Rollins NYSE: ROL reported what executives described as a strong start to 2026, highlighted by accelerating demand as the first quarter progressed and broad-based growth across its major service lines. On the company’s first-quarter earnings call, President and CEO Jerry Gahlhoff said performance improved sequentially through the quarter after a weather-impacted January, and management reiterated its full-year outlook for organic growth of 7% to 8% plus an additional 2% to 3% from acquisitions.
Revenue growth accelerated through the quarter
Gahlhoff said demand was “a little slower to start the quarter,” citing “some unfavorable weather in January,” but added that the company exited the quarter with “well over 8% organic growth in March.” He said the company is seeing “healthy growth in recurring and one-time services” as peak pest season begins.
Executive Vice President and CFO Ken Krause reported total revenue growth of 10.2% year over year, including organic growth of 6.6%. Krause said organic growth was pressured by January weather but improved each month, culminating in “approximately 12% total growth and over 8% organic growth” in March. He added that first-quarter organic growth represented a 90-basis-point improvement versus the fourth quarter of 2025.
By service line, Krause said first-quarter revenue increased 9.3% in residential, 9.6% in commercial pest control, and 13.5% in termite and ancillary. Organic growth was 4.2% in residential, 7.7% in commercial, and “almost 10%” in termite and ancillary.
Responding to a question about whether the March exit rate was sustainable, Krause said management “feel[s] good about the exit rate” and reiterated confidence in the company’s 7% to 8% organic growth outlook for 2026. He noted the March result included “an extra day,” but also reflected “really good demand,” including residential growth improving to over 7% in March versus about 4% to 4.2% for the quarter.
Margins pressured by insurance, claims, and fleet-related items
While revenue accelerated, Krause said profitability faced headwinds in the quarter. Gross margin was 50.8%, down 60 basis points year over year, which he attributed to lower volume early in the quarter and higher insurance and claims activity.
Krause detailed several cost factors affecting gross margin:
- Lower vehicle gains in the fleet line created 50 basis points of headwind, which Krause said “should start to improve” in the second quarter.
- Insurance and claims drove 30 basis points of headwind.
- Service payroll costs created 20 basis points of headwind as the company carried more technicians ahead of peak season.
Fuel was “relatively neutral” in the quarter and represents about 1.5% of sales, according to Krause, who said Rollins expects fuel costs to remain below 2% of sales in 2026. In response to an analyst question, Krause said Rollins does not hedge fuel costs, describing fuel as “a relatively minor cost” and emphasizing the company’s “highly variable cost structure.” Gahlhoff added the company focuses on fuel-efficiency initiatives such as reducing idling time, using apps to locate lower-priced fuel, and leveraging relationships to obtain rebates, while relying on its normal pricing programs to help offset cost volatility.
SG&A expense as a percentage of revenue increased 70 basis points year over year. Krause attributed 50 basis points of that to incremental selling investments and 20 basis points to higher insurance and claims costs.
Krause reported first-quarter GAAP operating income of $145 million, up 2% year over year, and adjusted operating income of $153 million, up 4%. Adjusted EBITDA was $179 million, up 4.4%, representing a 19.8% margin.
Management said staffing decisions were intentional. Gahlhoff explained that maintaining higher staffing levels ahead of peak season can hinder profitability in the short term, but the company believes it improves customer experience and reduces turnover versus “extreme swings in hiring activity.” Krause echoed that the company took a long-term approach by holding staffing through weather-related softness in January, calling the weather impact “temporary and transitory.”
Earnings, tax rate, and cash flow
Rollins posted GAAP net income of $108 million, or $0.22 per share, Krause said. The company recorded approximately $7 million of non-GAAP pre-tax adjustments tied to acquisition-related and other items, resulting in adjusted net income of $113 million, or $0.24 per share—an increase of 9.1% from the prior-year period.
The effective tax rate was 21.3% versus 23.5% a year ago, reflecting what Krause described as benefits from “windfall tax benefits” and ongoing work to improve the company’s tax profile. For full-year 2026, Krause said Rollins expects the effective tax rate to be under 25%, about 100 basis points below historical levels.
On cash generation, Krause reported operating cash flow of $118 million and free cash flow of $111 million. Free cash flow conversion was “over 100%” for the quarter. Krause said cash flow was negatively impacted by the timing of tax payments tied to a tax credit planning strategy and by the transition to semiannual interest payments on 2035 notes issued a year ago. Excluding those items, Krause said free cash flow would have increased 14% year over year and free cash flow conversion would have been about 140%.
During the quarter, the company made acquisitions totaling $18 million and paid $88 million in dividends. Krause said Rollins’ leverage ratio was 0.9x, which he characterized as a very healthy balance sheet position.
Acquisitions and cross-selling opportunities
Gahlhoff highlighted the company’s recent acquisition of Romex Pest Control, describing Romex as a “top 40 pest management company” that provides entry into new markets and opportunities to scale and expand service offerings. He emphasized cultural alignment, saying Romex has “a strong people and customer-focused culture.”
Asked about the strategic rationale, Gahlhoff said Rollins was impressed with Romex’s operations, how it treats people, and its customer service approach, and described Romex’s markets as “very complementary.” He added that Romex had been focused primarily on residential pest control with some ancillary offerings, and Rollins sees an opportunity to broaden service penetration over time.
Krause said the company continues to expect M&A to contribute 2% to 3% of revenue growth in 2026. Addressing whether that contribution could rise after Romex, Krause said first-quarter M&A contribution was 3.6% and should moderate through the year. He said there is an opportunity to go higher than the 2% to 3% range, and “very low likelihood” it would be below it, but management was “not ready to raise it yet.”
Commercial momentum, insurance uncertainty, and retention focus
Gahlhoff said Rollins is encouraged by commercial momentum and noted that Orkin Commercial has been delivering new customer wins across key verticals after adding resources over the past year. He later said the company began the year with “almost 80 more commercial account sales managers” than in the first quarter of last year, adding that they are “putting wins on the board” across both local sales and national accounts. He said he has not seen a significant change in the competitive environment in commercial.
Insurance and claims remained a key topic in the Q&A. Krause described the line item as volatile and “hard to predict,” noting the company had claims that continued to mature during the quarter. He said management is “hopeful” the expense moderates in the second half of the year but acknowledged conditions can change. Gahlhoff added the company is investing in safety initiatives—particularly driving safety—to reduce collision and injury frequency over time. In another exchange, Krause said claims can relate to multiple years, including post-COVID periods when accidents increased as people returned to highways, and he cautioned the company may deal with the issue “for a while,” even as lead indicators improve.
Retention was also discussed as an area of opportunity. Krause differentiated between technician turnover and customer retention, saying the company is making progress on first-year technician retention and plans to discuss cultural investments and margin implications at its May investor day. He said the company is also putting leadership around customer retention, adding, “We just lose way too many customers every year.” Gahlhoff said commercial retention remains strong and stable and that the company made “some modest improvements” in residential retention as it exited the first quarter, while still seeing meaningful potential upside.
Rollins said it will host its investor and analyst conference on May 14 at the New York Stock Exchange, where management indicated it plans to provide additional detail on cross-selling initiatives, retention efforts, and other operating priorities.
About Rollins NYSE: ROL
Rollins, Inc NYSE: ROL is a provider of pest and termite control services operating through a network of subsidiaries and franchises. Headquartered in Atlanta, Georgia, the company offers a broad range of pest management solutions for both residential and commercial customers, positioning itself as a specialist in protecting property and public health from pests and vectors.
Its service offerings include general pest control, termite inspection and treatment, bed bug remediation, mosquito and vector control, wildlife exclusion, and related specialty services.
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