalents			17,157						153,037
Cash and cash equivalents at beginning of period			95,346						105,301
Cash and cash equivalents at end of period			$	112,503					$	258,338
Supplemental disclosure of cash flow information:
Cash paid for interest			$	429					$	753
Cash paid for income taxes, net			$	12,572					$	11,962
Non-cash additions to operating lease right-of-use assets			$	20,828					$	17,937

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

ROLLINS, INC. AND SUBSIDIARIES

NOTE 1. BASIS OF PREPARATION

Basis of Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, the instructions to Form 10-Q and applicable sections of SEC regulation S-X, and therefore do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Effective January 1, 2023, we reorganized our reporting structure including the transition of Jerry E. Gahlhoff, Jr. to the role of Chief Executive Officer. As a result of the transition, we reevaluated our segment reporting and determined that we now have two operating segments and two goodwill reporting units, but we continue to operate under one reportable segment which contains our residential, commercial, and termite business lines. As of January 1, 2023, we performed an assessment of whether there was an indication of impairment before and after the reorganization. In that analysis, we determined that no goodwill impairment existed. There have been no material changes in the Company’s significant accounting policies or the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Rollins, Inc. (including its subsidiaries unless the context otherwise requires, “Rollins,” “we,” “us,” “our,” or the “Company”) for the year ended December 31, 2022. Accordingly, the quarterly condensed consolidated financial statements and related disclosures herein should be read in conjunction with the 2022 Annual Report on Form 10-K.

The Company’s condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and related disclosures as of the date of the condensed consolidated financial statements. The Company considered the impact of economic trends on the assumptions and estimates used in preparing the condensed consolidated financial statements. In the opinion of management, all material adjustments necessary for a fair presentation of the Company’s financial results for the quarter have been made. These adjustments are of a normal recurring nature but complicated by the continued uncertainty surrounding economic trends. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of results for the entire year. The severity, magnitude and duration of certain economic trends, continue to be uncertain and are difficult to predict. Therefore, our accounting estimates and assumptions may change over time in response to economic trends and may change materially in future periods.

Certain condensed consolidated financial statement amounts relative to the prior period have been revised as detailed in our annual report on Form 10-K for the year ended December 31, 2022. The impact of this revision on the Company's previously reporting condensed consolidated financial statements for the three months ended March 31, 2022 includes a decrease to depreciation and amortization expense of $1.7 million and an increase in the provision for income tax expense of $0.4 million. This revision affects these specific line items and subtotals within the consolidated statements of income, comprehensive income, stockholders' equity and cash flows.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting standards

In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The amendments in this Update eliminate the accounting guidance for troubled debt restructurings (TDRs) by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, for public business entities, the amendments in this Update require that an entity disclose current-period gross write-offs by year of origination for financing receivables. ASU 2022-02 was effective for fiscal years beginning after December 15, 2022. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Accounting standards issued but not yet adopted

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurements of Equity Securities Subject to Contractual Sale Restrictions.” The amendments in this Update clarify the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. This Update also introduces new disclosure requirements for equity securities subject to contractual sale

ROLLINS, INC. AND SUBSIDIARIES

restrictions that are measured at fair value. These amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. The Company does not currently own any equity securities and therefore the adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 3. ACQUISITIONS

The Company made six acquisitions during the three-month period ended March 31, 2023. The preliminary values of major classes of assets acquired and liabilities assumed recorded at the dates of acquisition, as adjusted during the valuation period, are included in the reconciliation of the total consideration as follows (in thousands):

			March 31, 2023
Accounts receivable			$	33
Materials and supplies			86
Equipment and property			1,171
Goodwill			6,050
Customer contracts			10,086
Other intangible assets			160
Current liabilities			(62)
Other assets and liabilities, net			(744)
Total consideration			$	16,780
Less: Acquisition holdback liabilities			(1,300)
Total cash purchase price			$	15,480

Goodwill from acquisitions represents the excess of the purchase price over the fair value of net assets of businesses acquired. The factors contributing to the amount of goodwill are based on strategic and synergistic benefits that are expected to be realized. For the three months ended March 31, 2023, $6.1 million of goodwill was added related to the six acquisitions noted above. The recognized goodwill is expected to be deductible for tax purposes. The purchase price allocations for these acquisitions are preliminary until the Company obtains final information regarding these fair values.

NOTE 4. REVENUE

Revenue, classified by the major geographic areas in which our customers are located, was as follows:

			Three Months Ended March 31,
			2023						2022
(in thousands)
United States			$	609,311					$	546,460
Other countries			48,704						44,220
Total Revenues			$	658,015					$	590,680

ROLLINS, INC. AND SUBSIDIARIES

Revenue from external customers, classified by significant product and service offerings, was as follows:

			Three Months Ended March 31,
(in thousands)			2023						2022
Residential revenue			$	283,625					$	259,259
Commercial revenue			230,402						205,787
Termite completions, bait monitoring, & renewals			136,605						119,706
Franchise revenues			3,787						3,737
Other revenues			3,596						2,191
Total Revenues			$	658,015					$	590,680

Sales and usage-based taxes are excluded from revenues. No sales to an individual customer or in a country other than the United States accounted for 10% or more of the sales for the periods listed in the following table.

The Company records unearned revenue when we have either received payment or contractually have the right to bill for services in advance of the services or performance obligations being performed. Unearned revenue recognized in the three months ended March 31, 2023 and 2022 was $55.5 million and $49.9 million, respectively. Changes in unearned revenue were as follows:

			Three Months Ended March 31,
			2023						2022
(in thousands)
Beginning balance			$	187,994					$	168,607
Deferral of unearned revenue			65,626						61,635
Recognition of unearned revenue			(55,466)						(49,909)
Ending balance			$	198,154					$	180,333

As of March 31, 2023, and December 31, 2022, the Company had long-term unearned revenue of $30.6 million and $29.9 million, respectively, recorded in other long-term accrued liabilities. Unearned short-term revenue is recognized over the next 12-month period. The majority of unearned long-term revenue is recognized over a period of five years or less with immaterial amounts recognized through 2033.

NOTE 5. ALLOWANCE FOR CREDIT LOSSES

The Company is exposed to credit losses primarily related to accounts receivables and financed receivables derived from customer services revenue. To reduce credit risk for residential pest control accounts receivable, we promote enrollment in our auto-pay programs. In general, we may suspend future services for customers with past due balances. The Company’s credit risk is generally low with a large number of individuals and entities comprising Rollins’ customer base and dispersion across many different geographical regions.

The Company manages its financing receivables on an aggregate basis when assessing and monitoring credit risks. The Company’s established credit evaluation and monitoring procedures seek to minimize the amount of business we conduct with higher risk customers. The credit quality of a potential obligor is evaluated at the loan origination based on an assessment of the individual’s Beacon/credit bureau score. Rollins requires a potential obligor to have good credit worthiness with low risk before entering into a contract. Depending upon the individual’s credit score, the Company may accept with 100% financing, require a significant down payment or turn down the contract. Delinquencies of accounts are monitored each month. Financing receivables include installment receivable amounts, some of which are due subsequent to one year from the balance sheet dates.

The Company’s allowances for credit losses for trade accounts receivable and financed receivables are developed using historical collection experience, current economic and market conditions, reasonable and supportable forecasts, and a review of the current status of customers’ receivables. The Company’s receivable pools are classified between residential customers, commercial customers, large commercial customers, and financed receivables. Accounts are written off against the allowance for credit losses when the Company determines that amounts are uncollectible, and recoveries of amounts

ROLLINS, INC. AND SUBSIDIARIES

previously written off are recorded when collected. The Company stops accruing interest to these receivables when they are deemed uncollectible. Below is a roll forward of the Company’s allowance for credit losses for the three months ended March 31, 2023 and 2022 (in thousands).

			Allowance for Credit Losses
			Trade Receivables						Financed Receivables						Total Receivables
Balance at December 31, 2022			$	14,073					$	4,968					$	19,041
Provision for expected credit losses			1,461						2,435						3,896
Write-offs charged against the allowance			(4,687)						(1,927)						(6,614)
Recoveries collected			1,629						—						1,629
Balance at March 31, 2023			$	12,476					$	5,476					$	17,952

			Allowance for Credit Losses
			Trade Receivables						Financed Receivables						Total Receivables
Balance at December 31, 2021			$	13,885					$	3,985					$	17,870
Provision for expected credit losses			3,204						1,054						4,258
Write-offs charged against the allowance			(4,248)						(1,189)						(5,437)
Recoveries collected			1,329						—						1,329
Balance at March 31, 2022			$	14,170					$	3,850					$	18,020

NOTE 6. GOODWILL AND INTANGIBLE ASSETS

The following table summarizes changes in goodwill during the three months ended March 31, 2023 and the twelve months ended December 31, 2022 (in thousands):

Goodwill:
Balance at December 31, 2021			$	786,504
Additions			64,997
Measurement adjustments			(9)
Adjustments due to currency translation			(4,788)
Balance at December 31, 2022			846,704
Additions			6,050
Measurement adjustments			—
Adjustments due to currency translation			46
Balance at March 31, 2023			$	852,800

The carrying amount of goodwill in foreign countries was $98.0 million as of March 31, 2023 and $97.4 million as of December 31, 2022.

ROLLINS, INC. AND SUBSIDIARIES

The following table sets forth the components of indefinite-lived and amortizable intangible assets as of March 31, 2023 and December 31, 2022 (in thousands):

			March 31, 2023																		December 31, 2022
			Gross						Accumulated Amortization						Carrying Value						Gross						Accumulated Amortization						Carrying Value						Useful Life in Years
Amortizable intangible assets:
Customer contracts			$	504,980					$	(208,486)					$	296,494					$	502,689					$	(204,130)					$	298,559					3-20
Trademarks and tradenames			17,516						(10,346)						7,170						17,351						(10,009)						7,342						7-20
Non-compete agreements			13,923						(8,943)						4,980						14,180						(8,226)						5,954						3-20
Patents			6,916						(6,896)						20						6,934						(6,802)						132						3-15
Other assets			1,980						(1,805)						175						2,016						(1,786)						230						10
Total amortizable intangible assets			$	545,315					$	(236,476)					308,839						$	543,170					$	(230,953)					312,217
Indefinite-lived intangible assets:
Trademarks and tradenames															104,183																		104,304
Internet domains															2,227																		2,227
Total indefinite-lived intangible assets															106,410																		106,531
Total customer contracts and other intangible assets															$	415,249																	$	418,748

The carrying amount of customer contracts in foreign countries was $45.3 million and $46.1 million as of March 31, 2023 and December 31, 2022, respectively. The carrying amount of trademarks and tradenames in foreign countries was $4.2 million as of March 31, 2023 and December 31, 2022. The carrying amount of other intangible assets in foreign countries was $0.6 million and $0.7 million as of March 31, 2023 and December 31, 2022, respectively.

Amortization expense related to intangible assets was $14.0 million and $13.4 million for the three months ended March 31, 2023 and 2022, respectively. Customer contracts and other amortizable intangible assets are amortized on a straight-line basis over their economic useful lives.

Estimated amortization expense for the existing carrying amount of customer contracts and other intangible assets for each of the five succeeding fiscal years as of March 31, 2023 are as follows:

(in thousands)
2023 (excluding the three months ended March 31, 2023)			$	45,487
2024			57,542
2025			48,732
2026			45,214
2027			41,550

NOTE 7. LEASES

The Company leases certain buildings, vehicles, and equipment. The Company elected the practical expedient approach permitted under Accounting Standards Codification Topic 842 “Leases”, not to include short-term leases with a duration of 12 months or less on the balance sheet. As of March 31, 2023, and December 31, 2022, all leases were classified as operating leases. Building leases generally carry terms of 5 to 15 years with annual rent escalations at fixed amounts per the lease. Vehicle leases generally carry a fixed term of one year with renewal options to extend the lease on a monthly basis resulting in lease terms up to 7 years depending on the class of vehicle. The exercise of renewal options is at the Company’s sole discretion. It is reasonably certain that the Company will exercise the renewal options on its vehicle leases. The measurement of right-of-use assets and liabilities for vehicle leases includes the fixed payments associated with such renewal periods. We separate lease and non-lease components of contracts. Our lease agreements do not contain any material variable payments, residual value guarantees, early termination penalties or restrictive covenants.

The Company uses the rate implicit in the lease when available; however, most of our leases do not provide a readily determinable implicit rate. Accordingly, we estimate our incremental borrowing rate based on information available at lease commencement.

ROLLINS, INC. AND SUBSIDIARIES

																		Three Months Ended March 31,
(in thousands, except Other Information)
Lease Classification						Financial Statement Classification																		2023						2022
Short-term lease cost						Cost of services provided, Sales, general, and administrative expenses																		$	67					$	26
Operating lease cost						Cost of services provided, Sales, general, and administrative expenses																		26,187						24,023
Total lease expense																								$	26,254					$	24,049
Other Information:
Weighted-average remaining lease term - operating leases																								5.0 years						5.5 years
Weighted-average discount rate - operating leases																								3.73		%				3.54		%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases																								$	25,965					$	23,758

Lease Commitments

Future minimum lease payments, including assumed exercise of renewal options as of March 31, 2023 were as follows:

(in thousands)
2023 (excluding the three months ended March 31, 2023)			$	71,814
2024			75,649
2025			57,061
2026			37,087
2027			17,741
2028			12,061
Thereafter			39,726
Total future minimum lease payments			311,139
Less: Amount representing interest			32,298
Total future minimum lease payments, net of interest			$	278,841

Future commitments presented in the table above include lease payments in renewal periods for which it is reasonably certain that the Company will exercise the renewal option. Total future minimum lease payments for operating leases, including the amount representing interest, are comprised of $149.5 million for building leases and $161.6 million for vehicle leases. As of March 31, 2023, the Company had additional future obligations of $10.8 million for leases that had not yet commenced.

NOTE 8. FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist of cash and cash equivalents, trade receivables, financed and notes receivable, accounts payable, other short-term liabilities, and debt. The carrying amounts of these financial instruments approximate their respective fair values. The Company also has derivative instruments as further discussed in Note 10. Derivative Instruments and Hedging Activities.

The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs.

ROLLINS, INC. AND SUBSIDIARIES

As of March 31, 2023, and December 31, 2022, we had investments in international bonds of $10.3 million and $10.7 million, respectively. These bonds are accounted for as available for sale securities and are level 2 assets under the fair value hierarchy. At March 31, 2023, $0.7 million was included in other current assets and $9.6 million was included in other assets. At December 31, 2022, $0.5 million was included in other current assets and $10.2 million was included in other assets. The bonds are recorded at fair market value with unrealized gains of $0.2 million and unrealized losses of $0.6 million included in other comprehensive income during the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and December 31, 2022, the Company had $10.5 million and $13.5 million of acquisition holdback and earnout liabilities payable to former owners of acquired companies, respectively. The earnout liabilities were discounted to reflect the expected probability of payout, and both earnout and holdback liabilities were discounted to their net present value on the Company’s books and are considered level 3 liabilities. The table below presents a summary of the changes in fair value for these liabilities.

									Three Months Ended March 31,
(in thousands)															2023						2022
Beginning balance															$	13,496					$	25,156
New acquisitions and revaluations															1,300						1,176
Payouts															(4,098)						(3,051)
Interest on outstanding contingencies															22						126
Charge offset, forfeit and other															(187)						(8)
Ending balance															$	10,533					$	23,399

NOTE 9. DEBT

On 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.

The Credit Agreement provides for a $1.0 billion revolving credit facility (the “Credit Facility”), which may be denominated in U.S. Dollars and other currencies, including Euros, Australian Dollars, Canadian Dollars, New Zealand Dollars, Pounds Sterling and Japanese Yen, subject to a $400 million foreign currency sublimit. The Credit Facility also includes sub-facilities for the issuance of letters of credit of up to $150 million and swing line loans at the Administrative Agent’s discretion of up to $50 million. Certain subsidiaries of Rollins provide unsecured guarantees of the Credit Facility. Rollins has the ability to expand its borrowing availability under the Credit Agreement in the form of increased revolving commitments or one or more tranches of term loans by up to an additional $750 million, subject to the agreement of the participating lenders and certain other customary conditions. The maturity date of the loans under the Credit Agreement is February 24, 2028.

Loans under the Credit Agreement bear interest, at Rollins’ election, at (i) for loans denominated in U.S. Dollars, (A) an alternate base rate (subject to a floor of 0.00%), which is the greatest of (x) the prime rate publicly announced from time to time by JPMorgan Chase, (y) the greater of the federal funds effective rate and the Federal Reserve Bank of New York overnight bank funding rate, plus 50 basis points, and (z) Adjusted Term SOFR for a one month interest period, plus a margin ranging from 0.00% to 0.50% per annum based on Rollins’ consolidated total net leverage ratio; or (B) the greater of term SOFR for the applicable interest period plus 10 basis points (“Adjusted Term SOFR”) and zero, plus a margin ranging from 1.00% to 1.50% per annum based on Rollins’ consolidated total net leverage ratio; and (ii) for loans denominated in other currencies, including Euros, Australian Dollars, Canadian Dollars, New Zealand Dollars, Pounds Sterling and Japanese Yen, such interest rates as set forth in the Credit Agreement.

In April 2019, the Company entered into a Revolving Credit Agreement with Truist Bank N.A. (formerly SunTrust Bank N.A.) and Bank of America, N.A. (the “2019 Credit Agreement”) for an unsecured revolving commitment of up to $175.0 million, which includes a $75.0 million letter of credit subfacility and a $25.0 million swingline subfacility (the “Revolving Commitment”), and an unsecured variable rate $250.0 million term loan (the “Term Loan”). On January 27, 2022, the Company entered into an amendment (the “Amendment”) to the 2019 Credit Agreement with Truist Bank and Bank of America, N.A. whereby additional term loans in an aggregate principal amount of $252.0 million were advanced to the Company. The Amendment also replaced LIBOR as the benchmark interest rate for borrowings with the Bloomberg Short-

ROLLINS, INC. AND SUBSIDIARIES

Term Bank Yield Index rate (“BSBY”) and reset the amortization schedule for all term loans under the 2019 Credit Agreement. The Amendment was refinanced with the Credit Agreement described above.

As of March 31, 2023, the Company had outstanding borrowings of $62.4 million under the Credit Facility. The aggregate effective interest rate on the debt outstanding as of March 31, 2023 was 6.1%. As of December 31, 2022, the Revolving Commitment had outstanding borrowings of $54.9 million under the previous Term Loan with an effective interest rate of 5.1%.

The Company maintains $194.2 million in letters of credit as of March 31, 2023. These letters of credit are required by the Company’s insurance companies, due to the Company’s high deductible insurance program, to secure various workers’ compensation and casualty insurance contracts coverage and were increased from $71.3 million as of December 31, 2022. This balance is higher as of quarter end due to overlapping letters of credit as the Company transitions to new letters of credit associated with the new Credit Facility. The Company believes that it has adequate liquid assets, funding sources and insurance accruals to accommodate potential future insurance claims.

The Credit Agreement contains customary terms and conditions, including, without limitation, certain financial covenants including covenants restricting Rollins’ ability to incur certain indebtedness or liens, or to merge or consolidate with or sell substantially all of its assets to another entity. Further, the Credit Agreement contains a financial covenant restricting Rollins’ ability to permit the ratio of Rollins’ consolidated total net debt to EBITDA to exceed 3.50 to 1.00. Following certain acquisitions, Rollins may elect to increase the financial covenant level to 4.00 to 1.00 temporarily. The ratio is calculated as of the last day of the fiscal quarter most recently ended. The Credit Agreement also contains provisions permitting a future environmental, social and governance amendment, subject to certain terms and conditions contained therein, by which pricing may be adjusted pursuant to the Company's’ performance measured against certain sustainability-linked metrics. The Company remained in compliance with applicable debt covenants through the date of this filing and expects to maintain compliance throughout 2023.

NOTE 10. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to certain interest rate risks on our outstanding debt and foreign currency risks arising from our international business operations and global economic conditions. The Company enters into certain derivative financial instruments to lock in certain interest rates, as well as to protect the value or fix the amount of certain obligations in terms of its functional currency, the U.S. dollar.

The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. dollar. We use foreign currency derivatives, specifically foreign currency forward contracts (“FX Forwards”), to manage our exposure to fluctuations in the USD-CAD and USD-AUD exchange rates. FX Forwards involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. The FX Forwards are typically settled in U.S. dollars for their fair value at or close to their settlement date. We do not currently designate any of these FX Forwards under hedge accounting, but rather reflect the changes in fair value immediately in earnings. We do not use such instruments for speculative or trading purposes, but rather use them to manage our exposure to foreign exchange rates. Changes in the fair value of FX Forwards were recorded in other income/expense and were equal to net gains of $0.1 million and net losses of $0.1 million for the quarters ended March 31, 2023 and 2022, respectively. The fair values of the Company’s FX Forwards were recorded as a net asset of $0.0 million and $0.3 million in Other Current Assets as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, the Company had the following outstanding FX Forwards (in thousands except for number of instruments):

Non-Designated Derivative Summary

FX Forward Contracts						Number of Instruments						Sell Notional						Buy Notional
Sell AUD/Buy USD Fwd Contract						18						1,900						$	1,276
Sell CAD/Buy USD Fwd Contract						18						18,000						13,346
Total						36												$	14,622

ROLLINS, INC. AND SUBSIDIARIES

NOTE 11. CONTINGENCIES

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, and regulatory and litigation 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 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.

NOTE 12. STOCKHOLDERS’ EQUITY

During the three months ended March 31, 2023, the Company paid $64.1 million, or $0.13 per share, in cash dividends compared to $49.2 million, or $0.10 per share, during the same period in 2022.

During the three months ended March 31, 2023 and during the same period in 2022, the Company did not repurchase shares on the open market. However, in 2023 the Company purchased shares on behalf of employees for the Employee Stock Purchase Plan ("ESPP") discussed below.

The Company repurchases shares from employees for the payment of their taxes on restricted shares that have vested. The Company repurchased $9.8 million and $6.4 million for the quarters ended March 31, 2023 and 2022, respectively.

Restricted Shares and Performance Share Unit Awards

As more fully discussed in Note 14 of the Company’s notes to the consolidated financial statements in its 2022 Annual Report on Form 10-K, time-lapse restricted awards and restricted stock units (“restricted shares”) have been issued to officers and other management employees under the Company’s Employee Stock Incentive Plans. Beginning with the 2023 grant, restricted shares vest in 25 percent increments over four years from the date of the grant. Prior grants vest either over five years or over six years from the date of grant, depending on the year of the grant.

During the first quarter of 2023, certain executives were granted Performance Share Unit awards (PSUs) in addition to restricted shares, representing 25% of their total annual stock compensation awards. 50% of the PSUs will be determined by the Company’s 3-year average Adjusted EBITDA Margin, and the other 50% will be determined by Rollins' 3-year average Revenue compound annual growth rate (CAGR). As well as the standard PSUs offered, there will also be a “kicker” option that can be earned based upon the Company’s 3-year average TSR value as compared to the S&P 500. In accordance with ASC 718, Compensation-Stock Compensation, the PSUs will be accounted for as equity awards with the fair value of the awards determined as of the grant date. These awards will be expensed on a straight-line basis over the

ROLLINS, INC. AND SUBSIDIARIES

three-year vesting period. The grant date fair value of the awards was determined with the assistance of a third party specialist based on a range of potential outcomes relative to the market condition.

The Company issues new shares from its authorized but unissued share pool. As of March 31, 2023, approximately 5.3 million shares of the Company’s common stock were reserved for issuance.

The following table summarizes the components of the Company’s stock-based compensation programs recorded as expense:

									Three Months Ended March 31,
(in thousands)															2023						2022
Restricted shares and PSUs:
Pre-tax compensation expense															$	5,755					$	6,138
Tax benefit															(1,396)						(1,324)
Compensation expense, net of tax															$	4,359					$	4,814

The following table summarizes information on unvested awards outstanding as of March 31, 2023:

(number of shares in thousands)			Number of Shares						Weighted Average Grant-Date Fair Value
Unvested restricted shares and PSUs at December 31, 2022			2,685						$	28.97
Forfeited			(37)						29.61
Vested			(790)						26.45
Granted			546						36.18
Unvested restricted shares and PSUs at March 31, 2023			2,404						$	31.43

As of March 31, 2023, and December 31, 2022, the Company had $68.6 million and $52.3 million of total unrecognized compensation cost, respectively, related to restricted shares and PSUs that are expected to be recognized over a weighted average period of approximately 3.4 years and 3.5 years, respectively.

Employee Stock Purchase Plan

As more fully discussed in Note 14 of the Company’s notes to the consolidated financial statements in its 2022 Annual Report on Form 10-K, shareholders approved the Rollins, Inc. 2022 Employee Stock Purchase Plan which provides eligible employees with the option to purchase shares of Company common stock, at a discount, through payroll deductions. The first purchase period for the ESPP began on July 1, 2022 and ended on December 30, 2022. The Company recorded compensation expense of $0.2 million associated with the purchase period which is included in cost of services provided and sales, general and administrative expenses for the quarter ended March 31, 2023.

NOTE 13. EARNINGS PER SHARE

The Company reports both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to participating common stockholders by the weighted average number of participating common shares outstanding for the period. Diluted earnings per share is calculated by dividing the net income available to participating common shareholders by the diluted weighted average number of shares outstanding for the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive equity.

ROLLINS, INC. AND SUBSIDIARIES

A reconciliation of weighted average shares outstanding is as follows (in thousands):

									Three Months Ended March 31,
															2023						2022
Weighted-average outstanding common shares															490,209						489,616
Add participating securities:
Weighted-average time-lapse restricted awards															2,307						2,597
Total weighted-average shares outstanding - basic															492,516						492,213
Dilutive effect of restricted stock units and PSUs															185						112
Weighted-average shares outstanding - diluted															492,701						492,325

NOTE 14. INCOME TAXES

The Company’s provision for income taxes is recorded on an interim basis based upon the Company’s estimate of the annual effective income tax rate for the full year applied to “ordinary” income or loss, adjusted each quarter for discrete items. The Company recorded a provision for income taxes of $28.3 million and $20.3 million for the three months ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2023, the Company’s effective tax rate increased to 24.3% in the first quarter of 2023 compared to 21.6% in 2022. The rate was higher due to higher foreign income taxes and state income taxes compared to the prior year.

As of March 31, 2023 and December 31, 2022, the Company had deferred income tax assets of $1.8 million, included in other assets, and deferred income tax liabilities of $31.0 million and $24.2 million, respectively, included in other long-term accrued liabilities.

NOTE 15. SUBSEQUENT EVENTS

Fox Pest Control Acquisition

On April 1, 2023, the Company acquired 100% of FPC Holdings, LLC (“Fox Pest Control”) for $318 million plus $32 million of contingent consideration that will be paid upon the attainment of future growth and profitability levels. The acquisition is expected to be accounted for as a business combination and the assets acquired and liabilities assumed will be measured at fair value as of the acquisition date. The initial purchase price allocation is not complete as of the date of this filing. As part of funding the Fox Pest Control acquisition, on April 3, 2023 the Company borrowed incremental amounts under the Credit Agreement of $305.0 million. The proceeds, as well as cash on hand, were used to pay cash consideration at closing.

Quarterly Dividend

On April 25, 2023, the Company’s Board of Directors declared a regular quarterly cash dividend on its common stock of $0.13 per share payable on June 9, 2023 to stockholders of record at the close of business on May 10, 2023.

ROLLINS, INC. AND SUBSIDIARIES