Q4 2025 Vestis Corp Earnings Call
Speaker #1: Please stand by. Your meeting is about to
Speaker #1: begin. Welcome to the Vestis Corporation fiscal fourth quarter and full year 2025 earnings conference call. this time, all participants have been placed on a At listen-only mode, and the floor will be open for your presentation.
Speaker #1: For questions at that time, please press star one on your telephone. If you would like to ask a question, following the prompts, you may remove yourself from the queue by pressing star two.
Speaker 2: 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. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Stefan Neely with Vallum Advisors.
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. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Stefan Neely with Vallum Advisors.
Speaker #1: To enable others to hear your questions keypad. clearly, we ask that you pick up your handset for If at any point your question has been answered, best sound quality.
Speaker #1: Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Stefan Neely with Valem Advisors.
Speaker #2: Thank you, operator, and thank you all for joining us on the call this morning. Leading the call with me today is Jim Barber, President and Chief Executive Officer, and Kelly Janzen, Executive Vice President and Chief Financial Officer.
Speaker 4: Thank you, operator, and thank you all for joining us on the call this morning. Leading the call with me today is Jim Barber, President and Chief Executive Officer, and Kelly Janzen, Executive Vice President and Chief Financial Officer. Jim and Kelly will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Jim, I want to remind everyone that today's discussion contains forward-looking statements about future business and financial expectations. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for such forward-looking statements. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements.
Stefan Neely: Thank you, operator, and thank you all for joining us on the call this morning. Leading the call with me today is Jim Barber, President and Chief Executive Officer, and Kelly Janzen, Executive Vice President and Chief Financial Officer. Jim and Kelly will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Jim, I want to remind everyone that today's discussion contains forward-looking statements about future business and financial expectations. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for such forward-looking statements. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements.
Speaker #2: Jim and Kelly will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Jim, I want to remind everyone that today's discussion contains forward-looking statements about future business and financial expectations.
Speaker #2: The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for such forward-looking statements. Actual results may differ significantly from those projected in today's forward-looking statements.
Speaker #2: Due to various risks and uncertainties, including the risk described in our periodic reports filed with the Securities and Exchange Commission, except as required by law, we undertake no obligation to update our forward-looking statements.
Speaker #2: Further, this call will include. Of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release and corresponding supplemental materials which are available at ir.vestis.com.
Speaker 4: Further, this call will include a discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release and corresponding supplemental materials, which are available at ir.vestis.com. With that, I would like to turn the call over to Jim.
Further, this call will include a discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release and corresponding supplemental materials, which are available at ir.vestis.com. With that, I would like to turn the call over to Jim.
Speaker #2: With that, I would like to turn the call over to Jim.
Speaker #3: Thank you, Stefan. Good morning, everyone, and thank you for joining us. We have spent the past several months looking at every aspect of our business: how we operate, how we serve customers, and how we create long-term value.
Speaker 5: Thank you, Stefan. Good morning, everyone, and thank you for joining us. We have spent the past several months looking at every aspect of our business: how we operate, how we serve customers, and how we create long-term value. That work culminated in a comprehensive multi-year business transformation plan, which we recently began executing. It is a plan that I feel confident will position Vestis to unlock operating leverage and deliver consistent, profitable growth over the long term. Before we dive into the specifics of our plan, I want to share some insights related to certain challenges I have identified since arriving to the company. First, over the past several years, Vestis prioritized revenue growth without sufficient focus on revenue quality. Much of the new revenue recently brought into the business did not meet the financial thresholds required for sustainable, profitable growth.
Jim Barber: Thank you, Stefan. Good morning, everyone, and thank you for joining us. We have spent the past several months looking at every aspect of our business: how we operate, how we serve customers, and how we create long-term value. That work culminated in a comprehensive multi-year business transformation plan, which we recently began executing. It is a plan that I feel confident will position Vestis to unlock operating leverage and deliver consistent, profitable growth over the long term. Before we dive into the specifics of our plan, I want to share some insights related to certain challenges I have identified since arriving to the company. First, over the past several years, Vestis prioritized revenue growth without sufficient focus on revenue quality. Much of the new revenue recently brought into the business did not meet the financial thresholds required for sustainable, profitable growth.
Speaker #3: That work culminated in a comprehensive multi-year business transformation plan, which we recently began executing. It's a plan that I feel confident will position Vestis to unlock operating leverage and deliver consistent, profitable growth over the long term.
Speaker #3: But before we dive into the specifics of our plan, I want to share some insights related identified since arriving to the company. First, over the past several years, Vestis prioritized revenue growth without sufficient focus on revenue quality.
Speaker #3: Much of the new revenue recently brought into the business did not meet the financial thresholds required for sustainable, profitable growth. Second, we lost focus on customer service in certain areas of our business.
Speaker 5: Second, we lost focus on customer service in certain areas of our business. This led to attrition of some of our higher-quality revenue accounts. Tactically, this showed up as a pricing approach that alienated certain customers, coupled with underinvestment in key processes and infrastructure expected to deliver consistent, high-level service. As some customers moved away, we were behind in implementing a coordinated strategy to address their concerns, necessary to better manage attrition. Third, while we were winning new customers, we lost discipline in managing our product mix, over-indexing on low-margin workplace supplies at the expense of our core uniform business, where we generate our strongest long-term margins. This lack of discipline has negatively impacted our operating leverage. The transformation plan we have developed addresses each of these issues head-on. It focuses on implementing scalable processes, restoring customer centricity, and recommitting to best practices to run the business more effectively.
Second, we lost focus on customer service in certain areas of our business. This led to attrition of some of our higher-quality revenue accounts. Tactically, this showed up as a pricing approach that alienated certain customers, coupled with underinvestment in key processes and infrastructure expected to deliver consistent, high-level service. As some customers moved away, we were behind in implementing a coordinated strategy to address their concerns, necessary to better manage attrition. Third, while we were winning new customers, we lost discipline in managing our product mix, over-indexing on low-margin workplace supplies at the expense of our core uniform business, where we generate our strongest long-term margins. This lack of discipline has negatively impacted our operating leverage. The transformation plan we have developed addresses each of these issues head-on. It focuses on implementing scalable processes, restoring customer centricity, and recommitting to best practices to run the business more effectively.
Speaker #3: This led to attrition of some of our higher quality revenue accounts. Tactically, this showed up as a pricing approach that alienated certain customers, coupled with underinvestment in key processes and infrastructure expected to deliver consistent, high-level service.
Speaker #3: As some customers moved away, we were behind in implementing a coordinated strategy to address their concerns necessary to better manage attrition. Third, while we were winning new customers, we lost discipline in managing our product mix.
Speaker #3: Over-indexing on low-margin workplace supplies at the expense of our core uniform business, where we generate our strongest long-term margins. This lack of discipline has leverage.
Speaker #3: The transformation plan we have developed addresses each of these issues head-on. It focuses on implementing scalable processes, storing customer centricity, and recommitting to best practices to run the business more effectively.
Speaker #3: It was put together with the help from leading third-party advisors and will be executed in phases, which we expect to substantially complete by the end of fiscal 2027.
Speaker 5: It was put together with the help from leading third-party advisors and will be executed in phases, which we expect to substantially complete by the end of fiscal 2027. It is built around three strategic pillars: commercial excellence, operational excellence, and asset and network optimization. Let me walk through each of these and the related actions we are taking. Our first pillar is commercial excellence, and at the center of it, in 2026, relationships and delivering value in a way that is high-quality and profitable, both of which will improve retention. To do that, we are taking several key steps. First, we are rolling out new tools that give us better visibility into customer segmentation and product profitability. These tools are critical to all aspects of our strategic execution. We are also taking a new strategic approach to our pricing strategy.
It was put together with the help from leading third-party advisors and will be executed in phases, which we expect to substantially complete by the end of fiscal 2027. It is built around three strategic pillars: commercial excellence, operational excellence, and asset and network optimization. Let me walk through each of these and the related actions we are taking. Our first pillar is commercial excellence, and at the center of it, in 2026, relationships and delivering value in a way that is high-quality and profitable, both of which will improve retention. To do that, we are taking several key steps. First, we are rolling out new tools that give us better visibility into customer segmentation and product profitability. These tools are critical to all aspects of our strategic execution. We are also taking a new strategic approach to our pricing strategy.
Speaker #3: It is built around three strategic pillars: commercial excellence, operational excellence, and asset and network optimization. Let me walk through each of these and the related actions we are taking.
Speaker #3: Our first pillar is commercial excellence, and it is at the center. In 2026, relationships and delivering value in a way that is high quality and profitable will improve retention.
Speaker #3: To do that, we are taking several key steps. First, we are rolling out new tools that give us better visibility into customer segmentation and product profitability.
Speaker #3: These tools are critical to all aspects of our strategic execution. We are also taking a new strategic approach to our pricing strategy. We are committed to ensuring that our pricing accurately reflects the value we deliver and our costs of service while remaining transparent, fair, and competitive.
Speaker 5: We are committed to ensuring that our pricing accurately reflects the value we deliver and our costs of service while remaining transparent, fair, and competitive. In addition, we are deploying Market Development Representatives across our business to grow volume with our existing customers and better support their needs. Finally, we're also introducing a new tool to measure and improve satisfaction that will capture customer feedback at the point of delivery, allowing us to address concerns in real time. We will be launching this in the coming weeks. Our second pillar is operational excellence, and the priority for 2026 is improving plant performance and overall organizational efficiency. This pillar is fundamental to driving improved operating leverage and includes initiatives such as standardizing processes to improve safety and service quality, tightening cost controls, and investing in technology to increase visibility and accountability. We are also taking a series of steps to streamline our organization.
We are committed to ensuring that our pricing accurately reflects the value we deliver and our costs of service while remaining transparent, fair, and competitive. In addition, we are deploying Market Development Representatives across our business to grow volume with our existing customers and better support their needs. Finally, we're also introducing a new tool to measure and improve satisfaction that will capture customer feedback at the point of delivery, allowing us to address concerns in real time. We will be launching this in the coming weeks. Our second pillar is operational excellence, and the priority for 2026 is improving plant performance and overall organizational efficiency. This pillar is fundamental to driving improved operating leverage and includes initiatives such as standardizing processes to improve safety and service quality, tightening cost controls, and investing in technology to increase visibility and accountability. We are also taking a series of steps to streamline our organization.
Speaker #3: In addition, we are deploying market development representatives across our business to grow volume with our existing customers and better support their needs. Finally, we're also introducing a new tool to measure and improve satisfaction that will capture customer feedback at the point of delivery, allowing us to address concerns in real time.
Speaker #3: We will be launching this in the coming weeks. Our second pillar is operational excellence, and the priority for 2026 is improving plant performance and overall organizational efficiency.
Speaker #3: This pillar is fundamental to driving improved operating leverage and includes initiatives such as standardizing processes to improve safety and service quality, tightening cost controls, and investing in technology to increase visibility and accountability.
Speaker #3: of steps to streamline our organization. That means ensuring We are also taking a series our sales and administrative functions are sized appropriately and positioned to support the business fourth quarter, we made targeted with agility.
Speaker 5: That means ensuring our sales and administrative functions are sized appropriately and positioned to support the business with agility. In the fourth quarter, we made targeted reductions in our field sales team where our cost structure was misaligned with revenue and growth opportunities. More recently, we made further reductions in various areas across the business where we believed we will operate more efficiently. These were difficult decisions, but necessary to support our future business objectives. I want to emphasize that the steps we're taking to streamline our organization will not impact our ability to deliver high-quality service more efficiently, while continuing to serve our customers with excellence. Finally, our third pillar is asset and network optimization, where we are focused on optimizing our asset base and redesigning our service delivery network.
That means ensuring our sales and administrative functions are sized appropriately and positioned to support the business with agility. In the fourth quarter, we made targeted reductions in our field sales team where our cost structure was misaligned with revenue and growth opportunities. More recently, we made further reductions in various areas across the business where we believed we will operate more efficiently. These were difficult decisions, but necessary to support our future business objectives. I want to emphasize that the steps we're taking to streamline our organization will not impact our ability to deliver high-quality service more efficiently, while continuing to serve our customers with excellence. Finally, our third pillar is asset and network optimization, where we are focused on optimizing our asset base and redesigning our service delivery network.
Speaker #3: reductions in our field sales team, where our cost structure was misaligned with revenue and growth opportunities. More recently, we made further reductions in various areas across the business where we believe we will operate more efficiently.
Speaker #3: These were difficult decisions, but necessary to support our future business objectives. I want to emphasize that the steps we're taking to streamline our organization will not impact our ability to deliver high-quality service.
Speaker #3: More efficiently, while continuing to serve our customers with excellence. Finally, our third pillar is asset and network optimization. Where we are focused on optimizing our asset base and redesigning our service delivery network.
Speaker 5: This is not a new priority, but in 2026, we are accelerating that work through comprehensive initiatives to evaluate route efficiency and consolidate underutilized locations. We're also continuing to invest in our facilities, upgrading equipment and infrastructure to improve service quality and reduce downtime. These are relatively small investments with strong returns. Foundational to all of this is a strong culture. We are prioritizing training, succession planning, and employee engagement to improve turnover and foster a high-performance, customer-centric culture that wins. I'm incredibly optimistic about launching this plan. Not only does it include significant enhancements to how we operate, but it's also one that supports meaningful financial improvement. Inclusive of the plan initiatives, our 2026 full-year adjusted EBITDA guidance midpoint is $300 million, $40 million higher than the Q4 2025 normalized exit run rate of $260 million.
This is not a new priority, but in 2026, we are accelerating that work through comprehensive initiatives to evaluate route efficiency and consolidate underutilized locations. We're also continuing to invest in our facilities, upgrading equipment and infrastructure to improve service quality and reduce downtime. These are relatively small investments with strong returns. Foundational to all of this is a strong culture. We are prioritizing training, succession planning, and employee engagement to improve turnover and foster a high-performance, customer-centric culture that wins. I'm incredibly optimistic about launching this plan. Not only does it include significant enhancements to how we operate, but it's also one that supports meaningful financial improvement. Inclusive of the plan initiatives, our 2026 full-year adjusted EBITDA guidance midpoint is $300 million, $40 million higher than the Q4 2025 normalized exit run rate of $260 million.
Speaker #3: a new priority, but in 2026, we are accelerating that work through comprehensive initiatives to evaluate This is not route efficiency and consolidate underutilized locations.
Speaker #3: We're also continuing to invest in our facilities, upgrading equipment, and infrastructure to improve service quality and reduce downtime. These are relatively. Investments with strong returns.
Speaker #3: Foundational to all of this is a strong culture. We are prioritizing training, succession planning, and employee engagement to improve turnover, and foster a high performance customer-centric culture that wins.
Speaker #3: Incredibly optimistic about launching this plan, not only does it include significant enhancements to how we operate, but it's also one that supports meaningful financial improvement.
Speaker #3: Inclusive of the plan initiatives, our 2026 full-year adjusted EBITDA guidance midpoint is $300 million. $40 million higher than the Q4 2025 normalized exit run rate of $260 million.
Speaker #3: We have also made progress, but I want to emphasize that this is a multi-year journey. The actions we are taking in 2026 are foundational, sustainable organic growth designed to position Vestis for 2027 and beyond.
Speaker 5: We have already made progress, but I want to emphasize that this is a multi-year journey. The actions we are taking in 2026 are foundational, designed to position Vestis for sustainable organic growth in 2027 and beyond. In a moment, Kelly will walk through our fourth quarter financial performance along with our fiscal 2026 guidance in more detail. Before I turn it over, I would like to take this opportunity to thank the entire Vestis team for welcoming me into the organization and for their hard work, determination, and commitment over the last year. My optimism for the future is strong, and I look forward to continuing to collaborate with this team as we move to the next chapter. Now I'll turn it over to Kelly.
We have already made progress, but I want to emphasize that this is a multi-year journey. The actions we are taking in 2026 are foundational, designed to position Vestis for sustainable organic growth in 2027 and beyond. In a moment, Kelly will walk through our fourth quarter financial performance along with our fiscal 2026 guidance in more detail. Before I turn it over, I would like to take this opportunity to thank the entire Vestis team for welcoming me into the organization and for their hard work, determination, and commitment over the last year. My optimism for the future is strong, and I look forward to continuing to collaborate with this team as we move to the next chapter. Now I'll turn it over to Kelly.
Speaker #3: In a moment, Kelly will walk through our our fiscal 2026 guidance in fourth quarter financial performance along with more detail. But before I turn it over, I would like to take this opportunity to thank the entire Vestis team for welcoming me into the organization and for their hard work, determination, and commitment over the last year.
Speaker #3: continuing to collaborate with this team as we move to the next chapter. Now
Speaker #2: you, Jim. And good morning, everyone. I will now go through the
Speaker 6: Thank you, Jim, and good morning, everyone. I will now go through the 2025 fiscal fourth quarter financial results and then discuss our outlook for fiscal 2026. As a reminder, the fourth quarter of 2025 benefited from an additional operating week when compared to the fourth quarter of 2024. Reported revenue for the quarter was $712 million, or approximately $660 million when normalized to exclude a $52 million benefit from the additional operating week. On a normalized basis, revenue was down $24 million, or 3.5% year-over-year, compared to the fourth quarter of fiscal 2024. The decline in revenue was due to an $18 million decrease in rental revenue, $5 million in lower direct sales revenue, and a million-dollar negative foreign currency impact. Within rental revenue, growth from new business or conversion contributed approximately $43 million, or 6.5% of revenue year-over-year, for Q4 on a normalized basis.
Kelly Janzen: Thank you, Jim, and good morning, everyone. I will now go through the 2025 fiscal fourth quarter financial results and then discuss our outlook for fiscal 2026. As a reminder, the fourth quarter of 2025 benefited from an additional operating week when compared to the fourth quarter of 2024. Reported revenue for the quarter was $712 million, or approximately $660 million when normalized to exclude a $52 million benefit from the additional operating week. On a normalized basis, revenue was down $24 million, or 3.5% year-over-year, compared to the fourth quarter of fiscal 2024. The decline in revenue was due to an $18 million decrease in rental revenue, $5 million in lower direct sales revenue, and a million-dollar negative foreign currency impact. Within rental revenue, growth from new business or conversion contributed approximately $43 million, or 6.5% of revenue year-over-year, for Q4 on a normalized basis.
Speaker #2: Financial results and then discuss our outlook for fiscal 2026. My optimism for the future. Thank you. As a reminder, the fourth quarter of 2025 benefited from an additional operating week when compared to the fourth quarter of 2024.
Speaker #2: Reported revenue for the quarter was $712 million, or approximately $660 million, when normalized to exclude a $52 million benefit from the additional operating week.
Speaker #2: On a normalized basis, revenue was down $24 million, or 3.5% year over year compared to the fourth quarter of fiscal 2024. The decline in revenue was due to an $18 million decrease in rental direct sales revenue, a $1 million negative impact from foreign currency, and $5 million in lower impact.
Speaker #2: Within rental revenue, growth from new business or conversion contributed approximately $43 million or 6.5% of revenue year over year, for Q4 on a normalized basis.
Speaker #2: The normalized revenue impact in the fourth quarter from churn or lost business was approximately $60 million. When compared with the same quarter in the prior year, on a rolling 12-month basis, our business retention, as measured in revenue dollars, was 91.8% at the end of Q4.
Speaker 6: The normalized revenue impact in the fourth quarter from churn or lost business was approximately $60 million when compared with the same quarter in the prior year. On a rolling 12-month basis, our business retention, as measured in revenue dollars, was 91.8% at the end of Q4, essentially flat when compared to what we reported in the third quarter. In addition, year-over-year revenue from our existing business was also flat. In our direct sales business, revenue decreased $5 million, or 13.6% year-over-year, on a normalized basis from lower overall sales volumes. Reported cost of services in the quarter was $533 million, and gross margin was 25.1%, down 366 basis points when compared to the fourth quarter of last year. On a normalized basis, cost of services was $495 million, excluding $38 million in cost related to the additional operating week this quarter.
The normalized revenue impact in the fourth quarter from churn or lost business was approximately $60 million when compared with the same quarter in the prior year. On a rolling 12-month basis, our business retention, as measured in revenue dollars, was 91.8% at the end of Q4, essentially flat when compared to what we reported in the third quarter. In addition, year-over-year revenue from our existing business was also flat. In our direct sales business, revenue decreased $5 million, or 13.6% year-over-year, on a normalized basis from lower overall sales volumes. Reported cost of services in the quarter was $533 million, and gross margin was 25.1%, down 366 basis points when compared to the fourth quarter of last year. On a normalized basis, cost of services was $495 million, excluding $38 million in cost related to the additional operating week this quarter.
Speaker #2: Essentially flat when compared to what we reported in the third quarter. In addition, year over year, revenue from our existing business was also flat.
Speaker #2: In our direct sales business, revenue decreased $5 million, or on a normalized basis, from 13.6% year-over-year lower overall sales volume. Reported cost of services in the quarter was $533 million, and gross margin was 25.1%, down 366 basis points when compared to the fourth quarter of last year.
Speaker #2: On a normalized basis, cost of services was $495 million, excluding $38 million in costs related to the additional operating week this quarter. The decrease in our gross margin is primarily due to the impact of lower revenue and reflects an $8 million increase in plant costs related to the increase in processing throughput compared to the prior year period.
Speaker 6: The decrease in our gross margin is primarily due to the impact of lower revenue and reflects an $8 million increase in plant costs related to the increase in processing throughput compared to the prior year period. Reported SG&A for the fourth quarter was $126 million, a decrease of approximately $6 million year-over-year. The reduction in SG&A includes a net increase of $7 million related to the additional operating week in the fourth quarter. The remaining $13 million decrease is made up of a $3 million decrease in selling expense due primarily to workforce reductions taken in our field sales team during the fourth quarter, and $10 million in lower overall administrative costs. For the full year 2025, the effective tax rate was 9.2%, and we recorded a benefit of $4 million for the fiscal year.
The decrease in our gross margin is primarily due to the impact of lower revenue and reflects an $8 million increase in plant costs related to the increase in processing throughput compared to the prior year period. Reported SG&A for the fourth quarter was $126 million, a decrease of approximately $6 million year-over-year. The reduction in SG&A includes a net increase of $7 million related to the additional operating week in the fourth quarter. The remaining $13 million decrease is made up of a $3 million decrease in selling expense due primarily to workforce reductions taken in our field sales team during the fourth quarter, and $10 million in lower overall administrative costs. For the full year 2025, the effective tax rate was 9.2%, and we recorded a benefit of $4 million for the fiscal year.
Speaker #2: Reported SG&A for the fourth quarter was $126 million, a decrease of approximately $6 million year over year. The reduction in SG&A includes a net increase of $7 million related to the additional operating week in the fourth quarter.
Speaker #2: The remaining $13 million decrease is made up of a $3 million decrease in selling expense, due primarily to workforce reductions taken in our field sales team during the fourth quarter, and $10 million in lower overall administrative year, 2025, the effective tax rate was costs.
Speaker #2: of $4 million for the fiscal year. Looking ahead to 2026, we would expect a full year effective tax rate to be in the range of For the full 25 to 30%.
Speaker 6: Looking ahead to 2026, we would expect a full-year effective tax rate to be in the range of 25% to 30%. Fourth quarter adjusted EBITDA was $65 million, representing an adjusted margin. Fourth quarter adjusted EBITDA includes a $3.6 million environmental reserve that had been a contingent liability for many years before we became a standalone public company. The amount is recently estimable. Thus, excluding this expense, reported adjusted EBITDA would have been $68 million for the fourth quarter, and when normalized for the extra week, we operationally generated $65 million in adjusted EBITDA with an adjusted margin of 9.8%. This compares to 11.8% in the fourth quarter of last year and 9.5% in the third quarter of 2025. Now moving on to cash flow and working capital.
Looking ahead to 2026, we would expect a full-year effective tax rate to be in the range of 25% to 30%. Fourth quarter adjusted EBITDA was $65 million, representing an adjusted margin. Fourth quarter adjusted EBITDA includes a $3.6 million environmental reserve that had been a contingent liability for many years before we became a standalone public company. The amount is recently estimable. Thus, excluding this expense, reported adjusted EBITDA would have been $68 million for the fourth quarter, and when normalized for the extra week, we operationally generated $65 million in adjusted EBITDA with an adjusted margin of 9.8%. This compares to 11.8% in the fourth quarter of last year and 9.5% in the third quarter of 2025. Now moving on to cash flow and working capital.
Speaker #2: adjusted EBITDA was $65 The fourth quarter million, representing an adjusted margin. Adjusted EBITDA includes a $3.6 million environmental reserve, that had been a contingent liability for many years before we became a standalone public company.
Speaker #2: The amount, recently estimable, thus excluding this expense, reported adjusted EBITDA would have been $68 million for the fourth quarter. When normalized for the extra week, we operationally generated $65 million in adjusted EBITDA, with an adjusted margin of 9.8%.
Speaker #2: This compares to 11.8% in the fourth quarter of last year and 9.5% in the third quarter of 2025. Now moving on to cash flow and working capital.
Speaker #2: During the quarter, we generated $31 million. Operating cash flow and $16 million in free cash flow, reflecting a positive improvement over our fiscal third quarter.
Speaker 6: During the quarter, we generated $31 million in operating cash flow and $16 million in free cash flow, reflecting a positive improvement over our fiscal third quarter. Net cash provided from working capital was $22 million, and includes an increase of approximately $8 million, resulting from our efforts to reduce our inventory level and improve working capital efficiency. Consistent with our expectations, we spent approximately $15 million on capital expenditures during the period, three of which was related to market-centered facility improvements. Looking at our balance sheet, at the end of the fiscal quarter, net debt was $1.4 billion, and our principal bank debt outstanding was $1.17 billion. Our liquidity position is strong, with no debt maturities until 2028, and $298 million of available liquidity, including $268 million of undrawn revolver capacity and $30 million of cash on hand.
During the quarter, we generated $31 million in operating cash flow and $16 million in free cash flow, reflecting a positive improvement over our fiscal third quarter. Net cash provided from working capital was $22 million, and includes an increase of approximately $8 million, resulting from our efforts to reduce our inventory level and improve working capital efficiency. Consistent with our expectations, we spent approximately $15 million on capital expenditures during the period, three of which was related to market-centered facility improvements. Looking at our balance sheet, at the end of the fiscal quarter, net debt was $1.4 billion, and our principal bank debt outstanding was $1.17 billion. Our liquidity position is strong, with no debt maturities until 2028, and $298 million of available liquidity, including $268 million of undrawn revolver capacity and $30 million of cash on hand.
Speaker #2: Net cash provided from working capital was $22 million and includes an increase of approximately $8 million resulting from our efforts to reduce our inventory level and improve working capital efficiency.
Speaker #2: Consistent with our expectations, we spent approximately $15 million on capital expenditures during the period. Many of which was related to market center facility improvement.
Speaker #2: Looking at our balance sheet at the end of the fiscal quarter, net debt was. $4 billion, and our principal bank debt billion. Our liquidity position is strong, with no debt maturities until 2028, and $298 million of available liquidity, including $268 million of undrawn revolver capacity and $30 million of cash on hand.
Speaker #2: Our guiding principles for capital allocation are to maintain a strong balance sheet and allocate capital toward high return opportunities with a focus on delivering.
Speaker 6: Our guiding principles for capital allocation are to maintain a strong balance sheet and allocate capital toward high-return opportunities, with a focus on delivering. Our prudent balance sheet management and working capital actions aim to provide a flexible foundation from which to support our business. As Jim mentioned, we launched a multi-year business transformation and restructuring plan during the first quarter of 2026. The plan is centered around three strategic priorities: commercial excellence, operational excellence, and asset and network optimization, and is designed to make the company more customer-focused, agile, and efficient, while positioning it for long-term profitable growth. The plan is expected to generate run-rate operating cost savings of at least $75 million by the end of 2026, and to also enhance revenue.
Our guiding principles for capital allocation are to maintain a strong balance sheet and allocate capital toward high-return opportunities, with a focus on delivering. Our prudent balance sheet management and working capital actions aim to provide a flexible foundation from which to support our business. As Jim mentioned, we launched a multi-year business transformation and restructuring plan during the first quarter of 2026. The plan is centered around three strategic priorities: commercial excellence, operational excellence, and asset and network optimization, and is designed to make the company more customer-focused, agile, and efficient, while positioning it for long-term profitable growth. The plan is expected to generate run-rate operating cost savings of at least $75 million by the end of 2026, and to also enhance revenue.
Speaker #2: Our prudent balance sheet management and working capital actions aim to provide a flexible foundation from which to support our business. As Jim mentioned, we launched a multi-year business transformation and restructuring plan during the first quarter of 2026.
Speaker #2: The plan is centered around three strategic priorities: commercial excellence, operational excellence, and asset and network optimization, and is designed to make the company more customer-focused, agile, and efficient.
Speaker #2: growth. The plan is expected to generate run rate operating cost savings of at least $75 While positioning it for long-term profitable million by the end of 2026, and to also enhance revenue.
Speaker #2: We expect the plan to be substantially completed by the end of 2027, and for costs related to the execution of the plan to be in a range of approximately $25 million to $30 million.
Speaker 6: We expect the plan to be substantially completed by the end of 2027, and for costs related to the execution of the plan to be in a range of approximately $25 million to $30 million. Now moving on to our outlook for 2026. Our expectation in fiscal 2026 is for revenue to be between flat and down 2% as compared to normalized fiscal 2025 revenue and adjusted EBITDA. Additionally, we expect fiscal 2026 free cash flow to be in the range of $50 million to $60 million, assuming capital expenditures are generally consistent with 2025. The 2026 outlook reflects the fourth quarter 2025 exit rate annualized for both revenue and adjusted EBITDA, along with the improvements we expect to generate through our plan.
We expect the plan to be substantially completed by the end of 2027, and for costs related to the execution of the plan to be in a range of approximately $25 million to $30 million. Now moving on to our outlook for 2026. Our expectation in fiscal 2026 is for revenue to be between flat and down 2% as compared to normalized fiscal 2025 revenue and adjusted EBITDA. Additionally, we expect fiscal 2026 free cash flow to be in the range of $50 million to $60 million, assuming capital expenditures are generally consistent with 2025. The 2026 outlook reflects the fourth quarter 2025 exit rate annualized for both revenue and adjusted EBITDA, along with the improvements we expect to generate through our plan.
Speaker #2: Now moving on to our outlook for 2026. Our expectation in fiscal 2026 is for revenue to be between flat and down 2% as compared to normalized fiscal 2025 revenue.
Speaker #2: And adjusted EBITDA. Additionally, we expect fiscal 2026 free cash flow to be in the range of $50 million to $60 million assuming capital expenditures are generally consistent with 2025.
Speaker #2: The 2026 outlook reflects the fourth quarter 2025 exit rate annualized for both revenue and adjusted EBITDA, along with the improvements we expect to generate through our plan.
Speaker #2: Regarding revenue, we plan to offset annual churn and stabilize. Implementing strategic pricing that is well executed, along with driving higher penetration with existing customers, through investing in market development representatives.
Speaker 6: Regarding revenue, we plan to offset annual churn and stabilize implementing strategic pricing that is well executed, along with driving higher penetration with existing customers through investing in Market Development Representatives. In addition, we are implementing various cost initiatives, which we expect to provide an incremental lift to adjusted EBITDA of roughly $40 million related to our Q4 exit rate. We expect the first quarter of adjusted EBITDA to be approximately 7% to 10% better than the normalized $65 million generated in Q4, and that the remaining quarters of 2026 will show sequential improvement of approximately 5%. As of today, our average weekly revenue run rate for Q1 of 2026 is approximately $51 million, which is above the Q4 2025 average. As we look ahead, our near-term focus is on increasing both profitability and cash flow to lay the foundation for stronger, more durable financial performance going forward.
Regarding revenue, we plan to offset annual churn and stabilize implementing strategic pricing that is well executed, along with driving higher penetration with existing customers through investing in Market Development Representatives. In addition, we are implementing various cost initiatives, which we expect to provide an incremental lift to adjusted EBITDA of roughly $40 million related to our Q4 exit rate. We expect the first quarter of adjusted EBITDA to be approximately 7% to 10% better than the normalized $65 million generated in Q4, and that the remaining quarters of 2026 will show sequential improvement of approximately 5%. As of today, our average weekly revenue run rate for Q1 of 2026 is approximately $51 million, which is above the Q4 2025 average. As we look ahead, our near-term focus is on increasing both profitability and cash flow to lay the foundation for stronger, more durable financial performance going forward.
Speaker #2: In addition, we are implementing various cost initiatives, which we expect to provide an incremental lift to adjusted EBITDA of roughly $40 million related to our Q4 exit rate.
Speaker #2: We expect the first quarter of adjusted EBITDA to be approximately 7% to 10% better than the normalized $65 million generated in Q4, and that the remaining quarters of 2026 will show sequential improvement.
Speaker #2: Of approximately 5%. As of today, our average weekly revenue run rate for Q1 of 2026 is approximately $51 million, which is. Of the Q4 2025 average.
Speaker #2: As we look ahead, our near-term focus is on increasing both profitability and cash flow to lay the foundation for stronger, more durable financial performance going forward.
Speaker #2: The variety of initiatives we are executing related to our business transformation plan represents a critical step toward improving operating leverage, supporting the balance sheet, and unlocking the full potential of our platform to deliver lasting value for all stakeholders.
Speaker 6: The variety of initiatives we are executing related to our business transformation plan represents a critical step toward improving operating leverage, supporting the balance sheet, and unlocking the full potential of our platform to deliver lasting value for all stakeholders. Now I will turn it over to Jim for closing remarks before we take your questions.
The variety of initiatives we are executing related to our business transformation plan represents a critical step toward improving operating leverage, supporting the balance sheet, and unlocking the full potential of our platform to deliver lasting value for all stakeholders. Now I will turn it over to Jim for closing remarks before we take your questions.
Speaker #2: Now I will turn it over to Jim for closing remarks before we take your questions. Thanks, Kelly. And before we go to Q&A, I'd like to close with a few salient points that I want to leave you with on why I'm confident in our 2026 plan and the improvement we expect to deliver.
Speaker 7: Thanks, Kelly. Before we go to Q&A, I'd like to close with a few salient points that I want to leave you with on why I'm confident in our 2026 plan and the improvement we expect to deliver. First, the majority of our improved profitability next year will come from actions squarely within our control, specifically removing excess costs from our operations. Success here is about disciplined operating standards, and strong leadership, and we've already taken steps to ensure both. Because of this, I'm confident that the fourth quarter of 2025 represents the low point for profitability. From here, we expect steady, measurable progress through 2026 as we execute our plan. Second, customer churn has been one of our biggest challenges and now represents one of our largest opportunities. It tells us that the balance between service quality and price has not been right.
Jim Barber: Thanks, Kelly. Before we go to Q&A, I'd like to close with a few salient points that I want to leave you with on why I'm confident in our 2026 plan and the improvement we expect to deliver. First, the majority of our improved profitability next year will come from actions squarely within our control, specifically removing excess costs from our operations. Success here is about disciplined operating standards, and strong leadership, and we've already taken steps to ensure both. Because of this, I'm confident that the fourth quarter of 2025 represents the low point for profitability. From here, we expect steady, measurable progress through 2026 as we execute our plan. Second, customer churn has been one of our biggest challenges and now represents one of our largest opportunities. It tells us that the balance between service quality and price has not been right.
Speaker #2: First, the majority of our improved profitability next year will come from actions squarely within our control. Specifically, removing excess costs from our operations. Success here is about disciplined operating standards and strong leadership, and we've already taken steps to ensure both.
Speaker #2: Because of this, I'm confident that the fourth quarter of 2025 represents the low point for profitability. From here, we expect steady, measurable progress through 2026 as we execute our plan.
Speaker #2: Second, customer churn has been one of our biggest challenges, and now represents one of our largest opportunities. It tells us that the balance between service quality and price has not been right.
Speaker #2: We have already begun implementing some measures to address churn, starting in Q1, and improving retention will be a key driver of long-term revenue stability and growth.
Speaker 7: We have already begun implementing some measures to address churn starting in Q1, and improving retention will be a key driver of long-term revenue stability and growth. Third, we see tremendous value in creating efficiencies across our operating network. In 2026, we're deploying tools that enable market centers to operate more effectively in alignment with our enterprise priorities. Fourth, our new segmentation and profitability tools will give us more visibility into day-to-day performance, and unlock opportunities to create value for all stakeholders. Finally, our business model is solid. What hasn't been solid are the processes and technology underpinning it. That's why we're investing in market centers of the future, which will modernize our operations and open new avenues for growth in the years ahead. Our near-term strategic roadmap is clear. We are focused on disciplined execution, prioritizing customer service quality, and driving operational rigor.
We have already begun implementing some measures to address churn starting in Q1, and improving retention will be a key driver of long-term revenue stability and growth. Third, we see tremendous value in creating efficiencies across our operating network. In 2026, we're deploying tools that enable market centers to operate more effectively in alignment with our enterprise priorities. Fourth, our new segmentation and profitability tools will give us more visibility into day-to-day performance, and unlock opportunities to create value for all stakeholders. Finally, our business model is solid. What hasn't been solid are the processes and technology underpinning it. That's why we're investing in market centers of the future, which will modernize our operations and open new avenues for growth in the years ahead. Our near-term strategic roadmap is clear. We are focused on disciplined execution, prioritizing customer service quality, and driving operational rigor.
Speaker #2: we see tremendous value in creating efficiencies across our operating Third, network. In 2026, we're deploying tools that enable market centers to operate more effectively in alignment with priorities.
Speaker #2: Fourth, our new enterprise segmentation and profitability tools will give us more visibility into day-to-day performance and unlock opportunities to create value for all stakeholders.
Speaker #2: Finally, our business model is solid, as are the processes and technology underpinning it. That's why we're investing in market centers of the future, which will modernize our operations and open new avenues for growth in the years ahead.
Speaker #2: Our near-term strategic roadmap is clear. We are focused on disciplined execution, prioritizing customer service quality, and driving operational rigor. These are the levers that will position Vestis for sustainable, profitable growth.
Speaker 7: These are the levers that will position Vestis for sustainable, profitable growth. Importantly, we are already taking quick action to execute our plan. That gives me confidence that 2026 will mark the beginning of a stronger, more resilient Vestis built to deliver long-term value for our customers, employees, and shareholders. Now I'd like to turn the call back to the operator for your questions.
These are the levers that will position Vestis for sustainable, profitable growth. Importantly, we are already taking quick action to execute our plan. That gives me confidence that 2026 will mark the beginning of a stronger, more resilient Vestis built to deliver long-term value for our customers, employees, and shareholders. Now I'd like to turn the call back to the operator for your questions.
Speaker #2: And importantly, we are already taking quick action to execute our plan. That gives me confidence that 2026 will mark the beginning of a stronger, more resilient Vestis, built to deliver long-term value for our customers, employees, and shareholders.
Speaker #2: Now I'd like to turn the call back to the operator for your questions.
Speaker #3: The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad.
Speaker 1: The floor is now open for questions. At this time, if you have a question or a comment, please press Star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing Star 2. Again, we ask that you pick up your handset when posing your questions to provide sound quality. Thank you. Our first question is coming from Manav Patnaik with Barclays. Your line is open. Please go ahead.
Operator: The floor is now open for questions. At this time, if you have a question or a comment, please press Star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing Star 2. Again, we ask that you pick up your handset when posing your questions to provide sound quality. Thank you. Our first question is coming from Manav Patnaik with Barclays. Your line is open. Please go ahead.
Speaker #3: If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your questions to provide.
Speaker #3: Sound quality. Thank you. Our first question is coming from Manav Patnik with Barclays. Your line is open. Please go ahead.
Speaker #4: Hi, good morning.
Speaker 8: Hi, good morning. This is Ronan Kennedy. I'm from Manav. Thank you for taking my questions. Jim, I think you alluded to culture being foundational to the strategic multi-year transformation. Culture is something I think the prior driven culture and the strategy they articulated. Where are you in terms of culture, the additional transformation needed there, and do you have the right team and right people to execute this strategic transformation?
Ronan Kennedy: Hi, good morning. This is Ronan Kennedy. I'm from Manav. Thank you for taking my questions. Jim, I think you alluded to culture being foundational to the strategic multi-year transformation. Culture is something I think the prior driven culture and the strategy they articulated. Where are you in terms of culture, the additional transformation needed there, and do you have the right team and right people to execute this strategic transformation?
Speaker #4: This is Ronan Kennedy. I'm from Manav. Thank you for ahead, taking my questions. Jim, I think you had alluded to culture being foundational to.
Speaker #4: You can move to year transformation. Culture is something I think about the prior-driven culture and the strategy they articulated. Where are you in terms of culture, the additional transformation needed there, and do you have the right team and right people to execute this strategic?
Speaker #4: transformation? It's a good question to start with, I
Speaker 7: It's a good question to start with, I think. I think it really gets at a number of things that we are embedded in 2026 that are key because in the context of culture, the way I see this transformation is that in the past, I don't know that everyone saw the power of what a really, really good running network can do for shareholders, our employees, growth, and everything about it. One of the decisions we had to make here on the transformation is what do we do first, second, third, and fourth. Very clearly, we'll go through this as we talk more this morning and beyond.
Jim Barber: It's a good question to start with, I think. I think it really gets at a number of things that we are embedded in 2026 that are key because in the context of culture, the way I see this transformation is that in the past, I don't know that everyone saw the power of what a really, really good running network can do for shareholders, our employees, growth, and everything about it. One of the decisions we had to make here on the transformation is what do we do first, second, third, and fourth. Very clearly, we'll go through this as we talk more this morning and beyond.
Speaker #2: think. I think it really gets at a number of things that we are embedded in 2026 that are key. Because in the culture context of culture, the way I see this transformation is that in the past, I don't know that everyone saw the power of what a really, really good running network can do for.
Speaker #2: Shareholders and our employees and growth and everything about it. And so one of the decisions we had to make here on the transformation fourth?
Speaker #2: And very clearly, we'll go through is what do we do first, second, third, and morning and beyond. Of the 75 million dollars of savings in the transformation, about three-quarters of that comes directly from just unoptimized plant operations that are the engine of this network that need to perform at a very high level to serve our customers.
Speaker 7: Of the $75 million of savings in the transformation, about three-quarters of that comes directly from just unoptimized plant operations that are the engine of this network that need to perform at a very high level to serve our customers. We're starting there. Since I arrived, we've worked obviously with the third-party advisor, AlixPartners. They had some tools we did not have. The firm was not founded with a bunch of engineers that are built to kind of define what 100% looks like in a plant. We've triangulated a number of inputs to that. We know what that is, and that backs up our plant operations. It's all in our control. As I said, that's three-quarters of it. That culture, in my mind, really wraps around operational excellence and rigor. In my mind, it wasn't where it needed to be.
Of the $75 million of savings in the transformation, about three-quarters of that comes directly from just unoptimized plant operations that are the engine of this network that need to perform at a very high level to serve our customers. We're starting there. Since I arrived, we've worked obviously with the third-party advisor, AlixPartners. They had some tools we did not have. The firm was not founded with a bunch of engineers that are built to kind of define what 100% looks like in a plant. We've triangulated a number of inputs to that. We know what that is, and that backs up our plant operations. It's all in our control. As I said, that's three-quarters of it. That culture, in my mind, really wraps around operational excellence and rigor. In my mind, it wasn't where it needed to be.
Speaker #2: And so we're starting there. Since I arrived, we've worked, obviously, with the third-party advisor, Alex. They had some tools we did not have. This firm was not founded with a bunch of engineers that are built to kind of define what 100% looks like in a plant.
Speaker #2: We've triangulated a number of inputs to that. We know what that is, and that backs up our plant operations. It's all in our control.
Speaker #2: And as I said, that's three-quarters of it. So that culture in my mind really wraps around operational excellence and rigor, and in my mind, it wasn't where it needed to be.
Speaker #2: And therefore, that's where we must start to get a good foundation to build on top of that. That answers the question. That's how I think about
Speaker 7: Therefore, that's where we must start to get a good foundation to build on top of that. That answers the question. That's how I think about it.
Therefore, that's where we must start to get a good foundation to build on top of that. That answers the question. That's how I think about it.
Speaker #2: it. And sorry, with regards to having the right
Speaker 8: Sorry, with regards to having the right team in place. If I may, a follow-up question, please.
Ronan Kennedy: Sorry, with regards to having the right team in place. If I may, a follow-up question, please.
Speaker #5: Team in place, and then if I may, a follow-up question, please.
Speaker #2: Could you ask if I had the right team in place?
Speaker 7: Did you ask if I had the right team in place?
Jim Barber: Did you ask if I had the right team in place?
Speaker #5: Yes, please. Your assessment, given the restructuring and the changes within the
Speaker 8: Yes, please. Your assessment, given the restructuring and the changes within the organization, if the right team is there.
Ronan Kennedy: Yes, please. Your assessment, given the restructuring and the changes within the organization, if the right team is there.
Speaker #5: organization, if the right team is in place. Oh, absolutely.
Speaker 7: Oh, absolutely. Look, I think that there's a lot of really great people in this business and every business, quite frankly. I think it comes down to giving them the vision and the strategies that we all should align to so that they are successful. They can earn their reward for coming to work at Vestis every day. I'm very confident we've launched that in 2026, and it'll happen actually after this call this week in more rigor to that. I think they're here more about making sure that the foundations of the business are right so the decisions we make are right and they work for all the stakeholders. Eighty percent of this, I think, comes down to the right leadership and vision.
Jim Barber: Oh, absolutely. Look, I think that there's a lot of really great people in this business and every business, quite frankly. I think it comes down to giving them the vision and the strategies that we all should align to so that they are successful. They can earn their reward for coming to work at Vestis every day. I'm very confident we've launched that in 2026, and it'll happen actually after this call this week in more rigor to that. I think they're here more about making sure that the foundations of the business are right so the decisions we make are right and they work for all the stakeholders. Eighty percent of this, I think, comes down to the right leadership and vision.
Speaker #2: Look, I think that there's a lot of really great people in this business and every business, quite frankly. I think it comes down to giving them the vision and the strategies that we all should align to so that they are successful.
Speaker #2: can earn their reward for coming to work at Vestis every day. I'm very confident we've launched that in They 2026, and it'll happen actually after this call this week in more rigor to that.
Speaker #2: So I think they're here. It's more about making sure that the foundations of the business are right so the decisions we make are right, and they work for all the stakeholders.
Speaker #2: And that's 80% of this, I think, comes down to the right leadership and
Speaker #2: vision. Thank you.
Speaker 8: Thank you. May I ask, I think both of you and Kelly spoke to establishing a foundational position for durable and sustainable organic growth for 2027 and beyond. Are you helping with how we should think about the financial framework beyond what was guided for 2026 for the mid to long term, primarily from an organic growth and a margin profile standpoint?
Ronan Kennedy: Thank you. May I ask, I think both of you and Kelly spoke to establishing a foundational position for durable and sustainable organic growth for 2027 and beyond. Are you helping with how we should think about the financial framework beyond what was guided for 2026 for the mid to long term, primarily from an organic growth and a margin profile standpoint?
Speaker #5: And then may I ask, I think both of you and Kelly spoke to establishing a foundational position for durable and sustainable organic growth for 27 and beyond.
Speaker #5: Are you helping with how we should think about the financial framework beyond what was guided for '26 for the mid to long-term, primarily from an organic growth and a margin profile standpoint?
Speaker #2: Yes. It's a short answer, but I think the answer you probably want to hear is the timing of that. In other words, when are we going to be ready to talk about something beyond '26 and the kind of run rate into '27?
Speaker 7: Yes. It's a short answer, but I think the answer you probably want to hear is the timing of that. In other words, when are we going to be ready to talk about something beyond '26 and the kind of run rate into '27? We'll know more of that as we execute through these first couple of quarters in '26. There is going to be a lot more coming in '27 beyond that, which is not here yet. We just feel like this is the year to get the foundation right, get us moving in the right direction, and have the stakeholders believe if we tell them something, we're going to perform to it. That's where we are in the early innings of the game, and '27 and beyond will come in short order.
Jim Barber: Yes. It's a short answer, but I think the answer you probably want to hear is the timing of that. In other words, when are we going to be ready to talk about something beyond '26 and the kind of run rate into '27? We'll know more of that as we execute through these first couple of quarters in '26. There is going to be a lot more coming in '27 beyond that, which is not here yet. We just feel like this is the year to get the foundation right, get us moving in the right direction, and have the stakeholders believe if we tell them something, we're going to perform to it. That's where we are in the early innings of the game, and '27 and beyond will come in short order.
Speaker #2: We'll know more of that as we execute through these first couple of quarters in '26. But there's going to be a lot more coming in '27 beyond that is not here yet.
Speaker #2: We just feel like this is the year to get the foundation right, get us moving in the right direction, have the stakeholders believe if we tell them something we're going to perform to it, and that's where we are in the early innings of the game.
Speaker #2: And '27 and beyond will come in short order.
Speaker #5: Thank you. Appreciate it.
Speaker 8: Thank you. Appreciate it.
Ronan Kennedy: Thank you. Appreciate it.
Speaker #3: Our next question comes from Tim Mulroney with William Blair. Please go ahead.
Speaker 1: Our next question comes from Tim Mulroney with William Blair. Please go ahead.
Operator: Our next question comes from Tim Mulroney with William Blair. Please go ahead.
Speaker #6: Hi, good morning. This is Luke McFadden off of Tim. Thanks for taking our questions this morning. So you called out improving logistics through network rationalization slides.
Speaker 9: Hi, good morning. This is Luke McFadden, on for Tim. Thanks for taking our questions this morning. You called out improving logistics through network rationalization. I was curious if we should take that to mean you're consolidating some capacity in certain regions. If so, can you provide any additional details around how much capacity you plan to take out of the business to streamline operations?
Luke McFadden: Hi, good morning. This is Luke McFadden, on for Tim. Thanks for taking our questions this morning. You called out improving logistics through network rationalization. I was curious if we should take that to mean you're consolidating some capacity in certain regions. If so, can you provide any additional details around how much capacity you plan to take out of the business to streamline operations?
Speaker #6: I was curious if we should take that to mean you're consolidating some capacity in certain regions? And if so, can you provide any additional details around how much capacity you plan to take out of the business to streamline operations?
Speaker #2: So we talk about that. I think we should kind of drop back and think about it probably, to be fair, how the previous leadership looked at it versus how do we look.
Speaker 7: We talk about that. I think we should kind of drop back and think about it, probably to be fair, how the previous leadership looked at it versus how do we look. What's the difference in our plans? Probably a fair way to say about that. From my perspective and why we started with what we did with our focus plants and 75% of this coming out of optimization of them is that I don't think from my background, it's really proved out to be positive. If you take two underperforming assets and put them together in one, it works out very well. They don't really create the value they should.
Jim Barber: We talk about that. I think we should kind of drop back and think about it, probably to be fair, how the previous leadership looked at it versus how do we look. What's the difference in our plans? Probably a fair way to say about that. From my perspective and why we started with what we did with our focus plants and 75% of this coming out of optimization of them is that I don't think from my background, it's really proved out to be positive. If you take two underperforming assets and put them together in one, it works out very well. They don't really create the value they should.
Speaker #2: What's the difference in our plans? Probably a fair way to say about that. From my perspective, and why we started with what we did with our focus plants, and 75% of this coming out of optimization of them, is that I don't think, from my background, it's really proved to be positive if you take two underperforming assets and put them together in one; it works out very well.
Speaker #2: They don't really create the value they should. What you first should do is optimize what you have, look at what that does to your cost of the leverage part of the business, figure out what you're going to keep, what you're going to optimize, and maybe what's not right for your network, and then make the decisions.
Speaker 7: What you first should do is optimize what you have, look at what that does to your cost of the leverage part of the business, figure out what you're going to keep, what you're going to optimize, and maybe what's not right for your network, then make the decisions. There are a lot of inputs into that. That's not an easy piece of work. I think you have to be very careful with that. We're kind of putting that second. There's a little of that in the 2026 plan, not the majority of it. The majority comes out of optimizing the inside of the plants. That will come longer term, and there is tremendous value in this organization, both in the plants and on the road for us to optimize.
What you first should do is optimize what you have, look at what that does to your cost of the leverage part of the business, figure out what you're going to keep, what you're going to optimize, and maybe what's not right for your network, then make the decisions. There are a lot of inputs into that. That's not an easy piece of work. I think you have to be very careful with that. We're kind of putting that second. There's a little of that in the 2026 plan, not the majority of it. The majority comes out of optimizing the inside of the plants. That will come longer term, and there is tremendous value in this organization, both in the plants and on the road for us to optimize.
Speaker #2: And there's a lot of inputs into that. That's not an easy piece of work. And I think you have to be very careful with that.
Speaker #2: And so we're kind of putting that second. And there's a little of that in the 2026 plan, not the majority of it. The majority comes out of optimizing the inside of the plant.
Speaker #2: But that will come longer term. There's tremendous value in this organization, both in the plants and on the road, for us to optimize, but we need to get a little bit of pre-work done before we take those steps and roll them out to make the commitments that we're going to.
Speaker 7: We need to get a little bit of pre-work done before we take those steps and roll them out to make the commitments that we're going to deliver.
We need to get a little bit of pre-work done before we take those steps and roll them out to make the commitments that we're going to deliver.
Speaker #2: deliver. That's
Speaker #6: Really helpful. And maybe more of a modeling question here. As a follow-up, I know that the EBITDA guide for next year came in higher than we were expecting.
Speaker 9: That's really helpful. Maybe more of a modeling question here as a follow-up. I know that EBITDA guide for next year came in higher than we were expecting, and that there's some transformational costs you're planning here, obviously, in the business. Can you help quantify for us any of the non-recurring expenses that are currently embedded in your adjusted EBITDA guidance for fiscal 2026? How much of that $25 million to 30 million related to the restructuring plan is expected to fall in this year?
Luke McFadden: That's really helpful. Maybe more of a modeling question here as a follow-up. I know that EBITDA guide for next year came in higher than we were expecting, and that there's some transformational costs you're planning here, obviously, in the business. Can you help quantify for us any of the non-recurring expenses that are currently embedded in your adjusted EBITDA guidance for fiscal 2026? How much of that $25 million to 30 million related to the restructuring plan is expected to fall in this year?
Speaker #6: And if planning here, obviously, in the business, can you help quantify for us some transformation costs or any of the non-recurring expenses that are currently embedded in your adjusted EBITDA guidance for fiscal 2026?
Speaker #6: And how much of that $25 million to $30 million related to the restructuring plan is expected to fall in this year?
Speaker #7: Yeah. So just to start out with, the 25 to 30 million is not included in the adjusted EBITDA given that it's added. Structuring. So that would all be kind of outside of that guidance.
Speaker 10: Yeah. Just to start out with, the $25 to 30 million is not included in the adjusted EBITDA given that it's added structuring. That would all be kind of outside of that guidance, so therefore, most of the non-recurring are integrated into that. The way we got to the adjusted EBITDA number was kind of what we laid out a little bit more into the prepared remarks as well. We are coming off of a fourth quarter normalized for taking out the extra week, adding back the $3.6 million adjustment that I mentioned that was really non-operational related to the quarter, and we're getting back to about $65 million of a normalized adjusted EBITDA. Then we're just taking that run rate and getting to about a $260 million number if you just take it times four.
Kelly Janzen: Yeah. Just to start out with, the $25 to 30 million is not included in the adjusted EBITDA given that it's added structuring. That would all be kind of outside of that guidance, so therefore, most of the non-recurring are integrated into that. The way we got to the adjusted EBITDA number was kind of what we laid out a little bit more into the prepared remarks as well. We are coming off of a fourth quarter normalized for taking out the extra week, adding back the $3.6 million adjustment that I mentioned that was really non-operational related to the quarter, and we're getting back to about $65 million of a normalized adjusted EBITDA. Then we're just taking that run rate and getting to about a $260 million number if you just take it times four.
Speaker #7: And so therefore, most of the non-recurring. Operated into that. So the way we got to the adjusted EBITDA number was kind of what we laid out a little bit more into the prepared remarks as well.
Speaker #7: So we are coming off of a fourth quarter normalized for taking out the extra week, adding back the 3.6 million dollar adjustment that I mentioned.
Speaker #7: That was really not non-operational related to the quarter. And we'll get back to about 65 million of a normalized adjusted EBITDA. And then we're just taking that run rate and getting to about a 260 number if you just take it times four.
Speaker #7: And then you add in the $40 million of in-year savings that $75 million annualized really translates into $40 million of in-year. And that's kind of how we start getting to our midpoint around the $300 million.
Speaker 10: You add in the $40 million of in-year savings. That $75 million annualized really translates into $40 million of in-year. That's kind of how we start getting to our midpoint around the $300 million. There's always puts and takes that we put that range around it. That's kind of how we're getting there. That is assuming that revenue is relatively stable. It does take into consideration the midpoint of our revenue guidance as well, which is predicated on ensuring that we execute the initiatives, the related pricing, strategic pricing. This is more targeted pricing around areas where we think we're either below market, both in the new price for our new products or relative to pricing of existing contracts.
You add in the $40 million of in-year savings. That $75 million annualized really translates into $40 million of in-year. That's kind of how we start getting to our midpoint around the $300 million. There's always puts and takes that we put that range around it. That's kind of how we're getting there. That is assuming that revenue is relatively stable. It does take into consideration the midpoint of our revenue guidance as well, which is predicated on ensuring that we execute the initiatives, the related pricing, strategic pricing. This is more targeted pricing around areas where we think we're either below market, both in the new price for our new products or relative to pricing of existing contracts.
Speaker #7: And then there's always puts and takes that we put that range around it. But that's kind of how we're getting there. And that is assuming that revenue is relatively stable.
Speaker #7: It does take into consideration the midpoint of our revenue guidance as well, which is predicated on ensuring that we execute the initiatives related.
Speaker #7: Pricing. We strategic pricing. This is more targeted pricing. Around areas where we think we're either below market both in the new price for our new products or relative to pricing of existing contracts.
Speaker #7: It's also looking at improving penetration around our existing customers of which we think we have a lot of opportunity to do. We have a lot of opportunity to.
Speaker 10: It's also looking at improving penetration around our existing customers, of which we think we have a lot of opportunity to do. We have a lot of opportunity to implement market developments to help do that. Other areas of commercial, that kind of is what helps build together the process of how we came back to the EBITDA revenue that we feel good about. I mean, sorry, the EBITDA range that we feel good about.
It's also looking at improving penetration around our existing customers, of which we think we have a lot of opportunity to do. We have a lot of opportunity to implement market developments to help do that. Other areas of commercial, that kind of is what helps build together the process of how we came back to the EBITDA revenue that we feel good about. I mean, sorry, the EBITDA range that we feel good about.
Speaker #7: Implement market development. To help do that. Other areas of. Commercial. That kind of is what helps build together the process of how we came back to the EBITDA revenue that we feel good about.
Speaker #7: I mean, sorry, the EBITDA range that we feel good.
Speaker #7: about. That's really
Speaker 9: That's really helpful. Thanks so much for the call today.
Luke McFadden: That's really helpful. Thanks so much for the call today.
Speaker #6: helpful. Thanks so much for the call
Speaker #6: today. Our next
Speaker 1: Our next question comes from Andrew Steinerman with J.P. Morgan. Please go ahead.
Operator: Our next question comes from Andrew Steinerman with J.P. Morgan. Please go ahead.
Speaker #3: question comes from Andrew Steinerman with JP Morgan. Please go ahead.
Speaker #8: Hi, Kelly. I'd like to understand more details about the guided fiscal 26 for cash flow, the 50 to 60 million dollars. Could you go over what are the embedded assumptions around CapEx or working capital injections or any helpful?
Speaker 11: Hi, Kelly. I'd like to understand more details about the guided fiscal 2026 free cash flow, the $50 to $60 million. Could you go over what are the embedded assumptions around CapEx or working capital injections, or any other context that you might think helpful? How is the phasing of this free cash flow going to be throughout the year in 2026? Lastly, related to that, might there be a need to raise capital to make the capital investments you're planning?
Andrew Steinerman: Hi, Kelly. I'd like to understand more details about the guided fiscal 2026 free cash flow, the $50 to $60 million. Could you go over what are the embedded assumptions around CapEx or working capital injections, or any other context that you might think helpful? How is the phasing of this free cash flow going to be throughout the year in 2026? Lastly, related to that, might there be a need to raise capital to make the capital investments you're planning?
Speaker #8: And how is other context that you might think the phasing of this free cash flow going to be throughout the year in 26? And lastly, related to that, might there be a need to raise capital to make the capital investments you're planning?
Speaker 10: Yeah. A number of things there, right? First, to kind of walk you through how we got to the guidance. Starting with our midpoint of $300 million of EBITDA, we have interest annually given our debt of around $95 million. That's kind of embedded in there. We also have an estimate of cash taxes of around $50 million. We have the $25 million restructuring one-time charges that we discussed. We add CapEx in there for roughly $60 to 65 million, depending on how things shake out, but generally in line with what we did this past year. That gets you to the high end of our guidance range and maybe slightly above. We're going to have a number of liabilities on our books that have been existing for a long time.
Kelly Janzen: Yeah. A number of things there, right? First, to kind of walk you through how we got to the guidance. Starting with our midpoint of $300 million of EBITDA, we have interest annually given our debt of around $95 million. That's kind of embedded in there. We also have an estimate of cash taxes of around $50 million. We have the $25 million restructuring one-time charges that we discussed. We add CapEx in there for roughly $60 to 65 million, depending on how things shake out, but generally in line with what we did this past year. That gets you to the high end of our guidance range and maybe slightly above. We're going to have a number of liabilities on our books that have been existing for a long time.
Speaker #7: So a number of things there, right? So first, Yeah. to kind of walk you through how we got to the guidance. Starting with our midpoint of 300 million dollars of EBITDA, we have interest annually given our debt of around 95 million dollars.
Speaker #7: So that's kind of embedded in there. We also have an estimate of a cash tax of around $50 million. And we have the $25 million restructuring one-time charges that we discussed.
Speaker #7: And then we add CapEx in there for roughly 60 to 65 depending on how things shake out. But generally, in line with what we did this past year.
Speaker #7: And that gets you to the high end of our guidance range. And maybe a slightly above. And then we're going to have we have a number of liabilities on our books that have been existing for a long time.
Speaker #7: We've experienced over the last year that some of those pay out depending on reserves for various things. And it's holding working capital, like operating working capital relatively flat.
Speaker 10: We've experienced over the last year that some of those pay out depending on reserves for various things. It's holding working capital, like operating working capital, relatively flat. There could be a potential to have to use a little bit of working capital as we continue to transform our business. That's kind of how I got to the range. In the most simple way, I could kind of explain that. I think as well, I'm sorry, you asked me additional questions. I'm going to have you go repeat the remaining questions so I can make sure I answer that clearly.
We've experienced over the last year that some of those pay out depending on reserves for various things. It's holding working capital, like operating working capital, relatively flat. There could be a potential to have to use a little bit of working capital as we continue to transform our business. That's kind of how I got to the range. In the most simple way, I could kind of explain that. I think as well, I'm sorry, you asked me additional questions. I'm going to have you go repeat the remaining questions so I can make sure I answer that clearly.
Speaker #7: a potential to have to use a little bit of But there could be working capital as we continue to transform our business. So that's kind of how I got to the range.
Speaker #7: And in the most simple way I could kind of explain that. I think as well, I'm sorry, you asked me additional questions. I'm going to have you go repeat the remaining questions so I can make sure I answer that
Speaker #7: clearly. Yeah,
Speaker #8: Sure, Kelly. The
Speaker 11: Sure, Kelly. The second point was, how might that free cash flow fade throughout the year?
Andrew Steinerman: Sure, Kelly. The second point was, how might that free cash flow fade throughout the year?
Speaker #8: Cash flow phases throughout the year?
Speaker 10: Yeah, the phasing.
Kelly Janzen: Yeah, the phasing.
Speaker #7: The phasing—Is it sort of back end?
Speaker 11: Is it sort of back-end or front-end loaded? The last question was, okay, after we have a good sense of all that, might there be a need to raise capital to make all these kind of transformational and capital investments you're planning?
Andrew Steinerman: Is it sort of back-end or front-end loaded? The last question was, okay, after we have a good sense of all that, might there be a need to raise capital to make all these kind of transformational and capital investments you're planning?
Speaker #8: or front end loaded? And then the last question was, okay, after we have a good sense of all that, might there be a need to raise capital to make all these kind of transformational and capital investments you're
Speaker #8: Planning? So the phasing, when you think about the...
Speaker 10: Yeah. The phasing, when you think about the items, interest, taxes, and even the third-party support, tend to be relatively even throughout the year. The CapEx as well should be relatively even, similar to what we've done this last year. The only thing that could be a little lumpy is potentially some of the restructuring charges, depending on how we execute certain actions. Broadly, I don't think that would materially change the answer related to cash coming in relatively even through the year.
Kelly Janzen: Yeah. The phasing, when you think about the items, interest, taxes, and even the third-party support, tend to be relatively even throughout the year. The CapEx as well should be relatively even, similar to what we've done this last year. The only thing that could be a little lumpy is potentially some of the restructuring charges, depending on how we execute certain actions. Broadly, I don't think that would materially change the answer related to cash coming in relatively even through the year.
Speaker #7: items, interest, taxes, and even the third-party support and. To be relatively even throughout the year. And then CapEx as well, should be relatively even similar to what we've done this last year.
Speaker #7: So the only thing that could be a little lumpy is potentially some of the restructuring charges depending on how we execute certain actions. But broadly, I don't think that would materially change the answer related to cash coming in relatively even through the year.
Speaker #7: And
Speaker #7: And then Okay. yeah. Raising capital, we don't need I think we talked about that we only need modest investments. I mean, I think the CapEx is really all about allocating it in the right spot.
Speaker 11: Okay.
Speaker 10: Yeah. Raising capital, we don't need. I think we talked about that we only need modest investments. I mean, I think the CapEx is really all about allocating it in the right spot. It's not that we need, certainly, there would be plenty of opportunities to use more CapEx things. In this kind of short term or in this foundational year, what we really need to do with CapEx is make sure that we're putting it in the right spots. It's looking across our network, making sure that every spot is being allocated in the right way. When we did our first review around that, as we put our budget together for this year, we actually came back to it's not that we need a lot more dollars.
Andrew Steinerman: Okay.
Kelly Janzen: Yeah. Raising capital, we don't need. I think we talked about that we only need modest investments. I mean, I think the CapEx is really all about allocating it in the right spot. It's not that we need, certainly, there would be plenty of opportunities to use more CapEx things. In this kind of short term or in this foundational year, what we really need to do with CapEx is make sure that we're putting it in the right spots. It's looking across our network, making sure that every spot is being allocated in the right way. When we did our first review around that, as we put our budget together for this year, we actually came back to it's not that we need a lot more dollars.
Speaker #7: So it's not that we need certainly there would be plenty of opportunities to use more CapEx. Things. But in this kind of short-term or in this foundational year, where we really need to what we really need to do is CapEx, make sure that we're putting it in the right spots.
Speaker #7: So, it's looking across our network, making sure that every spot is being allocated in the right way. And when we did our first review around that as we put our budget together for this year, we actually came back to, it's not that we need a lot more dollars; it's that we just need them probably allocated in a different way.
Speaker 10: It's that we just need them probably allocated in a different way.
It's that we just need them probably allocated in a different way.
Speaker #7: way.
Speaker #8: Okay. Thank
Speaker 11: Okay, thank you.
Andrew Steinerman: Okay, thank you.
Speaker #3: Our next question comes from Andy ahead. Whitman with Baird. Please go
Speaker 1: Our next question comes from Andy Whitman with Baird. Please go ahead.
Operator: Our next question comes from Andy Whitman with Baird. Please go ahead.
Speaker #9: Yeah, great. Sorry, one second. Sorry about that. So on the topic of asset optimization, it looks like some locations have already been closed when you look at the number of locations here.
Speaker 7: Yeah, great. Sorry, one second. Sorry about that. On the topic of asset optimization, it looks like some locations have already been closed. We looked at the number of locations here and talked about kind of looking at your capacity here. Jim, I was just hoping you could take us through some of the steps that you're taking to assure that the change management process, as you move drivers and routes, depots, other things like that, that you're doing to make sure that your customer doesn't feel any of the impacts from these changes that are clearly probably the right things to do for the business, but might be tough on the network and the customer experience. Just thought you could address that, talk about some of the steps that you're taking to ensure that.
Andy Wittmann: Yeah, great. Sorry, one second. Sorry about that. On the topic of asset optimization, it looks like some locations have already been closed. We looked at the number of locations here and talked about kind of looking at your capacity here. Jim, I was just hoping you could take us through some of the steps that you're taking to assure that the change management process, as you move drivers and routes, depots, other things like that, that you're doing to make sure that your customer doesn't feel any of the impacts from these changes that are clearly probably the right things to do for the business, but might be tough on the network and the customer experience. Just thought you could address that, talk about some of the steps that you're taking to ensure that.
Speaker #9: And talked about kind of looking at your capacity here. Jim, I was just hoping you could take us through some of the steps that you're taking to assure that the change management process, as you move drivers and routes deeper.
Speaker #9: Other things like that that you're doing to make sure that your customer doesn't feel any of the impacts from these changes that are clearly probably the right things to do for the business, but might be tough on the network and the customer experience.
Speaker #9: So just thought you could address that, talk about some of the steps that you're taking to ensure that. And then also I thought that the mention of new tools that you have to ensure quality growth, that's obviously a really important focus.
Speaker 7: I thought the mention of new tools that you have to ensure quality growth, that's obviously a really important focus. I was hoping that you could elaborate on that a little bit.
I thought the mention of new tools that you have to ensure quality growth, that's obviously a really important focus. I was hoping that you could elaborate on that a little bit.
Speaker #9: And so I was hoping that you could elaborate on that a little bit. Two Two things. One, let's start with the network. I'll reinforce one of the points I kind of made in the script and a little bit a few seconds ago.
Speaker 9: Two things. One, let's start with the network. I'll reinforce one of the points I kind of made in the script a few seconds ago, is that our plants, they're like the hubs at UPS. They're the heartbeat of the network. The whole network can only really perform as well as they're performing. Customers feel that. Customers know that. The delivery network is set on that. The key before you consolidate anything in network businesses is to get the plants, get the heartbeats running properly so that when you do go to combine the delivery networks, they have a chance to succeed. That has not been the case yet.
Jim Barber: Two things. One, let's start with the network. I'll reinforce one of the points I kind of made in the script a few seconds ago, is that our plants, they're like the hubs at UPS. They're the heartbeat of the network. The whole network can only really perform as well as they're performing. Customers feel that. Customers know that. The delivery network is set on that. The key before you consolidate anything in network businesses is to get the plants, get the heartbeats running properly so that when you do go to combine the delivery networks, they have a chance to succeed. That has not been the case yet.
Speaker #9: Is that our plants? They're like the hubs at UPS. They're the heartbeat of the network. The whole network can only really perform as well as they're performing.
Speaker #9: And customers feel that. Customers know that. The delivery network is set on that. The key before you consolidate anything in network businesses is to get the plants, get the heartbeats running properly so that when you do go to combine a delivery network, they have a chance to succeed.
Speaker #9: And that has not been the case yet. So we have made they have taken before I got here, and even a few since I've gotten here, we have taken some isolated moves where we're very logical because of the capacity or the business that was running through node A versus node B.
Speaker 9: They have taken, before I got here, and even a few since I've gotten here, we have taken some isolated moves where we're very logical because of the capacity or the business that was running through node A versus node B, where it was, competitive environment, all the other things. We've done some of that. We slowed it down a little bit after I got here so that I could get, and we could all get, the plants to the place where we felt they were operating somewhere in the 93%, 94% effective to their ability to perform and use the capacity they had. The second part of the long-winded question gets to your tools, which is a lot of your decisions on what you're going to keep, what you're going to combine, what you're going to optimize has to do with your commercial processes.
They have taken, before I got here, and even a few since I've gotten here, we have taken some isolated moves where we're very logical because of the capacity or the business that was running through node A versus node B, where it was, competitive environment, all the other things. We've done some of that. We slowed it down a little bit after I got here so that I could get, and we could all get, the plants to the place where we felt they were operating somewhere in the 93%, 94% effective to their ability to perform and use the capacity they had. The second part of the long-winded question gets to your tools, which is a lot of your decisions on what you're going to keep, what you're going to combine, what you're going to optimize has to do with your commercial processes.
Speaker #9: Where it was, competitive environment, all the other things. And we've done some of that. We slowed it down a little bit after I got here.
Speaker #9: So that I could get and we could all get the plants to the place where we felt they were operating somewhere in the 93, 94 percent effective to their ability to perform and use the capacity they had.
Speaker #9: And then the second part of the long-winded question gets to your tools. Which is a lot of your decisions on what you're going to keep, what you're going to combine, what you're going to optimize, has to do with your commercial processes.
Speaker #9: And we've opened up with the fact that, in the past, the rigor of the commercial processes in this business was not where it needed to be.
Speaker 9: We've opened up with the fact that in the past, the rigor of the commercial processes in this business was not where it needed to be. Therefore, we are going to use the time as we optimize our plants to then put in play new commercial processes to guide our decisions on what we keep, what we optimize, or what we may end up putting out to market in a different way. All of it, to be quite frank, is it's really about starting to grow the business the right way where you're creating leverage when you grow, and you're able to invest back into the network. Then the decisions become much easier than if you're going the other way. That's the key to why we started what we've done in 2026.
We've opened up with the fact that in the past, the rigor of the commercial processes in this business was not where it needed to be. Therefore, we are going to use the time as we optimize our plants to then put in play new commercial processes to guide our decisions on what we keep, what we optimize, or what we may end up putting out to market in a different way. All of it, to be quite frank, is it's really about starting to grow the business the right way where you're creating leverage when you grow, and you're able to invest back into the network. Then the decisions become much easier than if you're going the other way. That's the key to why we started what we've done in 2026.
Speaker #9: So therefore, we are going to use the time as we optimize our plants to then put in play new commercial processes to guide our decisions on what we keep, what we optimize, or what we may end up putting out to market in a different way.
Speaker #9: But all of it, to be quite frank, is really about starting to grow the business the right way, where you're creating leverage as you grow.
Speaker #9: And you're able to invest back into the network. And then the decisions become much easier than if you're going the other way. And so that's the key to why we started what we've done in 26.
Speaker #9: We'll start with the engine, start with the heartbeat of them, move, and then more and more and more as we go into next year and the network decisions, both organic following.
Speaker 9: We'll start with the engine, start with the heartbeat of them, move, and then more and more and more as we go into next year and the following, we'll unveil the final network decisions, both organic and/or inorganic, and how we want to play this for our customers and shareholders. Hope that helps. The new tools, by the way, I apologize. Let me give you one more. The new tools, the kind of missing piece for me and my background, and Kelly has some in hers as well, or a lot, is you really need good product profitability tools and customer profitability tools to make sure that the decisions you're making are framed around that.
We'll start with the engine, start with the heartbeat of them, move, and then more and more and more as we go into next year and the following, we'll unveil the final network decisions, both organic and/or inorganic, and how we want to play this for our customers and shareholders. Hope that helps. The new tools, by the way, I apologize. Let me give you one more. The new tools, the kind of missing piece for me and my background, and Kelly has some in hers as well, or a lot, is you really need good product profitability tools and customer profitability tools to make sure that the decisions you're making are framed around that.
Speaker #9: this for our customers and We'll unveil the final shareholders. Hope that helps. The new tools, by the way, I apologize. Let me give you one more.
Speaker #9: The new tools kind of the missing piece for me in my background, and Kelly has some in hers as well, or a lot, is you really need good product profitability tools and customer profitability tools.
Speaker #9: To make sure that the decisions you're making are framed around that. Because the worst thing you can do is make a commitment to a customer to do something and let them down and have to go back and clean things up, which we're having to do a little bit right now.
Speaker 9: The worst thing you can do is make a commitment to a customer to do something and let them down and have to go back and clean things up, which we're having to do a little bit right now. If you do that prudently, it'll work out, in my opinion. Those tools will be in play for us in the second quarter of this year, probably towards the latter half, end of February, first of March. We leverage what we had built over decades at UPS. We brought in some help from the outside. We use internals of the really good inside people that know the systems to build them. We're ready to start to launch those in the second quarter. They'll help guide our decisions going forward.
The worst thing you can do is make a commitment to a customer to do something and let them down and have to go back and clean things up, which we're having to do a little bit right now. If you do that prudently, it'll work out, in my opinion. Those tools will be in play for us in the second quarter of this year, probably towards the latter half, end of February, first of March. We leverage what we had built over decades at UPS. We brought in some help from the outside. We use internals of the really good inside people that know the systems to build them. We're ready to start to launch those in the second quarter. They'll help guide our decisions going forward.
Speaker #9: But you do that prudently, it'll work out in my opinion. So those tools will be in play for us in the second quarter of this year, probably towards the latter half, end of February, 1st of March.
Speaker #9: We leverage what we had built over decades at UPS. We brought in some help from the outside. We use internals of the really good inside people that know the systems to build them.
Speaker #9: And we're ready to start to launch those in the second quarter. And they'll help guide our decisions going forward. Great. That's helpful. I wanted to follow up with one other topic here.
Speaker 7: Great, that's helpful. I wanted to follow up with one other topic here. I heard you mention in your prepared remarks that your same customer revenue was about flat year over year. I think I heard that correctly. Correct me, please, if I'm wrong on that. I was just wondering, Jim, if you could just comment on that specifically. Considering the macro, there's a lot of fears from investors about the labor market softening. How much of this is, do you view flat as a good outcome with a tough labor market backdrop? Do you feel like that's a good outcome considering all the challenges the company is kind of dealing with overall right now? I'm just kind of curious as to your assessment of what goes into kind of flat same customer in terms of what is out there macro-wise and inside the company's control.
Andy Wittmann: Great, that's helpful. I wanted to follow up with one other topic here. I heard you mention in your prepared remarks that your same customer revenue was about flat year over year. I think I heard that correctly. Correct me, please, if I'm wrong on that. I was just wondering, Jim, if you could just comment on that specifically. Considering the macro, there's a lot of fears from investors about the labor market softening. How much of this is, do you view flat as a good outcome with a tough labor market backdrop? Do you feel like that's a good outcome considering all the challenges the company is kind of dealing with overall right now? I'm just kind of curious as to your assessment of what goes into kind of flat same customer in terms of what is out there macro-wise and inside the company's control.
Speaker #9: I heard you mention in your prepared remarks that your same customer revenue was about flat year-over-year. I think I heard that correctly.
Speaker #9: Correct me, please, if I'm wrong on that. And I was just wondering, Jim, if you could just comment on that specifically. Considering the macro, there's a lot of fears from investors.
Speaker #9: It's about the labor market softening. How much of this do you view flat as a good outcome with a tough labor market backdrop?
Speaker #9: Do you feel like that's a good outcome considering all the challenges the company's kind of dealing with overall right now? And but I'm just kind of curious as to your assessment of what goes into kind of flat same customer in terms of what is out there macro-wise and inside the company's control.
Speaker #9: Evaluation of that, I think, would be helpful perspective to have here. That's where you're kind of hitting on one of the things I spend a lot of time on.
Speaker 7: Evaluation of that, I think, would be helpful perspective to have here.
Evaluation of that, I think, would be helpful perspective to have here.
Speaker 9: Yeah. You're kind of hitting on one of the things I spent a lot of time on just because of my background. It goes like this, from a Vestis perspective, we've got about $2.7 to 2.8 billion of revenue in our book of business right now. It goes back to some of the changes that we've made since taking a look at the options. My opinion is, very strong opinion, that the organization was way over-indexed on bringing on new business with new sales resources with relationships we don't know. That's fine, it's just the amount of that. The issue is, what we bring on in that, does it create operating leverage? What happened is, as you over-index that investment, you miss the potential to grow the business of the base in a different way.
Jim Barber: Yeah. You're kind of hitting on one of the things I spent a lot of time on just because of my background. It goes like this, from a Vestis perspective, we've got about $2.7 to 2.8 billion of revenue in our book of business right now. It goes back to some of the changes that we've made since taking a look at the options. My opinion is, very strong opinion, that the organization was way over-indexed on bringing on new business with new sales resources with relationships we don't know. That's fine, it's just the amount of that. The issue is, what we bring on in that, does it create operating leverage? What happened is, as you over-index that investment, you miss the potential to grow the business of the base in a different way.
Speaker #9: Just because of my background, and it goes like this: from a Vestis perspective, we've got about $2.7 to $2.8 billion of revenue in our book of business right now.
Speaker #9: And it goes back to some of the changes that we've made since taking a look at the options. And that is that my opinion is very strong opinion is that the organization was way over-indexed on bringing on new business with new sales resources with relationships we don't know.
Speaker #9: And that's fine. It's just the amount of that. And the issue is what we bring on in that does it create operating leverage? Because what happened is, as you over-index that investment, you miss the potential for the growth of business of the base in a different way.
Speaker #9: And that's what we've started to move into right now with these market development representatives that Kelly referenced as well, is that 80% of my background of any business we had in a network, 80% of your.
Speaker 9: That's what we've started to move into right now with these Market Development Representatives that Kelly referenced as well, is that 80% of my background of any business we had in a network, 80% of your growth came from the customers you already owned. Because in a rational environment, you'll get the rational price increases that the customers understand based upon your service quality. You'll actually have a really good chance to penetrate that book of business. That is not the way the plans were built in the past. That's what we're building towards. In addition, we need to enhance our product sets a bit inside of Vestis, and we need to lean into some of these businesses like Direct Sales, like clean room, like national accounts that all, if managed differently, will tend to grow our book of business internally versus externally.
That's what we've started to move into right now with these Market Development Representatives that Kelly referenced as well, is that 80% of my background of any business we had in a network, 80% of your growth came from the customers you already owned. Because in a rational environment, you'll get the rational price increases that the customers understand based upon your service quality. You'll actually have a really good chance to penetrate that book of business. That is not the way the plans were built in the past. That's what we're building towards. In addition, we need to enhance our product sets a bit inside of Vestis, and we need to lean into some of these businesses like Direct Sales, like clean room, like national accounts that all, if managed differently, will tend to grow our book of business internally versus externally.
Speaker #9: Both came from a customer you already owned. Because in a rational environment, you'll get the rational price increases that the customers understand based upon your service quality.
Speaker #9: And then you'll actually have a really good chance to penetrate that book of business. And that is not the way the plans were built in the past.
Speaker #9: And that's where we're building towards them. And in addition, we need to enhance our product sets a bit inside of Vestis. And we need to lean into some of these businesses like direct sales, like clean room, like national accounts, that all, if managed differently, will tend to grow our book of business internally versus externally.
Speaker #9: So, in short, the story of how we're moving here when it comes to growing the revenue base is certainly that flat to down 2% is not where we're going to end up.
Speaker 9: That's the short story to how we're moving here when it comes to growing the revenue base. Certainly, flat to down 2% is not where we're going to end up. It's where we start. We plan to prove as we go, step by step, that growth can come from the revenue base we already own. You'll see that in our results as we move forward.
That's the short story to how we're moving here when it comes to growing the revenue base. Certainly, flat to down 2% is not where we're going to end up. It's where we start. We plan to prove as we go, step by step, that growth can come from the revenue base we already own. You'll see that in our results as we move forward.
Speaker #9: It's where we start. And we plan to prove, as we go step by step, that growth can come from the revenue, the revenue base we already own.
Speaker #9: And you'll see that in our results as we move forward. Right? Thank you.
Speaker 7: All right, thank you.
Andy Wittmann: All right, thank you.
Speaker #9: you. Our next
Speaker 1: Our next question comes from George Tong with Goldman Sachs. Please go ahead.
Operator: Our next question comes from George Tong with Goldman Sachs. Please go ahead.
Speaker #10: Question comes from George Tong with Goldman Sachs. Please go ahead.
Speaker #11: Hi. Thanks. Good morning. You talked about taking a new approach to your pricing strategy to better reflect value of services provided and the cost of service.
Speaker 10: Hi, thanks. Good morning. You talked about taking a new approach to your pricing strategy to better reflect the value of services provided and the cost of service. Taking that into account, how do you think that'll ultimately affect your effective pricing strategy? In other words, what are you targeting for pricing increases going forward?
George Tong: Hi, thanks. Good morning. You talked about taking a new approach to your pricing strategy to better reflect the value of services provided and the cost of service. Taking that into account, how do you think that'll ultimately affect your effective pricing strategy? In other words, what are you targeting for pricing increases going forward?
Speaker #11: Taking that into account, how do you think that'll ultimately affect your effective pricing strategy? So, in other words, what do you target for pricing increases going forward?
Speaker #11: forward? It's a good
Speaker #9: question. I think that my view of that, at a very macro level, very macro, is that you start with your network and your cost to run your network in an relatively optimized way.
Speaker 9: Good question. I think that my view of that at a very macro level, very macro, is that you start with your network and your cost to run your network in a relatively optimized way. Because that's some of the issue here is if you're running a suboptimal network, that your cost of services or cost per pound is not scaling right, it's not fair oftentimes to try and pass that on to a customer. Your job is to optimize it first, look to see how long that takes, and then you build into your long-term pricing strategy how much your increases you think are prudent. The flip side, though, is if you find through your analysis that you have a pretty big piece of your network that has negative direct margin contribution because of previous decisions that were made, you can't let that go on forever.
Jim Barber: Good question. I think that my view of that at a very macro level, very macro, is that you start with your network and your cost to run your network in a relatively optimized way. Because that's some of the issue here is if you're running a suboptimal network, that your cost of services or cost per pound is not scaling right, it's not fair oftentimes to try and pass that on to a customer. Your job is to optimize it first, look to see how long that takes, and then you build into your long-term pricing strategy how much your increases you think are prudent. The flip side, though, is if you find through your analysis that you have a pretty big piece of your network that has negative direct margin contribution because of previous decisions that were made, you can't let that go on forever.
Speaker #9: Because that's some of the issue here is if you're. Optimal network that your cost of services or cost per pound is not scaling right, it's not fair oftentimes to try and pass that on to a customer.
Speaker #9: Your job is to optimize it first, look to see how long that takes, and then you build into your long-term pricing strategy how much you're increases you think are prudent.
Speaker #9: And that's where that's a. The flip side, though, is if you find through your analysis that you have a pretty big piece of your network that has negative direct margin contribution because of previous decisions that were made, you can't let that go on forever.
Speaker #9: You've got to start to work that up at the same time. So it's both tactical and strategic at the same time that, in my mind, guide where we're going to go with some of the tools we've talked about that'll guide us.
Speaker 9: You've got to start to work that up at the same time. It's both tactical and strategic at the same time that, in my mind, guide where we're going to go with some of the tools we've talked about that'll guide us. I'm confident we'll do that right. That all has to be underpinned by great service because that's what really allows you to get a fair deal with a fair customer that deals with inflation and the kind of normal things in business that we haven't shown we can do in the past at Vestis.
You've got to start to work that up at the same time. It's both tactical and strategic at the same time that, in my mind, guide where we're going to go with some of the tools we've talked about that'll guide us. I'm confident we'll do that right. That all has to be underpinned by great service because that's what really allows you to get a fair deal with a fair customer that deals with inflation and the kind of normal things in business that we haven't shown we can do in the past at Vestis.
Speaker #9: And so I'm confident we'll do that right. And that all has to be underpinned by great service, because that's what really allows you to get a fair deal with a fair customer that deals with inflation and the kind of normal things in business that we haven't shown we can do in the past at Vestis.
Speaker #11: Got Got it. That's helpful. You also mentioned taking targeted reductions to the field sales team. At this point, would you say your reductions are largely complete or are they still in the early innings of happening?
Speaker 10: Got it. That's helpful. You also mentioned taking targeted reductions to the field sales team. At this point, would you say your reductions are largely complete, or are they still in the early innings of happening? Over time, do you expect your field sales team to grow at a certain targeted rate to support your overall sales growth targets?
George Tong: Got it. That's helpful. You also mentioned taking targeted reductions to the field sales team. At this point, would you say your reductions are largely complete, or are they still in the early innings of happening? Over time, do you expect your field sales team to grow at a certain targeted rate to support your overall sales growth targets?
Speaker #11: And over time, do you expect your field sales team to grow at a certain targeted rate to support your overall sales growth?
Speaker #11: targets? Yeah.
Speaker 9: Yeah. Our job is to grow jobs in Vestis, not reduce them. Okay? Let's be clear with that. That's what we're here to do. The targeted reductions we took were simply because, as I mentioned a couple of times, we have a bigger opportunity in the revenue base we already have than what we were loading into the investment on that side of the new business. It's not either/or. It's both, and it will be both. We felt like trimming it right now to allow us to invest in market development reps to prove and to evaluate two swim lanes at once on how we grow to help us keep investing.
Jim Barber: Yeah. Our job is to grow jobs in Vestis, not reduce them. Okay? Let's be clear with that. That's what we're here to do. The targeted reductions we took were simply because, as I mentioned a couple of times, we have a bigger opportunity in the revenue base we already have than what we were loading into the investment on that side of the new business. It's not either/or. It's both, and it will be both. We felt like trimming it right now to allow us to invest in market development reps to prove and to evaluate two swim lanes at once on how we grow to help us keep investing.
Speaker #9: job is to grow jobs in Vestis, not So our reduce them. Okay? Let's be clear with that. That's what we're here to do. The targeted reductions we took were simply because I mentioned a couple of times we have a bigger opportunity in the revenue base we already have than what we were loading into the investment on that side of the new business.
Speaker #9: So it's not either/or. It's both. And it will be both. But we felt like trimming it right now to allow us to invest in market development reps to prove and to evaluate two swim lanes at once on how we grow into.
Speaker #9: Help us keep investing. So the size of it really depends on how well we execute, to be quite frank. And our ability to bring in business in both sides of those swim lanes that we can create operating leverage in our network on behalf of our shareholders.
Speaker 9: The size of it really depends on how well we execute, to be quite frank, and our ability to bring in business in both sides of those swim lanes that we can create operating leverage in our network on behalf of our shareholders. The investments will begin to materialize differently in the future. We'll assess that every year that we go just based on the market, the competition, all the other issues, our products that we're going to roll out. All of that comes into play. I'm really, really comfortable that the decisions we took to get here are correct. Now we just have to execute in the first innings of 2026 to prove how the growth will come in the future.
The size of it really depends on how well we execute, to be quite frank, and our ability to bring in business in both sides of those swim lanes that we can create operating leverage in our network on behalf of our shareholders. The investments will begin to materialize differently in the future. We'll assess that every year that we go just based on the market, the competition, all the other issues, our products that we're going to roll out. All of that comes into play. I'm really, really comfortable that the decisions we took to get here are correct. Now we just have to execute in the first innings of 2026 to prove how the growth will come in the future.
Speaker #9: And then the investments will begin to materialize differently in the future. And we'll assess that every year that we go. Just based on the market, the competition, all the other issues, our products that we're going to roll out, all of that comes into play.
Speaker #9: So I’m really, really comfortable that the decisions we took to get here are correct. And now we just have to execute in the first innings of '26 to prove how the growth will come in the.
Speaker #9: future. Got it.
Speaker 10: Got it. Thanks very much.
George Tong: Got it. Thanks very much.
Speaker #11: Thanks very
Speaker #11: much. Once again, if you do have a
Speaker 1: Once again, if you do have a question, press star one on your telephone keypad at this time. Our next question comes from Shlomo Rosenbaum with Stifel. Please go ahead. Shlomo, your line is open. Please go ahead with your question.
Operator: Once again, if you do have a question, press star one on your telephone keypad at this time. Our next question comes from Shlomo Rosenbaum with Stifel. Please go ahead. Shlomo, your line is open. Please go ahead with your question.
Speaker #10: question, press star one on your telephone keypad at this time. Our next question comes from Shlomo Rosenbaum with Stefel. Please go ahead. And Shlomo, your line is open.
Speaker #10: Please go ahead with your
Speaker #10: question.
Speaker #12: Hi. Can you hear
Speaker 11: Hi. Can you hear me?
Shlomo Rosenbaum: Hi. Can you hear me?
Speaker #12: me? We
Speaker 9: We can.
Jim Barber: We can.
Speaker #12: Yep. I'm not sure what we can.
Speaker 11: Yep.
Kelly Janzen: Yep.
Speaker #9: Okay.
Speaker 9: Okay.
Shlomo Rosenbaum: Okay.
Speaker 11: All right. Not sure what happened. Yeah. Could you maybe comment on the general employment engagement levels across the organization, maybe what it was when you joined, what actions you're taking on this front, and then any comments on employee turnover trends? Thank you.
All right. Not sure what happened. Yeah. Could you maybe comment on the general employment engagement levels across the organization, maybe what it was when you joined, what actions you're taking on this front, and then any comments on employee turnover trends? Thank you.
Speaker #12: happened. Yeah. Could you maybe comment on the general employment engagement levels across the organization? Maybe what it was when you joined, what actions you're taking on this front, and then any comments on the employee turnover trends.
Speaker #12: Thank you.
Speaker #9: Well, look, I'm not going to roll out empirical numbers on it right now. I would tell you this: given what the employees at Vestis have been through the last couple of years, with everything from the performance to coming out as a brand-new public company, to moving forward without having the best couple of years in life, and then going through a transformation, I would understand that their feeling right now is not at its highest level.
Speaker 9: Well, look, I'm not going to roll out empirical numbers on it right now. I would tell you this: that given what the employees at Vestis have been through the last couple of years with everything from the performance to coming out being a brand new public company to moving forward to not having the best couple of years in life and then going through a transformation, I would understand that their feeling right now is not at their highest level. That's number one. Number two is that part of transformation is to recognize that and convince them that this is a new day at Vestis, which we plan to do. We are going to talk to the majority of them this Thursday and Friday, and then back that up with the right commitments going forward to prove that we can start to turn this business.
Jim Barber: Well, look, I'm not going to roll out empirical numbers on it right now. I would tell you this: that given what the employees at Vestis have been through the last couple of years with everything from the performance to coming out being a brand new public company to moving forward to not having the best couple of years in life and then going through a transformation, I would understand that their feeling right now is not at their highest level. That's number one. Number two is that part of transformation is to recognize that and convince them that this is a new day at Vestis, which we plan to do. We are going to talk to the majority of them this Thursday and Friday, and then back that up with the right commitments going forward to prove that we can start to turn this business.
Speaker #9: That's number one. Number two is that part of transformation is to recognize that and convince them that this is a new day at Vestis, which we plan to do.
Speaker #9: We are going to talk to the majority of them this Thursday and Friday. And then back that up with the right commitments going forward to prove that we can start to turn this business.
Speaker #9: So I don't sometimes the state you're in dictates how you have to look at things. And I realize that it's been a tough time for them.
Speaker 9: I don't sometimes the state you're in dictates how you have to look at things. I realize that it's been a tough time for them. That's our job, to help convince them that their decision to stay with Vestis is the right one. I would leave that employee engagement thing going forward. Turnover in the business, typically, when you ask that question, I think the ones that really matter are usually in the, has been historically, the plants and the RSSs. Plants, both of them are coming down, but they're not to the place that we really want them. As far as the rest of the turnover, because of the obviously transformation and so on and so forth, those numbers will get a little move. That's the state of the business.
I don't sometimes the state you're in dictates how you have to look at things. I realize that it's been a tough time for them. That's our job, to help convince them that their decision to stay with Vestis is the right one. I would leave that employee engagement thing going forward. Turnover in the business, typically, when you ask that question, I think the ones that really matter are usually in the, has been historically, the plants and the RSSs. Plants, both of them are coming down, but they're not to the place that we really want them. As far as the rest of the turnover, because of the obviously transformation and so on and so forth, those numbers will get a little move. That's the state of the business.
Speaker #9: them that But that's our job is to help convince their decision to stay with Vestis is the right one. And so I would leave that employee engagement thing going forward.
Speaker #9: Turnover in the business typically when you ask that question, I think the ones that really matter are usually in the has been historically the plants and the RSSs.
Speaker #9: Plants, both of them are coming down, but they're not to the place that we really want them. As far as the rest of the turnover, because of the obviously transformation and so on and so forth, those numbers will move.
Speaker #9: But that's the state of the business. That's kind of how I think as we come into this call and we move forward. And move everything up from
Speaker 9: That's kind of how I think as we come into this call, we move forward, and move everything up from here.
That's kind of how I think as we come into this call, we move forward, and move everything up from here.
Speaker #9: here. And our last question comes from Stephanie
Speaker 1: Our last question comes from Stephanie Moore with Jefferies. Your line is open. Please go ahead.
Operator: Our last question comes from Stephanie Moore with Jefferies. Your line is open. Please go ahead.
Speaker #10: Moore with Jefferies. Your line is open. Please go ahead.
Speaker #13: Hello. This is Harold Anto on for Stephanie Moore. So I guess just on the pricing front, the prior management team also had some initiatives on strategic pricing.
Speaker 3: Hello. This is Harold Antor on for Stephanie Moore. I guess just on the pricing front, the prior management team also had some initiatives on strategic pricing. It seems as though you guys also have an initiative on strategic pricing. I just wanted to know, just wanted to hear you guys talk through how you plan to implement that pricing where you reduce any of some of the negative effects that the company has faced historically. Thank you.
Harold Antor: Hello. This is Harold Antor on for Stephanie Moore. I guess just on the pricing front, the prior management team also had some initiatives on strategic pricing. It seems as though you guys also have an initiative on strategic pricing. I just wanted to know, just wanted to hear you guys talk through how you plan to implement that pricing where you reduce any of some of the negative effects that the company has faced historically. Thank you.
Speaker #13: And it seems as though you guys also have an initiative on strategic pricing. So just wanted to know just wanted to hear you guys talk through how you plan to implement that pricing where you reduce any of some of the negative effects of the.
Speaker #13: Has faced historically. Thank you.
Speaker #9: So I guess there's a couple of key differences. And that comes from, to my mind, just continued concept of operating risk. And that is a company like Vestis has a network that should be built to attract a certain type of product at a certain price point to create value for our stakeholders.
Speaker 9: I guess there's a couple of key differences. That comes from, to my mind, this continued concept of operating level. That is, a company like Vestis has a network that should be built to attract a certain type of product at a certain price point to create value for our stakeholders. The previous leadership did not follow that thesis. There was more of all revenue is good revenue and kind of a, I guess, some continued increases that customers didn't really think were rational to keep the revenue lines up and drove some churn through the business that we're having to manage through right now. The difference is that we are aligning the ability of our cost to serve to the pricing decisions that we know create value.
Jim Barber: I guess there's a couple of key differences. That comes from, to my mind, this continued concept of operating level. That is, a company like Vestis has a network that should be built to attract a certain type of product at a certain price point to create value for our stakeholders. The previous leadership did not follow that thesis. There was more of all revenue is good revenue and kind of a, I guess, some continued increases that customers didn't really think were rational to keep the revenue lines up and drove some churn through the business that we're having to manage through right now. The difference is that we are aligning the ability of our cost to serve to the pricing decisions that we know create value.
Speaker #9: The previous leadership did not follow that thesis. There was more of a belief that all revenue is good revenue, and kind of, I guess, some continued increases that customers didn't really think were rational to keep the revenue lines up.
Speaker #9: And drove some churn through the business that we're having to manage through right now. The difference is that we are aligning the ability of our cost to serve to the pricing decisions that we know create value and that sits on top of service that's improved materially in the last three quarters in this business as we pull the plants together to know that you can price appropriately in a competitive world and win customers where you do create value when they enter your business.
Speaker 9: That sits on top of service that's improved materially in the last three quarters in this business as we pull the plants together to know that you can price appropriately in a competitive world and win customers where you do create value when they enter your business. That's the key difference. You've got properly tools to help manage and measure that. We feel like that's the way to grow the business. As I mentioned also, I think a lot more focus on growth through the $2.7 billion we already have in our book of business makes that a lot easier as well. That's the key differences as I see them as we move into 2026. They'll be more sophisticated as we go down the line and we get really, really robust pricing tools that are probably AI-driven down in 2027 and beyond.
That sits on top of service that's improved materially in the last three quarters in this business as we pull the plants together to know that you can price appropriately in a competitive world and win customers where you do create value when they enter your business. That's the key difference. You've got properly tools to help manage and measure that. We feel like that's the way to grow the business. As I mentioned also, I think a lot more focus on growth through the $2.7 billion we already have in our book of business makes that a lot easier as well. That's the key differences as I see them as we move into 2026. They'll be more sophisticated as we go down the line and we get really, really robust pricing tools that are probably AI-driven down in 2027 and beyond.
Speaker #9: That's a key difference. And you've got profitability tools to help manage and measure that. We feel like that's the way to grow the business.
Speaker #9: As I mentioned, I think a lot more focus on growth through the $2.7 billion we already have in our book of business makes that a lot easier as well.
Speaker #9: So that's a key difference as I see them. As we move into '26, they'll be more sophisticated as we go down the line and we get a really, really robust pricing tools that are probably AI-driven down in '27 and beyond.
Speaker #9: But right now, there's some basics that we can help ourselves if we perform those as I'm describing them right
Speaker 9: Right now, there's some basics that we can help ourselves if we perform those as I'm describing them right now.
Right now, there's some basics that we can help ourselves if we perform those as I'm describing them right now.
Speaker #13: Yeah. now. Thank you. That's very helpful. And then just on the product mix, I know you guys have been making some changes on the product mix.
Speaker 3: Thank you. That's very helpful. Just on the product mix, I know you guys have been making some changes on the product mix. Any thoughts there on, I guess, how much of this product mix has already been changed, maybe some of the investments that you've been making to make this product mix? In terms of the sales with clients or receptiveness from clients on this product mix and, I guess, exiting the quarter out of the first through or the first few weeks of the quarter, any commentary would be helpful.
Harold Antor: Thank you. That's very helpful. Just on the product mix, I know you guys have been making some changes on the product mix. Any thoughts there on, I guess, how much of this product mix has already been changed, maybe some of the investments that you've been making to make this product mix? In terms of the sales with clients or receptiveness from clients on this product mix and, I guess, exiting the quarter out of the first through or the first few weeks of the quarter, any commentary would be helpful.
Speaker #13: So just any thoughts there on, I guess, how much of this product mix has already been changed? Maybe some of the investments that you've been making to make this product mix and then, I guess, in terms of the sales with clients or receptive, this from client on this product mix and, I guess, exiting the quarter of the first through or the first few weeks of the quarter.
Speaker #13: Any commentary would be helpful.
Speaker #9: On the product mix, I think it's what we recognize right away is if you look at kind of Vestis as it's spun out and it came out a few years ago, most of the kind of legacy Vestis network, their marketing form services, was a uniform focused organization.
Speaker 9: On the product mix, I think it's, look, what we recognize right away is if you look at kind of Vestis as it spun out and it came out a few years ago, most of the kind of legacy Vestis network for Aramark Uniform Services was a uniform-focused organization. It was built for it. The assets were built for it. They invested in it. The technology was there. As it spun out in its quest for revenue growth, it moved away from that. Quite frankly, we became a very focused organization in the last few years looking at things like workplace supplies, linens, and other issues that didn't carry the same set of economics and didn't carry the same cost to serve it either. We kind of over-indexed on the mix to a set of products that wasn't balanced. We have changed that in 2026.
Jim Barber: On the product mix, I think it's, look, what we recognize right away is if you look at kind of Vestis as it spun out and it came out a few years ago, most of the kind of legacy Vestis network for Aramark Uniform Services was a uniform-focused organization. It was built for it. The assets were built for it. They invested in it. The technology was there. As it spun out in its quest for revenue growth, it moved away from that. Quite frankly, we became a very focused organization in the last few years looking at things like workplace supplies, linens, and other issues that didn't carry the same set of economics and didn't carry the same cost to serve it either. We kind of over-indexed on the mix to a set of products that wasn't balanced. We have changed that in 2026.
Speaker #9: It was built for it. The assets were built for it. They invested in it. The technology was there. And as it spun out in its quest for revenue growth, it moved away from that.
Speaker #9: And quite frankly, we became a very focused organization the last few years looking at things like workplace supplies, linens, and other issues that didn't carry the same set of economics and didn't carry the same cost to serve it either.
Speaker #9: So we kind of over-indexed on the mix to a set of products that wasn't balanced. We have changed that in 2026. And we are moving back to a focus on very focused piece of product mix and ensuring that our sales force sells into that the right way, is compensated the right way, and we return to a business that's more balanced in product mix.
Speaker 9: We are moving back to a focus on a very focused piece of product mix and ensuring that our sales force sells into that the right way, is compensated the right way, and we return to a business that's more balanced in product mix. That's what I would say is the big difference. I would say, and then Kelly can add whatever she would also like to that, add to that that the first two months of this quarter look on plan as to where we think they should be. Do you want to add anything to that?
We are moving back to a focus on a very focused piece of product mix and ensuring that our sales force sells into that the right way, is compensated the right way, and we return to a business that's more balanced in product mix. That's what I would say is the big difference. I would say, and then Kelly can add whatever she would also like to that, add to that that the first two months of this quarter look on plan as to where we think they should be. Do you want to add anything to that?
Speaker #9: difference. And I would say, and then Kelly can That's what I would say is the big add whatever she would also like to that, add to that with the first two months of this quarter, look on plan as to where we think they should be.
Speaker #9: Do you want to add anything?
Speaker #14: Yeah. I'll just kind of back that up with the discussion over the last year. We lost about 8% of our uniform business. And that trend has been going on for actually the last couple of years.
Speaker 2: Yeah. I'll just kind of back that up with the discussion. Over the last year, we lost about 8% of our uniform business. That trend has been going on for actually the last couple of years. With the increase in workplace supplies, specifically, as Jim mentioned, linens, bar towels, and aprons, which is effectively reflective of the increase in business that we've added related to hospitality and food and beverage, I think our goals going forward are really to just be much more mindful of where end markets are retargeting, where we talked about the tools and the profitability tools. It's all around what are the right market prices to go out in the first place with versus trying to have to come back around to existing customers and renegotiate, better to get the price right upfront.
Kelly Janzen: Yeah. I'll just kind of back that up with the discussion. Over the last year, we lost about 8% of our uniform business. That trend has been going on for actually the last couple of years. With the increase in workplace supplies, specifically, as Jim mentioned, linens, bar towels, and aprons, which is effectively reflective of the increase in business that we've added related to hospitality and food and beverage, I think our goals going forward are really to just be much more mindful of where end markets are retargeting, where we talked about the tools and the profitability tools. It's all around what are the right market prices to go out in the first place with versus trying to have to come back around to existing customers and renegotiate, better to get the price right upfront.
Speaker #14: And so with the increase in workplace supplies, specifically, as Jim mentioned, linens and bar towels and aprons, which is effectively reflective of the increase in business that we've added related to hospitality and food and beverage.
Speaker #14: So I think our goals going forward are really to just be much more mindful of where and how markets are retargeting, where we talked about the tools and the profitability tools.
Speaker #14: It's all around what are the right market prices to go out in the first place with versus trying to have to come back around to existing customers and renegotiate better to get the price right up front.
Speaker #14: And then also give the team's target mix to be able to reward appropriately, as Jim mentioned, so that we can ensure that we're moving the needle in the right direction and that we reduce this 8% to something much lower.
Speaker 2: We also give the teams target mixes to be able to and reward appropriately, as Jim mentioned, so that we can ensure that we're moving the needle in the right direction and that we reduce this 8% to something much lower for the next year.
We also give the teams target mixes to be able to and reward appropriately, as Jim mentioned, so that we can ensure that we're moving the needle in the right direction and that we reduce this 8% to something much lower for the next year.
Speaker #14: For the next
Speaker #14: year.
Speaker #13: Thank you very much.
Speaker 3: Thank you very much. That's very helpful. That's all for me.
Harold Antor: Thank you very much. That's very helpful. That's all for me.
Speaker #13: That's very helpful. That's all from me.
Speaker #1: This concludes the Q&A portion of today's call. I will now turn the floor back to Stefan Neely for a closing remarks.
Speaker 1: This concludes the Q&A portion of today's call. I will now turn the floor back to Stephanie for closing remarks.
Operator: This concludes the Q&A portion of today's call. I will now turn the floor back to Stephanie for closing remarks.
Speaker #15: Thank you, Angela. And thank you, everyone, for joining us today. We appreciate your time and your interest in Vestis. If you have any questions, please don't hesitate to contact us at ir@vestis.com.
Speaker 4: Thank you, Angela. Thank you, everyone, for joining us today. We appreciate your time and your interest in Vestis. If you have any questions, please don't hesitate to contact us at ir@vestis.com. We look forward to speaking with you again next quarter. Have a great day.
Stefan Neely: Thank you, Angela. Thank you, everyone, for joining us today. We appreciate your time and your interest in Vestis. If you have any questions, please don't hesitate to contact us at ir@vestis.com. We look forward to speaking with you again next quarter. Have a great day.
Speaker #15: We look forward to speaking with you again next quarter. Have a great day.
Speaker #1: Thank you. This concludes today's Vestis Corporation fiscal fourth quarter and full year 2025 earnings conference call. Please disconnect your line at this time, and have a wonderful day.
Speaker 1: Thank you. This concludes today's Vestis Corporation Fiscal Fourth Quarter and Full Year 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.
Operator: Thank you. This concludes today's Vestis Corporation Fiscal Fourth Quarter and Full Year 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.