Rollins, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

The following table summarizes changes in goodwill during the nine months ended September 30, 2023, and the twelve months ended December 31, 2022 (in thousands):


Goodwill:
Balance at December 31, 2021	$	786,504
Additions	64,997
Measurement adjustments	(9)
Adjustments due to currency translation	(4,788)
Balance at December 31, 2022	846,704
Additions	209,487
Measurement adjustments	522
Adjustments due to currency translation	(2,748)
Balance at September 30, 2023	$	1,053,965

The carrying amount of goodwill in foreign countries was $105.6 million as of September 30, 2023, and $97.4 million as of December 31, 2022.

The following table sets forth the components of indefinite-lived and amortizable intangible assets as of September 30, 2023, and December 31, 2022 (in thousands):


	September 30, 2023						December 31, 2022
	Gross		Accumulated Amortization		Carrying Value		Gross		Accumulated Amortization		Carrying Value		Useful Life in Years
Amortizable intangible assets:
Customer contracts	$	623,917	$	(221,568)	$	402,349	$	502,689	$	(204,130)	$	298,559	3-20
Trademarks and tradenames	19,805		(9,322)		10,483		17,351		(10,009)		7,342		7-20
Non-compete agreements	14,141		(9,118)		5,023		14,180		(8,226)		5,954		3-20
Patents	6,888		(6,877)		11		6,934		(6,802)		132		3-15
Other assets	1,904		(1,830)		74		2,016		(1,786)		230		10
Total amortizable intangible assets	$	666,655	$	(248,715)	417,940		$	543,170	$	(230,953)	312,217
Indefinite-lived intangible assets:
Trademarks and tradenames					139,732						104,304
Internet domains					2,227						2,227
Total indefinite-lived intangible assets					141,959						106,531
Total customer contracts and other intangible assets					$	559,899					$	418,748

The carrying amount of customer contracts in foreign countries was $52.0 million and $46.1 million as of September 30, 2023 and December 31, 2022, respectively. The carrying amount of trademarks and tradenames in foreign countries was $3.8 million and $4.2 million as of September 30, 2023 and December 31, 2022, respectively. The carrying amount of other intangible assets in foreign countries was $0.6 million and $0.7 million as of September 30, 2023 and December 31, 2022, respectively.

Amortization expense related to intangible assets was $16.5 million and $14.2 million for the three months ended September 30, 2023 and 2022, respectively. Amortization expense related to intangible assets was $48.5 million and $41.5 million for the nine months ended September 30, 2023 and 2022, respectively. Customer contracts and other amortizable intangible assets are amortized on a straight-line basis over their economic useful lives.

Estimated amortization expense for the existing carrying amount of customer contracts and other intangible assets for each of the five succeeding fiscal years as of September 30, 2023 are as follows:


(in thousands)
2023 (excluding the nine months ended September 30, 2023)	$	19,946
2024	76,652
2025	67,846
2026	64,311
2027	60,592

Change in Annual Assessment Date for Goodwill and Indefinite-lived Intangible Assets

Effective January 1, 2023, we reorganized our reporting structure including the transition of Jerry E. Gahlhoff, Jr. to the role of Chief Executive Officer. As a result of the transition, we reevaluated our segment reporting and determined that we now have two operating segments and two goodwill reporting units, but we continue to operate under one reportable segment which contains our residential, commercial, and termite business lines. We performed an assessment of whether there was an indication of goodwill impairment before and after the reorganization. In that analysis, we determined that no goodwill impairment existed.

Following the reorganization of our reporting structure and determination that we have two goodwill reporting units, we changed the date of our annual goodwill and indefinite-lived intangible asset impairment test from September 30 to October 1. The change in the date of the annual assessment represents a change in accounting principle. Management believes this change in accounting principle is preferable, as the later date better aligns the timing of the tests with the availability of key inputs, such as forecasts for our two reporting units, and provides us additional time for the completion of our annual impairment testing in advance of our year-end reporting.

Any change in testing date for goodwill or an indefinite-lived intangible asset should not result in more than one year elapsing between impairment tests. We performed a goodwill impairment analysis as of January 1, 2023, noting no impairment. We performed an analysis of our indefinite-lived intangible assets on September 30, 2023, noting no impairment. We will perform an annual assessment for goodwill and indefinite-lived intangible assets as of October 1, 2023.

This change was not material to our consolidated financial statements and was not intended to nor did it delay, accelerate, or avoid an impairment charge. We determined that it was impracticable to objectively apply this change retrospectively as it would require application of significant estimates and assumptions with the use of hindsight.