UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2022

Commission File Number 1-4422

ROLLINS, INC.

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices)

30324

(Zip Code)

(404) 888-2000

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

☐
Yes	☐	No	☒

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

ROLLINS, INC. AND SUBSIDIARIES

PART 1 FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

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

(in thousands except share data)

(unaudited)

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

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

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ROLLINS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(in thousands except per share data)

(unaudited)

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

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

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ROLLINS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(in thousands)

(unaudited)

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

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

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ROLLINS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

(in thousands)

(unaudited)

						Accumulated Other
	Common Stock			Paid-in-		Comprehensive		Retained
	Shares	Amount		Capital		Income / (Loss)		Earnings		Total
Balance at March 31, 2022	492,461	$	492,461	$	104,783	$	(13,874)	$	524,159	$	1,107,529
Net Income	—		—		—		—		100,299		100,299
Other comprehensive income / (loss), net of tax:
Foreign currency translation adjustments	—		—		—		(16,913)		—		(16,913)
Unrealized losses on available for sale securities	—		—		—		(362)		—		(362)
Cash dividends	—		—		—		—		(49,229)		(49,229)
Stock compensation	(26)		(26)		4,845		—		—		4,819
Employee stock buybacks	(18)		(18)		(558)		—		—		(576)
Balance at June 30, 2022	492,417	$	492,417	$	109,070	$	(31,149)	$	575,229	$	1,145,567

						Accumulated Other
	Common Stock			Paid-in-		Comprehensive		Retained
	Shares	Amount		Capital		Income / (Loss)		Earnings		Total
Balance at March 31, 2021	492,124	$	492,124	$	95,824	$	(11,155)	$	412,142	$	988,935
Net Income	—		—		—		—		98,854		98,854
Other comprehensive income / (loss), net of tax:
Foreign currency translation adjustments	—		—		—		704		—		704
Change in derivatives	—		—		—		(439)		—		(439)
Cash dividends	—		—		—		—		(40,343)		(40,343)
Stock compensation	(18)		(18)		3,938		—		—		3,920
Employee stock buybacks	(27)		(27)		(920)		—		—		(947)
Balance at June 30, 2021	492,079	$	492,079	$	98,842	$	(10,890)	$	470,653	$	1,050,684

						Accumulated Other
	Common Stock			Paid-in-		Comprehensive		Retained
	Shares	Amount		Capital		Income / (Loss)		Earnings		Total
Balance at December 31, 2021	491,911	$	491,911	$	105,629	$	(16,411)	$	500,919	$	1,082,048
Net Income									172,744		172,744
Other comprehensive income / (loss), net of tax:
Foreign currency translation adjustments							(13,786)				(13,786)
Unrealized losses on available for sale securities							(952)				(952)
Change in derivatives							—				—
Cash dividends									(98,434)		(98,434)
Stock compensation	731		731		10,226						10,957
Employee stock buybacks	(225)		(225)		(6,785)						(7,010)
Balance at June 30, 2022	492,417	$	492,417	$	109,070	$	(31,149)	$	575,229	$	1,145,567

						Accumulated Other
	Common Stock			Paid-in-		Comprehensive		Retained
	Shares	Amount		Capital		Income / (Loss)		Earnings		Total
Balance at December 31, 2020	491,612	$	491,612	$	101,757	$	(10,897)	$	358,888	$	941,360
Net Income									191,497		191,497
Other comprehensive income / (loss), net of tax:
Pension liability adjustment							—				—
Foreign currency translation adjustments							283				283
Change in derivatives							(276)				(276)
Cash dividends									(79,732)		(79,732)
Stock compensation	750		750		7,091				—		7,841
Employee stock buybacks	(283)		(283)		(10,006)				—		(10,289)
Balance at June 30, 2021	492,079	$	492,079	$	98,842	$	(10,890)	$	470,653	$	1,050,684

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

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ROLLINS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(in thousands)

(unaudited)

	Six Months Ended
	June 30,
	2022		2021
OPERATING ACTIVITIES
Net income	$	172,744	$	191,497
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		49,172		46,902
Stock-based compensation expense		10,957		7,841
Provision for expected credit losses		8,433		4,673
Gain on sale of assets, net		(3,190)		(33,151)
Provision for deferred income taxes		2,503		(1,715)
Changes in operating assets and liabilities:
Trade accounts receivable and other accounts receivable		(29,217)		(20,003)
Financing receivables		(11,928)		(8,862)
Materials and supplies		(176)		661
Other current assets		(21,651)		(14,686)
Accounts payable and accrued expenses		10,745		31,129
Unearned revenue		19,860		20,320
Other long-term assets and liabilities		6,565		(5,401)
Net cash provided by operating activities		214,817		219,205
INVESTING ACTIVITIES
Acquisitions, net of cash acquired		(49,580)		(28,385)
Capital expenditures		(15,881)		(13,229)
Proceeds from sale of assets		3,290		70,414
Other investing activities, net		139		(175)
Net cash (used in) provided by investing activities		(62,032)		28,625
FINANCING ACTIVITIES
Payment of contingent consideration		(5,196)		(12,873)
Borrowings under term loan		252,000		—
Borrowings under revolving commitment		11,000		49,500
Repayments of term loan		(65,000)		(48,000)
Repayments of revolving commitment		(118,000)		(116,500)
Payment of dividends		(98,434)		(79,732)
Cash paid for common stock purchased		(7,010)		(10,289)
Net cash used in financing activities		(30,640)		(217,894)
Effect of exchange rate changes on cash		(6,482)		115
Net increase in cash and cash equivalents		115,663		30,051
Cash and cash equivalents at beginning of period		105,301		98,477
Cash and cash equivalents at end of period	$	220,964	$	128,528
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,668	$	923
Cash paid for income taxes, net	$	69,472	$	51,870
Non-cash additions to operating lease right-of-use assets	$	51,212	$	86,954

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

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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. 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, 2021. Accordingly, the quarterly condensed consolidated financial statements and related disclosures herein should be read in conjunction with the 2021 Annual Report on Form 10-K.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and certain financial statement disclosures. Estimates and assumptions are used for, but not limited to, accrued insurance, revenue recognition, right-of-use ("ROU") asset and liability valuations, accounts and financing receivable reserves, income tax contingency accruals and valuation allowances, contingency accruals and goodwill and other intangible asset valuations. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, actual results may ultimately differ from these estimates and assumptions.

The Company considered the impact of COVID-19 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 the global economic impact of COVID-19. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of results for the entire year. The severity, magnitude and duration, as well as the economic consequences of COVID-19, continue to be uncertain and are difficult to predict. Therefore, our accounting estimates and assumptions may change over time in response to COVID-19 and may change materially in future periods.

The Company operates as one reportable segment and the results of operations and its financial condition are not reliant upon any single customer.

NOTE 2.RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting standards

In November 2021, the FASB issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance.” The amendments in this Update require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions on an entity’s financial statements. The amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2021. 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 March 2022, the FASB issued 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

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ROLLINS, INC. AND SUBSIDIARIES

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 is effective for fiscal years beginning after December 15, 2022. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

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 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 22 acquisitions during the six-month period ended June 30, 2022, and 39 acquisitions for the year ended December 31, 2021. For the 22 acquisitions completed through June 30, 2022, 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):

	June 30, 2022
Accounts receivable, net	$	383
Materials and supplies		285
Equipment and property		2,281
Goodwill		23,220
Customer contracts		24,874
Trademarks & tradenames		2
Other intangible assets		631
Current liabilities		(384)
Other assets and liabilities, net		403
Total consideration	$	51,695
Less: Acquisition holdback liabilities		(5,255)
Total cash purchase price	$	46,440

The Company also made a final payment of $3.1 million for a 2021 acquisition in 2022.

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 six months ended June 30, 2022, $23.2 million of goodwill was added related to the 22 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

The following tables present our revenues disaggregated by revenue source (in thousands).

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 on the following table.

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ROLLINS, INC. AND SUBSIDIARIES

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
(in thousands)
United States	$	661,703	$	589,935	$	1,208,163	$	1,084,035
Other countries		52,346		48,269		96,566		89,723
Total Revenues	$	714,049	$	638,204	$	1,304,729	$	1,173,758

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2022		2021		2022		2021
Residential revenue	$	325,311	$	292,945	$	584,570	$	528,124
Commercial revenue		234,483		210,838		440,270		399,535
Termite completions, bait monitoring, & renewals		146,781		127,674		266,487		233,368
Franchise revenues		4,155		4,111		7,892		7,570
Other revenues		3,319		2,636		5,510		5,161
Total Revenues	$	714,049	$	638,204	$	1,304,729	$	1,173,758

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. Deferred revenue recognized in the three and six months ended June 30, 2022 and 2021 was $51.0 million and $46.5 million, respectively and $100.9 and $92.3, respectively. Changes in unearned revenue were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
(in thousands)
Beginning balance	$	180,333	$	158,766	$	168,607	$	149,224
Deferral of unearned revenue		63,628		60,655		125,263		116,034
Recognition of unearned revenue		(50,989)		(46,470)		(100,898)		(92,307)
Ending balance	$	192,972	$	172,951	$	192,972	$	172,951

As of June 30, 2022, and December 31, 2021, the Company had long-term unearned revenue of $27.7 million and $18.4 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

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ROLLINS, INC. AND SUBSIDIARIES

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 or 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 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 and six months ended June 30, 2022 and 2021 (in thousands).

	Allowance for Credit Losses
	Trade		Financed		Total
	Receivables		Receivables		Receivables
Balance at March 31, 2022	$	14,170	$	3,850	$	18,020
Provision for expected credit losses		2,350		1,825		4,175
Write-offs charged against the allowance		(4,218)		(1,121)		(5,339)
Recoveries collected		1,364		—		1,364
Balance at June 30, 2022	$	13,666	$	4,554	$	18,220

	Allowance for Credit Losses
	Trade		Financed		Total
	Receivables		Receivables		Receivables
Balance at March 31, 2021	$	15,731	$	3,370	$	19,101
Provision for expected credit losses		369		1,618		1,987
Write-offs charged against the allowance		(3,650)		(645)		(4,295)
Recoveries collected		1,413		(2)		1,411
Balance at June 30, 2021	$	13,863	$	4,341	$	18,204

	Allowance for Credit Losses
	Trade		Financed		Total
	Receivables		Receivables		Receivables
Balance at December 31, 2021	$	13,885	$	3,985	$	17,870
Provision for expected credit losses		5,554		2,879		8,433
Write-offs charged against the allowance		(8,466)		(2,310)		(10,776)
Recoveries collected		2,693		—		2,693
Balance at June 30, 2022	$	13,666	$	4,554	$	18,220

	Allowance for Credit Losses
	Trade		Financed		Total
	Receivables		Receivables		Receivables
Balance at December 31, 2020	$	16,854	$	3,231	$	20,085
Provision for expected credit losses		2,234		2,439		4,673
Write-offs charged against the allowance		(7,749)		(1,326)		(9,075)
Recoveries collected		2,524		(3)		2,521
Balance at June 30, 2021	$	13,863	$	4,341	$	18,204

10

ROLLINS, INC. AND SUBSIDIARIES