Q3 2024 Cintas Corp Earnings Call

Good day, everyone and welcome to the Cintas Corporation.

Announces fiscal 'twenty 'twenty four third quarter earnings release conference call.

<unk> call is being recorded at this time I would like to turn the call turn the call over to Mr. Jared Mattingly, Vice President and Treasurer Investor Relations. Please go ahead Sir.

Jared S. Mattingley: 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 2024 third quarter results. After our commentary we will open the call to questions from analysts.

Speaker Change: But 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.

Speaker Change: 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.

Speaker Change: For you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission I will now turn the call over to Todd.

Todd M. Schneider: Thank you Jared.

Todd M. Schneider: Due to the outstanding dedication and execution of our employees, whom we call partners. We delivered very strong results for our third quarter.

Operator: Beep. Good day, everyone, and welcome to the Cintas Corporation's fiscal 2024 third quarter earnings release conference. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jared Mattingley, Vice President and Treasurer, Investor Relations. Please go ahead, sir.

Todd M. Schneider: Total revenue for the third quarter grew nine 9% to 241 billion.

The revenue dollars represent record quarterly revenue.

Todd M. Schneider: We are pleased with the performance of each of our businesses.

Todd M. Schneider: Our revenue growth remains robust and we have good momentum in the business.

Jared S. Mattingley: 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. We will discuss our fiscal 2024 third quarter results. After our commentary, we will open the call to questions from investors. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking states.

Todd M. Schneider: New business remains strong.

Todd M. Schneider: Our sales team continues to operate at a high level.

Todd M. Schneider: We are seeing broad success across the many verticals, particularly within our focus verticals as well as our cross selling efforts and penetration of new products and services within our existing customers.

Todd M. Schneider: Retention levels are strong and remain at very attractive levels.

Todd M. Schneider: Our strong revenue growth flowed through to our bottom line.

Jared S. Mattingley: 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 filing with the Securities and Exchange Commission. I will now turn the call over to Todd. Thank you, Jared.

Todd M. Schneider: Margin for the third quarter increased 220 basis points to a record 49, 4% an increase of 14, 9%.

Todd M. Schneider: Operating income was a record 21, 6% an increase of 16, 6%.

Todd M. Schneider: Diluted EPS grew a robust 22, 3% to $3 84.

Todd M. Schneider: Cash flow remains strong.

Todd M. Schneider: Net cash provided by activities in the third quarter grew 32, 8% over the prior year.

Todd M. Schneider: Due to the outstanding dedication and execution of our employees, whom we call partners, we delivered very strong results for our third quarter. Total revenue for the third quarter grew 9.9% to $2.41 billion. The revenue dollars represent record quarterly revenue. We are pleased with the performance of each of our businesses. Our revenue growth remains robust, and we have good momentum in the business. New business remains strong.

Todd M. Schneider: In the third quarter, we continued to invest in our businesses through capital expenditures of $107 million.

Todd M. Schneider: During the third quarter, we made acquisition purchases of $111 million.

Todd M. Schneider: On March 15th we paid shareholders $137 $6 million in quarterly dividends, an increase of 17, 1% from the amount paid the previous March.

Todd M. Schneider: Our sales team continues to operate at a high level. We are seeing broad success across many verticals, particularly within our focus verticals, as well as our cross-selling efforts and penetration of new products and services within our existing customers. Retention levels are strong and remain at very attractive levels. Our strong revenue growth flowed through to our bottom line. Gross margin for the third quarter increased 220 basis points to a record 49.4%, an increase of 14.9%.

Todd M. Schneider: Our strong cash flow gives us flexibility to choose how we deploy our capital.

Todd M. Schneider: And through three quarters, we have deployed over $1 4 billion of capital across our priorities of capital expenditures acquisitions dividends and buybacks.

I would like to thank our employees and we call partners for their continued focus on our customers our shareholders and each other.

Speaker Change: Before turning the call over to Mike to provide details of our third quarter results I'll provide our updated financial expectations for our fiscal year.

Todd M. Schneider: Operating income was a record 21.6%, an increase of 16.6%; diluted EPS grew a robust 22.3% to $3.84. Cash flow remains strong. Net cash provided by operating activities in the third quarter grew 32.8% over the prior year. In the third quarter, we continued to invest in our businesses through capital expenditures of $107 million. Additionally, during the third quarter, we made acquisition purchases of $111 million.

Speaker Change: We are increasing our financial guidance.

Speaker Change: We are raising our annual revenue expectations from a range of $9 $4 8 billion to.

Speaker Change: To $9 $56 billion.

Mike Hansen: A range of nine $5 7 billion to $9 6 billion.

Mike Hansen: A total growth rate of eight six to eight 9%.

Mike Hansen: Also we are raising our annual diluted EPS expectations from a range of $14 35.

Mike Hansen: The $14 65 to.

Mike Hansen: So a range of $14 80.

Mike Hansen: To $15 a growth rate of $13 nine to 15, 5%.

Todd M. Schneider: On March 15th, we paid shareholders $137.6 million in quarterly dividends, an increase of 17.1% from the amount paid the previous March. Our strong cash flow gives us flexibility to choose how we deploy our capital. And through three quarters, we have deployed over one point four billion dollars of capital across our priorities of capital expenditures, acquisitions, dividends, and buyback. I would like to thank our employees, whom we call partners, for their continued focus on our customers, our shareholders, and each other. Before turning the call over to Mike to provide details of our third quarter results, I'll provide our updated financial expectations for our fiscal year. We are increasing our financial guidance. We're raising our annual revenue expectations from a range of $9.48 billion to $9.56 billion to a range of $9.57 billion to $9.6 billion, a total growth rate of 8.6 to 8.9 percent.

Mike Hansen: Mike.

Mike Hansen: Thanks, Todd and good morning.

Mike Hansen: Our fiscal 2024 third quarter revenue was $2 $41 billion compared to $2, one $9 billion last year.

Mike Hansen: The organic revenue growth rate adjusted for acquisitions foreign currency exchange rate fluctuations and a difference in the number of work days was seven 7%.

Mike Hansen: Total growth was positively impacted by 170 basis points due to the extra workday.

Mike Hansen: We remind you as you update your models for next fiscal year that there will be two less workdays compared to this current fiscal year.

Mike Hansen: Each quarter next year, we will have 65 work days, which means the first and the fourth quarters will each have one less workday than this fiscal year.

Mike Hansen: Organic growth by business was seven 1% for uniform rental and facility services 11, 5% for first aid and safety services.

Mike Hansen: 14, 9% for fire protection services and uniform direct sale was down three 9%.

Todd M. Schneider: Also, we are raising our annual diluted EPS expectations from a range of $14.35 to $14.65 to a range of $14.80 to $15, a growth rate of 13.9 to 15.5%. Mike, Thanks, Todd, and good morning. Our fiscal 2024 third-quarter revenue was $2.41 billion, compared to $2.19 billion last year. The organic revenue growth rate adjusted for acquisitions, foreign currency exchange rate fluctuations, and a difference in the number of workdays was 7.7%. Total growth was positively impacted by 170 basis points due to the extra workday. We remind you, as you update your models for next fiscal year, that there will be two fewer workdays compared to this current fiscal year. Each quarter next year will have 65 workdays, which means the first and fourth quarters will each have one fewer workday than this fiscal year.

Mike Hansen: Gross margin for the third quarter of fiscal 'twenty four was $1, one 9 billion compared.

Mike Hansen: Compared to $1.0 billion to $3 billion last year, an increase of 14, 9%.

Mike Hansen: Gross margin as a percent of revenue was 49, 4% for the third quarter of fiscal 'twenty four compared to 47, 2% last year, an increase of 220 basis points.

Mike Hansen: Strong volume growth technology improvements and continued operational efficiencies helped generate this strong gross margin.

Mike Hansen: Gross margin percentage by business was 48, 8% for uniform rental and facility services 56, 3% for first aid and safety services 48, 8% of fire protection services and 41, 1% for uniform direct sale.

Mike Hansen: Gross margin for the uniform rental and facility services segment increased 170 basis points from last year.

Mike Hansen: Energy was a tailwind of 40 basis points.

Mike Hansen: Organic growth by business was 7.1% for uniform rental and facility services, 11.5% for first aid and safety services, 13.9% for fire protection services, and uniform direct sale was down 3.9%. Gross margin for the third quarter of fiscal 24 was $1.19 billion, compared to $1.03 billion last year, an increase of 14.9%. Gross margin as a percent of revenue was 49.4% for the third quarter of fiscal 24, compared to 47.2% last year, an increase of 220 basis points. Strong volume growth, technology improvements, and continued operational efficiencies help generate this strong gross margin. Gross margin percentage by business was 48.8% for uniform rental and facility services, 56.3% for first aid and safety services, 48.8% for fire protection services, and 41.1% for uniform direct sale. Gross margin for the Uniform Rental and Facility Services segment increased 170 basis points from last year. Energy had a tailwind of 40 basis points.

Mike Hansen: In addition, we continue to leverage our strong revenue growth, our technology investments and extract inefficiencies out of the business through our six Sigma and engineering teams.

Mike Hansen: Our technology investments have allowed us to improve garment sharing among our plants, which improves material costs.

Mike Hansen: Our smart truck technology allows us to improve our route efficiencies and provide route density to our existing routes, which positively impacts truck purchasing labor and energy.

Mike Hansen: Our six Sigma and engineering teams have helped us create efficiencies in the plant that allow us to maximize the utilization of our plant equipment labor and energy.

Mike Hansen: Gross margin for the first aid and safety services segment increased 470 basis points from last year.

Mike Hansen: Strong revenue growth continues to help expand our margins in this segment.

Mike Hansen: Strong revenue performance in some of our high margin recurring revenue products like AED rentals eyewash stations and water break continues to provide a healthy revenue mix.

Mike Hansen: Technology investment in Smart truck continues to provide route optimization and improved efficiencies and our first aid dedicated distribution center allows us to lower product costs.

Mike Hansen: All of these contribute to improved gross margins.

Mike Hansen: In addition, we continue to leverage our strong revenue growth, our technology investments, and extract inefficiencies out of the business through our Six Sigma and engineering team. Our technology investments have allowed us to improve garment sharing among our plants, which improves material costs. Our smart truck technology allows us to improve our route efficiencies and provide route densities to our existing routes, which positively impacts truck purchasing, labor, and energy.

Mike Hansen: Selling and administrative expenses increased 90 basis points from last year the.

Mike Hansen: The increase was driven by investments in selling resources technology, and our management training program as well as costs associated with an agreement in principle to settle the purported class action contract dispute brought by plaintiffs city of Laurel.

Mike Hansen: We determined that settling the claim is in the best interest of Cintas.

Mike Hansen: Total monetary payment agreed to in the proposed settlement, including the 60 basis points recognized in this quarter is $45 million.

Mike Hansen: Our six-segment engineering teams have helped us create efficiencies in the plant that allow us to maximize the utilization of our plant equipment, labor, and energy. Gross margin for the first aid and safety services segment increased 470 basis points from last year. Strong revenue growth continues to help expand our margins in this segment. Additionally, strong revenue performance in some of our high-margin recurring revenue products, like AED rentals, iWash stations, and Waterbrake, continues to provide a healthy revenue mix. Technology Investment and Smart Truck continues to provide route optimization and improved efficiency, and our First Aid Dedicated Distribution Center allows us to lower product costs. All of these contribute to improved gross margin. Selling administrative expenses increased 90 basis points from last year. The increase was driven by investments in selling resources, technology, and our management training program, as well as costs associated with an agreement in principle to settle the purported class action contract dispute brought by plaintiff City of Laurel. We determine that settling the claim is in the best interest of Cintas. The total monetary payment agreed to in the proposed settlement, including the 60 basis points recognized in this quarter, is $45 million.

Mike Hansen: We expect that the settlement cost will not impact our financials in future periods.

Mike Hansen: As Todd mentioned earlier, we generated strong cash flow for the year, our free cash flow increased 31, 6%.

Mike Hansen: This has allowed us to invest back into the business, which has resulted in capital expenditures of four 3% for the year.

Mike Hansen: Our investments include technology to grow the top line and expand margins.

Automation to improve efficiencies in our plants and additional processing capacity where needed.

Mike Hansen: We expect capital expenditures to finish around $4, two 5% of revenue for the year.

Operating income of $528 million compared to $446 $8 million last year.

Mike Hansen: Operating income as a percentage of revenue was 21, 6% in the third quarter of fiscal 'twenty four compared to 24% in last year's third quarter, an increase of 120 basis points.

Mike Hansen: Our effective tax rate for the third quarter was 19, 9% compared to 22, 1% last year.

Mike Hansen: The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock based compensation.

Mike Hansen: Net income for the third quarter was $397 6 million compared.

Mike Hansen: We expect that the settlement costs will not impact our financials in future periods. As Todd mentioned earlier, we generated strong cash flow. For the year, our free cash flow increased 31.6%. This has allowed us to invest back into the business, which has resulted in capital expenditures of 4.3% for the year. Our investments include technology to grow the top line and expand margins, automation to improve efficiencies in our plants, and additional processing capacity where needed. We expect capital expenditures to finish around 4.25% of revenue for the year. Operating income of $520.8 million compared to $446.8 million last year. Operating income as a percentage of revenue was 21.6% in the third quarter of fiscal 24 compared to 20.4% in last year's third quarter, an increase of 120 basis points. Our effective tax rate for the third quarter was 19.9%, compared to 22.1% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact of stock-based compensation.

Mike Hansen: Compared to $325 $8 million last year.

Mike Hansen: This year's third quarter diluted EPS of $3 84.

Mike Hansen: Compared to $3 14 last year, an increase of 22, 3%.

Mike Hansen: Todd provided our annual financial guidance related to the guidance. Please note the following fiscal.

Mike Hansen: Fiscal 'twenty for interest expense is expected to be $99 million compared to $109 5 million in fiscal 'twenty three predominantly as a result of less variable rate debt.

Mike Hansen: Our fiscal 'twenty four effective tax rate is expected to be 26%.

Mike Hansen: This compares to a rate of 24% in fiscal 'twenty three.

Mike Hansen: Our guidance does not include the impact of any future share buybacks as.

Mike Hansen: As I mentioned earlier, we expect that the proposed settlement will not impact our financials in future periods and accordingly, there is no impact on our guidance.

Mike Hansen: Guidance includes $17 $4 million of acquired revenue for the fourth quarter. This revenue includes the impact of the recently announced acquisitions during the third quarter.

That concludes our prepared remarks now we are happy to answer your questions from the analysts. Please ask just one question and a single follow up if needed. Thank you.

Mike Hansen: Net income for the third quarter was $397.6 million compared to $325.8 million last year. This year's third quarter diluted EPS was $3.84 compared to $3.14 last year, an increase of 22.3%. Todd provided our annual financial guidance. Related to the guidance, please note the following. Fiscal 24 interest expense is expected to be $99 million, compared to $109.5 million in fiscal 23, predominantly as a result of less variable rate

Mike Hansen: If you would like to ask a question. Please press star one on your telephone keypad now.

Mike Hansen: If you would like to ask a question. Please press star one on your telephone keypad now.

Mike Hansen: Please be prepared to ask your question when prompted.

Mike Hansen: You will also be allowed to ask one follow up question.

Mike Hansen: Once again, if you'd like to ask a question. Please press star one on your phone now.

Speaker Change: We will now take our first question from.

Speaker Change: Bye now.

Speaker Change: From Barclays Capital. Please go ahead manav.

Manav: Hi, Good morning. This is roni Kennedy out from an off thank you for taking my questions can I just ask with regards to the strong margin performance could you kind of.

Mike Hansen: Our fiscal 24 effective tax rate is expected to be 20.6 percent. This compares to a rate of 20.4% in fiscal 23. Our guidance does not include the impact of any future share buyback.

Manav: <unk> categorized contributions from whether it's the smart trough the six Sigma the engineering extracting of inefficiencies, but also how we should think about those as drivers in the context of the sustainability of the margins. If you could elaborate on that please.

Mike Hansen: As I mentioned earlier, we expect that the proposed settlement will not impact our financials in future periods, and accordingly, there is no impact on our guidance, which includes $17.4 million of acquired revenue for the fourth quarter. This revenue includes the impact of the recently announced acquisitions during the third quarter. That concludes our prepared remarks. Now we are happy to answer your questions from the analysts. Please ask just one question and a single follow-up, if needed. Thank you, I would like to ask a question. Please press star 1 on your telephone keypad now.

Speaker Change: Thank you for your question Ronan.

When you think about the gross margin.

Speaker Change: It really starts with our culture, how we run our business the expectations we have.

Speaker Change: The intensity of which we run it and the focus there.

Speaker Change: That being said there is many many inputs to those numbers certainly our investments that we're making are paying off by the investments in smart truck the investments in our six Sigma team.

Speaker Change: Engineering team.

Operator: Good day, everyone, and welcome to the Cintas Corporation announcement of fiscal 2024 third quarter earnings release conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jared Mattingly, Vice President and Treasurer, Investor Relations. Please go ahead, sir.

Operator: Good day, everyone, and welcome to the Cintas Corporation announcement of fiscal 2024 third quarter earnings release conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jared Mattingly, Vice President and Treasurer, Investor Relations. Please go ahead, sir.

Speaker Change: The investment in our supply chain organization are all.

Speaker Change: Helping us to improve those results. So I can't give you an exact number with.

Operator: Please be prepared to ask your question when prompted. You will also be allowed to ask one follow-up question. Once again, if you'd like to ask a question, please press star 1 on your phone now. We will now take our first question from Manav Patnaik from Barclays Capital. Please go ahead, Manav. Hi, good morning. This is Ronan Kennedy. I'm from Barclays.

Speaker Change: A smart truck gave us X basis points what have you.

Speaker Change: Theres, many inputs and we're pleased with the investments that we've made and we're pleased with the leadership and the.

Jared Mattingly: 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. We will discuss our fiscal 2024 third quarter results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filing with the Securities and Exchange Commission. I will now turn the call over to Todd.

Jared Mattingley: 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. We will discuss our fiscal 2024 third quarter results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filing with the Securities and Exchange Commission. I will now turn the call over to Todd.

Speaker Change: The culture of the organization and where their focus on driving those results, providing a better experience for our customers and providing a better experience for our employee partners.

Ronan Kennedy: Thank you for taking my questions. Can I just ask, with regard to the strong margin performance, can you kind of assess or characterize the contributions from whether it's the smart truck, six sigma, engineering, the extraction of inefficiencies, but also how we should think about those as drivers in the context of the sustainability of the margins? If you could elaborate on that, please. Thank you for your question, Ronan. It really starts with our culture, how we run our business, the expectations we have, the intensity of which we run it, and the focus. That being said, there are many, many inputs to those numbers.

Speaker Change: That's helpful. Thank you and then with regards to obviously strong performance on the top line as well can you just talk about the.

Speaker Change: Contributions from new business and penetration versus expectations, how pricing is trending and also retention. Please.

Speaker Change: Yes, good question.

Speaker Change: So when we think about our growth.

Speaker Change: Again, there is many.

Speaker Change: Contributing factors, we really like where we are from a from a growth standpoint.

Speaker Change: <unk> growth certainly we like the acquisitions that we've made really good businesses.

Todd Schneider: Thank you, Jared. Due to the outstanding dedication and execution of our employees, whom we call partners, we delivered very strong results for our third quarter. Total revenue for the third quarter grew 9.9% to $2.41 billion. The revenue dollars represent record quarterly revenue. We are pleased with the performance of each of our businesses. Our revenue growth remains robust, and we have good momentum in the business. New business remains strong. Our sales team continues to operate at a high level. We are seeing broad success across the many verticals, particularly within our focus verticals, as well as our cross-selling efforts and penetration of new products and services within our existing customers. Retention levels are strong and remain at very attractive levels. Our strong revenue growth flowed through to our bottom line.

Todd Schneider: Thank you, Jared. Due to the outstanding dedication and execution of our employees, whom we call partners, we delivered very strong results for our third quarter. Total revenue for the third quarter grew 9.9% to $2.41 billion. The revenue dollars represent record quarterly revenue. We are pleased with the performance of each of our businesses. Our revenue growth remains robust, and we have good momentum in the business. New business remains strong. Our sales team continues to operate at a high level. We are seeing broad success across the many verticals, particularly within our focus verticals, as well as our cross-selling efforts and penetration of new products and services within our existing customers. Retention levels are strong and remain at very attractive levels. Our strong revenue growth flowed through to our bottom line.

Speaker Change: But when we think about the the components of it.

Speaker Change: Certainly pricing is a component, but it is not the majority of the majority of our growth is from volume growth.

Speaker Change: And that's that's really pleasing to us because we want to be able to grow our business in that manner. Our pricing is has moderated it's much closer to historical and Thats exactly what we have planned throughout the year, where we're really benefiting us from our new business. Our team is performing at a high level.

Todd M. Schneider: Certainly, the investments that we are making are paying off. The investments in Smart Truck, the investments in our Sigma team, the investments in our engineering team, and the investments in our supply chain organization are all helping us to improve those results. So, I can't give you an exact number with, hey, Smart Truck gave us x basis points, what have you. There are many inputs, and we're pleased with the investments that we've made, and we're pleased with the leadership and the culture of the organization where they're focused on driving those results, providing a better experience for our customers, and providing a better experience for our employee partners. That's helpful.

Speaker Change: <unk>.

Speaker Change: Our service organization is our retention levels are very attractive.

Speaker Change: Then we are.

Speaker Change: We're cross selling appropriately.

Speaker Change: We've had great breadth of products and services that we want to make sure that our customers and our prospects are aware of and so we're benefiting kind of across all not kind of we are benefiting across all of those areas.

Todd Schneider: Gross margin for the third quarter increased 220 basis points to a record 49.4%, an increase of 14.9%. Operating income was a record 21.6%, an increase of 16.6%. Diluted EPS grew a robust 22.3% to $3.84. Cash flow remains strong. Net cash provided by operating activities in the third quarter grew 32.8% over the prior year. In the third quarter, we continued to invest in our businesses through capital expenditures of $107 million. During the third quarter, we made acquisition purchases of $111 million. On 15 March 2024, we paid shareholders $137.6 million in quarterly dividends, an increase of 17.1% from the amount paid the previous March. Our strong cash flow gives us flexibility to choose how we deploy our capital. Through three quarters, we have deployed over $1.4 billion of capital across our priorities of capital expenditures, acquisitions, dividends, and buybacks.

Gross margin for the third quarter increased 220 basis points to a record 49.4%, an increase of 14.9%. Operating income was a record 21.6%, an increase of 16.6%. Diluted EPS grew a robust 22.3% to $3.84. Cash flow remains strong. Net cash provided by operating activities in the third quarter grew 32.8% over the prior year. In the third quarter, we continued to invest in our businesses through capital expenditures of $107 million. During the third quarter, we made acquisition purchases of $111 million. On 15 March 2024, we paid shareholders $137.6 million in quarterly dividends, an increase of 17.1% from the amount paid the previous March. Our strong cash flow gives us flexibility to choose how we deploy our capital. Through three quarters, we have deployed over $1.4 billion of capital across our priorities of capital expenditures, acquisitions, dividends, and buybacks.

Speaker Change: And they're all big contributing factors, but we like where we are and we like how we're growing the business.

Todd M. Schneider: And then with regard to, you know, obviously strong performance on the top line as well. Can you just talk about the contributions from new business and penetration versus expectations, how pricing is trending, and also retention, please? Yeah, good question.

Speaker Change: And our next question comes from Joshua Chen from UBS. Please go ahead Joshua.

Joshua K. Chan: Hi, Good morning, Mike Thanks for taking my questions.

Joshua K. Chan: Could you talk about the I guess piggybacking on the prior question could you talk about the sustainability.

Todd M. Schneider: So when we think about our growth, again, there are many contributing factors. We really like where we are from a growth standpoint, internal growth. Certainly, we like the acquisitions that we've made, really good businesses. But when we think about the components of it, certainly pricing is a component, but it is not the majority.

Joshua K. Chan: Growth that Youre seeing now that pricing has moderated to a historical level.

Joshua K. Chan: Do you see the current run rate beginning based on what Youre seeing out there talking to customers and retention rate dynamics and all that.

Yes, Josh good morning.

Joshua K. Chan: Again, we like where we are from a growth standpoint.

Todd M. Schneider: The majority of our growth is from volume growth, and that's really pleasing to us because we want to be able to grow our business in that manner. Pricing has moderated, and it's much closer to historical levels, and that's exactly what we had planned throughout the year. Where we're really benefiting is from our new business. Our team is performing at a high level.

Joshua K. Chan: The exciting thing is there's we service or <unk>.

Joshua K. Chan: <unk> over 1 million customers, they are 16 million businesses and.

Speaker Change: In North America. So, we're we think theres an incredible runway for us.

Speaker Change: So we're selling to about 60% of our new accounts come from no programmers and that is continuing so we're we're seeing great results from talking to prospects and showing them a better way to do it than they are today.

Todd M. Schneider: Our service organization, the retention levels are very attractive, and then we're cross-selling appropriately. We have a great breadth of products and services that we want to make sure that our customers and our prospects are aware of, and so we're benefiting kind of across all, not just kind of, but we are benefiting across all of those areas, and they're all big contributing factors. We like where we are, and we like how we're growing the business. And our next question. Please go ahead, Joshua.

Todd Schneider: I would like to thank our employees, whom we call partners, for their continued focus on our customers, our shareholders, and each other. Before turning the call over to Mike to provide details of our third quarter results, I'll provide our updated financial expectations for our fiscal year. We are increasing our financial guidance. We are raising our annual revenue expectations from a range of $9.48 to 9.56 billion to a range of $9.57 to 9.6 billion, a total growth rate of 8.6% to 8.9%. Also, we are raising our annual diluted EPS expectations from a range of $14.35 to 14.65 to a range of $14.80 to 15.00, a growth rate of 13.9% to 15.5%. Mike.

I would like to thank our employees, whom we call partners, for their continued focus on our customers, our shareholders, and each other. Before turning the call over to Mike to provide details of our third quarter results, I'll provide our updated financial expectations for our fiscal year. We are increasing our financial guidance. We are raising our annual revenue expectations from a range of $9.48 to 9.56 billion to a range of $9.57 to 9.6 billion, a total growth rate of 8.6% to 8.9%. Also, we are raising our annual diluted EPS expectations from a range of $14.35 to 14.65 to a range of $14.80 to 15.00, a growth rate of 13.9% to 15.5%. Mike.

Speaker Change: Now that doesn't necessarily mean that that is new spend they might be spending that money somehow is just we're redirecting it to do a better smarter faster in some cases, even less expensive than the way they're doing it. So so we think the runway is very attractive because of.

Speaker Change: The number of prospects that are out there.

Our our business or excuse me our.

Joshua K. Chan: Hi, good morning, Mike. Thanks for taking my questions. Could you talk about, I guess, piggybacking on the prior question, could you talk about the sustainability of growth that you're seeing now that pricing has moderated to a historical level? Do you see the current run rate staining based on what you're seeing out there talking to customers and retention rate dynamics and all that? Yeah, Josh. Good morning.

Speaker Change: Buying proposition resonating with with prospects and customers. So we so we expect that wed like where we are from a growth standpoint, as I mentioned, we like how we're growing and we want to continue in that manner.

Speaker Change: That's great color. Thank you.

Speaker Change: My follow up.

Speaker Change: You've talked about incremental margins being in the 20% to 30% range historically and now you're sort of at the higher end of that in recent years.

Jared Mattingly: Thanks, Todd, and good morning. Our Fiscal 2024 third quarter revenue was $2.41 billion compared to $2.19 billion last year. The organic revenue growth rate, adjusted for acquisitions, foreign currency exchange rate fluctuations, and a difference in the number of workdays was 7.7%. Total growth was positively impacted by 170 basis points due to the extra workday. We remind you, as you update your models for next fiscal year, that there will be two less workdays compared to this current fiscal year. Each quarter next year will have 65 workdays, which means the first and the fourth quarters will each have one less workday than this fiscal year. Organic growth by business was 7.1% for uniform rental and facility services, 11.5% for first aid and safety services, 13.9% for fire protection services, and uniform direct sale was down 3.9%.

Mike Hansen: Thanks, Todd, and good morning. Our Fiscal 2024 third quarter revenue was $2.41 billion compared to $2.19 billion last year. The organic revenue growth rate, adjusted for acquisitions, foreign currency exchange rate fluctuations, and a difference in the number of workdays was 7.7%. Total growth was positively impacted by 170 basis points due to the extra workday. We remind you, as you update your models for next fiscal year, that there will be two less workdays compared to this current fiscal year. Each quarter next year will have 65 workdays, which means the first and the fourth quarters will each have one less workday than this fiscal year. Organic growth by business was 7.1% for uniform rental and facility services, 11.5% for first aid and safety services, 13.9% for fire protection services, and uniform direct sale was down 3.9%.

Speaker Change: The right level of incremental margins going forward.

Speaker Change: On revenue growth.

Speaker Change: That comes up from bed.

Todd M. Schneider: You know, again, we like where we are from a growth standpoint. You know, the exciting thing is, there's, we service, you know, a little over a million customers; there are 16 million businesses in North America. So we're, we think there's an incredible runway for us. You know, so we're selling to about 60% of our new accounts come from no programmers. And that is continuing. So we're seeing great results from talking to prospects and showing them a better way to do it than they are today. Now, that doesn't necessarily mean that that is new spending; they might be spending that money somehow, it's just we're redirecting it to do it better, smarter, faster, and, in some cases, even less expensive than the way they're doing it.

Speaker Change: Yes.

Speaker Change: We recognize the math.

Speaker Change: 20% to 30% incremental margins.

Speaker Change: We need to be the higher end of that in order to continue.

Speaker Change: Continue to improve our margins.

Speaker Change: Sure.

Speaker Change: And we're focused on doing that we're doing so by extracting out those inefficiencies.

Speaker Change: Really good leverage on our revenue growth.

Speaker Change: So many many ways, but you are running a business is not linear so we know theres going to be some puts and takes and some quarters will be higher and some won't be as high but but.

Speaker Change: But in generally speaking, we like that range and I prefer the higher end than the lower end that for sure.

Speaker Change: And our next question comes from Heather <unk> from Bank of America. Please go ahead Heather.

Heather: Hi, Thank you.

Todd M. Schneider: So, we think the runway is very attractive because of the number of prospects that are out there. And, you know, our business, or excuse me, our buying proposition is responding well with prospects and customers. So we, we expect that we'd like where we are from a growth standpoint. As I mentioned, we like how we're growing. And we want to continue in that manner. That's a great color.

Heather: Hoping you could just talk about the M&A you did this quarter and what attracted you to the asset and then an update on how to think about M&A going forward.

Jared Mattingly: Gross margin for the third quarter of fiscal 2024 was $1.19 billion compared to $1.03 billion last year, an increase of 14.9%. Gross margin as a percent of revenue was 49.4% for the third quarter of fiscal 2024 compared to 47.2% last year, an increase of 220 basis points. Strong volume growth, technology improvements, and continued operational efficiencies helped generate this strong gross margin. Gross margin percentage by business was 48.8% for uniform rental and facility services, 56.3% for first aid and safety services, 48.8% for fire protection services, and 41.1% for uniform direct sale. Gross margin for the uniform rental and facility services segment increased 170 basis points from last year. Energy was a tailwind of 40 basis points. In addition, we continue to leverage our strong revenue growth, our technology investments, and extract inefficiencies out of the business through our Six Sigma and engineering teams.

Gross margin for the third quarter of fiscal 2024 was $1.19 billion compared to $1.03 billion last year, an increase of 14.9%. Gross margin as a percent of revenue was 49.4% for the third quarter of fiscal 2024 compared to 47.2% last year, an increase of 220 basis points. Strong volume growth, technology improvements, and continued operational efficiencies helped generate this strong gross margin. Gross margin percentage by business was 48.8% for uniform rental and facility services, 56.3% for first aid and safety services, 48.8% for fire protection services, and 41.1% for uniform direct sale. Gross margin for the uniform rental and facility services segment increased 170 basis points from last year. Energy was a tailwind of 40 basis points. In addition, we continue to leverage our strong revenue growth, our technology investments, and extract inefficiencies out of the business through our Six Sigma and engineering teams.

Heather: Yes.

Speaker Change: I'm certainly happy to start Mike regarding Heather good morning, and regarding M&A.

Speaker Change: So.

Speaker Change: It's an important component for us.

Mike Hansen: Thank you. And for my follow-up. We talked about incremental margins being in the 20-30% range historically, and now you're sort of at the higher end of that in recent years. Is this the right level of incremental margins going forward on revenue growth that comes ahead? Yeah, well, we recognize the math of, you know, 20 to 30% incremental margins, and we need to be on the higher end of that in order to continue to improve our margins. And, and we're focused on doing that. We're doing so by extracting those inefficiencies and getting really good leverage on our revenue growth in so many, many ways.

Speaker Change: Certainly cannot pace.

Speaker Change: M&A.

Speaker Change: So they kind of come as they do and it takes two to dance and.

Speaker Change: But I can tell you the.

Speaker Change: The two that we announced this past quarter are great businesses first off.

Speaker Change: Really good operators.

Speaker Change: Really attractive businesses.

Speaker Change: In the case of the the one in Kentucky.

Speaker Change: Abided us for some needed capacity in that region of the country.

Speaker Change: And in addition to the added capacity, we were able to absorb that volume into seven of our facilities. So some really nice synergies allows us to as we're closer to the customers to spend more time with the customer and less time driving so that's important to us in the case of the acquisition in the M&A and Penn.

Heather Nicole Balsky: But you know, running a business is not linear. And so we know there's going to be some puts and takes, and some quarters will be higher, and some won't be as high. But, generally speaking, we like that range. And I prefer the higher end than the lower end, that's for sure.

Speaker Change: Sylvania.

We did not acquire any additional capacity, but in that case, we were able to absorb it into 16 of our facilities. So again.

Jared Mattingly: Our technology investments have allowed us to improve garment sharing among our plants, which improves material cost. Our SmartTruck technology allows us to improve our route efficiencies and provide route densities to our existing routes, which positively impacts truck purchasing, labor, and energy. Our Six Sigma and engineering teams have helped us create efficiencies in the plant that allow us to maximize the utilization of our plant equipment, labor, and energy. Gross margin for the First Aid and Safety Services segment increased 470 basis points from last year. Strong revenue growth continues to help expand our margins in this segment. Strong revenue performance in some of our high-margin recurring revenue products like AED rentals, Eyewash Stations, and WaterBreak continues to provide a healthy revenue mix. Technology investment in SmartTruck continues to provide route optimization and improved efficiencies.

Our technology investments have allowed us to improve garment sharing among our plants, which improves material cost. Our SmartTruck technology allows us to improve our route efficiencies and provide route densities to our existing routes, which positively impacts truck purchasing, labor, and energy. Our Six Sigma and engineering teams have helped us create efficiencies in the plant that allow us to maximize the utilization of our plant equipment, labor, and energy. Gross margin for the First Aid and Safety Services segment increased 470 basis points from last year. Strong revenue growth continues to help expand our margins in this segment. Strong revenue performance in some of our high-margin recurring revenue products like AED rentals, Eyewash Stations, and WaterBreak continues to provide a healthy revenue mix. Technology investment in SmartTruck continues to provide route optimization and improved efficiencies.

Speaker Change: Attractive synergies.

Speaker Change: More time with the customer less time driving and.

Speaker Change: In those cases.

Speaker Change: We also then get to too.

Speaker Change: To talk to our new customers about the broader breadth of products and services that we have so we think it's overall, it's very attractive.

Todd M. Schneider: Heather Balsky from Bank of America, please go ahead, Heather. Hi, thank you. I was hoping you could just talk about the M&A you did this quarter, kind of what attracted you to the assets, and then an update on how you think about M&A going forward. I'm certainly happy to start, Mike. Regarding Heather, good morning, and regarding M&A. You certainly cannot pace M&A, so they kind of come as they do, and it takes two to dance, but I can tell you the two that we announced this past quarter are great businesses. First off, really good operators, really attractive businesses. In the case of the one in Kentucky, it provided us with some needed capacity in that region of the country, and in addition to the added capacity, we were able to absorb that volume into seven of our facilities. So some really nice synergies allow us, as we're closer to the customers, to spend more time with the customer and less time driving, so that's important to us.

Speaker Change: As I mentioned it takes two to dance you can't pace it but in this case. These were two really attractive businesses, great operators that really made sense for us maybe maybe a couple a couple of added points.

Speaker Change: As Todd said these are great acquisitions, and we've had a handful of them. This fiscal year each of the two that Todd talked about.

Less than $20 million in annual revenue was $17 4 million that we gave you.

Speaker Change: In our prepared remarks.

Includes the impact of those but keeping in mind, we've made acquisitions, all year long and and so that fourth quarter impact would include all of the acquisitions. We've made throughout the last 12 months, just something to keep in mind as you're thinking about our fourth quarter.

Jared Mattingly: Our first aid dedicated distribution center allows us to lower product costs. All of these contribute to improved gross margins. Selling and administrative expenses increased 90 basis points from last year. The increase was driven by investments in selling resources, technology, and our management training program, as well as costs associated with an agreement in principle to settle the purported class action contract dispute brought by Plaintiff City of Laurel. We determined that settling the claim is in the best interest of Cintas. The total monetary payment agreed to in the proposed settlement, including the 60 basis points recognized in this quarter, is $45 million. We expect that the settlement costs will not impact our financials in future periods. As Todd mentioned earlier, we generated strong cash flow. For the year, our free cash flow increased 31.6%.

Our first aid dedicated distribution center allows us to lower product costs. All of these contribute to improved gross margins. Selling and administrative expenses increased 90 basis points from last year. The increase was driven by investments in selling resources, technology, and our management training program, as well as costs associated with an agreement in principle to settle the purported class action contract dispute brought by Plaintiff City of Laurel. We determined that settling the claim is in the best interest of Cintas. The total monetary payment agreed to in the proposed settlement, including the 60 basis points recognized in this quarter, is $45 million. We expect that the settlement costs will not impact our financials in future periods. As Todd mentioned earlier, we generated strong cash flow. For the year, our free cash flow increased 31.6%.

Speaker Change: Thank you I appreciate it.

Speaker Change: And our next question comes from Andy Wittmann from RW Baird. Please go ahead Andy.

Todd M. Schneider: In the case of the acquisition in the M&A in Pennsylvania, we did not acquire any additional capacity, but in that case, we were able to absorb it into 16 of our facilities, so again, attractive synergies, more time with the customer, less time driving, and in those cases, we also then get to talk to our new customers about the broader breadth of products and services that we have, so we think it's very attractive. As I mentioned Maybe a couple of added points. As Todd said, these are great acquisitions, and we've made a handful of them this fiscal year. Each of the two that Todd talked about had less than $20 million in annual revenue.

Andrew John Wittmann: Hello, Andy is your line muted.

Andrew John Wittmann: I'm sorry about that.

Andrew John Wittmann: Mike I just wanted to build on that last question.

Andrew John Wittmann: Where you were commenting on the M&A contribution is there any.

Andrew John Wittmann: In your fourth quarter guidance is there a change in your fundamental outlook for the company recognizing that it is up now somewhat on these two somewhat larger acquisitions that you did.

Jared Mattingly: This has allowed us to invest back into the business, which has resulted in capital expenditures of 4.3% for the year. Our investments include technology to grow the top line and expand margins, automation to improve efficiencies in our plants, and additional processing capacity where needed. We expect capital expenditures to finish around 4.25% of revenue for the year. Operating income of $520.8 million compared to $446.8 million last year. Operating income as a percentage of revenue was 21.6% in the third quarter of fiscal 2024 compared to 20.4% in last year's third quarter, an increase of 120 basis points. Our effective tax rate for the third quarter was 19.9% compared to 22.1% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the third quarter was $397.6 million compared to $325.8 million last year.

This has allowed us to invest back into the business, which has resulted in capital expenditures of 4.3% for the year. Our investments include technology to grow the top line and expand margins, automation to improve efficiencies in our plants, and additional processing capacity where needed. We expect capital expenditures to finish around 4.25% of revenue for the year. Operating income of $520.8 million compared to $446.8 million last year. Operating income as a percentage of revenue was 21.6% in the third quarter of fiscal 2024 compared to 20.4% in last year's third quarter, an increase of 120 basis points. Our effective tax rate for the third quarter was 19.9% compared to 22.1% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the third quarter was $397.6 million compared to $325.8 million last year.

Speaker Change: And then as an addendum to that.

Speaker Change: Was this.

Speaker Change: 60 basis points or $45 million legal settlement that you just talked about was that included and considered in your initial guidance or are you absorbing that.

Speaker Change: And still able to raise your guidance here.

Mike Hansen: The $17.4 million that we gave you in our prepared remarks includes the impact of those acquisitions, but keep in mind, we've made acquisitions all year long. And so that fourth quarter impact would include all of the acquisitions we've made throughout the last 12 months. Just something to keep in mind as you're thinking about our fourth quarter. Thank you. I appreciate it. And our next question comes from Andy Wittmann from R.W. Baird. Please go ahead, Andy. Hello, Andy. Is your line muted? I'm sorry about that.

Speaker Change: Yes so.

Speaker Change: Andy I already forgot your first part of the question.

Speaker Change: What was the first part.

Speaker Change: First question is your fundamental outlook rep business unchanged.

Speaker Change: Your fundamental outlook unchanged for <unk> or is there a change.

Speaker Change: I apologize.

Andrew John Wittmann: No, it's Todd as Todd talked about our market.

Andrew John Wittmann: Our market remains very large the momentum in the business remains good.

Andrew John Wittmann: The the adoption remains good and the guide for the fourth quarter is right, where we want to be.

Andrew John Wittmann: In terms of sort of the stated profile of growth that we want to have.

Andrew John Wittmann: Mike, I just want to build on that last question, where you were commenting on the M&A contribution. Is there any change in your fundamental outlook for the company in your fourth quarter guidance, recognizing that it is up now somewhat on these two somewhat larger acquisitions that you did? And then, as an addendum to that, was this 60 basis points or $45 million legal settlement that you just talked about included and considered in your initial guidance, or are you absorbing that and still able to raise your guidance? Yeah, so, Andy, I already forgot your first part of the question. What was the first part?

Andrew John Wittmann: And so all of that put together with not really any change in customer behavior would mean.

Andrew John Wittmann: No continued performance like we've seen and we continue to like the momentum of the business.

Jared Mattingly: This year's third quarter diluted EPS of $3.84 compared to $3.14 last year, an increase of 22.3%. Todd provided our annual financial guidance. Related to the guidance, please note the following. Fiscal 2024 interest expense is expected to be $99 million compared to $109.5 million in fiscal 2023, predominantly as a result of less variable rate debt. Our fiscal 2024 effective tax rate is expected to be 20.6%. This compares to a rate of 20.4% in fiscal 2023. Our guidance does not include the impact of any future share buybacks. As I mentioned earlier, we expect that the proposed settlement will not impact our financials in future periods, and accordingly, there's no impact on our guidance. Guidance includes $17.4 million of acquired revenue for the fourth quarter. This revenue includes the impact of the recently announced acquisitions during the third quarter. That concludes our prepared remarks.

This year's third quarter diluted EPS of $3.84 compared to $3.14 last year, an increase of 22.3%. Todd provided our annual financial guidance. Related to the guidance, please note the following. Fiscal 2024 interest expense is expected to be $99 million compared to $109.5 million in fiscal 2023, predominantly as a result of less variable rate debt. Our fiscal 2024 effective tax rate is expected to be 20.6%. This compares to a rate of 20.4% in fiscal 2023. Our guidance does not include the impact of any future share buybacks. As I mentioned earlier, we expect that the proposed settlement will not impact our financials in future periods, and accordingly, there's no impact on our guidance. Guidance includes $17.4 million of acquired revenue for the fourth quarter. This revenue includes the impact of the recently announced acquisitions during the third quarter. That concludes our prepared remarks.

As it relates to your second question.

Andrew John Wittmann: 60 basis points that was not contemplated in the initial guide from from the beginning of the year and that was simply absorbed.

Andrew John Wittmann: Hi.

Andrew John Wittmann: Well in this third quarter the basis points simply absorbed.

Speaker Change: Okay. Thank you that's all my questions for today.

Speaker Change: And our next question comes from George Tong from Goldman Sachs. Please go ahead George.

Keen Fai Tong: Hi, Thanks. Good morning can you provide an update on the external selling environment, including how client budgets and sales cycles are performing.

Mike Hansen: The first question is whether your fundamental outlook for business remains unchanged? Yeah, yeah yeah. Is your fundamental outlook unchanged for 4Q, or is there a change? Yeah, I apologize.

Keen Fai Tong: I'm certainly happy to start.

Mike Hansen: No, as Todd talked about, our market remains very large, the momentum in the business remains good, adoption remains good, and the guide for the fourth quarter is right where we want to be in terms of sort of the stated profile of growth that we want to have. And so, all of that put together with not really any change in customer behavior would mean, no, continued performance like we've seen, and we continue to like the momentum of the business. As it relates to your second question, the 60 basis points, that was not contemplated in the initial guide from the beginning of the year, and that was simply absorbed through, well, in this third quarter, the C basis points were simply absorbed. Okay, thank you.

Keen Fai Tong: George Good morning.

Keen Fai Tong: We haven't really seen much of a change in sales.

Keen Fai Tong: Sales cycle.

Keen Fai Tong: As far as our.

Keen Fai Tong: The interest in our products and services remains remains good.

Keen Fai Tong: We're always continuing or continuing to invest in new products and services.

Keen Fai Tong: Tweaks I guess.

Keen Fai Tong: To them to.

Jared Mattingly: Now we are happy to answer your questions from the analysts. Please ask just one question and a single follow-up if needed. Thank you.

Now we are happy to answer your questions from the analysts. Please ask just one question and a single follow-up if needed. Thank you.

Keen Fai Tong: To make it as attractive to the to the prospects and the customers as possible but.

Keen Fai Tong: We're not seeing a change momentum continues to be good.

Operator: If you would like to ask a question, please press star one on your telephone keypad now. Please be prepared to ask your question when prompted. You will also be allowed to ask one follow-up question. Once again, if you'd like to ask a question, please press star one on your phone now. We will now take our first question from Manav Patnaik from Barclays Capital. Please go ahead, Manav.

Operator: If you would like to ask a question, please press star one on your telephone keypad now. Please be prepared to ask your question when prompted. You will also be allowed to ask one follow-up question. Once again, if you'd like to ask a question, please press star one on your phone now. We will now take our first question from Manav Patnaik from Barclays Capital. Please go ahead, Manav.

Keen Fai Tong: Outsourcing still resonates.

Keen Fai Tong: And.

Keen Fai Tong: We're seeing as I mentioned earlier the no program market is still really really large and.

Keen Fai Tong: They come pretty darn proficient at.

Keen Fai Tong: And.

Presenting to those.

Keen Fai Tong: Prospects to help them run a better business and we help them with all the products and services, we provide and as I mentioned, it's not always new money.

Keen Fai Tong: That's all my questions. And our next question comes from George Tong from Goldman Sachs. Please go ahead, George.

John Ronan Kennedy: Hi, good morning. This is Ronan Kennedy. I'm from Manav. Thank you for taking my questions. Can I just ask with regards to the strong margin performance, can you kind of assess or characterize the contributions from whether it's the SmartTruck, the Six Sigma, the engineering, the extracting of inefficiencies, but also how we should think about those as drivers in the context of the sustainability of the margins? If you could elaborate on that, please.

Ronan Kennedy: Hi, good morning. This is Ronan Kennedy. I'm from Manav. Thank you for taking my questions. Can I just ask with regards to the strong margin performance, can you kind of assess or characterize the contributions from whether it's the SmartTruck, the Six Sigma, the engineering, the extracting of inefficiencies, but also how we should think about those as drivers in the context of the sustainability of the margins? If you could elaborate on that, please.

Keen Fai Tong: Usually they are spending something is just redirecting it to us to do it better faster smarter cheaper type thing.

Keen Fai Tong: Hi, thanks. Good morning. Can you provide an update on the external selling environment, including how client budgets and sales cycles are performing? Yeah, I'm certainly happy to start. George, good morning.

Speaker Change: Got it that's helpful. And then separately can you talk a little bit about your focus verticals, including healthcare how much additional runway.

Todd M. Schneider: We haven't really seen much of a change in the sales cycle. You know, as far as our, interest in our products and services remains good. We're always continuing, or we're continuing to invest in new products and services, making tweaks, I guess, to them to make them as attractive to prospects and customers as possible. But, you know, we're not seeing a change.

Is there for these focused verticals to serve as a tailwind to organic revenue growth.

Todd Schneider: Thank you for your question, Ronan. When you think about the gross margin, it really starts with our culture, how we run our business, the expectations we have, the intensity of which we run it, and the focus. That being said, there's many, many inputs to those numbers. Certainly, our investments that we are making are paying off. The investments in SmartTruck, the investments in our Six Sigma team, the investment in our engineering team, the investment in our supply chain organization are all helping us to improve those results. So I can't give you an exact number with, hey, SmartTruck gave us X basis points, what have you.

Todd Schneider: Thank you for your question, Ronan. When you think about the gross margin, it really starts with our culture, how we run our business, the expectations we have, the intensity of which we run it, and the focus. That being said, there's many, many inputs to those numbers. Certainly, our investments that we are making are paying off. The investments in SmartTruck, the investments in our Six Sigma team, the investment in our engineering team, the investment in our supply chain organization are all helping us to improve those results. So I can't give you an exact number with, hey, SmartTruck gave us X basis points, what have you.

Speaker Change: Yes, so George so.

Speaker Change: It's in our internal growth.

Speaker Change: So.

Speaker Change: It is helping us that focus is helping us to organize around the customer and provide the products and services that they want.

Speaker Change: And that is it's been a good strategy for us over the past number of years. So we like all the verticals were in we find them very attractive.

Todd M. Schneider: Momentum continues to be good, and outsourcing still resonates. And we're seeing, as I mentioned earlier, the no-program market is still really, really large, and we've become pretty darn proficient at presenting to those prospects to help them run a better business. And we help them with all the products and services we provide. And, as I mentioned, it's not always new money. Usually, they're spending something. It's just redirecting it to us to do it better, faster, smarter, and cheaper. I got it.

Speaker Change: Whether it's health care hospitality.

Speaker Change: Education stay.

Speaker Change: State and local government business, its all attractive and we're organized around it and.

Speaker Change: And.

Speaker Change: Sure.

Speaker Change: Our value proposition is resonating.

Speaker Change: Resonating with them.

Todd Schneider: There's many inputs, and we're pleased with the investments that we've made, and we're pleased with the leadership and the culture of the organization where they're focused on driving those results, providing a better experience for our customers, and providing a better experience for our employee partners.

There's many inputs, and we're pleased with the investments that we've made, and we're pleased with the leadership and the culture of the organization where they're focused on driving those results, providing a better experience for our customers, and providing a better experience for our employee partners.

And our next question comes from Tim Mulrooney from William Blair. Please go ahead Tim.

Looming: Hi, Good morning. This is looming found on for Tim Mulrooney, Thanks for taking our questions today.

Looming: So I wanted to ask two.

Tim Mulrooney: Encore state I'll start with first one and then move onto the second effort, but firstly and safety has been grown at a double digit rate for quite a few quarters in a row now.

Todd M. Schneider: That's helpful. And then separately, can you talk a little bit about your focus verticals, including health care? How much additional runway is there for these focus verticals to serve as a tailwind to organic revenue growth? Yeah, so George, so it's, it's in our internal growth. So it is helping us, that focus is helping us, you know, to organize around the customer and provide the products and services that they want. And, and that has been a good strategy for us over the past number of years. So we like all the verticals we're in; we find them very attractive.

John Ronan Kennedy: That's helpful. Thank you. And then with regards to obviously strong performance on the top line as well, can you just talk about the contributions from new business and penetration versus expectations, how pricing is trending, and also retention, please?

Ronan Kennedy: That's helpful. Thank you. And then with regards to obviously strong performance on the top line as well, can you just talk about the contributions from new business and penetration versus expectations, how pricing is trending, and also retention, please?

Looming: I know Theres a penetration story here with your established base of uniform customers, but I'm also curious of new product introductions are an important driver of this growth.

Looming: How much of your growth in that segment is from new product introductions.

Todd Schneider: Yeah, good question. So when we think about our growth, again, there's many contributing factors. We really like where we are from a growth standpoint, the internal growth. Certainly, we like the acquisitions that we've made. They're really good businesses. But when we think about the components of it, certainly pricing is a component, but it is not the majority. The majority of our growth is from volume growth, and that's really pleasing to us because we want to be able to grow our business in that manner. Pricing has moderated, and it's much closer to historical, and that's exactly what we had planned throughout the year. Where we're really benefiting is from our new business. Our team is performing at a high level. Our service organization is; the retention levels are very attractive. And then we're cross-selling appropriately.

Todd Schneider: Yeah, good question. So when we think about our growth, again, there's many contributing factors. We really like where we are from a growth standpoint, the internal growth. Certainly, we like the acquisitions that we've made. They're really good businesses. But when we think about the components of it, certainly pricing is a component, but it is not the majority. The majority of our growth is from volume growth, and that's really pleasing to us because we want to be able to grow our business in that manner. Pricing has moderated, and it's much closer to historical, and that's exactly what we had planned throughout the year. Where we're really benefiting is from our new business. Our team is performing at a high level. Our service organization is; the retention levels are very attractive. And then we're cross-selling appropriately.

Speaker Change: Good morning, Luke.

Luke: We really like the first aid business.

Luke: Part of our culture is continued innovation. So we're always looking at.

Luke: Improving our facilities, improving our processes, improving our products improving our services. So it's always a component I cannot give you a number of.

Luke: It was X basis points of growth due to a product rollout or what have you, but I can tell you this the value proposition.

Mike Hansen: Whether it's healthcare, hospitality, education, state, and local government business, it's all attractive, and we're organized around it. And, and, and our value proposition is responding with them on their next question. Also, Tim Mulrooney from William Blair, please go ahead, Tim. Hi, good morning. This is Luke McFadden for Tim Mulrooney.

Luke: In the first aid business in all of our businesses by the first aid as you.

Luke: You asked about is it's really resonating.

Luke: And the mix of business that we have there is really good.

Luke: And we're able to.

Luke: Be better sorcerers better providers of products with our investment in our distribution center.

Luke McFadden: Thanks for taking our questions today. So I wanted to ask two just on first aid. I'll start with the first one and then move on to the second one afterward.

Luke: So when you have.

Luke: A robust supply chain that allows us to get.

Luke: Our products to the customers in a really timely fashion.

Todd M. Schneider: But first aid and safety has been growing at a double-digit rate for quite a few quarters in a row now. I know there's a penetration story here with your established base of uniformed customers, but I'm also curious if new product introductions are an important driver of this growth. How much of your growth in that segment is from new product introductions? Good morning, Luke.

Luke: It puts us in a great spot to be successful in.

Todd Schneider: We have a great breadth of products and services that we want to make sure that our customers and our prospects are aware of. And so we're benefiting kind of across all, not kind of. We are benefiting across all of those areas, and they're all big contributing factors. But we like where we are, and we like how we're growing the business.

We have a great breadth of products and services that we want to make sure that our customers and our prospects are aware of. And so we're benefiting kind of across all, not kind of. We are benefiting across all of those areas, and they're all big contributing factors. But we like where we are, and we like how we're growing the business.

Luke: So yes cross sell.

Luke: We're absolutely we want all of our.

Luke: Customers, whether for uniform or or fire or.

Luke: Direct sale customer, we want them all to know about our first aid business.

Luke: And we try to make sure that that occurs in many different.

Todd M. Schneider: We really like the first aid business. You know, part of our culture is continued innovation. So we're always looking at improving our processes, improving our products, and improving our services. So it's always part of it.

Luke: Conduits.

Luke: So yes, we're benefiting from that cross sell.

Operator: Our next question comes from Joshua Chan from UBS. Please go ahead, Joshua.

Operator: Our next question comes from Joshua Chan from UBS. Please go ahead, Joshua.

Speaker Change: Understood really helpful and maybe just sticking on first aid and safety here.

Joshua K. Chan: Hi, good morning, Todd, Mike. Thanks for taking my questions. Could you talk about the, I guess, piggybacking on the prior question, could you talk about the sustainability of the growth that you're seeing now that pricing has moderated to a historical level? Do you see the current run rate gaining based on what you're seeing out there, talking to customers, retention rate dynamics, and all that?

Joshua Chan: Hi, good morning, Todd, Mike. Thanks for taking my questions. Could you talk about the, I guess, piggybacking on the prior question, could you talk about the sustainability of the growth that you're seeing now that pricing has moderated to a historical level? Do you see the current run rate gaining based on what you're seeing out there, talking to customers, retention rate dynamics, and all that?

Speaker Change: You think about that that segment of your business does it feel like you've essentially built out the full suite of products and services. There at some point should we expect potentially more.

Todd M. Schneider: I cannot give you a number of, hey, it was X basis points of growth due to a product rollout or what have you. But I can tell you this, the value proposition in the first aid business and all of our businesses, but in first aid, as you asked, it's really responding. And the mix of business that we have there is really good, and we're able to, you know, be better suppliers, better providers of products with our investment in our distribution center. So when you have a robust supply chain that allows us to get products to the customers in a really timely fashion, it puts us in a great spot to be successful. And so, yeah, CrossSell, we're absolutely, we want all of our customers, whether they're uniform or fire or direct sale customers, we want them all to know about our first aid business.

Speaker Change: About other product introductions.

Speaker Change: You continue to build out the portfolio.

As the rain here for Morris is essentially what im curious to know.

Speaker Change: Yes Luke.

Todd Schneider: Yeah, Josh, good morning. Again, we like where we are from a growth standpoint. The exciting thing is we service a little over a million customers. There's 16 million businesses in North America. So we think there's an incredible runway for us. So we're selling to about 60% of our new accounts come from no programmers, and that is continuing. So we're seeing great results from talking to prospects and showing them a better way to do it than they are today. Now, that doesn't necessarily mean that that is new spend. They might be spending that money somehow. It's just we're redirecting it to do it better, smarter, and faster, in some cases even less expensive than the way they're doing it.

Todd Schneider: Yeah, Josh, good morning. Again, we like where we are from a growth standpoint. The exciting thing is we service a little over a million customers. There's 16 million businesses in North America. So we think there's an incredible runway for us. So we're selling to about 60% of our new accounts come from no programmers, and that is continuing. So we're seeing great results from talking to prospects and showing them a better way to do it than they are today. Now, that doesn't necessarily mean that that is new spend. They might be spending that money somehow. It's just we're redirecting it to do it better, smarter, and faster, in some cases even less expensive than the way they're doing it.

Luke: Again, I'll go back to our culture.

Luke: Our culture is such that we are constantly innovating and pushing ourselves to be.

Luke: Provide the best products and services and so youll see more of that to come we're constantly.

Luke: Innovating to to put our partners in the best position our employee partners in the best position to provide the most value for our customers and maybe one added comment look when we think about this business.

Luke: May have heard us speak to umbrella of image safety cleanliness and compliance and when we think about this business safety is a fairly large umbrella and when our when our first aid safety people are speaking with customers and thinking about that innovation that Todd talked about.

Todd M. Schneider: And we try to make sure that that occurs in many different conduits, but it's, yeah, we're benefiting from that CrossSell, understood, really helpful, and maybe just sticking on first aid and safety here. As you think about that segment of your business, does it feel like you've essentially built out a full suite of products and services there? Or, at some point, should we expect a potential war about other product introductions as you continue to build out the portfolio? The room here for more is essentially what I'm curious about. Yeah, Luke.

Luke: We're thinking quite broadly about how do we keep our customers how do we help our customers keep their employees safe and that can mean opportunities into the future and that's the way that's the way we look at it from a broad perspective.

Todd Schneider: So we think the runway is very attractive because of the number of prospects that are out there and our business, or excuse me, our buying proposition resonating with prospects and customers. So we expect that we like where we are from a growth standpoint. As I mentioned, we like how we're growing, and we want to continue in that manner.

So we think the runway is very attractive because of the number of prospects that are out there and our business, or excuse me, our buying proposition resonating with prospects and customers. So we expect that we like where we are from a growth standpoint. As I mentioned, we like how we're growing, and we want to continue in that manner.

Luke: And our next question comes from Andrew Schneiderman from Jpmorgan Securities. Please go ahead Andrew.

Todd M. Schneider: In the quarter when you look at rentals and facility services segment.

Todd M. Schneider: How much of the growth is actually coming from uniforms versus ancillary services and Directionally is there good growth in both <unk> and.

Operator: That's great, Tyler. Thank you. For my follow-up, you talked about incremental margins being in the 20% to 30% range historically, and now you're sort of at the higher end of that in recent years. Is this the right level of incremental margins going forward on revenue growth that comes ahead?

Joshua Chan: That's great, Tyler. Thank you. For my follow-up, you talked about incremental margins being in the 20% to 30% range historically, and now you're sort of at the higher end of that in recent years. Is this the right level of incremental margins going forward on revenue growth that comes ahead?

Todd M. Schneider: Yeah, again, I'll go back to our culture. Our culture is such that we are constantly innovating and pushing ourselves to provide the best products and services. And so you'll see more of that in the future. We're constantly innovating to put our partners in the best position, our employee partners in the best position to provide the most value for our customers. And maybe one added comment, Luke, when we think about this business, you know, you may have heard us speak about umbrellas of image safety, cleanliness, and compliance. And when we think about this business, safety is a fairly large umbrella.

Todd M. Schneider: And also if you can make a comment about add stops within uniforms.

Todd M. Schneider: Good morning, Andrew.

Speaker Change: As you know we don't give out.

Speaker Change: Those specific numbers, but.

Todd M. Schneider: Directionally to your question, yes, we're seeing growth across them at all.

Todd Schneider: Yeah. Well, so we recognize the math of 20% to 30% incremental margins. We need to be the higher end of that in order to continue to improve our margins, and we're focused on doing that. We're doing so by extracting out those inefficiencies, getting really good leverage on our revenue growth. So many ways. But running a business is not linear. And so we know there's going to be some puts and takes, and some quarters will be higher and some won't be as high. But generally speaking, we like that range, and I prefer the higher end than the lower end, that's for sure.

Todd Schneider: Yeah. Well, so we recognize the math of 20% to 30% incremental margins. We need to be the higher end of that in order to continue to improve our margins, and we're focused on doing that. We're doing so by extracting out those inefficiencies, getting really good leverage on our revenue growth. So many ways. But running a business is not linear. And so we know there's going to be some puts and takes, and some quarters will be higher and some won't be as high. But generally speaking, we like that range, and I prefer the higher end than the lower end, that's for sure.

Todd M. Schneider: There's good demand for our uniform business and our facility services business.

Todd M. Schneider: For all of our.

Todd M. Schneider: Products and services so.

Todd M. Schneider: Ah.

Todd M. Schneider: So nothing to point out to one particular area there.

Todd M. Schneider: As far as add stops.

Todd M. Schneider: There is now.

Todd M. Schneider: We haven't really seen a change to our customers' behavior, there so what I'll call it.

Todd M. Schneider: Kind of business as usual.

Todd M. Schneider: There's many inputs to that number, but nevertheless, I would say, it's kind of business as usual. Thank you.

Mike Hansen: And when our first aid and safety people are speaking with customers and thinking about that innovation that Todd talked about, we're thinking quite broadly about how do we keep our customers, how do we help our customers keep their employees safe? And that can mean opportunities into the future. And that's the way we look at it from a broad perspective.

Todd M. Schneider: Sure.

Operator: Our next question comes from Heather Balsky from Bank of America. Please go ahead, Heather.

Operator: Our next question comes from Heather Balsky from Bank of America. Please go ahead, Heather.

Todd M. Schneider: And our next question comes from Jasper Bibb from <unk> Securities. Please go ahead Jasper.

Heather Balsky: Hi, thank you. I was hoping you could just talk about the M&A you did this quarter, kind of what attracted you to the assets, and then an update on how to think about M&A going forward.

Heather Balsky: Hi, thank you. I was hoping you could just talk about the M&A you did this quarter, kind of what attracted you to the assets, and then an update on how to think about M&A going forward.

Jasper Bibb: Hey, good morning, guys.

Jasper Bibb: Wanted to follow up on the earlier discussion on first aid the growth.

Jasper Bibb: Margin there was really impressive at 56% this quarter, but you also had.

Jasper Bibb: SG&A up 25% from the prior year. So could you provide just maybe a bit of color on the investments you're making in that business.

Todd Schneider: I'm certainly happy to start, Mike. Heather, good morning. Regarding M&A, it's an important component for us. You certainly cannot pace M&A. They kind of come as they do, and it takes two to dance. I can tell you the two that we announced this past quarter are great businesses, first off. Really good operators, really attractive businesses. In the case of the one in Kentucky, it provided us with some needed capacity in that region of the country. In addition to the added capacity, we were able to absorb that volume into seven of our facilities. Some really nice synergies allows us to, as we're closer to the customers, to spend more time with the customer and less time driving. That's important to us. In the case of the acquisition in the M&A in Pennsylvania, we did not acquire any additional capacity.

Todd Schneider: I'm certainly happy to start, Mike. Heather, good morning. Regarding M&A, it's an important component for us. You certainly cannot pace M&A. They kind of come as they do, and it takes two to dance. I can tell you the two that we announced this past quarter are great businesses, first off. Really good operators, really attractive businesses. In the case of the one in Kentucky, it provided us with some needed capacity in that region of the country. In addition to the added capacity, we were able to absorb that volume into seven of our facilities. Some really nice synergies allows us to, as we're closer to the customers, to spend more time with the customer and less time driving. That's important to us. In the case of the acquisition in the M&A in Pennsylvania, we did not acquire any additional capacity.

Andrew Charles Steinerman: Good morning, Andrew. As you know, we don't give out those specific numbers. But directionally, to your question, yeah, we're seeing growth across them all. There's good demand for our uniform business and our facility services business, and, frankly, for all of our business products and services. So nothing to point out to one particular area there.

Jasper Bibb: When do you think of the first aid segment, just start to deliver a bit more margin leverage over that G&A base.

Speaker Change: Yes, Jeff good morning.

Speaker Change: As I mentioned, we really like the business and it's performing really well and we're investing appropriately.

Speaker Change: The amount of prospects out there.

Speaker Change: As are our massive and to Mike's point earlier, the the value proposition is resonating.

Todd M. Schneider: As far as ad stops go, we haven't really seen a change in our customer behavior there, so I'll call it kind of business as usual. There are many inputs to that number.

We talk about the mantra that business is what's more important to our business and the health and safety of their employees and their customers.

Speaker Change: So that is resonating we're in a great position to invest to provide those products and services. So we're doing just that and so we're investing in selling resources, we are investing in marketing <unk>.

Todd M. Schneider: But nevertheless, I'd say it's kind of business as usual. Sure. And our next question comes from Jasper Bibb from Truist Securities. Please go ahead, Jasper.

Speaker Change: Resources.

Speaker Change: Because we really like where we are and it makes sense to invest and I think you're seeing it show up in <unk>.

Jasper Bibb: Hey, good morning, guys. I wanted to follow up on the earlier discussion on first aid. The gross margin there was really impressive at 56% this quarter, but you also had SG&A at 25% from the prior year. So can you provide just maybe a bit of color on the investments you're making in that business? And when do you think the first aid segment should start to deliver a bit more margin leverage over that G&A? Yeah, Jasper, good morning.

Todd Schneider: But in that case, we were able to absorb it into 16 of our facilities. So again, attractive synergies, more time with the customer, less time driving. And in those cases, we also then get to talk to our new customers about the broader breadth of products and services that we have. So we think overall it's very attractive. As I mentioned, it takes two to dance. You can't pace it. But in this case, these were two really attractive businesses, great operators that really made sense for us.

But in that case, we were able to absorb it into 16 of our facilities. So again, attractive synergies, more time with the customer, less time driving. And in those cases, we also then get to talk to our new customers about the broader breadth of products and services that we have. So we think overall it's very attractive. As I mentioned, it takes two to dance. You can't pace it. But in this case, these were two really attractive businesses, great operators that really made sense for us.

Speaker Change: The operating margin and the gross margin yes.

Speaker Change: Yes.

Speaker Change: Each quarter this year has been 22% or higher.

Speaker Change: Which is quite a big improvement from a year ago and so as Todd said these.

Speaker Change: We want to continue to invest in the long term growth of all of our businesses and you can really see those investments playing out.

Speaker Change: Particularly in the gross margin line of first aid and safety, but we love the margins they are up quite a bit over the last few years.

Todd M. Schneider: As I mentioned, we really like the business, and it's performing really well, and we're investing appropriately. The number of prospects out there is massive. And to Mike's point earlier, the value proposition is responding. We talk about the mantra in that business, which is what's more important to a business than the health and safety of their employees and their customers. So that is responding.

Speaker Change: And we will continue to invest as we see appropriate.

Thanks that makes sense.

Mike Hansen: Maybe a couple added points. As Todd said, these are great acquisitions, and we've had a handful of them this fiscal year. Each of the two that Todd talked about is less than $20 million in annual revenue. The $17.4 million that we gave you in our prepared remarks includes the impact of those. But keeping in mind, we've made acquisitions all year long. And so that Q4 impact would include all of the acquisitions we've made throughout the last 12 months. Just something to keep in mind as you're thinking about our Q4.

Mike Hansen: Maybe a couple added points. As Todd said, these are great acquisitions, and we've had a handful of them this fiscal year. Each of the two that Todd talked about is less than $20 million in annual revenue. The $17.4 million that we gave you in our prepared remarks includes the impact of those. But keeping in mind, we've made acquisitions all year long. And so that Q4 impact would include all of the acquisitions we've made throughout the last 12 months. Just something to keep in mind as you're thinking about our Q4.

Speaker Change: And then just was hoping to get an update on what Youre seeing.

Speaker Change: For expense growth on labor and fleet related costs in the quarter.

Jeff Good question certainly labor is.

Jeff: As an important component.

Jeff: No.

Speaker Change: We want to make sure that we're providing our wages.

Mike Hansen: We're in a great position to invest in and provide those products and services, so we're doing just that. And so we're investing in selling resources, we're investing in marketing resources, because we really like where we are, and it makes sense to invest. And I think you're seeing it show up in the operating margin and the gross margin. Yeah, each quarter this year has been 22% or higher, which is quite a big improvement from a year ago.

Speaker Change: Competitive wages and we've spoken on previous calls that we were not flat footed when it came to.

Speaker Change: The wage inflation that I'd say North America has seen over the past few years. So we've been in a good position and we like where we are from that perspective.

Speaker Change: And here's what's really exciting is we have.

Heather Balsky: Thank you. Appreciate it.

Heather Balsky: Thank you. Appreciate it.

Speaker Change: Mentioned earlier, our six Sigma teams or engineering teams they are helping us to.

Operator: Our next question comes from Andy Whitman from RW Baird. Please go ahead, Andy. Well, Andy, is your line muted? I'm sorry about that. Mike, I just want to build on that last question where you were commenting on the M&A contribution. In your Q4 guidance, is there a change in your fundamental outlook for the company, recognizing that it is up now somewhat on these two somewhat larger acquisitions that you did? And then as an addendum to that, was this 60 basis points or $45 million legal settlement that you just talked about, was that included and considered in your initial guidance, or are you absorbing that and still able to raise your guidance here?

Operator: Our next question comes from Andy Whitman from RW Baird. Please go ahead, Andy.

Mike Hansen: And so, as Todd said, these and we want to continue to invest in the long-term growth of all of our businesses. And you can really see those investments playing out, particularly in the gross margin line of First Aid and Safety. But we love the margins; they're up quite a bit over the last few years, and we'll continue to invest in them as best as we see fit. Thanks, that makes sense. And then I just was hoping to get an update on what you're seeing for expense growth on labor and fleet-related costs in the quarter. Jasper, a good question.

Speaker Change: Automate certain items to bring.

Mike Hansen: Well, Andy, is your line muted?

Speaker Change: Transformation technology to portions of our business, whether it's smart truck or.

Andy Wittman: I'm sorry about that. Mike, I just want to build on that last question where you were commenting on the M&A contribution. In your Q4 guidance, is there a change in your fundamental outlook for the company, recognizing that it is up now somewhat on these two somewhat larger acquisitions that you did? And then as an addendum to that, was this 60 basis points or $45 million legal settlement that you just talked about, was that included and considered in your initial guidance, or are you absorbing that and still able to raise your guidance here?

Speaker Change: Plant efficiencies that allows us to mitigate.

Speaker Change: That's subject as best as possible and so we are investing and have invested for years in those organizations and it's paying off.

Speaker Change: And what we're seeing with our total labor cost as we manage through and make sure. We're still in a really good spot to be a competitive and attract the very best people.

Jasper Bibb: Certainly, labor is an important component. We want to make sure that we're providing attractive wages and competitive wages. And we've spoken on previous calls that we were not flat-footed when it came to the wage inflation that I'd say North America has seen over the past few years. So we've been in a good position, and we like where we are from that perspective. And here's what's really exciting is we have, I mentioned earlier, our Six Sigma teams, our engineering teams; they're helping us to automate certain items to bring transformation technology to portions of our business, whether it's smart trucks or plant efficiencies, that allows us to mitigate that subject as best as possible. And so we're investing, and have invested for years in those organizations, and it's paying off in what we're seeing with our total And our next question is from Ashish Subhadra from RBC. Please go ahead.

Speaker Change: And our next question comes from Ashish <unk> from RBC. Please go ahead Ashish.

ashish: My question I, just wanted to focus on the Google partnership I was wondering if you can provide an update on that front I believe you have already migrated to the S&P.

Mike Hansen: Yeah. So, Andy, I already forgot your first part of the question. What was the first part?

Mike Hansen: Yeah. So, Andy, I already forgot your first part of the question. What was the first part?

ashish: Onto the GCB.

ashish: And how should we think about those benefits that you may have seen in the <unk>, but also some benefits as we go forward.

Operator: First question is, is your fundamental outlook for the business unchanged?

Andy Wittman: First question is, is your fundamental outlook for the business unchanged?

Speaker Change: Good question Ashish.

Mike Hansen: Yeah, yeah, yeah.

Mike Hansen: Yeah, yeah, yeah.

Operator: Is your fundamental outlook unchanged for Q4, or is there a change?

Andy Wittman: Is your fundamental outlook unchanged for Q4, or is there a change?

Speaker Change: I would characterize well first off we have a great relationship with with Google, but Youre correct, we did migrate to the Google cloud platform.

Mike Hansen: Yeah, I apologize. No, as Todd talked about, our market remains very large. The momentum in the business remains good. The adoption remains good. And the guide for the fourth quarter is right where we want to be in terms of sort of the stated profile of growth that we want to have. And so all of that put together with not really any change in customer behavior would mean no continued performance like we've seen, and we continue to like the momentum of the business. As it relates to your second question, the 60 basis points, that was not contemplated in the initial guide from the beginning of the year, and that was simply absorbed through, well, in this third quarter, the 60 basis points simply absorbed.

Mike Hansen: Yeah, I apologize. No, as Todd talked about, our market remains very large. The momentum in the business remains good. The adoption remains good. And the guide for the fourth quarter is right where we want to be in terms of sort of the stated profile of growth that we want to have. And so all of that put together with not really any change in customer behavior would mean no continued performance like we've seen, and we continue to like the momentum of the business. As it relates to your second question, the 60 basis points, that was not contemplated in the initial guide from the beginning of the year, and that was simply absorbed through, well, in this third quarter, the 60 basis points simply absorbed.

Speaker Change: And I would characterize it as we're in the early innings, there and so we.

Speaker Change: We certainly hope to.

Speaker Change: To maximize our relationship and and put our employee partners in a position to provide more value.

Speaker Change: And two.

Speaker Change: To be as successful as possible because we believe there are tools that will be available to us.

Speaker Change: To provide more value to the customers and two to put our people in a better position to provide that value which makes.

Speaker Change: Them more successful so.

Speaker Change: Early innings, but we're.

Speaker Change: We're optimistic about where that can go.

Ashish Subhadra: Thanks for taking my question. I just wanted to focus on the Google partnership. I was wondering if you could provide an update on that front. I believe you've already migrated your SAP onto the GCP.

That's very helpful color and if I can ask a quick accounting clarifying question. So in the balance sheet the uniforms and other income items incentives that's moderated.

Operator: Okay. Thank you. That's all my questions for today. Our next question comes from George Tong from Goldman Sachs. Please go ahead, George.

Andy Wittman: Okay. Thank you. That's all my questions for today.

Operator: Our next question comes from George Tong from Goldman Sachs. Please go ahead, George.

Speaker Change: Quarter to quarter I was just wondering if you can provide any color on what's driving that is that better efficiency or anything on that front.

Todd M. Schneider: And how should we think about those benefits that you may have seen in the quarter, but also benefits as we go forward? Good question, Ashish. You know, I would characterize, well, first off, we have a great relationship with Google. You're correct, we did migrate to the Google Cloud Platform, and I would characterize it as we're in the early innings there, and so we certainly hope to maximize our relationship and put our employee partners in a position to provide more value and to be as successful as possible because we believe there are tools that will be available to us to provide more value to customers and So this is early innings, but we're optimistic about where that can go. That's a very helpful color.

George Tong: Hi, thanks. Good morning. Can you provide an update on the external selling environment, including how client budgets and sales cycles are performing?

George Tong: Hi, thanks. Good morning. Can you provide an update on the external selling environment, including how client budgets and sales cycles are performing?

Speaker Change: Yes, Todd talked a little bit about how we are working on all pieces of the business, but certainly one of those is is inventory and <unk>.

Todd Schneider: Yeah, I'm certainly happy to start. George, good morning. We haven't really seen much of a change in sales cycle. As far as the interest in our products and services remains good. We're always continuing to invest in new products and services, tweaks, I guess, to them to make it as attractive to the prospects and the customers as possible. But we're not seeing a change. Momentum continues to be good. Outsourcing still resonates. And we're seeing, as I mentioned earlier, the no-program market is still really, really large. And we've become pretty darn proficient at presenting to those prospects to help them run a better business. And we help them with all the products and services we provide. And as I mentioned, it's not always new money. Usually, they're spending something. It's just redirecting it to us to do it better, faster, smarter, cheaper type thing.

Todd Schneider: Yeah, I'm certainly happy to start. George, good morning. We haven't really seen much of a change in sales cycle. As far as the interest in our products and services remains good. We're always continuing to invest in new products and services, tweaks, I guess, to them to make it as attractive to the prospects and the customers as possible. But we're not seeing a change. Momentum continues to be good. Outsourcing still resonates. And we're seeing, as I mentioned earlier, the no-program market is still really, really large. And we've become pretty darn proficient at presenting to those prospects to help them run a better business. And we help them with all the products and services we provide. And as I mentioned, it's not always new money. Usually, they're spending something. It's just redirecting it to us to do it better, faster, smarter, cheaper type thing.

Speaker Change: You touched on a little bit of a <unk> sharing so you can think about when we improve garment sharing for example, we don't need to inject as many new garments into that in service inventory. So the more sharing means better utilization of our existing in service.

Speaker Change: Inventory and it means we don't have to add as much into the.

Speaker Change: Into the in service inventory from new purchases.

Speaker Change: That's one of the areas.

Speaker Change: Certainly, though there are others like improved sourcing as.

Speaker Change: As well <unk>.

Speaker Change: <unk> growth as Todd said remains really strong and so what we're seeing is some nice.

Speaker Change: Offsetting of the volume growth with some of these initiatives.

Mike Hansen: And if I can ask a quick accounting clarifying question, so on the balance sheet, the uniform and other rental items and service that moderated sequentially quarter to quarter, I was just wondering if you could provide any color on what's driving that, is that better efficiency or any color on that? Yes, Todd talked a little bit about how we are working on all pieces of the business, but certainly one of those is inventory, and he touched on a little bit of garment sharing. So you can think about that when we improve garment sharing, for example, we don't need to inject as many new garments into that in-service inventory. So more sharing means better utilization of our existing in-service inventory, and it means we don't have to add as much to the in-service inventory from new purchases. That's one of the areas we cover.

Speaker Change: And our next question comes from Stephanie more from Jefferies. Please go ahead Stephanie.

Stephanie: Hi, good morning, Thank you.

Stephanie: I wanted to continue the discussion on the pretty impressive margin front for the quarter I. Appreciate the color in terms of kind of discussing that the route optimization merchandise management six Sigma like.

Operator: Got it. That's helpful. And then separately, can you talk a little bit about your focus verticals, including healthcare? How much additional runway is there for these focus verticals to serve as a tailwind to organic revenue growth?

George Tong: Got it. That's helpful. And then separately, can you talk a little bit about your focus verticals, including healthcare? How much additional runway is there for these focus verticals to serve as a tailwind to organic revenue growth?

Stephanie: Maybe if you could provide a little bit of color on of your major initiatives, which ones. You think are kind of still in the early innings or we could kind of continue to see some more improvement accelerated improvement and then maybe taking a step further what is next three day in terms of other areas of opportunity that hasn't been a major major focus yet thank you.

Todd Schneider: Yeah. So, George, it's in our internal growth. So it is helping us. That focus is helping us to organize around the customer and provide the products and services that they want. And that has been a good strategy for us over the past number of years. So we like all the verticals we're in. We find them very attractive, whether it's healthcare, hospitality, education, state, local government, and business. It's all attractive, and we're organized around it. And our value proposition is resonating with them.

Todd Schneider: Yeah. So, George, it's in our internal growth. So it is helping us. That focus is helping us to organize around the customer and provide the products and services that they want. And that has been a good strategy for us over the past number of years. So we like all the verticals we're in. We find them very attractive, whether it's healthcare, hospitality, education, state, local government, and business. It's all attractive, and we're organized around it. And our value proposition is resonating with them.

Speaker Change: Good morning, Stephanie.

Speaker Change: From our strategic initiatives that.

Speaker Change: We're focused on how can we.

Speaker Change: Impact our business in total.

Speaker Change: Our material costs or energy or labor.

Mike Hansen: Certainly, though, there are others like improved sourcing as well. Volume growth, as Todd said, remains really strong, and so what we're seeing is some nice offsetting of the volume growth with some of these initiatives. To send our next question, Stephanie Moore from Jeffreys.

Speaker Change: And.

Speaker Change: Mike.

Speaker Change: <unk> earlier, our energy spend is down 40 basis points.

Speaker Change: It's not all just price that is.

Those initiatives that we referred to earlier.

Speaker Change: The material cost.

Speaker Change: As a.

Speaker Change: Two largest costs or material costs and labor. So we're very focused on driving efficiencies in all those areas because to my earlier point, we love the volume growth, but we.

Operator: Our next question comes from Tim Mulroney from William Blair. Please go ahead, Tim.

Operator: Our next question comes from Tim Mulroney from William Blair. Please go ahead, Tim.

Stephanie Lynn Benjamin Moore: Please go ahead, Stephanie. Hi, good morning. Thank you. I wanted to continue the discussion on the pretty impressive margin front for the quarter. I appreciate the color in terms of kind of discussing the route optimization, the merchandise management, Six Sigma, you know, the likes. But maybe if you could provide a little bit of color on your major initiatives, which ones you think are kind of still in the early innings where we could kind of continue to see some, you know, more improvement or accelerated improvement, and then, you know, maybe taking it a step further, you know, what is next for you Thank you. Good morning, Stephanie.

George Tong: Hi, good morning. This is Ludwig Fadon for Tim Mulroney. Thanks for taking our questions today. I wanted to ask too, just on first aid. I'll start with the first one and then move on to the second one after. First Aid and Safety has been growing at a double-digit rate for quite a few quarters in a row now. I know there's a penetration story here with your established base of uniform customers, but I'm also curious if new product introductions are an important driver of this growth. How much of your growth in that segment is from new product introductions?

Luke McFadden: Hi, good morning. This is Ludwig Fadon for Tim Mulroney. Thanks for taking our questions today. I wanted to ask too, just on first aid. I'll start with the first one and then move on to the second one after. First Aid and Safety has been growing at a double-digit rate for quite a few quarters in a row now. I know there's a penetration story here with your established base of uniform customers, but I'm also curious if new product introductions are an important driver of this growth. How much of your growth in that segment is from new product introductions?

Speaker Change: We don't want to sacrifice margin because the.

Speaker Change: The volume growth is so so robust that we've got the strategic initiatives to.

Speaker Change: To extract these inefficiencies out of our business and.

Speaker Change: I wouldn't speak to any one in particular that it's in the earlier innings or the others.

Speaker Change: We've got a nice runway.

Speaker Change: Forward four for doing that a little bit of that is our culture is that we're constantly trying to innovate and push ourselves to.

Todd Schneider: Good morning, Luke. We really like the first aid business. Part of our culture is continued innovation. So we're always looking at improving our processes, improving our products, improving our services. So it's always a component. I cannot give you a number of, "Hey, it was X basis points of growth due to a product rollout or what have you." But I can tell you this. The value proposition in the first aid business and all of our businesses, but in first aid, as you asked about, it's really resonating. And the mix of business that we have there is really good. And we're able to be better sourcers, better providers of products with our investment in our distribution center.

Todd Schneider: Good morning, Luke. We really like the first aid business. Part of our culture is continued innovation. So we're always looking at improving our processes, improving our products, improving our services. So it's always a component. I cannot give you a number of, "Hey, it was X basis points of growth due to a product rollout or what have you." But I can tell you this. The value proposition in the first aid business and all of our businesses, but in first aid, as you asked about, it's really resonating. And the mix of business that we have there is really good. And we're able to be better sourcers, better providers of products with our investment in our distribution center.

Speaker Change: To be better so I think youll see that continued as far as acceleration. It's built in we're constantly doing it so I think.

Todd M. Schneider: You know, from our strategic initiatives that, you know, we're focused on, you know, how can we impact our business in total, certainly our material costs, our energy, our labor. And, you know, Mike referred to earlier, our energy spend is down 40 basis points. That's not all just price; those initiatives that we referred to earlier. Material costs are, you know, our two largest costs are material costs and labor. So we're very focused on driving efficiencies in all those areas. Because to Mike's earlier point, we love the volume growth, but we don't want to sacrifice margin because the volume growth is so robust, we've got these strategic initiatives to extract these inefficiencies out of our business. And I wouldn't speak to any one in particular to say that it's in the earlier endings or the others.

Speaker Change: We're focused on those incremental margins and.

Speaker Change: This is an important component of making sure we can hit those numbers.

Speaker Change: The only thing I might add is we are certainly in the very early innings of technology.

Speaker Change: And we believe there's a nice runway there Todd talked about just the recent migration to the Google cloud.

Speaker Change: And that creates a foundation for us to do some some interesting things moving forward.

Speaker Change: Great well thank you so much.

Speaker Change: And our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead Scott.

Todd Schneider: So when you have a robust supply chain that allows us to get products to the customers in a really timely fashion, it puts us in a great spot to be successful. And so, yeah, cross-sell, we're absolutely, we want all of our customers, whether they're uniform, fire, or direct sale customer, we want them all to know about our first aid business. And we try to make sure that that occurs in many different conduits. But yeah, we're benefiting from that cross-sell.

So when you have a robust supply chain that allows us to get products to the customers in a really timely fashion, it puts us in a great spot to be successful. And so, yeah, cross-sell, we're absolutely, we want all of our customers, whether they're uniform, fire, or direct sale customer, we want them all to know about our first aid business. And we try to make sure that that occurs in many different conduits. But yeah, we're benefiting from that cross-sell.

Speaker Change: Hey, good morning, it's Daniel on for Scott, Thanks for taking our question.

Speaker Change: Could you please speak to the outlook for uniform direct sales I'm, sorry production as well as some some perspective on the on the margins for all others going forward. Please thank you.

Todd M. Schneider: We've got a nice runway forward for doing that. A little bit of that is our culture, which is that we're constantly trying to innovate and push ourselves to be better. So I think you'll see that continued. As far as acceleration is concerned, it's built in. We're constantly doing it.

Speaker Change: I'll start on the outlook might be able to speak to the margins.

Speaker Change: The uniform direct sale business is a strategic business for us.

Speaker Change: We have some really large.

Speaker Change: Strategic accounts, whether its national accounts or in the <unk>.

George Tong: Understood. Really helpful. Maybe just sticking on first aid and safety here. As you think about that segment of your business, does it feel like you've essentially built out a full suite of products and services there? Or at some point, should we expect potentially more about other product introductions as you continue to build out the portfolio? Is there room here for more, is essentially what I'm curious to know.

Luke McFadden: Understood. Really helpful. Maybe just sticking on first aid and safety here. As you think about that segment of your business, does it feel like you've essentially built out a full suite of products and services there? Or at some point, should we expect potentially more about other product introductions as you continue to build out the portfolio? Is there room here for more, is essentially what I'm curious to know.

Mike Hansen: So I think we're focused on those incremental margins, and this is an important component of making sure that we can hit those numbers. Yeah, the only thing I might add is that we're certainly in the very early innings of technology.

Speaker Change: <unk>.

Speaker Change: Gaming.

Speaker Change: Area of our business and strategic meaning that.

Speaker Change: Customers spend a lot more money with us.

Speaker Change: Not just with.

Speaker Change: Garment direct sale, but also outside of that so that's important that being said that business certainly can be a little lumpy.

Scott Andrew Schneeberger: And, and we believe there's a nice runway there, Todd talked about just the recent migration to the Google Cloud and that that creates a foundation for us to do some interesting things moving forward. Great. Well, thank you so much. And our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead, Scott. Hey, good morning. It's Daniel and Scott.

Speaker Change: Due to the nature of it with Rollouts and purchases.

Todd Schneider: Yeah, Luke. Yeah. Again, I'll go back to our culture. Our culture is such that we are constantly innovating and pushing ourselves to provide the best products and services. And so you'll see more of that to come. We're constantly innovating to put our partners in the best position, our employee partners in the best position to provide the most value for our customers.

Todd Schneider: Yeah, Luke. Yeah. Again, I'll go back to our culture. Our culture is such that we are constantly innovating and pushing ourselves to provide the best products and services. And so you'll see more of that to come. We're constantly innovating to put our partners in the best position, our employee partners in the best position to provide the most value for our customers.

Speaker Change: But but we like where we're positioned there we like the value proposition that were where we are there. So we think the outlook very.

Speaker Change: Positive that as far as the fire business.

It's been a great business for us.

Speaker Change: The results over the last several years.

Todd M. Schneider: Thanks for taking our question. Could you please speak to the outlook for uniform direct sales and fire protection, as well as some perspective on the margins for Adler going forward? I'll start on the outlook, and Mike, if you want to speak to the margins, you know, the uniform direct sale business is a strategic business for us. We have some really large strategic accounts, whether it's national accounts or in the hospitality and gaming areas of our business. And so strategic meaning that, you know, those customers spend a lot more money with us, not just on garment direct sales but also outside of that. So that's why it's important.

Speaker Change: We've seen great revenue growth, we've seen great margin improvement.

Mike Hansen: And maybe one added comment, Luke. When we think about this business, you may have heard us speak to umbrellas of image, safety, cleanliness, and compliance. And when we think about this business, safety is a fairly large umbrella. And when our first aid and safety people are speaking with customers and thinking about that innovation that Todd talked about, we're thinking quite broadly about how do we keep our customers, how do we help our customers keep their employees safe? And that can mean opportunities into the future. And that's the way we look at it from a broad perspective.

Mike Hansen: And maybe one added comment, Luke. When we think about this business, you may have heard us speak to umbrellas of image, safety, cleanliness, and compliance. And when we think about this business, safety is a fairly large umbrella. And when our first aid and safety people are speaking with customers and thinking about that innovation that Todd talked about, we're thinking quite broadly about how do we keep our customers, how do we help our customers keep their employees safe? And that can mean opportunities into the future. And that's the way we look at it from a broad perspective.

Speaker Change: And it's the only business where in where you legally have to have those those products and services. So we think it's.

Speaker Change: The outlook is really positive because of.

Speaker Change: The prospects that are out there and and the runway we see for opportunity. So Mike if you want to comment on margin.

Mike Hansen: Sure So as Todd said the fire business in particular, the margins have increased.

Mike Hansen: Quite a bit in the last handful of years and we've seen a lot of the same initiatives and other initiatives specific to that business really take off like we've seen in our other businesses. The one thing I might point out there we did see some increase in SG&A in the fire business.

Operator: Our next question comes from Andrew Steinerman from JPMorgan Securities. Please go ahead, Andrew.

Operator: Our next question comes from Andrew Steinerman from JPMorgan Securities. Please go ahead, Andrew.

George Tong: Hi. In the quarter, when you look at your rentals and facility services segment, how much of the growth is actually coming from uniforms versus ancillary services directionally? Is there good growth in both? And also, if you can make a comment about ad stops within uniforms.

Andrew Steinerman: Hi. In the quarter, when you look at your rentals and facility services segment, how much of the growth is actually coming from uniforms versus ancillary services directionally? Is there good growth in both? And also, if you can make a comment about ad stops within uniforms.

Todd M. Schneider: That being said, that business certainly can be a little lumpy due to the nature of it, with rollouts and purchases. But we like where we're positioned there. We like the value proposition that we have where we are, so we think the outlook's very positive there. As far as the fire business is concerned, it's been a great business for us. The results over the last several years have been great revenue growth, and we've seen great margin improvement. And it's the only business we're in where you legally have to have those products and services. So we think the outlook is really positive because of the prospects that are out there and the runway we see for opportunity. So Mike, if you want to comment on March, sure.

Mike Hansen: Year over year, and we're starting to get into that SAP implementation for for the fire business. So we might see a little bit of pressure.

Mike Hansen: As we move into fiscal 'twenty five on the fire margins the overall margins because of that investment in that move.

Mike Hansen: But as you've seen with our rental and first aid and safety businesses.

Todd Schneider: Good morning, Andrew. As you know, we don't give out those specific numbers. But directionally, to your question, yeah, we're seeing growth across them all. There's good demand for our uniform business and our facility services business, frankly, for all of our business products and services. So nothing to point out to one particular area there. As far as add stops, we haven't really seen a change to our customer behavior there. So I'll call it kind of business as usual. There's many inputs to that number. But nevertheless, I'd say it's kind of business as usual.

Todd Schneider: Good morning, Andrew. As you know, we don't give out those specific numbers. But directionally, to your question, yeah, we're seeing growth across them all. There's good demand for our uniform business and our facility services business, frankly, for all of our business products and services. So nothing to point out to one particular area there. As far as add stops, we haven't really seen a change to our customer behavior there. So I'll call it kind of business as usual. There's many inputs to that number. But nevertheless, I'd say it's kind of business as usual.

Once we understand how to use that and get proficient at it it can create some really nice opportunities so maybe a little bit of.

Mike Hansen: We've seen some great improvement, maybe a little bit of.

Mike Hansen: So next year and the following year pressure on SG&A because of that implementation, but but we certainly expect those margins to continue to improve in the longer term from a uniform direct sale margin perspective.

Mike Hansen: So, as Todd said, the fire business in particular, the margins have increased quite a bit in the last handful of years. And we've seen a lot of the same initiatives and other initiatives specific to that business really take off like we've seen in our other businesses. The one thing I might point out there is that we did see some increase in SG&A and the fire business year over year. And we're starting to get into that SAP implementation for the fire business. So, we might see a little bit of pressure as we move into fiscal 25 on the fire margins, the overall margins because of that investment in that move.

Mike Hansen: As Todd said that that business is going to go up and down it's going to it's going to be a little bit bumpy.

Mike Hansen: From quarter to quarter, and because of that the margins will be as well. So I don't I don't think theres anything specific to call out other than.

Mike Hansen: It isn't quite as consistent of a business as the other three that we have.

Operator: Thank you.

Andrew Steinerman: Thank you.

Todd Schneider: Yes, sir.

Todd Schneider: Yes, sir.

Speaker Change: Thank you.

Operator: Our next question comes from Jasper Bibb from Truist Securities. Please go ahead, Jasper.

Our next question comes from Jasper Bibb from Truist Securities. Please go ahead, Jasper.

Speaker Change: Our next question comes from Shlomo Rosenbaum from Stifel. Nicholas. Please go ahead Shlomo.

George Tong: Hey, good morning, guys. Wanted to follow up on the earlier discussion on first aid. The gross margin there was really impressive at 56% this quarter. But you also had SG&A up 25% from the prior year. So could you provide just maybe a bit of color on the investments you're making in that business? And when do you think that the first aid segment should start to deliver a bit more margin leverage over that G&A base?

Jasper Bibb: Hey, good morning, guys. Wanted to follow up on the earlier discussion on first aid. The gross margin there was really impressive at 56% this quarter. But you also had SG&A up 25% from the prior year. So could you provide just maybe a bit of color on the investments you're making in that business? And when do you think that the first aid segment should start to deliver a bit more margin leverage over that G&A base?

Shlomo H. Rosenbaum: Hi, Thank you for taking my questions Hey, Todd can you talk a little bit about the macro environment with regard to employment.

Shlomo H. Rosenbaum: Specifically, if you could touch upon some of the areas, where theyre looking for more automation to reduce.

Mike Hansen: But as you've seen with our rental and first aid and safety businesses, you know, once we understand how to use that and get proficient at it, it can create some really nice opportunities. So, maybe a little bit of, we've seen some great improvement, maybe a little bit of pressure on SG&A because of that implementation. But we certainly expect those margins to continue to improve in the longer term. From a uniform direct sale margin perspective, you know, as Todd said, that business is going to go up and down; it's going to be a little bit bumpy from quarter to quarter. And because of that, the margins will be as well.

Shlomo H. Rosenbaum: The.

Shlomo H. Rosenbaum: <unk> due to <unk>.

Shlomo H. Rosenbaum: And in minimum wage in areas like California are you how exposed are you to those kind of verticals and then after that I will follow up.

Todd Schneider: Yeah, Jasper, good morning. As I mentioned, we really like the business, and it's performing really well. And we're investing appropriately. The amount of prospects out there is massive. And to Mike's point earlier, the value proposition is resonating. We talk about the mantra in that business is, "What's more important to a business than the health and safety of their employees and their customers?" So that is resonating. We're in a great position to invest to provide those products and services. So we're doing just that. And so we're investing in selling resources. We're investing in marketing resources because we really like where we are, and it makes sense to invest. And I think you're seeing it show up in the operating margin and the gross margin.

Todd Schneider: Yeah, Jasper, good morning. As I mentioned, we really like the business, and it's performing really well. And we're investing appropriately. The amount of prospects out there is massive. And to Mike's point earlier, the value proposition is resonating. We talk about the mantra in that business is, "What's more important to a business than the health and safety of their employees and their customers?" So that is resonating. We're in a great position to invest to provide those products and services. So we're doing just that. And so we're investing in selling resources. We're investing in marketing resources because we really like where we are, and it makes sense to invest. And I think you're seeing it show up in the operating margin and the gross margin.

Speaker Change: Good morning, Shlomo, yes from a macro environment.

Shlomo H. Rosenbaum: As I mentioned, we haven't seen much change in our customer behavior.

Speaker Change: Certainly there is.

Shlomo H. Rosenbaum: There is always some puts and takes and as you mentioned.

Speaker Change: Our employers under pressure too.

Speaker Change: To figure out ways to automate things because wage inflation.

Speaker Change: That has occurred and will continue to encourage occurred for.

Shlomo H. Rosenbaum: So, I don't think there's anything specific to call out other than it isn't quite as consistent of a business as the other three that we have. Our next question... Shlomo Rosenbaum from Stifo Nicholas. Please go ahead, Shlomo. Hi, thank you for taking my questions.

Speaker Change: For many many years.

Speaker Change: Now there is also some there.

Speaker Change: The infrastructure bills that are out there the onshoring.

Can't speak to.

Specifics of all boy, we're benefiting from this or this is a headwind here, but generally we like the spot we're in and we think it's.

Todd M. Schneider: Hey, Todd, can you talk a little bit about the macro environment with regard to employment? And, you know, specifically if you could touch on some of the areas where they're looking for more automation to reduce, you know, the employment due to raises in the minimum wage in areas like California, are you, how exposed are you to those kinds of verticals? And then after that, I'll follow up. Good morning, Shlomo.

Mike Hansen: Yeah. Each quarter this year has been 22% or higher, which is quite a big improvement from a year ago. And so, as Todd said, we want to continue to invest in the long-term growth of all of our businesses. And you can really see those investments playing out, particularly in the gross margin line of first aid and safety. But we love the margins. They're up quite a bit over the last few years. And we'll continue to invest as we see appropriate.

Mike Hansen: Yeah. Each quarter this year has been 22% or higher, which is quite a big improvement from a year ago. And so, as Todd said, we want to continue to invest in the long-term growth of all of our businesses. And you can really see those investments playing out, particularly in the gross margin line of first aid and safety. But we love the margins. They're up quite a bit over the last few years. And we'll continue to invest as we see appropriate.

Speaker Change: The macro environment.

It's Ben.

Speaker Change: Reasonably stable and.

Speaker Change: And we.

Speaker Change: We find that attractive and we can be really successful in that environment.

Speaker Change: Great. Thank you just for a follow up you have.

Speaker Change: Thank you have a competitor there that was spun out say six months ago and I was just wondering has there been any change in the environment with them competitively in terms either positively or negatively.

Todd M. Schneider: Yeah, from a macro environment, as I mentioned, we haven't seen much change in our customer behavior. Certainly, there is, there's always some puts and takes. And as you mentioned, our employers are under pressure to figure out ways to automate things because wage inflation has occurred and will continue to occur. It's occurred for, for, for many, many years.

Speaker Change: Seen any changes in the way that the bid are you taking more business from them, maybe you could just comment in general.

Operator: Thanks. That makes sense. And then just was hoping to get an update on what you're seeing for expense growth on labor and fleet-related costs in the quarter.

Jasper Bibb: Thanks. That makes sense. And then just was hoping to get an update on what you're seeing for expense growth on labor and fleet-related costs in the quarter.

Speaker Change: Yes, Shlomo I would characterize it is.

Speaker Change: It's pretty.

Speaker Change: Pretty well business as usual.

Speaker Change: They're a very good competitor always have been sure. They always will be and we have a great deal of respect for them and.

Todd Schneider: Jasper, good question. Certainly, labor is an important component. We want to make sure that we're providing attractive wages. We've spoken on previous calls that we were not flat-footed when it came to the wage inflation that I'd say North America has seen over the past few years. We've been in a good position, and we like where we are from that perspective. Here's what's really exciting: we have, I mentioned earlier, our Six Sigma teams, our engineering teams. They're helping us to automate certain items to bring transformation technology to portions of our business, whether it's SmartTruck or plant efficiencies, that allows us to mitigate that subject as best as possible. We're investing, and they've invested for years in those organizations.

Todd Schneider: Jasper, good question. Certainly, labor is an important component. We want to make sure that we're providing attractive wages. We've spoken on previous calls that we were not flat-footed when it came to the wage inflation that I'd say North America has seen over the past few years. We've been in a good position, and we like where we are from that perspective. Here's what's really exciting: we have, I mentioned earlier, our Six Sigma teams, our engineering teams. They're helping us to automate certain items to bring transformation technology to portions of our business, whether it's SmartTruck or plant efficiencies, that allows us to mitigate that subject as best as possible. We're investing, and they've invested for years in those organizations.

Speaker Change: And it's a very competitive environment always has been as far as long as I've been with the company. It has been I'm sure it will be in the future and.

Todd M. Schneider: Now, there's also some, you know, there, the infrastructure bills that are out there, the onshoring, you know. I can't speak to, you know, specifics of, oh, boy, we're benefiting from this, or this is a headwind here. But generally, we like the spot we're in. And, and we think it's, you know, the macro environment. We're in. It's been reasonably stable. And, and that's, you know, we find that attractive, and we can be really successful in that environment. Great, thank you.

Speaker Change: But we're focused on putting our employee partners in the best position to be successful in providing our customers the best value proposition so well.

Speaker Change: Really none of that has changed.

Speaker Change: And our next question comes from Kartik Mehta from Northcoast Research. Please go ahead Carter.

Kartik Mehta: Yes. Thank you good morning.

Kartik Mehta: Todd you know you have been able to execute extremely well this year beat guidance.

Kartik Mehta: And as you look at the business is that the result of maybe metrics like non programmers being a little bit better than you thought is it sales being better than you thought maybe you were just more cautious about the economy.

Shlomo H. Rosenbaum: Just for a follow-up, you have a competitor there that was spun out, say, six months ago, and I was just wondering if there has been any change in the competitive environment with them competitively, either positively or negatively? I mean, have you seen any changes in the way that they bid? Are you taking more business from them? Maybe you could just comment in general.

Kartik Mehta: Then actually happened if you look at why you.

Kartik Mehta: And able to do better what would you point to.

Todd Schneider: It's paying off in what we're seeing with our total labor costs as we manage through and make sure we're still in a really good spot to be competitive and attract the very best people.

It's paying off in what we're seeing with our total labor costs as we manage through and make sure we're still in a really good spot to be competitive and attract the very best people.

Kartik Mehta: Yes.

Kartik Mehta: <unk> it starts with our culture and in our expectations of our employee partners and the pace and the intensity of which they run.

Todd M. Schneider: Yes, Shlomo, I would characterize it as, you know, it's pretty much business as usual. They're a very good competitor, always have been, and I'm sure they will always be. And we have a great deal of respect for them.

Kartik Mehta: But.

Operator: Our next question comes from Ashish Sabhadra from RBC. Please go ahead, Ashish.

Operator: Our next question comes from Ashish Sabhadra from RBC. Please go ahead, Ashish.

Kartik Mehta: That being said, we've <unk> our value proposition is really resonating in each of the businesses were in the first aid business we spoke about.

Todd M. Schneider: And, and it's a very competitive environment, always has been, as far as as long as I've been with the company, it has been, and I'm sure it will be in the future. And, but we're focused on putting our employee partners in the best position to be successful in providing our customers the best value proposition. So really, none of that has changed, and their next question comes from North Coast Research. Please go ahead, Kartik

Todd Schneider: Thanks for taking my question. I just wanted to focus on the Google partnership. I was wondering if you can provide an update on that front. I believe you've already migrated your SAP onto the GCP. How should we think about those benefits that you may have seen in the quarter, but also benefits as we go forward? Thanks.

Ashish Sabadra: Thanks for taking my question. I just wanted to focus on the Google partnership. I was wondering if you can provide an update on that front. I believe you've already migrated your SAP onto the GCP. How should we think about those benefits that you may have seen in the quarter, but also benefits as we go forward? Thanks.

Kartik Mehta: It's a very good outsourcing is resonating nicely.

Kartik Mehta: It's that has to do with.

Kartik Mehta: It's not as easy to hire people as it has been in the past. So if you want someone to outsource it it's it's that much more attractive.

Kartik Mehta: Yes, we like the spot we're in and it's and.

Todd Schneider: Good question, Ashish. I would characterize, well, first off, we have a great relationship with Google. You're correct. We did migrate to the Google Cloud Platform. And I would characterize it as we're in the early innings there. And so we certainly hope to maximize our relationship and put our employee partners in a position to provide more value and to be as successful as possible because we believe there are tools that will be available to us to provide more value to the customers and to put our people in a better position to provide that value, which makes them more successful. So early innings, but we're optimistic about where that can go.

Todd Schneider: Good question, Ashish. I would characterize, well, first off, we have a great relationship with Google. You're correct. We did migrate to the Google Cloud Platform. And I would characterize it as we're in the early innings there. And so we certainly hope to maximize our relationship and put our employee partners in a position to provide more value and to be as successful as possible because we believe there are tools that will be available to us to provide more value to the customers and to put our people in a better position to provide that value, which makes them more successful. So early innings, but we're optimistic about where that can go.

Kartik Mehta: And we have exceeded our expectation our internal expectations.

Kartik Mehta: And we're pleased with that.

Kartik Mehta: But we're.

Kartik Mehta: Yeah, thank you. Hey, good morning. Todd, you know, you have been able to execute extremely well this year, beating guidance. And as you look at the business, is that the result of maybe metrics like non-programmers being a little bit better than you thought? Is it sales being better than you thought? Maybe you're just more cautious about the economy than actually happened.

There are so many inputs to it because we're trying to focus on providing.

Better products better services better technologies to make our people.

Kartik Mehta: More successful and to make our customers that much happier so a lot of inputs, but we like where we're positioned and.

Kartik Mehta: And we're continuing to invest for the future.

Todd M. Schneider: You know, if you looked at why you have been able to do better, what would you point to? Yeah, Kartik, it starts with our culture and our expectations of our employee partners and the pace and the intensity of which they run. But that being said, our value proposition is really resonating, and each of the businesses we're in, the first aid business we spoke about, you know, it's very good. Outsourcing is resonating nicely. Maybe it has to do with, you know, it's not as easy to hire people as it has been in the past, so if you want someone to outsource it, it's that much more attractive.

Speaker Change: And just one follow up.

Speaker Change: Obviously discussed M&A a lot I'm wondering and I know some of these acquisition can take years come to fruition.

Look at the market today are you seeing any change in the pricing environment, maybe what expectations are.

Speaker Change: From sellers or has it remained about the same.

Speaker Change: Yes, good question.

Todd Schneider: That's very helpful, Tyler. And if I can ask a quick accounting clarifying question. So, in the balance sheet, the uniform and other rental items and service that's moderated sequentially, quarter to quarter. I was just wondering if you can provide any color on what's driving that. Is that better efficiency or any color on that front? Thanks.

Ashish Sabadra: That's very helpful, Tyler. And if I can ask a quick accounting clarifying question. So, in the balance sheet, the uniform and other rental items and service that's moderated sequentially, quarter to quarter. I was just wondering if you can provide any color on what's driving that. Is that better efficiency or any color on that front? Thanks.

Speaker Change: I wouldn't speak to any change there.

Speaker Change: It's more about.

Certain events might.

Speaker Change: Cause them whether it's.

Speaker Change: And owners.

Speaker Change: Age or secession or.

Todd M. Schneider: You know, we like the spot we're in, and it's, and we have exceeded our internal expectations, and we're pleased with that, but there are so many inputs to it because, you know, we're trying to focus on providing better products, better services, better technologies to make our people more successful and to make our customers that much happier, so a lot of inputs, but we like where we're positioned, and we're And just one follow-up question, you obviously discussed M&A a lot, I'm wondering, and I know some of these acquisitions can take years to come to fruition. But as you look at the market today, are you seeing any change in the pricing environment? Maybe what expectations are there from sellers? Or has it remained about the same? Yeah, Kartik, a good question. I wouldn't speak to any change there. It's more about, you know, certain events might cause them, whether it's the owner's age or succession, or there are many different life events that would cause them to make a move.

Speaker Change: There are many.

Mike Hansen: Yes. Todd talked a little bit about how we are working on all pieces of the business, but certainly one of those is inventory. He touched on a little bit of garment sharing. So you can think about when we improve garment sharing, for example, we don't need to inject as many new garments into that in-service inventory. So the more sharing means better utilization of our existing in-service inventory. It means we don't have to add as much into the in-service inventory from new purchases. That's one of the areas. Certainly, though, there are others like improved sourcing as well. Volume growth, as Todd said, remains really strong. So what we're seeing is some nice offsetting of the volume growth with some of these initiatives.

Mike Hansen: Yes. Todd talked a little bit about how we are working on all pieces of the business, but certainly one of those is inventory. He touched on a little bit of garment sharing. So you can think about when we improve garment sharing, for example, we don't need to inject as many new garments into that in-service inventory. So the more sharing means better utilization of our existing in-service inventory. It means we don't have to add as much into the in-service inventory from new purchases. That's one of the areas. Certainly, though, there are others like improved sourcing as well. Volume growth, as Todd said, remains really strong. So what we're seeing is some nice offsetting of the volume growth with some of these initiatives.

Speaker Change: Life events that would cause them to.

Speaker Change: To make a move and it's more about that to your point.

Speaker Change: In certain cases. These are these are decades in the making and.

Speaker Change: And you can't really pay some but when they are ready we are ready and we are.

Speaker Change: Highly acquisitive very interested in.

Speaker Change: M&A from all shapes and sizes big little medium everything in between.

Speaker Change: We think it's.

Speaker Change: We're very interested.

Speaker Change: Okay.

Speaker Change: And our next question comes from Toni Kaplan from Morgan Stanley. Please go ahead Tony.

Toni Michele Kaplan: Thanks, so much.

I wanted to ask a question on the focus verticals.

Well that sure sort of the growth between focus verticals versus non focus ones and how do you assess whether to add a new vertical into that sort of focus designation.

Toni Michele Kaplan: Is there a different go to market strategy for focused verticals as well thanks.

Speaker Change: Yes, good morning, Tony.

Operator: Our next question comes from Stephanie Moore from Jefferies. Please go ahead, Stephanie.

Operator: Our next question comes from Stephanie Moore from Jefferies. Please go ahead, Stephanie.

Speaker Change: Well.

Speaker Change: I'll say this about our.

George Tong: Hi, good morning. Thank you. I wanted to continue the discussion on the pretty impressive margin front for the quarter. I appreciate the color in terms of kind of discussing the route optimization, the merchandise management, Six Sigma, the likes. But maybe if you could provide a little bit of color on your major initiatives, which ones do you think are kind of still in the early innings where we could kind of continue to see some more improvement or accelerated improvement? And then maybe taking it a step further, what is next for you guys in terms of other areas of opportunity that haven't been as major focused yet? Thank you.

Stephanie Moore: Hi, good morning. Thank you. I wanted to continue the discussion on the pretty impressive margin front for the quarter. I appreciate the color in terms of kind of discussing the route optimization, the merchandise management, Six Sigma, the likes. But maybe if you could provide a little bit of color on your major initiatives, which ones do you think are kind of still in the early innings where we could kind of continue to see some more improvement or accelerated improvement? And then maybe taking it a step further, what is next for you guys in terms of other areas of opportunity that haven't been as major focused yet? Thank you.

Speaker Change: Focus verticals, I, certainly expect them to grow faster than.

Speaker Change: The business in general.

Speaker Change: And when you're when you have an organized approach in euro and is around our customer base.

Todd M. Schneider: And it's more about that to your point. In certain cases, these are, these are decades in the making. And, and, you know, you can't really pace them.

Speaker Change: Certainly expect that and we've chosen what we think are really good verticals that are very attractive.

Speaker Change: So yes, so I can't give you a specific.

Todd M. Schneider: But when they are ready, we're ready. And we're highly inquisitive, very interested in M&A of all shapes and sizes, big, little, medium, everything in between. We think it's, we're very interested, and our next question. Toni Kaplan from Morgan Stanley. Please go ahead, Toni. Thanks so much.

Speaker Change: Boy, it's adding X amount of basis points to our total growth, but we think we've chosen well and and we're we're always analyzing whats should we have another one or should we not and what's the best way.

Todd Schneider: Good morning, Stephanie. From our strategic initiatives, we're focused on how we can impact our business in total, certainly our material costs, our energy, our labor. And as Mike referred to earlier, our energy spend is down 40 basis points. But that's not all just price. That is those initiatives that we referred to earlier. The material cost is our two largest costs, our material costs and labor. So we're very focused on driving efficiencies in all those areas because to Mike's earlier point, we love the volume growth, but we don't want to sacrifice margin because the volume growth is so robust that we've got these strategic initiatives to extract these inefficiencies out of our business. And I wouldn't speak to any one in particular that it's in the earlier innings or the others. We've got a nice runway forward for doing that.

Todd Schneider: Good morning, Stephanie. From our strategic initiatives, we're focused on how we can impact our business in total, certainly our material costs, our energy, our labor. And as Mike referred to earlier, our energy spend is down 40 basis points. But that's not all just price. That is those initiatives that we referred to earlier. The material cost is our two largest costs, our material costs and labor. So we're very focused on driving efficiencies in all those areas because to Mike's earlier point, we love the volume growth, but we don't want to sacrifice margin because the volume growth is so robust that we've got these strategic initiatives to extract these inefficiencies out of our business. And I wouldn't speak to any one in particular that it's in the earlier innings or the others. We've got a nice runway forward for doing that.

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Speaker Change: And it really gets down to what was it puts our employee partners in the best position to be successful.

Speaker Change: What creates the most value for the customer base. So we're looking we're evaluating always doing that but we like where our investment is at this point.

Toni Michele Kaplan: I wanted to ask a question on the focus verticals. Are you able to share sort of the growth between focus verticals versus non-focus ones, and how do you assess whether to add a new vertical to that sort of focus designation? Is there a different go-to market strategy for focus verticals as well? Thanks. Yeah, good morning, Tony.

Speaker Change: Terrific wanted to also ask about your marketing budget and whether you've increased that year over year I recently heard some cintas commercialism Bloomberg Radio for example, just wondering if thats coincidence or if there has been a greater push towards more marketing.

Todd M. Schneider: Well, I'll say this about our focus on verticals. I certainly expect them to grow faster than the business in general. And when you have an organized approach, and you're organized around a customer base, you certainly expect that. And, and we've chosen what we think are really good verticals that are very attractive. So yeah, so yeah, I can't give you a specific of how it's adding, you know, X amount of basis points to our total growth. But we think we've chosen well, and, and we're, we're, always analyzing whether should we have another one? Or should we not? And what's the best way?

Speaker Change: Yes, Tony.

Speaker Change: First off thank you I'm glad to hear that the algorithm is working and.

Speaker Change: It's hitting our target audience.

Speaker Change: <unk>.

Speaker Change: So.

Speaker Change: Wouldn't say, there's been a step change there, it's just trying to be.

Speaker Change: And make sure our investment is well placed.

Speaker Change: And we're trying to leverage analytics and technology to make sure that the investment is <unk>.

Speaker Change: Deriving the very best.

Speaker Change: Roy as possible so.

Todd Schneider: A little bit of that is our culture, that we're constantly trying to innovate and push ourselves to be better. So I think you'll see that continued. As far as acceleration, it's built in. We're constantly doing it. So I think we're focused on those incremental margins. And this is an important component of making sure that we can hit those numbers.

A little bit of that is our culture, that we're constantly trying to innovate and push ourselves to be better. So I think you'll see that continued. As far as acceleration, it's built in. We're constantly doing it. So I think we're focused on those incremental margins. And this is an important component of making sure that we can hit those numbers.

Speaker Change: It's just a matter of tweaks versus a step change in investment.

Toni Michele Kaplan: And it really gets down to what puts our employee partners in the best position to be successful and what creates the most value for the customer base. So we're looking, we're evaluating, always doing that. But we like where our investment is at this point. I wanted to also ask about your marketing budget and whether you've increased that year over year. I recently heard some Cintas commercials on Bloomberg Radio, for example.

Roy: Perfect. Thanks, a lot.

Roy: Thank you and at this time there are no further questions I'd like to turn the call back over to Jared for closing remarks.

Jared S. Mattingley: Thank you for joining us. This morning, we will issue our fourth quarter of fiscal 'twenty for financial results in July and we look forward to speaking with you again at that time. Thank you.

Mike Hansen: Yeah. The only thing I might add is we're certainly in the very early innings of technology. We believe there's a nice runway there. Todd talked about just the recent migration to the Google Cloud. That creates a foundation for us to do some interesting things moving forward.

Mike Hansen: Yeah. The only thing I might add is we're certainly in the very early innings of technology. We believe there's a nice runway there. Todd talked about just the recent migration to the Google Cloud. That creates a foundation for us to do some interesting things moving forward.

Jared S. Mattingley: Yes.

Speaker Change: This concludes today's conference call. Thank you for your participation.

Speaker Change: May now disconnect.

Speaker Change: The host has ended this call goodbye.

Todd M. Schneider: Just wondering if that's a coincidence or if there's been a greater push towards, you know, more marketing. Thanks. Yeah, Toni.

George Tong: Great. Well, thank you so much.

Stephanie Moore: Great. Well, thank you so much.

Todd M. Schneider: First off, thank you. I'm glad to hear that. The algorithm's working, and it's hitting our target audience, so I wouldn't say there's been a step change there. It's just trying to make sure our investment is well-placed, and we're trying to leverage analytics and technology to make sure that the investment is delivering the very best ROI as possible. So it's just a matter of tweaks versus a step change in investment.

Operator: Our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead, Scott.

Operator: Our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead, Scott.

Daniel: Hey, good morning. It's Daniel from Scott Schneeberger. Thanks for taking our call here. Could you please speak to the outlook for uniform direct sales and fire protection, as well as some perspective on the margins for all others going forward, please? Thank you.

[Analyst] (Oppenheimer): Hey, good morning. It's Daniel from Scott Schneeberger. Thanks for taking our call here. Could you please speak to the outlook for uniform direct sales and fire protection, as well as some perspective on the margins for all others going forward, please? Thank you.

Todd Schneider: I'll start on the outlook. And Mike, if you want to speak to the margins. The Uniform Direct Sale business is a strategic business for us. We have some really large strategic accounts, whether it's national accounts or in the hospitality, gaming area of our business. And so strategic, meaning that those customers spend a lot more money with us, not just with uniform direct sale, but also outside of that. So that's important. That being said, that business certainly can be a little lumpy due to the nature of it with rollouts and purchases. But we like where we're positioned there. We like the value proposition that we're where we are there. So we think the outlook's very positive there. As far as the fire business, it's been a great business for us. The results over the last several years, we've seen great revenue growth.

Todd Schneider: I'll start on the outlook. And Mike, if you want to speak to the margins. The Uniform Direct Sale business is a strategic business for us. We have some really large strategic accounts, whether it's national accounts or in the hospitality, gaming area of our business. And so strategic, meaning that those customers spend a lot more money with us, not just with uniform direct sale, but also outside of that. So that's important. That being said, that business certainly can be a little lumpy due to the nature of it with rollouts and purchases. But we like where we're positioned there. We like the value proposition that we're where we are there. So we think the outlook's very positive there. As far as the fire business, it's been a great business for us. The results over the last several years, we've seen great revenue growth.

Jared S. Mattingley: And at this time, there are no further questions. I'd like to turn the call back over to Jared. Thank you for joining us this morning. We will issue our fourth quarter of fiscal 24 financial results in July.

Operator: We look forward to speaking with you again at that time. Thank you. This concludes today's conference call. Thank you for your participation. The Bulletproof Executive 2013, The host has ended this call. Goodbye.

Todd Schneider: We've seen great margin improvement. And it's the only business we're in where you legally have to have those products and services. So we think the outlook is really positive because of the prospects that are out there and the runway we see for opportunity. So Mike, if you want to comment on margin?

We've seen great margin improvement. And it's the only business we're in where you legally have to have those products and services. So we think the outlook is really positive because of the prospects that are out there and the runway we see for opportunity. So Mike, if you want to comment on margin?

Mike Hansen: Sure. So as Todd said, the fire business in particular, the margins have increased quite a bit in the last handful of years. We've seen a lot of the same initiatives and other initiatives specific to that business really take off like we've seen in our other businesses. The one thing I might point out there, we did see some increase in SG&A and the fire business year over year. We're starting to get into that SAP implementation for the fire business. So we might see a little bit of pressure as we move into Fiscal 2025 on the fire margins, the overall margins because of that investment and that move. But as you've seen with our rental, first aid, and safety businesses, once we understand how to use that and get proficient at it, it can create some really nice opportunities.

Mike Hansen: Sure. So as Todd said, the fire business in particular, the margins have increased quite a bit in the last handful of years. We've seen a lot of the same initiatives and other initiatives specific to that business really take off like we've seen in our other businesses. The one thing I might point out there, we did see some increase in SG&A and the fire business year over year. We're starting to get into that SAP implementation for the fire business. So we might see a little bit of pressure as we move into Fiscal 2025 on the fire margins, the overall margins because of that investment and that move. But as you've seen with our rental, first aid, and safety businesses, once we understand how to use that and get proficient at it, it can create some really nice opportunities.

Mike Hansen: So, maybe a little bit of we've seen some great improvement, maybe a little bit of next year and the following year pressure on SG&A because of that implementation. But we certainly expect those margins to continue to improve in the longer term. From a Uniform Direct Sale margin perspective, as Todd said, that business is going to go up and down. It's going to be a little bit bumpy from quarter to quarter. And because of that, the margins will be as well. So, I don't think there's anything specific to call out other than it isn't quite as consistent of a business as the other three that we have.

So, maybe a little bit of we've seen some great improvement, maybe a little bit of next year and the following year pressure on SG&A because of that implementation. But we certainly expect those margins to continue to improve in the longer term. From a Uniform Direct Sale margin perspective, as Todd said, that business is going to go up and down. It's going to be a little bit bumpy from quarter to quarter. And because of that, the margins will be as well. So, I don't think there's anything specific to call out other than it isn't quite as consistent of a business as the other three that we have.

Daniel: Thank you.

[Analyst] (Oppenheimer): Thank you.

Operator: Our next question comes from Shlomo Rosenbaum from Stifel. Please go ahead, Shlomo.

Operator: Our next question comes from Shlomo Rosenbaum from Stifel. Please go ahead, Shlomo.

Shlomo Rosenbaum: Hi. Thank you for taking my questions. Hey, Todd, can you talk a little bit about the macro environment with regard to employment? And specifically, if you could touch upon some of the areas where they're looking for more automation to reduce the employment due to raises in minimum wage in areas like California. How exposed are you to those kinds of verticals? And then after that, I have a follow-up.

Shlomo Rosenbaum: Hi. Thank you for taking my questions. Hey, Todd, can you talk a little bit about the macro environment with regard to employment? And specifically, if you could touch upon some of the areas where they're looking for more automation to reduce the employment due to raises in minimum wage in areas like California. How exposed are you to those kinds of verticals? And then after that, I have a follow-up.

Todd Schneider: Good morning, Shlomo. Yeah. From a macro environment, as I mentioned, we haven't seen much change in our customer behavior. Certainly, there's always some puts and takes. As you mentioned, our customers are under pressure to figure out ways to automate things because wage inflation, that has occurred and will continue to occur. It's occurred for many, many years. Now, there's also some of the infrastructure bills that are out there, the onshoring. I can't speak to specifics of, "Oh boy, we're benefiting from this," or, "This is a headwind here." But generally, we like the spot we're in. We think it's the macro environment where it's been reasonably stable. We find that attractive, and we can be really successful in that environment.

Todd Schneider: Good morning, Shlomo. Yeah. From a macro environment, as I mentioned, we haven't seen much change in our customer behavior. Certainly, there's always some puts and takes. As you mentioned, our customers are under pressure to figure out ways to automate things because wage inflation, that has occurred and will continue to occur. It's occurred for many, many years. Now, there's also some of the infrastructure bills that are out there, the onshoring. I can't speak to specifics of, "Oh boy, we're benefiting from this," or, "This is a headwind here." But generally, we like the spot we're in. We think it's the macro environment where it's been reasonably stable. We find that attractive, and we can be really successful in that environment.

Shlomo Rosenbaum: Great. Thank you. Just for a follow-up, you have a competitor there that was spun out, say, six months ago. And I was just wondering, has there been any change in the environment with them competitively in terms either positively or negatively? I mean, have you seen any changes in the way that they bid? Are you taking more business from them? Maybe you could just comment in general.

Shlomo Rosenbaum: Great. Thank you. Just for a follow-up, you have a competitor there that was spun out, say, six months ago. And I was just wondering, has there been any change in the environment with them competitively in terms either positively or negatively? I mean, have you seen any changes in the way that they bid? Are you taking more business from them? Maybe you could just comment in general.

Todd Schneider: Yeah, Shlomo, I would characterize it as it's pretty well business as usual. They're a very good competitor, always have been. I'm sure they always will be. And we have a great deal of respect for them. And it's a very competitive environment. Always has been. As long as I've been with the company, it has been, and I'm sure it will be in the future. But we're focused on putting our employee partners in the best position to be successful in providing our customers the best value proposition. So really, none of that has changed.

Todd Schneider: Yeah, Shlomo, I would characterize it as it's pretty well business as usual. They're a very good competitor, always have been. I'm sure they always will be. And we have a great deal of respect for them. And it's a very competitive environment. Always has been. As long as I've been with the company, it has been, and I'm sure it will be in the future. But we're focused on putting our employee partners in the best position to be successful in providing our customers the best value proposition. So really, none of that has changed.

Operator: Our next question comes from Kartik Mehta from North Coast Research. Please go ahead, Kartik.

Operator: Our next question comes from Kartik Mehta from North Coast Research. Please go ahead, Kartik.

Todd Schneider: Yeah. Thank you. Hey, good morning. Todd, you know you have been able to execute extremely well this year, beat guidance. As you look at the business, is that the result of maybe metrics like non-programmers being a little bit better than you thought? Is it sales being better than you thought? Maybe you're just more cautious about the economy than actually happened? If you look at why you've been able to do better, what would you point to?

Kartik Mehta: Yeah. Thank you. Hey, good morning. Todd, you know you have been able to execute extremely well this year, beat guidance. As you look at the business, is that the result of maybe metrics like non-programmers being a little bit better than you thought? Is it sales being better than you thought? Maybe you're just more cautious about the economy than actually happened? If you look at why you've been able to do better, what would you point to?

Todd Schneider: Yeah. Kartik, it starts with our culture and our expectations of our employee partners and the pace and the intensity of which they run. But that being said, our value proposition is really resonating in each of the businesses we're in. The first aid business we spoke about, it's very good. Outsourcing is resonating nicely. Maybe it has to do with it's not as easy to hire people as it has been in the past. So if you want someone to outsource it, it's that much more attractive. Yeah, we like the spot we're in. We have exceeded our internal expectations. We're pleased with that. But there's so many inputs to it because we're trying to focus on providing better products, better services, better technologies to make our people more successful and to make our customers that much happier.

Todd Schneider: Yeah. Kartik, it starts with our culture and our expectations of our employee partners and the pace and the intensity of which they run. But that being said, our value proposition is really resonating in each of the businesses we're in. The first aid business we spoke about, it's very good. Outsourcing is resonating nicely. Maybe it has to do with it's not as easy to hire people as it has been in the past. So if you want someone to outsource it, it's that much more attractive. Yeah, we like the spot we're in. We have exceeded our internal expectations. We're pleased with that. But there's so many inputs to it because we're trying to focus on providing better products, better services, better technologies to make our people more successful and to make our customers that much happier.

Todd Schneider: So a lot of inputs, but we like where we're positioned. We're continuing to invest for the future.

So a lot of inputs, but we like where we're positioned. We're continuing to invest for the future.

Todd Schneider: Just one follow-up. You obviously discussed M&A a lot. I know some of these acquisitions can take years to come to fruition. As you look at the market today, are you seeing any change in the pricing environment, maybe what expectations are from sellers, or has it remained about the same?

Kartik Mehta: Just one follow-up. You obviously discussed M&A a lot. I know some of these acquisitions can take years to come to fruition. As you look at the market today, are you seeing any change in the pricing environment, maybe what expectations are from sellers, or has it remained about the same?

Todd Schneider: Yeah, Kartik, good question. I wouldn't speak to any change there. It's more about certain events might cause them, whether it's an owner's age or succession, or there's many different life events that would cause them to make a move. And it's more about that, to your point. In certain cases, these are decades in the making. And you can't really pace them. But when they are ready, we're ready. And we're highly inquisitive, very interested in M&A from all shapes and sizes, big, little, medium, and everything in between. We think we're very interested.

Todd Schneider: Yeah, Kartik, good question. I wouldn't speak to any change there. It's more about certain events might cause them, whether it's an owner's age or succession, or there's many different life events that would cause them to make a move. And it's more about that, to your point. In certain cases, these are decades in the making. And you can't really pace them. But when they are ready, we're ready. And we're highly inquisitive, very interested in M&A from all shapes and sizes, big, little, medium, and everything in between. We think we're very interested.

Operator: Our next question comes from Tony Kaplan from Morgan Stanley. Please go ahead, Tony.

Operator: Our next question comes from Tony Kaplan from Morgan Stanley. Please go ahead, Tony.

Todd Schneider: Thanks so much. I wanted to ask a question on the focus verticals. Are you able to share sort of the growth between focus verticals versus non-focus ones? And how do you assess whether to add a new vertical into that sort of focus designation? Is there a different go-to market strategy for focus verticals as well? Thanks.

Toni Kaplan: Thanks so much. I wanted to ask a question on the focus verticals. Are you able to share sort of the growth between focus verticals versus non-focus ones? And how do you assess whether to add a new vertical into that sort of focus designation? Is there a different go-to market strategy for focus verticals as well? Thanks.

Todd Schneider: Yeah. Good morning, Tony. Well, I'll say this about our focus verticals. I certainly expect them to grow faster than the business in general. And when you have an organized approach and you're organized around a customer base, you certainly expect that. And we've chosen what we think are really good verticals that are very attractive. So yeah, I can't give you a specific of, "Boy, it's adding X amount of basis points to our total growth." But we think we've chosen well. And we're always analyzing, "Should we have another one, or should we not? And what's the best way?" And it really gets down to what puts our employee partners in the best position to be successful and what creates the most value for the customer base. So we're looking. We're evaluating, always doing that. But we like where our investment is at this point.

Todd Schneider: Yeah. Good morning, Tony. Well, I'll say this about our focus verticals. I certainly expect them to grow faster than the business in general. And when you have an organized approach and you're organized around a customer base, you certainly expect that. And we've chosen what we think are really good verticals that are very attractive. So yeah, I can't give you a specific of, "Boy, it's adding X amount of basis points to our total growth." But we think we've chosen well. And we're always analyzing, "Should we have another one, or should we not? And what's the best way?" And it really gets down to what puts our employee partners in the best position to be successful and what creates the most value for the customer base. So we're looking. We're evaluating, always doing that. But we like where our investment is at this point.

Todd Schneider: Terrific. I wanted to also ask about your marketing budget and whether you've increased that year over year. I recently heard some Cintas commercials on Bloomberg Radio, for example, just wondering if that's coincidence or if there's been a greater push towards more marketing. Thanks.

Toni Kaplan: Terrific. I wanted to also ask about your marketing budget and whether you've increased that year over year. I recently heard some Cintas commercials on Bloomberg Radio, for example, just wondering if that's coincidence or if there's been a greater push towards more marketing. Thanks.

Todd Schneider: Yeah, Tony. First off, thank you. I'm glad to hear that. The algorithm's working, and it's hitting our target audience. So I wouldn't say there's been a step change there. It's just trying to make sure our investment is well placed. And we're trying to leverage analytics and technology to make sure that the investment is deriving the very best ROI as possible. So it's just a matter of tweaks versus a step change in investment.

Todd Schneider: Yeah, Tony. First off, thank you. I'm glad to hear that. The algorithm's working, and it's hitting our target audience. So I wouldn't say there's been a step change there. It's just trying to make sure our investment is well placed. And we're trying to leverage analytics and technology to make sure that the investment is deriving the very best ROI as possible. So it's just a matter of tweaks versus a step change in investment.

Todd Schneider: Terrific. Thanks a lot.

Toni Kaplan: Terrific. Thanks a lot.

Todd Schneider: Thank you.

Todd Schneider: Thank you.

Operator: At this time, there are no further questions. I'd like to turn the call back over to Jared for closing remarks.

Operator: At this time, there are no further questions. I'd like to turn the call back over to Jared for closing remarks.

Operator: Thank you for joining us this morning. We will issue our fourth quarter of fiscal 2024 financial results in July. We look forward to speaking with you again at that time. Thank you.

Jared Mattingley: Thank you for joining us this morning. We will issue our fourth quarter of fiscal 2024 financial results in July. We look forward to speaking with you again at that time. Thank you.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: The host has ended this call. Goodbye.

Operator: The host has ended this call. Goodbye.