Item 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF MARCH 31, 2024 AND DECEMBER 31, 2023

(in thousands except share data)

(unaudited)

			March 31, 2024						December 31, 2023
ASSETS
Cash and cash equivalents			$	112,971					$	103,825
Trade receivables, net of allowance for expected credit losses of $14,864 and $15,797, respectively			177,254						178,214
Financed receivables, short-term, net of allowance for expected credit losses of $1,914 and $1,874, respectively			35,717						37,025
Materials and supplies			35,698						33,383
Other current assets			62,713						54,192
Total current assets			424,353						406,639
Equipment and property, net of accumulated depreciation of $366,779 and $360,421, respectively			127,116						126,661
Goodwill			1,095,141						1,070,310
Customer contracts, net			389,199						386,152
Trademarks & tradenames, net			151,821						151,368
Other intangible assets, net			8,370						8,214
Operating lease right-of-use assets			341,639						323,390
Financed receivables, long-term, net of allowance for expected credit losses of $4,342 and $3,728, respectively			79,040						75,909
Other assets			41,940						46,817
Total assets			$	2,658,619					$	2,595,460
LIABILITIES
Accounts payable			$	40,038					$	49,200
Accrued insurance - current			51,660						46,807
Accrued compensation and related liabilities			79,372						114,355
Unearned revenues			186,021						172,380
Operating lease liabilities - current			97,394						92,203
Other current liabilities			137,451						101,744
Total current liabilities			591,936						576,689
Accrued insurance, less current portion			51,928						48,060
Operating lease liabilities, less current portion			246,614						233,369
Long-term debt			510,909						490,776
Other long-term accrued liabilities			89,736						90,999
Total liabilities			1,491,123						1,439,893
Commitments and contingencies (see Note 9)
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, 484,230,396 and 484,080,014 shares issued and outstanding, respectively			484,230						484,080
Additional paid in capital			127,531						131,840
Accumulated other comprehensive loss			(32,472)						(26,755)
Retained earnings			588,207						566,402
Total stockholders’ equity			1,167,496						1,155,567
Total liabilities and stockholders’ equity			$	2,658,619					$	2,595,460

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, 2024 AND 2023

(in thousands except per share data)

(unaudited)

									Three Months Ended March 31,
															2024						2023
REVENUES
Customer services															$	748,349					$	658,015
COSTS AND EXPENSES
Cost of services provided (exclusive of depreciation and amortization below)															365,558						326,842
Sales, general and administrative															223,057						196,431
Depreciation and amortization															27,310						22,502
Total operating expenses															615,925						545,775
OPERATING INCOME															132,424						112,240
Interest expense, net															7,725						465
Other expense (income), net															61						(4,714)
CONSOLIDATED INCOME BEFORE INCOME TAXES															124,638						116,489
PROVISION FOR INCOME TAXES															30,244						28,255
NET INCOME															$	94,394					$	88,234
NET INCOME PER SHARE - BASIC AND DILUTED															$	0.19					$	0.18
Weighted average shares outstanding – basic															484,131						492,516
Weighted average shares outstanding – diluted															484,318						492,701
DIVIDENDS PAID PER SHARE															$	0.15					$	0.13

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, 2024 AND 2023

(in thousands)

(unaudited)

									Three Months Ended March 31,
															2024						2023
NET INCOME															$	94,394					$	88,234
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments															(5,774)						97
Unrealized gain on available for sale securities															57						162
Other comprehensive (loss) income, net of tax															(5,717)						259
Comprehensive income															$	88,677					$	88,493

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, 2024 AND 2023

(in thousands)

(unaudited)

			Common Stock												Paid-in- Capital						Accumulated Other Comprehensive Income / (Loss)						Retained Earnings						Total
			Shares						Amount
Balance at December 31, 2023			484,080						$	484,080					$	131,840					$	(26,755)					$	566,402					$	1,155,567
Net income			—						—						—						—						94,394						94,394
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments			—						—						—						(5,774)						—						(5,774)
Unrealized gains on available for sale securities			—						—						—						57						—						57
Cash dividends			—						—						—						—						(72,589)						(72,589)
Stock compensation			414						414						6,767						—						—						7,181
Shares withheld for payment of employee taxes			(264)						(264)						(11,076)						—						—						(11,340)
Balance at March 31, 2024			484,230						$	484,230					$	127,531					$	(32,472)					$	588,207					$	1,167,496

			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 (loss) income, net of tax:
Foreign currency translation adjustments			—						—						—						97						—						97
Unrealized gains on available for sale securities			—						—						—						162						—						162
Cash dividends			—						—						—						—						(64,053)						(64,053)
Stock compensation			601						601						5,346						—						—						5,947
Shares withheld for payment of employee taxes			(262)						(262)						(9,570)						—						—						(9,832)
Balance at March 31, 2023			492,787						$	492,787					$	115,018					$	(31,303)					$	711,250					$	1,287,752

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, 2024 AND 2023

(in thousands)

(unaudited)

			Three Months Ended March 31,
			2024						2023
OPERATING ACTIVITIES
Net income			$	94,394					$	88,234
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			27,310						22,502
Stock-based compensation expense			7,181						5,947
Provision for expected credit losses			7,693						3,896
Gain on sale of assets, net			(368)						(4,714)
Provision for deferred income taxes			—						6,929
Changes in operating assets and liabilities:
Trade accounts receivable			(6,400)						1,533
Financing receivables			(1,822)						(4,421)
Materials and supplies			(2,286)						(1,043)
Other current assets			(8,867)						(1,501)
Accounts payable and accrued expenses			(9,396)						(17,548)
Unearned revenue			13,691						8,656
Other long-term assets and liabilities			6,303						(7,697)
Net cash provided by operating activities			127,433						100,773
INVESTING ACTIVITIES
Acquisitions, net of cash acquired			(47,132)						(15,480)
Capital expenditures			(7,171)						(7,636)
Proceeds from sale of assets			712						8,886
Other investing activities, net			1,126						640
Net cash used in investing activities			(52,465)						(13,590)
FINANCING ACTIVITIES
Payment of contingent consideration			(1,474)						(4,098)
Borrowings under revolving commitment			110,000						180,000
Repayments of term loan			—						(55,000)
Repayments of revolving commitment			(90,000)						(115,000)
Payment of dividends			(72,589)						(64,053)
Cash paid for common stock purchased			(11,340)						(11,443)
Other financing activities, net			1,149						(1,488)
Net cash used in financing activities			(64,254)						(71,082)
Effect of exchange rate changes on cash			(1,568)						1,056
Net increase in cash and cash equivalents			9,146						17,157
Cash and cash equivalents at beginning of period			103,825						95,346
Cash and cash equivalents at end of period			$	112,971					$	112,503
Supplemental disclosure of cash flow information:
Cash paid for interest			$	8,707					$	429
Cash paid for income taxes, net			$	5,591					$	12,572
Non-cash additions to operating lease right-of-use assets			$	45,531					$	20,828

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 accounting principles generally accepted in the United States of America, or U.S. GAAP, the instructions to Form 10-Q and applicable sections of Securities and Exchange Commission ("SEC") regulation S-X, and therefore do not include all information and footnotes required by U.S. GAAP for complete financial statements. 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, 2023. Accordingly, the quarterly condensed consolidated financial statements and related disclosures herein should be read in conjunction with the 2023 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, 2024 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.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting standards and disclosure rules issued but not yet adopted

In October 2023, the FASB issued Accounting Standards Update ("ASU") 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative,” to amend certain disclosure and presentation requirements for a variety of topics within the Accounting Standards Codification ("ASC"). These amendments align the requirements in the ASC to the removal of certain disclosure requirements set out in Regulation S-X and Regulation S-K, announced by the SEC. The effective date for each amended topic in the ASC is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirements by that date. Early adoption is prohibited. The Company does not expect that the application of this standard will have a material impact on its disclosures.

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through additional and more detailed information about a reportable segment's expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the potential impact of adopting this new guidance on its disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which is intended to enhance the transparency and decision usefulness of income tax disclosures. This amendment modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold, (2) the amount of income taxes paid (net of refunds received) (disaggregated by federal, state, and foreign taxes) as well as individual jurisdictions in which income taxes paid is equal to or greater than 5 percent of total income taxes paid net of refunds, (3) the income or loss from continuing operations before income tax expense or benefit (disaggregated between domestic and foreign) and (4) income tax expense or benefit from continuing operations (disaggregated by federal, state

ROLLINS, INC. AND SUBSIDIARIES

and foreign). The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, while retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its disclosures.

In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule will require registrants to disclose certain climate-related information in registration statements and annual reports. The disclosure requirements will apply to the Company's fiscal year beginning January 1, 2025. The Company is currently evaluating the final rule to determine its impact on the Company's disclosures.

NOTE 3. ACQUISITIONS

2024 Acquisitions

The Company made 12 acquisitions during the three months ended March 31, 2024. The aggregate preliminary values of major classes of assets acquired and liabilities assumed recorded at the dates of acquisition are included in the reconciliation of the total preliminary consideration as follows (in thousands):

			March 31, 2024
Accounts receivable			$	921
Materials and supplies			206
Other current assets			210
Equipment and property			2,258
Goodwill			27,337
Customer contracts			21,514
Trademarks & tradenames			1,012
Other intangible assets			762
Current liabilities			(364)
Unearned revenue			(58)
Other assets and liabilities, net			(2)
Assets acquired and liabilities assumed			$	53,796

Included in the total consideration of $53.8 million are acquisition holdback liabilities of $6.7 million.

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. A majority of the recognized goodwill is expected to be deductible for tax purposes. Valuations of certain assets and liabilities, including intangible assets and goodwill, as of the acquisition date have not been finalized at this time and are provisional.

Fox Pest Control Acquisition

On April 1, 2023, the Company acquired 100% of FPC Holdings, LLC (“Fox Pest Control”, or "Fox"). As part of funding the Fox acquisition, on April 3, 2023, the Company borrowed incremental amounts under the Credit Agreement of $305.0 million. The proceeds were used to pay cash consideration at closing.

Management believes that the acquisition will expand the Rollins family of brands and drive long term value given Fox's attractive financial profile and complementary end market exposure.

The Fox acquisition has been accounted for as a business combination, and the Fox results of operations are included in the Company's results of operations for the three months ended March 31, 2024. Fox contributed revenues of $35.5 million and net earnings of $1.5 million during the three months ended March 31, 2024.

ROLLINS, INC. AND SUBSIDIARIES

The valuation of the Fox acquisition was performed by a third-party valuation specialist under our management’s supervision. The values of identified assets acquired and liabilities assumed were finalized as of March 31, 2024 and are summarized in the table below (in thousands).

			Final Fair Value as of March 31, 2024
Cash			$	4,560
Accounts receivable			1,542
Materials and supplies			431
Operating lease right-of-use assets			8,689
Other current assets			487
Goodwill			188,176
Customer contracts			118,000
Trademarks & tradenames			38,000
Current liabilities			(5,538)
Unearned revenue			(6,144)
Operating lease liabilities			(8,689)
Assets acquired and liabilities assumed			$	339,514

The Company purchased Fox for $339.5 million. Included in the total consideration are cash payments of $302.8 million made upon closing, contingent consideration valued at $28.0 million that is based on Fox's financial performance in the twelve months following acquisition, and holdback liabilities valued at $8.7 million to be held by the Company to settle indemnity claims and working capital adjustments. The fair value of the contingent consideration was estimated using a Monte Carlo simulation. During the three months ended March 31, 2024, we recognized a charge of $1.0 million related to adjustments to the fair value of contingent consideration resulting from the acquisition of Fox. This charge is reported within sales, general and administrative expenses in our condensed consolidated statement of income.

Acquired customer contracts are estimated to have a remaining useful life of 7 years. The acquired trademarks and tradenames are expected to have an indefinite useful life.

Goodwill from this acquisition represents the excess of the purchase price over the fair value of net assets of the business acquired. The factors contributing to the amount of goodwill are based on strategic and synergistic benefits that are expected to be realized. The recognized goodwill is expected to be deductible for tax purposes.

NOTE 4. REVENUE

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

									Three Months Ended March 31,
(in thousands)															2024						2023
United States															$	693,860					$	609,311
Other countries															54,489						48,704
Total Revenues															$	748,349					$	658,015

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)															2024						2023
Residential revenue															$	329,338					$	282,757
Commercial revenue															258,114						231,707
Termite completions, bait monitoring, & renewals															152,060						136,131
Franchise revenues															3,961						3,789
Other revenues															4,876						3,631
Total Revenues															$	748,349					$	658,015

Revenues classified by significant product and service offerings for the three months ended March 31, 2023 were misstated by an immaterial amount and have been restated from the amounts previously reported to correct the classification of such revenues. There was no impact on our condensed consolidated statements of income, financial position, or cash flows.

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, 2024 and 2023 was $61.9 million and $55.5 million, respectively. Changes in unearned revenue were as follows:

									Three Months Ended March 31,
(in thousands)															2024						2023
Beginning balance															$	210,059					$	187,994
Deferral of unearned revenue															74,796						65,626
Recognition of unearned revenue															(61,888)						(55,466)
Ending balance															$	222,967					$	198,154

As of March 31, 2024 and December 31, 2023, the Company had long-term unearned revenue of $36.9 million and $37.7 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 2034.

Incremental Costs of Obtaining a Contract with a Customer

Incremental costs of obtaining a contract include only those costs that we incur to obtain a contract that we would not have incurred if the contract had not been obtained, primarily sales commissions. These costs are recorded as an asset and amortized to expense over the life of the contract to the extent such costs are expected to be recovered. As of March 31, 2024, we have $18.4 million of unamortized capitalized costs to obtain a contract, of which $15.4 million is recorded within other current assets and $3.0 million is recorded within other assets on our condensed consolidated statement of financial position. During the quarter ended March 31, 2024, we recorded approximately $3.8 million amortization of capitalized costs, which is recorded within sales, general and administrative expense on our condensed consolidated statement of income. During the quarter ended March 31, 2023, we had no unamortized capitalized costs to obtain a contract and we recorded no amortization of capitalized costs.

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.

ROLLINS, INC. AND SUBSIDIARIES

The Company manages its financed 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. Financed 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 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, 2024 and 2023.

			Allowance for Credit Losses
(in thousands)			Trade Receivables						Financed Receivables						Total Receivables
Balance at December 31, 2023			$	15,797					$	5,602					$	21,399
Provision for expected credit losses			4,823						2,870						7,693
Write-offs charged against the allowance			(7,184)						(2,362)						(9,546)
Recoveries collected			1,429						146						1,575
Balance at March 31, 2024			$	14,865					$	6,256					$	21,121

			Allowance for Credit Losses
(in thousands)			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

NOTE 6. GOODWILL AND INTANGIBLE ASSETS

The following table summarizes changes in goodwill during the three months ended March 31, 2024 (in thousands):

Goodwill:
Balance at December 31, 2023			$	1,070,310
Additions			27,337
Adjustments due to currency translation and other			(2,506)
Balance at March 31, 2024			$	1,095,141

ROLLINS, INC. AND SUBSIDIARIES

The following table sets forth the components of indefinite-lived and amortizable intangible assets as of March 31, 2024, and December 31, 2023 (in thousands):

			March 31, 2024																		December 31, 2023
			Gross						Accumulated Amortization						Carrying Value						Gross						Accumulated Amortization						Carrying Value						Useful Life in Years
Amortizable intangible assets:
Customer contracts			$	645,021					$	(255,822)					$	389,199					$	625,920					$	(239,768)					$	386,152					3-20
Trademarks and tradenames			22,413						(10,324)						12,089						21,566						(9,933)						11,633						7-20
Other intangible assets			25,376						(19,233)						6,143						24,766						(18,779)						5,987						3-20
Total amortizable intangible assets			$	692,810					$	(285,379)					$	407,431					$	672,252					$	(268,480)					403,772
Indefinite-lived intangible assets															141,959																		141,962
Total customer contracts and other intangible assets															$	549,390																	$	545,734

Amortization expense related to intangible assets was $18.7 million and $14.0 million for the three months ended March 31, 2024 and 2023, 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, 2024 are as follows:

(in thousands)
2024 (excluding the three months ended March 31, 2024)			$	61,384
2025			72,147
2026			68,042
2027			64,176
2028			62,165

NOTE 7. FAIR VALUE MEASUREMENT

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 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.

As of March 31, 2024 and December 31, 2023, we had investments in international bonds of $9.4 million and $10.2 million, respectively. These bonds are accounted for as available for sale securities and are level 2 assets under the fair value hierarchy. The bonds are recorded at their fair market values and reported within other current assets and other assets in our condensed consolidated statement of financial position. The unrealized gain or loss activity during the three months ended March 31, 2024 and 2023 was not significant.

ROLLINS, INC. AND SUBSIDIARIES

As of March 31, 2024 and December 31, 2023, the Company had $51.9 million and $46.1 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)															2024						2023
Beginning balance															$	46,104					$	13,496
New acquisitions and revaluations															6,664						1,300
Payouts															(1,474)						(4,098)
Interest on outstanding contingencies															534						22
Charge offset, forfeit and other															30						(187)
Ending balance															$	51,858					$	10,533

NOTE 8. 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.

As of March 31, 2024, the Company had outstanding borrowings of $513.0 million under the Credit Facility. Borrowings under the Credit Facility are presented under the long-term debt caption of our condensed consolidated balance sheet, net of $2.1 million in unamortized debt issuance costs as of March 31, 2024. The aggregate effective interest rate on the debt outstanding as of March 31, 2024 was 6.4%. As of December 31, 2023, the Company had outstanding borrowings of $493.0 million under the Credit Facility. Borrowings under the Credit Facility are presented under the long-term debt caption of our condensed consolidated balance sheet, net of $2.2 million in unamortized debt issuance costs as of December 31, 2023. The aggregate effective interest rate on the debt outstanding as of December 31, 2023 was 6.5%.

The Company maintains $68.4 million in letters of credit as of March 31, 2024. 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 decreased from $71.7 million as of December 31, 2023. The Company believes that it has adequate liquid assets, funding sources and insurance accruals to accommodate potential future insurance claims.

ROLLINS, INC. AND SUBSIDIARIES

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 is in compliance with applicable debt covenants as of March 31, 2024.

NOTE 9. 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 10. STOCKHOLDERS' EQUITY

During the three months ended March 31, 2024, the Company paid $72.6 million, or $0.15 per share, in cash dividends compared to $64.1 million, or $0.13 per share, during the same period in 2023.

The Company withholds shares from employees for the payment of their taxes on equity awards that have vested. The Company withheld $11.3 million and $9.8 million in connection with employee tax obligations during the three month periods ended March 31, 2024 and 2023, respectively. The Company did not repurchase shares on the open market during the three months ended March 31, 2024 and March 31, 2023.

ROLLINS, INC. AND SUBSIDIARIES

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

									Three Months Ended March 31,
(in thousands)															2024						2023
Restricted shares and PSUs:
Compensation expense															$	6,607					$	5,755

Employee Stock Purchase Plan

As more fully discussed in Note 13 of the Company’s notes to the consolidated financial statements in its 2023 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 during six-month offering periods. The most recent purchase period for the ESPP began on January 1, 2024, and will end on June 30, 2024. The Company recorded compensation expense associated with its ESPP of $0.6 million during the three months ended March 31, 2024. Compensation expense for the ESPP is included in cost of services provided and sales, general and administrative expenses in our condensed consolidated statements of income.

NOTE 11. 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.

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

									Three Months Ended March 31,
															2024						2023
Weighted-average outstanding common shares															481,877						490,209
Add participating securities:
Weighted-average time-lapse restricted awards															2,254						2,307
Total weighted-average shares outstanding – basic															484,131						492,516
Dilutive effect of restricted stock units and PSUs															187						185
Weighted-average shares outstanding – diluted															484,318						492,701

NOTE 12. 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 $30.2 million and $28.3 million for the three months ended March 31, 2024 and 2023, respectively.

The Company’s effective tax rate was 24.3% in the first quarter of 2024, consistent with the 24.3% rate in the first quarter of 2023.

NOTE 13. SUBSEQUENT EVENTS

Quarterly Dividend

On April 23, 2024, the Company’s Board of Directors declared a regular quarterly cash dividend on its common stock of $0.15 per share payable on June 10, 2024 to stockholders of record at the close of business on May 10, 2024.

ROLLINS, INC. AND SUBSIDIARIES