Q1 2025 Vestis Corp Earnings Call

January 31, 2025

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Speaker Change: So I'll start it's on hold we do appreciate your patience and I see you continue to standby.

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Speaker Change: Well placed on hold we do appreciate your patience and ask that you continue to standby.

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Execute in FY 'twenty four.

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A more accurate reflection of the underlying performance of our business.

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Quarterly revenues.

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EBITDA was 81 2 million.

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EBITDA margin was 11, 9% down 180 basis points year over year.

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Unfortunately versus the fourth quarter.

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Cash flow was impacted by normal seasonality.

Finding that shifted some cash collection into the second quarter, which Rick will discuss in more detail.

On an underlying basis, we expect the business to remain highly cash generative and see no change in our outlook for the full year. Given this was a Q1 timing dynamic.

We were pleased to continue to improve our balance sheet during the quarter with our gross and net debt declining to 1.29 billion and 1.27 billion, respectively, and Q1 net debt to EBITDA of three eight times.

Speaker Change: Please standby your program is about to begin.

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Speaker Change: Welcome to the <unk> Corporation fiscal first quarter 2025 earnings conference call.

Now I'd like to summarize our Q1 results I want to look ahead to the rest of the year I'm excited about all aspects of our business, but especially by particular milestone we expect to hit in Q2 towards the end of the second quarter, we expect new volume growth will exceed loss business driven by field sales productivity national account win new.

Speaker Change: At this time, all participants have been placed on a listen only mode and the floor will be open for your questions. Following the presentation.

Speaker Change: If you would like to ask a question at that time. Please press star one on your telephone keypad. If at any point. Your question has been answered you may remove yourself from the queue by pressing star two to enable others to hear your questions. Clearly we ask that you pick up your handset for best sound quality.

Frontline sales head count growth.

And solid retention metrics.

Whether we started taking price in Q1, which held well and will continue through the year. In addition to core volume growth and price we have cost savings benefits throughout the year and to that end, we are reaffirming our full year FY 'twenty five guidance for revenue and EBITDA.

Michael: Lastly, if you should require operator assistance. Please press star Zero I would now like to turn the call over to Michael <unk>, Vice President Investor Relations.

Michael: Thank you Madison and good morning, everyone.

Speaker Change: Welcome to the Baskets Corporation fiscal first quarter 2025 earnings call.

We expect our business will grow sales at a rate of 3% to 4% with EBITDA growth approaching or exceeding 10% in the second half of the year.

Speaker Change: With me here today are our president and CEO, Kevin Scott and our CFO Rick Dillon.

Speaker Change: As a reminder, a telephonic replay of this call will be available on the Investor Relations section of the best Dotcom website. Shortly after the completion of the call.

For FY 'twenty five revenues there are four main drivers that will support our sequential ramp.

The first driver is strong new volume wins across F. N B field sales and national accounts on billed sales, we're seeing the positive effects from organizational changes made last year with year over year productivity improving 20%. This quarter. We believe there's more room to go as we sell some of our regions achieve a 40% increase.

Speaker Change: Also access to the materials discussed on today's call.

Speaker Change: Billable in Nebraska This website under the Investor Relations section.

Speaker Change: Before we begin I would like to remind you that this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 <unk>.

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Speaker Change: These include remarks about management's future expectations beliefs estimates plans and prospects.

Our national accounts, we are accelerating new business installations and continue to convert our pipeline into new wins.

Speaker Change: Such statements are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements.

These customers drive route density and leverage our excess plant capacity in our network, which in turn drives the operating leverage in our business.

Speaker Change: Such risks and other factors are set forth in our periodic and current reports filed with the Securities and Exchange Commission.

Some significant wins from this quarter include a new line expansion with a large restaurant customer where investors will more than triple is recurring revenue.

Speaker Change: Do not undertake any duty to update them.

Ken: With that I would like to turn the call over to Ken. Thank.

This customer will ramp in Q2 and throughout the year.

Ken: Thank you Michael Good morning, everyone. Thank you for joining our fiscal first quarter 2020 earnings call.

We also won a number of new customers in health care and industrial verticals.

Ken: As always I want to start by thanking our 20000 dedicated teammates for their hard work as we continue to execute against the tremendous opportunity ahead for that Sir.

Our pipeline with National accounts is the strongest it's been since I joined the Vista.

The second driver on our sequential acceleration as growth with existing customers. During Q1, our revenue from rail sales to existing customers increased by more than 50% year over year.

Ken: Our Q1 results came in as we expected last quarter, we communicated Q1 revenue and EBITDA would look similar to the fourth quarter of FY 'twenty four.

The third driver is our hiring pipeline for frontline sales teammates after intentionally slowing our frontline sales hiring in 2024, we have once again resumed hiring in 2025.

Ken: We delivered results in line with his commentary with Q1 revenue of $684 million flat sequentially from fourth quarter, 2024, and adjusted EBITDA of $81 2 million.

Ken: Ultimately, 1% sequentially from fourth quarter 2024, we also note. Our Q1 revenue was impacted by unfavorable movement in the Canadian dollar exchange rate, which had a negative impact relative to last year and the assumption in our guidance.

January March the first month since closing in 2024.

We've had a positive net change in sales head count These new hires will drive sales in 2025 and beyond as we introduced these teammates into a more professionalized selling environment.

Ken: Compared to the first quarter of fiscal 2024 revenue was down four 7% or four 5% on a constant currency basis.

The fifth driver is our retention metric in the first quarter, our customer retention rate was 92, 9%.

Ken: As we previously discussed our 2025 results exclude the benefit of onetime customer exit billings and revenue from the large direct sales customer that we exited in FY 'twenty four as part of our profit improvement plan for this line of business.

Up 30 basis points year over year, and up 280 basis points versus the fourth quarter.

As we've mentioned in the past we feel it is most useful to evaluate retention on a full year basis, which we believe is most indicative of our underlying performance.

Ken: Adjusted for these items, which we believe represents a more accurate reflection of the underlying performance of our business first quarter revenue declined two 8% on a normalized constant currency basis, and what we expect will be both the toughest comp and the low point for our quarterly revenue in fiscal 2025.

Going forward, we will continue to report customer retention on an annual basis with quarterly disclosure focus all the in period revenue impact from lost business.

To recap I believe in our sequential revenue guidance because of the new customers, we're winning across Smes and national accounts, our ramp in sales force hiring or growth with existing customers and our Q1 retention metrics.

Ken: From a profitability perspective Q1, adjusted EBITDA was $81 2 million. Our Q1 EBITDA margin was 11, 9% down 180 basis points year over year, and 10 basis points sequentially versus the fourth quarter.

For FY 'twenty five EBITDA. In addition to the net volume improvement there are three main drivers that support our sequential ramp.

The first driver is meaningful cost savings from operating more efficiently, we are pulling several levers, including driving merchandise reuse program and logistics optimization initiatives.

Ken: Q1 cash flow was impacted by normal seasonality as well as timing that shifted some cash collection into the second quarter, which Greg will discuss in more detail.

The second driver is optimizing our workforce to further drive cost performance and structural profitability of our business. During Q1, we took further action to rationalize field operations and back office, G&A, where appropriate with the majority of P&L benefits to come in future quarters.

Greg: On an underlying basis, we expect the business to remain highly cash generative and see no change in our outlook for the full year. Given this was a Q1 timing dynamic.

Speaker Change: We were pleased to continue to improve our balance sheet during the quarter with our gross and net debt declining to 129 billion and $1 7 billion, respectively. At Q1 net debt to EBITDA of three eight times.

The final driver of our EBITDA ramp is our intellect and your pricing we have improved our market segmentation and we observed pricing in Q1, starting better than in other quarters. We expect to continue to realize net positive price increases with our existing customer base in FY 'twenty five.

Speaker Change: Now I'll summarize our Q1 results I want to look ahead to the rest of the year I am excited by all aspects of our business, but especially by particular milestone we expect to hit in Q2 towards the end of the second quarter, we expect new volume growth will exceed lost business driven by field sales productivity national account win new.

So to recap a lot is working well at justice churn is in line with our expectations build sales productivity is ramping nicely.

Speaker Change: Hotline sales head count growth.

Our sales hiring pipeline is robust.

Speaker Change: Solid retention metrics.

Winning with National accounts, and we have pricing and cost savings through the rest of the year.

Speaker Change: We started taking price in Q1, which held well and will continue through the year. In addition to core volume growth and price we have cost savings benefits throughout the year.

We're excited by our business fundamentals and the sequential ramp we expect for the year.

Speaker Change: And we are reaffirming our full year FY 'twenty five guidance for revenue and EBITDA.

Before I turn the call over to Rick to discuss the financials I'd like to provide some additional color on our outlook.

Speaker Change: We expect our business will grow sales at a rate of 3% to 4% with EBITDA growth approaching or exceeding 10% in the second half of the year.

For the full year, we continue to expect the underlying business to deliver 1% to 2% core revenue growth and 40 basis points of core adjusted EBITDA margin expansion normalized for the fiscal 'twenty four customer exit billings and direct sales impact, but I previously discussed.

Speaker Change: For FY 'twenty five revenues there are four main drivers that will support our sequential ramp.

Speaker Change: The first driver is strong new volume wins across SMA field sales and national accounts on field sales, we're seeing the positive effects from organizational changes made last year with year over year productivity improving 20%. This quarter. We believe there's more room to go as we sell some of our regions achieve a 40% increase.

We continue to expect this core performance to be driven by positive contributions from both volume and pricing for the full year fiscal 2025.

As we deliver on our plan, we expect to see sequential improvement in both revenue and EBITDA through the balance of the year with our strongest performance in the fourth quarter.

Speaker Change: Our national accounts, we are accelerating new business installations and continue to convert our pipeline into new wins.

On a year over year basis, we continue to anticipate 3% to 4% top line growth and EBITDA growth approaching or exceeding 10% in the second half of the year.

Speaker Change: These customers drive route density and leverage our excess plant capacity in our network, which in turn drive the operating leverage in our business.

Speaker Change: Finally, I want to discuss two personnel changes that we announced this morning first our chief legal officer, and General Counsel Kim Donovan will be retiring next month I am pleased to announce that Bush Richard will soon be appointed asbestos as chief Legal Officer General Counsel and corporate Secretary Bush.

Speaker Change: Some significant wins from this quarter include a new line expansion with a large restaurant customer where investors will more than triple is recurring revenue.

Speaker Change: This customer will ramp in Q2 and throughout the year.

Speaker Change: We also won a number of new customers and health care and industrial verticals, our pipeline with National accounts is the strongest it's been since I joined Vista.

Speaker Change: <unk> brings over 30 years of public company legal experience and was most recently chief legal officer at time, Inc, which is a global industrial services company. We're excited to welcome but should the team and we thank him and wish him all the best in his retirement.

Speaker Change: The second driver in our sequential acceleration as growth with existing customers. During Q1, our revenue from route sales to existing customers increased by more than 50% year over year.

Speaker Change: Additionally, we announced that our Chief Financial Officer, Rick Dillon will be leaving the company as a part of the transition of the CFO role I want to sincerely. Thank Rick for his significant contributions to versus his leadership and preparing for versus the separation as a standalone public company and building out our public company finance capabilities.

Speaker Change: The third driver is our hiring pipeline for frontline sales teammates after.

Speaker Change: After intentionally slowing our frontline sales hiring in 2024, we have once again resumed hiring in 2025.

Speaker Change: January marked the first months of pausing in 2024.

Speaker Change: Have a lasting positive impact on our company, we remain grateful for his service to the company and we wish them continued success.

Speaker Change: We've had a positive net change in sales head count.

Speaker Change: These new hires will drive sales in 2025 and beyond as we introduce these teammates into a more professionalized selling environment.

Speaker Change: I'm also excited to announce that Kelly Janssen will be joining <unk> as our new CFO Kelly has over 25 years of financial leadership experience and since October she has been supporting us as a finance consulta pre.

Speaker Change: The fifth driver is our retention metrics in the first quarter, our customer retention rate was 92, 9%.

Speaker Change: Previously Kelly worked in the industrial distribution space as the CFO of Bluelinx from 'twenty to 'twenty to 'twenty two 'twenty three Kelly brings a tremendous skill set, particularly in financial and business process optimization and under her proven leadership. We believe we will be able to significantly advance our finance organization and support our future value creation.

Speaker Change: 30 basis points year over year, and up 280 basis points versus the fourth quarter.

Speaker Change: As we've mentioned in the past we feel it is most useful to evaluate retention on a full year basis, which we believe is most indicative of our underlying performance.

Speaker Change: Going forward, we will continue to report customer retention on an annual basis with quarterly disclosure focus all the in period revenue impact from lost business.

Speaker Change: Lastly, regarding our comments last quarter about potential interest in best case, we continue to have strategic advisers retained and are focused on our operations and delivering on our 2025 financial outlook, we will not be commenting further.

Speaker Change: To recap I believe in our sequential revenue guidance because of the new customers, we're winning across Smes and national accounts, our ramp in salesforce hiring or growth with existing customers and our Q1 retention metrics.

Speaker Change: With that I'd like to turn the call over to Rick Rick.

Rick: Thanks, Kevin and good morning, everyone. So let's start with the first quarter revenue bridge on slide nine.

Speaker Change: For FY 'twenty five EBITDA. In addition to the net volume improvement there are three main drivers that support our sequential ramp.

Rick: Revenue of 684 million was up 10 basis points sequentially versus the fourth quarter on a constant currency basis and in line with expectations with favorable customer retention, having a positive impact on our sequential results.

Speaker Change: The first driver is meaningful cost savings from operating more efficiently, we are pulling several levers, including driving merchandise reuse program and logistics optimization initiatives.

Rick: Moving to one time exit billings and the large direct sell customer loss from the prior year revenues were down two 8% year over year.

Speaker Change: The second driver is optimizing our workforce to further drive cost performance and structural profitability of our business. During Q1, we took further action to rationalize field operations.

Rick: The impact of rental growth was offset by lower pricing year over year and the impact of lost business.

Rick: Volume growth from recurring revenue, including new customers and expanding our services with existing customers provided approximately 730 basis points of growth in the quarter.

Speaker Change: And back office, G&A, where appropriate with the majority of P&L benefits to come in future quarters.

Speaker Change: The final driver of our EBITDA ramp as our intellect and your pricing we have improved our market segmentation and we observe pricing in Q1, starting better than in other quarters. We expect to continue to realize net positive price increases with our existing customer base in FY 'twenty five.

New customer growth contributing approximately 600 basis points and existing customer growth contributed 140 basis points with revenue from route sales up over 50% year over year.

Rick: The gap between new customer growth and loss businesses closing with the impact of lost business.

Speaker Change: So to recap a lot is working well investors churn is in line with our expectations.

Rick: The contribution from volume growth by only $8 million in this quarter, our first quarter net volume performance represents a 39% improvement from the prior year and a 43% sequential improvement marking the first sequential improvement since fiscal 2023.

Speaker Change: Sales productivity is ramping nicely.

Speaker Change: Our sales hiring pipeline is robust.

Speaker Change: We're winning with national accounts, and we have pricing and cost savings through the rest of the year.

Speaker Change: We're excited by our business fundamentals and the sequential ramp we expect for the year.

Rick: Our first quarter retention also improved by 40 basis points year over year, and 280 basis points sequentially.

Speaker Change: Before I turn the call over to Rick to discuss the financials I'd like to provide some additional color on our outlook.

Rick: Improved retention during fiscal 'twenty four and in the first quarter of 2025 resulted in a 16% reduction in the overall impact of lost business.

Speaker Change: For the full year, we continue to expect the underlying business to deliver 1% to 2% core revenue growth and 40 basis points of core adjusted EBITDA margin expansion normalized for the fiscal 2000 and for customer exit billings and direct sales impact, but I previously discussed.

Rick: As expected 40 basis points of in your pricing actions was more than offset by the negative impact from the roll back of prior year pricing actions, we expect to see positive pricing in the back half of the year as we lap difficult comps in the first two quarters.

Speaker Change: We continue to expect this core performance to be driven by positive contributions from both volume and pricing for the full year fiscal 2025.

Rick: Direct sales drove an approximately 120 basis points decline in the first quarter year over year, driven primarily by the loss of revenue from the large direct fill national accounts previously disclose.

Speaker Change: As we deliver on our plan, we expect to see sequential improvement in both revenue and EBITDA through the balance of the year with our strongest performance in the fourth quarter.

Rick: FX was a 20 basis points headwind during the quarter with the Canadian exchange rate lower than the prior year and the rate assumed in our guidance.

Speaker Change: On a year over year basis, we continue to anticipate 3% to 4% topline growth and EBITDA growth approaching or exceeding 10% in the second half of the year.

Rick: Moving on to slide 11, and adjusted EBITDA.

Speaker Change: Finally, I want to discuss to your personnel changes that we announced this morning.

Rick: Adjusted EBITDA was approximately $81 2 million in the first quarter of fiscal 'twenty five in line with our expectations for sequential performance relative to Q4, resulting in a decrease of approximately $17 million from the first quarter of fiscal 'twenty four.

Speaker Change: First our chief legal officer, and General Counsel, Tim Donovan will be retiring next month I am pleased to announce that Bush Richard will soon be appointed asbestos as chief Legal Officer General Counsel and corporate Secretary Bruce.

Rick: The operating leverage on new business was more than offset by the impact of lost business and the rollback of prior year pricing actions.

Speaker Change: <unk> brings over 30 years of public company legal experience and was most recently chief legal officer at time, Inc, which is a global industrial services company. We're excited to welcome <unk> to the team and we thank him and wish him all the best in his retirement.

Rick: Cost reduction initiatives continued network optimization efforts and lower energy costs were partially offset by the impact of prior year, one time exit billings expected labor increases and increased freight costs associated with positioning inventory in our network for new business installed.

Rick: On a sequential basis EBITDA margins increased 10 basis points to 11, 9% in the first quarter of 2025.

Speaker Change: His leadership and preparing for versus the separation as a standalone public company and building out our public company finance capabilities will have a lasting positive impact on our company. We remain grateful for his service to the company and we wish them continued success.

Rick: EBITDA margins were 13, 7% in the first quarter of 'twenty four.

Rick: Turning to cash flow on slide 11.

Rick: We generated approximately $4 million in cash from operations in the first quarter compared to $52 million in the first quarter of last year. This excludes the cash from the sale of the Japan joint venture completed during the quarter.

Rick: Q1 is seasonally our lowest cash generating quarter due to certain annual payments, including things like insurance premiums and incentive compensation.

Speaker Change: Obviously Kelly worked in the industrial distribution space as the CFO of Bluelinx from 2020 to 2023.

Speaker Change: He brings a tremendous skill set, particularly in financial and business process optimization and under our proven leadership. We believe we will be able to significantly advance our finance organization and support our future value creation.

Rick: The decrease year over year reflects lower EBITDA between years, and a $6 million investment in inventory to support growth.

Rick: In addition, there was approximately $20 million of cash collections on trade and other receivables that shifted into January due to the timing of the holidays and our quarter end dates.

Lastly, regarding our comments last quarter about potential interest in basket. We continue to have strategic advisers retained and are focused on our operations and delivering on our 2025 financial outlook, we will not be commenting further.

Rick: We continue to focus on inventory management sales and operations planning and government reuse initiatives. The increase during the quarter is to position the right inventory in our facilities to support growth as we prepare for several large and stuff.

Rick Dillon: With that I'd like to turn the call over to Rick Rick.

Rick Dillon: Thanks, Kevin and good morning, everyone. So let's start with the first quarter revenue bridge on slide nine.

Rick: Net capital expenditures were approximately $15 million during the fourth quarter.

Rick: Quarter, essentially flat with Q1 of 2024.

Rick Dillon: <unk> of $684 million was up 10 basis points sequentially versus the fourth quarter on a constant currency basis and in line with expectations with favorable customer retention, having a positive impact on our sequential results.

Rick: The negative free cash flow in the quarter was driven by the receivable timing previously mentioned in January we recovered the 20 million collections deficit from the last week of December This is simply a timing shift.

Rick Dillon: Excluding the one time exit billings and a large direct sell customer loss from the prior year revenues were down two 8% year over year.

Rick: Continue to expect our cash conversion rate to be on average approximately 50% on an annual basis on an underlying basis, we expect the business to remain highly cash generative and see no change in our outlook for the full year.

Rick Dillon: The impact of rental growth was offset by lower pricing year over year and the impact of lost business.

Rick: We utilized proceeds from the sale of the Japan G. P to make voluntary principal payments of approximately $20 million during the quarter, reducing our net debt to one point to seven 4 billion. We ended the quarter with a net debt to EBITDA ratio of three eight times given the expected increase in LTM EBITDA and cash generation, we expect this.

Rick Dillon: Volume growth from recurring revenue, including new customers and expanding our services with existing customers provided approximately 730 basis points of growth in the quarter.

Rick Dillon: New customer growth contributing approximately 600 basis points and existing customer growth contributed 140 basis points with revenue from route sales up over 50% year over year.

Rick: To be the high point of our leverage ratio as we progress through the year, we remain confident confident in our ability to meet our targeted leverage level of one five to two five times by the end of fiscal 'twenty six.

Rick Dillon: The gap between new customer growth and loss businesses closing with the impact of lost business exceeding the contribution from volume growth by only $8 million in this quarter. Our first quarter net volume performance represents a 39% improvement from the prior year and a 43% sequential improvement marking the first.

Rick: I will conclude by providing a few more details on our fiscal 2025 outlook on slide 14.

Rick: On track to deliver our guidance for the year. We continue to expect revenue of $2 eight to $2 eight 3 billion and adjusted EBITDA of $345 million to $360 million. This would result in revenue growth from approximately zero to 1% and an EBITDA margin of 12, 3% to 12, 7%.

Rick Dillon: Improvements since fiscal 2023.

Rick Dillon: Our first quarter retention also improved by 40 basis points year over year, and 280 basis points sequentially.

Rick Dillon: Improved retention during fiscal 'twenty four and in the first quarter of 2025 resulted in a 16% reduction in the overall impact of lost business.

As a reminder, Q1 included a 20 basis point headwind related to Canadian dollar exchange rates versus prior year and the rate assumed in our guidance. We expect this to continue to be a headwind as we progressed through the year.

Rick Dillon: As expected 40 basis points of in your pricing actions was more than offset by the negative impact from the roll back of prior year pricing actions, we expect to see positive pricing in the back half of the year as we lap difficult comps in the first two quarters.

Rick: We believe our growth and cost initiatives support sequential improvement in our results as we progress through the year, including Q2, which is typically our lowest growth quarter, we expect to return to year over year growth in the back half of the year, Jim talked about the many drivers of the sequential growth, including field sales productivity improve.

Rick Dillon: <unk> sales drove an approximately 120 basis points decline in the first quarter year over year, driven primarily by the loss revenue from the large direct sale national accounts previously disclose.

Rick Dillon: FX was a 20 basis point headwind during the quarter with the Canadian exchange rate lower than the prior year and the rate assumed in our guidance.

Rick: Improvements national account wins, new hires and selective price increases.

Rick: We remain excited about the momentum in our business and the trajectory of the business heading into 2026.

Rick Dillon: Moving on to slide 11, and adjusted EBITDA.

Rick Dillon: Adjusted EBITDA was approximately $81 2 million in the first quarter of fiscal 'twenty five in line with our expectations for sequential performance relative to Q4.

Rick: Lastly, as Ken mentioned I will leave investors on February 14. It gives me great pride to see the green shoots and underlying momentum in our business I am glad to be leaving the company in a strong position delivering against its financial commitments with a long runway to capitalize on value creation opportunities.

Rick Dillon: <unk> and a decrease of approximately $17 million from the first quarter of fiscal <unk>.

Rick Dillon: Sure.

Rick Dillon: New business was more than offset by the impact of lost business and the rollback of prior year pricing actions.

Rick: I'm, especially proud of the finance team and their contributions and accomplishments accomplishments over the last three years.

Rick Dillon: Cost reduction initiatives continued network optimization efforts and lower energy costs were partially offset by the impact of prior year, one time exit billings expected labor increases and increased freight costs associated with positioning inventory in our network for new business installed.

Speaker Change: I've had the chance to work with Kelly for the last few months and I am confident I leave them in good hands. So I'm going to say publicly thank you Kim and the rest of my best as teammates and I wish you and the company continued success.

Speaker Change: That concludes our prepared remarks for today, we thank everyone for joining us and we will now open the line for questions.

Rick Dillon: On a sequential basis EBITDA margins increased 10 basis points to 11, 9% in the first quarter of 2025.

Speaker Change: The floor is now open for questions. At this time, if you have a question or comment please.

Rick Dillon: EBITDA margins were 13, 7% in the first quarter of 'twenty four.

Speaker Change: Please press star one on your telephone keypad.

Rick Dillon: Turning to cash flow on slide 11.

Speaker Change: Any point. Your question is answered you made yourself from the queue by pressing star two.

Rick Dillon: We generated approximately $4 million in cash from operations in the first quarter compared to $52 million in the first quarter of last year. This excludes the cash from the sale of the Japan joint venture completed during the quarter.

Speaker Change: Again, we ask that you pick up your handset from posing your question to provide optimal sound quality.

Speaker Change: Thank you and our first question is coming from Andy Wittmann with Baird. Please go ahead.

Rick Dillon: Q1 is seasonally our lowest cash generating quarter due to certain annual payments, including things like insurance premiums and incentive compensation.

Speaker Change: Please go ahead, Andy Wittmann your line is open.

Rick Dillon: The decrease year over year reflects lower EBITDA between years, and a $6 million investment in inventory to support growth.

Speaker Change: Sorry about that.

Andy Wittmann: Thanks for taking my questions.

Andy Wittmann: I had a question on pricing I guess wanted to start there.

Rick Dillon: In addition, there was approximately $20 million of cash collections on trade and other receivables that shifted into January due to the timing of the holidays and our quarter end dates.

Andy Wittmann: I saw that peak in year pricing contribution to the first quarter results was up <unk>, 4% pretty similar to the 6% of last quarter, but down kind of just a smidge.

Rick Dillon: We continue to focus on inventory management sales and operations planning and garment reuse initiatives. The increase during the quarter is to position the right inventory in our facilities to support growth as we prepare for several large and stuff.

Jim: Jim you mentioned in your script.

Andy Wittmann: You're expecting to.

Andy Wittmann: Kind of get more pricing and that it was well received.

Rick Dillon: Net capital expenditures were approximately $15 million during the fourth first quarter essentially flat with Q1 of 2024.

Andy Wittmann: Is the is the pricing ramp that you're expecting here in fiscal 'twenty five.

Andy Wittmann: A more backend loaded or maybe you could give some detail about the cadence and a little bit more color on what youre seeing on the pricing absorption there.

Rick Dillon: The negative free cash flow in the quarter was driven by the receivable timing previously mentioned in January we recovered the 20 million collections deficit from the last week of December. This is simply a timing shift we continue to expect our cash conversion rate to be on average approximately 50% on an annual basis on an underlying basis we.

Andy Wittmann: Yeah sure. So thank you for your question Andy It's great to hear from you. This morning, I would start by saying you're right and in my message around the fact that we are demonstrating the ability to take price and maintain higher levels of pricing. We expect that that will continue not accelerate but continue through the balance of the year.

Rick Dillon: <unk> the business to remain highly cash generative and see no change in our outlook for the full year.

Rick Dillon: We utilized proceeds from the sale of the Japan GP to make voluntary principal payments of approximately $20 million during the quarter, reducing our net debt to one point to seven 4 billion. We ended the quarter with a net debt to EBITDA ratio of three eight times given.

Andy Wittmann: Here, we will lap negative pricing comps are.

That are happening in the first and second quarter of the year in the back half of the year. So we'll net positive pricing overall for the full year and the way we're doing that is really through the ability to hold onto that probably better with our existing customers Youll recall that we spoke a lot about improving our service performance, earning the right to take price and we felt.

Rick Dillon: Given the expected increase in LTM EBITDA and cash generation, we expect this to be the high point of our leverage ratio as we progress through the year, we remain confident confident in our ability to meet our targeted leverage level of one five to two five times by the end of fiscal 'twenty six.

Andy Wittmann: Really confident that we've gained a great deal of traction in terms of improving the customer experience and so that is earning the right to take it hold that price. We've also spent time with our frontline teammates training them and helping them Abbott is conversations with customers and understand how can you discuss and explained pricing tactics. So we felt really good about the ability.

Rick Dillon: I will conclude by providing a few more details on our fiscal 2025 outlook on slide 14.

Rick Dillon: We remain on track to deliver our guidance for the year. We continue to expect revenue of $2 eight to $2 83 billion and adjusted EBITDA of $345 million to $360 million. This would result in revenue growth from approximately zero to 1% and an EBITDA margin of 12, 3% to $12 seven.

Andy Wittmann: To generate net positive pricing in the full year and you should expect that that will be generally in line with our normal annual price increasing levels.

Andy Wittmann: Okay.

Andy Wittmann: Helpful. Thank you for that context, just for my follow up.

Andy Wittmann: Just wanted to kind of ask on the cost side of the ledger here as well I mean, just looking at the P&L I'm like the SG&A line and other things it looks like there have been some pretty significant cost reductions I guess two part question. One is when you talked a little bit about what areas that you address specifically for efficiency.

Rick Dillon: <unk>.

Rick Dillon: As a reminder, Q1 included a 20 basis point headwind related to Canadian dollar exchange rates versus prior year and the rate assumed in our guidance.

Rick Dillon: We expect this to continue to be a headwind as we progressed through the year.

Rick Dillon: We believe our growth and cost initiatives support sequential improvement in our results as we progress through the year, including Q2, which is typically our lowest growth quarter, we expect to return to year over year growth in the back half of the year, Jim talked about the many drivers of the sequential growth, including field sales productivity.

Andy Wittmann: Here in the last.

Andy Wittmann: Three months in.

You did mention that youre not quite done with some of your efficiency actions and I was wondering kind of what you still see in the future as the areas that need.

Andy Wittmann: It can be addressed.

Certainly so we are really generating tremendous momentum and many cost takeout areas as well as productivity areas of our business. So we continue down the path of our logistics optimization strategy. We continue to accelerate that works that we've gotten significant flooding around optimizing our network and we continue to conduct.

Rick Dillon: Improvements national account wins, new hires and selective price increases we remain excited about the momentum in our business and the trajectory of the business heading into 2020.

Speaker Change: Lastly, as Ken mentioned I will leave investors on February 14. It gives me great pride to see the green shoots and underlying momentum in our business I.

Andy Wittmann: Those activities across our facilities that we're generating savings and productivity from being more efficient from a logistics perspective, we continue to improve the use of existing garments. So our merchandise reuse initiative related to improving our use to fill rate metrics drives also cash benefits as well as cost outs.

Speaker Change: I am glad to be leaving the company in a strong position delivering against its financial commitments with a long runway to capitalize on value creation opportunities.

Speaker Change: I am, especially proud of the finance team and their contributions and accomplishments accomplishments over the last three years.

Speaker Change: I've had the chance to work with Kelly for the last few months and I'm confident I leave them in good hands.

Andy Wittmann: In the period and then we did take some specific action around optimizing our workforce out in the field as well as in our back office G&A.

Speaker Change: So I want to say publically. Thank you Kim and the rest of my best as teammates and I wish you and the company's continued success.

Andy Wittmann: He did not enjoy a full quarter of those activities are in the first quarter. So we will see full quarters of those benefits flow through in the second third and fourth quarter and then the final area is around plant operations and working to become more efficient in our plants related to labor efficiencies and productivity with our frontline workforce.

Speaker Change: That concludes our prepared remarks for today, we thank everyone for joining us and we will now open the line for questions.

Speaker Change: The floor is now open for questions. At this time, if you have a question or comment.

Speaker Change: Please press star one on your telephone keypad.

Speaker Change: Any point. Your question is answered you may remove yourself from the queue by pressing star to you.

Andy Wittmann: We've got a really full portfolio of productivity and cost out initiatives and we continue to fill that pipeline and we continue to optimize and we won't we will always do that but in particular, you're going to see a full second third and fourth quarter of this cost takeout initiatives that we did in the first quarter are only seeing a partial contribution.

Speaker Change: We ask that you pick up your handset when posing your question to provide optimal sound quality.

Speaker Change: Thank you.

Speaker Change: And our first question is coming from Andy Wittmann with Baird. Please go ahead.

Andy Wittmann: In Q1.

Speaker Change: Please go ahead, Andy Wittmann your line is open.

Andy Wittmann: Great. Thank you.

Andy Wittmann: Huh.

Speaker Change: Sorry about that.

Speaker Change: Thank you and we'll take our next question from Andrew Steinman at J P. Morgan. Please go ahead.

Speaker Change: Thanks for taking my questions.

Speaker Change: I had a question on pricing I guess wanted to start there.

Speaker Change: I saw that peak in year pricing contribution to the first quarter results was up <unk>, 4% pretty similar to the 6% of last quarter, but down kind of just a smidge.

Hi, Kim could you comment on the direction of the NPS scores.

Speaker Change: Remember the last time you commented on them with this group you said they were at 12 months is that was that.

Jim: Jim You mentioned in your script that.

Speaker Change: A couple of quarters ago could you just remind us how often these scores are measured at a company level and then give us some qualitative comment.

Jim: You're expecting to kind of get more pricing and that it was well received.

Jim: Is the is the pricing ramp that you're expecting here in fiscal 'twenty, five but kind of more backend loaded or maybe you could give some detail about the cadence.

Speaker Change: Reduction of service issues and how that wasn't cheap.

Speaker Change: Yeah, Great question. So we really look at M. P. S. At the most macro level on an annual basis. So.

Jim: Little bit more color on what youre seeing on the pricing absorption there.

Speaker Change: So we'll come back to that and talk about that annually, but we look everyday at leading indicators around service related request.

Speaker Change: Yeah sure. So thank you for your question Andy It's great to hear from you. This morning, I would start by saying you're right and my message around the fact that we are demonstrating the ability to take price and maintain higher levels of pricing. We expect that that will continue not accelerate but continue through the balance of.

Speaker Change: So as a customer calls in with a service need at some store we call those S ours, and we managed service requests on a very tactical and daily basis, and they service requests have very specific reason codes attached to them and those raising kind of us help us generate credo bars and understand what are the key drivers of customer service.

Jim: The year, we will lap negative pricing comps.

That are happening in the first and second quarter of the year in the back half of the year. So we'll net positive pricing overall for the full year.

Speaker Change: Request you might recall in the past I spoke about those and I, specifically called out on time delivery and shortages as being key opportunities to improve the customer experience and to reduce their service requests and I'm really proud to say that we are reducing the servicer craftsman related today is Keith <unk> bars in those key areas around on time delivery.

Jim: The way, we're doing that is really through the ability to hold onto that probably better with our existing customers Youll recall that we spoke a lot about improving.

Jim: Improving our service performance, earning the right to take price and we feel really confident that we've gained a great deal of traction in terms of improving the customer experience and so that is earning the right to take it hold that price. We've also spent time with our frontline teammates training them and helping them have those conversations with customers and understand how can you discuss and explained.

Speaker Change: And around shortages. So overall, we are seeing continued improvement in the customer experience and we can see that daily and the reduction of service requests related to these key focus areas and also I will add some more color around that Andrew is we're seeing great success cross selling our existing customers multiple products and services.

Jim: Think tactics. So we feel really good about the ability to generate net positive pricing in the full year and you should expect that that will be generally in line with our normal annual price increasing levels.

Speaker Change: And that is also a great indicator that our customers are having a good experience because they are choosing to buy more from best us.

Speaker Change: Okay. That's helpful to you for that context, just for my follow up I guess I wanted to kind of ask on the cost side.

Andrew: Okay. Thanks Kim.

Speaker Change: Well I think century.

Speaker Change: Thank you and we'll take our next question from Shlomo Rosenbaum with Stifel. Please go ahead.

Speaker Change: But what you are here as well I mean, just looking at the P&L I'm like the SG&A line and other things it looks like there have been some pretty significant cost reductions.

Speaker Change: Hi, Thank you very much he Tim could you dig in a little bit more to some of the efficiency efforts I can talk to about 15 logistics optimization events and more.

Speaker Change: I guess two part question. One is can you talk a little bit about what areas that you address specifically for efficiency here in the last.

Speaker Change: We can dose we use up to 10% to a record high that you in the slide deck, how much do those two items moved the needle in other words.

Speaker Change: Three months.

Speaker Change: You did mentioned that you are not quite done with some of your efficiency actions and I was wondering kind of what you still see in the future as the areas that need.

Speaker Change: Those things are happening in the quarter or did that add.

Speaker Change: 5 million of EBITDA or I'm, just trying to figure out how material. The items are that you've already done and how should we think about that going forward.

Speaker Change: Can be addressed.

Speaker Change: Yes, certainly so we are really generating tremendous momentum and many cost takeout areas as well as productivity areas of our business. So we continue down the path of our logistics optimization strategy. We continue to accelerate that works that we've gotten significant flooding around optimizing our network and we continue to.

Speaker Change: Yeah, So well we will always continue to focus on this portfolio, our productivity initiatives and cost out initiatives. So I'm. All set. Thank you should think of it as a never ending program. So every year I'll be challenging my team to identify these opportunities and to execute against them and we were very explicit about the logistics optimization.

Speaker Change: Conduct those activities across our facilities that we're generating savings and productivity from being more efficient from a logistics perspective, we continue to improve the use of existing garments. So our merchandise reuse initiative related to improving our used to fill rate metrics drives also cash benefits as well as cost.

Speaker Change: Opportunity as we were preparing to spin the company out you might recall, we did a pretty significant networks optimization study and we found a tremendous opportunity to consolidate and some cases that those into existing market centers, we found opportunities to optimize customer routes and to serve them more efficiently and so we are.

Speaker Change: In the period and then we did take some specific action around optimizing our workforce out in the field as well as in our back office G&A.

Speaker Change: What's that like moving down that path and we've been doing that for several years now and so you'll continue to see cost out from that program over the next probably three years and then we'll continue to automate not that network as we grow so that is a gift that keeps giving as we move through the quarters. The cost take out program with very explicit and while I'm not.

Speaker Change: Did not enjoy a full quarter of those activities are in the first quarter. So we will see a full quarters of those benefits flow through in the second third and fourth quarter and then the final area is around plant operations and working to become more efficient in our plants related to labor efficiencies and productivity with our frontline workforce.

Speaker Change: Going to give specifics around the actual contribution of that cost takeout. It was significant in your and I believe there is more opportunity to continue to optimize our workforce and to optimize the way that our teams operate the next level of that is really going to be though through automation and through really eliminating work and digitizing work. So.

Speaker Change: We've got a really full portfolio of productivity and cost out initiatives and we continue to fill that pipeline and we continue to optimize and we won't we will always do that but in particular, you're going to see it for a.

Speaker Change: More to do there before we hit the next leg of the back office G&A costs out.

Speaker Change: Second third and fourth quarter of this cost take out initiatives that we did in the first quarter are only seeing a partial contribution in Q1.

Speaker Change: And then as it relates to you still right. We did get the full year numbers last year. So I think it's important just to note that as we continue to reuse existing garments, we will continue to lower amortization, so you'll be able to see that in our financials. As we report amortization numbers. So I would just point you to that and encourage you to continue to watch that amortization call fun.

Speaker Change: Great. Thank you.

Speaker Change: Thank you and we will take our next question from Andrew Steinman with J P. Morgan. Please go ahead.

Andrew Steinman: Hi, Kim could you comment on the direction of the NPS scores I remember the last time you commented on them with this group you said they were at 12 months.

Speaker Change: As a function of of revenue and you'll be able to see what we're driving there related to use of late.

Speaker Change: Okay, and then can you just talk a little bit.

Speaker Change: A couple of quarters ago could you just remind us how often these scores are measured at a company level and then give us some qualitative.

Speaker Change: About what's going to drive the revenue growth like how much should we expect.

Speaker Change: To be able to come over time from pricing and what would take to get like the volumes too to really materially go up from here or are you thinking.

Speaker Change: Comment has there been a reduction of service issues and how that was achieved.

Speaker Change: Yeah, Great question. So we really look at M. P. S. At the most macro level on an annual basis.

Speaker Change: Thinking about hiring much more aggressively now I know you talked about that hiring is up is this going to be more of a selective or do you feel from a program or do you feel like with the leadership you have in sales now you're at a point, where it makes sense to really implement a much more aggressive hiring program.

Speaker Change: So we'll come back to that and talk about that annually, but we look everyday at leading indicators around service related request.

Speaker Change: So as a customer calls in with a service need at some store we call those S ours, and we managed service requests on a very tactical and daily basis, and they service requests have very specific reason codes attached to them and there's reason codes help us generate credo bars and understand what are the key drivers of customer service.

Speaker Change: So I'll start with a broad macro question around price and volume and how they contribute to our strategy to create value. So we will take pricing at normal pricing levels. As we did historically prepay that and we feel very confident that we've achieved the ability to do that and we saw good pricing in Q1 her normal pricing levels. So.

Speaker Change: Request you might recall in the past I spoke about those and I, specifically called out on time delivery and shortages as being key opportunities to improve the customer experience and to reduce their service requests and I'm really proud to say that we are reducing the servicer kras related today's key credo bars in those key areas around on time delivery.

Speaker Change: I think our pricing is a normal activity that will do on an annual basis and it is not the key to our strategy and then I'll I'll point you to the key to our strategy, which is to drive volume through our system. So volume is incredibly important I was very pleased to share on the call. This morning that we expect new volume wins to outweigh.

Speaker Change: <unk> losses, as we kind of exited the second quarter. So we're very pleased that we expect to see that shift and we will start to see positive volume growth in the system. The reason that is so important to us and powerful for us just because we're sitting on roughly 35% idle plant capacity. So we're going to generate significant operating leverage as this.

Speaker Change: And that is also a great indicator that our customers are having a good experience because they are choosing to buy more from Baxter.

Speaker Change: Okay.

Speaker Change: Youre welcome thank century.

Speaker Change: Volume flip to positive and we push volume through the system. So it is definitely about generating incremental volume and driving that volume. How are we doing that I think is the second part of your question and we're doing that really through three legs of the stool. So at first I would think about national account volume.

Speaker Change: Thank you and we'll take our next question from Shlomo Rosenbaum with Stifel. Please go ahead.

Speaker Change: Hi, Thank you very much he Tim could you dig in a little bit more to some of the efficiency efforts I can talk to about 15 logistics optimization events portion dose, we use up to 10% to a record high that you in the slide deck, how much do those two items move the needle in other words would do.

Speaker Change: Talked a great deal about accelerating our pipeline the health of our pipeline. Some of these key customer wins that we've been highlighting for you and we feel extremely confident about the power of our national account pipeline and our ability to convert that to new wins, and then to install that business, we're seeing great results there.

Speaker Change: Things are happening in the quarter or did that add.

Speaker Change: 5 million of EBITDA or I'm, just trying to figure out how material. The items are that you've already done and how should we think about that going forward.

Speaker Change: Very very pleased with the work that National account team is doing the second leg of the stool is SME sells through our frontline field team and we talked a lot about that over the past year that team has been revamped that team has been professionalized under our new sales leader ship and they are starting to drive higher levels of revenue per head.

Speaker Change: Yeah. So while we will always continue to focus on this portfolio, our productivity initiatives and cost out initiatives. So and I also think you should think of it as a never ending program. So every year I'll be challenging my team to identify these opportunities and to execute against them and we were very explicit about the logistics optimization.

Our productivity per head we are now at the point, where we would like to add more teammates to that team putting them into a professionalized selling environment, where they're going to be highly productive. So we do aim to grow the sales team.

Speaker Change: <unk> as we were preparing to spin the company out you might recall, we did a pretty significant networks optimization study and we found a tremendous opportunity.

Speaker Change: About the fact that we've seen a positive add itself head count now in January and we're going to continue to add that head count, but when you think about what should the size of the team be it really depends on freight not it depends on what type of turnover you are saying it depends on what time the type of productivity Youre, saying and then how fast are you hiring them in house.

Speaker Change: Consolidate in some cases that those into existing market centers without opportunity to optimize customer routes and to serve them more efficiently and so we are very explicitly moving down that path and we've been doing that for several years now and so youll continue to see cost out from that program over the next probably three years and then.

Speaker Change: Reductive are they so we're going to just keep dialing those knobs and turn it is not until we get the right formula, but we are going to add teammates see that team and then the third leg of the stool is retention and we're very pleased to see the fruits of our labor around improving the customer experience, we're seeing positive improvement in customer retention rate and that will also contribute.

Speaker Change: We'll continue to automate not that network as we grow so that is a gift that keeps giving as we move through the quarters. The cost take out program with very explicit and while I'm not going to give.

Speaker Change: Typically around the actual contribution of that cost takeout it was significant in year.

Speaker Change: I believe there is more opportunity to continue to optimize our workforce and to optimize the way that our teams operate.

Speaker Change: Two our volume strategy.

Speaker Change: Thank you.

Speaker Change: The next level of that is really going to be though through automation and through really eliminating work and digitizing work. So more to do there before we hit the next leg of the back office G&A cost out and then as it relates to used to fill rate. We did get the full year numbers last year. So I think it's important just to note that as we continue to reuse.

Speaker Change: Thank you.

Speaker Change: Our next question is coming from Stephanie more with Jefferies. Please go ahead.

Harold: Hello This is Harold.

Harold: For stuff anymore, so our yes.

Harold: On the pension front of money so.

Harold: Movement in the quarter.

Speaker Change: Listing garments, we will continue to lower amortization, so you'll be able to see that in our financials. As we report amortization numbers. So I would just point you to that and encourage you to continue to watch that amortization call fun as a function of revenue and you'll be able to see what we're driving there related to use of late.

Harold: Can you talk about besides us.

Harold: Punchy reading to that improvement and then how should we think about the retention drove improve.

Harold: Enjoy the rest of the year and I guess.

Harold: What are you on the road right.

Harold: Their attention from.

Harold: For the fiscal year.

Speaker Change: Okay, and then can you just talk a little bit.

Speaker Change: About whats going to drive the revenue growth like how much should we expect.

Harold: So I think I got your question there Harold So your question is what are what are we doing to drive retention improvements in the system and why do we expect for the balance of the year at your question.

Speaker Change: To be able to come over time from pricing and what would take to get like the volumes too to really materially go up from here or are you thinking.

Harold: No.

Harold: Right.

Harold: So I'll point you back to all of the efforts that we really undertaken really in second quarter of last year shifting the team to focus very aggressively on enhancing the customer experience and said we have been hyper focused as a team on really driving a delightful experience for our customers from on time performance. So rolling out standard operating.

Harold: Procedures to improve shortages and to make sure our customers get everything they want the first time that it's delivered and really shifting our teams focus around delighting. The customer we are definitely seeing that that body of work is making a difference and we are seeing improvements in service requests and our customers are responding very positively to the work that we're doing.

Harold: To take great care of them, So I would point to that as the key reason around why our customers are saying I would also point you to the fact that we've been very thoughtful in our pricing strategies and about how we take pride in how we approach that pricing activity with the customer. So we feel that we've taken a very balanced approach to pricing.

Speaker Change: We used to share on the call. This morning that we expect new volume wins, two outweighed losses, as we kind of exited the second quarter. So we're very pleased that we expect to see that shift and we will start to see positive volume growth in the system. The reason that is so important to us and powerful for us just because we're sitting on roughly 35.

Harold: Appropriate approach as well as driving an enhanced customer experience in both of those factors are contributing to improved customer retention.

Harold: At the year, we continue to expect.

Harold: Good performance related to retention, we saw improvement in Q1, and we expect that we will hold that improvement and we will always be focused on retaining as many customers as we can so we won't be satisfied with our performance for the year, but we do expect to see improved retention. This year and we will continue to drive that number up in the coming years.

Speaker Change: Per cent idle plant capacity, so we're going to generate significant operating leverage as this volume flip to positive and we push volume through the system. So it is definitely about generating incremental volume and driving that volume. How are we doing that I think is the second part of your question and we're doing that really through three legs of the stool.

Harold: Thank you for the call.

Harold: Thank you for your question.

Speaker Change: Thank you and our next question is coming from Manav Patnaik with Barclays. Please go ahead.

Speaker Change: So first I would think about national account volume, we've talked a great deal about accelerating our pipeline the health of our pipeline. Some of these key customer wins that we've been highlighting for you and we feel extremely confident about the power of our national account pipeline and our ability to convert that to new wins, and then to install that business.

Speaker Change: Hi, Good morning. This is roni Kennedy on for Myles. Thank you for taking my questions can I. Just please ask how you would characterize the background and the demand environment and conversations with customers and then if there's any particular regions or key strategic sub verticals with particular strength or weakness and then one more element to the question. Please.

Speaker Change: We are seeing great results there.

Speaker Change: Very very pleased with the work the National account team is doing the second leg of the stool is SME sells through our frontline field team and we talked a lot about that over the past year that team has been revamped that team has been professionalized under our new sales leader ship and they are starting to drive higher levels of revenue per head.

Speaker Change: Any implications or impact of that you're seeing already or potentially of new policy from the new presidential administration, such as the 25% tariffs in Mexico, if I'm not mistaken I think you have manufacturing facilities there.

Speaker Change: Okay Route and I'm I'll try to take that I think that's four questions, but I'm with you. So let me let me start with the first one it's good to hear from you. The first one I believe is around demand and are we seeing any shift in the macro economic environment and I would just point everyone back to this $48 billion market that we estimate we are participating in there is plenty of opportunity.

Speaker Change: Our productivity per head we are now at the point, where we would like to add more teammates to that team putting them into a professionalized selling environment, where theyre going to be highly productive. So we do aim to grow the sales team.

Speaker Change: About the fact that we've seen a positive add sales headcount now in January and we're going to continue to add that head count, but what do you think about what should the size of the team.

For growth and we are not seeing a shortage of leads or the ability to go out and hunt and find opportunities for new business. So I feel very confident that there's lots of market share out there for us and we're attacking that and I say at the moment and go about our very strong national account pipeline and the fact that we're generating great new wins off of that pipeline.

Speaker Change: It really depends on three dogs it depends on what type of turnover you are saying it depends on what time the type of productivity you are saying and then how fast are you hiring them and how productive are they so we're going to just keep dialing those knobs and turn it is not until we get the right formula, but we are going to add teammates see that team and then the third leg of the stool is retention.

Speaker Change: And we're seeing ourselves people fell more so we feel really good about that I would also point you to the diversification of our end markets that we operate in many BARDA verticals as you guys. All know so even if a particular industry has negatively impacted for some reason we have lots of end markets and verticals to hunt in I'd say, we feel really.

Speaker Change: And we're very pleased to see the fruits of our labor around improving the customer experience.

Speaker Change: Seeing positive improvement in customer retention rate.

Speaker Change: That will also contribute to our volume strategy.

Speaker Change: Thank you.

Speaker Change: It is that we're well insulated from some type of particular downturn in one particular industry and so feeling good about sub verticals I think that was the second part of your question on are we seeing any particular weakness in any particular vertical or end market I would say not at this time, we are very diligent about measuring the performance of existing customers.

Speaker Change: Thank you.

Speaker Change: And our next question is coming from Stephanie more with Jefferies. Please go ahead.

Harold: Hello This is Harold.

Harold: First off anymore, So I guess.

Harold: Just on the pension front I know you saw an improvement in the quarter.

Speaker Change: We're standing what's happening with teammates in wearers that are using our products with those customers and we're not seeing any significant shifts there as it relates to your question around tariffs and policy and are we seeing any impacts that the new administration affecting us at this at this time there is no specific effect on our business. Although we are closely monitoring all of the App.

Harold: As you talk about the factors.

Harold: But caution reading too.

Harold: That improvement and then how should we think about it.

Harold: Retention drove improvement through the rest of the year and I guess.

Harold: What are you underwriting right.

Harold:

Harold: Tension.

Harold: For the fiscal year.

Speaker Change: <unk> that the administration is taking our keenly aware of the conversations that are taking place around tariffs, we've been working to derisk, our supply chain and have been very mindful of this well before the election and feel really confident that we are in a good place as it relates to that.

Rick Dillon: So I think I got your question there Harold So your question is what are what are we doing to drive retention improvements in the system and why do we expect for the balance of the year at your question.

Harold: Yes.

Harold: Right.

Speaker Change: Thank you very much appreciate you covering all aspects of the multifaceted question were then.

Speaker Change: For the Capex the guidance of 3% of revenues could you confirm what the prayer priority areas of investment are.

Speaker Change: Yeah, I can do that and break feel free to jump in here as well if needed, but essentially you know our capex is supporting a couple of key areas. We have general maintenance Capex always of course, and we have capex related to kind of keep the lights on if you want to think about it that way then we have some capex that goes towards our optimization efforts, though as our logistics team is.

Harold: Procedures to improve shortages and to make sure our customers get everything they want the first time.

Harold: It's delivered and really shifting our teams focus around delighting. The customer we are definitely seeing that that body of work is making a difference and we are seeing improvements in service requests and our customers are responding very positively to the work that we're doing to take great care of them. So I would point to that as the key reason around a wire.

Speaker Change: Working on plant consolidation, we may need to buy a flood in press and move it into a facility as an example, we might need to replace a roof on a building. So these are very basic general maintenance type activities for the most part they can say or 3%.

Harold: Customers are saying I would also point you to the fact that we've been very thoughtful in our pricing strategies and about how we take pride in how we approach that pricing activity with the customer. So we feel that we've taken a very balanced approach to pricing and appropriate approach as well as driving an enhanced customer experience in both of those factors are contributing.

Speaker Change: Okay. Thank you appreciate it yeah.

Speaker Change: Yeah. Thanks for the questions. It's good to hear from you.

Speaker Change: Thank you and our next question is coming from Sam touched one with William Blair. Please go ahead.

Harold: Getting to improve customer retention through the balance of the year, we continue to expect.

Speaker Change: Hey, Thanks for taking our questions just a few short ones here I was hoping you could comment just a bit more on the health of your national account pipeline.

Speaker Change: Just maybe any industries or markets, where you're seeing particular strength at a time.

Speaker Change: And possibly were specifically, we're trying to target the remainder of the year.

Speaker Change: Yeah, Hi, Sam it's great to hear from you and thank you for your question I feel incredibly energized to be quite Frank around our national account pipeline and the leadership of that team is doing an incredible job and I would put it in a few buckets. The way that you should think about it one of those buckets is existing national account customers and further.

Harold: Thank you for the call.

Harold: Thank you for your question.

Speaker Change: Thank you and our next question is coming from Manav Patnaik with Barclays. Please go ahead.

Speaker Change: Hi, Good morning. This is roni Kennedy on for Manav. Thank you for taking my questions can I. Just please ask how you would characterize the background the demand environment and conversations with customers and then if there's any particular regions or key strategic sub verticals with particular strength or weakness and then one more element to the question. Please.

Speaker Change: Penetrating them. So you would have heard the example that I used about the restaurant customer and continuing to gain new business with that customer and tripling our revenue with them in due course that is a target area for us that we have built out an existing customer share of wallet opportunities. So you should think about that as one leg of the stool also we are.

Any implications or impact of that you're seeing already or potentially of new policy from the new presidential administration, such as the 25% tariffs in Mexico, if I'm not mistaken I think you have manufacturing facilities there.

Speaker Change: Very focused on large.

Speaker Change: Large customers that have the opportunity to be a preferred account customer meaning they have multiple locations. We can establish national account pricing with them and then we can go and target their local branches to think about that as a large bucket of customers, but it could also be G. P O customers and and other types, we mentioned a large charge speed services company.

Speaker Change: Okay route and I'm going to try to take that I think that's four questions, but I'm with you. So let me let me start with the first one it's good to hear from you. The first one I believe is around demand and are we seeing any shift in the macro economic environment and I would just point everyone back to this $48 billion market that we estimate we are participating in there is plenty of opportunity.

Speaker Change: Last quarter that would be a great example of a large parent company that has multiple child locations that we can go after and target and then we're also seeing really strong performance in health care not only in our industrial rental business, but also in our clean room business.

Speaker Change: For growth and we are not seeing a shortage of leads or the ability to go out and hunt and find opportunities for new business. So I feel very confident that there's lots of market share out there for us and we're attacking that and I say at the moment and go about our very strong national account pipeline and the fact that we're generating great new wins off of that pipeline.

Speaker Change: Yeah. That's helpful color last one for US maybe just provide an update and really cute merchandise we use initiatives.

Speaker Change: And maybe just speak to the progress news release operating efficiency.

Speaker Change: Yeah, I'm really proud of the team. So this is a multi unit location effort. So think about you know more than 115 locations you have a stock room and we're trying to teach those teammates how to reuse it existing garments garment that we have already purchased and already started amortizing or maybe already fully amortized in our system. So.

Speaker Change: But I think we're well insulated from some type of particular downturn in one particular industry. So feeling good about sub verticals I think that was the second part of your question on are we seeing any particular weakness in any particular vertical or end market I would say not at this time, we are very diligent about measuring the performance of existing customers under.

Speaker Change: The entire notion of the program up merchandise, where users don't buy new stuff and injected into the system and start amortizing again use the products that you already have and so this has been a groundswell of an effort with an army down on the ground in each of our market centers working with our great stock running managers to help them understand and prioritize the reuse of existing garments.

Speaker Change: Standing what's happening with teammates in wearers that are using our products with those customers and we're not seeing any significant shifts there on as it relates to your question around tariffs and policy and are we seeing any impacts that the new administration.

We continue to focus on fast moving Skus, we continue to make sure. We're also selling fast moving skus that are in our system. So that we can reuse those products and we will have a bulk of those in the stock range overtime. So its about prioritizing what we sell upfront and then ensuring that we reuse those like F. Skus that are in our.

Speaker Change: At this time there is no specific effect on our business, but we are closely monitoring all of the actions that the administration is taking our keenly aware of the conversations that are taking place around Paris.

Speaker Change: Stock for him as much as we possibly can so we just keep driving that number up as we improve performance in each stock room and as each of our stock rate managers becomes more skilled in this area. We continue to see that number move up and we think there is more room to go but again I'll point, you back to amortization and also to our cash because it improves.

Speaker Change: Been working to Derisk, our supply chain and have been very mindful of this well before the election and feel really confident that we are in a good place as it relates to that.

Speaker Change: Thank you very much appreciate you covering all aspects of the multifaceted question.

Speaker Change: Our need to put inventory on the floor and to invest capital in inventory, so you're going to see benefits over time based on cash flow related to inventory and on amortization costs.

Speaker Change: Before then.

Speaker Change: For the Capex the guidance to 3% of revenues could you confirm what the prayer priority areas of investment are.

Speaker Change: Got it well leave it there thank you.

Dan: Thanks, Dan I appreciate your questions.

Speaker Change: Thank you.

Speaker Change: Once again, if you do have a question you May press star one on your telephone keypad at this time.

And our next question is coming from George Tong with Goldman Sachs. Please go ahead.

Speaker Change: Working on plant consolidation, we may need to buy a flood and proud and move it into a facility as an example, we might need to replace a roof on a building. So these are very basic general maintenance type activities for the most part they can save or 3%.

George Tong: Alright. Thanks, Good morning, you talked about making progress with on time deliveries and shortages can you elaborate on your progress with these and other initiatives.

From a customer service quality.

George Tong: Yeah, Hey, George Thank you for your question I'll start with on time delivery because we're incredibly excited.

Speaker Change: Okay. Thank you I appreciate it yeah.

Speaker Change: Yeah. Thanks for the questions. It's good to hear from you.

George Tong: About the way that we're interfacing with our customers where like it's the on time delivery. So around the third and fourth quarter of last year of FY 'twenty four we actually launched an automated notification to our customers real time letting them know that we have bumped our docks, we had deliver their product and we went out leaving their facility and so our customer.

Speaker Change: Thank you and our next question is coming from Sam <unk> with William Blair. Please go ahead.

Speaker Change: Hey, Thanks for taking our questions just a few short ones here I was hoping you could comment just a bit more on the health of your national account pipeline.

George Tong: Have responded incredibly well to death, because it holds us accountable. It provides great transparency to the customer that we did what we said we were going to do when we delivered on the promise and say, we're actually providing these real time notifications. The other thing that it does George is that hold our own team accountable because now we're gonna notify the customer real time, when we bomb and lead their dogs and so.

Speaker Change: Just maybe any industries or markets, where youre seeing particular strength are occurring and possibly were specifically, we're trying to target for the remainder of the year.

Speaker Change: Yeah, Hi, Sam it's great to hear from you and thank you for your question.

Speaker Change: I feel incredibly energized to be quite Frank around our national account pipeline and the leadership of that team is doing an incredible job.

So we have to be on time, and we have to deliver that promise because we're measuring it and we're holding ourselves accountable in front of our customers. So we are seeing a great response from our customers and from our frontline Rsr's you were delivering those products and services and we feel really really positive about the work we're doing there and our national account team is also seeing a great benefit in this feature.

Speaker Change: I would put it in a few buckets the way that you should think about it one of those buckets is existing national account customers and further penetrating them. So you would've heard. The example that I used about the restaurant customer and continuing to gain new business with that customer and tripling our revenue with them in due course that is a target area for us. So we have built.

George Tong: And that they're all selling customers. We're really proud to highlight this is something that we offer that we think is it is really a game changer for our business. Secondly on shortages, we have been working really hard around helping our team learn better operating procedures around how to light trucks and so we have rolled out of there.

Speaker Change: Our existing customer share of wallet opportunities. So you should think about that as one leg of the stool also we are very focused on.

Speaker Change: Large customers that have the opportunity to be a preferred account customer meaning they have multiple locations. We can establish national account pricing with them and then we can go and target their local branches to think about that as a large bucket of customers, but it could also be G. P O customers and other types, we mentioned a large charge speed services company.

George Tong: Very robust standard operating procedure.

George Tong: In the locations that have been using that standard operating procedure for an extended period of time, we are actually seeing a step change improvement related to shortages. We're also seeing an improvement related to shortages for those who have mastered the on time delivery and the notification. So those two things are working really well hand in hand, so we feel really good about where we are really.

Speaker Change: Last quarter that would be a great example of a large parent.

Speaker Change: Parent company that has multiple child locations that we can go after and target and then we're also seeing really strong performance in health care.

George Tong: I get to the customer experience.

Speaker Change: Not only in our industrial rental business, but also in our clean room business.

Speaker Change: Got it that's helpful. And then earlier you noted that sales force head count.

Speaker Change: That's helpful color.

Speaker Change: Hiring as we resume this year can you discuss how quickly you plan to increase sales force and.

Speaker Change: One for US maybe just provide an update and really cute merchandize, we use initiatives.

Speaker Change: And maybe just speak to the progress there as it relates to operating efficiency.

Speaker Change: What strategies you have to increase those.

Speaker Change: Retention.

Speaker Change: Yeah, I'm really proud of the team. So this is a multi unit location efforts I think about you know more than a 115 locations do you have a stock room and we're trying to teach those teammates how to reuse it existing garments garments that we have already purchased and already started amortizing or maybe already fully amortized in our system. So.

Speaker Change: Yeah, we've we've done a great deal of work around several areas that we believe are supporting our frontline field sales team I will start with our new leader Pete <unk>, who came in at the end I think around third quarter of last year. He has done an exceptional job of really institutionalizing that playbook around how we sell.

Speaker Change: Then the entire notion of the program up merchandise, where users don't buy new stuff and injected into the system and start amortizing again use the products that you already have and so this has been a groundswell of an effort with an army down on the ground in each of our market centers working with our great stock rating managers to help them understand and prioritize reuse of existing Barnett.

Speaker Change: How we onboard teammate how we train those teammates even how we recruit those teammates and what types of teammates we were crazy to ensure that theyre going to be successful in the selling environment here and so we still outstanding that we are now on boarding teenage through what I would call. It somewhat of a self pay off we're literally bringing them here into the teammates support center here at the corporate head.

Speaker Change: So we continue to focus on fast moving Skus, we continue to make sure. We're also selling fast moving skus that are in our system. So that we can reuse those products and we will have a bulk of those in the stock offerings over time, so it's about prioritizing what we sell upfront.

Speaker Change: Orders for us yet and we're training those teammates one by one individually and in groups as they come into our team. We've also enhanced our recruiting procedures. So we have a talent acquisition team that had been very focused on making sure that we recruit the right type of teammate there's going to be successful in our environment. So we've changed.

Speaker Change: And then ensuring that we reuse those like F. Skus that are in our stock for him as much as we possibly can so we just keep driving that number up as we improve performance in each stock room and as each of our stock rate managers becomes more skilled in this area. We continue to see that number move up and we think there is more room to go but again I'll point you back to <unk>.

Speaker Change: The profile of people, we are recruiting what type of background and skills. They have been we're training them better as they onboard and we're seeing great signs of not only improving turnover, but improving that teammates productivity earlier in their lifecycle with us. So we are now ramping up our hiring practices as I mentioned, we added more self teammates.

Speaker Change: Amortization and also to our cash because it improves our need to put inventory on the floor and to invest capital in inventory, so you're going to see benefits over time based on cash flow.

Speaker Change: In January and we will continue to build that sales team over the coming year.

Speaker Change: Got it thank you.

Speaker Change: Inventory and on amortization costs.

Speaker Change: George I appreciate your questions.

Speaker Change: Got it well leave it there thank you.

Speaker Change: Thank you. This concludes the Q&A portion of today's call.

Speaker Change: Alright, Thanks, Dan appreciate your questions.

Speaker Change: Thank you and once again, if you do have a question you May press star one on your telephone keypad at this time.

Speaker Change: Thank you. This concludes todays fastest corporation fiscal first quarter 2025 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.

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

Speaker Change: [music].

George Tong: Alright. Thanks, Good morning, you talked about making progress with on time deliveries and shortages could you elaborate on your progress with these and other initiatives.

Speaker Change: Customer service quality.

Speaker Change: Oh.

Speaker Change: Yeah, Hey, George Thank you for your question I'll start with on time delivery, because we were incredibly excited about.

Speaker Change: [music].

Speaker Change: About the way that we're interfacing with our customers really like it the on time delivery. So I'm around the third and fourth quarter of last year of FY 'twenty four we actually launched an automated notification to our customers real time letting them know that we have bumped our docks, we had delivered their product and we went out leaving their facility and so our customer.

Speaker Change: Hum.

Hmm mm.

Speaker Change: <unk> have responded incredibly well to death, because it holds us accountable. It provides great transparency to the customer that we did what we said we were going to do when we delivered on the promise is that we're actually providing these real time notifications. The other thing that it does Georgia that hold our own team accountable because now we're gonna notify the customer real time, when we bought and leave their dogs.

Speaker Change: So we have to be on time, and we have to deliver that promise because we're measuring it and we're holding ourselves accountable in front of our customers. So we are seeing a great response from our customers and from our hotline Rsr's you were delivering those products and services and we feel really really positive about the work we're doing there on our national account team is also seeing a great benefit in this feature.

Speaker Change: And as they're out selling customers, we're really proud to highlight this is something that we offer that we think is it is really a game changer for our business. Secondly on shortages, we have been working really hard around helping our team learn better operating procedures around how to light trucks and so we have rolled out of there.

Speaker Change: Robust standard operating procedure and into locations that had been using that standard operating procedure for an extended period of time, we are actually seeing a step change and improvement related to shortages. We're also seeing an improvement related to shortages for those who have mastered the on time delivery and the notification. So those two things are working really well.

Speaker Change: I'll hand in hand, so we feel really good about where we are related to the customer experience.

Speaker Change: Got it that's helpful. And then earlier you noted that sales force head count hiring.

Speaker Change: Ring has resumed this year can you discuss how quickly you plan to increase sales force headcount and what strategies you have to increase retention.

Speaker Change: Retention.

Speaker Change: How we onboard teammate how we train those teammates even how we recruit those teammates and what types of teammates we were crazy to ensure that they're going to be successful in the selling environment here and so we feel outstanding that we're now onboarding teammates through what I would call. It somewhat of a self pay pay up we're literally bringing them here into the teammates support center here at the corporate head.

Speaker Change: Quarters, where I see it and we're training those teammates one by one individually and in grapes that they come into our team. We've also enhanced our recruiting procedures. So we have a talent acquisition team that had been very focused on making sure that we recruit the right type of teammate that's going to be successful in our environment. So we've changed the.

Speaker Change: The profile of who we are recruiting what type of background and skills. They have then we're training them better as they onboard and we're seeing great signs of not only improving turnover, but improving that teammates productivity earlier in their lifecycle with us just so we are now ramping up our hiring practices as I mentioned, we added more self teammates.

Speaker Change: In January and we will continue to build that sales team over the coming year.

Speaker Change: Got it thank you.

Speaker Change: George I appreciate your questions.

Speaker Change: Thank you. This concludes the Q&A portion of today's call.

Speaker Change: Thank you. This concludes todays fastest corporation fiscal first quarter 2025 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.

Speaker Change: Yeah.

Speaker Change: [music].

Oh.

Speaker Change: [music].

Q1 2025 Vestis Corp Earnings Call

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