Greetings. Welcome to Rolling Inc. 2nd Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Please note this conference is being recorded. I will now turn the conference over to your host, Joseph Calabrese, thank you. You may begin.
Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and and will send you a release and make sure you're on the company's distribution line. There will be a replay of the call, which will begin 1 hour after the call and run for 1 week. Replay can be accessed by dialing 844-512-2921 with the passcode 13, 720,627.
Additionally, the call is being webcast at www.viovid.com and a replay will be available for 90 days. On the line with me today are Gary Rollins, Chairman and Chief Executive Officer John Wilson, Vice Chairman Jerry Gail, Jr, President and Chief Operating Officer and Joey Bimmerman, our Interim Chief Financial Officer, Vice President and Treasurer. Management will make some opening remarks and then we'll open the line for your questions. Gary, would you like to begin?
Thank you, Joe, and good morning. We appreciate all of you joining us for our Q2 2021 conference call. Julie will read our forward looking statement
Our earnings release discusses our business outlook and contains certain forward looking statements. These particular forward looking statements and all other statements that have been made on this call, excluding historical facts, are subject to a number of risks and uncertainties, and actual risks may differ materially from any statement we make today. Please refer to today's press release and other SEC filings, including the Risk Factors section of our Form 10 ks for the year ended December 31, 2020, for more information on the risk factors that could cause actual results to differ.
Thank you, Julie. Before we get started, you probably noticed that Eddie Norton is not joining us today on the call. John Wilson will share with you more about that now.
Good morning. Yesterday, our Board of Directors appointed Julie Bimmerman, who many of you know is our Interim Chief Financial Officer and Treasurer. Eddie Northern has been moved into an operational role as Senior Vice President focused Julie has significant experience both in finance and our industry as described in the press release We issued this morning. She has been with us since 2004, having most recently been Vice President of Finance and Investor Relations. Prior to joining Rollins, Julie worked in corporate accounting, internal audit and corporate tax audit roles.
She is known to many of you already and
Now to the exciting news. I'm very pleased to report that Rollins delivered a strong financial performance in the 2nd quarter, and we remain well positioned for 2021. John will share with you our recent additions to our Board of Directors, while Jerry and Julie will give you details of our financial results shortly. We truly appreciate their customer focus that has generated a significantly higher than normal growth and profitability so far in 2021. Now let me turn the call over to John.
Thank you, Gary. Over the past year, We have enhanced and diversified Rollins' Board of Directors with several new additions. I'd like to spend a moment today Welcome our 2 newest Board members, Gregory Morrison and Donald Carson. As detailed in our May press releases, Greg was the former Chief Information Officer, who led the information technology operations for Cox Enterprises, and he will add cyber expertise to our Board. Don, having worked for many years in investment and commercial banking, including Wachovia Bank, brings a high level of knowledge and strategic financial transactions to the company.
We're thrilled to add these individuals to that outstanding group of leaders on our Board, and we look forward to their counsel and contributions to our company. Now I will turn the call over to Jerry to provide an overview of the
Thanks, John, and good morning, everybody. As Orkin begins their 120th year of service, We thought it was an opportune time to spend a few minutes highlighting some of the recent successes of the brand. For those who have followed us over the years, you may recall that was acquired by Rollins in 1964 and is the original company that first started our venture into pest control. Today, Orkin remains our largest brand, employing over 8,000 team members and completing millions of services annually worldwide. Workin is very involved in the communities they serve, maintaining a strong commitment to education, public health and environmental responsibility.
From collaborations with the Centers For Disease Control and Prevention and Major Universities to their work with the National Science Teachers Association, Orkin fosters a deeper understanding and appreciation of the natural world around us. As we have previously shared with you over the past few years, Orkin has adopted new technologies, which has improved communications with customers, optimized routing and scheduling, Our service designed to fight COVID-nineteen. Overall, Orkin has significantly contributed to the long term success of Rollins. As Gary mentioned earlier, we're very pleased with our results for the Q2. Revenue increased 15.3% to $638,200,000 compared to $553,300,000 for the Q2 of last year.
Net income grew to $98,900,000 or $0.20 per diluted share compared to $75,400,000 or $0.15 per diluted share for the For the quarter, we experienced solid growth in all our business lines with residential increasing 13.6% and termite 16.3 percent over Q2 2020. Additionally, commercial excluding fumigation delivered an impressive 17.4% growth over Q2 last year. This is also an improvement of 11.3% growth Over 2 years ago, when we weren't experiencing COVID related shutdowns. As you may recall, last year, We thought it was prudent to forego our annual price increase during the pandemic. Now, encouraged by the economic recovery that's underway, We will see the benefits of these increases as we move throughout the remainder of the year.
Additionally, we're especially pleased with our commercial pest control growth, which has not only benefited from the economy reopening, but also from our Incyte commercial technology. Through the use of Incyte, Orkin's web reporting tool, our commercial customers have the ability to monitor pest activity and treatments within their facilities, quality assurance checks to be easily completed at the customer level. It also gives the customer the ability to produce timely reporting as necessary for regulatory or 3rd party audits. We get great feedback from customers on Incyte and are confident that this feature will strengthen our relationships with commercial clients. Overall, we've made strong progress during the 1st 6 months of 2021.
And as we look ahead, we are confident in our ability to Now let me turn the call over to Julie to discuss our financials.
Thank you, Jerry. At Rollins, we are constantly looking for ways to improve in all areas of our business. As many of you know, continuous improvement This quarter are on top of the strong gains that we experienced during 2020. Even as we were all entering a different economic time, Back in Q2 of last year, our revenue grew at a steady 5.6% and that was converted into net income growth of 17.2%. Both of these 2020 numbers were at or above our historic averages.
So for the Q2 2021, as Jerry noted, all business lines presented strong revenue growth. Keys to the quarter included pricing strength, positively impacting revenue growth. Continued mosquito service revenue improvement over 30% and commercial pest control revenue improving significantly. Additionally, for the first time, our mosquito service revenue has surpassed our bed bug revenue and this quarter was over Looking at the numbers, the 2nd quarter revenues of 638,200,000 with an increase of 15.3 percent over the prior year's Q2 revenue of 553,300,000 Our income before income taxes was $133,900,000 or 29.4 percent above 2020. Our net income was $98,900,000 up 31.2% compared to 2020.
Our earnings per share were $0.20 per diluted share compared to $0.15 in 2020 or a 33.3% increase. As a reminder, we've reported both GAAP and non GAAP financials for the Q1 of 2021. The non GAAP results were positively impacted by our gain on sales of several of our Clark Properties. For the 1st 6 months of 2021, revenues were $1,174,000,000 which was an increase of 12.7 percent over the prior year's 1st 6 months revenue of 1,014,000,000 Our GAAP income before income taxes was $253,800,000 or 59.7 percent above 2020. Our GAAP net income was $191,500,000 or 61.4 percent compared to 2020.
Our GAAP EPS or earnings per share were $0.39 per diluted share compared to $0.24 per diluted share in 2020. Overall, like some companies that were negatively impacted by the pandemic, demand in most areas of our business in both 2020 2021 It does not seem that pent up demand or stimulus checks have impacted our residential revenue growth, but rather a new awareness of pest needs based on more time spent at the home. It would be difficult to predict What these new demand levels will look like in the future, but we remain optimistic. Our total revenue increase for the quarter 15.3%, included 1.7% from significant acquisitions, with the remaining 13.6 from pricing and new customer growth. Residential pest control made up 40% of our revenue, commercial pest control 33% and termite and other services made up approximately 21% of our revenue.
In addition, our wildlife service continued to see strong double digit growth. Again, total revenue less significant acquisitions was up 13.6%. From that, residential was up 12.3%. Commercial, excluding fumigation, increased 14.8 53.3 percent from 53.8 percent in the prior year's quarter. Improvements were made total payroll, but were negatively offset by higher overall fleet costs and a write down of inventory of $2,700,000 related to our PPE or personal protective equipment.
We will continue to assess our fluctuating future needs and market value for our PPE in the coming quarters. In addition to our continued Orkin U. S. Mileage savings, our Orkin Canada and Western Pest Brands are making progress regarding their VOS and routing and scheduling implementation. Each company has improved their on day and on time delivery since the project started.
These savings will help support improvements in our overall fleet costs in the future quarters. Depreciation and amortization expenses The quarter increased $1,400,000 to $23,300,000 an increase of 6.3%. Amortization of intangible assets increased 1 point $3,000,000 due to several acquisitions, including McCall Service in December 2020 and Adams Pest in Australia in July of last year. Sales, general and administrative expenses presented a 7.1% improvement for the quarter over 2020, decreasing from 30.9% of thanks to 28.7 percent of revenues in 2021. The quarter produced savings in administrative and sales salaries and benefits as well as telephone statements from better negotiated contracts.
As for our cash position, For the 6 months ending sixthirtytwenty 21, we spent $28,400,000 on acquisitions compared to $56,000,000 Same period last year. We paid $79,700,000 on dividends and had $13,200,000 of CapEx compared to $12,400,000 in 2020. We ended the period with $128,500,000 in cash, of which $73,600,000 is held by our foreign subsidiaries. Before I close out, I would like to mention our recent press release where Rollins was named to the top 50 green fleet list as published by Automotive Fleet's 2021 ranking. As part of our continuous improvement that I mentioned in my opening, we have lots of opportunity in the future in this area, but we are proud of this recognition by the industry.
Yesterday, the Board of Directors approved a regular cash dividend of $0.08 per share that will be paid on September 10, 2021 to stockholders of record at the close of business August 10, 2021. Gary, I'll turn it back to you.
Thank you, Julie. Fine, we're happy to take your questions at this time.
Thank Our first question is from Tim Mulrooney with William Blair. Please proceed.
Gary, John, Jerry, Julie, good morning. Thank you for taking my questions.
Good morning.
Good morning.
So just a real quick housekeeping here on the residential pest. Can you give us those numbers again for total Residential Pest Growth and Organic, I think I missed that. Question to the broader group. This is my follow-up question. Last year around this time, you guys highlighted the record level of new account sales, I think particularly in residential.
And I think that you had many all time record high new sales days throughout the quarter. Can you talk about how new account sales have trended through the Q2 of this year,
So Tim, this is John Wilson. I'll take a stab at that. Our brand that we best track and that is, of course, Orkin being our largest. And For the Q2, that continued to be up again this year, but of course not by near the same record number. But
Okay. Okay. Thanks very much. And Julie, were you able to get the residential organic growth and total growth?
Okay. Yes. So we're talking about the total growth and that may have skewed you. We actually had Jerry talk about the total, but I did talk about the organic, so from that standpoint. So for the quarter, we experienced the growth in residential increasing to 13.6
Okay. Got it. I'm with you.
Okay. I just wanted to make sure. And then Not a problem. Not a problem. Hey, just bear with me, Kim.
This is new for me. And then talking on the organic side for the residential was the 12 point Commercial excluding FIM 14.8 and termite at the 14.9.
Okay, okay, perfect. Thanks so much, Julie. Thank you, everybody. I'll hop
back in queue. Thank you.
Our next question is from Mario Cortellucci with Jefferies. Please proceed.
Hi. Thank you for the time. I guess maybe just asking Tim's question a slightly different way. I guess how much of your organic growth or maybe you can help us understand the organic growth Build up this quarter of how much was new customers, how much was cross sell For new products introduced to existing customers, was there any improvement on retention that contributed to Organic growth as well and then it sounds like you turned pricing back on. Was that still in like the 1% to 2% range for the quarter as well.
Okay. I will start on this and then anyone else if you want to jump in, feel free. First of all, on the pricing, we Put in our normal price increase that we normally would have. So we did not do something additional because we held the price last year, so we would be within the normal ranges in answer to that. As to our retention rate, we have seen a consistent incremental growth on our retention over the last 5 years and still do see that trend continuing this year.
Yes. So I'll add on to that, Mario. This is John Wilson. Pricing amounted to about 1.2%, which is kind of in line with our historic Normal what pricing adds? And the real answer to your question is all of the above.
So cross selling I have a piece of that. We don't track what that may add, so I don't I can't give you a number on that. Retention improved, as Julie mentioned, and then, of course, we did have Again, as I mentioned a minute ago with Tim on our new accounts added.
Got it. Thank you.
And then just, I guess, a follow-up on the pricing and maybe whatever inflation that could potentially show up. I haven't been following you guys as long as some other guys, but I don't know maybe what you've done historically in higher inflation environment. If we do see inflation or wage and labor inflation kind of rear its ugly head for you, Would you go above that range, that historical 1% to 2% range, like you did 1.2% this quarter? If you're seeing wages Really ramp a lot higher. You're finding it a lot harder to find talent over the following over the next year.
Would you Kind of flex that pricing up a little higher to offset the increased costs?
Yes. So we could. I mean the market that we have as a wonderful laboratory to test what our pricing elasticity is with our various close rates and what we're capable of getting there. So we would absolutely look at that, Mario. Right now, we don't feel a need to, but We'll take a look at it.
Got it. And then just a quick housekeeping and maybe I missed it in the prepared remarks. You guys disclose or say how many deals you closed in Q2 or year to date so far?
I don't know that number.
We just gave you the dollars on that.
Got it. Okay. Thank you.
Thanks, Mario.
Our next question is from Michael Hoffman with Stifel. Please proceed.
Thank you very much. And since the others have focused more on sales, I'm going to focus on cost. So there's a little give back in gross margin, but a meaningful improvement in SG and A. And on the gross margin, I'm trying to understand, is there not wage inflation as well
So within the gross margin, we did I mean, we actually did see an improvement in our total payroll and answer to that. So overall, you've got to remember that technicians are directly tied with the work that they're producing. So their wages are tied to when they go through and complete their jobs. You recall on that front. As far as the fleet cost, the fleet cost, yes, as you know, we did have an increase on that and that was predominantly within the fuel.
Okay. And then the
G and A?
On the G and A side, as you said though, we definitely saw some SG and A improvements over the same quarter last year, and it was really administrative and sales salaries. And then also with our new
This is Jerry, Michael. The other thing I would say is we've been very careful about adding costs back into our business over the past year. We made Some changes in our business a year ago and from an operation standpoint, we've been very careful about what we're adding back in terms of our cost structure. So, and a lot of that has to do with controlling our overhead expenses.
Well, in routing and scheduling, this is Gary, Certainly, it's given us an opportunity to get more done. And as Julie said, the vast majority of our pest control technicians are on the productivity pay plan. So as they do more, they make more and that helps with turnover reduction. All those elements are coming together, fortunately.
Terrific. And then my follow-up, You released a supplemental 8 ks after the earnings release, and made reference to an SEC investigation. Have they completed that? Because they never tell you when they're completing it. So can you tell us if they completed it?
Yes, Michael. So I think the 8 ks references that it's ongoing and it is ongoing. It is not completed, no.
We have reached we do have a follow-up question from Tim Mulrooney with William Blair. Please proceed.
Hey, thanks for squeezing me in. I just wanted to ask about your Viraside Spend, because this
is a
topic across my services coverage universe. I know virus side spend has been elevated across customer base, as folks are still highly sensitive to the issues of hygiene and virus protection. But with vaccination rates on the rise, I would assume that this offering would moderate over time. So am I right about that? Can you talk a little bit about Demand for your Viricide offering and how that's trending?
My best This is Jerry. Tim, my best barometer to that is talking to Freemanelli at Orkin. And, while we have seen it moderate, I think that's the right term. There's also places where there's demand still, where people are coming back to office spaces and people are still concerned About their workers being in there and want that kind of disinfection service still occurring. So it's still there.
Some markets are better than others, where they've returned more people to the offices and things like that. So it's still a viable business, although to
Okay. And while you got me here, maybe I'll try to squeeze one more in, but thanks for the color on that, Jerry. I wanted to ask about your M and A pipeline. And this is like big picture. So 5 years or is it the other way?
Is it larger because more pest control companies are emerging every day? Really curious how you all would characterize the M and A pipeline So, 5, 10 years ago.
Yes, Tim. So this is John. I'll take a stab at that at the start and maybe Jerry Can I add to it? I've used the word frothy in the past, and I think it's still that way. Our Pipeline is I would I don't have that number from 5 years ago, but I would guess it's similar.
And a big driver of late has been Contemplated tax changes coming out of Washington, D. C, whether it's State taxes or whatever. And so some of that's driving some of the conversation that we've had. So Jerry, if you have anything to add
to that? Yes. We're still seeing plenty of deals looking at things and evaluating what makes sense to us at an appropriate price. So, we still have plenty of action going on there.
Okay. And let me jump onto that real quick and this actually goes back to, I think it was Mario's question. We have closed 18 deals through the end of Q2.
Okay.
That's helpful. Thanks for the color everybody.
And I do want to throw one other thing out there. Jerry, just to put a note in front of me, it sounds like when I said that residential pest control made up, I believe I said 40% of our revenues. That is incorrect. It is 46% of our revenue.
I can't believe you're understating
I would like to turn the conference back over to management for closing remarks.
Okay. Well, thank you for joining us today. We appreciate your interest in our company and look forward to reporting in October our Q3 results and updating you on our progress. Thanks again.
Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.