Q2 2021 Cintas Corp Earnings Call

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Good day, everyone and welcome to the Centavos quarterly earnings results Conference call.

Today's call is being recorded.

At this time I would like to turn the call over to Mr., Paul Adler, Vice President Treasurer, and Investor Relations. Please go ahead Sir.

Thank you.

Thank you everyone for joining us with me today are Scott Farmer, Syntels Chairman of the Board and Chief Executive Officer, Todd Snyder Executive Vice President and Chief Operating Officer, and Mike Hansen, Executive Vice President and Chief Financial Officer.

We will discuss our second 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 fees.

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 FCC.

I'll now turn the call over to Scott farmer.

Thank you Paul and good morning, everyone.

The COVID-19 Corona virus pandemic remains a significant disruption to the economy.

In the final month of our fiscal second quarter November COVID-19 virus accounts surge from about 100000 per day at the beginning of the month to about 250000 per day now.

Not surprisingly economic indicators, such as jobs growth unemployment in retail spending reflect economic recovery that slowed considerably as the for months progressed and the virus accounts increased.

Despite the macroeconomic headwinds I'm pleased with our second quarter financial performance, which exceeded expectations.

Our employees when we call partners.

Not wavered in their passion for getting business is ready for the work day.

They are providing essential products and services to help keep our customers and their places of business clean and safe.

These include hand, sanitizer services professionally laundered health care Scrubs, and isolation gowns first day products Sanitizing wipes face masks gloves and fire protection services as well as many others.

The conversion of no programmers the do it yourself or is if you will remains robust.

Supply chain and service network enables us to increase service to existing customers and add new customers by procuring and providing items in short supply.

And our net promoter score, which we used to measure customer satisfaction has risen dramatically to an all time high.

We find ourselves today, however, at a time of increasing uncertainty.

A number of states and municipalities have reinstituted temporary economic restrictions in response to rising COVID-19 cases.

Others are considering them.

On the other hand vaccines are being distributed and the U.S. government continues to discuss additional economic stimulus.

The uncertainty of the resolutions of these impactful events makes providing near term guidance very difficult.

Therefore, we're not providing financial guidance at this time.

However, if were able to gain clarity before the end of the quarter will provide an update in advance of our third quarter earnings release.

That said there is much that does remain certain.

Our employee partners reflect the steadfast in past culture.

There are always striving to exceed the expectations of our customers to maximize the long term value of cintas for its shareholders employee partners and other stakeholders.

The result is consistently strong financial performance with syntax growing revenue and EPS 49 of the past 51 years.

I remain certain of our value proposition of getting business is ready for the work day by providing essential unparalleled image safety cleanliness and compliance it is never resonated more than it does today.

I remain certain of our addressable market, namely the millions upon millions of businesses that are not current lease and tossed customers. Many of whom are not in a program with recurring service, but could benefit from at least once in Pos product or service.

And I'm certain that sent to us is well positioned for years to come.

Now I'll turn it over to Mike for commentary on the financial results of the quarter Mike.

Thank you Scott and good morning.

Our fiscal 2021 second quarter revenue was $1.76 billion compared to $1.84 billion in last years second quarter.

Earnings per diluted share from continuing operations or EPS for $2.62, an increase of 15.4% from last years second quarter.

Organic revenue adjusted for acquisitions divestitures, and foreign currency exchange rate fluctuations declined 4.4% for the second quarter of fiscal 21.

Organic revenue for the uniform rental and facility services operating segment declined 3.6%.

Organic revenue for the first day to the safety services operating segment increased 14.5%.

Gross margin for the second quarter of fiscal 21 was $819.9 million compared to $852.4 million in last years second quarter.

Gross margin as a percentage of revenue increased 50 basis points to 46.7 per cent for the second quarter of fiscal 21 compared to 46.2% in the second quarter of fiscal 20.

Selling and administrative expenses as a percentage of revenue for 26.6% in the second quarter of fiscal 21, and 28.1% last year fiscal 21 second quarter results benefited from lower discretionary spending and increased sales rep productivity.

Operating income for the second quarter of fiscal 21 of $352.9 million increased 5.5%.

Operating margin was 20.1% in the second quarter of fiscal 21 compared to 18.1% in the second quarter of fiscal 20.

Our effective tax rate on continuing operations for the second quarter of fiscal 21 was 13.3% compared to 20.1% last year tax.

Tax rate can move from period to period based on discrete events, including the amount of stock compensation expense.

Net income from continuing operations for the second quarter of fiscal 21 was $284.9 million an increase of 15.7%.

EPS was $2.62 an increase of 15.4% from last years second quarter.

In the second quarter of fiscal 21, certain uniform rental and facility services operating assets were sold for.

Pre tax gain on sale of $18 million was recorded in selling and administrative expenses and impacted operating margin by 100 basis points to pre tax gain and related tax benefit impacted EPS by 25 cents.

Our balance sheet and cash flow remains strong our leverage calculation for our credit facility definition was 1.6 times debt to EBITDA.

Have an untapped credit facility of $1 billion.

For financial modeling purposes. Please note that there is one more work day in our fiscal 21 than in our fiscal 20.

One more day will benefit fiscal 21 total revenue growth by 40 basis points.

One more work day also benefits operating margin and EPS.

Fiscal 21 operating 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 work day.

In fiscal 21 work days by quarter, our 66 in Q1 65 in Q2.

60 for in Q3 and 66 in Q4.

Please keep these differences in mind when modeling on a year over year and sequential basis.

I'll now turn the call over to Todd Snyder to discuss the performance of each of our businesses.

Thank you Mike.

As Scott stated total 19 remains a significant disruption to the economy.

Every business in Us and Canada has been impacted.

Many of our customers that have remained open are not yet operating at the same level of business as the for the pandemic started because of the virus is negative impact on health and the economy.

Our employee partners continue to work with urgency to offset these headwinds.

Over the past couple of quarters, we have provided some examples of their interactions with both new and existing customers. So you have a better understanding.

Many of those examples highlighted customers in the industry zone, healthcare education and state and local government.

And products and services, including Sprouts.

Hand, Sanitizer service and Matt.

For the second quarter of the fiscal year, the amount of uniform rental and facility services, new business sold to healthcare education and government customers is double the amount in the prior year period.

And the amount of per Se fire and other new business sold to customers in healthcare education and government is six times the amount sold in the same period last year.

For some of this new business is recurrent and some may not repeat.

Nevertheless, the results are really impressive.

Also for a number of scrub dispensing machines installed in our first two quarters doubled last year's number.

And since the virus appeared our employee partners that provided businesses with over 350000 hand, sanitizer dispensers and over 125 million masks.

I truly in all of the accomplishments of our team in this challenging time and I'm excited about the opportunities for Cintas post pandemic, which seems to be finally, appearing on the horizon.

With that I'll turn now for the second quarter financial performance of our business.

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.

No for rental and facility services revenue was one point for $1 billion compared to $1.47 billion last year.

Our uniform rental and facility services segment gross margin was 47.5 per cent for the second quarter compared to 46.6% and last years second quarter.

Higher inventory amortization expense of 80 basis points was more than offset by the benefits of lower production when service expense as a percent of revenue.

Our first aid and safety services operating segment includes revenue from the sales and servicing of first aid products safety products for.

Personal protective equipment and training.

This segment's revenue for the second quarter was $194.4 million compared to $169.7 million last year.

The first sales segment gross margin was 43.0% and the second quarter compared to 48.4% last year second quarter.

Lower production and service expenses as a percent of revenue compared to last year's second quarter for more than offset by higher cost of goods sold for the increased per portion of revenue from personal protective equipment, such as masks and gloves.

Our fire protection services and uniform direct sales businesses are reported in the all other category.

Our fire business historically growth each year at a strong pace.

Uniform direct sales business growth rates are generally low single digits and are subject to volatility just as when we install a multi million dollar accounts.

Uniform direct sales 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 unit.

All other revenue was $152.1 million.

Prior to $204.1 million last year.

The fire business organic revenue declined 3.3% due to the inability to access some businesses because of closures.

Uniform direct sales business organic revenue declined 51.2%.

Revenue from our airline cruise line hospitality and 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 question.

Thanks.

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For just a moment to allow everyone an opportunity for signal for question.

Well take our first question from Andrew Steinerman with JP Morgan.

Good morning, everyone could.

Could you give us a sense about the month of November in terms of organic revenue trends for rental and if you can make a comment into the month of December that would be great.

Andrew This is Scott.

Yes, we can give you a little bit more color on that.

Through the quarter, we continued to see a improving revenue trend.

For the month of November and the uniform rental and facilities services segment.

Rental organic growth was.

Minus 1%.

For state and safety for the month of November organic growth was 14%.

In fire.

Continue to improve through the quarter and.

It ended November with the month of November down 1%.

Now it's important to note that about mid November we did see the impact of some of the stage for restrictions on businesses.

Is it the.

I would say it is affected the trend.

But.

I hadn't turned it.

For worse than it had been at that point, so it's a little unpredictable on where it goes but as you can see through the month of November we continue on a positive trend I think second quarter revenue sequentially grew about 2.7% over first quarter.

And could you make a comment about December.

I would say.

Through the first couple of weeks, we were running around where we were in November.

Great.

Thanks Scott.

Yep.

Well take our next question from Seth Weber with RBC capital.

Hey, guys good morning.

I had a couple of questions on the margins I think.

I'm, just trying to handicap, where where we're at with expenses coming back online I think Mike I think last quarter, you talked about Theres about 100 bips per basis points of lower discretionary.

Has any of that have any of those costs started to come back here in the second quarter and how should we think about that kind of for the rest for you. Thanks.

Yeah, we we continue to manage those costs per.

Free tightly given the environment that we're in.

The.

Difference between last year's travel and meetings, which I called out of the 100 basis points in Q1 was.

It was about 40 basis points in Q2, now Q1, we normally travel more as we start our fiscal year, but it was still about a 40 basis point benefit and you know we'll continue to monitor the situation certainly I know that our operational people are trying to get out in the <unk>.

See our locations in our customers but.

Given given the.

Levels of case Covance cases in the environment, we're going to remain pretty tight on those.

Okay and can you can you just talk about have you seen any relief on the cost side on the for state and safety category. I know there was there have been some cost pressures there have that has that.

Kind of loosened up here, a little bit with more so as to whether supply has gotten a little looser or just easier to get on them say any comments on the first aid safety.

Expense cost side.

Deceptive Todd.

Regarding the first aid business.

Certainly there are some items.

PE type items that are still very challenging to get we are we've been blessed to be in a good inventory position to help our customers out with those items.

But.

He is in shorts.

Short supply has had some impact on a cost to us in those cases.

But again, we've looked at it with a with a long lens and we.

We we've invested appropriately and our customers really appreciate the fact that we've been operating provide products and services as.

Such as TV and other items to help them get through this challenging time.

We do like to assess the sequential improvement of gross margin of just about 40% in Q1 to 43% in Q2 and so we're now we did see some.

Nice performance in our first day cabinets in the quarter and as we talked about at the in September that that mix of PDP, obviously came down a bit with the growth moving from in that segment from.

Over 20% in Q4 to 17 to 14 and a half here in Q2. So we're starting to see some of those PB east turn into the maintenance mode that we've talked about in the last couple of quarters and that mix change as well as the the improving first day cabinet has helped that gross margin and will can.

Yes, when we get to a more normalized environment. We certainly believe that those first day of gross margins are going to.

Trend back towards where we had been pretty cobot theres nothing structural or no change in the business that would lead us to believe otherwise.

Well take our next question from George Tong with Goldman Sachs.

Hi, Thanks. Good morning, you mentioned that the for several weeks of December uniform rental trends are running around where you were back in November can you discuss changes you've seen if any around new business and retention trends over the past several weeks.

Yeah I.

Our new business numbers continue to perform very well.

The.

We still believe that the value proposition that we have is the.

It is important in this current environment and so we continue to attract new customers.

We have seen that we haven't seen a change in losses business rates at this point, we have seen that because of government restrictions some customers going back on the pole demeaning there are temporarily.

Moving to be closing the business until the the.

The restrictions are lifted and that would be the change that that we've seen since about mid November in the ER and the economy.

Those restrictions or you know.

For various states and cities, its California, Illinois, Its New York other stage, Washington, Oregon, and even up in Toronto. So these are the places that we see those type of flow of.

Restrictions.

That are impacting our customers, but from a lost business standpoint, we havent seen a real change in the in lost business rates.

Got it that's helpful. And then can you talk a little bit about how much growth you are seeing from the non programmer market versus your existing customers and how much for healthcare as a vertical is contributing to growth currently.

Sure.

The no programmer market for US had we've we've tracked it for many years, it's between 60 and 65% them for new business customers.

It remains in that range.

Today and.

As I said in my in my opening remarks, there are millions of businesses out there that do not have a.

A program.

That we can offer them and so we like our our position and our ability to convert them even within the health care space there are.

If you define a no programmer as somebody who doesn't have a rental program. Most of the scrubs that you see in hospitals are direct sales type scrubs, if some of them bought by individual health care workers. Some by the hospital for departments and things like that.

But converting them to a rental program.

We would call the conversion of a no programmer.

The other area that we're seeing in health care that it's doing really well with the our isolation gowns those are traditionally direct sales disposable.

Gallons and we have a rentable alternative that actually use day is.

The hospitals and health care providers money to convert from a direct sales program to a rental program. So we're seeing a lot of success in that as well and that would be what we would consider a a no pro program or conversion within health care.

Georgia, So Todd just to build off for a couple of items that Scott mentioned are no programmer as a business as a percent of our total is for me is quite consistent.

What is changing is it.

It's allowing us to get audiences.

Folks customers prospects that we havent had in the past in many cases.

Because of the access we have two critical products and services that they need to provide for their business and within their business to either their customers or to their employees both.

So that they can have confidence to come to work and for people to come into their business.

Scott spoke about.

For the in the medical area has been very successful the isolation gallons, a hand sanitizer sanitizer whites Chris.

For effect that whites.

As for US are all are seeing great demand.

Scott mentioned net the isolation gallons were that was virtually almost the entire market was a a direct purchase market purchased disposal market, probably the best way to describe it.

And what we've done with isolation gallons is been a very attractive to our for our prospects and our customers.

It's a it's a green.

Service right, we're not just throwing in the trash where we're using it on we save significant money.

Availability of them instead of folks struggling to get isolation gallons and being panicked over time to take care for their patients.

What weve either the garments are providing a more comfortable than what they've been wearing in the past and then lastly, we brought some technology to that business. So that we can track exactly how many times those garments have been processed since day, we can meet the up for specifications that are our detailed out for such a product. So that's been.

A big win and a lot of a lot of healthcare.

Customers are very very interested in that and that we mentioned in our previous earnings.

Earnings for really stepped up the.

The demand for Scrubs has been up very nicely people are uncomfortable in many cases wearing those home washing those at home and whom they come in contact with.

For the weighing on.

Makes sense makes people little uncomfortable so all that has been quite.

Quite good demand in those cases, we consider there's no programmers we might be doing some business with those.

Health care organizations.

For expanding that relationship dramatically.

Well take our next question Karen.

I'm sorry with Jefferies.

Hi, This is mario quarter Lochee filling in for Hamzah machine time.

Just on touching on the flowing in November and the continuation into December could you, maybe just give us a level deeper in terms of what you're seeing on your end market.

I'd imagine, it's probably similar to what we saw earlier in the year [laughter] Disney with with with the high risk industry being hit a little harder, but I mean is that.

More or less what you're seeing or can you give us some of the puts and takes.

On some of your end market exposure.

Yes for sure.

It boils down to a.

Certain industry segments or geographies and the you know the segments that you can.

I can imagine that travel hotels.

Cruise lines.

Even in certain areas of the restaurants, a movie theaters that type of thing are being hit the hardest because of these restrictions and features like natural fear to go and congregate in a place like a movie theater.

The the geography is depend on what type of Ah or if there are any restrictions in place.

And what we have seen so far is.

As we got through the end of November.

It's an increase in the number of states and municipalities that have put restrictions in place.

We don't know whether that trend is going to continue through the holidays.

And just as an example, governor Newsome in California.

For the restrictions in place they are pretty tight but he says that.

They will extend to January to for.

The question that we have there is will you extend that further which has been his tendency were would actually be January the fourth when he starts to loosen those restrictions so those those states.

Our the ER and municipalities are the areas, where we've seen the.

The change since about mid November and.

My perspective is.

Or is that we are in a temporary low oh, we don't think it's going to be anywhere near what it was in our fourth quarter last year.

Quite honestly at that point no.

Nobody, including governors, and and and people running businesses at any idea how bad it was going to be how deep it was going to go.

And so forth, but now that we've got.

Eight or nine months worth of experience in dealing with it and the fact that we have a vaccines beginning to rollout right now there is light at the end of the tunnel. This.

This is a temporary a period of time that we're going to go through and so.

So you know that.

That I hope for provides little color to you I'm happy to get more specific in any area. If you have any questions.

No that does that was helpful and then going back to health care for a second I'm just I guess.

Could you give us a sense of what the competitive landscape looks like there. So I think recently one of your competitors came out with a new scrub line.

I had mentioned the isolation gallons as being one of your your differentiated products because I'm, assuming helping you win business just wondering how the conversations are going with customers regarding competition and then also could you touch on how you're positioning your scrub dispensing system.

To your advantage.

Yeah, Todd you want to take this one and now our I'll chime in church, Okay, Great, Yes, Mario net.

I would say in the health care market depends upon a wet area within.

The health care area acute and non acute even frankly into what department now you're sticking up but generally speaking.

ISO gallon scrubs et cetera. Those are those are direct purchase market in the case of ISO accounts disposable.

And we will be the most common.

People procure those as products operating companies certainly.

Our our in that space, those who provide services.

Those types of customers.

But if I generalize described it as the direct purchase or a disposable market with any reusable would be.

Traditionally with a.

When in fact companies would be for most.

Common experience as far as the script dispensing.

You know it is.

It's been going extremely well for our business and our customers.

The demand is there.

Because it's a well.

I think most people can you can see the experience where you go into a.

You go into a grocery store and you see people wearing scrubs right and those for a long into the hospital normally and on what happens is because both struggled to get access to scrap they tend to for them.

And as they weren't them then they have to buy more spreads and and when they do that no net debt situation. They tend to buy the cheapest script. They can because they end up disappearing.

And we completely changed the the value proposition that we provide a script that people want to wear not just have to where it's comfortable attractive and we're continuing to invest in that area income out with that.

Better technology around the the fabrics et cetera.

And and makes it completely accessible meaning there's there's a complete accountability. So when you won a scrub you can get it you have complete access and then his laundered for you so well so they don't have to take it home. So it has been.

We have installed twice the amount of spreads that we did last year at the same time, so far through Q2, so a great momentum and we're very encouraged.

Scott Let me add just this is Scott let me add one thing relative to the competition and you know Todd mentioned that it is traditionally a direct sale oh items, scrubs and isolation gowns and that sort of thing.

And so.

I think the thing it's helpful to you all to understand is that it is really difficult and I don't know that it's even a concept that a traditional direct sales competitor would even consider would be to try and develop a laundry service to do that so we're providing.

Hey unique opportunity for a customer to convert to a rental program, where the traditional competition can't.

They don't have the ability to do that and that is a big.

A significant competitive advantage for us versus their traditional supplier for that and we believe that because of the the technology. We brought the scrub machines, the dispensing units for deep inventory tracking and our ability to.

Control, how often a isolation down is is is process before we we pull it out of service. These are the kind of things that for traditional cup competition. They can't do.

Relative to other rental.

Companies that would be linen companies and.

And a uniform rental companies.

We've been in this for a long time, we have trained sales people in service providers that specialize in the healthcare market and we think we have a it's a multi year head start on.

On what you would probably consider to be our traditional rental competitor and we like we like that position a lot and I think that's why you're seeing.

The amount of success for us.

As we've gone through this process and through the the the pandemic.

That you're seeing so I just thought I'd offer that as some some color relative to health care as well.

Well take our next question from Manav Patnaik with Barclays.

Thank you good morning, Scott if I could just ask you just again from a competitive standpoint, just in broad commentary I guess outside of healthcare and they can be seen at any changing dynamics that people are getting tight gas is boy net is it some more consolidation going on just curious any any color there.

[music].

Yeah.

So it will talk a competitive for may be competitive behavior and in pricing.

We have seen some aggressive pricing in the marketplace I think that as competition.

Sees their business existing customer base.

Have a issues and decline in revenue they typically get aggressive with pricing I don't think this is anything that we haven't seen in the past relative to lowball prices than competition trying to take take business from us and that's a.

Market by market type of of the environment and it could be in any particular market. The small players or one of the big national players in that market to decide they need to do something to to try to win some accounts.

But relative to overall price and though you know, while we have had to adjust prices.

On fluctuating items like gloves, and face masks and hand sanitizer in the pp he kind of things as as our cost increase trying to get those products. We had had to adjust price is upward on those items.

For our recurring revenue.

Across all of our businesses really.

We have not increased prices during the pandemic and in fact for as a general statement, the particularly in the rental division.

We haven't increased our price for do our customers in about a year and a half.

And that's a strong for strategic decision on our part we don't think that during a global pandemic, it's the right time to be raising prices.

And I think that.

One element of why we've seen how we're.

Net promoter scores, how we measure customer satisfaction.

That will be impacted to the positive and so.

That's that's our edge, that's our position on price and at this point.

Scott if I.

Models, just just a couple of items on that regarding our approach with our customers Scott mentioned pricing hasn't.

Recurring revenue pricing hasn't gone up in an 18 months or plus.

And our approach to our customers want us to be a we call its carrying consistent and flexible.

Meaning.

We know, it's a very challenging time for for.

For our customer base.

Prospect base.

So we wanted to.

Take the appropriate approach Scott mentioned net it's showing up in our customer satisfaction scores, which we track the net net promoter scores and.

When we look at it as.

As what's the lifetime value of those customers and we want to have those customers for a lifetime.

And not take a short term approach and I think again thats showing up in our net promoter scores and I think it's going to show for the long term and and.

Our customers look EPS.

Got it that's helpful. And also you know can you give an example, Don how basically Youre your steel please.

You still need the advantage in these times net is kind of heightened demand have you seen maybe 10, we'll see a smaller competitors just it'd be financially constrained and as that present, even more opportunities now.

Well yeah we.

Yeah, I I always like to say, we're an equal opportunity competitor and you know of any of our competition in a particular market is having a hard time with the either getting supplies or getting the product that they need.

Having trouble with the servicing their customers were more than happy to step in and and.

And provide those products and services to those customers.

From time to time, we do see a you know a a an issue with the competitor and.

We.

We'll react accordingly, and ER on a customer by customer prospect by prospect basis, If you will.

Relative to that.

I don't know that it's.

Because of the.

It's still a little uncertain and where this is all going to go and how quickly it's going to end up.

Different opinions on that but I do think that that could provide a future opportunity.

For acquisitions.

I think that there would probably be a.

A a desire on the part of a potential seller to try to get their revenue back to where it was free covert.

To have something larger to sell but you know what would that we'll we'll we'll deal with those kind of situations as they come up but that is obviously an opportunity for us as well.

Well take our next question from Andrew Wittmann, Glenn Farrell.

Great. Thanks for taking my questions guys I think this one's probably for Mike and just kind of looking back here on calendar 2020, it's obviously been a remarkable year challenging year for so many people I mean the thing that.

Most investors to look back and you think about 10 task is how you manage through this and GGR margin percentage goes up despite the revenues declining.

So Mike I guess the question as we look ahead to religious to high levels on looking for here.

As we're almost at or about to annualize. The total bid comps if you will.

How should we be thinking about the margins I mean, you guys have articulated the travel and discretionary 100 basis points last quarter 40 this quarter.

Of benefit but for the other other buckets out there that could be margin headwinds as you hit to the year annualized Dakotas day.

Like incentive compensation.

Fuel prices other things that might have to come back in.

The production side of things what else should we be thinking about from a high level its investors that could come back in as we.

To get to your marketing total.

Yeah, it's been a it's been a challenging year end and the it has required a lot of different managing of the different cost the cost structures in and it's.

It certainly has been a challenge, but as we move forward.

Look we were there for US is certainly some things that we have learned.

About some bids some of our costs like travel and can we do some things more efficiently and I think there will be permanent savings on some of those things.

Ah, yes, there will be some of that that comes back.

But but I don't I don't think we're going to see a 100 basis points of movement in something like that.

And so as we you know as we look forward to Andrew I would say this we're where we want to grow over the course of the long term.

We will continue to staff revenue producing positions.

To prepare ourselves to grow and that May mean, a little bit more bench in our service departments and in our sales departments.

And that that will that will probably create a little bit of additional spending.

But having said that.

Scott managed the business.

Very very well in this period of time and I would expect that that is going to continue we will we will continue to be very very cognizant of of our margins and our costs and recognizing that our goal is to continue to see very healthy incremental margins. So Andrew I don't there's not really anything that I.

I would point to other than a little bit of that.

Travel coming back and a little bit more of the staffing of of revenue per.

Producing positions.

That are needed for growth.

Okay, Great. That's my only question for today have a good holiday season.

That makes you too.

You too.

Well take our next question from Tim Mulrooney with William Blair.

Yeah. Good morning, just one for me as well on employee retention, which I know is a key initiative for the farm in something you all track pretty closely I'm curious, how that's trended through the pandemic.

With furloughs and disruptions to your route.

From temporary shutdowns.

If employee turnover has been something that's been harder to manage over the last several quarters or maybe it's actually been easier because the labor market isn't as tight as it spend relative to the last several years. Thank you.

Tim This is Todd thanks for the question.

And employees, what we call partner retention is never easy.

I would say that our power performance.

Since since.

Since the start of the pandemic is it's been impressive results are continuing to improve.

We have our partner base is.

Is an impressive group for folks who are relentless.

Creators.

And very proud of what they are doing on a daily basis to help businesses a function in this environment and function successfully sell them. So there are some esprit de corps and the organization at the very proud of what they do and and we've got a great group of leaders and and frontline partner.

There's all throughout that.

We're very happy with and so yes, good quite well and we're really encouraged about that Scott.

As we move through when you go through really hard things right and this going through this pandemic has been.

Extremely challenging not just for for ourselves but for.

I'd say it well you can say the world right, it's been very challenging, but it makes a better mix is stronger and and.

And we have found out a lot about our partners and and how resilient. They are and it's been that's been a real pleasure.

That's great great color Tom Thank you.

Kim.

Well take our next question and Gary Bisbee with DNA security.

Hey, good morning first of all I just wanted to clarify one thing you said health care education government customers. I believe you said new businesses doubled year over year, but then you said something else is up six ex <unk>.

For those two.

The number yes.

Right.

Sure happy to clarify so.

But I was thinking about sex excuse me two different sectors, one for rental our rental Tony services business.

Those sectors, the healthcare education and government new business is up double in that area and in the case of our first day fire. Another our new business again for a healthcare education government is up six packs now.

As I mentioned in the opening remarks, I'm not all that will be repeating some will not but but nevertheless, we're really really encouraged by how well we're doing in those areas of our business.

And can you give us some color on the rest of the end markets you serve I mean, obviously those you've been calling out in it and it makes sense that you're doing really well, but it is the rest of the book down on it on a new business. How do we think about you know sort of total cintas at this point, including they go to the bad.

Yes, so in.

In total our new business is very good we're very encouraged by that.

Trendlines are great.

For the productivity is at an all time high.

You were at so it's replacing a lot of revenue.

Customers that are closed and for those assets also replacing a lot of revenue for customers, who are maybe open but certainly not at the same levels as well as what we'd expect in a little more normalized type economy.

Okay, and then just if I could one day one financial question on on cash flow. It's obviously been quite strong how do you think about to two factors one capex coming back to more normal levels is that just.

Matter of revenue getting back and you bring the spend back or anything else. We should think timing and then the other one on inventory inventory days is up a lot I guess in part sales down but also building inventory for all these newer items P.P. acne and whatnot, how do you think about inventory levels at a more normalized revenue environment.

Some point in the future are they are they likely to be higher than they've been and is that something that will.

We need to build and have an impact on cash flow. Thank you.

Well, let's start with a with with Capex.

You know I think that we're going to probably see capex relent remain below historical levels as we get through the.

The coated the crisis and the economy.

Recovers, but I'd still say that even today, we're probably spend in capex that 60% growth, 40% maintenance level.

So, but I just think it's going to be lower until we get through this everybody's a little more cautious than.

And that sort of thing relative to inventory.

It's important that I think we make the statement that.

What we are doing the best job that we can manage.

The supply chain and the supply of these are hard to get items with the demand that we're seeing from our customer base and that's the you know the <unk> for the primary reason you're seeing an increase.

In this inventory I don't believe that.

We're going to see a sudden drop off in the need for these products I think it'll be a slow.

A decline in we'll have some.

Some some view on that as the economy recovers and as a co. Good vaccines continue to rollout. Many of these are going to be around at a higher level then free coded for.

For a long long time, and so you know, we're we haven't seen any issues with slow moving inventory at this point.

Or anything like that but I will tell you that the fact that we have been able to bring these products into inventory.

The way that we have has been a huge competitive advantage for us.

In the marketplace, where because we might have masks or gloves or hand sanitizer.

Prospects, who ordinarily have not been doing business with us listen to and react to our ability to provide them with these co bid related products and then also listened to what else. We can do for them and so it might be a call where a company is interested in hand, sanitizer and we wind up.

After or sales rep is out talking to them, where they are putting 10 people in uniform and restroom supplies in the in the restroom and entrance Madsen mops and cleaning chemicals and so forth. In addition to the hand sanitizer.

So it's been a big competitive advantage for us as we've gone through this process and I think one of the reasons why our NPS customer satisfaction scores are up.

As well as what were seeing very robust new business results. So that you know.

I think the balance sheet that we have is allowed us to be able to make that investment.

Our supply chain has done a great job in sourcing it and I think that is reflected in a non.

In our ability to sell new accounts and satisfy our customers.

Well take our next question, Karen Kevin Mcveigh with credit Suisse.

Great. Thanks, so much hey, I Wonder if you could give us a sense of.

Across the client base, how many are <unk> percentage numbers, maybe how many are in active today and is there a way to think about where the average customers in terms of.

Percentage of prior peak just to get a sense of you just for the potential the scale is as things start to reaccelerate from a corporate perspective.

[noise] recovering rather.

You know that's that's difficult for us to say because in many ways. It's a moving target and we have had customers that were open and then because of a regulation or restriction had to shut down temporarily I'm open back up some of the customers that are open or opened only at a you know 50 per cent compared.

So do you work at a lower level than they were.

But we haven't gotten into those figures because it moves around so much that if I tell you something today it could be different next week.

And so we you know depending on who might apply new restrictions and so forth. So we havent gotten into that level of detail and I hesitate to do that only because I think it might be a little misleading.

Only because it moves around so much.

Good.

Okay. Thank you and then just you know in in that Kinda post cope with World. You know you think about how much of the demand is structural hey is there any way to think about that against the core business and to me. It seems like obviously health care is going to be a more significant contributors business, but just any incremental step up then how much of that is.

Kind of structural forces. He you know maybe starts to to kind of a normalized.

Well, we've learned a lot as we've gone through this process.

And I think that that one of the really positive aspects of this whole thing is that we have done a much better job of communicating to existing customers and even prospects all of the things that we can do for them.

And and therefore are selling more to existing customers and a new prospects that might.

Come on board. They May only you know start with a particular service, but because they are aware of the other things that we have to offer when they see that need they know who to call that has been a structural change for us and I believe that you know the things that we have the all for these customers are things that they're going to be using.

Yeah.

In the long term within their businesses to help keep their businesses their employees and their customers save had a clean environment for them to work in a and B compliant with the you know regulations in a you know in the fire business insurance company requirements and so forth. So we're.

We're excited about the position that we that we're in right now and.

As I looked for the future I'm really excited about world is can go.

Hey, Kevin non started as an example of that.

We mentioned that in a previous call that there is a large national bank chain that we were doing zero business with and and now we're providing hand sanitizers to every single branch that they have.

And for your in addition to that we're talking to them about other facilities products that they are in need of we're also talking to them about our fire service, which as you can imagine they need all that it's just a matter of wherever getting it from and and centralizing spend in many cases saving money. So.

Just one example.

What is occurring hundreds of times every single day out there with our sales and service organization as Scott mentioned really positions us well because there's people in the past to really then wouldn't take our calls and now they will because of our inventory position and our and our infrastructure.

And does that helps.

Ups position us for long term and in a really healthy manner.

It makes a ton of sense I've noticed a lot of dispensers being counted installed and things like that that just historically weren't there and you know the total for the future. So thank you.

Thank you.

Well take our next question from Scott Schneeberger with Oppenheimer.

I think for much more than on in the other segment I'm. Just curious how is that how is your visibility. There you obviously have experiences new wins and seems and struggles but if you can break it down on between firing direct sales is your sense on the visibility you have in images into assets.

The question is you've done a nice job managing margin there is to deal with it how it how does it feel like the visibility correspond with your ability to too many job your your opex. Thanks.

Well the fire service business is.

Is recovering similar to the rental and facility services segment there.

I mentioned earlier that their November organic growth rate was off 1%.

From a from free covert levels, but soap so we have a pretty good.

View of what's happening in that business.

And I think that will it's similar to what happens with the rest of the economy and what were what happens with the rental division.

We'll see that recover.

In a similar fashion a relative to the direct sale business a good portion of that business.

Goes into hospitality and travel related areas, that's a little that's a little murkier and I think that you know its it those are hotels airlines.

For the ships casinos.

At foodservice and that's that that sort of segment. So you know those are going to be I think the the longer tail from a recovery standpoint.

But I think that there will be a day coming where.

They're going to get a pretty good bump.

I think there is a is my personal opinion, a huge amount of pent up demand for.

For people to be able to go back on vacation to standard hotel to feel safe when they get on an airplane.

And that sort of thing and there is a point at which when the vaccines.

Have been rolled out to for.

Perhaps you know reach herd immunity.

You can see airlines throw in some special rates at travelers to welcome them back hotels and resorts doing the same kind of thing that.

Thank you to Las Vegas.

You know doing everything they can to get their their customers to come back.

And who knows that maybe that's.

Early next summer depending on the rate of.

Of vaccinations and things like that but if it's going to work in those businesses. It's also going to work in other businesses people are going to be able to go back out to their restaurants in their movie theaters locally and maybe go to the concert venue Lynn and do the social things that bars in and do the social.

Things that they're missing right now.

And I think that that is coming when it happens we need a little bit more time to understand the rate of rollout for the vaccines.

And that's why I continue to say that we were in a temporary low in this.

And that you know as we get a little further out and get a little more clarity. We're we're going to see I think some economic activity pick up and where.

Maybe a couple of quarters away from that maybe on an improving quarter by quarter basis as those vaccines rollout.

And there's no color on and just as a follow up but I'm curious on your appetite for M&A and what you're seeing out those are clearly in a position of power to see upon the discussed over the course of the call.

And then maybe can you send some on the move to the quarterly dividend just pop on the whole, which in the capital on strategy there.

Yes so.

[music].

Relative to the.

To the dividend you know that we were.

The sort of the last.

Last person standing relative day, giving out annual dividends.

We thought the and I've talked about it at a board level for a long time and made a made a decision to to.

To make the change I think it's you know we have shareholders and that we've heard from in the past about you know a cash flow and and and that sort of thing. So we we've we've reacted to that we think is a good change for US we think it's a good change for the shareholders well and remind me. The first part of the question was.

M&A Scott.

M&A M&A, okay. Thank you Mike I'm sorry.

You'd probably dropped off but M&A, yes, we you know where we are we're cautious right now because of where we are in the recovery, but you know we are in a position where we could do M&A acquisitions in any of our businesses.

We'd evaluate them pretty heavily right now just to make sure we understand.

You know, how how well that particular business is doing.

But we we would be acquisitive, if we could find the right deal to write business at the right price.

I think that as I said earlier I think there's a there is an element of of concern on the seller's part if their revenue is below where it was pre covert that they're going to get out of the business what they need to get out of the business should they sell it and so there may be a little bit of a low there, but I think as a as the economy.

He continues to pick up we'll probably see a you know M&A activity pick up.

And you know if that's the case, we sure we'd like to be a player there.

Well take our next question, Karen Toni Kaplan with Morgan Stanley.

Thank you.

I was hoping you could provide some clarification on net operating assets that were sold during the current or try to understand what those were and was at a cost saving measure given the uncertainty and reduce future capacity at all and just how does that impact that run rate margin structure.

Oh, Yeah, Yeah sure.

It was really just a couple of key focuses we had some operations in some pretty remote geography use that those particular geographies didn't lend themselves to have an opportunity for a lot of growth.

And so we had a lot of resources dedicated to running those operations and they just werent. They just weren't important geographies for US. We also had some services that we had.

Ben.

Experimenting with if you will that we.

We came to the conclusion that we had better opportunities to grow other segments of the business. So these are the areas that we sold it wasn't really material.

Total revenue run rate was about $15 million annually. So I don't think that it's going to have a any.

Any.

Short term mid term long term impact on on our run rate.

That's helpful and just asking a different way already but just want any share I understand that the.

The comments that you've made today sounds like things are getting fine and proving in many cases, but there have been kept new lock down and potential for more sell that share reservation for not providing the Threeq guide and I'm just is that fair and.

Please see Directionally I guess as they range of revenue growth scenarios and that you know.

Better than for Q.

On the downside, but you know better than this quarter on the upside like just trying to understand how you're feeling that range and obviously, there's a lot of uncertainties accounts not trying to nail you down on it just what's the upside and downside. Thanks.

Yeah, Let me let me, let me try to explain it this way.

You know.

We're in a <unk>.

I think that it's the timing of our quarter and therefore this call that are causing part of the problem is there is so much uncertainty right now as we look out over the next several weeks or a couple of months few months, maybe ER and it's everything from the rising or accounts of the.

Virus.

We have you know governments, putting more restrictions in place.

And as of today I don't know whether more government the governors and mayors are going to do that whether they're not going to do that how long those restrictions are going to stay in place based on you know the ones that have put these things in place so far.

And and and you know so so there's a lot of there's a lot of uncertainty when we sat down and talked about it we said well, let's put a range together, but when we started to put arrange together we started saying what if this happens and what if that happens in those would be things like what if what if a governor or a group of governors decided.

Well the vaccine is three months away, let's leave these restrictions in place for the next three months, what does that do to our ability to predict what are low end of the range might be.

What if that doesn't happen what if governor new some actually does open the account is the California's economy backup January to for it. So it became such a wide range that we decided it didn't make sense for you our impression of of and I you know I don't.

I Hope you take this the right way, but our impression is.

One of the things that you like about our company is that we're pretty predictable.

And when we give guidance you can pretty much.

Determine and you.

Your models, what that means relative to what you think is going to happen and.

In this particular case.

We don't think that what we would provide for you would allow you to do that.

That you might wind up with some big swings.

With Ah depending on you know you're positive or negative approach depending on what you think is gonna happen in the economy and therefore, we decided it didn't make sense for us in this period of time to do that.

I do not believe this is my personal opinion that it will be anything near like what happened in the fourth quarter for us that was brand new.

And there I think there were 38 states that foot shelter in place orders in place in a short period of time.

We haven't seen that I don't think I I don't expect that that's gonna happen at this point.

Moving forward might it maybe.

My personal opinion is that won't happen, therefore, I don't see that as the the eventual downside of what's going to happen.

The upside could be that the.

That the number of cases.

Again to subside that.

<unk>.

That.

Mayors and governors begin to open.

Their economies back up in anticipation of vaccinated progress and so forth.

But I do know this.

With the vaccines rolling out at.

I can't predict the right yet I need a better understanding of what that what that is going to be with those vaccines rolling out for.

Fewer and fewer governments are going to put restrictive orders in place and eventually those those economies in those states for municipalities are going to begin to recover at a at a pretty good rate is that in our fourth quarter I'd love to see that.

Is it <unk>.

Next summer.

Highly likely that by next summer some point next summer, we're gonna be at that position, but.

That's my that's that's my view of it and and so I'll I'll.

I'll end with that.

Well, thank God Chris.

I understand that some bombs went stifle.

So although you may be on mute.

Sorry, Sam. Thank you. Thank you for calling that out.

[laughter] you have a few it's been great you know great color over here. Thank you and I have a few housekeeping items that I thought we could just kind of run through we will be helpful. Just on some of the can you give a little more detail on kind of a one time sales moving to subscription sales are are you know is there. Some way you can just get into a little bit more about how that impacts.

Might've happened in the quarter and.

Kind of a kind of a success that you're having over there is just something that you know, it's kind of a little bit more of a permanent lift that's over there and then I have a couple more after that.

Yeah for them at this time.

We mentioned.

Recent quarterly release that you know customers when they they by and large orders of T V. Whether it's a government school system suddenly health care for the.

Up and down the street business day.

Tend to make a large by and then they go into maintenance mode from there and sometimes for advice, we're in our queue one.

There was some in queue to summer Ah some of those a barbecue one are now in maintenance mode.

Too so it's a real mix and uhm.

And trying to predict for those folks how long are going to need those products and services.

<unk> to them is it's a dynamic marketplace.

Marketplace. So.

Again, that's why we're in it and they're very good bye, we've we've invested for our customers and these inventory levels to help them with that so hopefully that gives you a little bit more current.

Okay, and then Hey, Mike. This is this is for you I knew you were really good with numbers, but I'm still trying to figure out how you got an 18 million dollar gain pre tax on 108 million shares to be twenty-five cents of EPS did that trigger some other kind of.

<unk> benefit or something with that gain a sales.

It's a great question Shlomo.

Yes the.

The assets had a high tax basis and created.

Wow, a book gain a tax loss.

And so you can kind of think of it as as the $18 million pretax gain was about 12% benefit.

And the tax benefit was about 13 benefit.

And Ah, maybe said a little bit differently, the 13.3% tax rate was benefited by about 270 basis points I am sorry for.

370 basis points.

From this these transactions.

And the remainder of that tax rate.

Call it 17% without that benefit.

Did have some some benefit from equity compensation as we've talked about in the past.

As you think about that tax rate moving forward I would suggest in the third quarter, you think about a range of 20% to 21%.

Thank you that concludes today's question and answer session Mister Adler at this time and what turn the conference back to you for any additional are closing remarks.

Well. Thank you everyone for joining us we will issue or third quarter of fiscal 21 financial results in late March we look forward to speaking with you again at that time.

Day.

This concludes today's call. Thank you for your participation you may now disconnect.

[music].

[music].

Okay.

[music].

[music].

Good day, everyone and welcome to the Centas quarterly earnings for results Conference call.

Today's call is being recorded.

At this time I would like to turn the call over to Mister Paul out there Vice President Treasurer and Investor Relations. Please go ahead Sir.

Thank you and thank you everyone for joining US with me today is Scott Farmer Centas Chairman of the Board and Chief Executive Officer, Todd Schneider Executive Vice President and Chief operating Officer, and Mike Handset Executive Vice President and Chief Financial Officer.

We will discuss our second quarter results for fiscal 2021.

After our commentary we will be happy to answer questions.

For private Securities Litigation Reform Act of 1995 provide the safe Harbor from Civil litigation for forward looking statements. This conference call contains forward looking statements that reflect the company's current views ask for 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 Ah refer you to the discussion on these points contained at our most recent filings with the SEC I'll now turn the call over to Scott farmer.

Thank you Paul and good morning, everyone.

The COVID-19, Corona virus pandemic remains a significant disruption to the economy.

And the final month of our fiscal second quarter November the COVID-19 virus accounts surged from about 100000 per day at the beginning of the month to about 250000 per day now.

Not surprisingly economic indicators, such as jobs growth unemployment and retail spending reflect an economic recovery that slowed considerably as the fall months progressed and the virus accounts increased.

Despite the macroeconomic headwinds I'm pleased with our second quarter financial performance, which exceeded expectations.

Our employees when we call partners have not wavered in their passion for getting businesses ready for it to work day.

They are providing essential products and services to help keep our customers and their places of business clean and safe.

Is include hand, sanitizer services professionally laundered healthcare scrubs in isolation gowns first aid products sanitizing whites face masks gloves and fire protection services as well as many others.

The conversion of no programmers the do it yourself for is if you will remains robust our.

Our supply chain and service network enables us to increase service to existing customers and add new customers by procuring and providing items in short supply.

And our net promoter score, which we used to measure customer satisfaction as risen dramatically to an all time high.

We find ourselves today, however, at a time of increasing uncertainty Ah.

A number of states for municipalities have reinstituted temporary economic restrictions in response to rising COVID-19 cases.

Others are considering that.

On the other hand vaccines are being distributed in the U S government continues to discuss additional economic stimulus.

The uncertainty of the resolutions of these impactful events makes providing near term guidance very difficult.

Therefore, we're not providing financial guidance at this time.

However, if we're able to gain clarity before the end of the quarter will provide an update in advance of our third quarter earnings release.

That said there is much that does remain certain.

Our employee partners reflect the steadfast impasse culture.

They are always striving to exceed the expectations of our customers to maximize the long term value of syntax for its shareholders employee partners and other stakeholders.

The result is consistently strong financial performance with Cintas growing revenue and EPS 49 of the past 51 years.

I remain certain of our value proposition of getting businesses ready for the work day by providing essential unparalleled image safety cleanliness and compliance it has never resonated more than it does today I.

I remained certain Navarre addressable market, namely the millions upon millions of businesses that are not currently <unk> customers. Many of whom are not in a program with recurring service, but could benefit from at least one <unk> product or service.

And I'm certain that sent to us as well positioned for years to come.

Now I'll turn it over to Mike for commentary on the financial results of the quarter Mike.

Thank you Scott and good morning or.

Our fiscal 2021 second quarter revenue was $176 billion compared to $184 billion in last year's second quarter.

Earning as per diluted share from continuing operations or EPS for $2.62, an increase of $15 for percent from last year's second quarter.

Organic revenue adjusted for acquisition divestitures in foreign currency exchange rate fluctuations day.

A client for for percent for the second quarter of fiscal 21.

Organic revenue for the uniform rental facility services operating segment declined three 6%.

Organic revenue for the first day and safety services operating segment increased $14 five per cent.

Gross margin for the second quarter of fiscal 21 was 819 $9 million compared to $852 for million dollars and last year's second quarter.

Gross margin as a percentage of revenue increase 50 basis points to 46, 7% for the second quarter of fiscal 21 compared to 46, 2% in the second quarter of fiscal 20.

Selling and administrative expenses as a percentage of revenue for 26, 6% in the second quarter of fiscal 21, and $28, 1% last year fiscal 21 second quarter results benefited from lower discretionary spending and increased sales rep productivity.

Operating income for the second quarter of fiscal 21 of 352 $9 million increased five 5%.

Operating margin was 21% in the second quarter of fiscal 21 compared to $18, 1% in the second quarter of fiscal 20.

Are effective tax rate on continuing operations for the second quarter of fiscal 21 was $13, 3% compared to 21% last year tax.

Tax rate can move from period to period based on discrete events, including the amount of stock compensation expense.

Net income from continuing operations for the second quarter of fiscal 21 was $284 $9 million and increase of 15, 7%.

<unk> was $2 62 and.

An increase of $15 for percent from last year's second quarter.

And the second quarter of fiscal 21 certainty uniform wrestling facility services operating assets were sold.

For pretax gain on sale of $18 million was recorded and selling and administrative expenses and impacted operating margin by 100 basis points to pretax gain unrelated tax benefit impacted EPS by 25.

Our balance sheet and cash flow remains strong or leverage calculation for our current facility definition was one six times debt to EBITDA, we have an untapped credit facility a $1 billion.

For financial modeling purposes. Please note that there is one more work day in our fiscal 21, then in our physical 20.

One more day will benefit physical 21 total revenue growth by 40 basis points.

One more work day also benefits operating margin in EPS physical 21 operating margin will be about 12 five basis points better in comparison into fiscal 20 due to one more day of revenue.

And fiscal 20, each quarter contained 65 work day.

In fiscal 21 workdays by quarter are 66 in Q1, 65 and Q2.

64 in Q3 60.

66 in queue for.

Please keep these differences in mind when modeling on a year over year and sequential basis.

I will now turn the call over to Todd Schneider to discuss the performance of each of our businesses.

Thank you Mike.

Scott stated COVID-19 remains a significant disruption to the economy.

Every business and U S and Canada has been impacted.

Many of our customers that have remained open are not yet operating at the same level of business is the for the pandemic started because of the virus is negative impact on health and the economy.

Our employee partners continue to work with urgency to offset these headlines.

Over the past couple of quarters, we provide some examples of their interactions with both new and existing customers. So you have a better understanding.

Many of those examples highlighted customers and the industry zone, healthcare education, and state and local government and.

And products and services, including Sprouts.

And satisfied for service and mass.

For the second quarter for fiscal year, the amount of uniform rental facility services, new business. So the healthcare education and government customers is double the amount in the prior year period.

And the amount of first aid fire and other new business. So the customers and healthcare education and government is six times the amount sold in the same period last year.

For some of this new businesses reoccurring and some may not repeat.

Nevertheless, the results are really impressive.

Also the number of scrub dispensing machines installed in our first two quarters doubled last year's number.

And since the virus appeared our employee partners that provided businesses with over 350000 hand sanitizer dispensers.

And over 125 million masks.

I am truly and all of the accomplishments of our team in this challenging time.

And I'm excited about the opportunities for some tests post pandemic would seem to be finally, appearing on the horizon.

With that I'll turn now for the second quarter financial performance of our business.

You know for a rental for facility services operating segment includes the rental and servicing of uniforms healthcare spreads mass and towels and the provision of restaurant supplies and other facilities products and services.

The segment also includes a sale of items from our catalogs to our customers on route.

You know for a rental facility services revenue was one for $1 billion compared to $147 billion last year.

Are you are parental authority service for the segment first margin was 47, 5% for the second quarter compared to $46, 6% and last year's second quarter.

Higher inventory amortization expense of eight basis points was more than offset by the benefits of lower production when service expense as a per cent of revenue.

Our first date and safety services operating segment includes revenue from the sales and servicing our first date product.

Safety products for.

Personal protective equipment and training.

This segments revenue for the second quarter was 194 $4 million compared to 169 $7 million last year.

The first day segment gross margin was 43 zero percent in the second quarter compared to 48, 4% and last year second quarter.

Lower production and service expenses as a percentage of revenue compared to last year's second quarter for more than offset by higher cost of goods sold for the increased proportion of revenue from personal protective equipment, such as masks and gloves.

Our fire protection services in uniform direct sales businesses are reported in the all other category.

Our fire business historically growth each year at a stronger pace.

The uniform direct sales business growth rates are generally low single digits and are subject to volatility just as one we install a multi million dollar accounts.

Uniform direct sales ever as a key business for us.

And its customers are often significant opportunities to cross-sell can provide products and services from our other business units.

All other revenue was $152 $1 million.

200 for one $9 last year.

The fire business organic revenue declined three 3% due to the inability to access some businesses because of closures.

Uniformed direct sales business organic revenue declined 51, 2%.

Revenue from our airline for zine hospitality and gaming customers largely falls within this segment. These.

These industries continue to be among the hardest hit by the pandemic.

That concludes our prepared remarks, we're happy to answer your question.

Okay.

Thank you would like to ask a question. Please signal by pressing Dar one on your telephone keypad.

You're using a speaker phone. Please make sure your mute function is turned off so allow your signal to reach our appointment.

Again, Chris Star one to ask a question what passed for just a moment to allow everyone an opportunity to signal for question.

We'll take our first question from Andrew Steinman with J P. Morgan.

Good morning, everyone.

Could you give us a sense about bin month of November in terms of organic revenue trends for rental and if you can make a comment into the month of December that would be great.

Andrew This is Scott.

Yes, we can give you a little bit more color on that.

Through the quarter, we continued to see a and improving revenue trend.

For the month of November and the uniform rental and facility services segment.

Rental organic growth was.

Minus 1%.

First day didn't safety for the month of November organic growth was 14%.

And fire continue to improve through the quarter and.

It ended November with the month of November down 1% as.

It is important to note that about mid November we did see the impact of some of the states restrictions on businesses.

I would say it affected the trend.

But.

Hadn't turned it.

Worse than it had been at that point, so, it's a little unpredictable and where it goes but as you can see through the month of November we continue on a positive trend I think second quarter revenue sequentially grew about 2.7% over first quarter.

And could you make a comment back December.

I would say.

Through the first couple of weeks, we were running around where we were in November.

Great.

Okay. Thanks, Scott.

Yep.

We'll take our next question for himself Weber.

<unk> with RBC capital.

Hey, guys good morning.

I had a couple of questions on the margins I think.

Yes, I am just trying to handicap, where we're at with expenses coming back online I think Mike I think last quarter, you talked about there's about 100 bps hundred basis points of lower discretionary.

As any of them have any of those costs are there to come back here in the second quarter and how should we think about that kind of for the rest of the year.

Yes, we we continue to manage those costs.

Pretty tightly given the environment that we're in.

The.

Difference between last year's travel and meetings, which I called out of the 100 basis points in Q1.

About 40 basis points in queue to know Q1, we normally travel for.

As we start our fiscal year, but it was still about 40 basis points benefit and we.

We will continue to monitor.

The situation and certainly I know that our operational people are itching to get out and see our locations in our customers but.

Given given the.

Levels of case, Covid cases, and via environment, we're going to remain pretty tight on those.

Okay can you can you just talk about have you seen any relief on the cost side on the first date and safety category I know there have been some cost pressures there have that is that.

Kind of loosened up here, a little bit with more.

Whether supplies gotten a little looser just easier to get an understanding any comments on the first day safety.

Expense cost side.

Deceptive.

Regarding the the first day business.

Certainly there are some.

PBE type items that are still very challenging to get we are we have been blessed to be in a good inventory position to help our customers out with those items.

But.

TBE is in.

Short supply I've had some impact on cost to us in those cases.

But again.

We've looked at it with a with a long lens and we.

We we've invested appropriately and our customers really appreciate the fact that we've been able to provide products and services.

Such as TB and other items to help them get through this challenging time.

We do like the.

The sequential improvement gross margin of just about 40% in Q1 percent to 43% queue to and so we are.

We did see some.

Nice performance in our first day cabinets in the quarter and as we talked about it be in September that.

Mix of PPE.

<unk> came down a bit with the growth moving from.

In that segment from.

Over 20% in queue for to 17 to 14 and a half here in Q2. So we're starting to see some of those ppe's turn into the maintenance load that we've talked about in the last couple of quarters and that mix change as well as the the improving first day cabinet as helped that gross margin and will.

When we get to a more normalized.

Environment, We certainly believe that those first day gross margins are going to.

Trend back towards where we had been pre COVID-19. There is nothing structural for a no change in the business that would lead us to believe otherwise.

We'll take our next question George tongue with Goldman Sachs.

Hi, Good morning, you mentioned that through the first several weeks of December uniform mental trends are running around where you were back in November and you discuss changes you've seen if any around new business and retention trends over the past several weeks.

Yeah.

Our new business numbers continue to to perform very well.

The.

We still believe that the value proposition that we have is.

Is important in this current environment and so we'll continue to attract new customers.

We have seen.

Haven't seen a change in losses business right at this point, we have seen because of government restrictions some customers going back on a whole demeaning there temporarily.

Closing the business until the the.

The restrictions are lifted and that would be the the change that.

That we've seen since about mid November and the and the economy.

Those restrictions are.

<unk>.

Various states and cities, It's California, Illinois, It's New York Other States, Washington, Oregon, and even up in Toronto. So these are the places that we see those type of of.

Of restrictions.

That are impacting our customers, but from a loss business standpoint, we haven't seen a a real change in in Los business rates.

Got it that's helpful. And then could you talk a little bit about how much growth you're seeing from the non programmer market versus your existing customers and how much healthcare is it vertical is contributing to growth currently.

Sure.

There are no programmer market for us.

We've we've tracked it for many years, it's between 60 and 65% of our new business customers.

It remains in that range.

Today and.

As I said in my in my opening remarks, there are millions of business was out there that do not have a.

A program that we can offer them and so we like our.

Our position and our ability to convert them even within the healthcare space there are.

If you define a no programmer as somebody who doesn't have a rental program. Most of describes that you see in hospitals are direct sales types grubs some of them bought by individual health care workers. Some by the hospital for departments and things like that but.

Converting them to a rental program.

We would call the conversion of a no programmer.

The other area that we're seeing in healthcare, that's that's doing really well our isolation gowns those are traditionally direct sales disposable.

Gowns, and we have a rentable alternative that actually you say is.

The hospitals and healthcare Provider's money to convert from a direct sales program to a a rental program. So we're seeing a lot of success in that as well and that would be what we would consider a a no pro programmer conversion within healthcare.

Georgia at the time, just don't offer a couple of items that Scott mentioned.

No programmer.

Business as a percent of our total is for it means quite consistent.

What is changing is is.

It is allowing us to get audiences.

Folks customers prospects that we haven't had in the past in many cases.

Because of the access we have two critical products and services that they need to provide to their business and within their business for either of their customers or to their employees.

So.

So that they can have confidence to come to work and for people to come into their business.

Scott spoke about.

The and the medical area have been very successful the isolation gowns hand sanitizer.

Sanitizer whites.

Effective whites Scruggs all.

R C in great demand.

Scott mentioned that the isolation gowns were that was virtually almost current marketplace.

Direct purchase market purchased disposable market for having the best way to describe it.

And what we've done with isolation gallons has been a very attractive to our for our prospects in our customers.

It's a it's a green.

Service right, we're not just throwing in the trash where we're using it.

The same zone significant money.

The availability of them instead of folks struggling to get isolation gowns and being panic over trying to take care of their patients.

Well.

The garments for providing a more comfortable than what they have been wearing in the past and then lastly, we brought some technology to that business. So that we can track exactly how many times that are those garments has been processed.

We can meet the specifications at our detailed out for such a product.

That's been a big win and a lot of a lot of healthcare.

Customers are very very interested in that and that we mentioned in our previous.

Earnings for reset.

The demand prescribes has been up very nicely.

Or uncomfortable or any cases, wearing those home washing nose at home and whom they come in contact with.

On the way home.

It makes it makes people will uncomfortable so all of that has been.

Quite good demand in those cases, we consider there's no partners, we might be doing some business with those.

Healthcare organizations.

We're expanding that relationship dramatically.

What's your current next question.

<unk> with caffeine.

Hi, This is Mary a quarter laci filling in for half the time.

Just on touching on the flowing in November and the continuation in for December could you, maybe just give us a level deeper in terms of what you're seeing on your end market.

I would imagine it's probably similar to what we saw earlier in the year excuse me with with with the high risk industry being hit a little harder but.

More or less what you're seeing or could you give us cause I'm gonna put intake.

Some of your and market exposure.

Yeah sure.

It boils down to.

Certain industry segments or Geography's and the.

The segments that you.

Can imagine travel hotels.

Cruise lines.

Even in certain areas.

The restaurants movie theaters that type of thing or being hit the hardest.

Because of these restrictions in People's like natural Pier to go and congregate in place like a movie theater.

The the Geography's day.

Depend on what type of or if there are any restrictions in place.

And what we have seen so far is.

As we got through the end of November.

An increase in the number of states and municipalities that have put restrictions in place.

We don't know whether that trend is going to continue to the holidays.

And just as an example, governor news I'm in California.

Put the restrictions in place they are pretty tight but he says that.

They will extend to January the for.

The question that we have there is will he extend that further which has been his tendency or will it actually be January the fourth when he starts to loosen those restrictions so those those states.

Or the.

And municipalities are the areas, where we've seen the.

The change since about mid November and.

My perspective is.

That we are in a temporary law.

We don't think it's going to be anywhere near what it wasn't our fourth quarter last year.

Quite honestly at that point.

Nobody, including governors and and people running businesses at any idea how bad it was going to be how deep it was going to go.

And so forth, but now that we've got a.

Eight or nine months worth of experience in dealing with it and the fact that we have vaccines beginning to roll out right. Now there is light at the end of the tunnel just as a temporary period of time that we're going to go through and.

So.

That I hope provides little color too yeah, I'm happy to get more specific in any area. If you have any questions.

No that was helpful and then.

Going back to health care for a second.

Okay could.

Could you give us a sense of what the competitive landscape look like there. So I think recently one of your competitors came out with a new scrub line.

Had mentioned the isolation gowns as being one of your you differentiated products.

Helping you in business just wondering how those conversations are going with customers regarding competition and then also could you touch on how your conditioning your scrub dissenting system.

To your advantage.

Yes, Hi, do you want to take this one and now our I'll China.

Great Yeah Mario.

Mario.

I would say in the healthcare market depends upon.

Area within.

The health care area acute non acute even frankly and do what department, you're speaking up but generally speaking.

Ico gallon scrubs et cetera.

For those are address purchase market and the <unk>.

<unk> disposable.

The most common.

Wait for people picture of those products Ah lending companies certainly.

Are in that space, those who provide services that.

Those types of customers.

But if I generally described it.

Purchase or disposable market.

Any reusable would be.

Traditionally with a.

Linden Tech companies would be the most.

Common experience as far as the scrubbed dispensing.

It is.

It's been going extremely well for our business and our customers the demand is there.

Because it's a well.

Think most people can see the experience where you go into a.

Go into a grocery store and you see people wearing scrubs strength and those belonging to the hospital normally and when.

What happens is because both struggled again access described they tend to for them.

And as a horde them, then they have to buy more spreads and and when they do that in their net that situation. They tend to buy the cheapest scrub they can because they end up disappearing.

And we completely change the the value proposition there we provide a script that people want to where I would just have to wear comfortable attractive and we're continuing to invest in that area and come out with.

Better technology around the the fabrics et cetera.

And and makes it completely accessible meaning there is there is.

Bleed accountability. So when you want a scrub you can get it.

You have complete access and then it's laundered for you. So so they will have to take it home. So it has been.

Really attractive for our health care customers and as I mentioned in the in the opening remarks William.

We've installed twice the amount of spreads that we did last year at the same time, so far through a Q too so great momentum and we're very encouraged.

Oh, let me add this is Scott, let me add one thing relative to the competition and.

Todd mentioned that is traditionally a direct sales.

Items, grubs, and isolation gowns and that sort of thing.

And so.

I think the thing is helpful to you all to understand is that it is really difficult and I don't know that it's even.

Concept that a traditional direct sales competitor would even consider would be to try and develop a laundry service to do that so we're providing.

A unique opportunity for a customer to convert to a rental program, where the traditional competition can they.

They don't have the ability to do that and that is a big.

Significant competitive advantage for us versus the traditional supplier for that and we believe that because of the the technology. We brought the scrub machines. The dispensing units for keep inventory tracking in our ability to.

Control, how often a isolation gown is is is process before we we pull it out of service. These are the kind of things that for traditional competition. They can't do.

Relative to other rental.

Companies that would be Lennon companies and.

And uniform rental companies.

We've been in this for a long time, we have trained salespeople and service providers that specialize in the health care market.

And we think we have a a multiyear headstart on.

On what you would probably consider to be our traditional rent.

Rental competitor and we'd like we'd like that position a lot and I think that's why you're seeing.

The amount of success for us.

As we've gone through this process and through the pandemic.

You're seeing so I just thought I'd offer that has some some color relative to healthcare as well.

What's the next question May not right.

<unk>.

Thank you good morning at Scott.

If I could just ask you just began from a competitive standpoint, just in broad commentary I guess outside of how can they can just seen any changing dynamics that people are getting tight suggest is.

And it is.

More consolidation thing on just curious any any call a day.

Yeah.

Let's talk competitive maybe competitive behavior in pricing.

We have seen some aggressive pricing in the marketplace think that as competition.

Sees their business existing customer base.

Have issues in decline in revenue day, typically get aggressive with price and I don't think this is anything that we haven't seen in the past relative to lowball prices and competition trying to take big business for on us and that's a market by market type of and.

<unk> and it could be in any particular market the small players or one of the big national players in that market to decide they need to do something do.

Try to win some accounts.

Relative to overall price and though while we have had to adjust prices.

On fluctuating items like gloves, and face masks and hand sanitizer in the PPE kind of things as as our costs increased trying to get those products, we had had to adjust prices upward on those items.

For our recurring revenue.

Across all of our businesses really.

We have not increased prices during the pandemic and in fact for as a general statement, particularly in the rental division, but we have an increased our price into our customers in about a year and a half.

And that's a strategic decision on our part we don't think that during a global pandemic the right time to be raising prices.

And I think that's.

Ah one element of why we've seen our.

Net promoter scores, how we measure customer satisfaction.

Be impacted to the positive and so.

That's that's our that's our position on price and at this point.

Scott.

Manav just just a couple of items on that day or regarding our approach with our customers Scott mentioned pricing hasn't.

Recurring revenue pricing hasn't gone up and and 18 months plus.

And our current store customers was to be we call it carrying consistent and flexible.

Meaning.

We know, it's a very challenging time for for.

For our customer base and our prospect base.

So we wanted to take.

Take the appropriate approach Scott mentioned that it's showing up in our customer satisfaction scores, which we track via net promoter scores and.

And when you look at it.

<unk>.

What's the the lifetime value of those customers and we want to have those customers for a lifetime.

And not take a short term approach and and I think again, that's showing up on our net for murder scores and I think it's going to show up for a long term in and.

Our customers look at it.

Got it that's helpful and also I think you've given examples on how basically Yo Yo steel please.

Please told me to advantage in these times. It is kind of heightened demand have you seen all maybe some nausea smaller competitors just be financially constrained and is that present, even more opportunities now.

Well.

Yeah, we.

Yeah.

I always like to say, we are an equal opportunity competitor and.

If any of our competition in a particular market is having a hard time with either getting supplies getting the product that they need.

Having trouble with the servicing their customers were more than happy to step in and.

And provide those products and services to those customers.

From time to time, we do see.

An issue with a competitor.

And.

We.

Will react accordingly.

On a customer by customer prospect by prospect basis, if you will.

Relative to that.

Don't know that it's.

Because of the.

It's still a little uncertain and where this is all going to go and how how quickly it's going to end.

Different opinions on that but I do think that that could provide a future opportunity for.

For acquisitions.

I think that there would probably be a.

A desire on the part of a potential seller to try to get their revenue back to where it was free COVID-19.

To have something larger to sell but.

With that will will deal with those kind of situations as they come up but that is obviously an opportunity for us as well.

Let's take our next question from Andrew Whitman quit.

Great. Thanks for taking my questions guys I think this one's probably for Mike and just kind of looking back here on calendar 2020, it's obviously been a remarkable year challenging you for so many people I mean the thing that.

Investors will look back in and take about 10 task was how you manage through this.

Teen your margin percentage.

Despite the revenues declining and.

So like I guess the question as we look ahead, she really just a high levels on looking for here.

As we're almost about two annualize the COVID-19 comps if you will.

How should we be thinking about the margins I mean, you guys have articulated the travenol discretionary 100 basis points last quarter of 40 this quarter.

Benefit, but but other other buckets out there that could be margin headwind as you hit the the year.

An annualized Dakota.

Things like incentive compensation.

I don't know fuel prices.

They're things that might have to come back in on the production side of things what else should we be thinking about some of high level as investors that could come back in this week. So.

So he hit the year Mark on Covid.

Yeah, it's been it's been a challenging year and and the it is required a lot of different managing of of the different costs.

Cost structures in and.

It certainly has been a challenge, but as we move forward.

Look we were there are certainly some things that we have learned.

About some <unk> some of our costs like travel and can we do some things more efficiently and I think there will be permanent savings on some of those things.

There will be some of that that comes back.

But but I don't I don't think we're going to see 100 basis points of movement in something like that.

And so as we as we look forward to Andrew I would say this we're we want to grow over the course of the long term.

We will continue to staff revenue producing positions.

Prepare ourselves to grow and that May mean, a little bit more bench in our service departments and in our sales department.

And that that will that will probably create a little bit of additional.

Spending.

But having said that.

Scott managed to the business.

Very very well in this period of time and I would expect that that is going to continue we will we will continue to be very very cognizant of of our margins in our costs and recognizing that our goal is to continue to see very healthy incremental margin. So any.

Andrew I don't there's not really anything that I would point to other than a little bit of that.

Travel coming back and a little bit more of the staffing of revenue.

Producing positions that.

That are needed for growth.

Okay, Great. That's my only question for today have a have a good holiday season.

Thanks, you too.

You too.

Alright, Thanks to question friend, Tim Maloney.

Blair.

Yeah.

Good morning, just one for me as well an employee retention, which I know is Ah Ah.

A key initiative for the farm and something yelled track pretty closely I'm curious, how that's trended through the pandemic.

With furloughs and disruptions to your route.

Free temporary shutdowns if employee turnover has been something that's been harder to manage over the last several quarters or if it's actually been easier because the labor market isn't it as tight as it's been relative to the last several years. Thank you.

Tim This time, thanks for the question.

An employee what we call partner retention is never easy.

But I would say that Scott.

Sure.

Our performance since.

It started the pandemic is has been impressive results are continuing to improve.

We have.

Our partner base is.

Is an impressive group of folks who are relentless.

Creators.

Very proud of what they are doing on a daily basis to help businesses.

Function in this environment and function successfully.

So there are some it's free decor and the organization that they're very proud of what they do.

And.

And we've got a great group of leaders and.

<unk> frontline partners all throughout that that we're very happy with and so yeah, it's going quite well and we're really encouraged about that Scott.

As we move through when you go through really hard things right in this going through this pandemic has been.

Extremely challenging not just for for ourselves but for.

I would say well you can say the world right that it has been very challenging for to make you better makes you stronger and.

And we have found out a lot about our partners.

And and how resilient they are and it's been it's been a real pleasure.

That's great great color top thank you.

Kim.

We'll take our next question, Gary Bisbee with TNA Securities.

Hey, good morning.

First of all I just wanted to clarify one thing.

Said healthcare education government customers I believe you said new businesses doubled year over year, but then you said something else is up <unk>, what what were those.

Yeah, sorry about that.

Right.

Very happy to clarify so.

I was thinking of both sexes excuse me.

Two different sectors, one for rental or rental Tony services business.

Those sectors, the healthcare education government, new businesses up double in that area and in the case of our first day fire another.

Our new business again for health.

Healthcare education government is up six ex now.

I mentioned in the opening remarks, not all of that will be repeating.

Some will not but.

But nonetheless.

Really encouraged by how well we're doing in those areas of our business.

And can you give us some color on the rest of the end market serve I mean, obviously, those you've been calling out and it and it makes sense that you're doing really well, but the rest of the book down on a on a new business or how do we think about sort of total centas at this point, including the good and the bad.

Yeah. So.

In total our new business is very good we're very encouraged by that.

The trend lines are great.

The the productivity is at an all time high.

It's replacing a lot of revenue customer.

Customers that are closed.

And for those Tulsa, replacing a lot of revenue for customers, who are maybe open but certainly not at the same levels have Scott.

As what we would expect in a no more normalized type of economy.

Okay, and then just if I could one one financial question on on cash flow. It's obviously been quite strong how do you think about.

Two factors, one capex coming back to more normal levels is that just a matter of revenue getting back and you bring the spend back or anything else. We should think timing and then the other one on inventory inventory days.

A lot I guess in part sales down, but also building inventory for all these newer items PP&E and whatnot. How do you think about inventory levels that are more normalized revenue environment at some point in the future or are they are they likely to be higher than they've been in is that something that will continue to build have an impact on cash flow. Thank you.

Well, let's start with with with Capex.

I think that we're going to probably see capex relent remained below historical levels until we get through the.

The COVID-19 prices and the economy.

Recovered, but I would still say that even the day, we're probably spend in capex that a 60% growth 40% maintenance level.

So, but I just think it's going to be lower until we get through this.

It is a little more cautious.

And that sort of thing relative to inventory.

Important that I think we make the statement that.

That we are doing the best.

Job that we can manage.

The supply chain and the supply of these hard to get items with the demand that we're seeing from our customer base and that's the.

The primary reason you are seeing an increase.

And this inventory.

I don't believe that.

We're going to see a sudden drop off in the need for these products I think it'll be a slow step.

Steady.

Decline and we will add some.

Some some view on that as the economy recovers and as.

Covid.

Vaccines continued rollout many of these are going to be around at a higher level then free COVID-19 for.

For a long long time.

And so.

We haven't seen any issues with slow moving inventory at this point.

Or anything like that but I will tell you that the fact that we have been able to bring these products in the inventory the.

The way that we have has been a huge competitive advantage for us.

In the marketplace, where because we might have masks or gloves or hand sanitizer prosper.

Prospects, who ordinarily have not been doing business with us listen to and react to our ability to provide them with these COVID-19 related products and then also listen to what else. We can do for them and so it might be a call were accompanies interested in hand, sanitizer and we wind up.

For a sales rep is al talking to them, where they're putting 10 people in uniform it restroom supplies in the in the restroom, an entrance mats and mops and cleaning chemicals and so forth. In addition to the hand sanitizer.

So it's been a big competitive advantage for us as we have gone through this process and I think one of the reasons why are NPS customer satisfaction scores are up as well as we're seeing very robust new business results. So.

I think the balance sheet that we have is allowed us to be able to make that investment.

Our supply chain has done a great job and sourcing it and I think that it's reflected in.

And our ability to sell new accounts and satisfy our customers.

Let's take our next question from Kevin next day with credit please.

Great. Thanks, so much hey, I'm wondering if you could give us a sense of.

Across the client base, how many or for.

<unk> numbers, maybe how many are inactive today and is there a way to think about where the average customers in terms of.

Percentage of prior peak just to get a sense of.

The potential to scale as things start to re accelerates from a COVID-19 perspective.

Recovering rather.

That's difficult for us to say because in many ways. It's a moving target. We've had customers that were open and then because of a regulation or a restriction had to shut down temporarily.

Open back up some of the customers that are open are open only it.

Percent capacity or at a lower level than they were.

But we haven't gotten into those figures because it moves around so much good if I tell you something today it could be different next week.

And so we.

Depending on who might apply new restrictions and so forth. So we haven't gotten into that level of detail and I hesitate to do that only because I think it might be a little misleading only because it moves around so much.

Okay.

Thank you and then just.

And then kind of pushed Covid World would you think about how much of the demand is structural is there any way to think about that against the core business and to me. It seems like obviously healthcare is going to be more.

More significant contributors business, but just any incremental step up and how much of that is kind of structural force is.

Maybe starts to to kind of normalized.

Well, we've learned a lot as we've gone through this process.

And I think that.

One of the really positive aspects of this whole thing is that we have done a much better job of communicating to existing customers and even prospects all of the things that we can do for them.

And.

And therefore are selling more to existing customers and a new prospect that might.

Come on board they may only.

You know start with a particular service, but because they are aware of the other things that we have to offer when they see that knee. They know who to call that has been a structural change for us and I believe that the things that we have to offer these customers are things that they're going to be using.

In the long term within their businesses to help keep their businesses their employees and their customers safe have a clean environment for them to work in.

Be compliant with.

Regulations and.

And the fire business insurance company requirements and so forth. So we're excited about the position that we.

We're in right now and.

As I look through the future I'm really excited about world is can go.

Kevin that is taught it as an example of that.

We mentioned that.

Previous call that there is a large national bank chain that we were doing zero business with.

And.

Now we are providing hand sanitizer to every single branch that they have.

And for in addition to that we're talking to them about other facilities products that they are in need of but we're also talking to them about our fire service, which as you can imagine they need all of that it's just a matter of where they're getting it from an and centralising spend and medications saving money. So.

That's just one example.

What is occurring hundreds of times every single day out there with our sales and service organization is Scott mentioned really positions as well because there's people in the past to really.

We can take our calls and now they will because of our inventory position in our in our infrastructure.

That helps that helps position us for long term in a really healthy manner.

It makes it a ton of sense I've noticed a lot of dispensers being kind of installed and things like that that just historically weren't there and the total for the future. So thank you. Thank.

Thank you.

We'll take our next question for Scott Steinbrecher with operating.

Hi, Thank you for months morning.

And the other segment I'm just curious how is how is your visibility there will obviously experiencing some new in.

On things and struggles, but as you can break it down on between fire indirect sales.

The invisibility you have and and this is in the essence and the question is you've done a nice job managing margin there.

How.

How does the new visibility correspond with your ability to too many job your outback.

Well the fire service businesses.

Is recovering similar to the rental and facility services segment there.

I mentioned earlier that there November organic growth rate was off 1%.

From from free Covid levels, but.

So we have a pretty good.

View of what's happening in that business.

And I think that will.

Similar to what happens with the rest of the economy and what what happens with the rental division.

We'll see that recover.

A similar fashion relative to the direct sales business a good portion of that business.

Goes into hospitality and travel related areas, that's a little that's a little more.

<unk> and I think that those are hotels airlines crew.

Cruise ships casinos.

And Ah foodservice and that sort of segment so.

Those are going to be I think the the longer tail from a recovery standpoint.

But I think that there will be a day coming where.

They're going to get a pretty good bump.

I think there is a my personal opinion, a huge amount of pent up demand for.

For people to be able to go back on vacation to standard hotel to feel safe when they get on an airplane.

And that sort of thing and there is a point at which when the vaccines.

Have been rolled out too for.

<unk>.

Reached herd immunity.

You can see airlines throw in.

Some special rates at travelers to welcome him back hotels and resorts doing the same kind of thing.

You'd see Las Vegas.

Doing everything the day can to get their their customers to come back.

And who knows that maybe that's.

Early next summer depending on the rate of.

Of.

Vaccinations and things like that but if it's going to work in those businesses. It's also going to work and other businesses people are going to be able to go back out the day or restaurants and their movie theaters locally and maybe go to the concert venue and do the social things that bars and and I do.

Do the social things that they are missing right now.

And I think that that is coming when it happens we need a little bit more time to understand the rate of rollout for the vaccines.

And that's why I continue to say that we are in a temporary law in this.

And that.

As we get a little further out and get a little more clarity, we're going to see I think some economic activity pick up and wear.

Maybe a couple of quarters away from that may be on and improving quarter by quarter basis as those vaccines rollout.

And Paul please the wall color and Ducally with follow up I'm curious on on your appetite for our Manet and what you're seeing all day.

ZIP code in addition to pilot Palmer discussed over the course of the call.

And then.

Maybe coupon som on the move to the quarterly development just thoughts on the whole within the capital strategy.

Yeah. So.

Relative to.

To the dividend.

We were.

The sort of the last.

The last person standing relative day, giving out annual dividends.

We thought.

Talked about it at a board level for a long time and made a made a decision too.

To make the change I think it's.

Have shareholders that we've heard from in the past about.

Cash flow and and and that sort of thing. So we we've we've reacted to that we think is a good change for us what you think it's a good change for the shareholders as well.

And remind me the first part of the question was.

Emanated Scott.

MAA M&A, okay. Thank you Mike I'm sorry.

You probably dropped off but M&A, yes.

Where we are we're cautious.

Right now because of where we are in the recovery.

But.

We are in a position, where we could do M&A acquisitions in any of our businesses.

We would evaluate them pretty heavily right now just to make sure we understand.

How how well that particular business is doing.

But we would be acquisitive, if we could find the right deal the right business at the right price I think that as I said earlier I think there is there is an element of of concern on the seller's part if their revenue is below where it was free COVID-19 that they're going to get out of the business what they need to get out of the business should day salad.

And so there may be a little bit of a a lull there, but I think as as the economy.

<unk> continues to pick up will probably see.

Mmk activity pick up.

And.

That's the case, we sure.