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What changed in Rollins, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Rollins, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+302 added−217 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-16)

Top changes in Rollins, Inc.'s 2023 10-K

302 paragraphs added · 217 removed · 150 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

106 edited+81 added−33 removed35 unchanged
Biggest changeSuch forward-looking statements include, but are not limited to, statements regarding: (1) our visibility into our future earnings because of the contracted and recurring nature of our services; (2) our investments in proprietary routing and scheduling technologies to increase our competitive advantage; (3) our belief that we will continue to expand our international presence through organic growth, international acquisitions, and our international franchise programs and our belief that such international expansion and geographic diversity allow us to increase brand recognition, meet demands of global customers and draw on business and technical expertise from teams in several countries, as well as access new markets; (4) our ability to foresee and quickly adapt to potential supply disruptions because of our strong direct partnerships with product manufacturers, distributors, and visibility into the inventories, ordering and distribution of materials and supplies; (5) our ability to maintain adequate supplies for our field operations without a significant investment in warehousing and inventory because of the use of an innovative and industry changing distribution model and technology; (6) our belief that our competitive advantage is largely attributable to the technical, marketing, and sales competence and capabilities of our employees, rather than on any individual trademark and our belief that the expiration or loss of any single trademark or intellectual property right would not be material to our business as a whole; (7) our belief that we compete effectively and favorably with our competitors as one of the world’s largest pest and termite control companies; (8) our belief that we maintain a sufficient level of products, materials and other supplies to fulfill our immediate servicing needs and to alleviate any potential short-term shortage in availability from our national network of suppliers; (9) the suitability and adequacy of our facilities to meet our current and reasonably anticipated future needs; (10) our belief that one of the largest contributors to our success is the quality of our people and our belief that the development and retention of high-quality talent leads to a better customer experience and better customer retention; (11) our belief that if we make it a priority to promote and create a diverse, equitable and inclusive workplace, it will result in higher levels of satisfaction and engagement, stronger staff retention, higher productivity, and a heightened sense of belonging; (12) our excitement with respect to our accomplishments on our journey to create a workplace of inclusion and our plans to continue to execute on the strategic plan with respect thereto; (13) our belief that our commitment to offer employees the opportunity to participate in various community outreach programs will help us meet our goals of attracting, developing and retaining high-quality employees and create a significant impact in local communities over time; (14) our belief that no pending claim, proceeding or litigation, either alone or in the aggregate, will have a material adverse effect on our business, results of operations, financial condition, cash flow or prospects; (15) our belief that we establish sufficient loss contingency reserves based upon outcomes of such pending claims, proceedings or litigation that 8 Table of Contents ​ we currently believe to be probable and reasonably estimable; (16) our plans to continue to monitor COVID-19 and plans to take actions that may alter our operations, including those that may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees and customers; (17) our plans to continue to carry out various strategies previously implemented to help mitigate the impact of certain economic disruptors (such as high inflation, increased fuel costs, business interruptions due to natural disasters, employee shortages and supply chain issues), including revamping its routing and scheduling process to decrease the number of miles per stop, advanced scheduling to compensate for employee and vehicle shortages, shipping delays, and maintaining higher purchasing levels to allow for sufficient inventory; (18) our belief that we are starting 2023 with a strong foundation and demand for our business remains strong; (19) our belief that strategic pricing efforts helped offset inflationary pressures we experienced in fleet, material and other people associated cost and our expectations to pull forward our price increase again in 2023 and raise prices for services in the first quarter; (20) our assertion that we continue to be permanently reinvested with respect to our investments in our foreign subsidiaries; (21) our belief that our current cash and cash equivalents balances, future cash flows expected to be generated from operating activities, and available borrowings under our $175.0 million revolving credit facility and $300.0 million term loan facility (as amended January 27, 2022) will be sufficient to finance our current operations and obligations, and fund expansion of our business for the foreseeable future and our plans to evaluate opportunities to renegotiate our current credit facility that will be expiring in April 2024; (22) our expectation to continue our payment of cash dividends, subject to our earnings and financial condition and other relevant factors; (23) our belief that we maintain adequate liquidity and capital resources, without regard to its foreign deposits, to finance domestic operations and obligations and to fund expansion of our domestic business; (24) our belief that our pipeline for acquisitions is strong, our plans to seek new acquisitions and expectation to make additional acquisitions in 2023; (25) our belief that we remain very well positioned to drive growth across all of our services lines in 2023; (26) our intentions to grow the business in foreign markets through reinvestment of foreign deposits and future earnings and through acquisitions of unrelated companies with the expectation to repatriate unremitted foreign earnings from our foreign subsidiaries and the expectation that any additional future repatriations of unremitted earnings are expected to be completed in a largely tax-free manner with any residual impacts being immaterial to the financial statements; (27) our belief that we have adequate liquid assets, funding sources and insurance accruals to accommodate certain insurance claims; (28) our expectation that we will maintain compliance with applicable covenants throughout 2023; (29) the expected impact and amount of our contractual obligations; (30) our expectations regarding termite claims and factors that impact future costs from those claims; (31) the expected collectability of accounts receivable; (32) our belief that our tax positions are fully supportable; (33) our beliefs about our accounting policies and the impact of recent accounting pronouncements; (34) our belief that our exposure to market risks arising from changes in foreign exchange rates will not have a material impact upon our results of operations going forward; (35) our ability to utilize all of our foreign net operating losses; (36) our reasonable certainty that we will exercise the renewal options on our vehicle leases; (37) expectations regarding the recognition of compensation costs related to time-lapse restricted shares; (38) our ability to be proactive in safety and risk management to develop and maintain ongoing programs to reduce and prevent incidents and claims under our insurance programs and arrangements; and (39) our potential suspension of future services for customers with past due balances.
Biggest changeSuch forward-looking statements include, but are not limited to, statements regarding: (1) our investments in proprietary routing and scheduling technologies to increase our competitive advantage; (2) our belief that we will continue to expand our international presence through organic growth, acquisitions, and our international franchise programs and our belief that such geographic diversity allow us to increase brand recognition, meet demands of global customers and draw on business and technical expertise from teams in several countries, as well as access new markets; (3) our acquisition strategy targets high quality, profitable businesses with strong leadership that would benefit from incremental growth capital and has the potential to achieve margin expansion through cost and revenue synergies: (4) our belief that we maintain a sufficient level of products, materials and other supplies to fulfill our immediate servicing needs and to alleviate any potential short-term shortage in availability from our national network of suppliers and we have qualified comparable products and materials for key categories to have alternatives ready as needed; (5) our ability to foresee and quickly adapt to potential supply disruptions because of our strong direct partnerships with product manufacturers, distributors, and visibility into the inventories, ordering and distribution of materials and supplies; (6) our ability to maintain adequate supplies for our field operations without a significant investment in warehousing and inventory because of the use of an innovative and industry changing distribution model and technology; (7) our belief that we compete effectively and favorably with our competitors as one of the world’s largest pest and termite control companies; (8) our belief that our competitive advantage is largely attributable to the technical, marketing, and sales competence and capabilities of our employees, rather than on any individual trademark and our belief that the expiration or loss of any single trademark or intellectual property right would not be material to our business as a whole; (9) our belief that one of the largest contributors to our success is the quality of our people and our belief that the 10 Table of Contents development and retention of high-quality talent leads to a better customer experience and better customer retention; (10) we are continuously improving our safety culture and monitoring our measurable safety goals; (11) our acquisitions may continue to be an important element of our business strategy; (12) our belief that maintaining and enhancing our brands increases our ability to enter new markets and launch new and innovative services that better serve the needs of our customers; (13) our ability to remain productive and profitable will depend substantially on our ability to compete with other pest control and service companies to attract, adequately train, and retain skilled workers and key employees (including executive officers), create leadership opportunities, and successfully implement diversity, equity and inclusion initiatives; (14) new information technology systems and technology will lead to new or improving business capabilities and streamline business processes, financial reporting, and acquisition integration; (15) an element of our business includes further expansion in international markets; (16) our plans to continue to monitor pandemics and plans to take actions that may alter our operations, including those that may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees and customers; (17) the suitability and adequacy of our facilities to meet our current and reasonably anticipated future needs; (18) our belief that no pending claim, proceeding or litigation, regulatory action or investigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity; (19) our belief that we establish sufficient loss contingency reserves based upon outcomes of such pending claims, proceedings or litigation that we currently believe to be probable and reasonably estimable; (20) our expectation that we will continue to pay cash dividends to the common stockholders, subject to the earnings and financial condition of the Company and other relevant factors; (21) our plans to continue to carry out various strategies previously implemented to help mitigate the impact of certain economic disruptors (such as high inflation, increases in interest rates, business interruptions due to natural disasters and changes in weather patterns, employee shortages and supply chain issues); (22) our belief that we are starting 2024 with favorable demand and a healthy balance sheet that positions us well to continue to invest in growth programs; (23) our belief that pricing efforts helped offset inflationary pressures we experienced in people associated cost; (24) our belief that our current cash and cash equivalents balances, future cash flows expected to be generated from operating activities, and available borrowings under our Credit Facility will be sufficient to finance our current operations and obligations, and fund expansion of the business for the foreseeable future; (25) our belief that we have adequate liquid assets, funding sources and insurance accruals to accommodate claims related to the retained loss program subject to assumptions and judgments as discussed under "Critical Accounting Estimates"; (26) our belief that our foreign exchange rate risk will not have a material impact upon our results of operations going forward; (27) our belief that we maintain adequate liquidity and capital resources, without regard to our foreign deposits, to finance domestic operations and obligations and to fund expansion of our domestic business; (28) our belief that the FPC Holdings, LLC acquisition will expand the Rollins family of brands and drive long term value; (29) our expectation to continue our payment of cash dividends, subject to our earnings and financial condition and other relevant factors; (30) the expected impact and amount of our contractual obligations; (31) our expectations regarding termite claims and factors that impact future costs from those claims; (32) the expected collectability of accounts receivable; (33) our belief that our tax positions are fully supportable; (34) our beliefs about our accounting policies and the impact of recent accounting pronouncements; (35) our reasonable certainty that we will exercise the renewal options on our vehicle leases; (36) expectations regarding the recognition of compensation costs related to performance-based shares as well as time-lapse restricted shares; (37) our ability to be proactive in safety and risk management to develop and maintain ongoing programs to reduce and prevent incidents and claims under our insurance programs and arrangements; (38) our potential suspension of future services for customers with past due balances; (39) any implication that our trends of seasonality will continue to hold true in the future (i.e., that profit will be lower in the first and fourth quarters and higher in the second and third quarters); (40) statements regarding our mission to have a culture of inclusion, where all individuals feel respected, are treated fairly, with an equitable opportunity to excel, and description of our plans to create and enhance inclusion in the workplace; (41) statements regarding our leadership development and successor planning; (42) our policies and procedures that are designed to identify, assess, and manage material risks arising from cybersecurity incidents; (43) our belief that the outcome of the investigations by certain local California governments regarding management of hazardous waste and pesticide disposal will not have a material adverse effect on our financials; (44) our strategic objectives described in Item 1, Part 1 (“Business”) and Item 7, Part II (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”); (45) our intention to continue to grow the business in foreign markets in the future through reinvestment of foreign deposits and future earnings as well as acquisitions of unrelated companies; (46) our assertion that foreign cash earnings in excess of working capital and cash needed for strategic investments and acquisitions are not intended to be indefinitely reinvested offshore; (47) estimates, assumptions and projections related to our application of critical accounting policies, including those related to the accrued loss program and reserves related to same, goodwill, and acquisitions, described in more detail below under “Critical Accounting Estimates." Forward-looking statements are based on information available at the time those statements are made.
In 1968, Rollins began trading on the New York Stock Exchange under the symbol “ROL.” Since then, we have grown into a premier consumer and commercial services business with numerous industry leading brands including the world renowned Orkin, as well as HomeTeam Pest Defense, Clark Pest Control, Western Pest Services, Critter Control Wildlife, and Northwest Exterminating, among others.
In 1968, Rollins began trading on the New York Stock Exchange under the symbol “ROL.” Since then, we have grown into a premier consumer and commercial services business with numerous industry leading brands including the world renowned Orkin, as well as HomeTeam Pest Defense, Clark Pest Control, Western Pest Services, Critter Control Wildlife, Northwest Exterminating, and Fox Pest Control, among others.
Risks inherent in our existing and future international operations also include, among others, the costs and difficulties of managing international operations, difficulties in identifying and gaining access to local suppliers, suffering possible adverse tax consequences from changes in tax laws or the unfavorable resolution of tax assessments or audits, maintaining product quality and greater difficulty in enforcing intellectual property rights.
Risks inherent in our existing and future international operations also include, among others, the costs and difficulties of managing international operations, difficulties in identifying and gaining access to local distributors and suppliers, suffering possible adverse tax consequences from changes in tax laws or the unfavorable resolution of tax assessments or audits, maintaining product quality and greater difficulty in enforcing intellectual property rights.
The possible effects of climate change could include changes in rainfall patterns, water shortages, changing storm patterns and intensities, changing temperature levels and changes in legislation, regulation, and international accords, all of which could adversely impact our costs and business operations. The business of our Company is also affected by seasonality associated with our pest and termite control services.
The possible effects of climate change could include changes in rainfall patterns, water shortages, changing storm patterns and intensities, changing temperature levels and changes in legislation, regulation, and international accords, all of which could adversely impact our costs and business operations. Our business is also affected by seasonality associated with our pest and termite control services.
In addition, depending upon a variety of factors, the Controlling Group may at any time engage in discussions with the Company and its affiliates, and other persons, including retained outside advisers, concerning the Company’s business, management, strategic alternatives and direction, and in their sole discretion, consider, formulate and implement various plans or proposals intended to enhance the value of their investment in the Company, including, among other things, proposing or effecting any matter that would constitute or result in: (i) the acquisition by any person of additional securities of the Company or the disposition of securities of the Company, in addition to the possible normal course dissolution of additional entities for estate or tax planning purposes; (ii) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any subsidiary thereof; (iii) a sale or transfer of a material amount of assets of the Company or any subsidiary thereof; (iv) a change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (v) a material change in the present capitalization or dividend policy of the Company; (vi) other material changes in the Company’s business or corporate structure; (vii) changes in the Company’s charter, bylaws, or instruments corresponding thereto, or other actions which may impede the acquisition of control of the Company by any person; (viii) causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; or (ix) a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended.
In addition, depending upon a variety of factors, the Significant Shareholder may at any time engage in discussions with the Company and its affiliates, and other persons, including retained outside advisers, concerning the Company’s business, management, strategic alternatives and direction, and in its sole discretion, consider, formulate and implement various plans or proposals intended to enhance the value of its investment in the Company, including, among other things, proposing or effecting any matter that would constitute or result in: (i) the acquisition by any person of additional securities of the Company or the disposition of securities of the Company, in addition to the possible normal course dissolution of additional entities for estate or tax planning purposes; (ii) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any subsidiary thereof; (iii) a sale or transfer of a material amount of assets of the Company or any subsidiary thereof; (iv) a change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (v) a material change in the present capitalization or dividend policy of the Company; (vi) other material changes in the Company’s business or corporate structure; (vii) changes in the Company’s charter, bylaws, or instruments corresponding thereto, or other actions which may impede the acquisition of control of the Company by any person; (viii) causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; or (ix) a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended.
The systems currently used for transmission and approval of payment card transactions, and the technology utilized in payment cards themselves, all of which can put payment card data at risk, meet standards set by the payment card industry (“PCI”).
The systems currently used for transmission and approval of payment card transactions, and the technology utilized in payment cards themselves, all of which can put payment card data at risk, meet standards set by the payment card industry.
Expanding into international markets presents unique challenges, and our expansion efforts with respect to international operations may not be successful. An element of our business includes further expansion into international markets.
Expanding into international markets presents unique challenges, and our expansion efforts with respect to international operations may not be successful. An element of our business includes further expansion in international markets.
Seasonality Our business is somewhat affected by weather conditions, including climate change and the seasonal nature of our pest and termite control services.
Seasonality Our business is affected by weather conditions, including climate change and the seasonal nature of our pest and termite control services.
Maintaining and enhancing our brands increases our ability to enter new markets and launch new and innovative services that better serve the needs of our customers. Our brands may be negatively impacted by a number of factors, including, among others, reputational issues and product/technical failures.
Maintaining and enhancing our brands increases our ability to enter new markets and launch new and innovative services that better serve the needs of our customers. Our brands may be negatively impacted by a number of factors, including, among others, reputational issues, product/technical failures, and customer experience.
The increase in pest presence and activity, as well as the metamorphosis of termites in the spring and summer (the occurrence of which is determined by the 11 Table of Contents ​ timing of the change in seasons), has historically resulted in an increase in the revenue and income of our pest and termite control operations during such periods.
The increase in pest 13 Table of Contents presence and activity, as well as the metamorphosis of termites in the spring and summer (the occurrence of which is determined by the timing of the change in seasons), has historically resulted in an increase in the revenue and income of our pest and termite control operations during such periods.
Over the course of our lengthy operating history, we have garnered a reputation for providing great customer service. The contracted and recurring nature of our services provide us with visibility into a significant portion of our future earnings. In 1964, brothers O.
Over the course of our lengthy operating history, we have garnered a reputation for providing great customer service. The contracted and recurring nature of our services provide us with visibility into a significant portion of our future revenue. In 1964, brothers O.
We utilize the relationships with our manufacturer and materials suppliers to provide new and innovative products and services, coupled with in-depth reviews by our tenured Technical Services department to ensure they meet our strict requirements. We also conduct tests of new products with the specific manufacturers of such products and we rely on research performed by leading universities.
We utilize the relationships with our manufacturers and materials suppliers to provide new and innovative products and services, coupled with in-depth reviews by our tenured Entomology Department to ensure they meet our strict requirements. We also conduct tests of new products with the specific manufacturers of such products and we rely on research performed by leading universities.
This concentration of ownership could also have the effect of delaying or preventing a third party from acquiring control of the Company at a premium. A Controlling Group has a substantial ownership interest, and the availability of the Company’s common stock to the investing public may be limited.
This concentration of ownership could also have the effect of delaying or preventing a third party from acquiring control of the Company at a premium. The Significant Shareholder has a substantial ownership interest, and the availability of the Company’s common stock to the investing public may be limited.
The impact of a pandemic, such as COVID-19, or other major public health concerns, including changes in consumer behavior and discretionary spending, market downturns, and restrictions on business and individual activities, could create significant volatility in the global economy.
The impact of a pandemic or other major public health concerns, including changes in consumer behavior and discretionary spending, market downturns, and restrictions on business and individual activities, could create significant volatility in the global economy.
Adverse economic conditions, including inflation and restrictions in customer discretionary expenditures, increases in interest rates or other disruptions in credit or financial markets, increases in fuel prices, raw material costs, or other operating costs could materially adversely affect our business.
Risks Related to Market Conditions Adverse economic conditions, including inflation and restrictions in customer discretionary expenditures, increases in interest rates or other disruptions in credit or financial markets, increases in fuel prices, raw material costs, or other operating costs could materially adversely affect our business.
The availability of Rollins’ common stock to the investing public is limited to those shares not held by the Controlling Group, which could negatively impact Rollins’ stock trading prices and affect the ability of minority stockholders to sell their shares.
The availability of Rollins’ common stock to the investing public is limited to those shares not held by the Significant Shareholder, which could negatively impact Rollins’ stock trading prices and affect the ability of minority stockholders to sell their shares.
We operate under one reportable segment which contains our three business lines: ● Residential : Pest control services protecting residential properties from common pests, including rodents, insects and wildlife; ● Commercial : Workplace pest control solutions for customers across diverse end markets such as healthcare, foodservice, logistics; and ● Termite : Termite protection services and ancillary services for both residential and commercial customers.
We operate under one reportable segment which contains our three service offerings: • Residential : Pest control services protecting residential properties from common pests, including rodents, insects and wildlife; • Commercial : Workplace pest control solutions for customers across diverse end markets such as healthcare, food service, logistics; and • Termite : Termite protection services and ancillary services for both residential and commercial customers.
We run our proprietary Branch Operating Support System (“BOSS”), which offers a back-end interface to facilitate service tracking and payment processing for technicians. BOSS also provides virtual route management tools to increase route efficiency across our network, reducing miles driven and associated costs while increasing customer retention through on-time and rapid response service.
The majority of our business runs our proprietary Branch Operating Support System (“BOSS”), which offers a back-end interface to facilitate service tracking and payment processing for technicians. BOSS also provides virtual route management tools to increase route efficiency across our network, reducing miles driven and associated costs while increasing customer retention through on-time and rapid response service.
Risks Related to Cybersecurity, Privacy Compliance and Business Disruptions The Company, its wholly-owned subsidiaries, third-party business partners and service providers have been subject to cybersecurity incidents in the past and could be the targets of future attacks which could result in the disruption to the Company’s business operations, economic and reputational damage, and possible fines, penalties and private litigation, if there is unauthorized access to or unintentional distribution of personal, financial, proprietary, confidential, or other protected data or information the Company is entrusted to keep about its customers, employees, business practices, or third parties.
Risks Related to Cybersecurity, Privacy Compliance and Business Disruptions The Company, our wholly-owned subsidiaries, third-party business partners and service providers have been subject to cybersecurity incidents in the past and could be the targets of future attacks that could result in disruption to our business operations, economic and reputational damage, and possible fines, penalties and private litigation, if there is unauthorized access to or unintentional distribution of personal, financial, proprietary, confidential, or other protected data or information the Company is entrusted to keep about its customers, employees, business practices, or third parties, or there are significant operational disruptions that result from a cybersecurity incident.
Four (4) ERGs are now active. We are excited about the accomplishments on our journey to create a workplace of inclusion and will continue to execute on the strategic plan. Health and Safety We are committed to the health and safety of our employees, customers and communities where we work, live and play.
We are excited about the accomplishments on our journey to create a workplace of inclusion and will continue to execute on the strategic plan. Health and Safety We are committed to the health and safety of our employees, customers and communities where we work, live and play.
Our major competitors include Rentokil, Ecolab, and Anticimex. Research and Development Our expenditures on research activities relating to the development of new products or services are not significant.
Our major competitors include Rentokil, Ecolab, Anticimex, and numerous other regional companies. Research and Development Our expenditures on research activities relating to the development of new products or services are not significant.
The Controlling Group may from time to time and at any time, in their sole discretion, acquire or cause to be acquired, additional equity or other instruments of the Company, its subsidiaries or affiliates, or derivative instruments the value of which is linked to Company securities, or dispose or cause to be disposed, such equity or other securities or instruments, in any amount that the Controlling Group may determine in their sole discretion, through open market transactions, privately negotiated transactions or otherwise.
The Significant Shareholder may from time to time and at any time acquire or cause to be acquired, additional equity or other instruments of the Company or derivative instruments the value of which is linked to Company securities, or dispose or cause to be disposed, such equity or other securities or instruments, in any amount that the Significant Shareholder may determine in its sole discretion, through open market transactions, privately negotiated transactions or otherwise.
Our Workplace Inclusion (WPI) mission to build an inclusive workplace has continued since 2020 under the guidance of our Executive Sponsor and Inclusion Advisory Council which is made up of employees from Rollins brands across the United States. In January 2022 the role of fulltime Director of WPI became active.
Our Workplace Inclusion (WPI) mission to build an inclusive workplace has continued since 2020 under the guidance of our Executive Sponsor and Inclusion Advisory Council which is made up of employees from Rollins brands across the United States. In January 2022, we hired a Director of WPI.
The demand for employees is high, and the supply is limited. Ongoing labor shortages could negatively affect our ability to efficiently operate at full capacity or lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees.
Ongoing labor shortages could negatively affect our ability to efficiently operate at full capacity or lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees.
The California Consumer Privacy Act, the first of its kind and followed by the California Privacy Rights Act, and laws in other states provide consumers and sometimes employees the right to know what personal data businesses collect, how the data is used, and give them the right to access, delete and opt out of the sale of their personal information to third parties.
The California Consumer Privacy Act, including amendments under the California Privacy Rights Act, and laws in other states provide consumers and sometimes employees the right to know what personal data businesses collect, how the data is used, and give them the right to access, delete and opt out of the sale of their personal information to third parties.
Our strong brands, Orkin, HomeTeam Pest Defense, Clark Pest Control, Northwest Exterminating, Trutech, Western Pest Services, The Industrial Fumigant Company (IFC), Waltham Services, Okolona Pest Control (OPC), Critter Control, and others, have significantly 10 Table of Contents ​ contributed to the success of our business.
Our strong brands, such as Orkin, HomeTeam Pest Defense, Clark Pest Control, Northwest Exterminating, Fox Pest Control, Trutech, Western Pest Services, The Industrial Fumigant Company (IFC), Waltham Services, Okolona Pest Control (OPC), and Critter Control, have significantly contributed to the success of our business.
Although in the aggregate, our global portfolio of more than 450 trademarks is a valuable asset that is important to our operations, we believe that our competitive advantage is also largely attributable to the technical, marketing, and sales competence and capabilities of our employees, rather than on any individual trademark.
Although in the aggregate, our global portfolio of more than 450 trademarks is a valuable asset that is important to our operations, we believe that our competitive advantage is also largely attributable to the technical, marketing, and sales competence and capabilities of our employees, rather than on any individual trademark; however, the loss of the Orkin trademark could be material to our business as a whole.
The ultimate impact of a pandemic or other major public health concern also depends on events beyond our knowledge or control, including the duration and severity of such pandemics and other major public health concerns, and related remedial or containment measures taken by parties other than us to respond to them, and in the case of COVID-19, on the emergence and spread of COVID-19 variants and the effectiveness of vaccines.
The ultimate impact of a pandemic or other major public health concern also depends on events beyond our knowledge or control, including the duration and severity of such pandemics and other major public health concerns, and related remedial or containment measures taken by parties other than us to respond to them.
Any compromises, breaches, application errors or human mistakes related to our systems or failures to comply with applicable standards could not only disrupt our financial operations, including our customers’ ability to pay for our services and products by credit card or their willingness to purchase our services and products, but could also result in violations of applicable laws, regulations, orders, industry standards or agreements and subject us to costs, penalties and liabilities which could have a material adverse impact on our reputation, business, financial condition, results of operations and cash flows.
Any compromises, breaches, application errors or human mistakes related to our systems or failures to comply with applicable standards could not only disrupt our financial operations, including our customers’ ability to pay for our services and products by credit card or their willingness to purchase our services and products, but could also result in violations of applicable laws, regulations, orders, industry standards or agreements and subject us to costs, penalties and liabilities.
The telemarketing rules adopted by the Federal Communications Commission pursuant to the Federal Telephone Consumer Protection Act of 1991 and the Federal Telemarketing Sales Rule issued by the Federal Trade Commission, along with state laws and other legal authorities, govern our telephone and texting sales practices.
Specifically, rules adopted by the Federal Communications Commission and Federal Trade Commission, including the Telephone Consumer Protection Act and the Telemarketing Sales Rule, along with state laws and other legal authorities, govern our telephone and texting sales practices.
Risks Related to Legal, Regulatory and Risk Management Matters Our business is subject to various federal, state and local laws and regulations pertaining to environmental, public health and safety matters, including those related to the pest control industry, and any noncompliance with, changes to, or increased enforcement of such laws, could significantly impact our business, financial condition, results of operations or reputation.
Risks Related to Legal, Regulatory and Risk Management Matters In the countries in which we operate, our business is subject to various federal, state, provincial, and local laws and regulations pertaining to environmental, public health and safety matters, including those related to the pest control industry, and any noncompliance with, changes to, or increased enforcement of such laws, could significantly impact our business.
However, franchisees, subcontractors, and vendors are independent third parties that we do not control, and who own, operate and oversee the daily operations of their businesses, and the ultimate success of any business operation rests with the business owner.
Each of our brands that are franchised also provides training and support to franchisees. However, franchisees, subcontractors, and vendors are independent third parties that we do not control, and who own, operate and oversee the daily operations of their businesses, and the ultimate success of any business operation rests with the business owner.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Annual Report on Form 10-K. You are cautioned that the risk factors discussed below are not exhaustive.
This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Annual Report on Form 10-K.
If we were to fail to comply with any of these applicable laws or regulations, we could be subject to substantial fines or damages, be involved in lawsuits, enforcement actions and other claims by third parties or governmental authorities, suffer losses to our reputation and our business or suffer the loss of licenses or penalties that may affect how the business is operated, which, in turn, could have a material adverse effect on our financial condition, results of operations and cash flows.
If we were to fail to comply with any of these applicable laws or regulations, we could be subject to substantial fines or damages, be involved in lawsuits, enforcement actions and other claims by third parties or governmental authorities, suffer losses to our reputation and our business or suffer the loss of licenses or penalties that may affect how the business is operated.
The Company also relies on, among other things, commercially available vendors, cybersecurity protection systems, software, tools and monitoring to provide security for processing, transmission and storage of protected information and data.
We also rely on, among other things, commercially available third parties including vendors, cybersecurity protection systems, software, tools and monitoring to provide security for processing, transmission and storage of protected information and data.
We have also implemented policies and procedures, internal training, system controls, and monitoring and audit processes to protect the Company from internal and external vulnerabilities and to comply with consumer privacy laws in the areas in which we operate.
We have also implemented policies and procedures for the assessment, identification, and management of material risks from cybersecurity threats, including internal training, system controls, and monitoring and audit processes to protect the Company from internal and external vulnerabilities and to comply with consumer privacy laws in the areas in which we operate.
If franchisees do not successfully operate their businesses in a manner consistent with required standards, royalty payments owed to us will be adversely affected and our brands’ image and reputation could be harmed. This could materially adversely impact our reputation, business, financial condition, results of operations and cash flows.
If franchisees do not successfully operate their businesses in a manner consistent with required standards, royalty payments owed to us will be adversely affected and our brands’ image and reputation could be harmed.
We monitor certain third-party business partners and service providers for compliance and vulnerabilities. Activities by bad actors, changes in computer and software capabilities and encryption technology, new tools and discoveries, cloud applications, changes in multi-jurisdictional regulations, and other events or developments may result in a compromise or breach of our systems.
Activities by bad actors, changes in computer and software capabilities and encryption technology, new tools and discoveries, cloud applications, changes in multi-jurisdictional regulations, and other events or developments may result in a compromise or breach of our systems.
Furthermore, labor force availability may be impaired due to exposure, reluctance to comply with governmental, regulatory or contractual mandates, or other restrictions, which could negatively affect our operating costs and profitability or negatively impact our ability to provide quality services. Any of these disruptions could have a negative impact on our business, results of operations and financial condition.
Furthermore, labor force availability may be impaired due to exposure, reluctance to comply with governmental, regulatory or contractual mandates, or other restrictions, which could negatively affect our operating costs and profitability or negatively impact our ability to provide quality services.
As a result, these persons will effectively control the 14 Table of Contents ​ operations of the Company, including the election of directors and approval of significant corporate transactions such as acquisitions and approval of matters requiring stockholder approval.
As a result, these persons will have significant influence over the operations of the Company, including the election of directors and approval of substantial corporate transactions such as acquisitions and approval of matters requiring stockholder approval.
Our ability to successfully operate in international markets may be adversely affected by political, economic and social conditions beyond our control, local laws and customs, and legal and regulatory constraints, including compliance with applicable anti-corruption and currency laws and regulations of the countries or regions in which we currently operate or intend to operate in the future.
Also, we may be adversely affected by local laws and customs and legal and regulatory constraints, including compliance with applicable export, anti-corruption and currency laws and regulations of the countries or regions in which we currently operate or intend to operate in the future.
A significant increase in the wages paid and benefits offered by competing employers could also result in a reduction in our labor force, increases in our labor costs, or both.
A significant increase in the wages paid and benefits offered by competing employers could also result in a reduction in our labor force, increases in our labor costs, or both. Prolonged labor shortages, increased turnover or labor inflation could diminish our profitability and impair our growth potential.
The principal factors of competition in our pest and termite control markets are quality and speed of service, customer proximity, customer satisfaction, brand awareness and reputation, terms of guarantees, safety, technical proficiency and price.
Competition We operate in a highly competitive environment with fragmented markets and low barriers to entry. The principal factors of competition in our pest and termite control markets are quality and speed of service, customer proximity, customer satisfaction, brand awareness and reputation, terms of guarantees, safety, technical proficiency and price.
In addition, we grant third-party business partners and service providers access to confidential information in order to facilitate business operations and administer employee benefits. Employees, third-party business partners, and service providers can knowingly or unknowingly disseminate such information or serve as an entry point for bad actors to access such information.
Employees, third-party business partners, and service providers can knowingly or unknowingly disseminate such information or serve as an entry point for bad actors to access such information.
Noncompliance with, changes in, expanded enforcement of, or adoption of new federal, state or local laws and regulations governing hazardous waste disposal and other environmental matters, could result in operational changes and increased costs that might significantly impact our business, financial condition or reputation.
Noncompliance with, changes in, expanded enforcement of, or adoption of new laws and regulations governing hazardous waste disposal and other environmental matters, could result in operational changes and increased costs.
A breach of data security or failure to comply with rigorous multi-jurisdictional consumer privacy requirements could expose us to customer litigation, regulatory actions and costs related to the reporting and handling of such a violation or breach.
A breach of data security or failure to comply with rigorous multi-jurisdictional consumer privacy requirements could expose us to customer litigation, regulatory actions and costs related to the reporting and handling of such a violation or breach. Furthermore, while we maintain cybersecurity insurance, our insurance may not cover all liabilities incurred due to a security breach or incident.
We created Rollins United in 2019 to unify our brands’ philanthropic visions and consolidate our community outreach efforts. Our overarching goal is to create a significant impact in local communities over an extended period of time. The core mission of Rollins United is that everyone deserves a safe place to live, work, and play.
We offer employees the opportunity to participate in various community outreach programs. We created Rollins United in 2019 to unify our brands’ philanthropic visions and consolidate our community outreach efforts. Our overarching goal is to create a significant impact in local communities over an extended period of time.
All of the foregoing risks and uncertainties are beyond our ability to control, and in many cases, we cannot predict the risks and 9 Table of Contents ​ uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. The Company does not undertake to update its forward-looking statements. ​ Item 1.A.
These statements are not guarantees of future performance and are subject to risks and uncertainties beyond our ability to control, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those 11 Table of Contents indicated by the forward-looking statements.
Such adverse events could result in a decrease in the estimated fair value of goodwill or other intangible assets established as a result of such transactions, triggering an impairment. These and other factors could have a material adverse effect on our financial condition and results of operations.
Such adverse events could result in a decrease in the estimated fair value of goodwill or other intangible assets established as a result of such transactions, triggering an impairment.
Risks Related to Certain Intellectual Property Rights Our brand recognition or reputation could be impacted if we are not able to adequately protect our intellectual property and other proprietary rights that are material to our business.
These claims, proceedings or litigation, either alone or in the aggregate, could have a material adverse effect on our business. Risks Related to Certain Intellectual Property Rights Our brand recognition or reputation could be impacted if we are not able to adequately protect our intellectual property and other proprietary rights that are material to our business.
The Controlling Group holds directly, or through indirect beneficial ownership, in the aggregate, approximately 51 percent of the Company’s outstanding shares of common stock as of December 31, 2022.
The Significant Shareholder held directly, or through indirect beneficial ownership, in the aggregate, approximately 43 percent of the Company’s outstanding shares of common stock as of December 31, 2023.
Environmental and Regulatory Considerations Our business is subject to various local and national legislative and regulatory enactments including, but not limited to, environmental laws, antitrust laws, employment laws (including wage and hour laws, payroll taxes and anti-discrimination laws), immigration laws, motor vehicle laws and regulations, human health and safety laws, securities laws including, but not limited to, SEC regulations, and federal, state and local laws and regulations governing worker safety and the pest and termite control industry.
Led by 2 full-time teammates, the GDT works with local organizations across 6 states and is supported by our team across Northwest. 8 Table of Contents Regulatory Considerations Our business is subject to various local and national legislative and regulatory enactments including, but not limited to, environmental laws, antitrust laws, employment and benefit laws (including wage and hour laws, payroll taxes, anti-discrimination laws, pension laws and regulations, and ERISA), immigration laws, motor vehicle laws and regulations, human health and safety laws, securities laws including, but not limited to, SEC regulations, and federal, state and local laws and regulations governing worker safety and the pest and termite control industry.
We cannot assure investors that we will be able to identify and acquire acceptable acquisition targets on terms favorable to us in the future, or that any acquisitions will achieve the anticipated financial benefits.
Acquisitions have been and may continue to be an important element of our business strategy. We cannot assure investors that we will be able to identify and acquire acceptable acquisition targets on terms favorable to us in the future, that we will receive necessary regulatory approvals, or that any acquisitions will achieve the anticipated financial benefits.
Additionally, foreign currency exchange rates and fluctuations could have an adverse effect on our financial results. Our business depends on our strong brands and failing to maintain and enhance our brands and develop a positive client reputation could hurt our ability to retain and expand our base of customers.
Our business depends on our strong brands and failing to maintain and enhance our brands and develop a positive client reputation and experience could hurt our ability to retain and expand our base of customers.
These laws also impose liability for the costs of investigating and remediating, and damages resulting from, present and past releases of hazardous substances, including releases by prior owners or operators of sites we currently own or operate.
In addition, the use of certain pesticide products is also regulated by various federal, state, provincial and local environmental and public health agencies. These laws also impose liability for the costs of investigating and remediating, and damages resulting from, present and past releases of hazardous substances, including releases by prior owners or operators of sites we currently own or operate.
If these labor organizing activities are successful, it could further increase labor costs, decrease operating efficiency and productivity in the future, or otherwise disrupt or negatively impact our operations which could have a material adverse effect on our reputation and business. Climate change and unfavorable weather conditions could adversely impact our financial results.
If these labor organizing activities are successful, it could further increase labor costs, decrease operating efficiency and productivity in the future, or otherwise disrupt or negatively impact our operations which could have a material adverse effect on our reputation and business. We may experience difficulties integrating, streamlining and optimizing our information technology (“IT”) systems and processes.
Our operations are directly impacted by the weather conditions worldwide, including catastrophic events, natural disasters and potential impacts from climate change. Climate change continues to receive increasing global attention.
Climate change and unfavorable weather conditions could adversely impact our financial results. Our operations are directly impacted by the weather conditions worldwide, including catastrophic events, natural disasters and potential impacts from climate change.
Among other things, these laws also govern the use, storage, treatment, disposal, transportation and management of certain pesticides and hazardous substances and waste and regulate the emission or discharge of materials into the environment.
Among other things, these laws also govern the use, storage, treatment, disposal, transportation and management of certain pesticides and hazardous substances and waste and regulate the emission or discharge of materials into the environment. In addition, the use of certain pesticide products is also regulated by various federal, state, provincial and local environmental and public health agencies.
Our Competitive Strengths Rollins is a global leader in pest control. We have established a portfolio of premier brands with extensive service capabilities across a deep operating network.
We have established a portfolio of premier brands with extensive service capabilities across a deep operating network with a focus on our core pest control market.
Penalties for noncompliance with these laws may include criminal sanctions or civil remedies, including, but not limited to, cancellation of licenses, fines, and other corrective actions, which could negatively affect our business, financial condition, results of operations or reputation.
These regulations may also apply to our third-party suppliers. Penalties for noncompliance with these laws may include criminal sanctions or civil remedies, including, but not limited to, cancellation of licenses, fines, and other corrective actions.
Our ability to remain productive and profitable will depend substantially on our ability to compete with other pest control companies to attract and retain skilled workers, create leadership opportunities and successfully implement diversity, equity and inclusion initiatives. Our ability to expand our operations is in part impacted by our ability to increase our labor force.
Our ability to remain productive and profitable will depend substantially on our ability to compete with other pest control and service companies to attract, adequately train, and retain skilled workers and key employees (including executive officers), create leadership opportunities, and successfully implement diversity, equity and inclusion initiatives.
We compete with other large pest control companies, as well as numerous smaller pest control companies, for a finite number of customers. We believe that the principal competitive factors in the market areas that we serve are quality and speed of service, customer proximity, customer satisfaction, brand awareness and reputation, terms of guarantees, safety, technical proficiency and price.
We believe that the principal competitive factors in the market areas that we serve are quality and speed of service, customer proximity, customer satisfaction, brand awareness and reputation, terms of guarantees, technical proficiency and price.
Furthermore, because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the same protection in other countries as we would in the United States.
Furthermore, because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the same protection in other countries as we would in the United States. If we are unable to protect our proprietary information and brand names, we could suffer a material adverse effect to our reputation and business.
Over the last three years, we have completed approximately 100 acquisitions, including 31 acquisitions in 2022. Our acquisition strategy targets high quality, profitable businesses with strong leadership that would benefit from incremental growth capital and have the potential to achieve margin expansion through cost and revenue synergies.
Over the last three years, we have completed approximately 90 acquisitions, including 24 acquisitions in 2023. Our acquisition strategy targets high quality, profitable businesses with strong leadership, a healthy level of brand awareness, and customer loyalty in the markets they serve that would benefit from incremental growth capital and have the potential to achieve organic growth and margin expansion.
In the normal course of business, we are involved in various claims, contractual disputes, investigations, arbitrations and litigation, including claims that our acts, omissions, services or vehicles caused damage or injury, claims that our services did not achieve the desired results, claims related to acquisitions, allegations by federal, state or local authorities, including the Securities and Exchange Commission, of violations of regulations or statutes, claims related to wage and hour law violations and claims related to environmental matters.
In the normal course of business, we have been and may in the future be involved in various claims, contractual disputes, investigations, arbitration and litigation, including (1) claims that our acts, omissions, services or vehicles caused damage or injury, (2) claims that our services did not achieve the desired results, (3) claims related to acquisitions, (4) claims related to violations of antitrust laws or consumer protection laws, (4) claims related to allegations by federal, state or local authorities, including the Securities and Exchange Commission, the Federal Trade Commission and Department of Justice, of violations of regulations or statutes, (5) claims related to federal securities laws, (6) claims related to employment law 16 Table of Contents violations, (7) claims related to environmental matters, and (8) claims related to additional laws and regulations.
Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products, services or activities infringe their intellectual property rights.
Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products, services or activities infringe their intellectual property rights. Risks Related to Public Health Crises The effects of a pandemic or other major public health concern, could materially impact our business.
In addition to in-person training, the Rollins Learning Center offers on-demand training sessions that employees can access from anywhere in the world that are produced at our on-site, state-of-the-art broadcast studio.
In addition to in-person training, the Rollins Learning Center offers on-demand training sessions that employees can access from anywhere in the world that are produced at our on-site, state-of-the-art broadcast studio. Our unique programs contribute to our position as an employer of choice and have earned us recognition from Training magazine among the Top 125 U.S.
In addition, our relationship with our franchisees, subcontractors, and vendors could become strained (including resulting in litigation) as we impose new standards or assert more rigorous enforcement practices of the existing required standards. These strains in our relationships or any resulting claims could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.
In addition, our relationship with our franchisees, subcontractors, and vendors could become strained (including resulting in litigation) as we impose new standards or assert more rigorous enforcement practices of the existing required standards.
In 2022, we saw revenue growth in our operations in Canada, Australia, and the United Kingdom. We believe geographic diversity allows us to increase brand recognition, meet demands of global customers, and draw on business and technical expertise from teams in several countries, and offers us an opportunity to access new markets.
We believe geographic diversity allows us to increase brand recognition, meet demands of global customers, and draw on business and technical expertise from teams in several countries, and offers us an opportunity to access new markets. Franchising Programs We have franchise programs through Orkin, Critter Control, Missquito, and our Australian subsidiaries.
Additionally, we changed various policies, practices and programs to be more inclusive, we recognized cultural holidays and events that are celebrated by our employees throughout the year, and we launched our first Employee Resource Groups (ERGs). Our ERGs are led by Rollins employees, are inclusive to all and include eight (8) categories representing our employee population.
The 5 Strategic Focus areas are Training & Education, Talent Acquisition & Career Development, Policies & Programs, Communication and Employee Resource Groups. Additionally, we changed various policies, practices and programs to be more inclusive, we recognized cultural holidays and events that are celebrated by our employees throughout the year, and we launched our first Employee Resource Groups (ERGs).
We protect and promote our intellectual property portfolio and take those actions we deem appropriate to enforce our intellectual property rights and to defend our rights both domestically and internationally.
Our worldwide intellectual property portfolio is strengthened through innovation and brand recognition, and a comprehensive approach for protection and enforcement. We protect and promote our intellectual property portfolio and take those actions we deem appropriate to enforce our intellectual property rights and to defend our rights both domestically and internationally.
The increase in pest presence and activity, as well as the metamorphosis of termites in the spring and summer (the occurrence of which is determined by the timing of the change in seasons), has historically resulted in an increase in the revenue of our pest and termite control operations during such periods as evidenced by the following chart. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated Net Revenues (in thousands) 2022 2021 2020 First Quarter ​ $ 590,680 ​ $ 535,554 ​ $ 487,901 Second Quarter ​ 714,049 ​ 638,204 ​ 553,329 Third Quarter ​ 729,704 ​ 650,199 ​ 583,698 Fourth Quarter ​ 661,390 ​ 600,343 ​ 536,292 Year to date ​ $ 2,695,823 ​ $ 2,424,300 ​ $ 2,161,220 ​ Our quarterly profitability correlates with our revenue due to seasonality, as profit is lower in the first and fourth quarters and higher in the second and third quarters. 4 Table of Contents ​ Materials and Supplies Our Company has relationships with a vast network of national pest control product distributors, manufacturers and other suppliers for pest and termite treatment products.
Consolidated Net Revenues (in thousands) 2023 2022 2021 First Quarter $ 658,015 $ 590,680 $ 535,554 Second Quarter 820,750 714,049 638,204 Third Quarter 840,427 729,704 650,199 Fourth Quarter 754,086 661,390 600,343 Year to date $ 3,073,278 $ 2,695,823 $ 2,424,300 Our quarterly profitability correlates with our revenue due to seasonality, as profit is lower in the first and fourth quarters and higher in the second and third quarters. 5 Table of Contents Materials and Supplies Our Company has relationships with a vast network of national pest control product distributors, manufacturers and other suppliers for pest and termite treatment products.
The partnership allows our employees to volunteer and support the Foundation, which is committed to neighborhood revitalization to improve the quality of life in the Grove Park neighborhood. Representatives from our Atlanta family of brands participate in volunteer opportunities in the Grove Park neighborhood throughout the year.
We have a partnership with the Grove Park Foundation (the “Foundation”) to help serve our Atlanta community. The partnership allows our employees to volunteer and support the Foundation, which is committed to neighborhood revitalization to improve the quality of life in the Grove Park neighborhood.
Further, if our brands are significantly damaged, our reputation, business, results of operations, and financial condition could be materially adversely affected. We continue to develop strategies and innovative tools to gain a deeper understanding of customer acquisition and retention in order to more effectively expand and retain our customer base.
We continue to develop strategies and innovative tools to gain a deeper understanding of customer acquisition and retention in order to more effectively expand and retain our customer base.
Such laws, if enacted, are likely to impact our business in a number of ways. For example, we use gasoline and electricity in conducting our operations. Increased government regulations to limit carbon dioxide and other greenhouse gas emissions may result in increased compliance costs and legislation or regulation affecting energy inputs, which could materially affect our profitability.
Increased government regulations to limit 15 Table of Contents carbon dioxide and other greenhouse gas emissions may result in increased compliance costs and legislation or regulation affecting energy inputs, which could materially affect our profitability.
Franchising Programs We have franchise programs through Orkin, Critter Control and our Australian subsidiaries. We had a total of 137, 135 and 128 domestic franchise agreements as of December 31, 2022, 2021 and 2020, respectively. International franchise agreements totaled 89, 103 and 101 as of December 31, 2022, 2021 and 2020, respectively.
We had a total of 138, 137 and 135 domestic franchise agreements as of December 31, 2023, 2022 and 2021, respectively. International franchise agreements totaled 86, 89 and 103 as of December 31, 2023, 2022 and 2021, respectively.
Compliance with environmental, health and safety laws increases our operating costs, limits or restricts the services we provide and subjects us to the possibility of regulatory or private actions or proceedings. 5 Table of Contents ​ Consumer Protection, Privacy and Solicitation Matters Additionally, we are subject to international, federal, state, provincial and local laws and regulations designed to protect consumers generally, including laws governing lending, debt collection and consumer finance, consumer privacy and fraud, the collection and use of consumer data, telemarketing and other forms of solicitation.
Consumer Protection, Privacy and Solicitation Matters We are subject to international, federal, state, provincial and local laws and regulations designed to protect consumers generally, including laws governing lending, debt collection and consumer finance; consumer privacy and fraud; collection and use of consumer data; telemarketing; and other forms of solicitation.
We are from time to time subject to lawsuits, investigations and other proceedings which could have a material adverse effect on our business, financial condition and results of operations.
We have been and may in the future be subject to lawsuits, investigations and other proceedings which could have a material adverse effect on our business.
Consistent with our culture of attracting, developing and progressing talented individuals, our senior leadership team consists of a combination of long-term internal leaders and strategic hires from well-respected external platforms. Our Chairman, Gary Rollins, is the son of Rollins, Inc. co-founder O.
Experienced Management Team Our management team combines extensive business and consumer services experience with robust local pest control leadership. Consistent with our culture of attracting, developing and progressing talented individuals, our senior leadership team consists of a combination of long-term internal leaders and strategic hires from well-respected external platforms.
Maintaining and enhancing our brands will depend largely on our brands’ ability to remain a service leader and continue to provide high-quality pest control services that are truly beneficial and play a meaningful role in people’s lives. Our franchisees, subcontractors, and vendors could take actions that could harm our business.
Maintaining and enhancing our brands will depend largely on our brands’ ability to remain service leaders and continue to provide high-quality pest control services that are truly beneficial and play a meaningful role in people’s lives. 12 Table of Contents Labor shortages, our ability to attract and retain skilled workers, and increased labor costs may impair growth potential and profitability.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company owns or leases over 600 branch offices and operating facilities used in its business as well as the Rollins Training Center located in Atlanta, Georgia, and the Pacific Division Administration and Training Center in Riverside, California. None of the 15 Table of Contents ​ branch offices, individually considered, represents a materially important physical property of the Company.
Biggest changeThe Company owns or leases over 700 branch offices and operating facilities used in its business as well as the Rollins Training Center located in Atlanta, Georgia, and the Pacific Division Administration and Training Center in Riverside, California. None of the branch offices, individually considered, represents a materially important physical property of the Company.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIf actual claims exceed our estimates, our operating results could be materially affected, and our ability to take timely corrective actions to limit future costs may be limited.
Biggest changeIf actual claims exceed our estimates, our operating results could be materially affected, and our ability to take timely corrective actions to limit future costs may be limited. Item 103 of SEC Regulation S-K requires disclosure of certain environmental legal proceedings if the proceeding reasonably involves potential monetary sanctions of $300,000 or more.
Management does not believe that any pending claim, proceeding or litigation, regulatory action or investigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity; however, it is possible that an unfavorable outcome of some or all of the matters could result in a charge that might be material to the results of an individual quarter or year. ​ Item 4.
Management does not believe that any pending claim, proceeding or litigation, regulatory action or investigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity; however, it is possible that an unfavorable outcome of some or all of the matters could result in a charge that might be material to the results of an individual quarter or year.
In addition, we are parties to employment-related cases and claims from time to time, which may include claims on a representative or class action basis alleging wage and hour law violations. We are also involved from time to time in certain environmental and tax matters primarily arising in the normal course of business.
In addition, we are parties to employment-related cases and claims from time to time, which may include claims on a representative or class action basis alleging wage and hour law violations or claims related to the operation of our retirement benefit plans.
Mine Safety Disclosures. Not applicable. ​ ​ PART II
Item 4. Mine Safety Disclosures. Not applicable. 20 Table of Contents PART II
We evaluate pending and threatened claims and establish loss contingency reserves based upon outcomes we currently believe to be probable and reasonably estimable. The Company retains, up to specified limits, certain risks related to general liability, workers’ compensation and auto liability.
The Company retains, up to specified limits, certain risks related to general liability, workers’ compensation and auto liability.
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We are also involved from time to time in certain environmental and tax matters primarily arising in the normal course of business. We evaluate pending and threatened claims and establish loss contingency reserves based upon outcomes we currently believe to be probable and reasonably estimable.
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The Company has received a notice of alleged violations and information requests from local governmental authorities in California for our Orkin and Clark Pest Control operations and is currently working with several local governments regarding compliance with environmental regulations governing the management of hazardous waste and pesticide disposal.
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The investigation appears to be part of a broader effort to investigate waste handling and disposal processes of a number of industries. While we are unable to predict the outcome of this investigation, we do not believe the outcome will have a material effect on our results of operations, financial condition, or cash flows.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. ​ Mine Safety Disclosures. ​ 16 ​ ​ ​ ​ ​ Part II ​ ​ ​ 16 Item 5. ​ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. ​ 16 Item 6 ​ [Reserved] ​ 19 Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations. ​ 19 Item 7.A. ​ Quantitative and Qualitative Disclosures about Market Risk. ​ 25 Item 8. ​ Financial Statements and Supplementary Data. ​ 26 Item 9. ​ Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. ​ 60 Item 9.A. ​ Controls and Procedures. ​ 63 Item 9.B. ​ Other Information. ​ 61
Biggest changeItem 4. Mine Safety Disclosures. 20 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 21 Item 6 [Reserved] 22 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 22 Item 7.A. Quantitative and Qualitative Disclosures about Market Risk. 33 Item 8.
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Financial Statements and Supplementary Data. 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. 71 Item 9.A. Controls and Procedures. 71 Item 9.B. Other Information. 72

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHowever, a large number of our shareholders hold their shares in “street name” in brokerage accounts and, therefore, do not appear on the shareholder list maintained by our transfer agent. 16 Table of Contents ​ Issuer Purchases of Equity Securities During the years ended December 31, 2022 and 2021, the Company did not repurchase shares on the open market. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of ​ ​ ​ ​ ​ ​ Weighted- ​ shares purchased as ​ Maximum number of ​ ​ Total number of ​ average ​ part of publicly ​ shares that may yet be ​ ​ shares ​ price paid ​ announced ​ purchased under the Period purchased(1) per share repurchases (2) repurchase plan (2) October 1 to 31, 2022 ​ — ​ $ — ​ — ​ 11,415,625 November 1 to 30, 2022 ​ 3,062 ​ ​ 34.37 ​ — ​ 11,415,625 December 1 to 31, 2022 ​ — ​ ​ — ​ — ​ 11,415,625 Total ​ 3,062 ​ $ 34.37 ​ — ​ 11,415,625 ​ (1) Includes repurchases from employees for the payment of taxes on vesting of restricted shares.
Biggest changePeriod Total number of shares purchased (1) Weighted- average price paid per share Total number of shares purchased as part of publicly announced repurchases (2) Maximum number of shares that may yet be purchased under the repurchase plan (2) October 1 to 31, 2023 1,213 $ 36.01 — 11,415,625 November 1 to 30, 2023 1,293 43.02 — 11,415,625 December 1 to 31, 2023 — — — 11,415,625 Total 2,506 $ 39.63 — 11,415,625 (1) Includes shares withheld by the Company in connection with tax withholding obligations of its employees upon vesting of such employees’ equity awards.
The repurchase plan has no expiration date. ​ 17 Table of Contents ​ PERFORMANCE GRAPH The following graph sets forth a five-year comparison of the cumulative total stockholder return based on the performance of the stock of the Company as compared with both a broad equity market index and an industry index.
The repurchase plan has no expiration date. 21 Table of Contents Performance Graph The following graph sets forth a five-year comparison of the cumulative total stockholder return based on the performance of the stock of the Company as compared with both a broad equity market index and an industry index.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The common stock of the Company is listed on the New York Stock Exchange and is traded on the Philadelphia, Chicago and Boston Exchanges under the symbol ROL. As of January 31, 2023, there were 177,950 holders of record of the Company’s common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information, Holders, and Dividends The common stock of the Company is listed on the New York Stock Exchange and is traded on the Philadelphia, Chicago and Boston Exchanges under the symbol ROL.
(2) The Company has a share repurchase plan, adopted in 2012, to repurchase up to 16.9 million shares of the Company’s common stock. There are 11.4 million shares authorized to be repurchased under prior board approval.
(2) The Company has a share repurchase plan, adopted in 2012, to repurchase up to 16.9 million shares of the Company’s common stock. As of December 31, 2023, the Company has a remaining authorization to repurchase 11.4 million shares of the Company's common stock under this program.
The indices included in the following graph are the S&P 500 Index and the S&P 500 Commercial Services & Supplies Index.
The indices included in the following graph are the S&P 500 Index and the S&P 500 Commercial Services & Supplies Index. *$100 invested on 12/31/18 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2023 Standard & Poor's, a division of S&P Global.
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COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2017 2018 2019 2020 2021 2022 Rollins Inc. 100.00 117.89 ​ 109.68 ​ 195.81 ​ 173.43 ​ 187.47 S&P 500 100.00 95.62 125.72 148.85 191.58 156.89 S&P 500 Commercial Services & Supplies 100.00 100.49 ​ 140.84 ​ 170.39 ​ 224.30 ​ 212.33 ​ ASSUMES INITIAL INVESTMENT OF $100 *TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS NOTE: TOTAL RETURNS BASED ON MARKET CAPITALIZATION ​ ​ 18 Table of Contents ​
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As of January 31, 2024, there were 8,118 holders of record of the Company’s common stock. However, a large number of our shareholders hold their shares in “street name” in brokerage accounts and, therefore, do not appear on the shareholder list maintained by our transfer agent.
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Dividends will be payable only when, and if, declared by our Board and will be subject to our ongoing ability to generate sufficient income and free cash flow, any future capital needs and other contingencies.
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The Company expects to continue to pay cash dividends to the common stockholders, subject to the earnings and financial condition of the Company and other relevant factors. Issuer Purchases of Equity Securities The Company did not repurchase shares on the open market during the quarter ended December 31, 2023.
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The following table presents the Company's share repurchase activity for the period from October 1, 2023 to December 31, 2023.
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All rights reserved. 2018 2019 2020 2021 2022 2023 Rollins Inc. $ 100.00 $ 93.03 $ 166.06 $ 147.06 $ 158.95 $ 192.61 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 S&P 500 Commercial Services & Supplies 100.00 140.15 169.56 223.20 211.29 271.25

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

30 edited+61 added−30 removed7 unchanged
Biggest changeThe following table sets forth a summary of our cash flows from operating, investing and financing activities for the year ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Variance (in thousands) 2022 2021 $ ​ % Net cash provided by operating activities ​ $ 465,930 ​ $ 401,805 ​ 64,125 ​ 16.0 Net cash used in investing activities ​ (134,141) ​ (98,965) ​ (35,176) ​ (35.5) Net cash used in financing activities ​ (336,017) ​ (290,159) ​ (45,858) ​ (15.8) Effect of exchange rate on cash ​ (5,727) ​ (5,857) ​ 130 ​ 2.2 Net (decrease) increase in cash and cash equivalents ​ $ (9,955) ​ $ 6,824 ​ (16,779) ​ (245.9) ​ Cash Provided by Operating Activities Cash from operating activities is the principal source of cash generation for our businesses.
Biggest changeThe following table sets forth a summary of our cash flows from operating, investing and financing activities for the year ended December 31, 2023 and 2022: Year Ended December 31, Variance (in thousands) 2023 2022 $ % Net cash provided by operating activities 528,366 465,930 62,436 13.4 Net cash used in investing activities (372,895) (134,141) (238,754) (178.0) Net cash used in financing activities (149,420) (336,017) 186,597 55.5 Effect of exchange rate on cash 2,428 (5,727) 8,155 N/M Net increase (decrease) in cash and cash equivalents $ 8,479 $ (9,955) 18,434 N/M N/M - calculation not meaningful 30 Table of Contents Cash Provided by Operating Activities Cash from operating activities is the principal source of cash generation for our businesses.
The most significant source of cash in our cash flow from operations is customer-related activities, the largest of which is collecting cash resulting from services sold. The most significant operating use of cash is to pay our suppliers, employees, and tax and regulatory authorities.
The most significant source of cash in our cash flow from operations is customer-related activities, the largest of which is collecting cash resulting from services sold. The most significant operating use of cash is to pay our suppliers, employees, and tax authorities.
Discussions of 2020 items and year-to-year comparisons of 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual report on Form 10-K for the year ended December 31, 2021.
Discussions of 2021 items and year-to-year comparisons of 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.
The extent to which COVID-19, increasing interest rates, inflation and other economic trends will continue to impact the Company’s business, financial condition and results of operations is uncertain. Therefore, we cannot reasonably estimate the full future impacts of these matters at this time.
The extent to which increasing interest rates, inflation and other economic trends will continue to impact the Company’s business, financial condition and results of operations is uncertain. Therefore, we cannot reasonably estimate the full future impacts of these matters at this time.
The group captive is subject to a third-party actuary retained by the captive manager, independent from the Company. For the high deductible insurance program, the Company contracts with an independent third-party actuary to provide the Company an estimated liability based upon historical claims information.
The group captive is subject to a third-party actuarial study retained by the captive manager, independent from the Company. For the high deductible insurance program, the Company contracts with an independent third-party actuary to provide the Company an estimated liability based upon historical claims information.
The circumstances that make these judgments difficult or complex relate to the need for management to make estimates about the effect of matters that are inherently uncertain. We believe our critical accounting estimate to be as follows: Accrued Insurance— The Company retains, up to specified limits, certain risks related to general liability, workers’ compensation and auto liability.
The circumstances that make these judgments difficult or complex relate to the need for management to make estimates about the effect of matters that are inherently uncertain. We believe our critical accounting estimates to be as follows: Accrued Insurance— The Company retains, up to specified limits, certain risks related to U.S. general liability, workers’ compensation and auto liability.
Initiatives that have been implemented include required pre-employment screening and ongoing 24 Table of Contents ​ motor vehicle record review for all drivers, post-offer physicals for new employees, pre-hire, random and post incident drug testing, driver training and post-injury nurse triage for work-related injuries.
Initiatives that have been implemented include required pre-employment screening and ongoing motor vehicle record review for all drivers, post-offer physicals for new employees, pre-hire, random and post incident drug testing, driver training and post-injury nurse triage for work-related injuries.
The following discussion (as well as other discussions in this document) contains forward-looking statements. Please see “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of uncertainties, risks and assumptions associated with these statements. The Company Rollins, Inc.
The following discussion (as well as other discussions in this document) contains forward-looking statements. Please see “Cautionary Statement Regarding Forward-Looking Statements” and "Risk Factors" for a discussion of uncertainties, risks and assumptions associated with these statements. 22 Table of Contents The Company Rollins, Inc.
The Company believes its current cash and cash equivalents balances, future cash flows expected to be generated from operating activities, and available borrowings under its $175 million revolving credit facility and $300 million term loan facility will be sufficient to finance its current operations and obligations, and fund expansion of the business for the foreseeable future.
The Company believes its current cash and cash equivalents balances, future cash flows expected to be generated from operating activities, and available borrowings under its Credit Facility will be sufficient to finance its current operations and obligations, and fund expansion of the business for the foreseeable future.
The Company repurchased $7.1 million, $10.7 million, and $8.3 million of common stock for the years ended December 31, 2022, 2021 and 2020, respectively, from employees for the payment of taxes on vesting restricted shares.
The Company also repurchased $10.8 million and $7.1 million of common stock for the twelve months ended December 31, 2023 and 2022, respectively, from employees for the payment of taxes on vesting restricted shares.
As of December 31, 2022, the Company had outstanding borrowings of $54.9 million under the Term Loan and there were no outstanding borrowings under the Revolving Commitment. The aggregate effective interest rate on the debt outstanding as of December 31, 2022 was 5.123%.
As of December 31, 2022, the Company had outstanding borrowings of $54.9 million under the previous Term Loan and there were no outstanding borrowings under the previous Revolving Commitment. The aggregate effective interest rate on the debt outstanding as of December 31, 2022 was 5.1%. The Company maintains $71.7 million in letters of credit as of December 31, 2023.
In addition, continued disruption in economic markets due to high inflation, increases in interest rates, increased fuel costs, business interruptions due to natural disasters, employee shortages and supply chain issues, all pose challenges which may adversely affect our future performance.
Impact of Economic Trends The continued disruption in economic markets due to high inflation, increases in interest rates, business interruptions due to natural disasters and changes in weather patterns, employee shortages, and supply chain issues, all pose challenges which may adversely affect our future performance.
Our pest and termite control services are performed pursuant to terms of contracts that specify the pricing arrangement with the customer. The Company operates as one reportable segment and the results of operations and its financial condition are not reliant upon any single customer. General Operating Comments We finished 2022 with record revenue of $2.7 billion.
Our pest and termite control services are performed pursuant to terms of contracts that specify the pricing arrangement with the customer. The Company operates as one reportable segment and the results of operations and its financial condition are not reliant upon any single customer. Strategic Update We are focused on continuous improvement throughout the business.
The Company maintains approximately $71.3 million in letters of credit as of December 31, 2022. These letters of credit are required by the Company’s insurance companies, due to the Company’s high deductible insurance program, to secure various workers’ compensation and casualty insurance contracts coverage and were increased from $37.2 million as of December 31, 2021.
These letters of credit are required by the Company’s insurance companies, due to the Company’s high deductible insurance program, to secure various workers’ compensation and casualty insurance contracts coverage and were increased from $71.3 million as of December 31, 2022. The Company believes that it has adequate liquid assets, funding sources and insurance accruals to accommodate potential future insurance claims.
The severity, magnitude and duration of certain economic trends, as well as the economic consequences of COVID-19, continue to be uncertain and are difficult to predict. Therefore, our accounting estimates and assumptions may change over time in response to COVID-19 and other economic trends and may change materially in future periods.
These adjustments are of a normal recurring nature but are complicated by the continued uncertainty surrounding these macro economic trends. The severity, magnitude and duration of certain economic trends continue to be uncertain and are difficult to predict. Therefore, our accounting estimates and assumptions may change over time in response to economic trends and may change materially in future periods.
Recent Accounting Guidance and Other Policies and Estimates See Note 1 - Summary of Significant Accounting Policies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion. ​
These significant assumptions are forward-looking and could be affected by future economic and market conditions. 32 Table of Contents Recent Accounting Guidance and Other Policies and Estimates See Note 1, Summary of Significant Accounting Policies to the accompanying financial statements (Part II, Item 8 of this Form 10-K) for further discussion.
The Company’s operations generated cash of $465.9 million for the year ended December 31, 2022 compared with cash provided by operating activities of $401.8 million in 2021. The $64.1 million increase was driven primarily by strong operating results and the timing of cash receipts from customers and cash payments to vendors, employees, and tax and regulatory authorities.
The Company’s operating activities generated net cash of $528.4 million and $465.9 million for the twelve months ended December 31, 2023 and 2022, respectively. The $62.4 million increase was driven primarily by strong operating results and the timing of cash receipts and cash payments to vendors, employees, and tax and regulatory authorities.
The increase was due to the additional amortization of customer contracts from several acquisitions offset by a decrease in the depreciation of operating equipment and internal-use software. Operating Income For the twelve months ended December 31, 2022, operating income increased $45.8 million or 10.2% compared to the prior year.
Depreciation and Amortization For the twelve months ended December 31, 2023, depreciation and amortization increased $8.4 million, or 9.2%, compared to the twelve months ended December 31, 2022. The increase was due to higher amortization of intangible assets from acquisitions, most notably Fox, offset by lower depreciation of operating equipment and internal-use software.
Approximately $68.6 million is held in cash accounts at international bank institutions and the remaining $26.7 million is held in Federal Deposit Insurance Corporation (“FDIC”) insured non-interest-bearing accounts at various domestic banks which at times exceed federally insured amounts.
Approximately $52.1 million is held in cash by foreign subsidiaries and the remaining $51.7 million is held in Federal Deposit Insurance Corporation (“FDIC”) insured non-interest-bearing accounts at various domestic banks which at times exceed federally insured amounts. We intend to continue to grow the business in the international markets where we have a presence.
The Company’s condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and related disclosures as of the date of the condensed consolidated financial statements. The Company considered the impact of COVID-19 and other economic trends on the assumptions and estimates used in preparing the condensed consolidated financial statements.
However, the Company cannot reasonably estimate whether these strategies will help mitigate the impact of these economic disruptors in the future. 23 Table of Contents The Company’s consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and related disclosures as of the date of the condensed consolidated financial statements.
A total of $211.6 million was paid in cash dividends, $0.43 per share, during the year ended December 31, 2022 compared to $208.7 million in cash dividends paid, $0.42 per share, during the year ended December 31, 2021. In 2012, the Company’s Board of Directors authorized the purchase of up to 5 million shares of the Company’s common stock.
A total of $264.3 million was paid in cash dividends ($0.54 per share) during the twelve months ended December 31, 2023, compared to $211.6 million in cash dividends paid ($0.43 per share) during the twelve months ended December 31, 2022.
The Company made net debt repayments of $100.0 million during the year ended 23 Table of Contents ​ December 31, 2022, compared to net repayments of $48.0 million during 2021.
The Company made net borrowings under its credit agreements of $438.0 million during the twelve months ended December 31, 2023, compared to net repayments of $100.0 million during 2022.
Sales, General and Administrative For the twelve months ended December 31, 2022, sales, general and administrative (SG&A) expenses increased $75.2 million, or 10.3%, compared to the twelve months ended December 31, 2021. As a percentage of revenue, SG&A decreased to 29.8% from 30.0% in the prior year.
Operating Income For the twelve months ended December 31, 2023, operating income increased $89.8 million or 18.2% compared to the prior year. As a percentage of revenue, operating income increased to 19.0% from 18.3% in the prior year. The improvement in operating income as a percentage of sales is primarily driven by the improvement in gross profit discussed previously.
In the opinion of management, all material adjustments necessary for a fair presentation of the Company’s financial results for the year have been made. These adjustments are of a normal recurring nature but complicated by the continued uncertainty surrounding COVID-19 and other economic trends.
The Company considered the impact of economic trends on the assumptions and estimates used in preparing the consolidated financial statements. In the opinion of management, all material adjustments necessary for a fair presentation of the Company’s financial results for the year have been made.
Interest Expense, Net During the twelve months ended December 31, 2022, interest expense, net increased $1.8 million compared to the prior year, primarily due to the increase in weighted average interest rates which was partially offset by the lower average debt balance in 2022 compared to 2021.
Interest Expense, Net During the twelve months ended December 31, 2023, interest expense, net increased $16.4 million compared to the prior year, due to the increase in the average debt balance associated primarily with the acquisition of Fox and the share repurchase completed during 2023.
Income Taxes The Company’s effective tax rate was 26.1% in both 2022 and 2021. The 2022 rate was favorably impacted by lower foreign income taxes and officer’s compensation deductions, offset by an increase in state income taxes and lower restricted stock adjustments.
Income Taxes The Company’s effective tax rate was 25.8% in 2023 compared to 26.1% in 2022. The 2023 rate was favorably impacted by lower state income taxes and federal tax credits compared to 2022.
Comparing 2022 to 2021, residential pest control revenue increased 10%, commercial pest control revenue increased 10% and termite and ancillary services grew 15%. The Company’s foreign operations accounted for approximately 7% and 8% of total revenues for the years ended December 31, 2022 and 2021, respectively.
Organic revenue* growth was strong across our service offerings, growing over 6% in residential, approximately 10% in commercial, and over 10% in termite and ancillary activity. The Company’s foreign operations accounted for approximately 7% of total revenues for the years ended December 31, 2023 and 2022.
We expect to maintain compliance with applicable debt covenants throughout 2023. Litigation For discussion on the Company’s legal contingencies, see Note 13 – Commitments and Contingencies to the accompanying financial statements, and Part I, Item 3, Legal Proceedings.
The Company has not sold any such securities as of the date of this Form 10-K. Litigation For discussion on the Company’s legal contingencies, see Note 12, Commitments and Contingencies to the accompanying financial statements, and Part I, Item 3, Legal Proceedings.
Liquidity and Capital Resources Cash and Cash Flow The Company’s $95.3 million of total cash at December 31, 2022 is held at various banking institutions.
(5) In some cases, the sum of the individual EPS amounts may not equal total non-GAAP EPS calculations due to rounding. 29 Table of Contents Liquidity and Capital Resources Cash and Cash Flow The Company’s $103.8 million of total cash at December 31, 2023 is held at various banking institutions.
Cash Used in Financing Activities The Company used $336.0 million of cash in financing activities for the year ended December 31, 2022 and $290.2 million in financing activities for the year ended December 31, 2021.
Cash Used in Investing Activities The Company’s investing activities used $372.9 million and $134.1 million for the twelve months ended December 31, 2023 and 2022, respectively.
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We have consistently grown revenue and 2022 represented another strong year for growth. We experienced strong growth across all major service lines driving 11% total growth in revenues. Residential service revenue increased 10%, commercial revenue growth was also 10% and termite and ancillary revenue growth was 15%.
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During 2023, we made significant strides in all four pillars of our strategic objectives: 1) people first 2) customer loyalty 3) growth mindset and 4) operational efficiency. People First During 2023, we focused on the safety of our people. We are continuously improving our safety culture and monitoring our measurable safety goals.
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Income before income taxes increased 3.4% to $498.9 million compared to $482.5 million the prior year. Net income increased 3.4% to $368.6 million, with earnings per diluted share of $0.75 compared to $356.6 million, or $0.72 per diluted share for the prior year.
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For example, throughout the year we made considerable progress with respect to the implementation and adoption of our driver safety application, which monitors driver behaviors once a vehicle is in motion. Our average driver safety score for drivers that we monitor showed improvement in 2023.
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Operating cash flow remained strong in 2022 and finished at $465.9 million up from $401.8 million in 2021. We repaid debt by $100 million in 2022, we paid $119 million for 31 acquisitions in 2022 and a final payment on a 2021 acquisition, and continued to increase dividends to investors.
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We also executed a restructuring program during the year to modernize our workforce and enable us to make more strategic improvements in our support functions. We remain committed to developing exceptional talent and investing in our teams, including a focus on strategic hiring in both support functions, as well as the customer-facing side of our business.
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The Company paid dividends to investors of $0.43 per diluted share in 2022 as compared to $0.42 per diluted share for the prior year, resulting in a 2.4% increase in dividends per share. While we continue to monitor macro-economic and other risks facing our business, we are starting 2023 with a strong foundation.
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Customer Loyalty We remain committed to providing our customers with the best customer experience. Effective sales and service staffing levels helped us to capitalize on continued demand and deliver solid results for the year, with organic revenues* growing by 8.2% compared to 2022.
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Demand remains strong in our business with revenue growth of 11% in January 2023. Our balance sheet also provides us flexibility with debt remaining at very low levels to start the new year. We plan to evaluate opportunities to renegotiate our current credit facility that will be expiring in April 2024.
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Growth Mindset 2023 marked a record year in terms of revenues, totaling $3.1 billion, an increase of 14.0% over 2022, with acquisition revenues* growing by 5.9% compared to 2022. We completed the acquisition of Fox Pest Control ("Fox"), one of the largest acquisitions in the Company's history, for $339.5 million.
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Our pipeline for acquisitions is strong and we remain very well positioned to drive growth across all of our service lines in 2023. IMPACT OF THE PANDEMIC AND OTHER ECONOMIC TRENDS The global spread and unprecedented impact of COVID-19 has continued to create uncertainty and economic disruption around the world during 2022.
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We also completed 23 additional acquisitions in 2023, driving inorganic growth at several of our brands. Operational Efficiency We saw healthy margins in 2023, with gross margin improving 70 basis points to 52.2% in 2023 compared to 51.5% in 2022.
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We have and will continue to monitor COVID-19 and may again take actions that may alter our operations, including those that may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees and customers.
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Operating margin was 19.0% of revenue, an increase of 70 basis points over 2022 and adjusted operating income margin* at 19.7%, an increase of 140 basis points over the prior year. *Amounts are non-GAAP financial measures. See the schedules below for definitions and a discussion of non-GAAP financial metrics, including a reconciliation to the most directly comparable GAAP measure.
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We do not know when, or if, it will become practical to eliminate all of these measures entirely as there is no guarantee that COVID-19 will be fully contained.
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The Company continues to execute various strategies previously implemented to help mitigate the impact of these economic disruptors.
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The Company continues to carry out various strategies previously implemented to help mitigate the impact of these economic disruptors, including revamping its routing and scheduling process to decrease the number of miles per stop, advanced scheduling to compensate for employee and vehicle shortages, and maintaining higher purchasing levels to allow for sufficient inventory. 19 Table of Contents ​ However, the Company cannot reasonably estimate whether these strategies will help mitigate the impact of these economic disruptors in the future.
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Results of Operations—2023 Compared to 2022 Twelve Months Ended December 31, Variance (in thousands, except per share data and margins) 2023 2022 $ % GAAP Metrics Revenues $ 3,073,278 $ 2,695,823 $ 377,455 14.0 % Gross profit (1) $ 1,603,407 $ 1,387,424 $ 215,983 15.6 % Gross profit margin (1) 52.2 % 51.5 % 70 bps Operating income $ 583,226 $ 493,388 $ 89,838 18.2 % Operating income margin 19.0 % 18.3 % 70 bps Net income $ 434,957 $ 368,599 $ 66,358 18.0 % EPS $ 0.89 $ 0.75 $ 0.14 18.7 % Operating cash flow $ 528,366 $ 465,930 $ 62,436 13.4 % Non-GAAP Metrics Adjusted operating income (2) $ 604,217 $ 493,388 $ 110,829 22.5 % Adjusted operating margin (2) 19.7 % 18.3 % 140 bps Adjusted net income (2) $ 439,080 $ 368,599 $ 70,481 19.1 % Adjusted EPS (2) $ 0.90 $ 0.75 $ 0.15 20.0 % Adjusted EBITDA (2) $ 697,958 $ 592,881 $ 105,077 17.7 % Adjusted EBITDA margin (2) 22.7 % 22.0 % 70 bps Free cash flow (2) $ 495,901 $ 435,302 $ 60,599 13.9 % (1) Exclusive of depreciation and amortization (2) Amounts are non-GAAP financial measures.
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Results of Operations—2022 Versus 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years ended December 31, ​ Variance ​ As a % of Revenue (in thousands) 2022 2021 $ ​ % ​ 2022 2021 Revenues ​ $ 2,695,823 ​ $ 2,424,300 271,523 ​ 11.2 ​ 100.0 100.0 Cost of services provided (exclusive of depreciation and amortization below) ​ 1,308,399 ​ 1,162,617 145,782 ​ 12.5 ​ 48.5 48.0 Gross profit ​ ​ 1,387,424 ​ ​ 1,261,683 ​ 125,741 ​ 10.0 ​ 51.5 ​ 52.0 Sales, general and administrative ​ 802,710 ​ 727,489 75,221 ​ 10.3 ​ 29.8 30.0 Depreciation and amortization ​ 91,326 ​ 86,558 4,768 ​ 5.5 ​ 3.4 3.6 Operating income ​ 493,388 ​ 447,636 45,752 ​ 10.2 ​ 18.3 18.5 Interest expense, net ​ ​ 2,638 ​ 830 ​ 1,808 ​ 217.8 ​ 0.1 0.0 Other income, net ​ ​ (8,167) ​ ​ (35,679) ​ 27,512 ​ (77.1) ​ 0.3 1.5 Consolidated income before income taxes ​ ​ 498,917 ​ ​ 482,485 ​ 16,432 ​ 3.4 ​ 18.5 ​ 19.9 Provision for income taxes ​ 130,318 ​ 125,920 4,398 ​ 3.5 ​ 4.8 5.2 Net income ​ $ 368,599 ​ $ 356,565 12,034 ​ 3.4 ​ 13.7 14.7 ​ ​ 20 Table of Contents ​ Revenues The following presents a summary of revenues by product and service offering and revenues by geography: ​ Revenues for the year ended December 31, 2022 were $2.7 billion, an increase of $271.5 million, or 11.2%, from 2021 revenues of $2.4 billion.
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See "Non-GAAP Financial Measures" below for a discussion of non-GAAP financial metrics including a reconciliation to the most directly comparable GAAP measure. 24 Table of Contents Revenues The following presents a summary of revenues by product and service offering and revenues by geography: Revenues for the year ended December 31, 2023 were $3.1 billion, an increase of $377.5 million, or 14.0%, from 2022 revenues of $2.7 billion.
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Gross Profit Gross profit for the year ended December 31, 2022 was $1.4 billion, an increase of $125.7 million, or 10.0%, compared to $1.3 billion for the year ended December 31, 2021. Gross margin was 51.5% in 2022 compared to 52.0% in 2021. For the year, we saw higher expenses associated with casualty reserves and people cost, notably medical costs.
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The increase in revenues was driven by demand from our customers that remained strong throughout the year across all major service offerings. Comparing 2023 to 2022, organic revenue* growth was 8.2% while acquisitions drove 5.9% of total growth.
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Excluding the increases we experienced in these areas, strategic pricing efforts helped offset inflationary pressures we experienced in fleet, material and other people associated costs. We remain focused on executing our pricing strategies and expect to pull forward our price increase again in 2023 and expect to raise prices for services in the first quarter.
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Looking at the service offerings, residential pest control revenue increased approximately 17%, commercial pest control revenue increased approximately 11% and termite and ancillary services grew approximately 13% including both organic and acquisition-related growth in each area.
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Despite investing in additional people, advertising and other customer facing activities to drive growth, we saw an 21 Table of Contents ​ improvement in SG&A as a percentage of sales as we continue to manage our cost structure.
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We continue to maintain a very healthy balance sheet that positions us well to continue to invest in growth initiatives across our business as we enter 2024, From an organic perspective, we are proactively managing pricing across our portfolio.
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Although casualty reserves and people costs, notably medical costs, had an impact on SG&A, they had a lesser impact on SG&A than cost of services. Depreciation and Amortization For the twelve months ended December 31, 2022, depreciation and amortization increased $4.8 million, or 5.5%, compared to the twelve months ended December 31, 2021.
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Additionally, while lead generation and the overall demand environment are healthy to start the new year, we continue to navigate the negative impact of a colder January in certain parts of our business. 25 Table of Contents *Amounts are non-GAAP financial measures.
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As a percentage of revenue, operating income decreased to 18.3% from 18.5% in the prior year. The increase in revenue was offset primarily by an increase in expense associated with the casualty reserve as well as medical costs for people. Without these additional costs, pricing initiatives helped offset inflationary pressures we experienced in fleet, material and other people associated costs.
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See the schedules below for definitions and a discussion of non-GAAP financial metrics, including a reconciliation to the most directly comparable GAAP measure. Gross Profit Gross profit for the year ended December 31, 2023 was $1.6 billion, an increase of $216.0 million, or 15.6%, compared to $1.4 billion for the year ended December 31, 2022.
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Other Income, Net During the twelve months ended December 31, 2022, other income decreased $27.5 million primarily due to the Company recognizing a $31.5 million gain in the prior year related to multiple sale-leaseback transactions where the Company sold and leased back properties that it acquired in 2019 with the Clark Pest Control acquisition.
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Gross margin improved 70 basis points to 52.2% in 2023 compared to 51.5% in 2022. The acquisition of Fox drove 20 basis points of leverage in 2023. Excluding this, gross margin improved 50 basis points as pricing more than offset increases in our cost structure.
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The Company’s international business is expanding, and we intend to continue to grow the business in foreign markets in the future through reinvestment of foreign deposits and future earnings as well as acquisitions of unrelated companies. The Company has historically asserted that the undistributed earnings of our foreign subsidiaries are permanently reinvested.
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Looking specifically at people related costs, materials and supplies, and fleet, which comprise 87% of total cost of services, we saw an improvement of 90 basis points associated with leverage in these categories, as pricing more than offset inflationary pressures. Insurance and claims experience decreased gross margins in 2023 by 10 basis points.
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However, in the fourth quarter of 2022, the Company has partially changed this assertion and expects to repatriate unremitted foreign earnings from our foreign subsidiaries. The Company asserts that we continue to be permanently reinvested with respect to our investments in our foreign subsidiaries. In April 2019, the Company entered into a Revolving Credit Agreement with Truist Bank N.A.
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We expect the normal seasonality to drive lower gross profit margins in the first and fourth quarters of 2024 relative to the second and third quarters on the lower level of business activity.
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(formerly SunTrust Bank N.A.) and Bank of America, N.A. (the “2019 Credit Agreement”) for an unsecured revolving commitment of up to $175.0 million, which includes a $75.0 million letter of credit subfacility and a $25.0 million swingline subfacility (the “Revolving Commitment”), and an unsecured variable rate $250.0 million term loan (the “Term Loan”).
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Sales, General and Administrative For the twelve months ended December 31, 2023, sales, general and administrative (SG&A) expenses increased $112.5 million, or 14.0%, compared to the twelve months ended December 31, 2022. The increase is driven by people-related costs, advertising and selling expenses associated with growth initiatives.
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On January 27, 2022, the Company entered into an amendment (the “Amendment”) to the Credit Agreement with Truist Bank and Bank of America, N.A. whereby additional term loans in an aggregate principal amount of $252.0 million were advanced to the Company.
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As a percentage of revenue, SG&A was consistent at 29.8% in 2023 and 2022, as we continue to manage our cost structure while investing in growth initiatives. Restructuring Costs During the twelve months ended December 31, 2023, we executed a restructuring program to modernize our workforce. This effort resulted in expense of approximately $5.2 million in the year.
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The Amendment also replaced LIBOR as the benchmark interest 22 Table of Contents ​ rate for borrowings with the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) and reset the amortization schedule for all term loans under the Credit Agreement.
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The large majority of the costs incurred are related to severance-related costs for employees who were terminated as part of this effort. The changes were primarily across corporate-related functions and will enable us to make more strategic improvements in our support functions.
Removed
The effective interest rate is comprised of the BSBY plus a margin of 75.0 basis points as determined by the Company’s leverage ratio calculation. As of December 31, 2021, the Revolving Commitment had outstanding borrowings of $107.0 million and the Term Loan had outstanding borrowings of $48.0 million.
Added
We expect the first and fourth quarters to represent our lowest level for margins and profitability due primarily to the lower level of volume generated in those quarters due to the impact of seasonality.
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The Company believes that it has adequate liquid assets, funding sources and insurance accruals to accommodate potential future insurance claims. In order to comply with applicable debt covenants, the Company is required to maintain at all times a leverage ratio of not greater than 3.00:1.00.
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Debt levels and corresponding interest expense are expected to remain elevated in the first half of 2024 due primarily to the higher level of debt associated with the acquisition of Fox and the share repurchases during 2023. 26 Table of Contents Other Income, Net During the twelve months ended December 31, 2023, other income, net increased $13.9 million primarily due to the Company recognizing a $15.5 million gain on the sale of certain businesses during 2023, offset by lower gains from asset sales.
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The leverage ratio is calculated as of the last day of the fiscal quarter most recently ended. The Company remained in compliance with applicable debt covenants at December 31, 2022. We plan to evaluate opportunities to renegotiate our credit facility that will be expiring in April 2024.
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Non-GAAP Financial Measures Reconciliation of GAAP and non-GAAP Financial Measures The Company has used the non-GAAP financial measures of organic revenues, adjusted operating income, adjusted operating margin, adjusted net income, and adjusted earnings per share (“EPS”), earnings before interest, taxes, depreciation and amortization (“EBITDA”), EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, and free cash flow in this Form 10-K.
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Cash Used in Investing Activities The Company used $134.1 million of cash in investing activities for the year ended December 31, 2022 and used $99.0 million for the year ended December 31, 2021. The Company invested approximately $30.6 million in capital expenditures during 2022 compared to $27.2 million during 2021.
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Organic revenue is calculated as revenue less the revenue from acquisitions completed within the prior 12 months and excluding the revenue from divested businesses.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe Company is subject to interest rate risk exposure through borrowings on its $175.0 million revolving credit facility and amended $300.0 million term loan facility. As of December 31, 2022, the Company had outstanding borrowings of $54.9 million under the Term Loan and there were no outstanding borrowings under the Revolving Commitment.
Biggest changeItem 7A. Quantitative and Qualitative Disclosures about Market Risk Market Risk The Company is subject to interest rate risk exposure through borrowings on its $1.0 billion revolving credit facility (the "Credit Facility"). As of December 31, 2023, the Company had outstanding borrowings of $493.0 million under the Credit Facility.
For a discussion of the Company’s activities to manage risks relative to fluctuations in foreign currency exchange rates, see Note 11 to the accompanying financial statements. ​ 25 Table of Contents ​ ​ ​
The Company believes that this foreign exchange rate risk will not have a material impact upon the Company’s results of operations going forward. For a discussion of the Company’s activities to manage risks relative to fluctuations in foreign currency exchange rates, see Note 1, Summary of Significant Accounting Policies to the accompanying financial statements. 33 Table of Contents
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk Market Risk The Company maintained an investment portfolio (included in cash and cash equivalents) subject to short-term interest rate risk exposure; and other current and long-term investments.
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See Note 10, Debt to the accompanying financial statements for further details regarding debt. We do not believe that a one percent increase in interest rates, for example, would have a material effect on our results of operations or cash flows. The Company is also exposed to market risks arising from changes in foreign exchange rates.
Removed
Additionally, the Company maintained $71.3 million in Letters of Credit. See Note 10 to the accompanying financial statements for further details regarding debt. These letters of credit are required by the Company’s insurance companies, due to the Company’s high deductible insurance program, to secure various workers’ compensation and casualty insurance contracts coverage.
Removed
The Company believes that it has adequate liquid assets, funding sources and insurance accruals to accommodate such claims. The Company is also exposed to market risks arising from changes in foreign exchange rates. The Company believes that this foreign exchange rate risk will not have a material impact upon the Company’s results of operations going forward.

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