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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Zip Code)
(
(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 |
|
|
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.
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).
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.
☒ | 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
ROLLINS, INC. AND SUBSIDIARIES
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF MARCH 31, 2022, AND DECEMBER 31, 2021
(in thousands except share data)
(unaudited)
| March 31, |
| December 31, | |||
| 2022 |
| 2021 | |||
ASSETS |
|
| ||||
Cash and cash equivalents | $ | | $ | | ||
Trade receivables, net of allowance for expected credit losses of $ |
| |
| | ||
Financed receivables, short-term, net of allowance for expected credit losses of $ |
| |
| | ||
Materials and supplies |
| |
| | ||
Other current assets |
| | | |||
Total current assets |
| |
| | ||
Equipment and property, net of accumulated depreciation of $ |
| |
| | ||
Goodwill |
| |
| | ||
Customer contracts, net |
| |
| | ||
Trademarks tradenames, net |
| |
| | ||
Other intangible assets, net |
| |
| | ||
Operating lease right-of-use assets |
| |
| | ||
Financed receivables, long-term, net of allowance for expected credit losses of $ |
| |
| | ||
Other assets |
| |
| | ||
Total assets | $ | | $ | | ||
LIABILITIES |
|
|
|
| ||
Accounts payable | $ | | $ | | ||
Accrued insurance |
| |
| | ||
Accrued compensation and related liabilities |
| |
| | ||
Unearned revenues |
| |
| | ||
Operating lease liabilities - current |
| |
| | ||
Current portion of long-term debt |
| |
| | ||
Other current liabilities |
| |
| | ||
Total current liabilities |
| |
| | ||
Accrued insurance, less current portion |
| |
| | ||
Operating lease liabilities, less current portion |
| |
| | ||
Long-term debt |
| |
| | ||
Other long-term accrued liabilities |
| | | |||
Total liabilities |
| |
| | ||
Commitments and contingencies (see Note 11) |
|
|
|
| ||
STOCKHOLDERS’ EQUITY |
|
|
|
| ||
Preferred stock, without par value; |
|
| ||||
Common stock, par value $ |
| |
| | ||
Additional paid in capital |
| |
| | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Retained earnings |
| |
| | ||
Total stockholders’ equity |
| |
| | ||
Total liabilities and stockholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
ROLLINS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands except per share data)
(unaudited)
Three Months Ended | |||||||
March 31, | |||||||
| 2022 |
| 2021 | ||||
REVENUES |
|
| |||||
Customer services | $ | | $ | | |||
COSTS AND EXPENSES |
|
|
|
| |||
Cost of services provided (exclusive of depreciation and amortization below) |
| |
| | |||
Sales, general and administrative |
| |
| | |||
Depreciation and amortization |
| |
| | |||
Total operating expenses | | | |||||
OPERATING INCOME | | | |||||
Interest expense, net |
| |
| | |||
Other income, net |
| ( |
| ( | |||
CONSOLIDATED INCOME BEFORE INCOME TAXES |
| |
| | |||
PROVISION FOR INCOME TAXES |
| |
| | |||
NET INCOME | $ | | $ | | |||
NET INCOME PER SHARE - BASIC AND DILUTED | | | |||||
Weighted average shares outstanding - basic |
| |
| | |||
Weighted average shares outstanding - diluted |
| |
| | |||
DIVIDENDS PAID PER SHARE | $ | | $ | | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ROLLINS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands)
(unaudited)
Three Months Ended | |||||||
March 31, | |||||||
| 2022 |
| 2021 | ||||
NET INCOME | $ | | $ | | |||
Other comprehensive income (loss), net of tax: |
|
|
|
| |||
Foreign currency translation adjustments |
| |
| ( | |||
Unrealized loss on available for sale securities | ( | — | |||||
Change in derivatives |
| — |
| | |||
Other comprehensive income (loss), net of tax |
| |
| ( | |||
Comprehensive income | $ | | $ | | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ROLLINS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands)
(unaudited)
| Accumulated Other | ||||||||||||||||
Common Stock | Paid-in- | Comprehensive | Retained | ||||||||||||||
| Shares |
| Amount |
| Capital |
| Income / (Loss) |
| Earnings |
| Total | ||||||
Balance at December 31, 2021 | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Net Income | — | — | — | — | | | |||||||||||
Other comprehensive income / (loss), net of tax: |
|
|
|
|
|
|
|
|
|
| |||||||
Foreign currency translation adjustments |
| — |
| — |
| — |
| |
| — |
| | |||||
Unrealized losses on available for sale securities | — | — | — | ( | — | ( | |||||||||||
Cash dividends |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Stock compensation |
| |
| |
| |
| — |
| — |
| | |||||
Employee stock buybacks |
| ( |
| ( |
| ( |
| — |
| — |
| ( | |||||
Balance at March 31, 2022 |
| | $ | | $ | | $ | ( | $ | | $ | | |||||
| Accumulated Other | ||||||||||||||||
Common Stock | Paid-in- | Comprehensive | Retained | ||||||||||||||
| Shares |
| Amount |
| Capital |
| Income / (Loss) |
| Earnings |
| Total | ||||||
Balance at December 31, 2020 | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Net Income | — | — | — | — | | | |||||||||||
Other comprehensive income / (loss), net of tax: |
|
|
|
|
|
|
|
|
|
| |||||||
Foreign currency translation adjustments |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||
Change in derivatives |
| — |
| — |
| — |
| |
| — |
| | |||||
Cash dividends |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Stock compensation |
| |
| |
| |
| — |
| — |
| | |||||
Employee stock buybacks |
| ( |
| ( |
| ( |
| — |
| — |
| ( | |||||
Balance at March 31, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ROLLINS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands)
(unaudited)
Three Months Ended | |||||||
March 31, | |||||||
| 2022 |
| 2021 | ||||
OPERATING ACTIVITIES |
|
| |||||
Net income | $ | | $ | | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
| ||||||
Depreciation and amortization |
| |
| | |||
Stock-based compensation expense |
| |
| | |||
Provision for expected credit losses |
| |
| | |||
Gain on sale of assets, net | ( | ( | |||||
Provision for deferred income taxes |
| |
| ( | |||
Changes in operating assets and liabilities: |
|
| |||||
Trade accounts receivable and other accounts receivable |
| ( |
| | |||
Financing receivables |
| ( |
| | |||
Materials and supplies |
| |
| ( | |||
Other current assets |
| ( |
| ( | |||
Accounts payable and accrued expenses |
| ( |
| | |||
Unearned revenue |
| |
| | |||
Other long-term assets and liabilities |
| ( |
| | |||
Net cash provided by operating activities |
| |
| | |||
INVESTING ACTIVITIES |
|
|
|
| |||
Acquisitions, net of cash acquired |
| ( |
| ( | |||
Capital expenditures |
| ( |
| ( | |||
Proceeds from sale of assets |
| |
| | |||
Other investing activities, net |
| — |
| ( | |||
Net cash (used in) provided by investing activities |
| ( |
| | |||
FINANCING ACTIVITIES |
|
|
| ||||
Payment of contingent consideration |
| ( |
| ( | |||
Borrowings under term loan |
| |
| — | |||
Borrowings under revolving commitment |
| |
| | |||
Repayments of term loan |
| ( |
| ( | |||
Repayments of revolving commitment |
| ( |
| ( | |||
Payment of dividends |
| ( |
| ( | |||
Cash paid for common stock purchased |
| ( |
| ( | |||
Net cash provided by (used in) financing activities |
| |
| ( | |||
Effect of exchange rate changes on cash |
| |
| | |||
Net increase in cash and cash equivalents |
| |
| | |||
Cash and cash equivalents at beginning of period |
| |
| | |||
Cash and cash equivalents at end of period | $ | | $ | | |||
Supplemental disclosure of cash flow information: |
|
|
|
| |||
Cash paid for interest | $ | | $ | | |||
Cash paid for income taxes, net | $ | | $ | | |||
Non-cash additions to operating lease right-of-use assets | $ | | $ | | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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, inventory valuation, employee benefit plans, 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 consolidated financial statements. In the opinion of management, all 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 months ended March 31, 2022 are not necessarily indicative of results for future years. The severity, magnitude and duration, as well as the economic consequences of COVID-19, are uncertain, rapidly changing and 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
NOTE 2.RECENT ACCOUNTING PRONOUNCEMENTS
Recently adopted accounting standards
In November 2021, the FASB issued 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
7
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.
NOTE 3.ACQUISITIONS
The Company made
| March 31, 2022 | |||
Accounts receivable, net | $ | | ||
Materials and supplies |
| | ||
Equipment and property |
| | ||
Goodwill |
| | ||
Customer contracts |
| | ||
Trademarks tradenames |
| | ||
Other intangible assets |
| | ||
Current liabilities |
| ( | ||
Other assets and liabilities, net |
| | ||
Total consideration paid | $ | | ||
Less: Contingent consideration liability |
| ( | ||
Total cash purchase price | $ | | ||
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 period ended March 31, 2022, $
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.
Revenue, classified by the major geographic areas in which our customers are located, was as follows:
Three Months Ended | |||||||
March 31, | |||||||
| 2022 |
| 2021 | ||||
(in thousands) | |||||||
United States | $ | | $ | | |||
Other countries |
| |
| | |||
Total Revenues | $ | | $ | | |||
8
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) |
| 2022 |
| 2021 | |||
Residential revenue | $ | | $ | | |||
Commercial revenue |
| |
| | |||
Termite completions, bait monitoring, renewals |
| |
| | |||
Franchise revenues | | | |||||
Other revenues |
| |
| | |||
Total Revenues | $ | | $ | | |||
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 months ended March 31, 2022 and 2021 was $
| Three Months Ended March 31, | ||||||
| 2022 |
| 2021 | ||||
(in thousands) | |||||||
Beginning balance | $ | | $ | | |||
Deferral of unearned revenue |
| |
| | |||
Recognition of unearned revenue |
| ( |
| ( | |||
Ending balance | $ | | $ | | |||
As of March 31, 2022, and December 31, 2021, the Company had long-term unearned revenue of $
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 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
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
9
ROLLINS, INC. AND SUBSIDIARIES
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, 2022 and 2021 (in thousands).
Allowance for Credit Losses | |||||||||
| Trade |
| Financed |
| Total | ||||
| Receivables |
| Receivables |
| Receivables | ||||
Balance at December 31, 2021 | $ | | $ | | $ | ||||
Provision for expected credit losses |
| |
| |
| | |||
Write-offs charged against the allowance |
| ( |
| ( |
| ( | |||
Recoveries collected |
| |
| — |
| | |||
Balance at March 31, 2022 | $ | | $ | | $ | | |||
Allowance for Credit Losses | |||||||||
Trade | Financed | Total | |||||||
| Receivables |
| Receivables |
| Receivables | ||||
Balance at December 31, 2020 | $ | | $ | | $ | | |||
Provision for expected credit losses |
| |
| |
| | |||
Write-offs charged against the allowance |
| ( |
| ( |
| ( | |||
Recoveries collected |
| |
|
| | ||||
Balance at March 31, 2021 | $ | | $ | | $ | | |||
NOTE 6.GOODWILL AND INTANGIBLE ASSETS
The following table summarizes changes in goodwill during the three months ended March 31, 2022 and the twelve months ended December 31, 2021:
Goodwill (in thousands): |
|
| |
Balance at December 31, 2020 |
| $ | |
Additions |
| | |
Adjustments due to currency translation |
| ( | |
Balance at December 31, 2021 |
| | |
Additions |
| | |
Measurement adjustments | | ||
Adjustments due to currency translation |
| | |
Balance at March 31, 2022 | $ | |
The carrying amount of goodwill in foreign countries was $
The Company completed its most recent annual impairment analysis as of September 30, 2021. Based upon the results of this analysis, the Company concluded that no impairment of its goodwill or other intangible assets was indicated.
10
ROLLINS, INC. AND SUBSIDIARIES
The following table sets forth the components of indefinite-lived and amortizable intangible assets as of March 31, 2022 and December 31, 2021 (in thousands):
|
| |||||||||||||||||||
March 31, 2022 | December 31, 2021 | |||||||||||||||||||
Accumulated | Carrying | Accumulated | Carrying | Useful Life | ||||||||||||||||
Gross | Amortization | Value | Gross | Amortization | Value | in Years | ||||||||||||||
Amortizable intangible assets: | ||||||||||||||||||||
Customer contracts | $ | | $ | ( | $ | | $ | | $ | ( | $ | |
| |||||||
Trademarks and tradenames | | ( |
| | | ( |
| |
| |||||||||||
Non-compete agreements | | ( |
| | | ( |
| |
| |||||||||||
Patents | | ( |
| | | ( |
| |
| |||||||||||
Other assets | | ( |
| | | ( |
| |
| |||||||||||
Total amortizable intangible assets | $ | | $ | ( | | $ | | $ | ( | |
|
| ||||||||
Indefinite-lived intangible assets: |
|
|
|
|
|
| ||||||||||||||
Trademarks and tradenames |
| |
| |
|
| ||||||||||||||
Internet domains |
| |
| |
|
| ||||||||||||||
Total indefinite-lived intangible assets |
| |
| |
|
| ||||||||||||||
Total customer contracts and other intangible assets | $ | | $ | |
|
| ||||||||||||||
The carrying amount of customer contracts in foreign countries was $
Amortization expense related to intangible assets was $
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, 2022 are as follows:
(in thousands) |
|
| |
2022 (excluding the three months ended March 31, 2022) |
| $ | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 |
| |
NOTE 7.LEASES
The Company leases certain buildings, vehicles, and equipment in order to reduce the risk associated with ownership and to maximize working capital utilization. The Company elected the practical expedient approach permitted under ASC 842 not to include short-term leases with a duration of 12 months or less on the balance sheet. As of March 31, 2022, and December 31, 2021, all leases were classified as operating leases. Building leases generally carry terms of
11
ROLLINS, INC. AND SUBSIDIARIES
contracts. Our lease agreements do not contain any material variable payments, residual value guarantees, early termination penalties or restrictive covenants.
During the three months ended March 31, 2021, the Company completed multiple sale-leaseback transactions where it sold
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.
Three Months Ended March 31, | |||||||||
(in thousands, except Other Information) | |||||||||
Lease Classification |
| Financial Statement Classification |
| 2022 |
| 2021 | |||
Short-term lease cost |
| Cost of services provided, Sales, general, and administrative expenses | $ | | $ | | |||
Operating lease cost |
| Cost of services provided, Sales, general, and administrative expenses |
| |
| | |||
Total lease expense | $ | | $ | | |||||
Other Information: |
|
|
|
|
|
| |||
Weighted-average remaining lease term - operating leases |
|
| |||||||
Weighted-average discount rate - operating leases |
| | % |
| | % | |||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||||
Operating cash flows for operating leases | $ | | $ | | |||||
Lease Commitments
Future minimum lease payments, including assumed exercise of renewal options as of March 31, 2022 were as follows:
| Operating | ||
(in thousands) | |||
2022 (excluding the three months ended March 31, 2022) | $ | | |
2023 | | ||
2024 |
| | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
Thereafter |
| | |
Total Future Minimum Lease Payments |
| | |
Less: Amount representing interest |
| | |
Total future minimum lease payments, net of interest | $ | | |
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 $
12
ROLLINS, INC. AND SUBSIDIARIES
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.
As of March 31, 2022, and December 31, 2021, we had investments in international bonds of $
As of March 31, 2022 and December 31, 2021, the Company had $
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) |
| 2022 |
| 2021 | ||
Beginning balance | $ | | $ | | ||
New acquisitions and revaluations |
| |
| | ||
Payouts |
| ( |
| ( | ||
Interest on outstanding contingencies |
| |
| | ||
Charge offset, forfeit and other |
| ( |
| ( | ||
Ending balance | $ | | $ | | ||
NOTE 9.DEBT
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 “Credit Agreement”) for an unsecured revolving commitment of up to $
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ROLLINS, INC. AND SUBSIDIARIES
Commitment beyond April 29, 2024, as well as the right at any time and from time to time to prepay any borrowing under the Credit Agreement, in whole or in part, without premium or penalty.
As of March 31, 2022, the Company had outstanding borrowings of $
The Company maintains approximately $
In order to comply with applicable debt covenants, the Company is required to maintain at all times a leverage ratio of not greater than
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 US 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 US 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 losses of $
As of March 31, 2022, the Company had the following outstanding FX Forwards (in thousands except for number of instruments):
Non-Designated Derivative Summary
Number of | Sell | Buy | ||||||
FX Forward Contracts |
| Instruments |
| Notional |
| Notional | ||
Sell AUD/Buy USD Fwd Contract | | $ | | $ | | |||
Sell CAD/Buy USD Fwd Contract | | | | |||||
Total | |
|
| $ | | |||
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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 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.
As previously disclosed, the Securities and Exchange Commission (the “SEC”) conducted an investigation primarily focused on how the Company established accruals and reserves at period-ends for periods beginning January 1, 2016 through December 31, 2018 and the impact of certain adjustments to those accruals and reserves on reported earnings per share, specifically, in the first quarter of 2016 and the second quarter of 2017 (the “SEC Investigation”). The Company previously disclosed that it had reached a settlement with the SEC, which was publicly announced on April 18, 2022. Under the terms of the settlement, the Company neither admitted nor denied the SEC’s findings and paid an $
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.PENSION PLANS
In September 2019, the Company settled its fully-funded Rollins, Inc. pension plan and during 2021, all remaining assets were reverted to the Company per ERISA regulations. The Company continues to sponsor its Waltham, Inc. defined benefit plan. This plan had assets of $
NOTE 13.STOCKHOLDERS’ EQUITY
During the three months ended March 31, 2022, the Company paid $
During the first quarter ended March 31, 2022 and during the same period in 2021, the Company did not repurchase shares on the open market.
The Company repurchases shares from employees for the payment of their taxes on restricted shares that have vested. The Company repurchased $
As more fully discussed in Note 15 of the Company’s notes to the consolidated financial statements in its 2021 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 2022 grant, restricted shares vest in
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ROLLINS, INC. AND SUBSIDIARIES
Time Lapse Restricted Shares
The following table summarizes the components of the Company’s stock-based compensation programs recorded as expense:
Three Months Ended | |||||||
March 31, | |||||||
(in thousands) |
| 2022 |
| 2021 | |||
Time lapse restricted stock: |
|
|
| ||||
Pre-tax compensation expense | $ | | $ | | |||
Tax benefit |
| ( |
| ( | |||
Restricted stock expense, net of tax | $ | | $ | | |||
The following table summarizes information on unvested restricted stock outstanding as of March 31, 2022:
|
| Weighted | |||
Average | |||||
Number of | Grant-Date | ||||
(number of shares in thousands) |
| Shares |
| Fair Value | |
Unvested Restricted Stock at December 31, 2021 |
| |
| $ | |
Forfeited |
| ( |
| | |
Vested |
| ( |
| | |
Granted |
| |
| | |
Unvested Restricted Stock at March 31, 2022 |
| | $ | | |
As of March 31, 2022, and December 31, 2021, the Company had $
NOTE 14.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, | ||||||
| 2022 |
| 2021 | |||
Weighted-average outstanding common shares | | | ||||
Add participating securities: | ||||||
Weighted-average time-lapse restricted awards | | | ||||
Total weighted-average shares outstanding - basic | | | ||||
Dilutive effect of restricted stock units | | — | ||||
Weighted-average shares outstanding - diluted | | | ||||
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ROLLINS, INC. AND SUBSIDIARIES
NOTE 15.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 provision for income taxes of $
As of March 31, 2022 and December 31, 2021, we had deferred income tax assets of $
NOTE 16.SUBSEQUENT EVENTS
Employee Stock Purchase Plan
On April 26, 2022, shareholders approved the Rollins, Inc. 2022 Employee Stock Purchase Plan (“ESPP” or “The Plan”) which provides eligible employees with the option to purchase shares of Company common stock, at a discount, through payroll deductions. The ESPP is effective on April 26, 2022. All offering periods will be approximately
Quarterly Dividend
On April 26, 2022, the Company’s Board of Directors declared a regular quarterly cash dividend on its common stock of $
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ROLLINS, INC. AND SUBSIDIARIES
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report on Form 10 Q. The following discussion contains forward-looking statements that involve risks and uncertainties and reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A, “Risk Factors,” of our 2021 Form 10-K and Part II, Item 1A, “Risk Factors” and “Caution Regarding Forward-Looking Statements” included in this report and those discussed in other documents we file from time to time with the SEC.
GENERAL OPERATING COMMENTS
Revenues for the quarter increased 10.3% percent to $590.7 million compared to $535.6 million for the prior year. Income before income taxes decreased 22.9% to $92.4 million compared to $119.9 million the prior year. Net income decreased 21.8% to $72.5 million, with earnings per diluted share of $0.15 compared to $92.6 million, or $0.19 per diluted share for the prior year.
COVID-19
The global spread and unprecedented impact of the COVID-19 pandemic (“COVID-19”) has and continues to create uncertainty and economic disruption around the world. In 2020, the pest control industry was designated as “essential” by the Department of Homeland Security. The Company has been able to remain operational in every part of the world in which it operates. With the availability of vaccinations and a decrease in the prevalence of severe COVID cases, many COVID-19 restrictions have been lifted, including the mask mandate; however, public hesitancy regarding the vaccinations and the continued spread of COVID-19 and/or the emergence of additional COVID-19 variants may result in such restrictions and mandates being again imposed. We have been actively monitoring and will continue to monitor the evolving situation related to COVID-19 and may take actions that may alter our operations, including those that may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees and customers. We do not know when, or if, it will become practical to eliminate all of these measures entirely as there is no guarantee that COVID-19 will be fully contained.
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 COVID-19 on the assumptions and estimates used in preparing the condensed consolidated financial statements. In the opinion of management, all 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 months ended March 31, 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.
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ROLLINS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2022 COMPARED TO QUARTER ENDED MARCH 31, 2021
Three Months Ended March 31, | Variance | As a % of Revenue | ||||||||||||
(in thousands) |
| 2022 |
| 2021 |
| $ |
| % |
| 2022 |
| 2021 | ||
REVENUES | ||||||||||||||
Customer services | $ | 590,680 | $ | 535,554 |
| 55,126 | 10.3 | 100.0 |
| 100.0 | ||||
COSTS AND EXPENSES |
| |||||||||||||
Cost of services provided (exclusive of depreciation and amortization below) |
| 295,378 |
| 261,552 |
| 33,826 | 12.9 | 50.0 |
| 48.8 | ||||
Sales, general and administrative |
| 178,785 |
| 162,208 |
| 16,577 | 10.2 | 30.3 |
| 30.3 | ||||
Depreciation and amortization |
| 24,847 |
| 23,596 |
| 1,251 | 5.3 | 4.2 |
| 4.4 | ||||
Total operating expenses |
| 499,010 |
| 447,356 |
| 51,654 | 11.5 | 84.5 |
| 83.5 | ||||
OPERATING INCOME |
| 91,670 |
| 88,198 |
| 3,472 | 3.9 | 15.5 |
| 16.5 | ||||
Interest expense, net | 568 |
| 606 | (38) | (6.3) | 0.1 |
| 0.1 | ||||||
Other income, net | (1,279) | (32,260) | 30,981 | (96.0) | (0.2) |
| (6.0) | |||||||
CONSOLIDATED INCOME BEFORE INCOME TAXES | 92,381 | 119,852 | (27,471) | (22.9) | 15.6 | 22.4 | ||||||||
PROVISION FOR INCOME TAXES |
| 19,936 |
| 27,209 |
| (7,273) | (26.7) | 3.4 |
| 5.1 | ||||
NET INCOME | $ | 72,445 | $ | 92,643 |
| (20,198) | (21.8) | 12.3 |
| 17.3 | ||||
Revenue
Revenues for the first quarter ended March 31, 2022 were $590.7 million, an increase of $55.1 million, or 10.3%, from first quarter 2021 revenues of $535.6 million. Comparing 2022 to 2021, residential pest control revenue increased 10%, commercial pest control revenue increased 9% and termite and ancillary services grew 13%. The Company’s revenue mix for the first quarter ended March 31, 2022 consisted primarily of 44% residential pest control, 35% commercial pest control and 20% termite and ancillary revenues (such as moisture control, insulation, deck and gutter work). The Company’s foreign operations accounted for approximately 7% and 8% of total revenues for the first quarters ended March 31, 2022 and 2021, respectively.
Revenues are impacted by the seasonal nature of the Company’s pest and termite control services. The increase in pest activity, as well as the metamorphosis of termites in the spring and summer (the occurrence of which is determined by the change in seasons), has historically resulted in an increase in the Company’s revenues as evidenced by the following chart:
| Consolidated Net Revenues | ||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2020 | |||
First Quarter | $ | 590,680 | $ | 535,554 | $ | 487,901 | |||
Second Quarter |
| — |
| 638,204 |
| 553,329 | |||
Third Quarter |
| — |
| 650,199 |
| 583,698 | |||
Fourth Quarter |
| — |
| 600,343 |
| 536,292 | |||
Year to date | $ | 590,680 | $ | 2,424,300 | $ | 2,161,220 | |||
Cost of Services Provided
For the quarter ended March 31, 2022, cost of services provided increased $33.8 million, or 12.9%, compared to the quarter ended March 31, 2021. The increase was driven by increased people costs and materials and supplies due to the increase in revenues. Additionally, fleet costs increased mainly driven by an increase in fuel costs.
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ROLLINS, INC. AND SUBSIDIARIES
Sales, General and Administrative
For the quarter ended March 31, 2022, sales, general and administrative (SGA) expenses increased $16.6 million, or 10.2%, compared to the quarter ended March 31, 2021. The increases were driven by increased people costs due to the increase in revenues, partially offset by a decrease in advertising costs.
Depreciation and Amortization
For the quarter ended March 31, 2022, depreciation and amortization increased $1.3 million, or 5.3%, compared to the quarter ended March 31, 2021. The increase was due to the additional amortization from several acquisitions.
Other Income, Net
During the quarter ended March 31, 2022, other income decreased $31.0 million compared to the quarter ended March 31, 2021 due to the Company recognizing a $31.1 million gain in the prior year related to multiple sale-leaseback transactions where the Company sold and leased back properties that it acquired in 2019 with the Clark Pest Control acquisition.
Interest Expense, Net
Interest expense, net was $0.6 million for both quarters ended March 31, 2022 and 2021. The increase in the average debt balance for the quarter ended March 31, 2022 was offset by a decrease in weighted average interest rates.
Income Taxes
The Company’s effective tax rate decreased to 21.6% in the first quarter of 2022 compared to 22.7% in 2021. The rate was lower due to a decrease in foreign taxes offset by a reduction in restricted stock benefits from 2021 to 2022.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Flow
Cash from operating activities is the principal source of cash generation for our businesses.
The most significant source of cash in our cash flow from operations is customer-related activities, the largest of which is collecting cash resulting from services sold. The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for a wide range of material and services.
| Three months ended March 31, | Variance | ||||||||
(in thousands) |
| 2022 |
| 2021 |
| $ | % | |||
Net cash provided by operating activities | $ | 87,532 | $ | 119,486 | (31,954) | (26.7) | ||||
Net cash (used in) provided by investing activities |
| (19,928) |
| 40,143 | (60,071) | (149.6) | ||||
Net cash provided by (used in) financing activities |
| 82,093 |
| (141,657) | 223,750 | 158.0 | ||||
Effect of exchange rate on cash |
| 3,340 |
| 873 | 2,467 | 282.6 | ||||
Net increase in cash and cash equivalents | $ | 153,037 | $ | 18,845 | ||||||
Cash Provided by Operating Activities
The Company’s operating activities generated net cash of $87.5 million and $119.5 million for the three months ended March 31, 2022 and 2021, respectively. The three months ending March 31, 2021 had higher than usual operating cash flows due to the $30.6 million benefit of deferred employer payroll taxes allowed under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act). Such deferral was included in accounts payable and accrued expenses at March 31, 2021 and was repaid during the third quarter of 2021.
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ROLLINS, INC. AND SUBSIDIARIES
Cash Used in or Provided by Investing Activities
The Company’s investing activities used $19.9 million for the quarter ended March 31, 2022, and provided $40.1 million for the quarter ended March 31, 2021. The Company invested approximately $8.0 million in capital expenditures during 2022 compared to $7.8 million during 2021. Capital expenditures for the period consisted primarily of property purchases, equipment replacements and technology-related projects. Cash paid for acquisitions totaled $13.2 million for the quarter ended March 31, 2022 as compared to $17.0 million for the quarter ended March 31, 2021. The expenditures for the Company’s acquisitions were funded through existing cash balances, borrowings on our line of credit, a term loan, and other operating cash flows. The quarter ended March 31, 2021 included approximately $65.1 million in cash proceeds from the sale of assets primarily related to the Clark Pest property sale leasebacks.
Cash Provided by or Used in Financing Activities
Cash provided by financing activities was $82.1 million during the quarter ended March 31, 2022 compared to cash used of $141.7 million in the prior year. Concurrent with the Amendment to our Credit Agreement, the Company borrowed $140.8 million during the quarter ended March 31, 2022, net of repayments, compared to net borrowings of $88.0 million during 2021. A total of $49.2 million was paid in cash dividends ($0.10 per share) during the quarter ended March 31, 2022 compared to $39.4 million in cash dividends paid ($0.08 per share) during the quarter ended March 31, 2021.
In 2012, the Company’s Board of Directors authorized the purchase of up to 5 million shares of the Company’s common stock. After adjustments for stock splits, the total authorized shares under the share repurchase plan are 16.9 million shares. The Company did not repurchase shares of its common stock on the open market during the first three months of 2022 nor during the same period in 2021. In total, 11.4 million additional shares may be purchased under the share repurchase program. The Company repurchased $6.4 million and $9.3 million of common stock for the quarter ended March 31, 2022 and 2021, respectively, from employees for the payment of taxes on vesting restricted shares. The acquisitions, capital expenditures, share repurchases and cash dividends were funded through existing cash balances, borrowings on our line of credit, a term loan, and operating activities.
The Company’s $258.3 million of total cash at March 31, 2022 is primarily money market funds and cash held at various banking institutions. Approximately $86.1 million is held in cash accounts at international bank institutions and the remaining $172.2 million is primarily held in Federal Deposit Insurance Corporation (“FDIC”) insured non-interest-bearing accounts at various domestic banks which at times may exceed federally insured amounts.
The Company’s international business is expanding, and we intend to continue to grow the business in foreign markets in the future through reinvestment of foreign deposits and future earnings as well as acquisitions of unrelated companies. Repatriation of cash from the Company’s international subsidiaries is not a part of the Company’s current business plan.
Rollins maintains adequate liquidity and capital resources, without regard to its foreign deposits, that are directed to finance domestic operations and obligations and to fund expansion of its domestic business. In order to comply with applicable debt covenants, the Company is required to maintain at all times a leverage ratio of not greater than 3.00:1.00. The leverage ratio is calculated as of the last day of the fiscal quarter most recently ended. The Company remained in compliance with applicable debt covenants at March 31, 2022 and expects to maintain compliance throughout 2022.
The Company believes its current cash and cash equivalents balances, future cash flows expected to be generated from operating activities, and available borrowings under its $175 million revolving credit facility and $300 million term loan facility will be sufficient to finance its current operations and obligations, and fund expansion of the business for the foreseeable future.
LITIGATION
In the normal course of business, the Company and its subsidiaries are involved in, and will continue to be involved in, various claims, arbitrations, contractual disputes, investigations, litigation, and tax and other regulatory matters relating
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ROLLINS, INC. AND SUBSIDIARIES
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 of violations of regulations or statutes. In addition, we are parties to employment-related cases and claims from time to time, which may include claims on a representative or class action basis alleging wage and hour law violations. We are also involved from time to time in certain environmental and tax matters primarily arising in the normal course of business. We evaluate pending and threatened claims and establish loss contingency reserves based upon outcomes we currently believe to be probable and reasonably estimable.
As previously disclosed, the Securities and Exchange Commission (the “SEC”) conducted an investigation primarily focused on how the Company established accruals and reserves at period-ends for periods beginning January 1, 2016 through December 31, 2018 and the impact of certain adjustments to those accruals and reserves on reported earnings per share, specifically, in the first quarter of 2016 and the second quarter of 2017 (the “SEC Investigation”). The Company previously disclosed that it had reached a settlement with the SEC, which was publicly announced on April 18, 2022. Under the terms of the settlement, the Company neither admitted nor denied the SEC’s findings and paid an $8.0 million civil penalty, which was accrued in the third and fourth quarters of 2021. The settlement resolves the SEC Investigation, and there will be no restatement of the Company’s historical financial results related to this investigation.
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.
CRITICAL ACCOUNTING ESTIMATES
There have been no changes to the Company’s critical accounting estimates since the filing of its Form 10-K for the year ended December 31, 2021.
22
ROLLINS, INC. AND SUBSIDIARIES
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties concerning the business and financial results of Rollins, Inc. We have based these forward-looking statements largely on our current opinions, expectations, beliefs, plans, objectives, assumptions and projections about future events and financial trends affecting the operating results and financial condition of our business. Such forward looking statements include, but are not limited to, statements regarding:
| ● | the Company’s belief that its accounting estimates and assumptions, financial condition and results of operations may change materially in future periods in response to the COVID-19 pandemic; |
| ● | the outcomes of any pending claim, proceeding, litigation, regulatory action or investigation filed against us, either alone or in the aggregate, which could have a material adverse effect on our business, results of operations or liquidity, financial condition and results of operations; |
| ● | the Company’s evaluation of pending and threatened claims and establishment of loss contingency reserves based upon outcomes it currently believes to be probable and reasonably estimable; |
| ● | the Company’s reasonable certainty that it will exercise the renewal options on its operating leases; |
| ● | risks related to the Company’s belief that its current cash and cash equivalent balances, future cash flows expected to be generated from operating activities and available borrowings under its $175.0 million revolving credit facility and $300.0 million term loan facility will be sufficient to finance its current operations and obligations, and fund expansion of the business for the foreseeable future; |
| ● | the Company’s ability to remain in compliance with applicable debt covenants under the Credit Facility throughout 2022; |
| ● | the Company’s belief that the adoption of ASU 2022-02 is not expected to have a material impact on the Company’s consolidated financial statements; |
| ● | the Company’s ability to continue the purchase of Company common stock when appropriate; |
| ● | risks related to the Company’s ability to continue to grow its business in foreign markets in the future through reinvestment of foreign deposits and future earnings as well as acquisitions of unrelated companies and that repatriation of cash from the company’s foreign subsidiaries is not a part of the Company’s current business plan; |
| ● | the Company’s expectation that total unrecognized compensation cost related to time-lapse restricted shares will be recognized over a weighted average period of approximately 4.1 years; |
| ● | the Company’s expectation that the acquisition-related goodwill recognized during the quarter will be deductible for tax purposes; |
| ● | the Company’s conclusion that there are no impairments of its goodwill or other intangible assets; |
| ● | the Company’s belief that the factors contributing to the amount of goodwill are based on strategic and synergistic benefits that are expected to be realized; |
| ● | the Company’s belief that foreign exchange rate risk will not have a material effect on the Company’s results of operations going forward; |
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ROLLINS, INC. AND SUBSIDIARIES
| ● | the Company’s belief that it maintains adequate liquidity and capital resources that are directed to finance domestic operations and obligations and to fund expansion of its domestic business for the foreseeable future without regard to its foreign deposits; and |
| ● | the Company’s belief that it will continue to be involved in various claims, arbitrations, contractual disputes, investigations, and regulatory and litigation matters relating to, and arising out of, its businesses and its operations. |
Forward-looking statements are based on information available at the time those statements are made and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Such risks and uncertainties are beyond our ability to control, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. The reader should consider the factors discussed under Item 1A., “Risk Factors,” of Part I of the Company’s Annual Report on Form 10 K, filed with the U.S. Securities and Exchange Commission, for the year ended December 31, 2021 (the “2021 Annual Report”) that could cause the Company’s actual results and financial condition to differ materially from estimated results and financial condition. The Company does not undertake to update its forward-looking statements.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2022, the Company maintained an investment portfolio included in cash and cash equivalents subject to short-term interest rate risk exposure; and other current and long-term investments. The Company is subject to interest rate risk exposure through borrowings on its $175.0 million revolving credit facility and $300.0 million term loan facility. The Company is also exposed to market risks arising from changes in foreign exchange rates. See Note 10 to Part I, Item 1 for a discussion of the Company’s investments in derivative financial instruments to manage risks of fluctuations in foreign exchange rates. The Company believes that this foreign exchange rate risk will not have a material impact upon the Company’s results of operations going forward.
ITEM 4.CONTROLS AND PROCEDURES
The Disclosure Committee, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of March 31, 2022 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the Evaluation Date to ensure that the information required to be included in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
Changes in Internal Controls Over Financial Reporting
Management’s quarterly evaluation identified no changes in our internal control over financial reporting during the first quarter that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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ROLLINS, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
In the normal course of business, the Company and its subsidiaries are involved in, and will continue to be involved in, various claims, arbitrations, contractual disputes, investigations, litigation, and tax and other regulatory matters relating to, and arising out of, our businesses and our operations. These matters may involve, but are not limited to, allegations that our services or vehicles caused damage or injury, claims that our services did not achieve the desired results, claims related to acquisitions and allegations by federal, state or local authorities of violations of regulations or statutes. In addition, we are parties to employment-related cases and claims from time to time, which may include claims on a representative or class action basis alleging wage and hour law violations. We are also involved from time to time in certain environmental and tax matters primarily arising in the normal course of business. We evaluate pending and threatened claims and establish loss contingency reserves based upon outcomes we currently believe to be probable and reasonably estimable.
As previously disclosed, the Securities and Exchange Commission (the “SEC”) conducted an investigation primarily focused on how the Company established accruals and reserves at period-ends for periods beginning January 1, 2016 through December 31, 2018 and the impact of certain adjustments to those accruals and reserves on reported earnings per share, specifically, in the first quarter of 2016 and the second quarter of 2017 (the “SEC Investigation”). The Company previously disclosed that it had reached a settlement with the SEC, which was publicly announced on April 18, 2022. Under the terms of the settlement, the Company neither admitted nor denied the SEC’s findings and paid an $8.0 million civil penalty, which was accrued in the third and fourth quarters of 2021. The settlement resolves the SEC Investigation, and there will be no restatement of the Company’s historical financial results related to this investigation.
Management does not believe that any pending claim, proceeding or litigation, regulatory action or investigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity; however, it is possible that an unfavorable outcome of some or all of the matters could result in a charge that might be material to the results of an individual quarter or year.
ITEM 1A.RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2021.
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ROLLINS, INC. AND SUBSIDIARIES
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Shares repurchased by Rollins during the first quarter ended March 31, 2022 were as follows:
Total number of | |||||||||
Weighted- | shares purchased as | Maximum number of | |||||||
Total number of | average | part of publicly | shares that may yet be | ||||||
shares | price paid | announced | purchased under the | ||||||
Period | purchased (1) | per share | repurchases (2) | repurchase plan (2) | |||||
January 1 to 31, 2022 | 202,920 | $ | 31.02 | — | 11,415,625 | ||||
February 1 to 28, 2022 | 482 | 30.85 | — | 11,415,625 | |||||
March 1 to 31, 2022 | 3,739 | 30.09 | — | 11,415,625 | |||||
Total | 207,141 | $ | 31.00 | — | 11,415,625 | ||||
| (1) | Represents repurchases from employees for the payment of taxes on vesting of restricted shares. |
| (2) | The Company has a share repurchase plan, adopted in 2012, to repurchase up to 16.9 million shares of the Company’s common stock. The plan has no expiration date. |
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ROLLINS, INC. AND SUBSIDIARIES
ITEM 6.EXHIBITS
ROLLINS, INC. AND SUBSIDIARIES
Exhibit No. | Exhibit Description | Incorporated By Reference | Filed Herewith | ||
|---|---|---|---|---|---|
Form | Date | Number | |||
10.13 | 10-K | February 25, 2022 | 10.13 | ||
10.14 | 10-K | February 25, 2022 | 10.14 | ||
10.15* | 10-K | February 25, 2022 | 10.15 | ||
10.16* | 10-K | February 25, 2022 | 10.16 | ||
10.17* | X | ||||
31.1 | X | ||||
31.2 | X | ||||
32.1** | X | ||||
101.INS | Inline XBRL Instance Document | X | |||
101.SCH | Inline XBRL Schema Document | X | |||
101.CAL | Inline XBRL Calculation Linkbase Document | X | |||
101.LAB | Inline XBRL Labels Linkbase Document | X | |||
101.PRE | Inline XBRL Presentation Linkbase Document | X | |||
101.DEF | Inline XBRL Definition Linkbase Document | X | |||
104 | Cover Page Interactive Data File (embedded with the Inline XBRL document) | X | |||
+ | Certain portions of this document that constitute confidential information have been redacted in accordance with Regulation S-K, Item 601(b)(10) |
* | Indicates management contract or compensatory plans or arrangements. |
** | Furnished with this report |
ROLLINS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ROLLINS, INC. | ||
(Registrant) | ||
Date: April 28, 2022 | By: | /s/ Gary W. Rollins |
Gary W. Rollins | ||
Chairman and Chief Executive Officer | ||
(Principal Executive Officer) | ||
| ||
Date: April 28, 2022 | By: | /s/ Traci Hornfeck |
Traci Hornfeck | ||
Chief Accounting Officer | ||
(Principal Accounting Officer) | ||