Kenneth D. Krause
Executive Vice President, Chief Financial Officer & Treasurer at Rollins
Thank you, Jerry, and good morning, everyone.
Our results for the quarter and the year reflect continued strong execution by the team. Let me begin with a few highlights for 2023. First, we delivered robust revenue growth of 14% for the year with double-digit growth across each of our service offerings. It was encouraging to see organic growth of 8% for the year, while acquisitions continued to be a meaningful part of our growth profile, accounting for approximately 6% of our total revenue growth.
Second, we made good progress on profitability improvement in 2023. Full-year gross margins were healthy as we were positive on the price/cost equation and saw improvement across several key cost categories. Adjusted operating margin finished the year at 19.7%, improving 140 basis points driven by leverage across the P&L. This translated into GAAP EPS of $0.89 per share up over 18% for the year and adjusted earnings per share of $0.90, up $0.20 -- 20% for the year. On an as reported basis, we generated incremental margins of almost 30% for the year and on an adjusted basis, incremental margins were almost 28% for the year.
And last but not least, we delivered operating cash flow of $528 million and free cash flow of $495 million, both up over 13% versus last year. Our strong cash flow performance enabled us to execute a balanced capital allocation strategy, deploying nearly $1 billion of capital in 2023 with a focus on investing for growth while returning cash to shareholders through a growing dividend and share repurchases.
Turning to our fourth quarter performance, the team delivered a strong quarter with revenue up 14% to $754 million. Currencies had a negligible impact on quarterly revenue growth. We saw a good balance of growth between organic and inorganic activities as organic revenue was up over 7%, with acquisitions accounting for the other 7% of growth. Jerry mentioned that we divested certain non-core businesses in the quarter, most notably our lawn care business. The purchase price for the transaction was $18 million. We received $15 million in proceeds during 2023 and recorded a pre-tax gain of $15 million on the sale. This business doesn't provide the growth or profitability profile of our core pest control business. Going forward, we don't anticipate any significant divestitures associated with portfolio rationalization in the foreseeable future.
In the fourth quarter, residential revenues increased approximately 18%, commercial pest controls rose nearly 11% and termite and ancillary was up over 13%. Organic growth was healthy across the portfolio with growth of nearly 5% in residential, approximately 9% in commercial, and over 11% in termite and ancillary. We normally see a step down in revenue as well as growth in Q4 along with Q1 due to seasonality. Comparing Q4 this year to last year, we saw an acceleration in organic growth across all service lines. Gross margin improved 40 basis points to 50.9% in the quarter, while Fox was accretive to gross margins for the quarter by about 30 basis points. We saw 10 basis points of improvement in organic margins as leverage from people costs and fleet offset pressure from materials and supplies and higher insurance-related costs. Gross profit also steps down in Q4 and Q1, primarily due to lower volume levels associated with the seasonality of our business I previously discussed.
With that said, I'm pleased with the fourth quarter performance as we saw improvement year-over-year and recorded our highest Q4 gross margin level in the last several decades. Quarterly SG&A costs as a percentage of revenue increased by 10 basis points versus last year. Excluding the earn-out adjustment for the Fox acquisition, SG&A costs as a percentage of revenue decreased by 10 basis points in the quarter. We saw nice leverage on people costs, which offset increased advertising and selling expense associated with the growth initiatives that Jerry discussed previously.
Fourth quarter GAAP operating income was $139 million, up 16% year-over-year. Adjusted operating income was $144 million, up over 20% versus the prior year on 14% total revenue growth. Quarterly EBITDA was $181 million, up 24% versus last year, and EBITDA margin was a healthy 24%, up 190 basis points versus last year. Fourth quarter adjusted EBITDA was $167 million, up 14% and representing a 22.1% margin flat versus last year. While we saw nice leverage with respect to both gross profit and SG&A, adjusted EBITDA margins were negatively impacted by about 40 basis points in the quarter due to lower non-operational gains on property and vehicle sales that were included in other income when compared to the fourth quarter of last year. This impacted incremental EBITDA margins in the quarter as well.
The effective tax rate was 25.8% for both the quarter and the full-year period. And for 2024, we're expecting an effective rate -- tax rate of approximately 26%. Quarterly GAAP net income was approximately $109 million or $0.22 per share, an increase of nearly 30% from $0.17 per share in the same period a year ago. For the fourth quarter, we had non-GAAP pre-tax adjustments associated with the Fox acquisition-related items that I mentioned earlier, totaling approximately $5 million of pre-tax expense in the quarter. We also recognized the $15 million pre-tax benefit associated with a gain on the sale of our non-core business. Taking into account these adjustments, adjusted net income for the quarter was $101 million or $0.21 per share, increasing over 23% from the same period a year ago.
Turning to cash flow and the balance sheet. Operating cash flow increased 24% in the quarter to $153 million. We generated $142 million of free cash flow on $109 million of GAAP earnings, a 22% increase versus last year. Cash flow conversion, the percent of income that was converted into operating cash flow was well above 100% for the quarter. Debt remains low and debt to EBITDA is well below one-times on a gross and net level. We continued to fund our dividend in the quarter. Going back to the fourth quarter of 2022, we have increased our dividend 45% and we remain committed to funding a growing dividend as cash flow improves.
As we look to 2024, we remain encouraged by the strength of our markets and the execution by our team. We are focused on delivering another year of robust growth and healthy incremental margins, further complemented by a strategic and disciplined approach to M&A. From a pricing perspective, we remain focused on effectively pricing the value of our services to remain positive on the price/cost equation, and we have begun to raise prices for 2024 in the first quarter at a rate that is consistent with 2023 levels. We also continue to be active in managing our rate cards. Our focus remains on driving consistent growth, delivering healthy incremental margins and compounding cash flow that will enable a balanced capital allocation strategy focused on investing in growth initiatives in our core market.
Before I turn the call back to Jerry, I wanted to announce that we will be holding an investor and analyst conference on the morning of May 17 in New York City, where we will share more about our strategic priorities and how we are positioning ourselves for continued success in the future. We're looking forward to sharing more details in the coming weeks and months, but for now, please hold the date.
With that, I'll turn the call back over to Jerry.
