Q1 2025 Earnings Call Transcript

Greetings. Welcome to the Rollins, Inc. First Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Lyndsey Burton, President, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. In addition to the earnings release that we issued on today, the company has also prepared a supporting slide presentation. The earnings release and presentation are available on our website at www.rollins.com. We have included certain non-GAAP financial measures as part of our discussion this morning.

The non-GAAP reconciliations are available in the appendix of today's presentation as well as in our earnings release. The company's earnings release discusses the business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that have been made on this call, including historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially from any statement we make today. Please refer to yesterday's press release and the company's SEC filings, including the Risk Factors section of our Form 10-K for the year ended December 1, 2024. On the line with me today and speaking are Jerry Gahlhoff, President and Chief Executive Officer; and Ken Krause, Executive Vice President and Chief Financial Officer.

Management will make some opening remarks, and then we'll open the line for your questions. Jerry, would you like to begin?

Thank you, Lyndsey. Good morning, everyone. I'm pleased to report Rollins delivered strong first quarter results. Overall, we continue to see solid growth across all major service lines with total revenue growth of nearly 10% and organic growth of 7.4% despite 1 less business day.

Earlier this month, we announced our acquisition of Saela Pest Control. We have known and admired Saela's business for a number of years. In fact, Mitch Smith Saela's President is a former Orkin Division President, so we're happy to welcome him and the rest of our sale teammates to the Rollins family. Ken will share more of the financial details associated with the transaction in a moment.

The Saela is a wonderful addition to the Rollins family of brands for several reasons. First and foremost, the heavy strong culture that is focused on people. People who deliver amazing service. Second, Saela has a scaled operation with a strong track record enabled by their focus on operational execution.

Third, their presence in key geographies, including the Pacific Northwest, Mountain West and the Midwestern United States provides a platform for us to more effectively deploy our multi-brand strategy. As you know, we believe the combination of Orkin and our strong group of regional brands is a competitive differentiator for Rollins, giving us multiple bites at the apple with potential customers while also providing some balance and diversification with respect to customer acquisition. The addition of Saela further strengthens these competitive advantages. Earlier this month, I was able to meet many of Saela's teammates in Utah and Colorado, and I was really impressed.

I'm proud to welcome them all to Rollins and I'm confident that Saela's business is well aligned to our strategy for sustainable, profitable growth. Our investments in strategic M&A opportunities are also complemented by ongoing investments to drive organic growth. As expected, we continued our investments in incremental sales staffing and marketing activities ahead of peak season to ensure that we are positioned top of mind for the consumer as pet season begins. We are well staffed on the sales, technician and customer service support front with our teammates onboarded, extensively trained and ready to provide an exceptional level of service for our customers.

On the commercial side of the business, we are encouraged by our momentum. Overall, we delivered solid double-digit commercial growth for the first quarter despite some softness of commercial onetime special services such as commodity fumigation. Over the last year, we have strategically added resources to support our dedicated commercial division within Orkin. These resources are paying off as Orkin Commercial delivered double-digit recurring revenue growth in the first quarter.

Beyond growth, our dedication to operational efficiency and continuous improvement is part of our strategy and culture. Ken will discuss in more detail, but we saw gross margin in the quarter as we executed our pricing strategy leveraged our cost structure and drove efficiencies throughout the business. This is somewhat offset by ongoing investments we have made to support long-term growth objectives, but we remain confident in our ability to yield a strong return on these investments in the quarters and years ahead. And finally, before I turn it over to Ken, I would like to take a moment to welcome Paul Donahue, who is elected to our Board of Directors at our Annual Shareholder Meeting earlier this week.

Paul serves as Nonexecutive Chairman of Genuine Parts Company and was previously CEO and Chairman there as well. His extensive leadership experience, business expertise and commitment to the community, bring great value to Rollins. And we look forward to the impact he will have on our company. In closing, we're excited about where our business stands today.

The year is off to a solid start and demand from our customers remain strong. Our teams in the field are ready to support our customers as peak season ramps up, and I want to thank each of our 20,000-plus team members around the world for their ongoing commitment to our customers. I'll turn the call over to Ken.

Thanks, Jerry, and good morning, everyone. The first quarter reflects continued strong execution by the Rollins team. A few highlights to start. Growth was robust the start of the year.

We delivered revenue growth of 9.9% year-over-year. Organic growth was 7.4% despite 40 basis points of headwind from foreign currency as well as an impact from 1 less business day in the quarter versus last year. Organic growth would have exceeded the high end of our 7% to 8% range were it not for these 2 factors. On the profitability side, we continue to make progress gross margin of 51.4% is the highest first quarter gross margin that we have recorded in recent history.

As expected, strategic growth investments did temper EBITDA margins a bit in the quarter but we continue to anticipate an improving margin profile as we move through the back half of the year. And finally, we delivered operating cash flow of $147 million and free cash flow of $140 million, up 15% and 17%, respectively, versus last year, enabling a balanced capital allocation strategy. Diving further into the quarter, we saw good growth across each of our service offerings. In the first quarter, residential revenue increased 8.2%, commercial pest control rose 10.2%, and termite and ancillary increased by 13.2%.

Organic growth was also healthy across the portfolio, with growth of 5.7% in residential, 7.4% in commercial and 11.1% in the termite and ancillary area. Importantly, our organic growth rate on our recurring base of commercial business grew at nearly 10%. We remain encouraged that our investments in this area are paying off. Turning to profitability.

Our gross margins were healthy at 51.4%, up 20 basis points versus last year. We continue to be positive on the price cost equation and saw good performance across several plus categories. Looking at our 4 major buckets of service costs, people, fleet, materials and supplies as well as insurance and claims, we saw improvements in margins associated with people costs, materials and supplies as well as the insurance and claim area, which was somewhat offset by higher fleet expense. Quarterly SG&A costs as a percentage of revenue increased by 70 basis points versus last year.

We saw healthy leverage on administrative people costs which enabled reinvestment in incremental advertising and selling expenses associated with the growth initiatives that we've discussed previously. First quarter GAAP operating income was $143 million, up 7.7% year-over-year. Adjusted operating income was $147 million, up 6.7% versus prior year. First quarter EBITDA was $173 million, up 8.1% and representing a 21% margin.

Interest expense was $2 million lower year-over-year due to lower average debt balances and a lower average rate versus last year. We expect interest expense for the remainder of the year to be slightly elevated compared to last year due to higher debt levels associated with our recent M&A activity. Notably, we expect interest expense to be $8 million to $10 million in Q2 on the higher borrowings. The effective tax rate was 23.5% in the quarter, lower than the 26% we expect for the year due to timing of certain tax benefits associated with the vesting of restricted shares.

We expect the second quarter tax rate to approximate 26%. Quarterly GAAP net income was $105 million or $0.22 per share, increasing from $0.19 per share in the same period a year ago. For the first quarter, we had non-GAAP pretax adjustments associated with the Fox acquisition-related items totaling approximately $4 million of pretax expense in the quarter. Accounting for these expenses, adjusted net income was $108 million or $0.22 per share, increasing 10%.

Turning to cash flow and the balance sheet. Operating cash flow increased 15% in the quarter to $147 million. We generated $140 million of free cash flow, a 17% increase versus last year. And cash flow conversion, the percent of income that was converted into operating cash flow was very strong at well above 130% for the quarter.

As a reminder, our second quarter cash flow will be impacted by deferred tax payment associated with the disaster relief measure granted to those with operations impacted by Hurricane Helene that we discussed on our fourth quarter call. We made acquisitions totaling $27 million, and we paid $80 million in dividends in the first quarter. During the quarter, we executed our inaugural bond offering, issuing $500 million of 10-year notes with the tightest bond IPO credit spread for any industrial company since 2016. We also established a $1 billion commercial paper program, which will generate ongoing savings as short-term funding needs arise.

Our leverage ratio stands at 0.8x. Our balance sheet is very healthy and positions us well to continue to execute on our balanced capital allocation strategies. As Jerry mentioned, we closed the Saela acquisition earlier in April and are excited about the strategic growth opportunities this acquisition will provide us. Let me share a few financial details on the acquisition.

We expect it to add between $45 million to $50 million of revenue in 2025 was approximately $15 million in Q2. From an EBITDA standpoint, Saela's margin profile is neutral to ours, and we anticipate the deal to be accretive to earnings in the first full year of ownership. We are in the process of finalizing our purchase accounting and we'll provide an update on this during our Q2 call in July. As we look to the remainder of 2025, we remain encouraged by the strength of our markets our recession-resilient business model and the execution of our teams. We are fortunate to have limited exposure with respect to tariffs.

To give you some perspective, our greatest area of potential impact from tariffs could be in our fleet. Fleet costs in total represent just over 5% of our income statement, and it's important to dissect that further and recognize that automobile lease costs represent roughly 3% of our income statement. We are positioned extremely well to deliver on our financial objectives despite uncertainty in the current macroeconomic environment. We continue to expect organic growth in the 7% to 8% range for the year but expect that the addition of the Saela business will take anticipated growth from M&A to 3% to 4% for the year versus the 2% to 3% we discussed previously.

We remain focused on improving our incremental margin profile while investing in growth opportunities. And we anticipate that cash flow will continue to convert at a rate that is above 100% in 2025. With that, I'll turn the call back over to Jerry.

Thank you, Ken. We're happy to take any questions at this time.

[Operator Instructions] Our first question is from Tim Mulrooney with William Blair.

Okay. A couple of questions. So first, just in terms of your -- I guess this would be more of your consumer-facing businesses, resi and termite. We've heard from some other industry participants that lead volumes in North America have been a little bit weaker to start the year.

I'm curious what you're seeing in the market as it pertains to demand trends. Obviously, everything sounds good. But is there anything in the data to suggest that things are slowing down at all maybe towards the end of the quarter or after the quarter as macro uncertainty continues to ramp up here?

Ken, I guess I'll kick off. January and February were certainly a little tougher, got better in March. I would characterize demand was still pretty good. We did see also some uptick in our technician sales efforts and things along those lines that also helped drive the residential creative selling on the termite and ancillary side of the business.

Those helped in that area. I would -- for us, at least, we didn't see some -- any type of demand signals or changes that gave us pause.

Yes. The only thing I would add, Jerry, is when you look across the business, the residential business continues to perform well. We're happy with the recurring revenue growth we're seeing in that business. When you look at the commercial area, I pointed out in my prepared comments that, that business, the recurring organic growth was close to 10%.

And then the termite and ancillary business continues to be a strong contributor. The and the team across the organization is just do an exceptional job navigating an uncertain economic environment. But again, our business remains very recession resilient, and we've seen that through a number of cycles in the past, and we're seeing that now. As we go through April, we're executing well.

We're seeing good results, continue to see and continue to expect to be able to deliver on our organic growth commitments.

Okay. That's very clear. You guys aren't seeing it at all. And if anything, it sounds like things got better as you move through the quarter.

So that's all very clear. And just to build on that comment that you were making there, Ken, on your commercial business. I think -- and please correct me if I'm wrong, but I think a lot of the investments that have been weighing on margins the last couple of quarters are in Orkin commercial specifically. So this really strong result that you're seeing in your commercial business, do you think that, that's a direct result of these investments that you're making, adding feet on the street, splitting up the branches, those kind of things?

Do you think you're starting to see the benefit of those investments that those are paying off? Or is it too early there?

No, I think it is. I mean when I look at that business and think about what Scott Weaver is doing with leading that business, the performance we're seeing. It certainly is correlated, I believe, to the level of focus and the emphasis and the investments we're making in that business. And we feel like they're paying off.

We continue to be bullish on that segment. We're also -- when you step back and look across the business, we're bullish on the other areas as well. You look at the termite and ancillary business and what we're seeing there, dissecting that and looking at some of the ancillary growth we're seeing gives us a sense of optimism when we think about the -- how healthy our customer base might be because those are larger ticket items. But we think generally, across the board, we're seeing good returns on the investments we're making.

And I would add, Ken, that it takes -- the sales cycle on the B2B side is longer. So those investments that we make in the back half of last year really don't start paying off until the middle of this year. unlike residential, that tends to have a little quicker ramp-up, things like that. So these investments in the commercial business take time. It takes focus.

It takes a commitment to really stick with it and keep driving away at it, and we'll focus heavily this year on productivity of the sales force that we built much of the last couple of years, and now we can focus on productivity.

Our next question is from Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. I think it'd be fair to say that you guys have been remarkably resilient throughout the cycle. Could you just touch on for, I guess, a high-level standpoint, the drivers of the top line growth, if you see contributions from new up cross pricing and inorganic change, the drivers of margins in, say, a downturn? And then anything to note for our resiliency by segment if there's any nuances there?

A number of different questions. I'll try to take them and make sure I address them. But when you look at the resiliency of the business and you look at the contributors to growth, I have to start with pricing. We continue to see good pricing in our business.

CPI plus level of pricing, 3% to 4% price increases. It's not just -- every customer is not seeing the same price increase. It certainly is market specific, but we're seeing good traction on that side. Volume growth continues to be healthy.

When you look at all of the various segments I pointed out previously and the contributions in those segments, certainly feel like we're seeing good volume growth and share gain. When you think about the M&A environment remains very healthy, as you saw us execute on Saela, a great business and with a lot of great people that we've acquired and really looking forward to the contributions of that business, but we continue to remain active and looking at a number of additional opportunities. And so we continue to build the pipeline on the M&A. So generally, across all of that, we feel pretty good.

And when you look at downturn, what do you do in a downturn? We're a very labor-intensive business. So we have a very high variable cost model in the business. And so if the business -- we don't see it, I have to say that, we're not seeing a slowdown.

But if it were, that would certainly be a lever that one would address. But today, we see -- we're very much in a growth mode. We're investing in our business. We're investing in our teammates, and we're excited about the future.

And Ken, I would add to that when we talk about our revenue drivers and what keeps us -- keeps the gas and engine, it's our multi-brand strategy. That's what -- when we have -- our eggs are in a lot of different baskets, and we have so many ways to go to market and capitalize on the opportunities that are there. That's really probably the single biggest difference maker as it relates to how do we drive consistent revenue across all of these categories. It's our multi-brand approach that gets us there.

That's very helpful. Thank you for taking the multifaceted question. On M&A, can I just ask that you reconfirm how the pipeline looks? I know with the Saela execution or acquisition, some upside from M&A there.

But also if you are seeing with the uncertain market environment, if that puts potential pressure on competitors and potentially valuations, and therefore, you may be inclined to do a more sizable transaction?

When we look at the M&A pipeline, the pipeline is healthy. But as I've said a number of times, there's no urgency to chase any one individual asset or opportunity. We remain in a very enviable position when it comes to M&A. We're very strategic but also very pragmatic when we think about the steps we take in the M&A side.

The market remains healthy. But the one thing, even though we do have a significant amount of financial bandwidth, we're always looking at the pace that we're acquiring these businesses because it's a lot of work to integrate and to bring new businesses and new brands and new teammates on. So we're going to continue to be pragmatic and take the step approach when it comes to M&A.

Our next question is from George Tong with Goldman Sachs.

If I look at organic revenue growth for the residential and termite businesses, it looks like it stepped down a little bit residential organic growth take down about 1 point, and then termite organic growth tick down about 3.5 points going from 4Q to 1Q. So I know there was 1 fewer working day in the quarter, but what were some other factors that may have contributed to this growth moderation in residential and termite?

Yes. It's not something that we're overly concerned with, George. We feel good about the contribution of those businesses. We continue to see good demand in those businesses.

As you point out, we had 1 less business day. We also had roughly a 40 basis point headwind on currencies that impacted our business across the board. And so -- but when we step back and we look at it, we feel good about how we exited Q1, but also how we're starting Q2. We feel like the business is very much intact.

And George, I would add that with the impact in the first quarter, when you lose that day, there are a lot of onetime -- there's a lot of onetime business that may not get -- you're losing a full day of onetime -- your recurring basis there, and we're finding ways to get that work done. But you do lose a lot of that onetime business and a lot of that termite and ancillary work certainly could fit into that category. So some of it is just attributed to that.

Yes. The heaviest area of onetime is definitely termite and ancillary. So that's a great point, Jerry.

That's helpful color. And then with your acquisition of Saela that you closed in early April, can you confirm what the commercial and residential mix is?

It's high 95% range residential. They're largely a residential company. They do some commercial, but it's not significant.

Our next question is from Jason Haas with Wells Fargo.

In light of the Saela acquisition, can you talk about your playbook for driving synergies of the businesses you acquired? And I'm curious if there's a similar opportunity to what you saw with Fox.

When we look at these businesses, we certainly do look at integration, but we're buying really good businesses, businesses that are very attractive from a financial perspective. So we very much take a pragmatic approach to integration. With that said, we do help them on fleet, we do help them on materials and supplies and a number of other measures. And when you look at the things we're doing around our modernization and our back office, looking at our finance and accounting and HR and IT teams, I think there's an opportunity to do even more as we go forward.

So it's very much a pragmatic approach but looking at how we can help them improve their business and how we might learn from them as well.

Yes. A perfect example of a synergy that could be gained there quickly. As I mentioned, Mitch Smith, who worked for us at one point in time in his career, he's familiar with the technologies that we have that enable our sales force, like our BizSuite and our HomeSuite apps that are powerful tools for our sales team. And he -- if we can help him mobilize those types of technologies and put those into the Saela business, we can help them accelerate their growth.

So those are the types of maybe not traditional synergies, but it's the way that we share best practices, share technology, share things to how we make the business better. It's not always just about how we cut costs, right?

Right? And very much when you look at the Fox acquisition, a lot of that was revenue growth and how we were able to see an improvement in -- or the multiple that we paid on that. And so the things Jerry just articulated are very much aimed at growth enablers.

That's great. And as a follow-up, can you talk about what incremental margins might have looked like in 1Q, if you exclude some of these onetime impacts from the less -- 1 less workday, the FX and the investments you're making in the business, excluding those, would you have been at your long-term target? And then how are you thinking about incremental margins? How should they trend through the remainder of the year?

Great question, Jason, and thank you for that. When we look at incremental margins, a couple of things. You're right to talk about the growth. If it's 40 basis points of FX and maybe another 30 to 40 basis points associated with the 1 -- the loss of the business day, that's meaningful.

But what's more meaningful is the investments we made and especially in the selling and marketing and advertising area. We pulled forward some advertising. Every other year, we go out and shoot new television ads. We did that in the quarter, incurred that expense.

If you set aside the selling and marketing expenses, you would have been in that 25% to 30% margin profile. With that improving gross margin, it enables us to be able to deliver that but we did invest. As we think about the future, as we said at the end of last year, as we did the call for Q4, we expect that incremental margin to improve as we go throughout the year, as we start to lap some of these more significant investments as we see the growth come on, but we'll continue to update that as we go throughout this year.

Our next question is from Toni Kaplan with Morgan Stanley.

I wanted to sort of go back to the marketing and investments. Just wanted to ask how you're thinking about your strategy in terms of marketing, just in the current period. I know you talked -- you haven't seen any impact yet. So I imagine you're still in a business-as-usual mode and maybe gearing the spend based on traditional seasonality.

But just wanted to get a sense of like what would change the trajectory dialing up or down the marketing spend.

Really, it's business related. It's related to what we're seeing in our markets and the strategic initiatives that we talked about. And so nothing outside of that, I think, would cause us to change our approach when it comes to the selling and marketing side. But it's more about the health -- how healthy our markets are and then execution of our strategy.

I mean, gosh, Ken, something kind of crazy happened in the digital side and costs went dramatically up, which we've never seen happen that we could mitigate or control or adjust. We just pivot, right? So we'll take those dollars and use them in other ways and through other perhaps other channels and repurpose those dollars into perhaps more efficient ways if there were some of those dynamics that occurred that cause prices to go up.

And that gets to the point you raised with the previous question, this multi-brand strategy. We've got so many different ways that we market to our customers and we focused on that as part of our Investor Day last May, where we showed various brands and how some are more reliant on digital, some are more relying on billboards, some are more reliant on door-to-door and homebuilders. And so we very much have a diversified approach to marketing and capturing customers.

Great. And just as a follow-up, I wanted to ask about sort of a longer-term picture on termite. You've had double-digit organic growth there the last 4 quarters. and at least high single to low double, and basically for years. And so when you sort of just think about the main factors that have driven that high level of growth, do you find that taking share over the past 5 years or so, are you able to command more pricing in that market?

Like, I guess, what are just long-term factors that are really driving the elevated growth there?

To us, Toni, it has to do with the relationships that we have with our existing customer base and being able to cross-sell additional services to them. If they know you, if they trust you and you're in their homes, if you're in their attics and you're in their cross basis, doing inspections on a regular basis, and you notice things that they need to take care of. They trust on you to do that. It's really as simple as that.

And then if we have cost structures or things that go up with materials and supplies, we just have to adjust our pricing. We have an incredible opportunity. It's why you see this continuing to grow. This sort of creative selling, we're not relying on digital leads to drive this business especially in termite.

These are creative type of benefits that we have by having such a strong recurring customer base with good relationships, high net promoter scores, customers that trust us, trust our brands and that's what really drives the business. So that's why I think you have seen it be such a sustainable number going historically.

The relationships are there, Toni, and the opportunities there. And so when you look again back at May of last year, we showed in its hockey playoff season. So we showed 9 shots on goal with the customer, I believe. And so there's so many different opportunities that we can go after as long as we're providing the services.

We're investing in the relationship. We've got that -- if we have that intact, we have an opportunity to grow the business.

[Operator Instructions] Our next question is from Josh Chan with UBS.

Jerry, congrats on a very strong quarter. I guess 2 commercial questions for me. First one, just strategically, as you make these investments what's kind of your strategy in picking up new accounts? I assume you're going to have to displace existing competitors. And so I was just wondering how you're going about gaining the new accounts on commercial?

So I give you a little bit of color here, but obviously, I don't want to say too much about what our strategies are competitively. But when you have clearly defined territories, trained teammates that know what verticals they like to sell in, where the opportunities are, what those opportunities are and you point them in the right direction. You got to have really strong sales management processes, sales management tools, sales management disciplines. That's really more of what it's about.

And when you have people, you have the brand, you have scale, we can handle just about any type of thing that anybody could throw at us. It's just a come-- that's our competitive advantage is our people. Other than that, I wouldn't say there's anything magical competitively out there in the market that is going on, it's not any dynamic there. It's just a function of looking at what we do, investing in our people, investing in our teams, investing in our technology that helps us in that regard and just going after the business.

And yes, you're displacing others. Some people may be don't have a service if it's maybe there's an office building or something like that, that hasn't considered pest control yet and we happen to show up and present what we have to offer, cold calling and those types of things that your presence gets expanded with feet on the street, and that's the investment that we've made.

That makes a lot of sense. And then on the -- maybe more numbers question on commercial. I know, Ken, you mentioned Orkin recurring organic growth was almost 10% and the segment with 7%. So could you just kind of bridge us? Are there any other pieces there between Orkin and the onetime, how the 10% gets to 7% and then how you expect kind of these pieces to kind of flow going forward?

Certainly. And that close to 10% was across the business. So it's not just the Orkin in area, but it's across the business. The team is doing a really good job driving that level of performance.

But we do have a onetime part of the business. There is a onetime aspect of commercial fumigation work, other work that is more onetime oriented. We just saw a little bit weaker onetime business in the quarter. That 1 less day certainly has an impact when it comes to that with the contribution.

And so when I think about it, that's probably the single largest contributor is having 1 less day in that part of our business and drawing that down.

Our next question is from Ashish Sabadra with RBC Capital Markets.

This is David Paige on for Ashish. I had a question. I know you mentioned the fleet was maybe less than 5% of cost. But I was curious to know how much of the fleet has been actually refreshed or how much will be needed to be refreshed over, let's say, the next like 1 to 2 years?

It's hard to give a precise number on how much of our fleet is going to get refreshed over the next 12 months. But what I would say, and the reason I think we have some confidence is we feel good about our level of fleet in '25 here. We'll continue to evaluate '26 and beyond. But we'll continue to look at that.

We have an opportunity to keep trucks longer if we need to. We have an opportunity. We continue to look at a number of different sources, but we feel pretty good about our position in that area.

Yes, we have to do the math to say, what are we -- what's the potential exposure to increase repair and maintenance cost by keeping some trucks longer versus the in of, say, truck and tariffs and things like that. So but at the same time, we also need to be looking for maybe lighter duty, smaller utility vehicles that we can -- maybe there are some options that we have can find out there that we can get less expensively and offset some of those costs as well. So we're looking at all those opportunities and levers.

Okay. Makes sense. Just as a follow-up, in terms of like big ticket items or nonrecurring revenue, you have a slide in the deck here, Slide 9 of the past slowdown, GFC, industrial slowdown, COVID, et cetera. How has those nonrecurring or big ticket items? How they fared during those downturns? Just as a reminder.

So it's always hard to compare our business today to the great financial crisis because it's just so different. We have so many different brands today than we had back in 2008 and '09. And so the business has continued to evolve. If anything, we have a much more defensive business. We've got more diversification in the base.

And when we look at our performance, it's interesting we were seeing great performance across those onetime areas, notably in the termite area, which is the largest. And so that's an area that we certainly see good demand levels for continue to see good levels of interest. We also provide opportunity for customers to access our Acceptance Corp for credit. We certainly have pretty tight credit standards when it comes to that, but we also have an opportunity to provide our customer with and our sales folks with another tool in the toolbox to sell those products, but -- or sell those services.

But generally, when we look at it, we feel good about the onetime business. And the one area we look at, again, is the termite and ancillary and how that's performing, and it continues to perform very well.

David, this is my perspective on the reality of this is, if my attic at my house had rodent infestation with rodent droppings and rodent urine throughout and in the installation, I can assure you that no matter what the economy is, I'm going to find a way to figure that out and remediate that situation because I don't want to live like that. And then on top of it, you add our financing options, how you can pay over time or finance that type of work over time. That's -- those are tools that we have to help us navigate these types of events because the reality is quality of life being what it is today, people don't want to live like that.

And we have a -- we offer a very valuable and essential service to people that's what makes us, I think, as resilient as you've seen in those charts.

Our next question is from Stephanie Moore with Jefferies.

I guess continuing on the theme of potential recession here. It's been a while since I think we've -- and to your point, the business has evolved quite a bit since the last recession. But as you think about maybe the recurring side of the residential business, which I think from a relative standpoint, it's probably maybe less defensive than commercial or as we just described, some of these that are definitely necessities. But can you talk about maybe levers that you pull to maintain client retention in a recessionary environment?

And also, maybe your perspective about customers' willingness to potentially trade down or reduce their monthly bill and what levers you can pull just to kind of maintain kind of status quo?

So Ken, I'll try to take this. I'm going to put it in perspective of -- I remember in 2008, I was with the HomeTeam brand, and we were completely tied to homebuilding. We captured customers, and it was predominantly a residential business, and you had people losing their homes, people upside down in their homes, people walking away from their homes. And yet, if customers were still in their house, our customer retention rate was still pretty solid, and it's because of the relationships that we have with our clients.

Our customers had personal relationships with their technicians. And from a share of wallet standpoint, it wasn't -- just wasn't a lot of money for folks during those periods of times. There were some markets that I remember -- gosh, this is going back a while now, but there were some markets I remember having to -- we would look at a customer. It's been with us a while, that was struggling financially and maybe we put them on a hold for a month or 2 months or we'd work with them or we'd work on -- back in those days, we didn't have monthly building plans.

We would convert them -- try to convert them to monthly billing plans, so they didn't have a larger outlay of cash say every quarter. We try to work with our customers because we know the cost to reacquire customers far greater than some costs to keep them. So we -- our brands can easily put in playbooks to learn from the past and make those kinds of adjustments. But it's usually a market-by-market kind of branch to branch kind of a situation based on what's going on there, household income, how hard a certain market is hit.

So for example, back in 2008, there were markets like California, where it was -- and Florida that were hit way harder than, say, Texas was, right? So we had to pull those levers differently from market to market. So we're able to do that. We give our field autonomy to make those decisions, especially with customers that have been with us for a long time.

Got it. No, that's really helpful. And then maybe talk about given the uncertainty in the market and maybe risk of recession or gosh, who knows at this point. Do you think this actually could be an enabler of your M&A strategy, willing sellers looking to just kind of throw in the towel in this more challenging environment, something you can take advantage of?

I don't know. I don't necessarily think that because I think in this business, they'll have a lot of the same headwinds and tailwinds as we do. What's great about this entire industry. And we're going to have fleet challenges.

They're going to have fleet challenges. I don't think there's anything that's suddenly facing them. Maybe there's some market-to-market differences or some customers they serve that are impacted or something along those lines. But I haven't thought about that much, but I wouldn't think it would cause a bunch of people to suddenly want to sell their business.

A lot of these businesses, Stephanie, are family-owned, multi-generation. They've been around for a very long time through a lot of different cycles. And they're not basing their selling decision. The ones that we like to buy aren't basing their selling decisions based upon a short-term macroeconomic of that.

We're buying good businesses that have been around for decades, if not longer. Sure, there's other businesses that maybe haven't been around as long. But generally, our preferred approach is to buy those businesses that are looking at it through a long-term lens.

Our next question is from Brian McNamara with Canaccord Genuity.

I'm curious if you have an idea of how fast the industry as a whole is growing kind of particularly in Q1. You guys have had pretty strong organic growth for some time now. And your larger peer clearly is lagging you in that regard. So there's share gains there. But any more color on maybe some of the smaller players would be helpful.

I don't think we have a strong sense of how others are doing other than what you see, I guess, maybe in the public market. I would say, wait for Tim Mulrooney's pest index report that come probably be out in the next month or so. They'll have a pretty good sense of what that looks like, but that's probably one of the better tools out there. to help with that.

Market continues to be good. We feel like it's a good market, continues to be healthy. Market share and market data is very much art more than it is science. But we just feel like from where we sit, we're growing and probably gaining a little bit of share.

And then secondly, I was hoping you guys could provide some kind of update on your employee retention efforts, particularly with the first year tax and how you think that evolves in a potentially softening labor market environment? I'm assuming that's probably beneficial there.

We've made some -- I'm really proud of the -- we've just spent this last week reviewing those numbers from the first quarter. I'm really proud of our operations teams. They've made marked improvement in our first year retention, double-digit improvements percentage-wise in what we call the short-term retention, making sure the folks that have been with us for less than a year are staying longer. So I'm really proud of that.

And as a result of that, we'd make far fewer new hires in the first quarter than we did a year ago. and that's proof that of the improvements that we've made in that regard. We're really proud of that. Certainly still work to do. Still have plenty of work to do on that front, but we are beginning to see light at the end of the tunnel on that one.

And maybe the labor market is helping with some of that, too.

Yes, Pat Chrzanowski, the Head of our Orkin business, actually sent me a note this morning, and he was talking about that as one of his highlights the significant improvements in first year PC pro technician was led by the head of his HR and all of the divisional directors seeing really good engagement and results.

With no further questions, I would like to turn the conference back over to management for closing remarks.

Thank you, everyone, for joining us today. We appreciate your interest in our company and look forward to speaking with you on our Q2 earnings call later this summer.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.