Q2 2024 Vestis Corp Earnings Call

Unknown Executive: against advancing our strategic plan and driving growth across the business. Operating trends are improving with strong free cash flow, demonstrating cost performance, improvement in managing working capital, and the resiliency of our model in support of strengthening our balance sheet over time. Now, turning to our results.

Advancing our strategic plan and driving growth across the business.

Unknown Executive: Operating trends are improving with strong free cash flow.

Unknown Executive: Demonstrating cost performance improvement and managing working capital and the resiliency of our model in support of strengthening our balance sheet over time.

Unknown Executive: In the second quarter, we delivered lower than expected revenue growth of 0.9% or 2.8% on an underlying basis when normalized for last year's temporary energy fee and an adjusted EBITDA margin of 12.4%, which is 90 basis points lower than the second quarter of last year and includes the absorption of incremental public company costs. Lower-than-planned revenue growth impacted our performance in the quarter and will also impact our performance in the back half of the year.

Unknown Executive: Now turning to our results in the second quarter, we delivered lower than expected revenue growth of 9% or two 8% on an underlying basis when normalized for last year's temporary energy fee and adjusted EBITA margin of 12, 4%, which is 90 basis points lower in the second quarter last year and includes the absorption of <unk>.

Unknown Executive: Mental public company costs.

Unknown Executive: Lower than planned revenue growth impacted our performance in the quarter and will also impact our performance in the back half of the year.

Unknown Executive: While we delivered 8% growth in new business wins and customer penetration through route sales, we did not accelerate our ramp to the levels required to offset rollover losses from FY23. Our top line growth was also impacted by a deliberate decision to moderate pricing while we enhanced our service processes in order to continue to strengthen customer retention. To ramp new business sales further going forward, we are focused on improving the capabilities of our frontline sales teammates while also strengthening our national account pipeline and go-to-market strategies. We also made the recent and deliberate decision to moderate pricing action in the second quarter and the back half of the fiscal year in order to realize improved retention while we enhance our service process.

Unknown Executive: While we delivered 8% growth in new business wins and customer penetration throughout felt we did not accelerate our ramp to the levels required to offset rollover losses from FY2023.

Unknown Executive: Our topline growth was also impacted by a deliberate decision to moderate pricing, while we enhance our service processes in order to continue to strengthen customer retention.

Unknown Executive: New business they'll further going forward, we are focused on improving the capabilities of our frontline sells teammate while also strengthening our national account pipeline and go to market strategies.

Unknown Executive: We also made the recent and deliberate decision to moderate pricing action in the second quarter and the back half of the physical year in order to realize improved retention, while we enhance our service processes.

Unknown Executive: While this is negatively impacting our revenue and EBITDA in the second half of the year, we strongly believe that it is the right decision for the long-term health and growth of the business. As a result of these short-term challenges related to self-productivity and deliberate moderated pricing actions, we are updating our full-year outlook for FY24. We now expect revenue growth between negative 1% to flat year-over-year and an adjusted EBITDA margin between 12 and 12.4%.

Unknown Executive: While this is negatively impacting our revenue and EBITDA in the second half of the year. We strongly believe that it is the right decision for the long term health and growth of the business.

Unknown Executive: As a result of these short term challenges related to sales productivity and deliberate moderated pricing actions. We are updating our full year outlook for FY 'twenty four.

Unknown Executive: We now expect revenue growth between negative 1% to flat year over year, and adjusted EBITDA margin between 12, and 12, 4%, while we are not satisfied with our performance and its outlook for the full year, we remain confident in our long term strategy and the value creation opportunity ahead for investors.

Unknown Executive: While we are not satisfied with our performance in this outlook for the full year, we remain confident in our long-term strategy and the value creation opportunity ahead for Vestis. We are delivering results against many of our key strategic initiatives while taking swift and assertive action to enhance our self-productivity and service efficacy to accelerate growth. We are also keenly focused on managing and reducing costs across the company. Later in our discussion, I'll provide a scorecard against several key strategic initiatives. Now, I'd like to discuss our response.

Unknown Executive: We are delivering results against many of our key strategic initiatives, while taking swift and assertive action to enhance our sales productivity and serviced efficacy to accelerate growth.

Unknown Executive: We are also keenly focused on managing and reducing costs across the company later in our discussion I'll provide a scorecard against several key strategic initiatives.

Unknown Executive: We are taking decisive and immediate action to address our short-term challenges this year. We are mobilized to improve sales productivity related to new business wins and focus on building a high-performance sales team. I have spent significant time over the past few months assessing our sales team, structure, and talent, as well as our processes, from teammate training and onboarding to collateral and go-to-market strategies for our various product lines.

Unknown Executive: Now I'd like to discuss our response, we are taking decisive and immediate actions to address our short term challenges in the year.

Unknown Executive: We are mobilized to improve sales productivity related to new business wins and focus on building a high performing sales team I have spent significant time over the past few months assessing our sales team structure and talent as well as our processes from TMA training and Onboarding to.

Unknown Executive: <unk> and go to market strategies for our various product lines.

Unknown Executive: We've identified enhancing selling skills and capabilities, as well as improving teammate tenure, as our highest priorities to support our frontline self-teammates in improving their close rates and deal sizes. In support of this, we have launched improved recruiting, onboarding, and retention programs, as well as enablement tools, such as improved collateral and sample kits. We are also strengthening our national account pipeline. I have spent a great deal of time with our national account sales leaders and our customers. It's a privilege to support so many great companies and brands.

Unknown Executive: We've identified enhancing selling skills and capabilities as well as improving teammate tenure as our highest priorities to support our frontline self teammate and improving their close rates and deal sizes.

Unknown Executive: In support of this we have launched improved recruiting onboarding and retention programs as well as enablement tools, such as improved collateral and sample kit.

Unknown Executive: We are also strengthening our national accounts Python I have spent a great deal of time with our national account sales leaders and our customers. It's a privilege to support so many great companies and brands not only do we have opportunity to win new national accounts, but we have opportunity to grow share of wallet with existing <unk>.

Unknown Executive: Not only do we have the opportunity to win new national accounts, but we also have the opportunity to grow share of wallet with existing customers. Our national account team is energized by the support and focus they are receiving from leadership to grow national accounts, as this was not a priority for past leadership. We are taking actions to enhance our service in order to deliver a higher level of customer satisfaction, loyalty, and retention. This effort will also allow us to revisit pricing as we see customers respond positively to these process improvements.

Unknown Executive: Customers our national account team is energized by the support they are receiving from leadership to grow national accounts. As this has not been a priority for past leadership.

Unknown Executive: We're taking actions to enhance our service in order to deliver a higher level of customer satisfaction loyalty and retention. This effort will also allow us to revisit pricing as we see customers respond positively to these process improvements we are conducting assessments all the way to our routes.

Unknown Executive: We are conducting assessments all the way to our route service representatives in the field to identify, improve, and retrain on specific procedures that can enhance our customers' experience and garner loyalty. We will also be creating a new leadership role on our team that will be accountable for service across the company.

Unknown Executive: Service Representatives in the field to identify improve and retrain on specific procedures that can enhance our customer's experience and garner loyalty. We will also be creating a new leadership role on our team that will be accountable for service across the company.

Unknown Executive: While we work through these improvements, we have deliberately moderated planned price increases we had scheduled for the second quarter and in the second half of the year in order to reduce customer churn, with a focus on improving customer lifetime value while we enhance our service process. We will continue to strategically and surgically price in a thoughtful way with a focus on lifetime customer value. We believe service gaps have driven price sensitivity, as fully satisfied customers typically don't leave because they've received a price increase, but the price increase can be a catalyst for cancellation or quitting.

Unknown Executive: While we work through these improvements we have deliberately moderated planned price increases we had scheduled for the second quarter and in the second half of the year in order to reduce customer churn with a focus on improving customer lifetime value, while we enhance our service processes, we will continue to strategically.

Unknown Executive: And surgically priced in a thoughtful way with focus on lifetime customer value.

Unknown Executive: We believe service gas had driven price sensitivity as fully satisfied customers typically don't leave because they've received a price increase but the price increase can be a catalyst for cancellation or quit.

Unknown Executive: We are mobilized around this opportunity and see upward trends in customer retention year to date, which I'll discuss on the slide. We are also taking swift action related to fair labor, accelerating the delivery of operational efficiencies in areas such as logistics, and evaluating our organizational structure. We will be making changes to our structure to better organize our team for success. And, in parallel, we are also evaluating the structure through the lens of flattening and simplifying the organization so that we are more agile and able to institutionalize improvements in our business more quickly, while also lowering costs.

Unknown Executive: We are mobilized around this opportunity and see upward trends in customer retention year to date, which I'll discuss on a fun.

Unknown Executive: We are also taking swift action related to available labor.

Unknown Executive: Accelerating the delivery of operational efficiencies in areas, such as logistics and evaluating our organizational structure.

Unknown Executive: We will be making changes to our structure to better organize our team for success and in parallel. We are also evaluating the structure through the lens of flattening and simplifying the organization. So that we are more agile and able to institutionalized improvements in our business more quickly while also lowering costs.

Unknown Executive: We are addressing these short-term challenges and expect to return to the acceleration of growth and market expansion we have outlined in our strategic plan. We will also continue advancing our strategic initiatives while these opportunities are addressed. Now turning to customer retention. As discussed previously, we have highly engaged and dedicated teammates that are focused on creating a great experience for our customers. Their commitment has not wavered while we have identified the need to improve the service process.

Unknown Executive: We are addressing these short term challenges and expect to return to the acceleration of growth and market expansion. We have outlined in our strategic plan. We will also continue advancing our strategic initiatives. While these opportunities are being addressed.

Unknown Executive: Now turning to customer retention.

Unknown Executive: As discussed previously we have highly engaged and dedicated teammates that are focused on creating a great experience for our customers. Their commitment has not wavered, while we have identified the need to improve service processes.

Unknown Executive: We have been working to overcome and offset a large amount of rollover losses from FY23 that are impacting our volume in FY24. These losses from FY23 include two large national account customers that represent approximately 60 basis points of revenue growth headwinds for the full year of FY24.

Unknown Executive: We have been working to overcome and offset a large amount of rollover losses from FY 'twenty through 'twenty three that are impacting our volume in FY 'twenty for these losses from FY 'twenty. Three include two large national account customers that represent approximately 60 basis points of revenue growth headwind in the full year.

Unknown Executive: Our customer retention performance trend for recurring revenue is trending upward this year and returning to historical norms. Fiscal year to date, our customer satisfaction score has improved to a 12-month high. I'm pleased to say that National Account Renewals are performing well this year, with several of our largest customers renewed year-to-date. However, these renewals have also revealed the need to enhance our service and, in a few instances, have resulted in pricing and volume erosion during the renewal process. Based on the reason codes cited by our customers when they cancel service with us, we know that more than 70% of cancellations are due to causes that are within our control.

Unknown Executive: That's why a 24.

Unknown Executive: Our customer retention performance trend for recurring revenue is trending upward this year and returning to historical norms fiscal year to date, our customer satisfaction score has improved to a 12 month time.

Unknown Executive: I'm pleased to say that national account renewals are performing well this year with several of our largest customers renewed year to date. However, these renewals have also revealed the need to enhance our service and in a few instances have resulted in pricing and volume erosion during the renewal process.

Unknown Executive: Based on reason codes cited by our customers when they cancel service with US we know that more than 70% of cancellations are due to causes that are within our control.

Unknown Executive: This presents a great opportunity to drive incremental value as we continue to improve retention, and it validates our focus on improving service in order to improve customer retention. We are focused on enhancing our service processes in order to continue this upward trend as we see an opportunity to continue to improve customer retention and drive value over the long term through these efforts.

Unknown Executive: This presents a great opportunity to drive incremental value as we continue to improve retention and it validates our focus on improving service in order to improve customer retention.

Unknown Executive: We are focused on enhancing our service processes in order to continue this upward trend as we see opportunity to continue to improve customer retention and drive value over the long term through these efforts.

Unknown Executive: Starting with our new business wins with new customers. While we have delivered 700 basis points of revenue growth from new business wins in FY24 year-to-date, we have not ramped to the sales levels planned for the year and need to overcome the rollover losses from FY23. We continue to strengthen our national account pipeline, which over time will bring large incremental volumes to our network and will leverage our fixed assets and idle capacity. We are also mobilized around our eight micro verticals, but we have been slow to gain traction with our own force.

Unknown Executive: Now moving to sell.

Unknown Executive: Starting with our new business wins with new customers.

Unknown Executive: While we have delivered 700 basis points of revenue growth from new business win in FY 'twenty for year to date, we have not ramped to the sales levels planned for the year and needed to overcome the rollover losses from FY2023.

Unknown Executive: We continue to strengthen our national account Python, which over time will bring large incremental volumes to our network and we'll leverage our fixed assets and idle capacity.

Unknown Executive: We remain confident in these verticals and are supporting our team and accelerating growth in these sectors. As discussed previously, we are implementing improvements in our recruiting, onboarding, and training programs for self-teammates, while also providing enablement tools such as improved collateral and sample kits to improve sales productivity. Our strategy to cross sell additional products and services to existing customers in order to drive customer penetration comes with an attractive revenue flow and is progressing well and ahead of plan.

Unknown Executive: We're also mobilized around our eight micro vertical, but we have been slow to gain traction with our sales force. We remain confident in these verticals and are supporting our teams and accelerating growth in these sectors.

Unknown Executive: As discussed previously we are implementing improvements in our recruiting onboarding and training programs for self teammates, while also providing enablement tools, such as improved collateral and sample kits to improve sales productivity.

Unknown Executive: Our strategy to cross sell additional products and services to existing customers in order to drive customer penetration comes with an attractive revenue flow through and is progressing well and ahead of plan.

Unknown Executive: Our route sales representatives, or RSRs, are doing a great job. Sales per RSR are up approximately 100% versus the prior year, and we've seen a 20% increase in the number of routes with sales activity year-to-date. We've instituted a twice-daily process to manage and measure route sales, and I'm very pleased with the results we are seeing here.

Unknown Executive: Our route sales representatives are rsr's are doing a great job sales per RSR or up approximately 100% versus prior year and we've seen a 20% increase in the number of routes with sales activity year to date, we've instituted a twice daily process to manage and measure route cells.

Unknown Executive: We've also seen demonstrated performance from teammates at the levels required to achieve the long-term growth rate in our strategic plan. Our focus is now centered around supporting all of our RSRs in achieving and maintaining these levels of performance. Now, let's shift to our strategic plan. We remain confident in our strategic plan, and we will continue to implement it. On slide 7, this scorecard depicts our rating of how we are doing against several key initiatives.

Unknown Executive: And I'm very pleased with the results we are seeing here.

Unknown Executive: We've also seen demonstrated performance from teammates at the levels required to achieve the long term growth rate and our strategic plans.

Unknown Executive: Our focus is now centered around supporting all of our <unk> and achieving and maintaining these levels of performance.

Unknown Executive: Now, let's shift to our strategic plan.

Unknown Executive: We remain confident in our strategic plan and we will continue to advance it.

Unknown Executive: On slide seven this scorecard depicts our rating of how we're doing against several key initiatives.

Unknown Executive: We've talked a lot about sales today, and we are undoubtedly focused on accelerating revenue growth by addressing sales productivity. Customer retention is one of the single most important levers in our recurring revenue model and critical to our strategy to strengthen the base, capture share of wallet through cross-selling, leverage idle capacity and fixed assets, and enhance customer lifetime value. We are hyper-focused on improving retention in support of our strategy, as we already see the great progress we are making to cross-sell and gain penetration with our satisfied and loyal customers. Retention is moving back in the right direction. But even when compared to historical norms, we believe that it's still lower than our peers.

Unknown Executive: We've talked a lot about sales today, and we are undoubtedly focused on accelerating revenue growth through addressing sales productivity.

Unknown Executive: Customer retention is one of the single most important levers in our recurring revenue model and critical to our strategy to strengthen the base capture share of wallet through cross selling the levers of idle capacity and fixed assets and enhance customer lifetime value. We are hyper focused on improving retention and support of <unk>.

Unknown Executive: Our strategy as we already see the great progress, we are making to cross sell and gained penetration with our satisfied and loyal customers.

Unknown Executive: This presents a great opportunity for Vestis to create shareholder value as we enhance our service processes and ultimately increase retention and customer penetration. While we are working to enhance our service processes, we will be strategic about how and when we price so that we are building the company for the long term. Now turning to efficient operations, I'm very pleased with our progress related to logistics initiatives. Our team is performing extremely well in this area.

Unknown Executive: Retention is moving back in the right direction, but even when at historical norms, we believe but its still lower than our peers. This presents a great opportunity for vestas to create shareholder value as we enhance our service processes and ultimately increase retention and customer penetration.

Unknown Executive: We are working to enhance our service processes, we will be strategic about how and when we price. So that we are building the company for the long term.

Unknown Executive: We are building momentum and have already completed 22 optimization events in the first half of the year versus a total of 23 for the full year in FY23. As a result, we are seeing improvements in logistics efficiencies in areas such as fuel consumption. We intend to introduce a metric, FY25, that will serve as a barometer for progress against this initiative. We are also ahead of plan related to our merchandise reuse initiative.

Unknown Executive: Now turning to efficient operations.

Unknown Executive: I'm very pleased with our progress related to logistics initiatives. Our team is performing extremely well in this area. We are building momentum and have already completed 22 optimization events in the first half of the year versus a total of 23 for the full year in FY2023.

Unknown Executive: As a result, we are seeing improvements in logistics efficiencies in areas such as fuel consumption, we intend to introduce a metric in FY 'twenty five that will serve as a barometer for progress against this initiative.

Unknown Executive: Year to date, we've seen a 20% improvement in the use bill rate and are on track to deliver an approximate $10 million in cash savings and an approximate $4 million in run rate cost benefits in FY24. We also remain focused on capital allocation, with delevering as a priority. Rick will talk more about capital allocation in a moment, but I did want to mention the great progress we are making institutionalizing a sales and operations planning process that will further help us to improve inventory management. Our supply chain team is doing a great job here, delivering $34 million in cash generation improvement year to date as a result. Now I'd like to introduce Rick, who will take us through the financials.

Rick: We are also ahead of plan related to our merchandize reuse initiatives year to date, we've seen a 20% improvement in used to go right and are on track to deliver an approximate $10 million in cash savings and an approximate $4 million run rate cost benefits in FY 'twenty four.

Rick: We also remain focused on capital allocation with Delevering as a priority.

Unknown Executive: Rick will talk more about capital allocation in a moment, but I did want to mention the great progress, we are making institutionalizing, our sales and operations planning process that will further help us to improve inventory management, our supply chain team is doing a great job here delivering $34 million in cash generation improvement year to date as of.

Rick: Our results.

Rick Dillon: Thanks, Kim, and good morning, everyone. I'll start with more details on the second quarter results and then walk through the drivers of the changes in our full year 2024 guidance and what it means for the back half of the year. So let's start with the second quarter revenue bridge on slide nine. Revenue of 705 million increased by 0.9% year over year. The impact of volume growth and pricing was offset by lost business in the quarter.

Unknown Executive: Now I'd like to introduce Rick who will take us through the financials Rick.

Speaker Change: Thanks, Kim and good morning, everyone I'll start with more details on our second quarter results and then walk through the drivers of the changes in our full year 2020 for guidance and what it means for the back half of the year.

Rick Dillon: Volume growth, including new customers and expanding our existing customer penetration through cost selling, provided approximately 8% of growth in the quarter, with a contribution from new sales of 7% year over year. However, customer losses reduced second quarter revenues by 9% year over year, more than offsetting our new business growth. The impact of losses consists of 6% from known customer losses as we exited fiscal 2023 and 3% from customer losses during this fiscal year.

Rick Dillon: So let's start with the second quarter revenue bridge on slide nine.

Rick Dillon: Revenue of 705 million increased five 9% year over year, the impact of volume growth and pricing was offset by lost business in the quarter.

Rick Dillon: Volume growth, including new customers and expanding our existing customer penetration through cross selling provided approximately 8% of growth in the quarter with the contribution from new sales up 7% year over year.

Rick Dillon: Customer losses reduced second quarter revenues by 9% year over year more than offsetting our new business growth the.

Rick Dillon: The impact of losses consisted of 6% from the known customer losses, as we exited fiscal 2023 and 3% from customer losses during this fiscal year.

Rick Dillon: As Kim noted, and in line with our expectations, we have seen a meaningful improvement in our retention rate year-to-date, and that will drive lower carryover losses in 2025. We are adding new business, but we are not ramping it up at the pace we expected heading into the year. Sequentially, compared to the first quarter, new business revenue is up 3%.

Rick Dillon: As Kim noted and in line with our expectations, we have seen meaningful improvement in our retention rate year to date and that will drive lower carryover losses in 2025.

Rick Dillon: We are adding new business, but we are not ramping at the pace, we expected heading into the year sequentially compared to the first quarter, new business revenue up 3%.

Rick Dillon: Pricing contributed 4% to the top line growth, 3% from prior year pricing actions and 1% from current year pricing. As we noted earlier, while we continue to take annual pricing increases, the current year pricing impact was less than planned given our decision to moderate off-cycle pricing actions. Excluding the impact of the temporary energy fee, revenue grew 2.8% year over year. The fee was discontinued in the second quarter of last year, so this is the last quarter of comparable headwinds associated with it.

Rick Dillon: Parts encountered pricing contributed 4% to the top line growth, 3% from prior year pricing actions and 1% from current year pricing as we noted earlier, while we continued to take annual price increase the current year pricing impact was less than plan given our decision to moderate off cycle pricing actions.

Rick Dillon: Excluding the impact of the temporary energy fee revenue grew two 8% year over year.

Rick Dillon: The fee was discontinued in the second quarter of last year. So this is the last quarter of comparable headwinds associated with the fleet.

Rick Dillon: Our direct sales business is down approximately 2 million or 5% year over year as we continue to optimize that business. Excluding direct sales, our uniform business was flat year over year, and workplace supplies were up. Moving on to slide 10 and the adjusted EBITDA. Adjusted EBITDA was $87 million in the second quarter of fiscal 2024, down approximately $6 million or 6% from the second quarter of fiscal 2023. The operating leverage on new business and flow-through on pricing was offset by the impact of lost business in the quarter.

Rick Dillon: Our direct sales business is down approximately $2 million or 5% year over year as we continue to optimize that business. Excluding the direct sales our uniform business was flat year over year and worked with suppliers were up 2%.

Rick Dillon: Moving on to slide 10, and the adjusted EBITDA.

Rick Dillon: Adjusted EBITDA was 87 million in the second quarter of fiscal 2024 down approximately 6 million or 6% from the second quarter of fiscal 2023.

Rick Dillon: The operating leverage on new business and flow through on pricing was offset by the impact of lost business in the quarter.

Rick Dillon: The incremental margin on new sales volume was approximately 33 percent, reflecting the increase in garment amortization on new customer wins and sales commissions on new sales. The approximately 60% decriminal margin on lost business was met by final exit billing during the quarter. The elimination of the $13 million temporary energy fee this year had a negative impact on margins that was offset by approximately $6 million in energy cost savings year-over-year. The fee was favorable for us in the second quarter of last year due to the timing of implementing the fee versus the spike in energy. Energy cost savings this quarter were again driven by favorable rates for natural gas consumed in our plants and reduced fuel consumption from our route optimization.

Rick Dillon: Incremental margin on new business.

Rick Dillon: New sales volume was approximately 33%, reflecting the increase in government amortization on new customer wins and sales commissions on new sales.

Rick Dillon: The approximately 60% decremental margin on lost business was met our final exit buildings during the quarter.

Rick Dillon: The elimination of the $13 million temporary energy fee. This year had a negative impact on margin that was offset by approximately $6 million in energy cost savings year over year.

Rick Dillon: The fee was favorable for us in the second quarter of last year due to the timing of implementing the fee versus the spike in energy fees.

Rick Dillon: The cost savings this quarter were again driven by favorable rates for natural gas consumed in our plants and reduced fuel consumption from our route optimization efforts.

Rick Dillon: Incremental public company costs were $4 million in the quarter and $7 million year to date. We continue to expect full year incremental public company costs of $15 to $18 million. Productivity gains in the quarter, including permanent structural reductions as limited last year and the continued benefits from our network optimization efforts were offset by the expected increase in labor costs year-over-year. Overall adjusted, even though the margins were down 90 basis points year over year, excluding the net impact of the temporary energy fee and incremental public company costs, margins expanded 80 basis points year over year.

Rick Dillon: Incremental public company costs were $4 million in the quarter and 7 million year to date, we continue to expect full year incremental public company costs of $15 million to $18 million.

Rick Dillon: Productivity gains in the quarter, including permanent structural reductions implemented last year and the continued benefits from our network optimization efforts were offset by the expected increase in labor cost you over here.

Rick Dillon: Overall, adjusted EBITDA margins were down 90 basis points year over year.

Rick Dillon: Excluding the net impact of a temporary energy fees and incremental public company costs margins expanded 80 basis points year over year.

Rick Dillon: Turning to liquidity on slide 11, we generated approximately 76 million in cash from operations in the second quarter, an increase of approximately 25% or 15 million. Our focus on inventory management with new sales and operation planning initiatives drove a 34 million reduction in inventory year to date. CapEx was approximately $13 million during the second quarter of 2024, down from approximately $18 million last year. Last year's results included $10 million in proceeds from the sale of a real estate property.

Rick Dillon: Turning to liquidity on slide 11.

Rick Dillon: We generated approximately $76 million in cash from operations in the second quarter, an increase of approximately 25% or $15 million, our focus on inventory management with new sales and operation planning initiatives drove a $34 million reduction in inventory year to date.

Rick Dillon: Capex was approximately $13 million during the second quarter of 2024 down from approximately $18 million last year last year's results include $10 million in proceeds from the sale of a real estate property.

Rick Dillon: Free cash flow in the second quarter was $63 million, with cash conversion in excess of 100% of net income and 50% of EBITDA year-to-date. As previously announced, we completed the refinancing of our two-year term loan with a seven-year term loan that matures in 2031. We will continue to channel available cash to voluntary loan principal reductions. Year to date, we have made principal payments of approximately $65 million, which includes $45 million in voluntary principal payments in Q2.

Rick Dillon: Free cash flow in the second quarter was 63 million with cash conversion in excess of 100% of net income and 50% of EBITDA year to date.

Rick Dillon: As previously announced we completed the refinancing of our two year term loan with a seven year term loan that matures in 2031.

Rick Dillon: We will continue to channel available cash to voluntary loan principal reductions year to date, we have made principal payments of approximately $65 million, which includes $45 million in voluntary principal payments in Q2, and we expect to continue to make meaningful voluntary payments in the back half of the year.

Rick Dillon: And we expect to continue to make meaningful voluntary payments in the back half of the year. We ended the second quarter with a net debt to EBITDA ratio of 3.82 times. We remain confident in our ability to get to our targeted leverage level of 1.5 to 2.5 times by the end of fiscal 2026, despite the challenges with the calculated leverage for the back half of the year using our revised EBITDA margin guidance.

Rick Dillon: We ended the second quarter with a net debt to EBITDA ratio of 382 times.

Rick Dillon: We remain confident in our ability to get to our targeted leverage level of one five to two five times by the end of fiscal 2026, despite the challenges with the calculated leverage for the back half of the year using a revised the margin guidance. We believe we will exit the year with a net debt to EBITDA leverage of approximately four <unk>.

Rick Dillon: We believe we will exit the year with a net debt-to-EBITDA leverage of approximately four times. As a reminder, our leverage covenant levels are 5.25 times through March of 2025 and are then reducing to 4.5 BRF. Before I turn the call back over to Kim, I want to revisit the key drivers of our revised guidance on slide 12.

Rick Dillon: As a reminder, our leverage covenant levels are 525 times through March of 2025, and reducing 245 thereafter.

Rick Dillon: Before I turn the call back over to Kim I want to revisit the key drivers of our revised guidance on slide 12.

Rick Dillon: We now expect revenue to be down 1% to flat, and the adjusted EBITDA margin to be between 12 and 12.4%. From a revenue perspective, it's important to note that lost business is not a factor in the lowering of our revenue guide. Again, while we're absorbing losses from the prior year, current year retention is improving in line with our expectations. Pricing accounts for 250 basis points of the guidance reduction, reflecting the decision to moderate pricing in the second quarter and the back half of the year. Volume accounts for 225 basis points, which represents the impact of lower-than-expected sales productivity in the year. While cross-selling has been strong, new customer wins have not met our expectations.

Rick Dillon: We now expect revenue to be down 1% to flat and adjusted EBITDA margin to be between 12 and 12, 4%.

Rick Dillon: From a revenue perspective, it's important to note that lost business is not a factor in the lowering of our revenue guide again, while we are absorbing losses from the prior year current year retention is improving in line with our expectations.

Rick Dillon: Pricing accounts for 250 basis points of the guidance reduction, reflecting the decision to moderate pricing in the second quarter and the back half of the year.

Rick Dillon: Volume accounted for 225 basis points, which represents the impact of lower than expected sales productivity in the year, while cross selling has been strong new customer wins have not met our expectations. We are expecting sales productivity in the back half of it would appear to be consistent with the first half of fiscal 2024.

Rick Dillon: We're expecting sales productivity in the back half of the year to be consistent with the first half of fiscal 2020. The 190 to 230 basis points decline in margin guidance is driven by the loss of leverage on lower, lower pricing and volume in the year, partially offset by 45 basis points from cost performance actions, as Kim predicted. From a quarterly progression perspective, we expect revenues to decline sequentially from the second quarter to the third quarter.

Rick Dillon: The 190 to 230 basis points decline in margin guidance is driven by the loss of leverage on lower at lower pricing and volume in the year, partially offset by 45 basis points from cost performance actions as previously described.

Rick Dillon: From a quarterly progression perspective, we expect revenues to decline sequentially from the second quarter to the third quarter. The decline is attributable to the progression of carryover losses as we move past final exit billings included in Q1, and Q2 offset by a sequential improvement.

Rick Dillon: The decline is attributable to the progression of carryover losses as we move past final exit billings included in Q1 and Q2, offset by a sequential improvement in route. We will see direct sales decline approximately 4 million from the second quarter, which includes the impact of the lost direct sale national customer we previously disclosed. We expect Q4 revenue to be slightly higher than Q3 as the impact of net carryover losses moderates in the quarter.

Rick Dillon: And Rouse Hill.

Rick Dillon: We will see direct sales declined approximately 4 million from the second quarter, which includes the impact of the lost direct sale national customer we previously disclosed.

Rick Dillon: We expect Q4 revenue to be slightly higher than Q3, as the impact of material corporate losses moderate in the quarter.

Rick Dillon: We expect the EBITDA margin in Q3 to decline sequentially with the loss of sales level. In addition, we expect incremental public company costs between $6 to $8 million for the quarter as we near the exit of the TSA and in keeping with our estimate of $15 to $18 million for the year. And lastly, we expect Q4 margins will benefit from a lower level of incremental public company costs. With that, I'll now turn the call back over to Kim for her final remarks.

Kim: We expect the EBITDA margin in Q3 declined sequentially with the loss of sales message. In addition, we expect incremental public company costs between $6 million to $8 million for the quarter as we near the exit of the TSA and in keeping with our estimate of $15 million to $18 million for the year.

Kim: And lastly, we expect Q4 margins will benefit from a lower level of incremental public company cost.

Kim Scott: Thanks, Rick. Before we open it up for questions, I also want to provide a quick update on our Chief Operating Officer search. We have engaged an external recruiting firm to support us with our search and are very pleased with the quality of candidates we have been presented with and interviewed thus far. We are making progress with the search but also taking our time to ensure adequate due diligence to vet candidates and to ensure we find the right skill sets and leadership style to support the advancement of our strategy and financial goals while also helping us solidify our desired performance-driven culture.

Rick Dillon: With that I'll now turn the call back over to Kim for final remarks.

Speaker Change: Thanks, Rick before we open it up for questions. I also want to provide a quick update on our chief operating officer search we have engaged an external recruiting firm to support us with our search and are very pleased with the quality of candidates. We had been presented and interviewed thus far we are making progress with the search but also taking our time to ensure adequate due dili.

Kim Scott: Tibet candidates and to ensure we find the right skill sets and leadership style to support the advancement of our strategy and financial goals, while also helping us solidify our desired performance driven culture. Once the CLO is in place I will continue to work closely with a new leader and our commercial and operations teams.

Kim Scott: Once the COO is in place, I will continue to work closely with the new leader and our commercial and operations team to ensure no interruption in our performance as the new leader onboards and integrates into Vestis. In closing, while today we've shared that we are mobilized to address some short-term challenges that have resulted in an updated outlet for the year that is lower than expectations, we remain committed to our strategy and resolute in the opportunity to create value here at Vestis.

Kim Scott: To ensure no interruption in our performance as the new leader onboard and integrate into that stuff.

Kim Scott: In closing while today, we've shared that we are mobilized to address some short term challenges that have resulted in an updated outlook for the year. It is lower than expectation, we remain committed to our strategy and resolute and the opportunity to create value here at Baxter.

Kim Scott: We are building on our customer-first culture by improving our service efficacy in order to strengthen customer loyalty and improve retention rates, with our first priority aimed at protecting and growing the lifetime value of our customer base over the long term. Our cross-sell logistics and operational initiatives are driving results. These teams are operating at a high level of performance, and we will go faster where we can to accelerate value creation in these areas.

Kim Scott: We are building on our customer first culture by improving our service to efficacy in order to strengthen customer loyalty and improve retention rates with our first priority aimed at protecting and growing the lifetime value of our customer base over the long term.

Kim Scott: Our cross sell logistics and operational initiatives are driving results. These teams are operating at a high level of performance and we will go faster, where we can to accelerate value creation. In these areas. We will continue to pursue our strategy and we remain confident in our pathway to value creation I want to thank you all again for joining us today.

Kim Scott: We will continue to pursue our strategy, and we remain confident in our pathway to value creation. I want to thank you all again for joining us today, and we will now open the line for questions. Operator? Thank you. The floor is yours.

Kim Scott: And we will now open the line for questions operator.

Operator: Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two.

Operator: Thank you the floor is now open for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad. If at any point. Your question is answered you may remove yourself from the queue by pressing star too again, we ask that you pick up your handset when posing your question to provide optimal sound quality. Thank you.

Operator: Again, we ask that you pick up your handset when posing your question to provide optimal sound quality. Thank you. Our next question comes from Shlomo Rosenbaum with Stiefel. Hi, good morning. Thank you for taking my questions. Hey, Kim, could you explain to us what the service gaps are from a practical perspective that are resulting in the decision?

Operator: Yeah.

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

Shlomo Rosenbaum: Hi, Good morning, Thank you for taking my questions.

Operator: Could you explain to us what the service gaps are just from a practical perspective that are resulting in the decision to moderate.

Shlomo Rosenbaum: to moderate the pricing, it sounds like it, you know, this is a change.

Shlomo Rosenbaum: Transcripts provided by Transcription Outsourcing, LLC.

Shlomo Rosenbaum: Racing it sounds like.

Shlomo Rosenbaum: This is a change in happened intra quarter or something like something was discovered that you didn't.

Shlomo Rosenbaum: Necessarily see beforehand, and significant enough that you feel that you need to make a change in in the plans of pricing can you just give us some idea of what these service gifts or how widespread they are and how long do you think it's going to take to fix them.

Kim Scott: And you know, the pricing plans. Can you just give us some idea of what these service gaps are, how widespread they are, and how long you think it's going to take to fix them?

Kim Scott: Yeah, hi Shlomo, thank you for your question. I appreciate you joining us today. So as we have been evaluating the lost business and really digging in to understand the root causes of that lost business, it's led us back to service efficacy. So as we look at the causes for customer quits and the feedback that we're receiving from them, we're finding very specific areas we can action around. So we're looking at on-time delivery, making sure that the load arrives at the customer at the time and on the day that it is expected.

Speaker Change: Yeah, Hi, Shlomo. Thank you for your question and I. Appreciate you joining us today I'm, saying as we have been evaluating the lost business and really digging in to understand the root causes of that loss business is let us back to service efficacy. So as we look at the causes for customer class and the feedback that we're receiving from them.

Kim Scott: We're finding very specific areas, we can action around so we're looking at on time delivery.

Kim Scott: We're implementing telematics. We've rolled out telematics across our fleet now, so that we can put processes in place to measure that delivery and ensure that that delivery happens. So we expect that that will continue to improve in the coming months, and we should see benefits from that in FY25, as the telematics have now been installed in the trucks, and now we're building reporting and capability to use the insights from that data.

Kim Scott: Making sure that the load arrived to the customer at the time and all the day that it is expected we're implementing telematics, we've rolled out telematics across our fleet now and so that we can say processes in place to measure that delivery and ensure that that delivery happen. So we expect that that will continue to improve in the coming months and we should see benefits from that in FY 'twenty.

Kim Scott: Five as the telematics have now been installed in the trucks and now we're building reporting and capability to use it you know the use the insights from that data. We also see opportunities around things like shortages, there, making sure that we have a process to verify that the truck has been loaded accurately and that all of the product that needs to go through our customer isn't back being delivered to our core.

Kim Scott: We also see opportunities around things like shortages, so making sure that we have a process to verify that the truck has been loaded accurately, and that all of the product that needs to go to our customers is, in fact, being delivered to our customers. So those are opportunities around the perfect truck and loading processes, and we've got folks out in the field now working through programs to address those things. So we feel very confident that we've isolated these challenges and opportunities, and we have very clear, deliberate actions around specific things like on-time delivery, stopping shortages, and delivering full loads to customers.

Kim Scott: Customer and those are opportunities around the perfect truck and loading processes and we've got folks out in the field now working through programs to address those things. So we felt very confident that we've isolated the challenges and opportunities and we have very clear deliberate actions around specific things like on time delivery and.

Kim Scott: The great news is that our culture is in a great place as it relates to wanting to do a great job for the customer, and our teammates are serving our customers really well as it relates to the relationship and the experience. But we just need to get tighter and do a better job of being on time, being complete, being fully loaded, and putting metrics around that so that we can ensure that we're consistently meeting the expectations that our customers have for us.

Kim Scott: Stopping shortages in delivering full loads to customers and the great News is that our culture is in a great place as it relates to wanting to do a great job for the customer and our teammates are serving our customers really well as it relates to the relationship and the experience, but we just need to get tighter and do a better job on being on time being completely full.

Kim Scott: We loaded in putting metrics around that so that we can ensure that we're delivering consistently on the expectations that our customers have for us.

Shlomo Rosenbaum: Thank you. Can I just squeeze in one more? Just what does it mean when you're not executing a...

Shlomo Rosenbaum: Thank you can I just squeeze in one more just what is the new arm not executing this.

Shlomo Rosenbaum: Transcripts provided by Transcription Outsourcing, LLC. Yeah, absolutely. So it is volume.

Speaker Change: As expected on new wins does that mean that youre not getting the volume of new wins, so that starting open the way expected I'm just trying to understand what that means in terms of the volume yeah.

Kim Scott: Yeah, absolutely. So it is volume related, and it really comes back to the way that we're measuring our sales performance in revenue dollars per sales teammate. And so we had expectations that the revenue dollars per sales teammate would continue to ramp up and increase throughout the year. However, we are not seeing that ramp to the degree that we needed and expected. And so this is really about improving the close rate and also improving the amount of revenue per deal closed.

Kim Scott: Yeah, absolutely. So it is volume related and it really comes back to the way that we're measuring our sales performance is revenue dollars per cell teammate and say, we had expectations that the revenue dollars per cell teammate would continue to ramp and increase throughout the year. We are not seeing that ramp to the degree that we needed unexpected.

Kim Scott: And so this is really about improving the close rate and also improving the amount of revenue per deal closed.

Speaker Change: Thank you.

Andrew Charles Steinerman: Thank you. The next question comes from Andrew Steinerman with J.P. Morgan. Hi Kim, I wanted to ask you about the price elasticity of Vestis' client base. You know, as you articulated, your plan had been just a couple months ago for a targeted in-year price increase, and then you pivoted to a price decrease. I surely caught that you're saying the clients are claiming it's about service. My question is, might it also be about price? And I'm talking about, you know, price versus quality.

Speaker Change: Thank you.

Andrew Charles Steinerman: Thank you. Our next question comes from Andrew Steinman with J P. Morgan.

Andrew Charles Steinerman: Hi, Kevin.

Andrew Charles Steinerman: Wanted to ask about about the price elasticity of investors as client base as you articulated your plan had been just a couple of months ago for targeted at any price increase and then you've pivoted to a price decrease I surely caught that you're saying the client to claim it gets bad service. My question is made at all.

Andrew Charles Steinerman: price versus other uniformed services providers. Thanks, Andrew.

Andrew Charles Steinerman: It will be about price and I'm talking about you know place versus other uniformed services providers.

Andrew Charles Steinerman: Thanks, Andrew. I would take this one.

Rick Dillon: And I would say, as Kim discussed, our service efficacy and price sensitivity go hand in hand. And as we've, you know, spent the time analyzing the reason for quits and the magnitude of the carryover losses, we made the determination that we would deliberately moderate the pricing to focus on retention and customer satisfaction. So when you, so from the back half of your question of, "Is this about price sensitivity or price elasticity, or is it And as Kim described, if we improve customer efficacy, we have much less sensitivity to pricing, and we can get back to a more normal pricing environment.

Speaker Change: Thanks, Andrew.

Rick Dillon: I would take this one and I would say as Kim discussed are our service efficacy and price sensitivity go hand in hand, and as we've spent the time analyzing the reason for clinics in the magnitude of the carryover losses.

Rick Dillon: We made the determination that we would deliberately moderate pricing to focus on retention and customer efficacy. So when you. So from the back half of your question of.

Rick Dillon: Is this about price sensitivity of price elasticity or is it about service we view those as tied closely together and as Kevin described if we improve the customer efficacy we have much more less sensitivity to pricing and we can get back to a more normal priced.

Rick Dillon: I would add that we do continue to take our normalized annual pricing, some of that surgical, more specific, as we've described earlier, value-added activity, and, you know, specific product categories, et cetera, we will, you know, get back to that as we work on customer efficacy. Thanks, Rick. Thank you. Our next question comes from Andy Wittman with Bayer. Good morning.

Andy Wittman: Environment I would add that we do continue to take our normalized annual pricing some of that surgical more specific.

Andy Wittman: We've described earlier.

Andy Wittman: Value added activity and specific product categories et cetera, we will.

Andy Wittman: Get back to that.

Andy Wittman: We work on customer efficacy.

Rick Dillon: Right.

Rick Dillon: Yeah.

Andy Wittman: Thank you. Our next question comes from Andy Wittmann with Baird.

Andy Wittman: Thank you for taking my question. I guess I wanted to understand a little bit more about the revenue outlook here. I understand the comments that you made here about, you know, the sales not ramping as much as you previously forecasted. But, you know, some of these 23 lost customers that were significant in nature are actually a tailwind to your second half growth. You know, obviously, you still have that direct sale headwind.

Speaker Change: Oh, great. Good morning. Thank you for taking my question I guess I wanted to understand a little bit more about the revenue outlook here.

Andy Wittman: I understand the comments that you made here about the <unk>.

Andy Wittman: <unk> not ramping as much as you previously forecasted but.

Andy Wittman: Some of these 23 loss of customers that were significant in nature or actually a tailwind to the your second half growth.

Andy Wittman: Obviously, you still have the direct sale headwind.

Andy Wittman: I guess, are you factoring in more risk from some of these national accounts that you had to reprice lower as a factor into that second half? Or are there known losses that are coming that haven't been disinstalled yet? Maybe you could just talk about some of the moving pieces to get you to that flat to down revenue outlook in a little bit more detail. Thanks, Andy.

Andy Wittman: I guess are you factoring in more risk from.

Andy Wittman: Some of these national accounts that you had to reprice lower is a factor into that second half.

Andy Wittman: Or are there no losses.

Andy Wittman: <unk> are coming that havent been just installed yet.

Andy Wittman: Maybe you could just talk about some of the moving pieces to get you to that flat to down revenue outlook, I guess, I'm, a little bit more detail.

Rick Dillon: When you think about, you know, first half to back half, we do have, as we exit customers, we do have that final billing. And most of that is behind us, and it impacts, you know, Q1 and Q2, as I noted. When you move on forward to the back half, you get the full impact of those losses, including the full impact of the couple of national account losses that we described. So that's part of the increased back half impact of lost business.

Speaker Change: Thanks, Andy.

Rick Dillon: When you think about first half to back half, we do have as we.

Rick Dillon: Exit customers, we do have that final billing and most of that is behind us and it impacts the Q1 and Q2 as I noted when you move on forward to the back half you get the full impact.

Rick Dillon: Those losses, including the full impact of the couple of national.

Rick Dillon: I would say we are not expecting losses or incremental losses to impact our back half guidance. And, as we've said, our retention is in line with expectations. And that improvement we show at about 93% from a recurring revenue retention is really driving our confidence that this is not about lost business, and we're kind of meeting the lost business numbers that we kind of entered the year expecting. We did talk about the large direct sale national account, and that's excluded from our retention calculations.

Rick Dillon: Account losses that we described so that's part of the increase.

Rick Dillon: Have a impact of lost business.

Rick Dillon: I would say, we are not expecting losses or incremental losses.

Rick Dillon: Hum.

Rick Dillon: Impact our back half guidance.

Rick Dillon: As we've said our retention is in line with expectations and that improvement we showed at about.

Rick Dillon: About 93% from a recurring revenue retention is really driving our <unk>.

Rick Dillon: Confidence that this is not about lost business and we're kind of meeting the blocks of business numbers that we kind of entered the year expecting we.

Rick Dillon: We did talk about the large direct sell national account and that's excluded from our retention calculations and so that does also impact kind of the front half back half revenue along with the step down from a seasonality perspective in the front half back half and so while we.

Rick Dillon: And so that does also impact kind of the front half, back half revenue, along with the step down from a seasonality perspective in the front half, back half. And so while we certainly are focused on lost business, we think our efforts are driving improved retention in the year, and the known losses coming into 2023, we get the full impact of those losses. As you can see from the retention chart that we've included as well, a lot of those losses came, or the losses accelerated in Q4. So, unfortunately, we will live with them through the end of the year, as well as move past the exit costs in the back half.

Rick Dillon: Certainly our focus on loss of business. We think our efforts are driving the improved retention and here and the known losses coming into 2023, we get.

Rick Dillon: Full impact of those losses as you can see from the retention.

Rick Dillon: Chart that we've included as well.

Rick Dillon: A lot of those losses came.

Rick Dillon: The losses accelerated in Q4, so unfortunately, we will live with them through the end of the year as well as moving past the exit costs in the back half of the year.

Andy Wittman: Thanks for that, Rick. Kim, just as it relates to service quality, you mentioned things like, you know, the perfect load, and you're not there today. How much are operational things like this, or how much can be attributed to things like doing very complicated reroutings of those trucks and loading them differently today than maybe they've been done in the past? Or have these service shortfalls been there the whole time, and you're just starting to realize them more as you've rolled up your sleeves? I guess I'd just like to understand kind of the source, the genesis of some of the service issues that you're talking about today. Yeah, absolutely, Andy, and thank you for your questions.

Andy Wittman: Thanks for that Rick Tim just.

Andy Wittman: As it relates to the service quality, you mentioned things like the perfect World and you're not there today.

Andy Wittman: How much are operational things like this or how much can they be attributed to things like doing very complicated robbins of those trucks and loading them differently today than maybe they were they've been done in the past or have you sort of a shortfall has been there the whole time and you're just starting to realize the more as you roll up your sleeves.

Andy Wittman: I guess I'd, just like to understand kind of the source and the Genesis of some of the service issues that you're talking about today.

Kim Scott: Yeah, absolutely, Andy, and thank you for your questions and for being with us today. So I can definitely confirm to you that these service opportunities are not related to logistics optimization and the rerouting of customers. These challenges have been in our business for quite some time, and I've dug quite deeply into these root causes of quits to really understand them. So how do you get to the root of this and improve customer retention? And so you've got to go really deep and far to get to the right answer.

Kim Scott: Yeah, absolutely Andy and thank you for your questions and for being with US today. So I can definitely confirm to you that these opportunities are not related to the logistics optimization and the rerouting of customers on <unk>.

Kim Scott: These challenges have been in our business for quite some time and I've dug in quite deeply into these root causes of quit to really understand how do you get to the right a bit and improve customer retention and so you Gotta go really deep in bar to get to the right answer and so as I take Florida and in listening to customer feedback, it's just really clear.

Kim Scott: And so as I've explored this and listened to customer feedback, it's just really clear that we are not tight on our processes as it relates to discipline, loading of trucks, delivering on time, delivering full loads. And so this is the good news here, these are processes that can absolutely be improved, and people can be trained on these processes and do a great job. And our teammates want to do a great job, so they'll be happy to follow new processes and have better procedures.

Kim Scott: We are not tight on our processes as it relates to disciplined loading our trucks delivering on time delivering full loads and so this is the good news here is that these are processes that can absolutely be improve and people can be trained on these processes and do a great job and our teammates wanted to do a great job. So there'll be happy to follow new process.

Kim Scott: But it is something that I believe Andy has persisted with in this business for some time and has not been realized or addressed. And so I think this is a great opportunity for us to step back and rethink these processes and really enhance the customer experience.

Kim Scott: Even have better procedures, but it is something that I believe Andy has persisted in that business for some time and has not been realized or addressed and.

Kim Scott: And so I think this is a great opportunity for us to step back and we think these processes and really enhance the customer experience.

Speaker Change: Thank you for your comments.

Operator: Thank you. Once again, if you do have a question, you may press star one on your phone keypad at this time. We'll take our next question from Stephanie Moore with Jeff.

Speaker Change: You bet. Thank you.

Operator: Thank you once again, if you do have a question you May press star one on your phone keypad at this time, we will take our next question from Stephanie more with Jefferies.

Stephanie Moore: Hi, good morning. Thank you. Thanks, Stephanie. So, you know, maybe, Kim, given such a change in tone here in the last 90 days, since you reported 1Q, I think, including the short period of time and erosion at National Account Business and now a reversal in pricing capabilities, how do we get comfortable that you have your arms around the operations and can meet this revised guidance for the year?

Stephanie Moore: Hi, good morning, Thank you.

Stephanie Moore: Stephanie.

Stephanie Moore: So you know maybe you can get them such as a change in tone here in the last 90 days since you reported one Q I think including in the short period of time and erosion of National account business and all of them first of all in pricing capability. How do we get comfortable that you have your arms around the operations and can meet the revised guidance for the year.

Kim Scott: So, Stephanie, we feel very confident in the strategy. We remain incredibly committed, and we know that the value creation opportunity for Vestis is here. So, this is about improving some service processes to make sure that our service experience with our customers is outstanding, because improving revenue—or, excuse me, improving retention is the heartbeat of this model. So, our strategy is built on keeping loyal customers and then enhancing their lifetime value by cross-selling them.

Kim Scott: So definitely we felt very confident in our strategy, we remain incredibly committed and we know that the value creation opportunity for Vestas is here. So this is about improving some service processes to make sure that our service experience with our customers is outstanding because improving revenue or excuse me improving retention is the heartbeat of this.

Kim Scott: Model. So our strategy is built on keeping loyal customers and then enhancing the lifetime value by cross selling them. So we feel it's really imperative that we continue to enhance our processes and improve the retention experience as we drive up that experience and it continues to improve and more customers continue to be loyal it just fully supports our cross sell.

Kim Scott: So, we feel it's really imperative that we continue to enhance our processes and improve the retention experience. As we drive up that experience, and it continues to improve, and more customers continue to be loyal, it just fully supports our cross-sell initiatives and our desire to penetrate those customers and cross-sell other products and services. So, we feel incredibly confident that we are on the right path and that making these corrections around service efficacy is just going to further strengthen our plan.

Kim Scott: Initiatives and our desire to penetrate those customers and cross sell other products and services. So we felt incredibly confident that we are on the right path and that making these corrections around surface efficacy, it's just going to further strengthen our plan.

Kim Scott: As it relates to sales, there is, without a doubt, an opportunity to have a more high-performing sales team. We have great people who absolutely want to do a great job for the company and drive sales, but we need to support them with better enablement tools. We need to have more sophisticated processes around how we go to market. We are doing things like improving sales collateral, working on onboarding, recruiting the right profile of teammates who will thrive in this environment, but also training them and giving them the right tools and resources to sell effectively.

Kim Scott: As it relates to sell them there is without a doubt an opportunity to have a more high performing cell pain, we have great people, who absolutely want to do a great job for the company and drive sales, but we need to support them with better enablement tools, we need to have more sophisticated processes around how we go to market, we are doing things like improve.

Kim Scott: <unk> sells collateral working on Onboarding recruiting recruiting the right profile, a teammate who will thrive in this environment, but also training them and getting them the right tools and resources to sell effectively. So these are very known and understood the opportunities and we're incredibly mobilized around them, but I do want to reiterate Stephanie we believe its plan.

Kim Scott: So, these are very known and understood opportunities, and we're incredibly mobilized around them. But I do want to reiterate, Stephanie, we believe it's planned. We believe in the value creation opportunity, and we have no doubt that there's going to be great value generated here over the long term.

Kim Scott: We believe in the value creation opportunity and we have no doubt that there's going to be great value generated here over the long term.

Stephanie Moore: Got it. And then just as a follow-up, I mean, clearly, it does sound like a lot of changes are being implemented, and as you kind of noted, we should start to see the benefits in fiscal 2025. So does that mean, you know, in your mind, we should be able to return to revenue growth in 2025, maybe in line with the targets you provided at your analyst day? And then how will pricing be part of that? So since it looks like there's probably gonna be a pretty decent competition on the pricing front as we look to 2025. Thanks. Yeah, so as it relates to growth, we absolutely intend to return.

Speaker Change: Got it and then as a follow up I mean, clearly it does sound like a lot of.

Stephanie Moore: Changes are being implemented kind of noted just said, we just have to see the benefits in fiscal 2025. So does that mean you know in your minds, we should be able to return to revenue growth in 2025, maybe in line with the targets you provided at your analyst day, and then how would pricing be part of that and it looks like it's probably going to get paid you can comp on the pricing front Oh, that's what took place.

Kim Scott: Yeah, so as it relates to growth, we absolutely intend to return to positive growth in FY25. We'll talk more about what those growth rates will look like when we guide for the year, but we absolutely are accountable for and expect to return growth in FY25. So you can count on that happening for sure. And we'll talk about those rates as we exit 24 and we guide for 25.

Stephanie Moore: Thanks.

Kim Scott: Yeah, so as it relates to growth, we absolutely intend to return to positive growth in FY 'twenty five we'll talk more about what those growth rates will look like when we guide for the year, but we absolutely are accountable to and expect to return growth in FY 'twenty. Two so you can count on that happening for sure and we'll talk about those rates as we exited Q4 and we.

Kim Scott: And then as it relates to pricing, we believe very strongly that we could take more price right now if we wanted to, but we believe strongly that it is important to improve service efficacy and to make sure that we are not taking price in the short term only to jeopardize customer retention rates in the long term. So we will return to the ability to take more price. And we still feel strongly that in inflationary environments, we can pass that price through as appropriate, and that price will stick.

Kim Scott: Died for 25, and say without a doubt and then as it relates to pricing and we believe very strongly that we can take more price right now if we wanted to but we believe strongly that it is important to you and perhaps start with the efficacy.

Kim Scott: To make sure that we are not taking price in the short term only to jeopardize customer retention rate and the long term. So we will return to the ability to take more pricing and we still feel strongly that inflationary environments. We can pass that price through them as appropriate and that price will fix so we will definitely continue to address pricing we felt that way.

Kim Scott: So we will definitely continue to address pricing. We feel that we will improve our ability to take more prices as we improve our service processes and our customer experience. And so we also will take price, though, and we are taking price this year, and I want to be really clear about that. We have annual price increases, and we have off-cycle price increases. We continue to take our normal annual price increases, but our subjective discretionary off-cycle price increases are the price increases that we're moderating.

Kim Scott: We'll improve our ability to take more price as we improve our service processes in our customer experience.

Kim Scott: And so we also will take price, though when we are taking price this year and I want to be really clear about that we have annual price increases and we have off cycle price increases we continue to take our normal annual price increases, but our subjective on discretionary off cycle price increases are the price increases that were moderating we will I'll say.

Kim Scott: Still be surgical and take price in certain areas as it relates to multiple stops in a week or a customer that is largely under price versus the average in the market. So there will still be pricing taking place. We're not shutting off pricing. We are just moderating pricing as it relates to the discretionary off cycle pricing.

Operator: Thank you. Our next question comes from Ollie Davies with Redburn Atlanta. Yeah, good morning, guys. Hey, Oli.

Kim Scott: We will also still be surgical and take prices in certain areas as it relates to multiple stops in a week or a customer that is largely underpriced versus the average in the market. So there will still be pricing taking place. We're not shutting off pricing. We are just moderating pricing as it relates to discretionary off-cycle pricing. Thank you. Our next question comes from Ollie Davies with Redburn Atlanta. Yeah, good morning

Oliver Davies: Thank you. Our next question comes from Ali Davies with Redburn Atlantic.

Oliver Davies: So just two for me, I guess firstly, volume growth in the quarter. I think it was about 50 basis points lower than Q1. So can you kind of just talk through the cadence through the months and into the latest quarter? And then secondly, probably one for Rick, can you talk about the level of sort of underlying costs and labor inflation and how you see that playing out through the rest of the year? Sure.

Oliver Davies: Yeah, Good morning, guys.

Oliver Davies: Hey Ali.

Speaker Change: So just two from me I guess first the volume growth in the quarter I think it was about 50 basis points lower than Q1. So can you kind of just talk to the cadence through the months an incident like this quarter and then secondly for.

Oliver Davies: Probably one for Rick can you talk about the amendments of underlying cost.

Rick Dillon: For inflation.

Rick Dillon: So from a volume perspective, when you look at Q1 to Q2, as I mentioned earlier, there is a step up in absorption of lost business in Q2 from Q1. And that's just moving past some exit billings. And also, we do have a meaningful step down in the direct sale business. Direct sales are down 17% from Q1. And that's attributable to kind of the seasonality of that business. And so the combination of moving to absorbing the full impact of those rollover losses, the direct sale seasonality, and then finally, as I mentioned, we did see greater [inaudible] And I'm sorry, the second part of your question. Oh, cost. I was just talking about cost inflation, yeah. Sure. So we, labor is coming in higher than expected. I'm sorry; let me take that back.

Rick Dillon: Do you see that playing out through the rest of the year.

Oliver Davies: Sure.

Rick Dillon: So from a from a volume perspective, when you look at Q1 to Q2.

Rick Dillon: As I mentioned earlier there is a.

Rick Dillon: A step up in absorption of lost business in Q2 from Q1, and that's just moving past some exit billings and then also we do have.

Rick Dillon: A meaningful step down in the direct sale business direct sales are down 70%, 17% from from Q1, and that's attributable to kind of the seasonality of that business and so the combination of the moving to absorbing the full impact of those rollover losses, the direct sale.

Rick Dillon:

Rick Dillon: Seasonality and then finally as I mentioned, we did see.

Rick Dillon: Greater.

Rick Dillon: Erosion of pricing in the front half and that's consistent with our discussion around back half pricing and customer sensitivity you normally see some pricing erosion given the magnitude of our back half pricing that was a little bit more and we made the decision to throttle back back Q2 pricing.

Rick Dillon: That we talked about on last call. So I think Q1 Q2 those.

Rick Dillon: Those are the big drivers from a top line perspective.

Speaker Change: Sorry, the second part of your question Oh.

Rick Dillon: And I was just on cost inflation here.

Speaker Change: Sure so we.

Rick Dillon: Labor is coming in as expected, and so higher than the prior year, we're still trending toward approximately 5% year-over-year hourly or frontline labor increase. And we, you know, have locked in approximately 3% for salaries. So that is up, but in line with expectations. I mentioned earlier that we had some favorability in energy in the quarter, and that was driven by natural gas. We're seeing the rest of the energy rates kind of flatten out here as we look to the back half.

Rick Dillon: Labor is coming in higher than expected so far.

Rick Dillon: Wherever it's coming in as expected and so higher than prior year, we're still trending toward approximately 5% year over year hourly or frontline.

Rick Dillon: Frontline labor increase and we have locked in at approximately 3% for salary. So that is up but in line with expectations I mentioned earlier that we had some favorability and energy.

Rick Dillon: In the quarter and that is has been driven by natural gas were seeing the rest of the energy rates kind of flat.

Rick Dillon: And so the front half favorability will come down, but it will still be a little bit favorable in the back half. And that's in line with our expectations for energy for the year. From another cost perspective, we aren't seeing any significant impacts inflationary-wise for us for the remainder of the year. Thank you.

Rick Dillon: Bratton out here as we look to the back half and so the front half favorability will come down, but still be a little bit favorable in the back half.

Rick Dillon: In line with our expectations for energy for the year from our other cost perspective, we arent seeing any significant impact.

Rick Dillon: Impacts inflationary wise for us.

Rick Dillon: For the remainder of the year.

Rick Dillon: And then I would take our next question comes from Manav Patnaik with Barclays.

Manav Shiv Patnaik: Thank you. I just want to take a little bit of a step back, like some of the reasons you're calling out the shortfall and what you're doing and what you're changing. I mean, they sound, you know, they make sense, like in terms of what you're doing. But I'm just curious, like, you know, Kim, you were at the company for almost two years while under our mark, you guys presumably did all this work going into IR day, and your confidence in the last two quarters was pretty solid as well. So I'm just trying to understand on the margins, like what changed in the last, you know, 90 days or 60 days or whatever it is that caused such a big revision.

Speaker Change: Thank you I just wanted to dig a little bit of a step back like some of the reasons, you're calling out so the shortfall and what you're doing and what you're changing I mean they sound.

Manav Shiv Patnaik: You know they they makes sense in terms of what you're doing but I'm just curious they can do it at the company for almost two years, while under RMR you guys. Presumably did all this work going into IRB and your confidence in last two quarters was pretty solid as well. So I'm just trying to understand on the margin like what change in the law.

Manav Shiv Patnaik: Last 90 days or 60 days or whatever it is that caused this big of a revision.

Kim Scott: confident in the strategy. So the confidence that you heard about this opportunity at Analyst Day and prior earnings discussions has not wavered. So we are completely confident in this strategy and our pathway to value creation.

Kim Scott: Yeah, absolutely well, let me start with I'll. Thank you for your question, we remain highly confident in the strategies that have confidence that you heard about this opportunity at analyst day and prior earnings discussion has not wavered. So we are completely confident in this strategy and our pathway to value creation. What we have done is really started to add.

Kim Scott: What we have done is really started to analyze. To create long-term health in this business, the best thing we can do is ensure that we have great retention rates. And so the whole strategy hinges on cross-selling the base and making sure that we improve lifetime value with our customers. And so we've spent a lot of time over the last few months very aggressively digging into reason codes related to the customer experience.

Kim Scott: <unk> to.

Kim Scott: Create long term health in this business. The best thing. We can do is ensure that we have great retention rates and so the whole strategy hinges on cross selling the base and making sure that we improve lifetime value with our customers and say we have spent a lot of time over the last few months very aggressively digging N. Two reason codes related to the customer.

Kim Scott: And as we have done that, we have found that there is an opportunity to better serve the customer with improved processes. Many of our customers are still having a great experience because we're cross-selling them, and we're having great success gaining customer penetration. So it's important to note that these are isolated reason codes, very specific delivery matters related to own time delivery, and shortages on loads, and we are isolating that by market center and making sure that we are addressing procedural gaps and improving procedures by location where we have shortcomings related to service.

Kim Scott: And so as we have done that we have found that there is an opportunity to better serve the customer with improved processes. Many of our customers are still having a great experience because we are cross selling them and we're having great success, gaining customer penetration. So it's important to note that these are isolated where you think those vary.

Kim Scott: Pacific delivery matters related to one time delivery shortages on those and we are isolating that by market center and making sure that we are addressing procedural gout and improving procedures by location, where we have shortcomings related to serve it and so as we evaluated that over the last few months, we made a strategic decision.

Kim Scott: And so as we evaluated that over the last few months, we made a strategic decision to take a pause, to get our services in order, to make sure that they are excellent, and then we will return to pricing levels as appropriate. So it was a very deliberate decision to make sure that we improve our service efficacy and that we're building customer loyalty for the long term. So that's really what's changed as it relates to pricing.

Kim Scott: Take a pause to get our services in order to make sure that they are excellent and then we will return see pricing levels as appropriate. So it was a very deliberate decision to make sure that we improve our service to efficacy and that we're building customer loyalty for the long term, but that's really what's changed as it relates to pricing.

Kim Scott: The second thing that has changed is we have continued to expect our sales teammates on the frontline to ramp to higher levels. And those sales teammates, while they are selling, and we talked about the 700 basis points of new business wins that we're seeing, they need to sell at a higher rate to offset those rollover losses from 23 that rolled into 24. We are not seeing them ramp up to the degree that we need to offset those losses and deliver the original growth rates that we had in the guide for the year.

Kim Scott: Thing that has changed is we had continued to expect our sales teammates on the frontline to ramp to higher levels and sales teammates while they are selling and we talked about the 700 basis point that new business wins that were saying they needed to sell at a higher rate to offset those rollover lawsuits from 'twenty three that rolled into 'twenty four we.

Kim Scott: We're not seeing them ramp to the degree that we need to offset those losses and deliver the original growth rates that we had in the guide for the year, we can absolutely improve here and we will do that and I've talked about many of the things that we're doing but those things all have an impact on the EBITDA in the second half of the year, particularly the pricing that drops they were at a very high flow through will not be.

Kim Scott: We can absolutely improve here, and we will do that, and I talked about many of the things that we're doing, but those things all have an impact on EBITDA in the second half of the year, particularly the pricing that drops through at a very high flow through rate will not be dropping through at that rate, and so that has an impact on EBITDA in the second half. Rick, anything you would add there? I would just note that.

Rick Dillon: Wrapping through with that rate and so that has an impact on EBITDA in the second half.

Rick Dillon: I would just note, as we think about what changed, we saw the impact, or we knew the impact coming in, of the lower retention rate, and as we progressed through Q1 and Q2, we saw the favorable impact of higher retention rates, so lower losses in the year. And our decision, as Kim described, looking at customer efficacy, seeing the correlation between higher pricing and lost business, it was a decision we made intentionally to throttle as a result of that.

Kim Scott: Rick anything you would out there.

Rick Dillon: I would just note as we think about what changed we saw the impact when we knew the impact coming in.

Rick Dillon: The lower retention rate.

Rick Dillon: As we progressed through Q1 and Q2, we see the favorable impact of higher retention rate, so lower losses and year and our decision as Ken described looking at customer advocacy seeing the correlation between higher higher pricing and lost business it wasn't dissimilar.

Rick Dillon: We made two essentially to throttle as a result of that so I just wanted to keep aligning that correlation between customer advocacy and the deliberate pricing decision and and what's changed is that pricing in a significant on the top line.

Rick Dillon: So I just want to keep aligning that correlation between customer efficacy and the deliberate pricing decision, and what's changed is that pricing and the significance on the top line and the margin as a result of not seeing the ramp in sales. Thank you. Our next question comes from George Tong with Goldman Sachs.

George Tong: And margin evidence out of not seeing around and Ah.

Rick Dillon: Sales.

Rick Dillon: Thank you. Our next question comes from George Tong with Goldman Sachs.

George Tong: Hi, thanks. Good morning.

George Tong: I just wanted to dive into the visibility of the business. The revenue guide that you issued just a quarter ago was brought down by quite a significant amount. And so I just wanted to understand how much visibility there is, especially as it relates to your ability to win new business. Specific to new business, what changed over the past quarter that you didn't foresee previously?

George Tong: Hi, Thanks, good morning.

George Tong: Just wanted to dive into the visibility of the business. The revenue guide that you issued just a quarter ago was brought down by quite a significant amount and so I just wanted to understand how much did the.

George Tong: Ability to do especially as it relates to your ability to win new business specific to new business what changed.

George Tong: Over the past quarter.

Kim Scott: So, there are a couple of things, and George, it's good to hear from you. Thank you for your question.

George Tong: Didn't foresee.

Kim Scott: Okay.

Kim Scott: There's a couple of things related to new business that we are focused on right now. And the first one, as I mentioned, is that we did expect a continued acceleration in revenue generated per sales teammates, and we're not seeing that ramp occur to the degree that we had expected and planned. So, that's kind of the first thing that has changed, is that the ramp was supposed to continue to happen.

Speaker Change: So there are a couple of things that George it's good to hear from you. Thank you for your question. There's a couple of things related to the business that we are on.

Kim Scott: Focused on right now and the first one as I mentioned is that we did expect a continued acceleration and revenue generated per sales teammates and we're not seeing that ramp occur to the degree that we had expected and planned. So that's the kind of the first thing that has changed is that ramp was the pace to continue to happen you all might recall I talked a lot about measuring revenue.

Kim Scott: You might recall I talked a lot about measuring revenue dollars per sales headcount previously, and we've been monitoring that on a regular basis. So, we have visibility into that, and we have been expecting that to continue to move upward and ramp to the degree needed to deliver the numbers in the back half, and that ramp is not happening. I talked about the need to improve sales tools and enablement, recruiting and training, and all the things that we need to do to help our sales teammates be more successful.

Kim Scott: <unk> dollars per sales head count previously and we've been monitoring that on a regular basis, but we have visibility to that and we have been expecting that to continue to move upward and ramp just integrate needed to deliver the numbers in the back half and that ramp is not happening I talked about the need to improve the sales tools and enablement recruiting and training and all that.

Kim Scott: We're doing many of those things, and we will continue to do those things to make sure that we get that rate up. But that is one of the key things that has happened as it relates to the sales ramp. As it relates to our decision to moderate pricing, we also have great visibility that I've dug into quite deeply around why customers are choosing to leave Estes. Many are choosing to stay, and we're grateful for those loyal customers, but we've done a diagnostic around those that are leaving.

Kim Scott: Things that we need to do to help ourselves teammates the more successful we're doing many of those things and we will continue to do those things to make sure that we get that right, but that is one of the key thing there.

Kim Scott: It has happened as it relates to the cells right out as it relates to our decision to moderate pricing. We also have great visibility that I've dug into quite deeply around why are customers choosing to liebestod. Many are choosing to stay and we're grateful for those loyal customers that we've done a diagnostic around those that are leaving and.

Kim Scott: And for those customers who are choosing to go elsewhere, we are finding that there is a very actionable set of root causes here around service experiences related to our procedures, not our teammates. Our teammates are doing an awesome job, but it is related to how we are delivering the load on time and incomplete loads. So, those are the things that we'll be addressing in order to return to a higher level of pricing over time.

Kim Scott: For those customers who are choosing to go elsewhere. We are finding that there is a very actionable that every call. This year around service experiences related to our procedures not our teammates our teammates are doing an awesome job, but related to how we are delivering to load on time and incomplete loads. So those are the things that will be.

Kim Scott: Addressing in order to return to a higher level of pricing over time.

Kim Scott: Thank you. The next question comes from Michael O'Brien with Wolf Research.

Michael O'Brien: Hi, good morning guys. Thanks for taking my question. One quick one here, so you know you mentioned that the short answer

Michael O'Brien: Thank you. Our next question comes from Michael O'brien with Wolfe Research.

Michael O'Brien: Oh, Hi, good morning, guys.

Michael O'Brien: Oh My question one quick one here. So you know you mentioned that the shortfall for the service shortfalls, you know are incremental they're not they're not related to the route optimization efforts that you guys put in place and talked about at the Analyst Day. My question is where are these shortfalls falls long standing or are they related to.

Michael O'Brien: You mentioned that these shortfalls, these service shortfalls, are incremental. They're not related to the route optimization efforts that you guys put in place and talked about at analyst day. My question is, were these shortfalls longstanding, or are they related to the spin, that you're a new company now, and they're an issue there? And if they are longstanding, why haven't you guys caught this before, the separation?

Michael O'Brien: The spin, but you know you're a new company now and they are an issue there and if they are long standing why haven't you guys caught this.

Kim Scott: So, they're not related to the SPIN, so I'll be clear about that. I mean, I guess you could always say that, you know, that there is a transition period where things may be changing, but not for us as it relates to service. This is really about adherence to your service processes, and we've had service processes and procedures in place for a really long time. What we're seeing is that we need to better follow those, but also provide our teammates with better tools.

Michael O'Brien: Before the separation thank you.

Kim Scott: So they're they're not related to the span so I'll be clear about that I mean, I guess, you could always say that you know that.

Kim Scott: There is a transition period, where things may be changing but not for us as it relates to service. This is really about adherence to our service processes and we've had service processes and procedures in place for a really long time, what we're saying is that we need to better follow those that I'll say provide the teammates with better tools and so on.

Kim Scott: And so, as I come into this business and evaluate how we're measuring service efficacy, you know, I found it very odd that we did not have telematics in our fleet. That's a very normal thing that you would have in a B2B route-based business, but we were not using telematics to make sure that we are delivering to customers on time and also that we are following routing efficiencies. So, we put that telematics in our truck, and we expect very quickly that we'll begin to use those insights and that data from telematics to shore this up and to make sure that we're delivering on time and that we're where we should be when we should be.

Kim Scott: As I come into this business and evaluate how we're measuring service efficacy I found it very odd that we did not have telematics in our fleet at the very normal thing that you would have in a beta be route based business, but we were not using telematics to make sure that we are delivering to customers on time and I'll tell you that we are following routing efficiency.

Kim Scott: So we can put that telematics and archrock and we expect very quickly that will begin to use that insight and that data from telematics to shore that up and to make sure that we're delivering on time and that we're where we should be when we should be so a lot of these things has and in the company as an underlying opportunity for some time, but we've been addressing some of them as well so.

Kim Scott: So, a lot of these things have been in the company as an underlying opportunity for some time, but we've been addressing some of them as well. Telematics is a great example of that. But I can also tell you that I have gone incredibly deep into this business over the last six months since we spun out, and particularly over the last few months since our COO left the company. And I have gone very deeply into evaluating these root causes at the grassroots level down to our market center, and I'm just finding great opportunity to continue to improve. So, I think this is about going really deep into the bowels of the business and understanding what levers we can pull to make justice even better, and that's what we're doing.

Kim Scott: <unk> is a great example of that but I can also tell you that I have done incredibly deep into the business over the last six months since we have spun out and particularly over the last few months that their CLO left the company and I have gone very deeply into evaluating these root causes at the grassroots level down to a market center.

Kim Scott: And I'm, just finding great opportunity to continue to improve so I think this is about going really deep into the balance of the business and understanding what levers we can pull to make that even better and that's what we're doing.

Operator: Thank you. We have time for one more question today. Our final question comes from Scott Schneeberger with Oppenheimer.

Operator: Thank you we have time for one more question today. Our final question comes from Scott Schneeberger with Oppenheimer.

Scott Andrew Schneeberger: Thanks very much. I appreciate it. I guess I'll make it a quick one for you, Rick.

Scott Andrew Schneeberger: Thanks, very much appreciate it I guess I'll make it a quick one.

Scott Andrew Schneeberger: Working capital management, very strong. Sounds like inventory management as well. You're trending very nicely year-to-date above what you had said yesterday as far as pre-cash flow conversion to EBITDA. How's that going to look in the second half of the year? And it sounds like you're anticipating using your strong cash position for debt reduction. Are there any other considerations for the use of that cash? Thanks.

Rick Dillon: For you Rick.

Scott Andrew Schneeberger: Working capital management very strong it sounds like inventory management is well you're trending very nicely year to date above above your all in what you had said at Investor day as far as free cash flow conversion to EBITDA.

Scott Andrew Schneeberger: How is that going to look in the second half of the year and it sounds like you're anticipating using your strong cash position for debt reduction are there any other considerations for use of that cash. Thanks.

Rick Dillon: Yes, we do expect free cash flow to remain strong for the year. Consistently, as we talked about, we believe this model and our efforts will allow us to continue to generate cash the way we have in the front half. Despite the EBITDA reduction, we will continue to focus on working capital that's driving improved receivables collections and day sales outstanding and continue our sales and operations planning efforts and use spill rate from a rental product perspective. And so, reducing that investment in merchandise inventory.

Speaker Change: Thanks, Yes, we do expect free cash flow to remain strong for the year consistent with what we've talked about we believe.

Rick Dillon: This model and our efforts will.

Rick Dillon: Allow us to continue to generate cash the way we have in the front half despite.

Rick Dillon: Despite the EBITDA reduction we will continue to focus on working capital that's driving improved receivables collections and days sales outstanding and continuing ourselves enough planning efforts and are you still right.

Rick Dillon: Kim talked about the $10 million gain there and the fact that we're well ahead of our planned rate. So, we feel really good about the opportunities we have in the back half to continue to scale and drive incremental free cash flow. When you look at what are going to be the uses of that cash, we still expect to spend 3% of revenue on CapEx, as we discussed. So we're not changing that.

Rick Dillon: From a rental product perspective, and so reducing that investment and merchandise.

Rick Dillon: Inventory, Jim talked about the $10 million game, there and in fact that were well ahead of our planned rate. So we feel really good about the opportunities we have in the back half to continue to scale and drive incremental free cash flow. When you look at why we're gonna be uses of that cash we still expect to spend.

Rick Dillon: We'll continue to invest in the business that we talked about before, and we do expect to continue to make voluntary debt payments in the back half, leveraging our free cash flow of strength, as well as we've also obviously committed, and will continue to pay, quarterly dividends.

Rick Dillon:

Rick Dillon: 30% of revenue on Capex as we discussed so we're not changing that will continue to invest in the business as we've talked about before and we do expect to continue to make voluntary debt payments in the back half leveraging our free.

Rick Dillon: Cash flow strength as well as the bustle, obviously committed and stay committed to paying our quarterly dividend.

Operator: That concludes the Q&A.

Kim Scott: I would now like to turn the floor over to Kim Scott, President and CEO, for closing remarks.

Kim Scott: Okay.

Kim Scott: Conclusive.

Kim Scott: Thank you. I'd like to thank everyone for joining the call today, and I want to close by reiterating that we remain fully committed to our strategy and we are confident in the long-term value creation opportunity here at Vestis. So, thank you for joining us.

Kim Scott: A portion of this call I would now like to turn the floor over to Kim Scott President and CEO for closing remarks.

Kim Scott: Thank you I'd like to thank everyone for joining the call today and I want to close by reiterating that we remain fully committed to our strategy and we are confident in our long term value creation opportunity here I thought that I'll say, thank you for joining.

Operator: Thank you. This concludes today's Vestis Corporation fiscal second quarter 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.

Operator: Thank you.

Operator: Today's Vista Corporation fiscal second quarter 2024 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.

Operator: [noise] [noise] [music].