Come on in, find a seat, and welcome. I'm Andy Whitman. I'm the Senior Research Analyst here at Baird. I cover facility services. And if you're in the room for Rollins, you're in the right place. The company's CFO, Ken Krause, is here with me to kind of go through the company presentation. We will be monitoring if there's some time for questions at the end of this formal presentation. You can email me at session4@rwbaird.com or raise your hand. That works totally fine too. But, Ken, why don't you just kind of get us kicked off about the company?
Sure. Thanks for having me. Really good to be here. And thanks to everybody that's in the room and your interest. Also, thanks to those online that are listening in. Just before I start, of course, we've got our forward-looking statements and the risks associated with them. And there's also Non-GAAP amounts that are in the presentation. I'm sure we'll talk about a few of those today. But they're reconciled in our website and in the appendix of the presentation. But as I start the conversation, I can't help but start with the word consistency. That is a really important trait of Rollins. When you go back 23 years, if you look at the business from 2000 to 2023, the business has been compounding revenue at 7%. We've been compounding earnings at roughly 14%. Our cash flow has been compounding at 18%.
Our annual TSR, our average annual TSR, has been north of 20%. It's been an exceptional run. It's been very consistent. The market is incredibly attractive, continues to be highly fragmented, and offers us an opportunity to continue to grow and compound this business as we think about the future. In fact, I'll talk about it in a few slides. Through the first nine or so months of the year, we were growing revenue at 10+% . Earnings were compounding at roughly 12%, despite making significant investments in Q3 that helped us capitalize on a very attractive market.
What's also interesting about the business over this same 20-plus year run is that when you isolate the business and you look at the business through the lens of different economic cycles, inevitably, we all want to understand what a business does in the down cycle and in a downturn in the economy, and when you look at this business through the lens of three really important cycles over the last 23 years, one is the Great Financial Crisis. You may have heard of it back in 2008 to 2010. During that time period, we saw a really strong revenue growth of about 6%. When other companies were declining by 10%, 15%, 20%, we were actually growing, growing our top line and growing our earnings line as well.
When you move forward to 2015 to 2017, so that was a period that was marked by oil and commodity prices that were going from $120 a barrel of oil down to roughly $25 a barrel. And so you saw an industrial slowdown. I was part of that in my former life with my former employer as a CFO of an industrial company who sold into the energy patch. And we saw the weakness. But fortunately, at Rollins, we didn't see the weakness. And we actually grew through that cycle as well. So when you look at it, we grew roughly 6% during the industrial slowdown of 2015. When you then move into COVID and you ask yourself, well, what did the business do during COVID? And we actually have seen an acceleration in growth since COVID.
COVID, it's a distant memory for many, thankfully, at this point, four years ago or so. And when you look at the business, what the business has done since COVID, we have stepped up growth. Not only have we grown from 2020 to 2022 at a very strong rate, but since I joined in 2022, we've continued to see very strong growth. This year, we're growing. Our organic growth year to date is 7.7%. Our range for organic growth, I'll talk about it here in a little bit, is 7%-8%. So we're performing at the high end of that range. We continue to see really healthy pricing. Pricing is an important part of the equation. It's an essential service. It's a service that people must have. And in addition to must having the service, it's an affordable service for the value that the customer is receiving.
And so we've been focused on pricing, getting paid for the value of that service. And that's certainly helping us. But the growth we're seeing, that 7.7%, isn't all price. It's a combination of price, volume, and new services that we continue to add into existing customers. When you look at capital deployment, this also is kind of a cornerstone of the company, is our commitment to deploying capital, first and foremost for growth, M&A. When we look at the business, the cash flow profile is incredibly strong. We've been compounding cash flow, as I said earlier, at roughly 18% going back 23 years. Over the last five years, you're seeing that compound at around 13%. This year, year to date, we're in the mid-teen range for cash flow.
A big part of the use of the cash flow is M&A, investing in growth, going after acquiring businesses in a very fragmented industry, especially in the U.S. The U.S. is certainly our core market. We have a strong presence in Canada. We made some sizable acquisitions recently in the U.K. We also have a presence in Australia and in Singapore. And so we continue to deploy capital. This year, we've deployed well over $100 million of capital. Last year, we deployed just under $400 million of capital. So we continue to be very active on the M&A front. We have a really healthy pipeline. And we're continuing to evaluate new opportunities that we can bring into the pipeline. The second area of capital allocation is dividends. When I joined back in the fall of 2022, we were paying a special dividend.
What we did is we assessed that dividend. We decided to move away from a special dividend and price that into a regular recurring dividend. Since 2022, we've increased our dividend by 65%. We've recently announced another increase to the dividend. We've continued to increase the dividend. It represents roughly half of our free cash flow. That gives us another 50% of the free cash flow to deploy in bolt-ons and incremental deals while adding very little leverage. Over the last couple of years, we've added a little bit more leverage than we historically have had. We still have well less than one times of debt to EBITDA on the balance sheet. We intend to manage the business as an investment-grade business and responsibly use leverage to grow the business. The last area of capital allocation is share repurchase.
We'll use that from time to time. A year ago, we were involved in a secondary offering. We have a large family shareholder. That family decided to enter the market and sell down a portion of their position. That was September last year. We participated in that sell down. We bought back $300 million of stock at roughly $34 a share. Today, we're trading at just south of $52. We've seen great returns on that investment that we deployed a little over a year ago. When we think about the strategy going forward, there's three aspects to the strategy. Two of the aspects are primarily related to growth. The second aspect is margin expansion. When we look at the growth, organic growth is first and foremost most important in this business.
With an organic profile of 7%-8%, it provides attractive returns on the capital we're deploying to go after and acquire new customers and drive demand for our services. We also are focused on not only adding new customers, but we're focused on adding new services to existing customers. Today, on average, each customer has less than two services for every stop. That is an opportunity. Back in our investor day in May, we actually showed a home. For those hockey fans in the room, we used the analogy of nine shots on goal. So we effectively have a number of different opportunities to be successful at growing our business with our customer base. The second area here, of course, is accretive M&A, and we continue to deploy capital in M&A.
Two years ago, we did our second largest acquisition in our history with Fox. It gave us access into a new customer channel. And we deployed north of $300 million for that acquisition. We continue to look at deals like Fox going forward. So we continue to be very active at sourcing and finding deals that look a lot like Fox. Our commitment is to provide 2%-3% of M&A growth each year from acquisitions. And so we continue to try to find the right targets that will allow us to deliver on those expectations. The good thing is it's a fragmented market. And we don't have to have any one opportunity. As a result, we remain very disciplined to our value creation formula when we go after and pursue opportunities. We paid 13.4 times for Fox two years ago.
Within the first year, we were trading down under 10 times, and so we saw significant growth come through that, some improvements in the business, and we're also leveraging that model across other areas of our business, so we're continuing to look at that. The second area here is all about margin expansion. We benefit from having pricing opportunities in our market, so as a result, we've got very attractive gross margins, but we also are continuing to look at back office and other areas that will help us continue to modernize our business. Today, I've got with me Casey Forrest and Lindsey Burton . Lindsay heads up IR. She's been with us for just over a year. She did a great job with our investor day in May, and Casey's been with us for just over a year and a half.
He joined us from a leading industrial packaging player in Atlanta, tremendous experience, and he heads up our FP&A and strategy area. And so those are two examples of people that we're adding into the mix, that we're bringing on, that are helping us modernize the Rollins story and take advantage of the market and the execution that we continue to see in our markets. Looking at Q3, another good quarter. The thing about Q3, which made it a little bit different, is we made more investments. We invested in a number of new areas in our business or added a number of new resources. First and foremost, they were all selling and marketing investments. There wasn't really any back office. Actually, the back office costs came down, and generally, what you're seeing in this in the last two years is our back office costs are coming down.
And they're helping us fund the front-end investments we're making in customer acquisition, advertising, feet on the street, technicians, people that are helping us deliver our exceptional service to our customers. And so we made investments. That weighed down the earnings growth in the quarter. But year to date, we continue to see double-digit earnings growth. We posted 9% revenue growth in the quarter. 7.7% was associated with organic revenue. We saw about 2% or so contribution from acquired businesses. We divested a year ago now. We're in the fourth quarter. We divested of our lawn care business, which offsets some of the M&A contribution that we have here this year. But overall, 9%, very healthy growth rate, right around where we expect it to be, maybe a little on the high end. And in cash flow, you look at the cash flow here growing at 16%.
What's interesting about the business is we oftentimes have negative working capital. We're collecting cash in advance of providing services to our customer. Not always, but oftentimes we do. And so that certainly helps us. And in addition, we're a capital-light model. We really don't require a lot of CapEx. Probably our largest CapEx is our fleet. It's our trucks. We're acquiring trucks. We're leasing trucks that will help get our technicians to our customer to perform the service. When we look at the growth algorithm here and we look at the business through the lens of the last three years, 2024, and then our medium-term outlook, last three years, revenue growth has been strong double-digit, of course. Some of that is M&A with the acquisition of Fox and other deals. When you look at the incremental margin, last three or four years, we've seen about 27%.
We'd like to see that number closer to 30, and we see an opportunity to deliver incremental margins that are approximating 30%. There's going to be times here and there, like you did see in the third quarter, where we were making more significant investments in selling and marketing. It was a decision we made as we looked at the market and we saw the strength in the underlying market. We're going to continue to do that, but with that said, we do think there's an opportunity to deliver incremental margins that are approaching 30% in the business. And then the last area here is really the free cash flow profile. 100-plus% conversion is the focus, and quite frankly, 110% plus is what we've been seeing.
And so we continue to create a significant amount of improvements in cash flow, driving nice opportunities for us to redeploy that capital and grow our business in this really attractive space. So in summary, when you look at the business through three or four different lenses, one, the market's really healthy. The market's very attractive. We continue to grow at the high end of our range. And in fact, when we look at our results in October, we continued to deliver really strong revenue growth coming through the model that gives us the opportunity to deliver on the high end of that 7%-8% organic growth range. We operate in a very fragmented market. So M&A opportunities are abundant. And we have a strong track record with the companies that we've bought. And our reputation is very solid across the industry.
People oftentimes come to sell to us because they know that we'll pay a fair price, but we'll also take care of their people and their brands will remain. We're very much a house of brands. We're not a branded house. The Rollins name doesn't mean much to our customer base, but Orkin does, Northwest does, Clark does, Fox does. Those brands are really important, and those brands will persist into the future. The third area here is we continue to focus on bolting on in this space and adding incremental growth opportunities. Pipeline is full, ranging in deals from very small to medium size, very much like Fox, and so we're continuing to evaluate opportunities. We've got sufficient cash flow, capital structure, and capacity that will enable us to continue to do that, and we strongly embrace this culture of continuous improvement.
A lot of the focus on the SG&A is all around how do we continue to make ourselves better? How do we continue to improve upon this really strong business so that we can continue to call ourselves a compounder? The focus is compounding revenue and compounding earnings at a rate that far exceeds the revenue growth, then turning that into strong cash flow and allocating that to investments.
That's a summary. I'll open it up for some Q&A. There's about 10 or 15 minutes left. But open up for any Q&A that might be there.
Sure. I'll kick it off with some. And they're coming in from the audience a bit here too. But I just thought I'd have you expand a little bit about the opportunity for up to nine services that your customers and you're doing on average two today.
Can you maybe talk about some of the categories that are fastest growing and most underpenetrated, just to give some people a sense of kind of what you're doing?
Sure. Those services are less than 2% today. And so when you look at that slide, I wish I would have that slide with me. But when you look at that slide, you've got your general pest control. You've got your general termite control. But what you sometimes forget about is when you go in and you treat a pest issue, you have to treat how they're accessing the house. So if you can close off certain areas of the house that will eliminate the opportunity for the pest to get in, a customer is willing to pay for that. Because if they don't pay for that, in six or nine months, if they don't have the right pest control, those pests are going to come right back. The second area is once they get in the home, they start to destroy certain parts of the home.
So, for example, insulation. Oftentimes, they'll come through the ridge and the ridge vent of the house, and they'll get into the attic, and they'll destroy the insulation. So we've got to go in and remediate all the insulation, take the insulation out, and put new insulation, pest-free insulation, quite frankly, into the structure. Ridge Guard, I mentioned that on the ridge of the house is certainly important. Around the crawl space and around the basement area, if we can do exclusion work around that, certainly important. So those are to name a few of the ancillary services. The thing that I didn't mention as I talked about is just some of the other pest services. How many of you sit outside to enjoy an evening at the fire, but the night is maybe impacted by mosquitoes, and so mosquito service is certainly something that we offer.
That's a service that is. It's hard to say it's underpenetrated, but it's a very small amount of our business, but it's growing at a really healthy clip.
This one is recurring.
It's very recurring.
More of a one-time product. (crosstalk) This is a recurring one.
Exactly. Or ticks in the Northeast. I have a home in Pittsburgh. I'm from Pittsburgh. I'm from the Northeast. And in that area, you see ticks. And ticks are a big cause of Lyme disease. And so mosquito is known to be a horrible carrier of a number of bloodborne diseases. And you also have ticks that are associated with Lyme disease. Ticks are very prevalent in the Northeast, in the Midwest, Upper Midwest. So you see that. And there's a service associated with ticks. So there's a number of different recurring services, but there's also a number of different one-time services. When you look at the business, we've got three major service lines that we talk about. And that's residential, commercial, and termite and ancillary. Termite and ancillary is where you see a lot of that one-time service coming through and increasing that share of wallet with the customer.
Yep. Makes sense. One question here came in, and it's talking about that acquisition. I think you did, what, 32 deals year to date. So it was a lot of high frequency. Some of these are really small.
Yeah.
You talked about the big one that's more material. But the question is just about how have multiples changed, or are they changing over time?
You know, it's interesting. The multiple environment, I would say, it's competitive. What I would also say is that the way we compete isn't just based upon the multiple that we pay for the business. We realize that you have to pay a very healthy or a fair multiple to somebody that's built their business over time. And that's really important. But what we bring to the table, but maybe some others don't bring to the table, is the opportunity to keep their people intact, take care of their people, and take care of their brand. A great example of this is our Northwest acquisition from seven or eight years ago. When I joined Rollins, I remember driving through the city and seeing billboards. It was Northwest Exterminating. I had no idea that that business was part of the Rollins family.
But I can tell you the presence and the prevalence of that brand and how it remains seven years after acquisition has to make the former family very proud in how it's been taken care of over a very long period of time. So we live up to our commitments with our people, with our acquisitions, with the brands we're acquiring. We, of course, don't keep all brands because it just doesn't make sense. But where the brand has a value with the customer base, we keep intact. Saying all this because multiples are always going to be competitive. It's a really great market. It's a market that brings in a lot of new capital. But what I would say is it's so fragmented that it gives us an opportunity to remain disciplined and not overpay for any one asset.
We don't need to have, or we don't have any must-have deals. There's a lot of deals that give us the opportunity to grow.
Got it. There's a couple of questions here from the audience that are related to the competitive environment, talking about your outperformance against other small players. And really, there's another question that builds on that that talks about, are your investments that you're making in sales and in advertising and things to grow the top line, are those in response to a competitive environment that you feel is maybe a little bit more ripe for the taking today than it is in other years?
You know, it's a great question. It's hard to say if the market's any more attractive today than it was two, three, or four years ago. I mean, when you've been posting numbers like I showed to you over the last two decades, it shows that it's been a pretty attractive market. But when we look at some of the opportunities that we talked about at Investor Day in May, our commercial business, that's become much more of a prominent focus for us. We see the opportunity. It's an incredibly attractive market. There's less churn on the customer base. So we've made more investments in that area relative to what we've done historically. So that's definitely an area. But what I would say is it's just an attractive market. It's growing at a very healthy clip.
We see an opportunity to double down in a number of other areas, not because of any competitive change, but because it's that attractive of a market.
Got it. One of the other things that I think is worth exploring a little bit more detail is international. That's a big world. You guys have been a great North American company for a long time. But you've also been growing internationally, sometimes I think with franchises. Does the same playbook that's worked so well in the U.S. for so many years translate internationally? Or are there laws, labor laws come to mind, or customer expectations that are different where you have to adjust?
Yeah. You mentioned earlier that 32 acquisitions. Some of those acquisitions are just franchise buybacks, and so we bought back franchises where we see an opportunity to do that. But it's interesting, and we do use the franchises internationally. We use them in the U.S. as well, but internationally. But the thing about the international markets is that they are attractive, but they are different, and we are fortunate that the U.S. is our largest market. It's the most fragmented, and it gives us our biggest growth opportunities in the near term, so our focus very much is the U.S. market and investing and capturing share in the U.S. market and growing our position with our customer base. With that said, the international markets remain an opportunity. We just did a nice-sized acquisition in the U.K. We've kind of rounded out that platform for us in the U.K.
We've got great presence in Canada. Rob Quinn and his team is doing an exceptional job in Canada with growing that business. The one thing that you have to remember about international business versus U.S. business is the U.S. has a much larger residential market. There's not as much residential business there as there is in the U.S. abroad. And so it is very much that's the big difference between the U.S. and the international market, the fact that it's more of a commercial market internationally. It's less so a residential market.
Interesting. I think it's really interesting watching your company over the years invest in technology. I remember going back to the BOSS system. There's been so many different things on the route, customer-facing things to interact digitally. What are the things that are kind of top of mind getting digital investments today? And are they top-line-driven investments, or are they going to help you get to that 30% incremental?
You know, it's interesting. We have made investments in technology. I would say, I wouldn't say that we've been an outsized. We have not made outsized investments in technology, and for example, our back office, we just haven't made the investments in a single platform, an ERP. We haven't had the investments in a consolidation tool per se across all of our financials. So those are real opportunities. I'm not saying we're signing up for an ERP. That'd be the last thing I'd commit to. But what I would say is we're looking at certain areas of the back office to modernize that will allow us to be a better acquirer of businesses, to be better at centralizing some of the services and some of the process work that could be centralized. So we're making progress on that. We're nowhere near complete on that, but we're making progress.
On the customer side, you're right. I mean, the BOSS system and some of the other route-based systems, we've done a nice job. The team's done a nice job at really investing in those areas. There's more to come. And so we're about eight or 10 years into our BOSS system. We're starting to really evaluate how we can continue to evolve that route-based system as we go forward. And Renee Pearson, who's our CIO, is leading up that effort. She joined us just under two years ago now.
Great. Other questions from the audience? Just one up front.
Across the pond, we have a competitor who's bought stuff, M&A. Can you talk about what are the pitfalls that come with M&A that we hope to avoid?
Sure.
The question was, how do you avoid pitfalls that have been seen in other places in the industry?
Yeah. Yeah. I can't speak to what others have done in the industry, but what I can speak to is how we approach M&A. And you're right. M&A is not always the same. Not all deals are the same. And so you've got to have a disciplined approach to M&A. And when you think about M&A, you've got to think about it through a couple of different lenses. One is a strategic lens, of course. How does it make our business better? How does it give us new services? How does it give us new access to customers, new channels, and new geographies? And so that's one angle that I look at the M&A lens through. The second lens is the financial rationale. And when I look at deals and we're looking at deals now, we always are looking at deals.
But what I say to Jerry and the team is I look at it through five lenses. When we buy a business, I want to make sure that I'm buying a business that's going to organically grow faster than our organic profile today. The last thing I want to do is buy a 1% or 2% growing business because it's just going to weigh down our margin or our growth profile in year two and three. The third area is the margin. We want to buy businesses that we can make better or can make us better. And so how do we accrete to margins in the first year or two? How do we accrete to earnings per share in the first year or two? A lot easier when you were paying 2% on debt today at 4% or 5%. It's a much more harder hurdle to cross.
And then, last but not least, on the financial rationale, return on capital. If we can't get a return on capital that exceeds our cost of capital by year three, then we're paying too much. And thankfully, we can remain disciplined to that rationale because the market's so fragmented. We don't have any one deal we have to pursue or acquire. The last area that comes to mind when it comes to M&A and making sure we don't get tripped up because you could sit here and say, well, you're such a strong company. You have such a strong balance sheet. Why don't you just go out and lever up? Well, part of that is our people. When you look at acquisitions and you spend beyond the capabilities of your people, then you run into a big challenge.
And so I think a lot of the stuff we're talking about now with new people coming in, investing in process and technology helps enable us to do bigger deals down the road. But until we got the process and technology and people, most importantly, down, then we're not going to pursue those deals that add too much risk to the equation. And so those are the three things that I look at that we'll use quite oftentimes to really govern the pace and the way that we do M&A.
Great. That's all the time we have, unfortunately. We're going to have to leave it there. Thank you for your.