Q1 2021 Cintas Corp Earnings Call
We appreciate your patience and please remain on the line.
HM.
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[laughter], there's somebody [laughter] good day, everyone and welcome to the Sim card quarterly earnings results Conference. Today's call is being recorded at this time I'd like to turn the call over to pull out for some tough Vice President Treasurer and Investor Relations. Please go ahead.
Thanks April and good morning, and thank you for joining US with me today is Scott Farmer Syntels Chairman of the Board and Chief Executive Officer, Todd Schneider Executive Vice President and Chief Operating Officer, and my cancer Executive Vice President and Chief Financial Officer.
We will discuss our first quarter results for fiscal 2021.
After our commentary we will be happy to answer questions.
The private Securities Litigation Reform Act of 1995 provides a safe harbor from Civil litigation for forward looking statements. This conference call contains forward looking statements that reflect the company's current views as to future events and financial performance. These forward looking statements are subject to risks and uncertainties.
Which could cause actual results to differ materially from those we may discuss I refer you to the discussion on these points contained in our most recent filings with the FTC I'll now turn the call or work just got far.
Thank you Paul.
This continues to be a challenging time for our employees, who we call partners are doing all they can do to keep our customers places of business clean safe and ready for the workday.
Our 40 partners have remained diligent in their care of our customers, providing essential products and services and they have remained diligent in their care of each other we can't thank them enough for their truly impressive achievements.
Before we get into the financial results I'd like to provide you with some examples of our interactions with our customers in the first quarter of our fiscal year. So you'll have a better understanding of our business.
The hospital system in Michigan provided isolation gallons to their staff and longer them in the hospital.
These garments are fluid resistance protective clothing worn by doctors and nurses.
Hospital had a different had difficulties gapping, the laundry and suffered quality issues.
Hospital system, no program or as we call it decided to outsource the procurement and longer into sent to us so they could concentrate on patient care.
Another no programmer a dental alliance with 55 locations in three states signed with us for scrub rental program for 550 wearers.
Due to their satisfaction with the service they are in discussions with us that facility services products and first aid supplies.
In California, one University system with many campuses signed a multiyear agreement for hand Sanitizer service.
In addition, our first aid business is providing them with a half a million dollars of harder to find gloves.
Do another University system in California, our birthdays division is providing over a million face masks.
A restaurant chain that has been a customer since 2007 had been struggling in the first few months of the pandemic.
And talking with the customer, we listened and more empathetic and adjusted for the service frequencies and inventories in partnership with them.
There were so pleased with the way that we treated them, but they renewed our service agreement and added hand Sanitizer stand service that every one of the restaurants.
A casino customer in Ohio recently reopened after being dormant due to covert 19 restrictions.
In order to conduct business in the new environment Casino additive rental mask services and additional items to increase cleaning protocols, including dust masks and micro fiber mobs tiles.
And city government and taxes was a no programmer until they came to us for our hands Advertiser program for all of their government buildings.
They were so happy with the execution that we gain their trust to provide some of their personal protective equipment needs as well.
Yeah, we're impressed with our ability to deliver hundreds of thousands of masks within days.
These are exam. These examples are just a handful of permitting and were offered to highlight the following.
Our opportunity to convert no programmers the do it yourself ers remains robust.
Scrubs and isolation gowns are indicative of a broad uniform rental opportunity.
Our approach of being flexible with customers in the short term reach long term benefits.
Our net promoter scores, which we use to measure customer satisfaction has never been higher.
Earning the trust of the customer enables us to penetrate that enables further penetration and cross selling at.
And our supply chain and service network, our competitive advantages, enabling us to increase service to existing customers and add new customers by procuring and providing items in short supply.
Our value proposition are getting businesses ready for the workday by providing essential unparalleled image safety cleanliness and compliance as an ever resonated more than it does today.
A new trend of greater focus on health readiness and outsourcing of non core activities is underway.
We are well positioned for this new normal.
I will turn the call over to Mike now for commentary on the financial results right. Thanks, Scott and good morning.
Fiscal 2021 first quarter revenue was $1.75 billion, a decrease of 3.6% from last years first quarter.
Earnings per diluted share or EPS for $2.78, an increase of 19.8% from last years first quarter.
Free cash flow, which is defined as net cash provided by operating activities less capital expenditures for this year's first quarter was $281.4 million an increase of 32.6%.
Organic revenue adjusted for acquisitions foreign currency exchange rate fluctuations and differences in the number of work days declined 5% for the first quarter of fiscal 2021.
Organic revenue for the uniform rental and facility services operating segment declined 5.4%.
Organic revenue for the first aid and safety services operating segment increased 17.1%.
Gross margin for the first quarter of fiscal 21 of $826.2 million decreased 2.7%.
Gross margin as a percentage of revenue, 47.3% for the first quarter of fiscal 21 compared to 46.9% in the first quarter of fiscal 2000.
Selling and administrative expenses as a percentage of revenue were 27.3% in the first quarter and 30% in the first quarter of fiscal 2000.
Fiscal 2001 first quarter results benefited from lower expenses as a percentage of revenue in many areas, including discretionary spending.
Operating income for the first quarter of fiscal 2001 of $349.7 million increased 14.2%.
Operating margin was 20% in the first quarter of fiscal 21 compared to 16.9% in the first quarter of fiscal 2000.
Our fiscal first quarter contained one more work day than the prior year first quarter.
One more work day in a quarter has an impact of approximately 50 basis points on operating margin due to many large expenses, including rental material costs depreciation expense and amortization expense being determined on a monthly basis instead of on a workday basis.
Our effective tax rate on continuing operations for the first quarter of fiscal 21 was 7.8% compared to 10.1% last year the two.
The tax rate can move from period to period based on discrete events, including the amount of stock compensation expense.
Net income for the first quarter of fiscal 21 was $300 million an increase of 19.6%.
Earnings per diluted share were $2.78, an increase of 19.8% from last years first quarter.
In addition to the solid financial performance, we continued to generate strong cash flow first quarter free cash flow was $281.4 million, an increase of 32.6% compared to last year.
Our leverage calculation per our credit facility definition was 1.6 times debt to EBITDA our balance.
Our balance sheet is strong we have an untapped credit facility of $1 billion.
For financial modeling purposes. Please note that there will be one more work day in our fiscal 21 net in our fiscal 20.
One more day will benefit fiscal 21 total revenue growth by 40 basis points one.
One more work they also benefits operating margin and EPS fiscal 21 operating income margin will be about 12.5 basis points better in comparison to fiscal 20 due to one more day of revenue.
In fiscal 20, each quarter contained 65 workdays.
In fiscal 21 work days by quarter. Our 66 in Q1 65 in Q2 64 in Q3 and 66 in Q4. Please.
Please keep these differences in mind when modeling results on a year over year and sequential basis.
Before turning the call over to Todd Snyder to discuss the performance of each of our businesses I want to comment on fiscal 21 financial guidance due to the continuing Kogan 19 pandemic uncertainty remains about the pace of economic recovery there.
Therefore, we are not providing annual guidance at this time.
However, we would like to provide our second quarter financial expectations, we expect revenue to be in the range of $1.725 billion to $1.75 billion and EPS to be in the range of $2 to $2.20. Please.
Please note the following regarding second quarter financial expectations.
Our second quarter contains the same number of work days as last year's second quarter, but one less than our first quarter.
We expect operating margin as a percent of revenue to be in the range of 17.5% to 19%.
And we expect our second quarter effective tax rate to be about 22% compared to 20.1% in last year's second quarter I will now.
Ill now turn it over to Todd Thank you Mike.
Why review the business results I'd like to build off of Scott's comments.
While the environment remains challenging and uncertain we did.
We did experience a continued improvement in results through the quarter.
The majority of our existing customers have reopened and our employee partners were diligently in partnership with these businesses to get them ready for the workday.
Despite reopening many existing customers are not yet operating at the same level of business before the Cowen 19 pandemic started because of the viruses impact on health and the economy.
In keeping with this into our culture, our employee partners are working with urgency to offset these headwinds.
Significant opportunities for new revenues exist because of the need of businesses to instill confidence in their employees customers students patients et cetera, but they will remain healthy and safe.
Additionally businesses, our outsourcing path that are not their core competency. So they can successfully navigate these challenging times.
The value we provide businesses has never been more evident.
In fact, we've been given a seat at the table in discussions with state and local officials hot.
Hospital administration.
Carbon 19 procurement task forces and hospitality Prime business Council.
Theres greater demand for services and products, we already provide such as helping.
In other areas demand is so attractive that we are providing new services and products made possible by our supply chain distribution network salesforce and cash flow.
These include rental healthcare isolation gallons.
Hand, sanitizer stand in dispenser service.
And Sanitizing spring service.
With that I'll turn now to the first quarter financial performance of our businesses.
Uniform rental and facility services operating segment includes the rental and servicing of uniforms healthcare scrubs, mats and towels and the provision of restroom supplies and other facility products and services.
The segment also includes the sale of items from our catalogs to our customers en route.
Uniform rental and facility services revenue was $1.39 billion.
A decrease of 4.1%.
Excluding the impact of acquisitions foreign currency exchange rate changes and the difference in the number of workdays.
Organic revenue declined 5.4%.
Our uniform rental and facility services segment gross margin was 48.7% for the first quarter compared to 47.2% and last years first quarter.
Higher inventory amortization expense of 80 basis points was more than offset by the benefit of lower production and service expense as a percent of revenue the additional workday and lower energy expenses.
Our first aid and safety services operating segment includes revenue from the sale and servicing of first the products safety products personal protective equipment and training.
This segment's revenue for the first quarter was $204.5 million.
The organic growth rate for the segment was 17.1%.
The first aid segment gross margin was 40.2% for the first quarter compared to 49.0% and last years first quarter.
Lower production and service expenses as a percent of revenue compared to last year first quarter were more than offset by higher cost of goods sold from the increased proportion of revenue from personal protective equipment, such as masks and gloves.
Our fire protection services and uniform direct sale businesses are reported in the all other category.
Our fire business historically grows and each year at a strong pace.
Uniform direct sale business growth growth rates are generally low single digits and are subject to volatility such as warming. So install a multi million dollar account.
Uniform direct sale. However is a key business for us and its customers are often significant opportunities to cross sell and provide products and services from our other business units.
All other revenue was $147.7 million, a decrease of 20.0% or.
Organic revenue declined 22.2%.
The fire business organic revenue declined 5.3% due to the inability to access some businesses because of closures.
Uniform direct sale business organic revenue declined 47.3%.
Revenue from our airline cruise line.
Fatality in gaming customers largely falls within this segment.
These industries continue to be among the hardest hit by the pandemic.
That concludes our prepared remarks, we are happy to answer your questions.
Thank you if you would like to ask a question simply press the star key followed by the digit one on your telephone keypad.
So if you're using a speaker phone. Please make sure. Your mute function is turned off to a liar signal three type equipment. Once again press star one at this time well pause for just a moment.
And we'll first hear from Seth Weber of RBC capital markets.
Hi, good morning, everybody everybody's keeping well.
Had a couple of questions on the first aid safety business I guess, maybe my.
Maybe Mike can you just talk to how.
You feel like you are still seeing large onetime sales in that category or do you feel like that this is.
The growth rate there has been a reset to a higher.
A higher level kind of on a sustainable basis, and then you know on a follow up question can you just talk give us a little bit more color on what you're seeing on the supply chain on the cost side.
I think Todd called out some higher Cogs for first in PPD PPD is that do you think just a temporary issue or will that does that.
Because that's where the new normal just on the cost side. Thank you.
This is Scott I'll take the first part of that I'll, let Todd take the.
The second part of that.
On on first aid and safety is the way to.
It is probably the best way for you all to look at it is that a lot of the initial upfront large sales of PPG through the first day business.
Our similar to what happens in the a and the direct sale business when we sell a big of a new customer there's a large upfront sale of these goods and then it will that customers.
Revenue will drop to a maintenance level.
And so we are seeing that in the first quarter. We did have a lot of large upfront sales to customers.
In the first aid and safety business.
That are now moving into that maintenance of a level that doesn't mean that there are other customers out there that we a weekend find and identified but I think that.
Was a big rush of that in our first quarter is endemic.
Yes, and and so I would say were probably closer in the second quarter to moving more into the maintenance mode. On those types of things I would say that that probably means that we may not grow in the high teens in first aid and safety, but we will continue to see very good growth.
Proceed to JP.
Seth This is Todd.
Completely agree with doctors.
You can end up in a large first order and then there is a maintenance mode. There, but we're really focused on taking care of our customers. They are in great demand for some of these products out there gloves masks and hand, sanitizer et cetera. So we're.
We're blessed to be in a good position in inventory and be able to take care of them.
But we are encouraged still that we're selling a lot of proceed cabinets. So.
Seeing that there is going well and we think things will.
Things will moderate and growth.
But we were also anxious to see.
The Cogs to moderate back to closer to where it was before.
Okay within will be limited.
Okay.
Kidney diseases.
Building located.
In relation to the seven year year.
Seven years, you're you sound set you sound a bit muffled can you start that question over please.
Sure Sorry, I was just wondering if you have seen it.
Pick up in the in the cabinet business.
I know last quarter, you talked about you know that you are having challenges getting into facilities and things like that have had as bad as the cabinet side of the business picked up as well.
Yeah, well there is a great question said Theres, our new cabinet sales are going quite well, but we have a heck of a lot of customers that are still on the sidelines or close so that's certainly affecting what is being procured.
Through our cabinets.
And we're anxious for this business is to get back up and running but long term, we pivoted, helping our customers and our long term, we're quite bullish on on the direction of the organization.
Okay. Thank you very much guys I appreciate it.
And once again star one to ask a question next we'll hear from charter at Tongon focused attack.
Hi, Thanks. Good morning, you talked about healthy growth for Scrubs isolation goes in the healthcare vertical both among existing customers in the local government market at this point what percentage of revenues being generated by healthcare customers and we use this vertical.
George This is a this is scott.
When we talk about revenue in the healthcare segment in line and we're talking about all of the products and.
Products and services that are that we would provide to the healthcare segment that is both fire service first aid service.
I'm sorry.
Some direct.
Direct sales business and obviously, some some rental uniform rental NFS business. It represents about 7% of our total revenue now.
We're excited about what we.
What we see in that in that segment healthcare represents about 70% of GDP and so we think we continue to have a big opportunity in health care.
The scrub rental business Andy's isolation gowns and.
Gowns and if positive from your perspective, if you just simply refer to those as disrupt business I think you'd be say advice disease isolation gallons are things typically more over the top of the scroll dealing with particular patients.
To protect the the nurse or doctor from bodily fluids, and things like that but no need to get into a whole separate category on that but.
But we're excited on what we see there are others the.
The.
The go good as a broad realization to healthcare providers, the taking of what wearing it describes to work and then wearing them home and may not be the right approach and they're looking for ways to outsource.
Managing those programs for them and we really like the position that we're in.
I would say that.
Health care has a great opportunity to be the first segment.
We service to grow to over 10% of our total revenue.
And so we remain very optimistic about this segment.
Got it helpful and as.
As you as revenues begin to recover over the near to intermediate term can you provide some perspectives on what you expect incremental margin flow through particularly as operating leverage begins to kick in and you begin you started to see utilization of capacity to recover.
Yeah, I think the Georgia.
From an incremental margin perspective.
We talked a lot about in the past, we like incremental operating margins to be in the 20% to 30% range clearly.
Clearly we've exceeded that in this first quarter, but that's the longer term. That's that's still is the range that we like to see because it.
It really keeps us in a cadence where we are growing in the way.
In the way that we want to grow and we are we are managing the number of salespeople that we need and that the number of routes that we need the amount of capacity that we need and.
And when we are growing the way we want to grow.
A weeks, we liked that 20% to 40% range and expect that that will continue.
As we get out of this really disruptive and bumpy period.
Got it thank you.
Yes.
Hi.
I've got to say of Jefferies.
Hey, good good morning. Thank you my first question.
As maybe for Scott I I know you've touched on some examples over the next new business sort of in your prepared remarks.
Maybe if you could just talk about how the sales cycle today compares to pre gold grade in converting some of these customers I assume healthcare has accelerated given to some of your comments.
Maybe even foodservice dot.
But maybe if you could just talk about how that.
How that cycle discourse today versus pre call very it seems that gets accelerated I think you've touched on outsourcing potentially accelerating coming out of this period.
Yeah happy.
Happy to provide a little color there.
And Todd I want to chime in as we go through this but you know this is the.
Uh huh.
Free cash flow that we had to decision makers that had time to you know.
[noise] review things trying to get a multiple competitive looks and things like that when we're out in the marketplace I think that the urgency of trying to find certain.
Certain products and services certainly shorten that.
That sales cycle decisions were made more quickly it's not to say that they weren't trying to find competitive bids but in many cases it was hard for a.
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Competitors did come up with the products and services that they needed to fulfill a customers.
Or I'm proud to say that we did a really good job of making sure that we we were in front of that and had inventory.
And so we've been reasonably successful in and being able to.
Did that help these companies out as we look.
As we look at sales productivity amongst our sales force we have been through the entire <unk> co. good period.
Period.
Selling at very impressive productivity rates are very high.
Historically, we'd like to see that happen to it we think it's a good sign for for the foreseeable future for the company and so you combine.
[noise] that sales productivity with decision makers that are in the market trying to make.
Reasonably quick decisions and we think we can do very well in that regard.
Do you have anything to add yes, hamzah. It's good question neon.
It really varies.
Dramatically based upon whom you are calling on the products are selling our sales organization is highly urgent anyway, and a highly adaptable and I've been really impressed by how they had been able to do.
They've been able to overcome any obstacles that were it seems like in their way, but we have products.
Well, we have products and services that people really need to I'll take.
I'll say instill confidence in their their employees and their guests and their customers. However, you want to describe their students their patients. When you have those available. It does shorten the sales cycle, because theres theres some times when we walk in and they say Oh My goodness you have that let's go.
And.
Once again there are so many different self.
Sales processes going on at any one time, it's tough to say make a sweeping statement, but I think generally said generally speaking, yes extended up because of the urgency of making sure people are taking care of and and we are I am blessed to be in a good spot with his products and services and that creates confidence our people and our customers and.
And showing in a in the productivity.
Great and then just my follow up question is just on the hygiene business could you may.
Could you maybe talk about you know the outlook, there, but particularly what is your value proposition in hygiene versus you know some larger competitors.
That may be moved into that market first I know youre, probably not looks nicer than ecolab from the outside BARDA, BARDA and sanitizers and such but well maybe just give us a sense of the value prop you have in that business because it seems like a newer business for you even even you know pretty cold blooded, obviously, it's accelerated it today.
Well I'll I'll start that and then Scott can feel free to jump in we're around.
And I really appreciate your comment on our product suite, where we invest a heck of a lot into our R&D to make sure that we have really attractive functional products, but a lot of investment in it and we have we have been in the hygiene business for I'll call. It a decades right. It's just.
Spoke in our last call about how nine 911 September 11th 2001 had a a dynamic impact on security and we believe that.
This pandemic is going to have a similar effect on hygiene in our and our world and that is that has been something that's been positive for our business. So our customers love. The fact that we have availability, we have attractive products, we recruit inventories distribution system very.
A fair approach to how we handle things and we have a great suite of products and services.
You are right there on the truck they can deal with one organization.
That can handle all their needs were able to because the vast majority of our routes service our customers Weekly then.
It allows for us to be able to inspect what they have where they are from an inventory standpoint, and and help provide some kind of a consultative services instead of just tell us when you're when you need to more product.
So that that route infrastructure, and obviously distribution center system is a real strategic advantage.
For us moving forward.
Hamzah I'd say it this way just to just to Echo what Todd said.
The.
We do that most of our other.
Most of our other competitors who have been in this space for some period of time don't do is that we're there every week. So we make sure that they always have inventories and they never run out most of the time.
A customer who's buying it from a supply house or traditional a competitor.
Past due could take it upon themselves to realize that they're running low on inventories sometimes that happens when they're out of inventory then they have to go in place. The order they have to wait for the order to come to them, they're out of supply for maybe a few days and that sort of thing and they don't have to worry about that when we're taking care of it for.
And you know restrooms are something that every single business has to deal with and in one week.
And when we take care of that for them. It's one less detail that they have to worry about.
In the course of their business day and allows them to focus their time and attention on taking care of their customers. So I think thats the value proposition that we're offering and.
In the hygiene business.
Great very clear thank you so much.
No not that make at Barclays.
Yeah. Good loan gentlemen, my first question is key to winning a lot of new mandates.
The boss you talked about how mom program is really come to terms with the new sales.
That tells me that focus shifting more and more because if you don't.
The cobot driven.
Demand and you know it is that you see.
Are you seeing pumped additions that you've seen kind of the list is all those Dan element that you guys just given some of that new show as well if that's the case.
Yeah. So so monitor but I think you're asking is are we talking about new business.
About 60% of our new business coming from no programmers and is that the case as we are as we sit here in this disruptive period and are we seeing any differences in the way that our competitors are coming to market and competing and and you know a a I'll start.
As Todd mentioned earlier, our new business continues to be.
Continues to be very very robust and we're selling not just.
The same mix of product from six months ago, but but a little bit of a different mix as it relates to this hygiene.
Messaging, which is resonating so well and so that certainly can lead to a new types of prospects that we may not have talked to in the past and when we get our foot in the door.
Good things can happen when they start to see our service.
We can't continue to talk about other needs that they may have and so we've seen we've seen some nice success in that during this.
Even during the fourth quarter, but but more so in this first quarter.
Frankly that was part of the question of the sales cycle.
Sale cycle is.
Certainly a bit sped up just because we are selling more no programmers there is no.
No no hurdle to get over two went to sell something they can buy immediately and that's been very positive for us as Mike mentioned, the what we're selling into different a variety of different prospects and we're also because of the urgency and the intensity of what we're.
What is important to these businesses were able to get at levels of decision makers that weren't in the past quicker. So that's.
And again see things up.
When when decision makers here, our value proposition resonates and so.
So there's oh, certainly don't a pandemic has been absolutely.
Horrible for the country the world.
And many of our customers.
But if there is some shining light is it bringing more focus to the products and services that we have.
The value that we provide and giving us an audience at high levels quickly.
Okay that makes sense and then in terms of the TC. Examples you provided it sounds like with all the lights institutions below even coming to you guys would be opting, but maybe just on the flip side can you just talk about your and the small business customers. Then are they just kinda can provide any more detail.
And Steve.
Yes, so the downward a bit more of a lock down a bit in the midst of I'd just any color there would be appreciated.
Yeah that.
Obviously that depends on you know John.
Geography.
Industry segment and that sort of thing it's different in each one because of various local government. So state governments that have put restrictions in place I'd say generally speaking the small customers.
That are open right now our are weathering this as a joke.
As a general statement pretty darn well I think it says a lot about.
The American entrepreneurial spirit.
To see them able to do the things that they're doing.
With the you know the new rules in place be they face masks and outdoor dining and such but you know so.
You know some of them.
Many many of them are not at full capacity, yet because of various restrictions that have been put on them.
For customers that may not be.
Ready to come back out to the frequent their their businesses.
So.
No.
Clearly I think for the American economy for the global economy.
A a vaccine.
A vaccine is going to be very well received so that.
So that.
Tools can change and businesses can get back to operating under.
Sort of a new normal, but a a a normal that allows them to operate in a more traditional fashion.
Well thank you all.
Andy Wittmann with Baird.
Okay. Thanks, I have a question then a follow up question I mean.
Let me clearly here in the quarter you saw quarter over quarter.
The acceleration in the organic trends and talking about the rental segment I guess in particular and I'm. Just curious if you could give a little bit more detail here because when you look at the guidance for next quarter.
Suggest that revenues would be down five or 6% year over year, and that's not too dissimilar from what you saw here in the quarter. So.
How has the month over month trends progressed I'm in comparison to what the implied revenue outlook is and just any color that you have in terms of pure build your visibility and listen how you chose to slip this range with all the uncertainty is a conservative or are there other factors that are baked into that the revenue guidance.
Yes, Andy this Todd good question.
Yes, certainly the.
The Ah Ah.
This has been an unusual environment great that it was 22 million jobs that were lost seemed.
Seems like overnight almost.
Then jobs return pretty quickly in Ah Ah Ah.
The early very early portion of the summer.
And then as you assume that the summer were on things moderate a bit in shoppers and jobs return.
And they are still 11 million people that are that are 11 million jobs that have not been recovered. So that has certainly impacted our business.
We need more businesses to come back we are still guiding towards a sequential growth from Q1 in Q2, and we do have one less workday in Q2 versus Q1.
And we're encouraged by our new business efforts the products and services that were selling the.
The engagement of our customers of what we're providing and but it takes a while for all the new business efforts to recover over all the businesses that are still closed and all the other jobs that are still on the sidelines. So.
But we're we're very much looking forward to Q2, Q3, Q4, and we like the trend lines that were that were seeing.
And maybe I'll offer a couple maybe I'll offer a couple of points.
One is Scott talked a little earlier about the first aid safety.
A large personal protective equipment sales that are that that kind.
To kind of turn into maintenance a little bit so keep that in mind.
The other another point I'll make is if you think about the first quarter revenue on the same work days as Q2, you're talking about a billion 720, and so we do see some that that guidance range, especially at the top of it.
Does look too nice sequential improvement and keep in mind. The last point I'll make is last year's second quarter was a pretty good quarter for us as well and so when you put it all together echoing what Todd said, we remain excited about about the performance and the.
The momentum that we have particularly in a bit of a challenging environment and one that is a that is still contains a fair amount.
Of.
I'll say, a lack of clarity, what let's say and so we think.
We think this this guidance range really points to continued nice momentum improvement.
Thanks, Mike for that that's good perspective, but one that also kind of ask on the cost side here.
You know anytime Youve got basically EBITDA optimize against declining revenue that's become very surprising in there you obviously very good outcome for the company.
Already starting to see some questions from from some of our customers asking if there was anything one time either positively or negatively in other words costs that maybe were furloughed or otherwise things like that that were recognized in the quarter that need to creep back in here as the year progresses or other things. If you continue to do some level of.
Chuck Shrinks, certainly that was a big factor in the fourth quarter.
Sounds like you had it most consumers will see contained in the fourth quarter, but maybe there was some carryover in the first quarter, but Mike I was hoping you could just talk a little bit about some of the puts and takes inside the margins in.
The implications about incremental margins over 100% tier and the go forward basis, and what's unusual lumpy quarter if anything.
Sure I'll I'll start that I wouldn't call a I wouldn't call out any specific.
Specific one time items.
But as you think about the just this period of time that we're in we entered the quarter with a fair amount of disruption and a lack of clarity and we entered it with a a hiring freeze a wage rate freeze and pretty tight control on discuss.
Machinery spending and as the quarter went on.
You know revenue, obviously came a bit higher than our guidance range and we've been pleased with with that.
And so we started to bring we've.
We started to hire back revenue producing positions and that certainly will have an impact as we move forward, but in the first quarter. This in this period of just extreme disruption.
We entered it with a lot of uncertainty and we exited with still some uncertainty.
That's better momentum than we certainly expected I'll point to a couple of things, though within within the quarter energy was 30 basis points better than a year ago. So we certainly got a little bit of help there.
We talked a little bit about discretionary spending if you think about the travel and that was down about 100 basis points.
We are itching to get out to visit customers and and our locations and will start to do that slowly.
But some of that will get leverage with better revenue.
Momentum as well and then third thing I'll say is last year, you might recall, we had a pretty high met.
Medical expense in the first quarter, we we've kind of settled back into our normal range and that was a benefit of about 90 basis points all.
All in all know Andy.
It points to our ability to really control.
The costs and manage the business pretty well and a highly disruptive period of time and it also it also shows that as we move out of this we have some we have we will continue to invest in revenue producing positions and.
The growth Ralphs et cetera.
Great. Thank you very much.
[noise] April do we have any other questions.
Yes.
Andrew Steinerman.
Hi, its Andrew I, just wanted to get a little more clarification about monthly trend. They definitely understand we're in uncertain times and there's so many jobs to return to the workplace yet.
I just wasn't sure if when you were talking about year over year organic revenue declined 10 rental if you show our September meeting what we've already experienced continue to narrow from August so arch client now and get in September year over year versus where I guess or have we already.
Being kind of September decline sort of hover wait till I get so it's really it's he is the uncertainty in like October November or have you already seen some hovering in September.
We have Andrew we saw some really nice momentum and certainly Todd talked about the the highly disruptive period at the beginning of the quarter and sort of job recovery. The economic recovery was pretty extreme in the early part of the summer.
And the business Reopenings moderated as as certainly as the summer went on but our revenue performance improvement continues through the quarter and a and we still believe that a you know our art, what we're still looking to see.
Sequential improvement and so September while moderated some let's say June and early July is still moving in the right direction and trending.
In a way that we would want it.
Okay. Thank you.
Next we'll hear from Gary Bisbee of Bank of America.
Hey, guys good morning.
I'd love to go back to the margins a bit more so so.
You, obviously have done a great job cutting costs and deferring some investments.
And I heard your earlier answer to the earlier question about what helped that this quarter, but can you give us any sense of how to think about the cadence of costs coming back do you envision and ability to manage that pretty tightly with sequential improvement in revenue or or are there some costs at some point that could come back.
More quickly and I guess as part of that have you identified anything within your cost reduction efforts to date that you think could turn into a more permanent are sustainable.
Cost reduction for the business.
Hi, Gary This is Scott you know.
First of all if we look as we look out into the second quarter and beyond we are confident in our ability to control our costs and Ah.
We are still.
Really managing labor.
At the very top of the organization, so that people, who were adding Wanna add positions have to make sure that they're going to do the proper channels to get the approval to do that.
You know things that.
That we need to do to invest in the business or.
Going to come back on line.
That may be trucks that have been and therefore service reps that have been idled because of this disruption because of the growth that we've seen through the first quarter. Some of that is coming back online as a result of that that's driving some production labor to produce the goods.
We're bringing on some sales.
Comes from salespeople back online that the were temporarily on the sidelines or in the second quarter were back to advertising.
You know both national radio advertising in some TV advertising that that you may have seen this past weekend.
So these are the kind of costs that we think oh are necessary to continue to to grow the business and to get our brand out there in front of customers and prospects.
But we're very confident in our ability to manage these costs are there things that we look out to say, we maybe we don't need those there or as much of that were that might have a long term impact you know, we're always looking for those kind of things.
And you know that is part of the culture that we have as a company and when we find them we need to we we.
We pretty much jump on them and make sure that we can.
To drive those costs out of the organization I said, they're not nothing major at this point. The we saw in the first quarter, but there will be some things that will change the way we operate new business moving forward, we're much more efficient right now.
Out of necessity than.
Then we have been and I think that Ah you know that's always good for any organization.
To put themselves in a position where they look around you realize what else can we do to get efficient. So I think we've done a really good job and my expectation is that we'll continue to do so that's.
That said there are going to be some things are coming back online in the second quarter, but I think for the long term intermediate and long term benefit of the business and our ability to grow.
Our necessary expenses.
Well all of which are within the guidance, yes, Gary as Todd said talked about you know.
Growing is is expensive and investment.
And I think we've shown the ability to manage those expenses on the way down meaning as.
The economy.
Kind of went off a cliff and we will manage them on the way up as well and hopefully that.
That'd be continues and I think it's a whole lot more fun demands on way asset managers are way down and down and our people feel that way.
And when you go through these types of cataclysmic event. It is as Scott mentioned it. It makes you look through different lens you evaluate your organization different.
And one of the interesting items is is how we engage with our customers you know where do they want us there or should or should we be there in person as much you know whether the team's color zune call, where based time whatever it is busy.
Business moves fast and.
And we're evaluating that our customers are evaluating that but it does allow things to speed up and will that have a long term impact. It could we shall see I think them certainly in the in short and intermediate future that that's what we see.
Great. Thanks, and then just a follow up you talked a lot about the sanitizer sales and a big opportunity. There is it right that all flows through the hygiene facilities business within within rental unit that is right can you give us any sense.
How well that's doing and.
And and maybe what the underlying rentals.
Revenue trend is today or how it's been trending thanks.
That that hygiene business, just trying to get a sense that's doing a lot worse and hygiene is just absolutely killing it today.
Any color on that.
Thank you.
Yeah, great Gary so.
The hypure, achieving the sanitizer sales print.
Predominantly flows through rental certainly our first aid customers as well, we sell sanitizer or whether it's in various forms so that is so.
So you'll see it in both but predominantly in the rental organization just because of the scope of their organization and the and their customer base et cetera, and sanford's failures is going quite well.
But you know what it is leading to other sales as well it gets us in the door and allows us to be as we mentioned earlier, it's getting it's in front of prospects, we've never been in front before getting a some kind of decision makers, we weren't able to get to in the past I think on our last call. We spoke about are really large.
Thank you that does that we had harbin done any business with before and now we being a sanitized service at all there their branches, which is significant.
It also now they're talking to us about per se and are talking to us about fire and around and other rental product. So.
It's it's those types of urgent needs.
Allow for our people to.
Get in and help explain to people what we do how we do it the value we provide and it opened some eyes and were able to sell more so it says it's really encouraging.
Next well hear from Tim Mulrooney of William Blair.
Good morning, two quick ones on the balance sheet you guys first of all you got a lot of cash piling up on the balance sheet. Here is this just to put a stop to how about your liquidity given the macro uncertainty can you can you share what your capital allocation priorities out for this year.
Yes.
First of all there is a lot of uncertainty still out there we like having some some cash on the balance sheet in case anything comes up that is unforeseen and.
Our balance sheet is strong anyway, but but but it certainly helps.
But so you don't have a more.
Optimistic view of the future when we have that.
On the balance sheet.
You know I think that you don't normally.
In normal environment with with the with the you know our ability to generate cash we're looking for acquisitions. We're looking for Oh, you know what we can do a relative to investing back in the business dividends share buybacks and such to help.
Improve our shareholders overall return.
And I would say that as things become a little more clear as we get out into the future, we'll get back to our normal.
Oh process and I think we've got a pretty good track record of how we manage.
Are those things for for our shareholders and I would expect it will be back to that hopefully soon hopefully.
Vaccine that will work at some point in the in and get back in with home environment.
Okay. Thanks does that include Capex getting back to normal run rate I was like 40 million in the quarter, which is less than half of what you did last year.
What would you expect that to get back to you just as I'm thinking about my models.
Yeah, I'd say this a I don't know that you're going to see a lot of increase in capex in the second quarter.
You know most of the time Capex is that about 60% of that is for growth and 40% is for maintenance Oh, we do have some capacity or you know a in markets with the ability to put some more trucks on.
Some more trucks on the road and and and within our production facilities. So I don't know that the growth Oh, capex is going to be necessary in the second quarter.
We get out much beyond that it's still a little cloudy out there for us to predict but I I can see that hopefully by the end of the year, we're back to a more normal capex spend and that.
And that is a means to you know hopefully we'll be seeing a more normalized growth invite.
Environment for us.
Understood. Thank you good luck next quarter.
Hey, Adam.
Gosh, they've ever heard of Oppenheimer.
Thanks, very much good morning, Yeah, I, just curious about the kind of the pain point end markets that bad debt that you're hearing is well on the airlines crude maybe long gap could you give us an idea just what percent of you had the is being impacted.
That would not be fiscal second quarter guidance as anticipated the see improvement.
And then I know there are different things in those end markets. So it's not that easy to do but just to give us a feel and how much of the revenues are impacting that you've done to come back in the near term. Thanks.
Scott the.
Most of that those highly impacted.
Segments bar in our direct sale business that would be the travel and hospitality related customer base and be hotels, and airlines and cruise ships and.
Even gaming isn't there a those revenues were off significantly in the direct sale business. We think it's going to continue that way for the foreseeable future.
I think that you know those are probably a longer lead time for those to see those come back as a you know their customer base gets more and more comfortable with getting on an airplane order one airport flying to a city taken a taxi to a hotel and so forth. So I think that we're going to see those areas.
Struggled for a while but that is all in our guidance and.
And Mitch also in our results for the first quarter.
I would say that the second quarter, probably for those related.
Industry segments will perform similarly to the way they did in the first quarter.
There may be a few in there to do a little better than others, but.
But I'd say, it's probably at this point do second quarter more of the same in those segments.
Yeah, Thanks, and I appreciate that maybe just.
And Paul when you think that you guys have touched upon ERP and what you're seeing now that that's a that's mostly implemented so just to pick up given that we expect.
Well.
Our ERP is we broke it out across per se in our rental division over the past few years and we are.
And we're seeing.
Some real nice advantages there whether it infects affects our ability to get product to customers faster, it's been a nice impact our transparency into the guy.
The data though.
Nobody to look at the customer across the business.
Business units has been advantageous, especially as we go to market and now some of these key segments.
It's been there's been significant so.
We're very happy to be done with the integration right that that that was ER visit or never.
When a process but.
We're also seeing some months from real nice advantages, there and I'd say one of the bigger ones is the ability to get that speed of product to customers because.
Because of our various.
Various items internally that allows us to get the proxy that so that's out and customers really value that especially in an environment like this where around a where are you.
Where you can deliver a when you say you will or faster and.
And in an environment, where a lot of companies are struggling to do that and that's a that's a big advantage for us.
Toni Kaplan of Morgan Stanley has our next question.
Thank you.
Just regarding the upcoming election.
Attacks on that [laughter] impacts on your business, depending on the outcome I was thinking of it as you know many under a Trump win seems like bringing back some manufacturing got sent to the U.S., but that maybe higher carrots could be a potential offset is that they recently I think about it and how are you thinking about the puts and takes.
Biden win.
Well, yeah, I mean, there's a there's a big difference between the two candidates in there.
There are in.
Intentions are.
I would say that you know.
The U.S. economy, not just us with the U.S. economy will be affected depending on which candidate wins and then assuming.
Assuming they both implement the things that they can say today.
Say, a the positions that they have taken at this point.
Biden, who.
Administration more business regulation could slow down the other businesses ability to continue to grow a higher taxes would obviously hit the as you know a profit soon earnings per share.
And then obviously the you know the.
Back to the overall stock market.
And as you said.
President Trump is wants to continue to try to bring manufacturing jobs back and to maintain or improve the current tax.
ER situation.
Right.
But we will be impacted.
As much because of how our customers are impacted by whoever wins.
As as anything else. So you know I think that as a general statement, because our our customer and prospect base as such a a broad spectrum of of American industry that as American industry goes we will go with it I will say this I am confident.
Because we have to manage through different versions of whats different administrations as well.
You know to ER into the U.S. a economy that we can manage through does that we will manage through it.
Managed through it.
You know.
As we have in the past that we got a really good track record of proven that we can do that and so the.
You know, we're optimistic either way about the long term future of the company I think that there may be some short term differences that could come to bear depending on who wins.
Great and then just a follow up I'm just looking at the balance sheet had a decent size inventories down the last two quarters, just like I understand what's causing the increase is that preparation for an eventual recovery and you know do you expect that to continue or how should we be thinking about.
Attack on site.
But Tony its a time, we see on our balance sheet as an advantage, we see our ability to distribute as an advantage and our customers lead us to invest in there was news products in the short term. So that we can help them with us so I in many cases it is there any.
Real competitive advantage us investing in that inventories, where we have product that our competition does not and our customers really appreciate your investment on their behalf.
And ER and we're leveraging that and why this is scott much of that build up is in the some of the.
Items that are in high demand right now.
Or you would be it a hand sanitizer and there you got to look at that in a lot of different ways. It's the actual fluid itself. The container that comes in the dispensing units is that.
We need the standards and so forth and so there was a build up of that inventory, but these are things that we are doing to take advantage of the opportunities that are in the marketplace right now and we're very confident that because we've been able to do this and do it in such short order.
But we are winning business daily because we had inventory we talked about a one of the examples I gave earlier on was that Oh, we got a very large account because we were able to deliver masks in a matter of days that other companies were telling you that that price.
Spec it would take months to get notice we had a oh.
Another example of a large customer multi location customer that decided to give a third of them are there and sanitizer standard business to us a third one of our competitors in a third was a third competitor.
We implemented that program is it with thousands of stands in a week.
One other competitors came back and said we can't deliver it within your timeframe. So they gave us that third we did that the next week thousands of stands and in the.
Third competitor can only do about half of what they said they could do so they're giving us half of that third of the business and it's because we have the inventory available.
Today to service those accounts and so we look at that and what we've been able to do with our global supply chain and our ability to get those products out into the marketplace quickly as a significant competitive advantage and we're taking advantage of it right now.
That's super helpful. Thank you very much.
[noise] pharma, rather profit Stifel Nicholas.
All right. Thank you very much for taking my questions here.
Are you seeing labor intensive businesses hiring is really indicative of what companies think is coming down the pike in demand and maybe you guys had a hiring freeze not that long ago looking at your your open positions now between 16 and 1700 open positions could you just discuss that.
Yeah, what a normal amount that physicians would have been if we were not a pandemic is this a higher amount because there's a catch up is that a woman that how should I think of this in terms of indicating that you guys are thinking about.
Oh, sorry. This is Todd yes, so I can't answer your specific I am I don't track requisitions. It by no what we have out there by month, but I can tell you that it's certainly.
It's certainly an increase from what it was 90 days ago.
And we're on we try to match up.
You know our demand for our services with the supply of our of our products and services, our infrastructure, our people and and we're matching it up appropriately. So we have we see does you know.
Look forward to Q2, three and four and we see demand continued to increase.
We're certainly conscious of all the external factors, whether they are what's going on with the pandemic, what's going on with the the election and all those items, but we're investing for the future and we're bringing back. This was many many of which are revenue create revenue generating partners.
And that will lap that will help us continue our our positive trend.
Okay, and then maybe you could give a little bit more color on how you're thinking about the business units I believe last quarter, you guys give a little bit more detail on that in terms of the next quarter.
I don't know if you're willing to talk at that granular level this quarter as well.
So we so Shlomo is.
You were a little hard to hear I think your question was regarding how each of our businesses is performing as we enter the second quarter and how do we feel about that performance and and Shlomo I would say that that first of all the guidance encompasses all of what I'm going to.
I mentioned.
That's fine Todd talked a little bit about the.
The the momentum of the of the rental business and we are we continue to see a nice trend line, even though it's moderated a bit from that heavy disruptive period early in this first quarter.
But we still continue to add two really good new business.
And we're continuing to sell these hygiene products that a that Todd talked a bit about.
In our first aid safety yeah.
You know we've had two quarters of high teens growth can Scott talk a little bit about.
We you know these are leaving big sales of personal protective equipment are hard to predict and so they happen, but any generally will go into maintenance mode and so our expectation is we'll see a little bit more maintenance mode in the first aid and safety business in Q2.
But that's still a very very good results, where we are very excited about that business. The five.
The fire business, which was down organically about 12% in the in the fourth quarter was down organically I just over 5% in this in this in this first quarter and that business continues to perform well and and.
Continue to move on an improving trend.
Trend lines.
And then lastly, Scott talked a little bit about the size of our direct sale business, which was down 47% in the first quarter and you probably see that as a as another quarter a pretty difficult time.
Time, given that customer base so.
So that's our best done that's the way we view the second quarter keeping in mind.
He said that.
It is that at the midpoint.
Midpoints in higher end of that guidance it calls for a sequential improvement and nice sequential improvement at that.
So again, we like the momentum of the business and you can.
The execution of it as well does that answer your question Shlomo.
Yes, thank you very much.
And it appears there are no further questions at this time I'll turn the call back over to our presenters for any additional or closing comments.
All right well. Thank you for joining us this morning and for your interest and send to US we will issue our second quarter of fiscal 21 financial results in December and look forward to speaking with you again at that time have a good day.
That does conclude today's conference. Thank you all for your participation you may now disconnect.