Good morning, everyone. Thanks for joining us. Curtis Nagle, the Senior Business and Information Services Analyst here at BofA. This session's Rollins. Very pleased to welcome CFO Kenneth Krause. Ken, thanks for joining fireside discussion. If there's any time left, we'll open up the audience. With that, again, welcome, Ken.
Yeah, great to be here.
Yeah.
Thanks for having me.
Glad to have you and thank you for coming. So maybe starting at the top, we're not gonna start with AI. As I have with most of these conversations. We'll maybe dip into that a little bit, but employee retention, among you know a handful of things, I think pretty important strategic focus, already starting to see you know some improvement. I think you called out maybe 18% or so retention versus past couple years. At a high level, just you know from like an operational or kind of a cultural perspective, you know what's driving or you know how are you implementing this you know pretty important change?
Sure. Excuse me. If you recall, we finished last year, we had an event at the New York Stock Exchange where we introduced the Rollins Way, and that was an important topic to discuss because it really just emphasizes the culture that we have at Rollins and all of that we're doing at Rollins around our culture. When we think about a technician and we think about turnover, we lose way too many technicians in the first year. You join, and within the first year, our turnover is higher than it is once you get beyond year one into year two, people tend to stay for 10, 15, +20 years.
Yeah.
That first year turnover can be challenging. To combat that, there's a couple of things we're doing, but one thing that we're doing is culturally introducing the Rollins Way. What we're trying to do is create this essential together culture with our technicians because it's a tough job. It's a challenging job. For somebody new coming in, having somebody that can support them and onboard them and integrate them into the business, I think is starting to pay dividends. What we estimate is there's tens of millions of dollars of opportunity if we can cut or reduce the amount of turnover in those short-term employees, we'll have to hire less. In fact, last year, we estimate that we saved between $5 million-$10 million.
Yep.
That's one of many areas under the modernization brand title that we continue to execute around, and it's having a big impact.
Okay. Maybe just a follow-up one. I mean, you know, seems like you're starting to see an immediate effect. You know, the tens of millions in terms of realization, right? You know, how should we think about that?
Yeah. I mean, if you look at it and we have roughly, let's call it +20,000 people that we employ across our business, and, you know, our customer churn might be 20% or 25% total, and we've talked about that.
Rep, churn, not customer.
Yeah.
Yeah.
If we just assume that our reps are churning at roughly the same pace that means we're probably hiring upwards of 6,000-7,000 people a year.
Yeah.
If we're losing half of those people, that's 3,500 people, and it's costing us upwards of $15,000 million per tech to onboard them. If you think about that, 3,500 times 15,000, that's a $40 million or $50 million opportunity. Now, that's not all gonna go away.
Yep.
If we can make small improvements like we made last year, that goes a long ways to improving the margin profile.
Okay. Fair enough. Maybe second order effects, operationally, I mean, fairly clear, but in terms of service levels, maybe even retention, you know, how should we think about that?
Certainly, yeah. No, when we lose customer, or when we lose technicians, that's when we stand the risk of potentially losing customers.
Yep.
If we can keep people in their jobs and invest in them and enable them to be the best tech possible, we stand a higher likelihood of keeping customers. There certainly is a high degree of relationship and correlation between when we lose technicians and when we lose customers.
Okay. Maybe kind of a higher level, you know, question, just staying on labor. In terms of maybe just kind of the pool, right? You're drawing from, you know, I guess what is, you know, what our hiring looks like in, you know, in terms of, you know, the available pool, you know, are you having to, you know, raise wages or, again, just kind of all the things we talked about in terms of just a better working environment, getting people on and just getting them into the system.
You know, availability of talent is not an issue.
Not an issue, okay.
We have been able to find and bring on really strong individuals to join our team and we're seeing good progress there. No real issue there. We're getting the right amount of people. If we had it our way, we'd hire less people.
Okay.
In terms of if we can improve the churn and the turnover on the employee side, it'll result in us hiring less people like it did last year, when we look at the technician side.
Maybe, be a little more selective, perhaps?
You can be more selective, more strategic.
Yeah.
You certainly can. It certainly should help bring on and just improve the overall relationship.
Sure.
Because what we find is once those technicians get to a year or two, we're really changing lives. You know, when we think about pay, you mentioned pay earlier and inflation, it's not been an issue. Inflationary pressures on payroll have not been an issue because of how we structured our compensation programs. Our technicians are not only paid a fixed base comp but they also get paid through variable incentive. You'll see, it's not unreasonable to see a technician who might be making near or upwards of $100,000 million.
If our high-performing technicians, who some of them are gonna be with us in a few short weeks at our President's Club out in Scottsdale, Arizona, those people are doing exceptional. It's not only do they do exceptional and see benefits in their paycheck, but they also invest in our stock.
Right.
When I walk into a room and I talk about Rollins, and I ask the question, I always ask the question, "How many of you are shareholders?" Undoubtedly 90%-95% of the room's hands go up. People buy the stock. People invest in it. People believe in the mission, and they stay for a very long period of time. But you gotta get them to that one-year mark.
Yep.
Once you get them to that one-year mark, you're not free and clear. You have to continue to invest in these people.
Sure
You stand the risk of keeping them for a very long time. What happens is they create long-tenured customer relationships.
Yep.
These technicians know the dog's name. They know the kids. They know the life events that are occurring in the home.
Sure.
They become part of the household. That's an important thing for us to continue to focus on.
Yeah, all the weird quirks in the house that, you know.
Right
Mine certainly has.
Certainly. All of ours do.
Yeah, incentivization, ownership, right? How do you incentivize? What is it based on, targets or?
Well, there's a number of targets. You got productivity incentives, but for example, when we raise prices, our technicians get the benefit of that. When we do a cross-sell we've oftentimes talked about having nine shots on goal.
Yep
When we go to the home, and that's from insulation to ridge vents to mulch to encapsulating crawl space, exclusion work around the house to keep the pests out.
Yep.
If technicians have an opportunity to sell that or they have an opportunity to identify when that opportunity exists and then bring in somebody that can help sell that to the homeowner and explain the benefits and the value of that to the homeowner. When they do that, they receive a part of that.
Okay.
They receive a commission.
Yep.
Those are the kind of things. It's productivity initiatives, but it's also growth initiatives that they're tied to that they can receive benefits from.
Okay. Fair enough. Definitely wanna go back to some of the adjacent opportunities in a bit, but sticking with the concept of margins, right? You know, fairly clear goals, right? Near term, kinda 25, or just defined by your guidance, 25%-30%. Medium target is higher, right? 30%-35%. I guess in terms of, you know, specific internal, you know, levers or just kinda what you need to see to kinda get confidence to more clearly and more immediately, you know, kinda target that range. What needs to happen?
You know, this business is very much capable of delivering 30%-35% incremental margins. The way the math works and the business model works is our incremental gross margin, our reported gross margins are in the low- to mid-50s%.
Yep.
Our incremental gross margins are in the mid- to high 50s%, because a large part of our cost structure is variable.
Yep.
About 10% we would say is probably more fixed, 90% is more variable, so as a result, 55%-60% on the gross. Then on the SG&A, if we're spending 29%, similarly, 90 and 10, 90% is variable and 10% is fixed. That means about 25% is in the contribution margin. That means if you take 57% - 25%, that gets you to 30%, roughly 32% incremental margins.
Yep.
The reason that we would not deliver that, we have delivered that on a quarterly basis from time to time, reasons why we wouldn't deliver that are we're making investments. We see growth opportunities. We're going after and acquiring customers when there's an opportunity because as customers stay in the business and the relationship forms where we have a customer for 3, 4, +5 years, that's the lifetime value is enormous.
Sure.
We're focused on that and we're excited about that. The investments have to be made from time to time. On the flip side, not only are we making investments, but from time to time we'll see casualty losses.
Sure
Claims that come into our business. Trucks on the highway get into an unfortunate accident, somebody gets hurt, and litigation ensues. We'll see that from time to time, and that'll add volatility to the P&L. Last year we had some gains on fleet vehicles we were turning back in. We're lapping that now. Really, it comes down to two things, investments that we're making to acquire customers, and two, claims that we may face from time to time in the business, unfortunate claims that we face.
Sure. Yeah. Fair enough. I guess customer acquisition.
Maybe talk on that a little bit in terms of, I think, maybe making some changes, you know, but in terms of where you're investing most, you know, maybe think about brand strategy, and you've got a lot of brands, but just the framework, you know, for customer acquisition and maybe, you know, potential leverage or not, you know, et cetera.
That's what makes the business so special is there, it's such a diversified manner in which we acquire customers. We've got 10, 15, +20 brands across the business, and Orkin, we all know Orkin, but you may not know Northwest if you don't live in Atlanta, Georgia or in the Southeast, or you may not know Clark if you're not in California, or even HomeTeam if you're not in the Sun Belt. What we do is we go to market across all of those brands, and not only are those brands different in terms of what the logo is on the truck.
Yep
How they acquire the customer is so different.
Fox and Saela we just acquired the last 2-3 years, door knocking, great businesses, some of our fastest growing business, quite frankly.
Great
Very healthy business, good business coming in. HomeTeam with relationship with home builders. Northwest in Atlanta with billboards or Orkin through the digital means. There's so many different ways we're acquiring customers that allows us to efficiently bring on new customers.
When the costs associated with digital advertising may be escalating, we can shift dollars elsewhere.
Capitalize on alternative ways of acquiring our customers.
Maybe just that on point in terms of, you know, very specific, you know, marketing strategies, you know, fit to market, fit to brand. I don't recall if this is something you've talked about, but in terms of, you know, maybe leveraging kind of best practices. Maybe not 'cause you don't wanna upset the apple cart, and if it's working, it's working.
Yeah. No, I mean, we do that all the time. You know, it's interesting when I think about one of our untapped opportunities. It's the sharing. It gets into the Rollins Way, the collaboration, the sharing of information across the brands. For so many years, it's been very much siloed.
Yeah.
Every brand is unique.
Yeah
What we've started to do is to share in communication and share in best practices.
Yeah
Across the portfolio. It's having an impact. You know, when I look at it, one area that is an opportunity for us is the cross-sell. When we talk about ancillary, nine shots on goal, nine shots on the house, that's really has been historically an Orkin-led initiative.
Yeah.
What we're doing right now is starting to train our folks over in the brand portfolio with some of the tools and tricks and areas that Orkin has invested in over the years to create a very valuable business. We have a huge amount of untapped opportunity over in those brands associated with that ancillary business which should help us continue to deliver that 7%-8% organic growth.
Just remind me the relative split between Orkin and sub-brands.
Roughly half of the business is Orkin and.
Yeah
Roughly half the business is the brand portfolio, and that's been built through acquisitions.
Right.
Orkin was acquired in 1963. Over the last 10-15, we've really stepped up the acquisition.
Yeah
You know, oftentimes people ask me, "Why do you think you trade for 30x or 35x?" There's a number of reasons, the market. There's so many different reasons, but one thing that I always point out is individual brands may be bought and sold for 10x-15x or even 8x, and they're not as valuable by themselves as they are together. The sum of the parts at Rollins is much greater than any individual component because of that broad way that we're acquiring and then accessing customers and growing our business.
I guess the point I was trying to make is, you know, if 50% of your business is non-Orkin and there's an opportunity from under-indexed, right?
Right
Adjacencies that sounds pretty interesting.
Right.
Yeah, it's interesting.
That's a great point, Curtis. You know, when I look at the ancillary business, that's roughly 10% of our business.
Yeah.
The average ticket price on that is upwards of $6,000 million.
It's upwards of 10-12 times what our average pest control contract.
Yeah
It represents less than 10% of our business.
Yeah.
That means on an absolute customer count basis, it has to be well below 5%.
Yeah.
That's just in Orkin.
Right.
When you think about Orkin has untapped opportunity, and then the brands haven't done really anything when it comes to it.
Right
There is so much untapped opportunity on the ancillary side which is one of the reasons why we continue to make investments and we're excited about it.
Maybe it's more around just the margin profile of the?
It's a great margin profile. Not dilutive at all to the pest control business, the more traditional pest control business.
Yeah.
It's relatively neutral to the overall margin profile.
Just higher ticket, higher prices.
Higher ticket, some more costs, more material costs that come into there.
Yeah
Than what you would see maybe in some of the more traditional pest control business.
Maybe more labor too, right?
More, yeah, a little bit more labor. It's a great business.
Economic sensitivity?
You know, it's interesting when you look at it. We don't really see it. You know, when you look at the last 20, 25 years, whether it be the pest control or whether it be the ancillary business, people are finding ways to buy this valuable service.
Yeah.
It's a valuable service. I mean, the home is the largest investment.
Yeah
Many of us have.
Yeah
People want to invest in that home. Even, you know, and so we benefit when people are staying in homes longer. We also benefit when people change and they move.
Of course.
I think from an economic sensitivity, we're neutral, you know, when it comes to.
Yeah
The impact on our business.
Who wants pest control, right?
Well, the question I always get to around pest control is, "Well, what DIY forces are there?" The way I describe it, "Or what DIY forces are there? How can people learn how to do pest control?
Yeah.
I would say people don't do pest control 'cause they don't know how to do pest control. They don't do it 'cause they don't wanna do it.
Yeah.
It might be therapeutic to cut the lawn or take care of the swimming pool.
Well, I did that once.
To take care of the pests.
Yeah
It's a tough job, and you can't just do that once. You have to do that on a regular basis or the pests are gonna come back.
Well, just look at the relative pricing, right? I mean which is demonstrably different.
Right
It, it's hills in comparison.
Which, you know, I think proves your point and the value ,you know, who wants to spray for bugs every whatever, amount of time?
Deal with. You know, it's. There are standards around it.
Yeah.
There's regulation.
Yeah.
We focus on employee safety. We invest in the safety of our employees when they're dealing with this sort of thing, and I think people don't wanna, they don't wanna expose themselves to those risks.
Yeah. For sure, and just who wants to do it, right?
Yeah, who wants to do it?
Pricing, right? That's been I think a very consistent part of the growth framework, you know, helping margins. Organic growth of course has helped, but I guess in terms of just thinking about pricing. I don't wanna say sensitivity, pricing power this year. Any different? Where are you seeing kinda yeah, ebbs, flows, increases?
Yeah
You know, what.
Well, it all gets down to if you're doing the work for the customer, you're taking care of the customer, the customer's gonna take care of you, and they're gonna value the service. For us, we've recently spent a lot of time the last three or four years talking about our CPI plus approach.
Yeah.
This is a valuable service. It's not a commodity.
Yeah.
People aren't competing on price. People are competing on service.
Yeah.
If you do that, you get the right to charge a CPI plus sort of approach. This year we talked about 3%-4% pricing.
Yeah.
CPI, I think I saw 2.5%-3%, so a little bit above, not a huge amount not an umbrella or a pricing umbrella that might be forming, but a healthy amount for the service we're providing our customers.
Yeah. Yeah, certainly not egregious. Pricing environment sounds like pretty rational for competitors that matter.
Certainly is. We, you know, you always have an irrational competitor from time to time. That's just what makes a market. Generally, it's a very rational market and people aren't competing on price. They're competing on the relationship, very much how we compete with M&A. They're competing on the relationship.
Yeah
They have with the customers.
Sure. Okay. Rollins Way, would like to spend a little more time on that. Yeah, outlined it, you know, in December. To me, it seems like, you know, a pretty big opportunity, right?
Yeah.
You've got this huge organization, it's executing well, yet you know, you've got a cost base that you know, maybe is a little more full, you know, than you'd like. We've talked you know, about the retention side, that's pretty clear. In terms of any other, whether you want to find it low-hanging fruit or you know, larger opportunities and the flow-through that we could see you know, any way you could you know, size or dimensionalize that I think would be really helpful.
You know, there's so many different opportunities. When you think about the Rollins Way or you think about the modernization journey, we've got growth initiatives. We talked about the ancillary sell across the portfolio using our credit extension arm that we're using working across the brands to help enable customers to buy these services, also as a big growth option or opportunity for us. There's this significant amount of untapped opportunity when it comes to those cross-sell. On average, our customers have less than two services.
There's an opportunity to bolster that and improve that as we go forward. There's an opportunity on margins. You know, how do we procure? How do we do a better job at procuring material? It's very much left up to branches or regions or brands. How do we leverage the purchasing activity? Because the purchasing activity is no different, quite frankly, between brands. They're using the same materials. They're using the same insulation.
Yep, yep.
They're using the same product. How do we leverage that? How do we take advantage of our economies of scale when it comes to the procurement side? How do we do a better job, I talked about earlier about onboarding and keeping people, but also the back office.
You know, we've invested in a lot of great new talent in our back office, and brought a lot of new folks on. That talent's having an impact. They're putting new technologies in place, new tools, helping us take out costs from the back office and be a better acquirer of some of these businesses as we think about synergies.
Yep.
There's a tremendous amount of growth opportunities, productivity opportunities, profitability improvement opportunities. You know, last year, I started talking about our tax rate. You know.
Yep
Our tax team is doing exceptional job there. We saw over 100 basis point improvement in tax rate last year, and we think that's sustainable as we think about the future.
We're looking at our state tax profile now, and evaluating that. Tons of opportunities that we continue to evaluate.
Okay. Fair enough. In terms of like, you know, so again, company's operating, you know, very smoothly, you know, steady high growth rates. As we maybe centralize or consolidate however you want to define it, you know, how do you think about, I guess I'd say like the risks in, you know, kind of maintaining the autonomy where it like maybe it's just we're talking about mostly back office stuff, but, you know, that must be a consideration in terms of, again, just keeping things, you know, as they are and not upsetting operations from those changes.
It certainly is. When we look at our business, this is a decentralized business model.
Yeah, yeah.
That won't change.
Yeah, okay.
We wanna be close to the customer. We wanna be close to the communities we work in. We live, work, and play in the same community. That's important to us for the relationship side of this business, and it's all about people and relationships. There's things that our home office and other areas that can do to better serve our field operations, and that's exactly what we're doing when it comes to the EPM initiatives around technology or the procurement initiatives or the real estate initiatives. I haven't even talked about that, but we're looking at our real estate footprint, thinking about the branch of the future.
Okay.
The branch of today is different than the branch we needed five or six years or pre-COVID. People aren't going into the branch as much.
Right.
Do we really need that footprint? How do we go about improving that? There's a tremendous amount of back office things that'll help enable our field to serve the customer more effectively.
That's what it's about. How do we serve the field to ensure they're serving the customer?
Maybe touch a little more on the real estate opportunity in terms of, I don't know, you think footprint could be 20, 10, 15%, you know, lower?
Yeah. I mean, we're evaluating that right now.
Yeah.
There's an opportunity to do more around that. We'll have an investor day, I believe, in May, and I'm sure that'll be one initiative of many that we'll talk about, you know, that there's an opportunity.
Sure.
There's really an opportunity to improve the use of that footprint.
Yeah.
Maybe take an opportunity to just generally improve the profile.
Okay. Well, stay tuned, I guess.
Yep.
Just quickly touching back on the adjacent services. I think you said on average one - two or so, call it two average products per customer. You know, if we were to look at maybe not necessarily high marks, but, you know, and if it's, you know, by brand or within Orkin or particular services.
Where you're really starting to see traction, or maybe even within a demographic or market, you know, what does that look like? Like, what's the North Star?
Yeah. Well, where we're at right now is certainly not the number we wanna be at.
Yeah.
You know, it's less than two, and I mean, if we look at it, three-four services per customer would not be unrealistic.
Okay.
There's, you know, not only do you have the basic pest control, but how do you get the termite control? You want pest control and termite, or you might have termite, how do you convert it into a recurring termite, and then also bring on the pest control? That's two services there. Then you got wildlife. Right now, you know, you're seeing squirrels that are getting into homes. The last thing that I am sure maybe you, I don't wanna assume you, Curtis, that you would wanna do it, but I don't wanna go in and try to remove a squirrel.
Really?
From the attic. We're seeing calls for stuff like that. Wildlife control, adding that into it. Mosquito control. You know, believe it or not, in New York City today, it's not 80 degrees, but when I left Atlanta yesterday it was 80 degrees, and we were seeing mosquitoes.
Yeah.
Mosquito is a huge amount of growth opportunity for us.
It's one of the leading causes of illness.
Yeah
From pests, and we're doing more work around improving that. Mosquito can easily be added, and we've got sustainable solutions in Northwest and other brands that are really appealing to some of our customer set. You've got ticks in the yard. Lyme disease is a h orrible disease.
Out of control.
How do you prevent that from occurring? Well, you treat your lawn for ticks.
Yep.
There's four or five services there alone, not to mention the ancillary with the attic and keeping pests out. Once you have a pest infestation, you'll do anything to get that pest out of your house, remediate it, and make sure it doesn't come back. If we can add those services to help our customers, that's gonna add additional revenue for us as well and help provide the customer with the solution they're desiring. As you see, there's, you know, we're not where we wanna be, but there's a lot of opportunity to continue to make headway on this.
Okay. Very good. Weather, right? That was
Yeah
You know, recurring business seems like in totally fine shape drove a little bit of, you know, volatility in your non-recurring business. I guess as we're going into the spring selling season, you know, how are we feeling about kind of being past those headwinds and kind of getting back to a more s table base, I guess.
Yeah, we're certainly not giving up on the 7%-8% organic growth.
Yep.
That's intact. Pricing is still intact, 3%-4%. Markets are still very healthy. We're seeing good opportunities there. You're right, weather can impact it from time to time, and when weather impacts it, what you oftentimes see is it's in that last month or so of the quarter, because you don't have time to make up the one-time business.
The recurring business doesn't change.
Yep.
The one-time business has an ability to impact a quarter worth of revenue. What you saw in the fourth quarter is November, December, really tough weather months, carried over into January, but we have sequentially improved. From January to February, we saw improvement. March is a make or break month for us. It's hard to say how March will turn out. We feel like we're positioned well in March, but it's the start of the busy season. It's the start of peak season for pests, and that's the month where it'll give us a really good sense as to how good the year's gonna be as we think about March.
We're looking at that closely. We'll evaluate that. We'll be reporting that, of course, in April. But what we've seen is improvement as we went through the quarter. February was better than January. January was a tough month. I think we had more closures in the month of January than we had a year ago, because of some of the really tough weather conditions that were out there. We started to see some improvement into February, and we're hopeful that March will continue that positive trend.
Okay. Fair enough. Maybe shifting to M&A and, you know, bolt-ons, you know, a really important part of the story. I guess any changes in terms of, you know, look, you have a very specific strategy, right? You're not gonna overpay, right? About, it's family business integration. I guess just what does the M&A landscape look like? I mean, more competitive less competitive? How are you adapting?
No, you know, 30, I think we say 30,000 or so competitors across the space and we meet once a week as an ELT on M&A. We're looking at that. Pipeline's healthy. Our target is 2%-3% this year.
Yep.
I don't think we're gonna be below 2%. You know, we're gonna be in that 2%-3%. There's a chance to be above that if we see some other deals come through. There's a good healthy pipeline. We're seeing good activity in Q1. We've got the benefits of Saela carrying over this year into the first quarter. We also have a really good pipeline of activities we're executing on as we think about 2026. 2%-3% revenue growth associated with M&A is still very much intact, and you know, pipeline's good, and we see great opportunities there.
Okay. Maybe not so much on velocity of acquisition.
Right? That can be market dependent or, you know, whatever, but thinking about some of all the, you know, the process and operational controls that you're talking about, you know, the opportunity to maybe, you know, integrate quicker, more efficiently. Is that a focus?
Yeah, it is. I mean, many of the things that I spoke about earlier on the modernization side apply in the acquisitions. We have bought countless numbers of businesses and partnered with so many over the years, but so many are on their own system.
Yeah.
Many are following their own approach.
Yeah.
It's very much a decentralized portfolio sort of approach to the investments. We make more progress in the back office, as we get better on procurement, as we get better in o n some of those functions, we're gonna improve the realization of synergies on some of those deals that we're executing on here in the future.
Have you given numbers in terms of, you know, getting to, you know, from, you know, day one of integration to, you know, I guess, you know, maybe end of year or just?
You know, how quickly, you know, it takes to ramp the margins or y ou know, is that not really a consideration?
No, it definitely is a consideration. Especially a consideration when we think about some of our bigger deals like Saela and Fox.
Yeah, yeah.
Fox, I wanna say we purchased Fox for 13x or 14x, and after year one I think we were below 10x. For us for three, four turns of multiple is good.
Pretty good, yeah.
Yeah.
You know, on some of the smaller deals, we might be buying them for 6x, 7x or 8x.
Yeah.
We're immediately getting a pretty healthy return, but we're not happy with that.
Yeah.
We're focused on improving that. Generally we're seeing a two-three turn improvement over the first 12-18 months in the business. It's allowing us to get a return on capital that's in excess of 10%.
Yeah
Here in the US. We're continuing to evaluate that, but. There's definitely opportunities to continue to make that better, but it certainly is a big target of mine. I mean, when I look at acquisitions, I wanna buy businesses that are gonna grow faster than us organically, because I don't wanna jeopardize our organic growth.
No.
That's so valuable. I wanna buy businesses that are gonna be accretive to margins, or there's a path to become accretive to margins. I wanna buy businesses that are cash flow positive, meaning their cash flow and capital intensity is no greater than our business. Because you know as well as I do, what drives the valuation of the company is oftentimes the compounding.
Yeah
of free cash flow.
100%.
Us buying these businesses, investing in them, we wanna make sure that they're an equivalent cash flow compounder.
Yeah.
We want to accrete to earnings in the first year. We did that with Saela. Even with cost of debt at 4% or 5%, we still saw accretion to earnings in the first 12 months. Return on capital is certainly a big part of what we do.
Okay. Running short of time. One really quick one. Just AI utilization, how important is that in terms of improving internal efficiencies, procurement, stuff like that?
Yeah. Yeah. I mean, it is. I mean, we're looking at that. We continue to evaluate that. I think there's opportunities on growth and productivity when it comes to AI. When it comes to AI, when I think about AI in this business, you know, oftentimes I think about the data we have across the brand portfolio, and we lose too many customers every year from the portfolio.
Yeah.
If we can do a better job at predicting when a customer is going to leave us, and then if we could use that to redeploy those brands to proactively pursue those customers before they leave us, guess what? They're never gonna leave the portfolio the family of brands.
Yeah.
They might leave Orkin or they might leave Northwest.
Northwest
They won't leave.
Yeah
The entire portfolio.
That's something we're evaluating something I think it's an opportunity for us as we think about the future when it comes to AI. There's all the other back office call centers and things like that, but I think that's a unique one.
Interesting
That might be very attractive for us as we think about the future.
Okay. Quickly round, what association, Rollins Way?
Together.
Orkin?
Orkin, just Great brand.
Whatever comes to mind first.
Weather?
Neutral.
Neutral. Okay. Margins?
Opportunity.
M&A?
Exciting.
Okay.
Growth opportunities. Yeah.
Very good. All right. Thank you so much, Ken.
Thank you.
Really enjoyed it.