Q4 2023 Cintas Corp Earnings Call

July 13, 2023

[music].

Good day, everyone and welcome to the Cintas Corporation announces fiscal 2023 fourth quarter and full year results Conference call. Today's call is being recorded at this time I'd like to turn the call over to Mr. Jared Mattingly, Vice President Treasurer and Investor Relations. Please go ahead Sir.

Thank you for joining US with me is Todd Schneider, President and Chief Executive Officer, and Mike Hansen, Executive Vice President and Chief Financial Officer, who will discuss our fiscal 'twenty three fourth quarter results. After our commentary we will open the call to questions from analysts.

Private Securities Litigation Reform Act of $19 95 provides a safe harbor from Civil litigation for forward looking statements. This conference call contains forward looking statements that reflect the company's current views as to future events and financial performance. These forward looking statements are subject to risks and uncertainties, which could.

Cause actual results to differ materially from those we may discuss I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission I'll now turn the call over to Todd.

Thank you Jared.

Fourth quarter total revenue grew 10, 1% to $2 $2 8 billion.

The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations was 10, 3%.

We're pleased with these fourth quarter results for each of our businesses continue to grow and execute at a high level, especially coming off our highest growth quarter in fiscal 'twenty two.

Fourth quarter gross margin was 1.09 billion gross margin increased 210 basis points from 45, 6% to 47, 7%.

An increase of 15, 1% over the prior year.

Operating income for the fourth quarter of fiscal 'twenty three of $478 million <unk>.

Increased 16, 4% over the prior year.

Operating margin increased 110 basis points to 26% from 19, 5% in the prior year.

Fourth quarter net.

Okay standby.

This is the conference operator, please standby for just one moment.

We are going to reconnect our presenters.

Okay.

Todd Schneider: Quarters is, pricing has been certainly above historical during fiscal '23, as it needed to be because of the cost inputs. When we think about what that will look like moving forward in our '24 guide, we expect that pricing will return closer to historical. And our cost inputs are in a similar spot as you saw in the CPI report that came out yesterday, and the PPI report that came out this morning. Yeah, we are seeing inflation coming down. I think our team has done a pretty amazing job of managing input costs, both our operational team, but our supply chain team, which has really benefited us.

Certainly above historical.

During fiscal 'twenty, three as it needed to be because of the cost inputs.

When we think about.

That will look like moving forward and our 24 guide we expect that pricing ballroom.

I'll return to closer to historical.

And.

And our cost inputs.

Or in a similar spot as you saw in the CPI report that came out yesterday and the PPI report that.

That came out this morning.

We are seeing inflation coming down.

I think our team has done a pretty amazing job of managing input cost both our operational team, but our supply chain team.

Todd Schneider: So it's we do not rely upon pricing as the only lever to gain leverage on to expand margin. We are committed to extracting out inefficiencies in our business, and you're seeing that. And you've seen that in Fiscal '23, and our guide for Fiscal '24 reflects incremental... attractive incremental margins. And we're gonna do it successfully, and we're gonna extract that inefficiencies in our business to help us expand margins.

So it's we do not rely upon pricing as the only lever to gain leverage on to expand margin. We are committed to extracting out inefficiencies in our business, and you're seeing that. And you've seen that in Fiscal '23, and our guide for Fiscal '24 reflects incremental... attractive incremental margins. And we're gonna do it successfully, and we're gonna extract that inefficiencies in our business to help us expand margins.

Which has really benefited us so we.

We do not rely upon pricing as the only lever to gain leverage on.

To expand margin.

We are committed to extracting out inefficiencies in our business.

And youre seeing that and <unk>.

<unk> seen that in fiscal 'twenty three.

And our guide for fiscal 'twenty four.

Reflects incremental attractive incremental margins.

And we're going to do it.

Successfully and we're going to expect that inefficiencies in our business to help us.

[Analyst]: Thank you.

Andrew Steinerman: Thank you.

Mike Hansen: Andrew, I might just add two things. One, specifically, we do not have a fuel surcharge. And secondly, you made a comment about are our price increases offsetting input costs. And I think the best way to think about that is margins in the fourth quarter were up 110 basis points. Margins for the fiscal '23 year were up 70 basis points, and our guidance implies margin improvement throughout the range of guidance for next year. So, keep that in mind as we think about pricing versus input costs, et cetera. We're still raising margins, improving margins.

<unk> margins. Thank you Andrew I might I might just add two things one.

Specifically, we do not have a fuel surcharge.

And secondly, you made a comment about.

Our price increases offsetting input cost.

Costs.

And I think the best way to think about that as margins in the fourth quarter were up 110 basis points margin for the fiscal 'twenty three year were up 70 basis points.

Our guidance.

Implies margin improvement.

Throughout the range of guidance for next year. So.

Keep that in mind, as we think about pricing versus input costs et cetera, we're still raising margins improving margin.

[Analyst]: Great, thank you.

Andrew Steinerman: Great, thank you.

Great. Thank you.

Operator: Our next question will come from Faiza Alwy with Deutsche Bank Securities.

Our next question will come from Faiza <unk> with Deutsche Bank Securities.

Faiza Alwy: Yes. Hi, good morning. I wanted to talk about, you know, the type of economic or macro environment that you're embedding in your guide. I know you said that, you know, significant economic disruptions or downturn is not assumed, but give us a sense of, you know, what type of economic environment you're assuming.

Yes, hi, good morning.

Wanted to talk about the type of economic or macro environment that you're embedding in your guide I know you said that.

<unk> economic disruptions or downturn.

It is not assumed but give us a sense of what type of economic environment Youre assuming.

Todd Schneider: Faiza, thank you for the question. Yeah, we are, we're not guiding towards a significant economic disruption. Trying to predict economic indicators is certainly very challenging, but I can tell you what's going on, what we're seeing in our business, which is we haven't seen much change in our customer behavior. Our sales productivity is very good. Our customer retention levels remain quite strong. And there is, there's still really good interest in our products and our services. You know, no programmers are still going very well, and they're still the majority of the new accounts that we sell.

So thank you for the question.

Yes.

We're not guiding towards a significant economic disruption.

Trying to predict economic indicators is certainly very challenging but I can tell you what's going on what we're seeing in our business.

Which is we haven't seen much change in our customer behavior.

Our sales force productivity is very good.

Our customer retention levels remain quite strong.

And there is there is still really good interest in our products and our services.

No programmers are still going very well.

There are still the majority of the new accounts that we sell so we like that very much wed like to expanding the pie and.

Todd Schneider: So, we like that very much, and we like expanding the pie and those customers are seeing value in what we're providing. And we also like our vertical strategy, that vertical sales strategy that has been working quite nicely for us. So, I would say reasonably so, business as usual is what we would expect. We recognize there will be ups and downs in macro environments, but we're not guiding towards anything, any economic downturn.

So, we like that very much, and we like expanding the pie and those customers are seeing value in what we're providing. And we also like our vertical strategy, that vertical sales strategy that has been working quite nicely for us. So, I would say reasonably so, business as usual is what we would expect. We recognize there will be ups and downs in macro environments, but we're not guiding towards anything, any economic downturn.

And those customers are seeing value in what we're providing.

Also like our vertical strategy.

Vertical sales strategy that has been working quite nicely for us so.

I would say reasonably so business as usual as what we would expect.

We recognize there will be ups and downs.

In macro environment, but we're not guide.

<unk> towards anything any economic downturn.

Faiza Alwy: Great. Thank you. And then if I could just follow up on the... You mentioned the Google partnership. Maybe give us a sense of, you know, where you see that partnership going over the next few years, what some of the benefits might be as you think about your digital transformation strategy.

Great. Thank you and then if I could just follow up on the you mentioned the Google partnership.

Give us give us a sense of where you'll see that that partnership going over the next few years, what some of the benefits might be as you think about your digital transformation strategy.

Todd Schneider: Certainly. You know, our relationship with Google gives us a better, faster, smarter, cheaper way to store our critical data. But we see it as it can do so much more, due in large part because of the relationship that Google has with SAP and the relationship we have with SAP and now Google. As you all know, we have had a very successful relationship with SAP for over a decade now. And we've spoken in the past that it is much more than just a customer-vendor relationship. It's a strategic relationship. So, you combine that with just a couple of months ago, SAP and Google announced that they have an expanded partnership.

Certainly.

Our relationship with Google gives us.

A better faster smarter cheaper way to store our critical data.

But we see it as it can do so much more.

Due in large part because of the relationship that Google has with SAP and the relationship we have with SAP and now Google.

As you all know we have had a very successful relationship with SAP for over a decade now.

And we've spoken in the past that it is much more than just a customer vendor relationship is a strategic relationship.

So you combine that with.

Just a couple of months ago, S&P, and Google announced that they have an expanded partnership.

Todd Schneider: What that's gonna do is it's gonna allow our SAP data to be connected with the Google Cloud data and analytics technology, which will give us access to their advanced AI and machine learning capabilities. So we're excited about that. We think we can benefit for many years to come as this type of relationship. But you asked, Faiza, for a few examples, so I'll give you a few to help give a little color around it.

What that's gonna do is it's gonna allow our SAP data to be connected with the Google Cloud data and analytics technology, which will give us access to their advanced AI and machine learning capabilities. So we're excited about that. We think we can benefit for many years to come as this type of relationship. But you asked, Faiza, for a few examples, so I'll give you a few to help give a little color around it.

And what that's going to do is it's going to allow our SAP data to be connected with the Google cloud data and analytics technology.

Which will.

Give us access to their advanced AI and machine learning capabilities. So we're excited about that.

We think we can benefit for many years to come.

This type of relationship but you asked.

For a few examples.

I'll give you a few to help give a little color around it.

Todd Schneider: You know, we see having these technologies connected, the opportunity to put in front of our sales organization, instead of calling, I'll say more blindly on who to, who to try to sell our services to. We call it next best prospect for our sales team, to have real technologies to push in front of them: here's where you go, spend your time. We think that's significant and can have an impact on our productivity, our retention and morale, productivity, all those things. Next best product for the customer.

You know, we see having these technologies connected, the opportunity to put in front of our sales organization, instead of calling, I'll say more blindly on who to, who to try to sell our services to. We call it next best prospect for our sales team, to have real technologies to push in front of them: here's where you go, spend your time. We think that's significant and can have an impact on our productivity, our retention and morale, productivity, all those things. Next best product for the customer.

We see having these technologies connected.

The opportunity to put in front of our sales organization.

Instead of calling I'll say more blindly on who to try to sell our services to we call. It next best prospect for our sales team to have real technologies.

Push in front of them, Here's where you go.

Spend your time, we think thats significant and can have.

<unk> on our productivity and our retention and morale and productivity all of those things.

Next best product.

Todd Schneider: So, instead of just trying to figure that out, we can put that in front of our sales team and our service team to make sure that they're talking to our customers about the next best product that would fit based upon other customer behaviors. We think certain customer service functions could be enhanced nicely over the coming years. We all use Google Maps, and we see an opportunity to leverage Google Maps to even further enhance our smart truck technology to make routing even more dynamic, which will save us time, saves us energy, saves, you know, allows for more time in front of our customers instead of on the road.

For the customer so instead.

So, instead of just trying to figure that out, we can put that in front of our sales team and our service team to make sure that they're talking to our customers about the next best product that would fit based upon other customer behaviors. We think certain customer service functions could be enhanced nicely over the coming years. We all use Google Maps, and we see an opportunity to leverage Google Maps to even further enhance our smart truck technology to make routing even more dynamic, which will save us time, saves us energy, saves, you know, allows for more time in front of our customers instead of on the road.

Instead of <unk>.

Just trying to figure that out we can put that in front of our sales team to.

And our service team to make sure that Theyre talking to our customers about the next best product that would fit based upon other customer behaviors.

We think certain customer service functions could be enhanced nicely over over the coming years.

There is.

We all use.

Google maps, and we see an opportunity to leverage Google maps to even further enhance our smart power technology to make.

Routing, even more dynamic, which will save us time saves energy savings Youll put allows for more time in front of our customers instead of on the road.

Todd Schneider: And then just one more I would say is that, you know, our service team, we're blessed to have a lot of customers. We wanna make sure that they're spending. They're in front of the right customers at the right time, and we see the potential to leverage that type of technology to point them in the right direction, to make sure that they're focused on any at-risk customers, and customers that we need to enhance the effort with them, with the people in front of them. So hopefully, that gives you a little color around it. Again, this is not. We don't see this as an event. We see this as a process.

And then just one more I would say is that, you know, our service team, we're blessed to have a lot of customers. We wanna make sure that they're spending. They're in front of the right customers at the right time, and we see the potential to leverage that type of technology to point them in the right direction, to make sure that they're focused on any at-risk customers, and customers that we need to enhance the effort with them, with the people in front of them. So hopefully, that gives you a little color around it. Again, this is not. We don't see this as an event. We see this as a process.

And then just one more I would say is that.

Our service team, we're blessed to have a lot of customers.

Want to make sure that they're spending there in front of the right customers at the right time, and we see the potential to leverage that type of technology to point them in the right direction.

Two to make sure that they're focused on any at risk customers.

And customers that we need to enhance.

The effort with them with with the people in front of them. So hopefully that gives you a little color around it.

Again this is not we don't see this as an event we see this as a process.

Todd Schneider: The coming years, we think it can be very impactful for our business and our customers.

The coming years, we think it can be very impactful for our business and our customers.

In the coming years, we think it can be very impactful for our business and our customers.

Faiza Alwy: Great. Thank you so much. Really appreciate it.

Great. Thank you so much really appreciate it.

Yeah.

Operator: Our next question comes from Ashish Sabadra with RBC.

Our next question comes from Ashish.

<unk> with RBC.

[Analyst]: Thanks for taking my question. I wanted to drill down into the first aid and safety services. We saw some material acceleration and growth there. I was wondering if you can talk about what's driving that strength. And then as you think about 2024, any puts and takes that you would call out, or how do we think about that momentum going forward? Thanks.

Ashish Sabadra: Thanks for taking my question. I wanted to drill down into the first aid and safety services. We saw some material acceleration and growth there. I was wondering if you can talk about what's driving that strength. And then as you think about 2024, any puts and takes that you would call out, or how do we think about that momentum going forward? Thanks.

Hi, Thanks for taking my question I wanted to dig down into the <unk> state in safety services, we saw some material acceleration in growth. There I was wondering if you can talk about what's driving that strength and then as you think about 'twenty four.

Puts and takes that you would call out.

How do we think about that momentum going forward.

Todd Schneider: Thank you, Ashish. I'll start, if Mike wants to chime in. The first aid and safety business is going quite well. We really like that business. We see significant opportunities in the future there. And we're getting leverage there. The strong growth is really helping us get some real leverage, but the mix of business is very attractive. We spoke about, during the peaks of the pandemic, how there was more PPE sales and safety sales. And the mix is now back to what we really like. It's cabinet sales that are repeat in nature and higher margin. So we really like the mix, but the growth in total is great.

Thank you Ashish.

I'll start and if Mike wants to chime in.

The first thing to take the business going quite well.

We really like that business.

We see significant opportunities in the future there.

And we're getting leverage there.

Really growth.

The strong growth is really helping us get some some real leverage.

But the mix of business is very attractive.

We spoke about during the peaks of the pandemic now there was more PPE sales in safety sales.

The mix is now back to what we really like it.

Cabinet sales.

That are.

Repeat in nature and higher margin, so we really like the mix, but the growth in total was great.

Todd Schneider: And I would tell you that the value proposition is really resonating. Our customers are trying to make sure that they're reinvesting in their people. Health and wellness is a concept that is resonating very strongly in the marketplace, and we're leveraging that and benefiting from that. And on top of that, we're also we have inefficiencies in that business as well. So we're extracting out those inefficiencies. They're gonna help us continue to expand our margins. But we like the position we're in. We like the tailwinds we have with the health and wellness, and we think the future is quite bright in that area.

And I would tell you that the value proposition is really resonating. Our customers are trying to make sure that they're reinvesting in their people. Health and wellness is a concept that is resonating very strongly in the marketplace, and we're leveraging that and benefiting from that. And on top of that, we're also we have inefficiencies in that business as well. So we're extracting out those inefficiencies. They're gonna help us continue to expand our margins. But we like the position we're in. We like the tailwinds we have with the health and wellness, and we think the future is quite bright in that area.

And I would tell you that the value proposition is really resonating.

Our customers are trying to.

Make sure that they are reinvesting in their people.

Health and wellness is a concept that is resonating very strongly in the marketplace and we're leveraging that and benefiting from that.

And on top of that we're also we have inefficiencies in that business as well so we're extracting out those inefficiencies.

To help us continue to expand our.

Margins, but we like the position we're in we like the.

The tailwind we have with the health and wellness and we think the futures.

Quite bright in that area.

[Analyst]: That's very helpful color. I just wanted to drill down further on the vertical sales strategy. Obviously, you mentioned you're seeing some pretty good success on that front. I was wondering if you could drill down further on the key verticals and then also on your healthcare initiative, how those are trending, but also any other verticals that you would call out. Thanks.

Ashish Sabadra: That's very helpful color. I just wanted to drill down further on the vertical sales strategy. Obviously, you mentioned you're seeing some pretty good success on that front. I was wondering if you could drill down further on the key verticals and then also on your healthcare initiative, how those are trending, but also any other verticals that you would call out. Thanks.

That's very helpful color I, just wanted to drill down on the order because the strategy. Obviously, you mentioned you're seeing some pretty good success on that front I was wondering if you could drill down further on the key verticals and then also on your health care initiatives those are trending.

But also.

The other verticals that you would call out thanks.

Todd Schneider: Certainly. You know, our key verticals where we're focusing our time is healthcare, education, and government. We've organized around those verticals. We have products and services that are attractive to them, certain service functions dedicated to them. And as a result, we're really benefiting from it. And we very much think that they're smart verticals to invest in. And as a result, they're growing really attractively. And customer retention is good, new business is good. And we think that there's a real long opportunity here for us to continue to invest in these into the future. Certainly, the demographics of healthcare are quite attractive.

Certainly.

Our key verticals, where we're focusing our time as healthcare education and government.

We've organized around those verticals, we have products and services that are attractive to them.

Certain.

Service functions dedicated to them and as a result.

Benefiting from it and we.

We very much think that theyre smart verticals to invest in and and as a result, they're growing really attractively.

Customer retention is good new business is good.

And we think that there is a real long.

Opportunity here for us to continue to invest in these.

And to the future certainly.

The demographics of healthcare are quite attractive.

Todd Schneider: But education and government are doing well. In addition, we're gonna continue to invest in those areas. So, it's paying dividends for us.

But education and government are doing well. In addition, we're gonna continue to invest in those areas. So, it's paying dividends for us.

But education and government are doing well in addition, and we're going to continue to invest in those areas. So it's paying dividends for us.

[Analyst]: That's very helpful, caller. Thank you very much.

Ashish Sabadra: That's very helpful, caller. Thank you very much.

That's a helpful color. Thank you very much.

Operator: Our next question comes from Manav Patnaik with Barclays.

Your next question comes from Manav Patnaik with Barclays.

Okay.

Manav Patnaik: Good. I think historically, you've talked about how, you know, almost 2/3 of that, 2/3 of new sales come from those known programs. I just wanted an update that and kind of tied to that, you know, what, what is the competitive environment look like? Have there been any changes? Because, you know, your two public comps, obviously, there's a lot of changes going on at each of the organizations.

I think historically, you've talked about how almost two thirds of that too.

As a new sales come from those non program is I, just wanted an update that and kind of tied to that.

What is the competitive environment look like has there been any changes because you need two public comps obviously, there's a lot of changes going on in each of the organizations.

Todd Schneider: ... Yeah, Manav, you were, I couldn't hear the first part, but I think I understand your question. I'll try to answer it, and if I don't, then please let me know. The no programmers are. It's going quite well. And, you know, it has historically been a significant portion of what we sell, and it continues to be a significant portion of what we sell. And, you know, we have products and services that are attractive to them. We have a sales effort that is, I'd say, skilled at identifying and delivering the message to those folks.

The amount of viewer I couldn't hear the first part, but I think I understand your question and I'll try to answer it and if I don't please let me know.

The no programmers.

It's going quite well.

Yes.

It has historically been a significant portion of what we sell and it continues to be a significant portion of what we sell.

And we have products and services that are attractive to them.

We have a sales effort that is.

I'd say skilled at.

Identifying and delivering the message to those folks.

Todd Schneider: And I think it's important to understand that with no programmers, it's not always, and I would say rarely, is it just all incremental new spend to them. Many, many cases, we are able to. They're spending those dollars somewhere, where in many cases, with other vendors, maybe not a, a direct competitor, but they're spending money on compliance, image, safety, and cleanliness, those types of things. And as a result, we're able to redirect those dollars to us, and in many cases, save them money. So, don't think of it all as, "Oh, my gosh, you know, you know, is there an end to that?

And I think it's important to understand that with no programmers, it's not always, and I would say rarely, is it just all incremental new spend to them. Many, many cases, we are able to. They're spending those dollars somewhere, where in many cases, with other vendors, maybe not a, a direct competitor, but they're spending money on compliance, image, safety, and cleanliness, those types of things. And as a result, we're able to redirect those dollars to us, and in many cases, save them money. So, don't think of it all as, "Oh, my gosh, you know, you know, is there an end to that?

And I think it's important to understand that with no programmers, it's not always.

I'm too rarely is it just all incremental new spend to them. Many many cases.

We are able to they are spending those dollars somewhere when in many cases with other vendors maybe not.

A direct competitor, but they are spending money on on compliance and image and safety.

Cleanliness those types of things and.

And.

And as a result, we are able to redirect those dollars to us and in many cases save them money. So.

So don't think of it all is Oh my gosh.

Todd Schneider: Because, you know, if the economy, there's any stress in it, that they're not gonna be able to sell no programmers. Quite the opposite. We see a very, very long runway there, so that's attractive. As far as the competitive set, I mean, we operate in a very competitive industry, very competitive environment. I would say I haven't seen any changes to the competitive landscape from that standpoint. So I'll leave it at that.

Because, you know, if the economy, there's any stress in it, that they're not gonna be able to sell no programmers. Quite the opposite. We see a very, very long runway there, so that's attractive. As far as the competitive set, I mean, we operate in a very competitive industry, very competitive environment. I would say I haven't seen any changes to the competitive landscape from that standpoint. So I'll leave it at that.

<unk>.

Is there an end to that because.

If the economy.

There is any stress in it that they're going to sell <unk> quite the opposite.

We see.

A very very long runway there so that's attractive.

As far as the competitive set I mean, we operate in a very competitive industry very competitive environment.

I would say I haven't seen any changes to the competitive landscape from that standpoint.

So I'll leave it at that.

Manav Patnaik: Okay, and then just one quick follow-up I had was, I think I understand, you know, the Google partnership and, you know, the benefits it potentially brings. But any sense of timeline, like when does this, you know, start happening, once you get the data on the cloud, and then you start seeing some of these benefits?

Okay and then just one quick follow up I had was I think I understand.

The Google partnership.

The benefits of potentially things, but any sense of timeline like windows.

It will start happening when do you get the data on the cloud and discussing some of these benefits.

Todd Schneider: Well, it's certainly gonna be a process. We just entered into our relationship with them recently. We've had meetings with them to talk about where we're gonna go here. And as I mentioned, it's not an event, it's a process. But we see some low-hanging fruit, I guess, is the best way to say it. But as we have gone down this path, more ideas are coming out. So we think we can benefit for years to come with this opportunity. And I won't go into too much detail just because we see some competitive advantages there. So as a result, we'll keep those to ourselves.

Well, it's certainly give me a process, we just entered into a relationship with them recently.

We've had meetings with them to talk about where we're going to go here and as I mentioned is not an event.

It's a process.

But we see some some low hanging fruit I guess is the best way to say it.

But as we have gone down this.

This path.

More ideas are coming out so.

So.

So we think we can benefit for years to come with this opportunity.

And I won't go into too much detail, just because we see some competitive advantages there and so as a result, we'll keep those to ourselves but.

Todd Schneider: We think the runway is long and attractive.

We think the runway is long and attractive.

We think the runway is long and an attractive.

Manav Patnaik: Perfect. Thank you.

Okay. Thank you.

Todd Schneider: Thank you.

Operator: And our next question comes from Josh Chan with UBS.

Thank you.

And our next question comes from Josh Chan with UBS.

Josh Chan: Hi, good morning, Todd, Mike, and Jared. Congrats on that strong quarter.

Hi, Good morning, Todd, Mike and John Congrats on a strong quarter.

Todd Schneider: Thank you. Thank you, Josh.

Josh Chan: Yeah. My first question, when you are selling first aid and fire, basically those adjacent businesses, how much of that growth is selling to existing customers? And how much of it gets you kind of entirely new customers that don't rent uniform from you?

Thank you Josh.

Yes.

Question.

Our selling first aid and fire.

Basically those adjacent businesses.

Much of that growth is selling to existing customers and how much of it gets you kind of entirely new customers that don't rent uniform from you.

Todd Schneider: Yeah, Josh, it's a good question. You know, it's a mix. You know, cross-sell has been very helpful for us over the last number of years and will continue to be, but we love new customers. And the fire and first aid, there's some overlap, but not complete overlap. And so it allows us to get into speaking to customers about that, and the first time they may have done business with us at all.

Yes, Josh it's a good question.

It's a mix.

Cross sell is Ben.

<unk> has been very helpful for us over.

The last number of years, and we will continue to be but we love new customers and.

In the fire and first aid there is some overlap, but not complete overlap and so it allows us to get into.

Speaking to customers about that in the first time, they may have done business with us at all.

Todd Schneider: So, and then we separately have an enterprise sales organization that will call on a customer or prospect, and frankly, it doesn't really matter to us what they start with, it's whatever the customer is interested in. If the customer doesn't do any business with us, and they wanna start. Their interest is in fire, wonderful. Or if it's in first aid, wonderful, or rental garments, then we go where the interest is, and then we expand out that relationship from there. So, you know, we love the fact that there isn't complete overlap, and it gets us into new opportunities, and then we cross-sell like crazy.

So, and then we separately have an enterprise sales organization that will call on a customer or prospect, and frankly, it doesn't really matter to us what they start with, it's whatever the customer is interested in. If the customer doesn't do any business with us, and they wanna start. Their interest is in fire, wonderful. Or if it's in first aid, wonderful, or rental garments, then we go where the interest is, and then we expand out that relationship from there. So, you know, we love the fact that there isn't complete overlap, and it gets us into new opportunities, and then we cross-sell like crazy.

So.

And then we separately we have a an enterprise sales organization that will.

Calling a customer or prospect.

And frankly doesn't really matter to us what they start with its whatever the customers interested in if a customer doesn't do any business with us and they want to start their interest is in fire wonderful Orbitz and first aid wonderful rental.

<unk>.

Then we go where the interest is.

And then we expand out that relationship from there.

So.

We love the fact that there isn't complete overlap and it it gets us into new opportunities and then we cross sell like Crazy.

Josh Chan: Great, that makes sense. Thanks for the color. And, I guess for my follow-up, if I look at your incremental margin, it's climbed pretty steadily through 2023. I assume if you got better alignment between price and cost. So how are you thinking about the cadence of incremental margins looking into 2024?

Great that makes sense. Thanks for the color and I guess for my follow up if I look at your incremental margin.

Client pretty steadily through 2023, I assume if you got better alignment between price and cost. So how are you thinking about the cadence of incremental margins looking into 2024.

Todd Schneider: Josh, well, our incremental margin for the total company in fiscal '23 was 26.8%, a little bit up from the previous year. You know, Josh, there can be ups and downs from quarter to quarter in the way that we invest or in the costs that we see, and so we don't necessarily try to predict one quarter at a time. We do certainly believe we can get incremental operating margins in that 20% to 30% range from quarter to quarter generally, but it's gonna go up and down, again, based on what we're doing within the business, some initiatives that we may or may not roll out. So...

Mike Hansen: Josh, well, our incremental margin for the total company in fiscal '23 was 26.8%, a little bit up from the previous year. You know, Josh, there can be ups and downs from quarter to quarter in the way that we invest or in the costs that we see, and so we don't necessarily try to predict one quarter at a time. We do certainly believe we can get incremental operating margins in that 20% to 30% range from quarter to quarter generally, but it's gonna go up and down, again, based on what we're doing within the business, some initiatives that we may or may not roll out. So...

Josh.

Our.

Our incremental margin for the total company in fiscal 'twenty, three was 26, 8% a little bit up from the previous year and.

Josh it's.

Sure.

Is there can be ups and downs from quarter to quarter in the way that we invest store in the in the costs that we see and so we don't necessarily try to predict.

One quarter at a time.

We do certainly believe we can get.

Incremental operating margins in that 20% to 30% range from quarter to quarter generally, but it is going to go up and down again based on on what we're doing within the business some initiatives that we.

May or may not rollout so.

Todd Schneider: The bigger focus for us is on the full year, and our goal is to get those incrementals attractive enough that it improves margins, over the year. So I wouldn't call it linear at all. I wouldn't call it flat. It's gonna be based on how we're managing the business.

The bigger focus for us is on the full year, and our goal is to get those incrementals attractive enough that it improves margins, over the year. So I wouldn't call it linear at all. I wouldn't call it flat. It's gonna be based on how we're managing the business.

The bigger the bigger.

Focus for US is on the full year and our goal is to get those incrementals attractive enough.

It improves margins.

Over the over the year so.

I wouldn't call it linear at all I wouldn't call. It flat, it's going to it's going to be based on how we're managing the business.

George Tong: That's great. Thanks for the color, and thanks for your time.

Josh Chan: That's great. Thanks for the color, and thanks for your time.

That's great. Thanks for the color and thanks for your time.

Operator: Our next question comes from Justin Hauke with Robert W. Baird.

Our next question comes from Justin Hauke with RW Baird.

Justin Hauke: Yeah. Hi, good morning, everyone. I wanted to. I guess my first question, maybe a follow up on Andrew's question, just on the implied revenue growth, the 7% in 2024. And maybe you can kind of pull out the puts and takes, but you know, that's coming off of a 12% you just did here in 2023, and that was off of already a really strong 10%. You know, 7%'s more, I guess, kind of in line with you know, kind of your long-term historical organic growth. And so maybe you can just give us the puts and takes. Is it all pricing that accounts for the delta? Because it sounds like your new business, retention, and you know, kind of existing sales are all still very strong.

Yes, hi, good morning, everyone.

I wanted to I guess my first question, maybe follow up on Andrew's question, just on the implied revenue growth 7% in 2024.

<unk>.

Maybe maybe you can kind of pull out the <unk>.

Hudson takes but that's coming off of a 12% here.

Here in 'twenty, three and that was off of already a really strong 10%.

7% is more I guess kind of in line with.

Kind of your long term historical organic growth. So maybe you can just give us the puts and takes is it all pricing that accounts for the delta because it sounds like your new business and retention.

Existing sales are all still very strong so I'm just trying to understand.

Justin Hauke: So I'm just trying to understand the moving pieces.

So I'm just trying to understand the moving pieces.

The moving pieces.

Todd Schneider: Thanks for the question, Justin. I'll try to answer it and see if Mike wants to expand upon it. So when you think about our growth, Q4 growth was around 10%, which is a really nice growth, especially considering a strong comp of last year of 4.7%, which was our strongest growth of the year that year. So if you compare that 10% to the, I'll call it the top end of our guide, or, you know, in the the mid-sevens to higher sevens, you can think of that as really pricing returning back to closer to historical levels.

Thanks for the question Justin.

I'll try to answer it and see if Mike wants to expand upon it so when you think about.

Our our our.

Our growth.

Q4 growth was.

Around 10%, which is.

Really nice growth, especially considering our strong comp of last year of four 7% which was.

Our strongest growth of the year that year. So if you compare that 10% to the I'll call. It the top end of our guide or in the.

The mid Sevens too.

Higher <unk>.

You can think of that as really a pricing retain returning back to closer to historical levels.

Todd Schneider: And as I mentioned earlier, the reason that we see this as appropriate is we're seeing an easing of inflation. And we saw that. You can see that in the drop in the cost of energy that we've seen, the benefit we received in Q4. And as I mentioned earlier, also, you saw it in the CPI report yesterday and the PPI report today. So, and as you appropriately said, I mean, we're guiding towards, you know, a more historical type of growth. Volume growth is really good still. Pricing will return closer to historical, and appropriately so. But all that being said, we will still have, we're guiding towards incremental margins and operating margin expansion.

And as I mentioned earlier, the reason that we see this as appropriate is we're seeing an easing of inflation. And we saw that. You can see that in the drop in the cost of energy that we've seen, the benefit we received in Q4. And as I mentioned earlier, also, you saw it in the CPI report yesterday and the PPI report today. So, and as you appropriately said, I mean, we're guiding towards, you know, a more historical type of growth. Volume growth is really good still. Pricing will return closer to historical, and appropriately so. But all that being said, we will still have, we're guiding towards incremental margins and operating margin expansion.

And as I mentioned earlier, the reason that we see this as appropriate as we're seeing an easing of inflation.

And.

And we saw that you can see that in the drop in the cost of energy that we have seen the benefit we received in Q4.

And as I mentioned earlier also you sell it in the CPI report yesterday in the PPI report today so.

And as you appropriately said I mean, we're guiding towards.

You are more historical type of growth.

Volume growth is really good still pricing will return closer to historical.

Appropriately so but.

All that being said, we will still have.

We are guiding towards incremental margins and operating margin expansion. So.

Todd Schneider: Pricing is a lever, but it is, it's not our only lever available to us in order to expand margins.

Pricing is a lever, but it is, it's not our only lever available to us in order to expand margins.

Pricing is.

<unk>, but it is not our only lever available to us in order to expand margins.

Justin Hauke: Okay. No, that's helpful. I mean, that's, I guess, kind of what you were implying, but I wanted to clarify, that that was kind of the magnitude of change. I guess the second question, just, on the insurance cost increase and maybe SG&A as a percentage of revenue in general, how much of an impact was that in the quarter? And then is that kind of a run rate, you know, a headwind that you'll face next year? And, you know, the reason why I ask is, obviously, you're implying margin expansion here, but, you know, your SG&A, the percentage of revenue is still, pretty low, you know, versus, you know, kind of pre-COVID levels.

Okay No that's helpful.

I guess kind of what you were implying but I wanted to clarify that.

That was kind of the magnitude of the change I guess the second question just on the insurance cost increase.

Maybe SG&A as a percentage of revenue in general how much of an impact was that in the quarter and then is that kind of a run rate.

Headwind that Youll Youll face next year.

Reason why I ask is obviously youre, implying margin expansion here, but your SG&A as a percentage of revenue is still.

Pretty low versus kind of pre COVID-19 levels, and so just trying to understand how much structural SG&A.

Justin Hauke: Just trying to understand how much structural SG&A leverage gain you have here versus returning to more of a normalized level.

Just trying to understand how much structural SG&A leverage gain you have here versus returning to more of a normalized level.

Leverage gain you have here versus returning to more of a normalized level.

Todd Schneider: Justin, because we are self-insured, those claims can, they can kind of move up and down throughout the year. There's nothing that we would say is structural related to that. It's just a, it's just a product of being self-insured. You know, we ended the year at 26.9% in SG&A. That is, oh, gosh, a couple hundred basis points, maybe lower than pre-COVID, and the last few years. And you've heard us speak about this. Look, we've worked hard to get it to that level, and we don't wanna get back to historical levels. So our expectation is we're gonna continue to find ways to better leverage SG&A, particularly G&A, to make sure that it contributes to our margin expansion into the future.

Mike Hansen: Justin, because we are self-insured, those claims can, they can kind of move up and down throughout the year. There's nothing that we would say is structural related to that. It's just a, it's just a product of being self-insured. You know, we ended the year at 26.9% in SG&A. That is, oh, gosh, a couple hundred basis points, maybe lower than pre-COVID, and the last few years. And you've heard us speak about this. Look, we've worked hard to get it to that level, and we don't wanna get back to historical levels. So our expectation is we're gonna continue to find ways to better leverage SG&A, particularly G&A, to make sure that it contributes to our margin expansion into the future.

Justin.

Yes.

Because we are self insured those claims can they can kind of move up and down.

Throughout the year. There is nothing that we would say is structural related to that.

It's just it's just a product of being self insured.

We ended the year at 26, 9% and SG&A that is gosh, a couple of hundred basis points may be lower than pre.

Than pre Covid.

In the last few years.

And you've heard US speak about this look we've worked hard to get it to that level and we don't want to get back to historical levels. So so our expectation is we're going to continue to find ways to better leverage.

SG&A, particularly G&A.

To make sure that it contributes to our margin expansion into the future. So we're going to we're going to continue to work hard to look for opportunities to bring it down and do not expect it to return to those.

Todd Schneider: So we're gonna continue to work hard to look for opportunities to bring it down, and do not expect it to return to those higher twenty places that we were in pre-COVID.

So we're gonna continue to work hard to look for opportunities to bring it down, and do not expect it to return to those higher twenty places that we were in pre-COVID.

Those higher 20 places that we were in pre Covid.

Justin Hauke: Great. Yep. Okay, I appreciate it. Thank you.

Great.

Okay I appreciate it thank you.

Operator: We'll hear next from George Tong with Goldman Sachs.

And we'll hear next from George Tong with Goldman Sachs.

George Tong: Hi. Thanks. Good morning. You mentioned there hasn't been much change in customer behaviors based on what you're seeing. Can you elaborate on how customer budgets, sales cycles, and the sales pipeline are evolving with the current environment?

Hi, Thanks, Good morning, you.

You mentioned there hasn't been much change in customer behavior based on what Youre seeing.

Elaborate on how customer budgets sales cycles and the sales pipeline.

Evolving with the current environment.

Todd Schneider: Yeah. Good morning, George. Yeah, it's a pretty. The environment hasn't changed significantly. You know, the health of customers varies based upon geographic, what type of business they're in, small, medium, large, those types of things. But generally speaking, the sales process has not, it has not elongated. The sales pipe looks very good. You know, we like the spot we're in, and, you know, we have invested appropriately. We're in the right. We've got the right products and services. We've got the right focus on our customers, and we think that we're well positioned for the future.

Good morning, George.

Yes.

It's a pretty.

The environment Hasnt changed significantly.

The health of customers is.

Varies based upon geographic what type of business are in small medium large those types of things.

But generally speaking the sales process has not and has not elongated the sales pipe looks very good.

We like the spot we're in.

We have.

Invested appropriately we're in the right we've got the right products and services.

We've got the rig.

Focus on our customers and.

And we think that we're well positioned for the future.

Todd Schneider: We certainly are trying to make sure that we're planning for the long term. You know, we're as I mentioned earlier not trying to be in the economic forecasting business, but we are making sure that we're watching our business very closely and hoping for clear sailing ahead with the economy. That being said, you know, we will find a way to be successful, as we have in the past.

And we certainly are trying to make sure that we're planning for the long term and.

We certainly are trying to make sure that we're planning for the long term. You know, we're as I mentioned earlier not trying to be in the economic forecasting business, but we are making sure that we're watching our business very closely and hoping for clear sailing ahead with the economy. That being said, you know, we will find a way to be successful, as we have in the past.

<unk>.

Sure.

As I mentioned earlier not trying to.

Being the economic forecasting business, but.

We are making sure that we're watching our business very closely and hoping for.

Clear sailing ahead with the economy.

That being said.

We will find a way to be successful as we have in the past.

George Tong: Got it. That's helpful. And then wanted to drill down further into your healthcare vertical, which you touched on earlier. COVID certainly provided a notable lift to the healthcare business. Can you talk a little bit about how quickly the healthcare business is growing, what new business trends there look like, and what mix of revenue it currently represents?

Got it that's helpful. And then I wanted to drill down further into your healthcare vertical which you touched on earlier can we provided a notable lift.

The health care business can you talk a little bit about how quickly the health care business is growing what new business trends look like and what mix of revenue. We currently represent.

Todd Schneider: Certainly, George. The healthcare business has been strong for us for a number of years. And in large part, not just having a sales focus, but organizing around those customers, products, services, and our service organization. So it's more than just sales. It is making sure that we look at it as a business. And it's growing, it's accretive to our growth rates. We see a very long runway there. As I mentioned earlier, the demographics are really attractive, but the pipeline of sales growth looks robust. And you know, and that's because of years of investment in making sure we're really well positioned, and we see that continuing.

Certainly George.

The health care business is.

There has been strong for us for a number of years.

And.

It is.

And as large part.

Not just having a sales focus but organizing around those customers' products services.

Our service organization. So it's more than just sales it is making sure that we look at it as a business and it's growing.

It's accretive to our growth rates.

We see very long runway there as I mentioned earlier, the demographics are really attractive, but the pipeline of sales growth and it looks it looks robust.

And thats because of years of investment in making sure we're really well positioned.

And we see that continuing.

George Tong: Got it. And just the mix of revenue?

Got it and just the mix of revenue.

Mike Hansen: I don't have that in front of us, George, right now. In the past-

Don't have that in front of our stores right now.

George Tong: Okay.

Mike Hansen: It's been about 7%, and it's, I'd say this, it's growing faster than average.

In the past, it's been about 7% and it's I'd say this it's growing faster than average.

George Tong: Got it. Thank you.

Got it thank you.

Operator: Your next question comes from Tim Mulrooney with William Blair.

Your next question comes from Tim Mulrooney with William Blair.

Timothy Michael Mulrooney: Yeah, good morning. On the first aid business, specifically, you know, pre-pandemic operating margins were closer to 15%. They went down several hundred basis points, I know, from the sell-through of lower margin PPE in 2021 and 2022, but now it looks like they're sitting at 19%. I mean, that's a big jump from pre-pandemic levels. Would you expect, I guess, Mike or Todd, a little bit of a give back at some point, or do you expect to keep and build on those margin gains that you've made this year?

Timothy Mulrooney: Yeah, good morning. On the first aid business, specifically, you know, pre-pandemic operating margins were closer to 15%. They went down several hundred basis points, I know, from the sell-through of lower margin PPE in 2021 and 2022, but now it looks like they're sitting at 19%. I mean, that's a big jump from pre-pandemic levels. Would you expect, I guess, Mike or Todd, a little bit of a give back at some point, or do you expect to keep and build on those margin gains that you've made this year?

Yes, good morning.

The first aid business, specifically pre pandemic operating margins were closer to 15%.

They went down several hundred basis points I know from the sell through of lower margin <unk> in 'twenty, one 'twenty two but now it looks like you're sitting at 90% I mean, that's a big jump from pre pandemic levels.

Would you expect I guess.

Mike talk a little bit of a give back at some point or what do you expect to keep and build on those margin gains that you've made this year.

Todd Schneider: Yeah, Tim, we do not expect to give back. We expect to maintain and build on those improvements. And we're leveraging, you know, certainly the total growth, the benefits of health and wellness being important to people in the marketplace, the mix of business being attractive. And, you know, we've fundamentally focused on extracting out inefficiencies in the business, so and we're not giving those back. So, so we, yeah, we see the future is bright for that business.

Yeah, Tim we.

We do not expect to give back we expect to.

Maintain and build on those.

Those improvements.

<unk>.

We're leveraging certainly.

The total growth the benefits of health and wellness being important to people in the marketplace the mix of business being attractive.

And.

We've.

Fundamentally focused on extracting out inefficiencies in the business. So we're not giving those back so.

So yes, we see the future is bright for that business.

Timothy Michael Mulrooney: Yeah. Okay. It was more than just sales mix. It sounds like you did some structural things. But I-

Timothy Mulrooney: Yeah. Okay. It was more than just sales mix. It sounds like you did some structural things. But I-

Yes, okay.

It was more than just sales mix. It sounds like you did some structural things.

Mike Hansen: Yeah, we-

Timothy Michael Mulrooney: Have a different question.

Timothy Mulrooney: Have a different question.

Mike Hansen: Tim, we've talked a lot about the mix certainly returning, and that's a big part of it. But as Todd's mentioned, we've our first aid and safety partners have a lot of things going on in terms of business improvement opportunities, from sourcing better, to routing better, to sales productivity improving, to penetration opportunities. There's a lot going on in that business, and we've attributed a lot, you're correct, to the revenue mix, and that has been important in terms of the height of the pandemic to today. But there's also a lot that's going on in the business that is working towards structural improvements in the business that create long-term efficiencies, and you're seeing that. And that's why we don't expect to give it back.

Yes.

We've talked a lot about the mix certainly.

Turning and that's being that's a big part of it but as Todd mentioned we.

Our first aid safety partners have a lot of things going on in terms of <unk>.

Business improvement opportunities from sourcing better to routing better to sales productivity improving two penetration opportunities. There is a lot going on in that business and we've attributed a lot youre correct to the revenue mix and that has been important in terms of.

The height of the pandemic to today, but but theres also a lot that's going on in the business that that is working towards structural improvements in the business that create long term efficiencies and youre seeing that and that's why we don't expect to give it back there is nothing that we are under spend.

Mike Hansen: There's nothing that we are underspending or underinvesting in to get these margins. These are, these are real, business improvements that are sustainable, and that's what we love about, the business. It has been growing nicely. It's resonating with, with our prospects and customers, and it's pretty exciting to think about that business in our fiscal 2024 topping $1 billion for the first time. So, we do love the business, and there's a lot of good, work going on there.

There's nothing that we are underspending or underinvesting in to get these margins. These are, these are real, business improvements that are sustainable, and that's what we love about, the business. It has been growing nicely. It's resonating with, with our prospects and customers, and it's pretty exciting to think about that business in our fiscal 2024 topping $1 billion for the first time. So, we do love the business, and there's a lot of good, work going on there.

<unk> are under investing in to get these margins. These are these are real business improvements that are sustainable and thats, what we love about the business.

It has been growing nicely, it's resonating with.

With our prospects and customers and it's pretty exciting to think about that business in our fiscal 'twenty four topping $1 billion for the first time. So we do love the business and there is a lot of good work going on there.

Timothy Michael Mulrooney: That is exciting, and I appreciate the extra color there. Mike, that's very clear. If I could just shift gears really quickly. You know, one of your competitors recently commented that they saw customer retention rates come down a little bit recently, but it was kind of more of a normalization, okay, like following a boost over the last several years, things, when things were good. Now they're kind of back towards historical rates. I'm curious, and some investors are curious, you know, if you guys saw something similar to any material degree? Did you see retention rates kind of jump up a little bit in fiscal 2022 and 2023, and have you seen that pull back or normalize, so to speak, more recently? Thank you.

Timothy Mulrooney: That is exciting, and I appreciate the extra color there. Mike, that's very clear. If I could just shift gears really quickly. You know, one of your competitors recently commented that they saw customer retention rates come down a little bit recently, but it was kind of more of a normalization, okay, like following a boost over the last several years, things, when things were good. Now they're kind of back towards historical rates. I'm curious, and some investors are curious, you know, if you guys saw something similar to any material degree? Did you see retention rates kind of jump up a little bit in fiscal 2022 and 2023, and have you seen that pull back or normalize, so to speak, more recently? Thank you.

That is exciting and I appreciate.

The extra color there, Mike that's very clear if I could just shift gears really quickly one of your competitors recently commented that they pay.

They saw customer retention rates come down a little bit recently, but it is kind of more of a normalization. Following a boost over the last several years when things were good now that kind of back towards historical rates I'm curious and some investors are curious if you guys saw something similar to any material degree did you see retention.

Rates kind of jump up a little bit in fiscal 'twenty, two and 'twenty three and have you seen that pull back or normalized so to speak but more recently thank you.

Todd Schneider: ... Great question, Tim. You know, so, over the, you know, past few years, we've seen a nice improvement to our customer retention levels. You know, through the pandemic, we think that we handled that really, strategically, intelligently, and thought about the long term. And we saw our customer satisfaction scores go up at that same time. And we've continued to see those same levels of customer satisfaction and retention levels. So no, we have not seen a change from that standpoint.

Great question Tim.

So over the.

Past few years, we've seen a nice improvement to our customer retention levels.

Through the pandemic, we think that we can handle that really.

Strategically intelligently.

Thought about the long term and and we saw our customer satisfaction scores go up at that same time and.

<unk> continued to see those same levels of customer satisfaction and retention level. So no we have not seen a change from that standpoint.

Todd Schneider: You know, we're always working on improving our business and making sure that we are super focused on making sure we're taking great care of our customers and staying attentive to their needs is a big part of what makes us successful. So, we've not seen a change, and we're focused on making sure that doesn't happen.

You know, we're always working on improving our business and making sure that we are super focused on making sure we're taking great care of our customers and staying attentive to their needs is a big part of what makes us successful. So, we've not seen a change, and we're focused on making sure that doesn't happen.

<unk>.

We're always working on improving our business and making sure that we are.

Super focused on making sure we're taking great care of our customers.

Staying attention.

To their needs is.

A big part of what makes us successful so.

We've not seen a change and we're focused on making sure that doesn't happen.

[Analyst]: Got it. Thank you.

Timothy Mulrooney: Got it. Thank you.

Got it thank you.

Todd Schneider: Thank you.

Thank you.

Operator: We'll hear next from Kartik Mehta with North Coast Research.

And we'll hear next from Kartik Mehta with Northcoast research.

Kartik Mehta: Good morning. I wanted to ask your expectations for add stops as we go into fiscal '24. It seems as though, you know, companies are starting to slow down their hiring, and I'm wondering what type of impact that's included in the guidance or what you're anticipating.

Good morning, I wanted to ask your expectations for add stops as we go into fiscal 'twenty four.

It seems as though companies are starting to slow down their hiring and.

What type of impact.

Included in the guidance or what Youre anticipating.

Todd Schneider: Kartik, you know, we have not seen a change to our add stops metrics. And we expect that that will continue. You know, we're part of it is because of you know the diversity of our customer base, you know, not just goods producing, services providing, and the broadness of our customer base. We're not dependent upon any one particular area, and we expect it to grow in multiples of GDP. And all that being said, we expect that add stops metrics will continue on its path.

Kartik.

We have not seen a change to our add stops metrics.

And we are.

Expect that that will continue.

We're.

Part of it is because of.

The diversity of our customer base.

Just goods producing services providing.

And the broadness of our customer base.

We're not dependent upon any one particular area.

And we expect it to grow in multiples of GDP.

And.

And all of that being said.

We expect that add stops metrics will continue on its path.

Kartik Mehta: Perfect. And then, Mike, you might have said this, so I apologize if you already talked about this, but just the impact from energy costs in FY 2024 versus FY 2023, what you've included or anticipated.

And then Mike you might have said this so I apologize if you already got.

<unk> talked about this but just the impact from energy costs.

FY 'twenty four versus FY2023.

What you've included.

Mike Hansen: So let me, I'll give you a couple numbers. Q4 total energy for the total company was 1.8%, for the Q4. For the year, that was 2.2%. So for the year, this year, fiscal 2023 compared to 2022, it was down ten basis points. So, you know, it's roughly flattish. As we think about 2024, you know, look, the prices at the pump spiked in June of last year, and so our Q1 numbers of last year were fairly high. And so we may get a little bit of a tailwind in Q1, and then our expectation is we'll turn roughly flattish.

Or anticipated.

So let me I'll give you a couple a couple of numbers.

Fourth quarter.

Total energy for the total company was one 8%.

For the fourth quarter.

For the year that was two 2%.

For the year.

This year fiscal 'twenty three compared to 22 it was down.

At 10 basis points. So it's roughly flattish as we think about 'twenty four.

Look the prices at the pump spiked in June of last year, and so our first quarter.

Numbers of last year were fairly high and so we may get a little bit of a <unk>.

<unk> in Q1, and then our expectation is it will turn roughly flattish.

Kartik Mehta: Perfect. Thank you very much. I really appreciate it.

Thank you very much I really appreciate it.

Okay.

Operator: Next, we'll hear from Seth Weber with Wells Fargo.

Next we'll hear from Seth Weber with Wells Fargo.

Seth Weber: Hey, hey, guys. Good morning. I wanted to just circle back to the revenue guidance point again for a second. I'm just, you know, it sounds like first aid safety and the fire business both have very strong momentum, and so I'm just trying to understand the construct of the revenue guide, whether you think, you know, all three segments will be in that kind of 6% to 8% range, or, you know, will there be some above and some below to kind of put out to that, to that 6 to 8 range? Because it seems like there's still a lot of momentum in the first aid, safety, and fire business.

Hey, guys good morning.

I wanted to just circle back to the revenue guidance.

Again for a second I'm just it sounds like first aid safety and fire business, both have very strong momentum and so I'm just trying to understand the construct of the revenue guide whether you think.

All three segments will be in that kind of 6% to 8% range or.

Will there be some above some below to kind of.

Put out to that.

To a range because it seems like there's still a lot of momentum in the first aid safety and fire business.

Todd Schneider: Well, Seth, well, good morning. Well, we like the momentum in all of our businesses. So, will there be some above, some below? Yeah, but generally speaking, we see in the mid to high single digits would be probably where you can think of it. And as I mentioned earlier, you know, we're up against comps that are significant, partly because of pricing being above historical in the past, well above historical, now it being closer to historical.

Well Seth.

Good morning, well, we like the momentum in all of our businesses.

So will there be some above some below yeah, but it's.

But generally speaking we see in the mid to high single digits.

Would be probably where you can think of it.

And it's.

And as I mentioned earlier.

We are up against <unk>.

Comp center significant partly because of.

Pricing being above historical in the past.

Well above historical now it being closer to historical.

Seth Weber: Okay. Maybe, Mike, a follow-up question just on CapEx. It's kind of pushing up towards that 4%-ish number again. Is that the right way to think about it for Fiscal 2024? And then, you know, can you just give us any color on what that whether that's brick and mortar or whether, you know, just where that spending might be going? Thanks. From a capacity perspective or whatnot.

Okay.

Maybe Mike can follow up question just on Capex.

Kind of pushing up towards that 4% ish number again is that the right way to think about it for fiscal 'twenty four.

And then can you just give us any color on what that whether thats brick and mortar or weather.

Just where that spending might be going thanks.

Mike Hansen: Sure. Yeah, we would expect 3.5% to 4% of revenue. Look, when we've had a really good couple years of volume growth, we have capacity needs in certain places. Capacity is local in our business, but we have capacity needs, and we wanna continue to invest for growth. And so there will be everything from added washers and dryers in specific wash alleys to some of a few bricks-and-mortar new buildings, and other investments in the business that allow us to continue to

Capacity perspective or whatnot sure.

Yes, we would expect to three 5% to 4%.

Of revenue.

And look when we've when we've had a really good couple of years of volume growth, we have capacity needs in certain places capacity is local in our business, but we have capacity needs in.

We want to continue to.

Invest for growth.

And so there will be everything from added washers and dryers and specific wash alleys too.

Some of our few bricks and mortar new buildings.

And other investments in the business that allow us to continue to have the capacity we need to grow so.

Todd Schneider: ... have the capacity we need to grow. So it's kind of back to that historical 3.5% to 4% range. That would be our expectation.

It is kind of back to that historical three 5% to 4% range that would be our expectation.

Seth Weber: Got it. I appreciate it, guys. Thank you very much.

Got it I appreciate it guys. Thank you very much.

Todd Schneider: Thank you.

Operator: We'll move next to Heather Balsky with Bank of America.

In Q.

Operator: We'll move next to Heather Balsky with Bank of America.

And we'll move next to Heather <unk> with Bank of America.

Heather Balsky: Hi, thank you for taking my question. I know you got a question earlier about sort of the trend in sales and if the difference is related to pricing. I'm curious, focusing specifically on the uniforms business. You've been growing organically 9% to 11% the last few quarters. You presumably were well past the COVID recovery period. I'm just curious what's enabled you to drive that outperformance versus kind of pre-COVID levels, and if you think that's sustainable going forward?

Hi, Thank you for taking my question.

I know you've got it.

Question earlier about that.

The trend in sales at the differences related to pricing I'm curious focusing specifically on the uniforms business.

And.

And then growing organically nine.

And 11% the last few quarters.

Presumably we're well past that COVID-19 recovery period.

I'm just curious what's enabled you to drive that outperformance versus kind of pre COVID-19 levels and if you think that the Santa Paula client salary.

Todd Schneider: Yeah. Good morning, Heather. So, yeah, our uniform rental business is performing quite well. You know, we think we have invested appropriately in the sales organization. We really like where we're going there. We like the productivity levels. They've continued to go up. And there's plenty of inputs to productivity. And as you know, whether it's products that we launch, services that we launch, the retention levels of our people, the leadership of the organization make sure that we're driving items that make them more successful. So, you know, new is going well, and our service organization is doing an outstanding job with customer retention.

Yes, good morning, Heather so yeah, our uniform rental business is performing quite well.

<unk>.

We think we've invested appropriately.

And the sales organization.

We really like where we're going there we'd like the productivity levels.

<unk> continued to go up.

And theres plenty of inputs to productivity in us.

Whether it's products that we launch services that we launch.

The retention levels of our people.

The.

The leadership of the organization make sure that we're driving.

Items that make them more successful so.

<unk> is going well and in our service organization is doing an outstanding job with customer retention.

Todd Schneider: Making sure, as I mentioned earlier, our customer satisfaction scores are near all-time highs. And as a result of that, our lost business, our customer retention, the appropriate way to say it, our customer retention is really attractive. So our new is up and our customer retention is improved over pre-COVID levels. Those are big for us and having a really positive impact on the business.

Making sure, as I mentioned earlier, our customer satisfaction scores are near all-time highs. And as a result of that, our lost business, our customer retention, the appropriate way to say it, our customer retention is really attractive. So our new is up and our customer retention is improved over pre-COVID levels. Those are big for us and having a really positive impact on the business.

Making sure as I mentioned earlier, our customer satisfaction scores are near all time highs.

And as a result of that are our los business, our customer retention the appropriate way to say it our customer retention is is really attractive so.

Our new is up and our customer retention has improved over pre COVID-19 levels.

So those are those are big for us and having a.

A really positive impact on the business.

Heather Balsky: Great. Thank you. It's really helpful. I feel like I have to ask an AI question here. You guys talked about being early in your digital transformation journey. Are you guys looking at any investments on the AI side in terms of efficiencies and sort of behind the scenes type benefits? I'm just curious. Thanks.

Great. Thank you that's really helpful.

I feel like I have to ask an AI question here you guys talked about being early in their digital transformation journey.

You guys looking at any investment.

Hi.

Sure.

Thank you Keith.

Behind the scenes types.

Benefit.

Great. Thanks.

Todd Schneider: Yes, Heather, we're, we're certainly investigating and investing in opportunities. We think we're with the right partners. When you think about, you know, Verizon, SAP, and Google, having those three as the, our technology, our, our, strategic, technology partners, we think we're, with the right folks. And, and we don't just, have a customer-vendor relationship with them, we have a strategic relationship with them, and they're helping us. They, they, are and will help us, to, leverage those opportunities, in the marketplace. So, you know, I can't lay out specifics for you, but I'll just tell you this: we're, we see opportunity to invest in that area, and, and we are doing so appropriately because, we think it'll pay big dividends.

Yes, Heather we're we're <unk>.

Certainly investigating and investing in opportunities.

And we think we're with the right partners.

When you think about.

Verizon and Google, having those three as the our technology are strategic.

Technology partners, we think we're with the right folks.

And and we don't just have a customer vendor relationship with them, we have a strategic relationship with them and they are helping us.

Our and will help us.

To leverage those opportunities in the marketplace. So.

I can't lay out specifics for you, but I'll just tell you, that's where we see opportunity to invest in that area.

And.

We are doing so appropriately because.

Todd Schneider: That being said, we'll be speaking about this for many, many years to come, because we think the benefit has a lot of legs to it.

That being said, we'll be speaking about this for many, many years to come, because we think the benefit has a lot of legs to it.

We think it will pay big dividend that being said it'll be we'll be speaking about this for many many years to come.

Because we think the benefit has a.

<unk> has a lot of legs to it.

Heather Balsky: That's really helpful. Thank you.

That's really helpful. Thank you.

Todd Schneider: Thank you.

Thank you.

Operator: Your next question comes from Scott Schneeberger with Oppenheimer.

Your next question comes from Scott Schneeberger with Oppenheimer.

Scott Schneeberger: Thanks very much. And, guys, kind of a cautionary question. It sounds like things are going really well, and recent economic indicators feel pretty good. But, just curious to hear what the plan is if, as your guidance expects, no softness in the economy, how are you looking at what levers would you pull on the efficiency side? What should give us assurance you'll be in good shape if you're not able to get some of the leverage you've been getting on the top line? Thanks.

Okay.

Thanks very much.

Kind of a cautionary.

Cautionary question it sounds like things are going really well and.

And recent economic indicators feel pretty good but just curious to hear what the plan is.

Is your guidance expecting softness in the economy. How are you looking at what levers would you pull.

On the efficiency side what should.

She'd give us assurance youll be in good shape, if youre not able to get some of the leverage you've been getting on the top line. Thanks.

Todd Schneider: Scott, let me make sure I understand. You're saying if we can't get the leverage or if the economic environment changes?

Scott.

Make sure I understand youre, saying, if we can't get the leverage or if the economic environment changes.

Scott Schneeberger: If the economic environment dips below kind of status quo-

Scott Schneeberger: If the economic environment dips below kind of status quo and really deteriorates, just curious what kind of leverage you guys would pull to maintain the financial sense?

If the economic environment get dips below.

Todd Schneider: Yeah

Scott Schneeberger: ... and really deteriorates, just curious what kind of leverage you guys would pull to maintain the financial sense?

Status quo and really deteriorate just curious what kind of leverage you guys would pull too.

Todd Schneider: Yes, certainly. Good question. I, you know, we have a very tenured, a very experienced leadership team, management team that has been through the cycles. It seems like you name it, we've been through it, and we expect to be successful in all environments. Now, you know, so your question is a tough one to answer because the economic downturn, how deep is it? How long is it? How broad? And so you know, trying to understand that is challenging. But we expect to be successful in all economic environments. If you're talking about a massive downturn, you know, in 2008, 2009, that might be different. But we're ready.

To maintain the financial center.

Yes, certainly good question.

We have a.

A very tenured very experienced.

Leadership team management team.

That has been through the cycles.

Seems like you name it we've been through it and we expect to be successful in all environments now.

So your question is it's a tough one to answer because the economic downturn.

How how deep is it how long is it how broad.

<unk>.

And so.

Trying to understand that is challenging.

We expect to be successful in all economic environments.

If you're talking about a massive downturn and OE dollars nine that might be different.

Todd Schneider: We know how to do this. We have demonstrated our ability to be successful in all these different type of economic environments. We have grown our sales and profits in fifty-two of the last fifty-four years. My expectation is we will absolutely do so, and we will find and fight and a way to be successful in whatever economic environment. So plenty of levers available to us. We think we've got the right team in place to manage that.

We know how to do this. We have demonstrated our ability to be successful in all these different type of economic environments. We have grown our sales and profits in fifty-two of the last fifty-four years. My expectation is we will absolutely do so, and we will find and fight and a way to be successful in whatever economic environment. So plenty of levers available to us. We think we've got the right team in place to manage that.

But we're ready.

We know how to do this we have demonstrated our ability to be successful in.

And all of these different type of economic environment, we have grown our sales and profits.

<unk> 52 in the last 54 years.

My expectation is we will absolutely do so and we will find and fight and.

A way to to be successful in whatever economic environment, So plenty of levers available to us.

And we think we've got the right team in place to manage that.

Scott Schneeberger: ... Thanks, I appreciate that. Then, for the follow-up, it's a bit of a two-parter, and one's pure housekeeping. Just curious, your thanks for answering on Seth's question on CapEx, what that'll look like. Just other uses of capital as we head into fiscal 2024, thoughts on buybacks, thoughts on M&A, any other cleanup on the balance sheet you are considering? Then that second part would just be if you could remind us what a one extra workday quantitative impact is, that in fiscal 2024 versus 2023. Thanks.

Thanks, I appreciate that and then for the follow up it's a bit of a two parter one pure housekeeping.

Just curious your.

Thanks for answering on on <unk> question on Capex, what that will look like.

Their uses of capital as we head into fiscal 'twenty four thoughts on buyback stopped on M&A any other.

Clean up on the balance sheet. You you were considering and then that second part would just be if you could remind us what a what a one day.

One extra workday.

Quantitative impact is that in fiscal 'twenty four versus <unk> 23.

Mike Hansen: Sure. From a capital allocation, I'll start with our expectation is the cash flow is gonna continue to be very good in fiscal 2024. Secondly, our balance sheet's in great shape. As of May 31st, we have no variable debt, and so we can do a lot of things with great cash flow and a great balance sheet. We would love to use that on M&A, if the opportunities come along, and we'll be as aggressive as we can be in terms of looking for them and making sure that they come at the right value. But we love that opportunity. Buyback is another great opportunity.

Sure from a from a capital allocation I'll start with our expectation is that cash flow is going to continue to be very good in fiscal 'twenty four.

Secondly, our balance sheets in great shape, we as of May 31, we have no variable debt.

And.

And so we can do a lot of things with great cash flow and a great balance sheet, we would love to use that on M&A.

Opportunities come along and we will be.

We'll be as aggressive as we can be in terms of looking for them and making sure that.

They come at the right value, but we love that that opportunity buyback is another great opportunity again with good cash flow and a great balance sheet.

Mike Hansen: Again, with good cash flow and a great balance sheet, we can put that cash to work, and we certainly could do it in the form of a buyback. So, you know, look, our capital allocation philosophy and strategy hasn't changed. And, again, with a healthy balance sheet and healthy cash flow, we can do some good things with that as we look forward to fiscal 2024. Your second question about the one workday for a fiscal year, in this case, it would be about a 40 basis point benefit to growth, sales growth, and think about it as about a 12 basis point benefit on bottom line, on operating margin.

Again, with good cash flow and a great balance sheet, we can put that cash to work, and we certainly could do it in the form of a buyback. So, you know, look, our capital allocation philosophy and strategy hasn't changed. And, again, with a healthy balance sheet and healthy cash flow, we can do some good things with that as we look forward to fiscal 2024. Your second question about the one workday for a fiscal year, in this case, it would be about a 40 basis point benefit to growth, sales growth, and think about it as about a 12 basis point benefit on bottom line, on operating margin.

We can put that cash to work and we certainly could do it in the form of a buyback so.

Look our capital allocation philosophy and strategy Hasnt changed.

And with again with a healthy balance sheet and healthy cash flow. We can do some good things with that as we look forward to fiscal 'twenty for <unk>.

Your second question of the one workday.

For fiscal year in this case it would be about a 40 basis point.

Benefit to growth sales growth and.

And think about it as about a 12 basis point benefit on the bottom line.

On the operating margin.

Scott Schneeberger: Great. Thanks. Appreciate all the call.

Great. Thanks, I appreciate all the color.

Operator: Our next question comes from Shlomo Rosenbaum with Stifel Nicolaus.

Your next question comes from Shlomo Rosenbaum with Stifel Nicholas.

Shlomo Rosenbaum: Hi, thank you for taking my questions. So I thought I'd just ask a little bit more on kind of the hiring environment at your clients. You said you're not expecting it to change. It's been a very strong hiring environment for the last several years since that, you know, kind of initial dip in COVID. Is there a way that you think about it in your minds in terms of a strong hiring environment and just kind of clients adding personnel, driving some of that revenue growth, particularly in the rental uniforms division? Or do you think it's really a lot more of, you know, the company's own efforts in terms of, you know, cross-selling, finding new customers, and pricing? And then I have a follow-up.

Alright, Thank you for taking my questions.

I guess I'll just ask.

Q4 2023 Cintas Corp Earnings Call

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