Q3 2026 Vestis Corp Earnings Call

August 11, 2026

Speaker #2: Welcome to the Vestis Corporation fiscal third quarter 2026 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation.

Operator: Welcome to the Vestis Corporation Fiscal Q3 2026 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. To enable others to hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Stefan Neely with Thalam Advisors.

Speaker #2: If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two.

Speaker #2: 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.

Speaker #2: I would now like to turn the call over to Stephan Neely with Vellum Advisors. Thank you, operator, and thank you all for joining us on the call this morning.

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 Adam Bowen, Interim Chief Financial Officer. Also with us on the call today is Bill Seward, Chief Operating Officer. Jim and Adam will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Jim, I would 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 the 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.

Speaker #2: Leading the call with me today are Jim Barber, President and Chief Executive Officer, and Adam Bowen, Interim Chief Financial Officer. Also with us on the call today is Bill Seward, Chief Operating Officer.

Speaker #2: Jim and Adam will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Jim, I would 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 due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission.

Speaker #2: Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the 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 dot vestis dot com.

Stefan Neely: Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the 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 www.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, Stephan, and good morning, everyone. We appreciate you joining us. Our third quarter results highlight consistent execution of our transformation plan. For the second quarter in a row, we grew adjusted EBITDA year over year and improved operating leverage, and we did it by running the same discipline playbook across the business.

Jim Barber: Thank you, Stefan, and good morning, everyone. We appreciate you joining us. Our Q3 results highlight consistent execution of our transformation plan. For the second quarter in a row, we grew adjusted EBITDA year over year and improved operating leverage, and we did it by running the same disciplined playbook across the business. Q3 adjusted EBITDA was approximately $81 million, an increase of roughly $15 million or 23% year over year on a covenant adjusted basis. Adjusted EBITDA margin expanded to 12.2% from 9.8% a year ago.

Speaker #3: Third quarter adjusted EBITDA was approximately $81 million, an increase of roughly $15 million, or 23%, year over year on a covenant-adjusted basis.

Speaker #3: Adjusted EBITDA margin expanded to 12.2% from 9.8% a year ago. We again reduced our operating expenses, holding cost for plan flat year over year as we continued to exit low-quality volume and for the first time as a public company we grew revenue per pound year over year, up 4 cents or approximately 3%, driving a 4 cent improvement in operating leverage per pound year over year.

Jim Barber: We again reduced our operating expenses, holding cost per pound flat year over year as we continued to exit low-quality volume, and for the first time as a public company, we grew revenue per pound year over year, up $0.04 or approximately 3%, driving a $0.04 improvement in operating leverage per pound year over year. With that context, let me walk you through the progress we've made against each of our three strategic priorities. Beginning with operational excellence, our key metrics are improving consistently, and those gains are holding. Compared with the fiscal Q3 of 2025, plant productivity increased by 9%, on-time delivery improved by 80 basis points, and customer complaints declined by 74 basis points. These results come from executing the same discipline practices well, consistently, and with the customer at the center of everything we do.

Speaker #3: With that context, let me walk you through the progress we've made against each of our three strategic priorities. Beginning with operational excellence, our key metrics are improving consistently and those gains are holding.

Speaker #3: Compared with the fiscal third quarter of 2025, plant productivity increased by 9%, on-time delivery improved by 80 basis points, and customer complaints declined by 74 basis points.

Speaker #3: These results come from executing the same discipline practices well consistently and with the customer at the center of everything we do. When we run our operations consistently, service improves and cost comes out of the business.

Jim Barber: When we run our operations consistently, service improves and cost comes out of the business. Those are the leading indicators of durable financial performance. We also made meaningful progress in exiting low-quality revenue volume, reducing our linen concentration by 6% on a year-over-year basis. We are encouraged by the progress, and we know there is meaningful room to keep raising the quality of service and revenue and our revenue per pound. Importantly, these productivity gains are beginning to flow through to lower plant operating costs and a lower cost of services. Together, our operational excellence and effective cost management reduced our cost of services on both a year-over-year and sequential basis. We also enhanced operational excellence by streamlining key corporate support functions through an outsourced service agreement with a leading third-party provider.

Speaker #3: Those are the leading indicators of durable financial performance. We also made meaningful progress in exiting low-quality revenue volume, reducing our linen concentration by 6% on a year-over-year basis.

Speaker #3: We are encouraged by the progress, and we know there is meaningful room to keep raising the quality of service and revenue, as well as our revenue per pound.

Speaker #3: Importantly, these productivity gains are beginning to flow through to lower plant operating costs and a lower cost of services. Together, our operational excellence and effective cost management reduced our cost of services on both a year-over-year and sequential basis.

Speaker #3: We also enhanced operational excellence by streamlining key corporate support functions through an outsourced service agreement with a leading third-party provider. This should improve how we support our markets and customers, enhancing the overall quality of our service. It reflects a new way of operating at Vestis, one designed to lower our cost structure while giving us greater capacity to innovate in how we run the business.

Jim Barber: This should make us more flexible as an organization and enhance how we support our markets and customers, improving the overall quality of our service. It reflects a new way of operating at Vestis, one designed to lower our cost structure while giving us greater capacity to innovate in how we run the business. We should begin to see the benefits of this arrangement in our fiscal Q4 results, and more significantly as we enter FY27 and beyond. As we close out FY26, we expect to sustain this operational discipline and build on the initiatives we launched in Q3. Beyond plant and network execution, we are creating a more efficient and nimble operational structure, one built to better support and anticipate our customers' needs, sharpen our strategic execution, and drive future profitable growth. Turning to commercial excellence.

Speaker #3: We should begin to see the benefits of this arrangement in our fiscal fourth quarter results and more significantly as we enter fiscal 2027 and beyond.

Speaker #3: As we close out fiscal 2026, we expect to sustain this operational discipline and build on the initiatives we launched in the third quarter. Beyond plant and network execution, we are creating a more efficient and nimble operational structure one built to better support and anticipate our customers' needs, sharpen our strategic execution, and drive future profitable growth.

Speaker #3: Turning to commercial excellence, pricing execution was the biggest driver of our year-over-year revenue performance this quarter, and it sits at the center of the commercial disciplines we have built.

Jim Barber: Pricing execution was the biggest driver of our year-over-year revenue performance this quarter, and it sits at the center of the commercial disciplines we have built. Our progress starts with pricing. We continue to sharpen strategic pricing at the customer level, supported by data-driven tools designed to make our pricing and product mix decisions more profitable while we remain customer-centric. We also further strengthened customer segmentation, pricing frameworks, and approval discipline across national accounts, new field sales, and direct sales. Together, these actions should ensure that the revenue we take on supports operating leverage and adjusted EBITDA. That work is now evident in our results. After several quarters of narrowing declines, revenue per pound reached flat in Q2 and turned positive in Q3, rising 4 cents or approximately 3% year over year.

Speaker #3: Our progress starts with pricing. We continue to sharpen strategic pricing at the customer level, supported by data-driven tools designed to make our pricing and product mix decisions more profitable, while we remain customer-centric.

Speaker #3: We also further strengthened customer segmentation, pricing frameworks, and approval discipline across national accounts new field sales and direct sales. Together, these actions should ensure that the revenue we take on supports operating leverage and adjusted EBITDA.

Speaker #3: That work is now evident in our results. After several quarters of narrowing declines, revenue per pound reached flat in the second quarter and turned positive in the third, rising 4 cents or approximately 3% year over year.

Speaker #3: This is the first year-over-year increase in revenue per pound since Vestis became a public company, and it was driven primarily by disciplined pricing execution, reinforced by improved customer segmentation and product mix.

Jim Barber: This is the first year-over-year increase in revenue per pound since Vestis became a public company, and it was driven primarily by disciplined pricing execution, reinforced by improved customer segmentation and product mix. We continue to put value ahead of volume. Pounds processed declined by 4.5% year over year as we intentionally exited unprofitable business, improving the quality of our revenue over the same period. At the same time, we are working to restore the commercial rigor that had eroded after the spin. That means enforcing pricing discipline, setting product mix targets on new sales, onboarding volume that is accretive to our network, and exiting business that does not meet our return thresholds. The principle is straightforward: create durable value through disciplined decisions about what we sell, how we price it, and how we serve our customers.

Speaker #3: We continue to put value ahead of volume. Pounds processed declined by 4.5% year over year as we intentionally exited unprofitable business, improving the quality of our revenue over the same period.

Speaker #3: At the same time, we are working to restore the commercial rigor that had eroded after the spin. That means enforcing pricing discipline, setting product mix targets on new sales, onboarding volume that is accretive to our network, and exiting business that does not meet our return thresholds.

Speaker #3: The principle is straightforward. Create what we sell, how we price it, and how we serve our customers. As these practices become standard across each market center, we expect operating leverage to keep improving through higher value mix, more consistent pricing execution, and deeper penetration of our existing customer base supported by the ongoing expansion of our market development representative program while we continue to manage our costs on behalf of our customers and our shareholders.

Jim Barber: As these practices become standard across each market center, we expect operating leverage to keep improving through higher value mix, more consistent pricing execution, and deeper penetration of our existing customer base, supported by the ongoing expansion of our market development representative program while we continue to manage our costs on behalf of our customers and our shareholders. Our top line is still developing, but it is increasingly driven by pricing execution and better customer segmentation rather than solely focused on volume. Turning to asset and network optimization. The progress we've made so far this year comes from applying one consistent set of operating and commercial disciplines across the entire business to drive operating leverage. The same playbook deployed in every market.

Speaker #3: Our top line is still developing, but it is increasingly driven by pricing execution and better customer segmentation rather than solely focused on volume. Turning to asset and network optimization, the progress we've made so far this year comes from applying one consistent set of operating and commercial disciplines across the entire business to drive operating leverage.

Speaker #3: The same playbook, deployed in every market—running that playbook everywhere—has proven the model works, and we have seen this proof in our financial results so far this year, specifically in operational and commercial excellence.

Jim Barber: Running that playbook everywhere has proven the model works, and we have seen this proof of our financial results so far this year, specifically in operational and commercial excellence. What we have not yet achieved is uniformity across our network. The gap between our strongest and our lowest-performing markets is meaningful. Many of our markets already operate at industry-leading margins, profitability, and service levels, while our lowest performers continue to weigh on the overall results. Closing that gap is our single largest opportunity. The next phase of the transformation moves from applying the playbook broadly to executing it consistently but with consideration for the unique markets in which we serve, holding each market center to a more customized playbook, resulting in a higher standard designed to harmonize and optimize our assets and network.

Speaker #3: What we have not yet achieved is uniformity across our network. The gap between our strongest and our lowest performing markets is meaningful. Many of our markets already operate at industry-leading margins profitability and service levels, while our lowest performers continue way on the overall results.

Speaker #3: Closing that gap is our single largest opportunity. The next phase of the transformation moves from applying the playbook broadly to executing it consistently, but with consideration for the unique markets in which we serve—holding each market center to a more customized playbook, resulting in a higher standard designed to harmonize and optimize our assets and network.

Speaker #3: That is the work that will define our path as we exit fiscal 2026 into fiscal 2027, and it’s work we’ve already begun. During the third quarter, we continued to assess and segment how our network is positioned across key markets, using our available capacity to identify growth and optimization opportunities to further strengthen operating leverage while improving route efficiency and lowering delivery costs.

Jim Barber: That is the work that will define our path as we exit fiscal 2026 into fiscal 2027, and it's work we've already begun. During the Q3, we continued to assess and segment how our network is positioned across key markets, using our available capacity to identify growth and optimization opportunities to further strengthen operating leverage while improving route efficiency and lowering delivery costs. As we optimize the network and position Vestis for growth, we will continue to evaluate asset sales where valuations present an attractive opportunity to unlock value, strengthen the balance sheet, and better align our footprint with higher growth markets. In parallel, we are evaluating our market positioning and network configuration so that we are ready to act on shifts in competitive dynamics.

Speaker #3: As we optimize the network and position Vestis for growth, we will continue to evaluate asset sales where valuations present an attractive opportunity to unlock value, strengthen the balance sheet, and better align our footprint with higher-growth markets.

Speaker #3: In parallel, we are evaluating our market positioning and network configuration so that we are ready to act on shifts in competitive dynamics. We are working to optimize routes while remaining particularly focused on the opportunities created by consolidation our industry and on remaining a reliable high-quality service partner that new and existing customers choose.

Jim Barber: We are working to optimize routes while remaining particularly focused on the opportunities created by consolidation in our industry and on remaining a reliable, high-quality service partner that new and existing customers choose. As we work through the remainder of the year, I'm pleased with how we are executing our transformation. We're on track to deliver on all of our commitments for the year, and today, we are again increasing our full year guidance for free cash flow, which Adam will discuss in more detail. A foundational part of our transformation is our culture, and in particular, the accountability we are building at every level of the organization. We are aligning our teams around clear performance standards and our compensation around performance-based incentives that reward results, using them to drive stronger strategic execution and focus across the entire organization.

Speaker #3: As we work through the remainder of the year, I'm pleased with how we are executing our transformation. We're on track to deliver on all of our commitments for the year, and today we are again increasing our full-year guidance for free cash flow, which Adam will discuss in more detail.

Speaker #3: A foundational part of our transformation is our culture, and in particular, the accountability we are building at every level of the organization. We are aligning our teams around clear performance standards, and our compensation around performance-based incentives that reward results.

Speaker #3: Using them to drive stronger strategic execution and focus across the entire organization. On that point, our year-to-date fiscal 2026 results, along with our guidance for the fourth quarter, include accrued expenses for our Management Incentive Bonus, or MIB, program.

Jim Barber: On that point, our year-to-date FY2026 results, along with our guidance for Q4, include accrued expenses for our management incentive bonus, or MIB program. Creating a rewards-based culture was important to me as we set out our FY2026 business plan and has remained paramount as we've stepped through each quarter this year. While we have historically had an MIB program, FY2026 is the first fiscal year in which a management incentive bonus has been accrued for at this level since Vestis became a public company. Payments are subject to the final FY26 results and certification by our compensation committee later this year. But these accrued expenses, while in the normal course for any business, have not been normal course at Vestis until now.

Speaker #3: Creating a rewards-based culture was important to me as we set out our fiscal 2026 business plan and has remained paramount as we've stepped through each quarter this year.

Speaker #3: While we have historically had an MIB program, fiscal 2026 is the first fiscal year in which a management incentive bonus has been accrued for at this level since Vestis became a public company.

Speaker #3: Payments are subject to the final fiscal '26 results and certification by our Compensation Committee later this year. While these accrued expenses are in the normal course for any business, they have not been normal course at Vestis until now.

Speaker #3: Bonuses must be earned every year, but establishing them in our run rate is an important step toward building a rewards-based culture. Together with surveying our teams, investing in their development, and building our Vestis, this is how we ensure that every teammate is proud to be here, equipped to perform, and rewarded for delivering.

Jim Barber: Bonuses must be earned every year, but establishing them in our run rate is an important step towards building a rewards-based culture. Together with surveying our teams, investing in their development, and building our Vestis, this is how we ensure that every teammate is proud to be here, equipped to perform, and rewarded for delivering. In closing, I am proud of what our team delivered this quarter. With a stronger culture as a foundation, we are running Vestis as a pennies-driven business, one where small, deliberate improvements across mix, pricing, operations, and cost structure, applied consistently in every market center, can compound into sustainable operating leverage and long-term shareholder value, one cent at a time. With that, I will turn it over to Adam to walk through the financials.

Speaker #3: In closing, I am proud of what our team delivered this quarter. With a stronger culture as a foundation, we are running Vestis as a pennies-driven business—one where small, deliberate improvements across mix, pricing, operations, and cost structure, applied consistently in every market center, can compound into sustainable operating leverage and long-term shareholder value, one cent at a time.

Speaker #3: With that, I will turn it over to Adam to walk through the financials.

Speaker #1: Thank you, Jim. And good morning, everyone. Revenue for the third quarter was approximately $662 million, down about $12 million, or 1.8% year over year.

Adam Bowen: Thank you, Jim, and good morning, everyone. Revenue for Q3 was approximately $662 million, down about $12 million or 1.8% year over year. This includes a neutral foreign currency impact from our Canadian business. The decline was primarily driven by a 4.5% reduction in volume, measured as pounds processed, partially offset by improvements in strategic pricing, net of a $10 million decrease in one-time lost and ruined revenue. When excluding the impact of the lower one-time lost and ruined revenue from last year, total revenue was down approximately $2 million or 0.3%, a sequential improvement from our fiscal Q2 2026. Revenue per pound in Q3 was $1.42, an improvement of $0.04 year over year and $0.05 sequentially. The year over year increase in revenue per pound was driven by favorable changes in product mix, improved strategic pricing, and the intentional exit of lower margin volume.

Speaker #1: This includes a neutral foreign currency impact from our Canadian business. The decline was primarily driven by a 4.5% reduction in volume, measured as pounds processed, partially offset by improvements in strategic pricing, net of a $10 million decrease in one-time loss and ruin revenue.

Speaker #1: When excluding the impact of the lower one-time loss and run-rate revenue from last year, total revenue was down approximately $2 million, or 0.3%, a sequential improvement from our fiscal second quarter 2026.

Speaker #1: Revenue per pound in the third quarter was $1.42, an improvement of 4 cents year over year and 5 cents sequentially. The year-over-year increase in revenue per pound was driven by favorable changes in product mix, improved strategic pricing, and the intentional exit of lower-margin volume.

Speaker #1: Volume declined by approximately 22 million pounds year over year but the volume we lost was lower quality carrying an average revenue per pound of approximately 55 cents.

Adam Bowen: Volume declined by approximately 22 million pounds year over year. But the volume we lost was lower quality, carrying an average revenue per pound of approximately $0.55. As a result, the decrease in volumes was accretive to our overall revenue quality. As we discussed throughout this fiscal year, prior to launching our transformation, our product mix shifted toward lower margin workplace supplies, particularly linen. In Q3, measured on a pounds processed basis, linen concentration decreased by 6% year over year, improving from a 7% increase in Q1 and a 4% increase in Q2, reflecting the early impact of our initiatives to drive a higher value product mix. Cost of services decreased by approximately $15 million year over year, driven by lower merchandise, plant, and delivery costs.

Speaker #1: As a result, the decrease in volumes was accretive to our overall revenue quality. As we discussed throughout this fiscal year, prior to launching our transformation, our product mix shifted toward lower-margin workplace supplies, particularly linen. In the third quarter, measured on a pounds-processed basis, linen concentration decreased by 6% year over year.

Speaker #1: This reflects an improvement from a 7% increase in the first quarter and a 4% increase in the second quarter, demonstrating the early impact of our initiatives to drive a higher-value product mix.

Speaker #1: Cost of services decreased by approximately $15 million year over year, driven by lower merchandise, plant, and delivery costs. This improvement reflects the increase in plant productivity that Jim mentioned earlier, supported by continued progress and execution of our operational excellence initiatives.

Adam Bowen: This improvement reflects the increase in plant productivity that Jim mentioned earlier, supported by continued progress and execution of our operational excellence initiatives. SG&A declined approximately $7 million year over year, or approximately 6%, reflecting our continued focus on streamlining the organization and managing our total operating expenses. Net income increased by $11.7 million to $11 million, compared to a net loss of $0.7 million in the prior year. Adjusted EBITDA for the quarter was $80.9 million, with an adjusted EBITDA margin of 12.2% versus $64 million or 9.5% in the prior year.

Speaker #1: SG&A declined approximately $7 million year over year, or approximately 6%, reflecting our continued focus on streamlining the organization and managing our total operating expenses.

Speaker #1: Net income increased by $11.7 million to $11 million, compared to a net loss of $0.7 million in the prior year. Adjusted EBITDA for the quarter was $80.9 million, with an adjusted EBITDA margin of 12.2%, versus $64 million, or 9.5%, in the prior year.

Speaker #1: Excluding a $1.8 million adjustment for pre-spin related inventory last year, adjusted EBITDA was $65.8 million, and the fiscal third quarter of 2025 had an adjusted EBITDA margin of 9.8% on a comparable or covenant adjusted basis.

Adam Bowen: Excluding a $1.8 million adjustment for pre-spin related inventory last year, adjusted EBITDA was $65.8 million in the fiscal Q3 2025, with an adjusted EBITDA margin of 9.8% on a comparable or covenant adjusted basis, reflecting an increase of approximately $15 million or 23% year over year, driven by our improvements in revenue per pound and operating leverage. When we look at our per pound metrics, the reduction in cost of service and SG&A drove a $27 million, or 4.5% reduction in our adjusted operating expenses, which are those expenses that directly impact adjusted EBITDA. Taken in conjunction with our volume decline from the exit of lower quality revenue, cost per pound remained flat at $1.24 year over year.

Speaker #1: Reflecting an increase of approximately $15 million, or 23% year over year, driven by our improvements in revenue per pound and operating leverage. When we look at our per pound metrics, the reduction in cost of service and SG&A drove a $27 million, or 4.5%, reduction in our adjusted operating expenses.

Speaker #1: Which are those expenses that directly impact adjusted EBITDA. Taken in conjunction with our volume decline from the exit of lower quality revenue, cost per pound remained flat at $1.24 year over year.

Speaker #1: However, as previously discussed, our revenue per pound grew for the first time in Vestis' public company history by $0.04, or 3%, driving an increase in operating leverage per pound by the same amount—$0.04 per pound.

Adam Bowen: However, as previously discussed, our revenue per pound grew for the first time in Vestis public company history by $0.04 or 3%, driving an increase in operating leverage per pound by the same amount, $0.04 per pound. Notably, this marks a return to operating leverage per pound levels not seen at Vestis since the Q3 fiscal 2024, directly contributing to our growth in net income and adjusted EBITDA. On a year-to-date basis, our transformation initiatives are contributing roughly $30 million of in-year cost savings towards our estimate of approximately $50 million. As a reminder, in-year transformation benefits are calculated by taking the accumulated year-to-date differences between our quarterly adjusted EBITDA for each quarter in fiscal 2026 and our fiscal Q4 2025 adjusted EBITDA of approximately $65 million when measured on a 13-week basis.

Speaker #1: Notably, this marks the return to operating leverage per pound levels not seen at Vestis since the third quarter of fiscal 2024. Directly contributing to our growth and net income and adjusted EBITDA.

Speaker #1: On a year-to-date basis, our transformation initiatives are contributing roughly $30 million of in-year cost savings toward our estimate of approximately $50 million. As a reminder, in-year transformation benefits are calculated by taking the accumulated year-to-date differences between our quarterly adjusted EBITDA for each quarter in fiscal 2026 and our fiscal fourth quarter 2025 adjusted EBITDA of approximately $65 million.

Speaker #1: When measured on a 13-week basis, we realized approximately $5 million in transformation benefits in the fiscal first quarter of 2026, approximately $10 million in the fiscal second quarter, and approximately $15 million in the fiscal third quarter just completed.

Adam Bowen: We realized approximately $5 million in transformation benefits in the fiscal Q1 2026, approximately $10 million in the fiscal Q2, and approximately $15 million in the fiscal Q3 just completed, with the remaining $20 million expected in our fiscal Q4, in line with our implied range for adjusted EBITDA. As Jim discussed, during the Q3, Vestis entered an agreement with a leading third-party provider to streamline our corporate support functions, primarily concentrated in back-office activities within finance, as well as certain information technology and customer service support functions. This arrangement should create a more efficient and agile corporate support organization that will better serve our markets and customers and is expected to generate approximately $10 million in annualized cost savings beginning in fiscal 2027, with some benefits realized as early as the Q4 fiscal 2026.

Speaker #1: With the remaining $20 million expected in our fiscal fourth quarter, in line with our implied range for adjusted EBITDA. As Jim discussed, during the third quarter, Vestis entered an agreement with a leading third-party provider to streamline our corporate support functions, primarily concentrated in back-office activities within finance.

Speaker #1: As well as certain information technology and customer service support functions. This arrangement should create a more efficient and agile corporate support organization that will better serve our markets and customers, and is expected to generate approximately $10 million in annualized cost savings beginning in fiscal 2027.

Speaker #1: With some benefits realized as early as the fourth fiscal quarter of 2026. The cost benefits from this arrangement are already embedded in our guidance for the year and in our stated expectations for both the in-year and annualized benefits from our strategic business transformation.

Adam Bowen: The cost benefits from this arrangement are already embedded in our guidance for the year and in our stated expectations for both the in-year and annualized benefits from our strategic business transformation. Turning to cash flow and the balance sheets, we generated $65 million in operating cash flow and $47 million of free cash flow in the quarter. On a year-over-year basis, operating cash flow improved $42 million, driven in large part by an $11 million improvement in net income, combined with a $4.3 million improvement in merchandise and service, and further supported by strong balance sheet management year over year, including a neutral impact from operating working capital during the quarter. Our strong cash flow results reflect the disciplined progress of our teams in working capital and balance sheet management, including several operational excellence initiatives focused on stronger collections, centralized purchasing, and tighter inventory control.

Speaker #1: Turning to cash flow in the balance sheet. We generated $65 million in operating cash flow and $47 million of free cash flow in the quarter.

Speaker #1: On a year-over-year basis, operating cash flow improved $42 million, driven in large part by an $11 million improvement in net income, combined with a $4.3 million improvement in merchandise and service.

Speaker #1: And further supported by strong balance sheet management year over year including a neutral impact from operating working capital during the quarter. Our strong cash flow results reflect the disciplined progress of our teams in working capital and balance sheet management including several operational excellence initiatives focused on stronger collections, centralized purchasing, and tighter inventory control.

Speaker #1: Third quarter adjusted free cash flow was 56 million dollars. As a reminder, adjusted free cash flow excludes transformation related cash expenditures such as third-party costs and severance payments made during the transformation period.

Adam Bowen: Third quarter adjusted free cash flow was $56 million. As a reminder, adjusted free cash flow excludes transformation-related cash expenditures, such as third-party costs and severance payments made during the transformation period. During the quarter, those expenditures totaled approximately $8.5 million, consisting of $7.2 million of third-party costs and $1.4 million of severance. On the balance sheet at the end of the quarter, net debt was $1.2 billion, and our principal bank debt outstanding was $1.1 billion. During the Q3 of fiscal 2026, we used cash generated from operations to repay $30 million of term loan debt. During the quarter, we invested $23 million in new capital assets, which included $18 million in cash investments and $5 million in new finance leases for our delivery fleet.

Speaker #1: During the quarter, those expenditures totaled approximately $8.5 million, consisting of $7.2 million of third-party costs and $1.4 million of severance. On the balance sheet at the end of the quarter, net debt was $1.2 billion, and our principal bank debt outstanding was $1.1 billion.

Speaker #1: During the third quarter of fiscal 2026, we used cash generated from operations to repay $30 million of term loan debt. During the quarter, we invested $23 million in new capital assets, which included $18 million in cash investments.

Speaker #1: And $5 million in new finance leases for our delivery fleet. Year-to-date, we've invested $62 million in new capital assets, including $40 million in cash investments and $22 million in new finance leases for our delivery fleet.

Adam Bowen: Year to date, we've invested $62 million in new capital assets, including $40 million in cash investments and $22 million in new finance leases for our delivery fleet. Throughout fiscal 2026, we've invested in capital assets that should provide clear financial returns to Vestis and our shareholders in line with our growth mindset. Year to date, we've installed 30 new industrial washers and dryers across our plant network and are on pace to end the year with approximately 60 of these new assets installed, a significant increase from prior years. Additionally, we've invested in new information technology assets and programs to bring Vestis into the modern age. Taken together, these actions show that we can fund our transformation and position the business for growth without a step up in overall capital intensity. Our current capital investment strategy is holistic, yet targeted on the growth needs of our business.

Speaker #1: Throughout fiscal 2026, we've invested in capital assets that should provide clear financial returns to Vestis and our shareholders, in line with our growth mindset.

Speaker #1: Year-to-date, we've installed 30 new industrial washers and dryers across our plant network, and we're on pace to end the year with approximately 60 of these new assets installed.

Speaker #1: A significant increase from prior years. Additionally, we've invested in new information technology assets and programs to bring Vestis into the modern age. Taken together, these actions show that we can fund our transformation and position the business for growth without a step up in overall capital intensity.

Speaker #1: Our current capital investment strategy is holistic, yet targeted on the growth needs of our business. We ended the quarter with a strong liquidity position, with no debt maturities until 2028 and approximately $352 million of available liquidity.

Adam Bowen: We ended the quarter with a strong liquidity position with no debt maturities until 2028 and approximately $352 million of available liquidity. This includes $294 million of undrawn revolver capacity and approximately $58 million of cash on hand. Our capital allocation strategy continues to prioritize maintaining a strong balance sheet while allocating capital toward high return opportunities with a clear focus on de-levering. Through disciplined balance sheet management and improved working capital execution, we are creating greater financial flexibility and strengthening the foundation to support the business over the long term. As discussed last quarter, we remain active in monetizing non-operating assets while evaluating our network for further optimization. We continue to actively market 11 properties with an estimated value of approximately $15 million, all in various stages of the disposition process, and more are under evaluation.

Speaker #1: This includes $294 million of undrawn revolver capacity and approximately $58 million of cash on hand. Our capital allocation strategy continues to prioritize maintaining a strong balance sheet while allocating capital toward high-return opportunities, with a clear focus on delevering.

Speaker #1: Through disciplined balance sheet management and improved working capital execution, we are creating greater financial flexibility and strengthening the foundation to support the business over the long term.

Speaker #1: As discussed last quarter, we remain active in monetizing non-operating assets while evaluating our network for further optimization. We continue to actively market 11 properties with an estimated value of approximately $15 million.

Speaker #1: All in various stages of the disposition process. And more are under evaluation. As with prior dispositions, proceeds will be used to reduce debt and we expect several to close and the remaining months of fiscal 2026.

Adam Bowen: As with prior dispositions, proceeds will be used to reduce debt, and we expect several to close in the remaining months of fiscal 2026. Turning to our outlook, today, we are raising our full year fiscal 2026 guidance for free cash flow. Reflecting the strong execution of our teams around disciplined working capital and balance sheet management, we now expect free cash flow in the range of $160 million to $170 million, compared to a range of $120 million to $150 million previously. Our updated midpoint is $165 million in free cash flow for the year, $30 million or 22% higher than our prior midpoint, and this assumes $60 million to $70 million of cash capital expenditures as well as $35 million to $40 million in cash paid for transformation-related expenses.

Speaker #1: Turning to our outlook, today we are raising our full-year fiscal 2026 guidance for free cash flow. Reflecting the strong execution of our teams around disciplined working capital and balance sheet management, we now expect free cash flow in the range of $160 million to $170 million.

Speaker #1: Compared to a range of $120 million to $150 million previously, our updated midpoint is $165 million in free cash flow for the year.

Speaker #1: $30 million or $22% higher than our prior midpoint. And this assumes $60 million to $70 million of cash capital expenditures as well as $35 million to $40 million in cash paid for transformation related expenses.

Speaker #1: As with our prior guidance, we continue to expect fiscal 2026 revenue to be flat to down 2% compared to our normalized fiscal 2025 revenue excluding the impact of our 53rd week last year.

Adam Bowen: As with our prior guidance, we continue to expect fiscal 2026 revenue to be flat to down 2% compared to our normalized fiscal 2025 revenue, excluding the impact of our 53rd week last year. We also expect adjusted EBITDA in the range of $310 million to $315 million for fiscal 2026, with a midpoint of $312.5 million, an increase of $2.5 million from our prior outlook. Based on our full year guidance and results year to date, adjusted EBITDA for the fiscal Q4 is implied to be in the range of $84 million to $89 million. Additionally, we now expect our effective tax rate to be approximately 25% on a full year basis, with a Q4 standalone rate at approximately 30%. With that, operator, please open the line for questions.

Speaker #1: We also expect adjusted EBITDA in the range of $310 million to $315 million for fiscal 2026, with a midpoint of $312.5 million.

Speaker #1: An increase of $2.5 million from our prior outlook. Based on our full-year guidance and results year-to-date, adjusted EBITDA for the fiscal fourth quarter is implied to be in the range of $84 million to $89 million.

Speaker #1: Additionally, we now expect our effective tax rate to be approximately 25% on a full-year basis, with a Q4 standalone rate at approximately 30%.

Speaker #1: With that, operator, please open the line for questions.

Speaker #2: 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.

Operator: The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Thank you. Our first question today comes from Stephanie Moore with Jefferies. Your line is open.

Speaker #2: 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 optimal sound quality.

Speaker #2: Thank you. Our first question today comes from Stephanie Moore with Jefferies. Your line is open.

Stephanie Moore: Hi. Good morning. Thanks, everybody. Congrats on a good quarter.

Speaker #3: Hi. Good morning. Thanks, everybody. Congrats on a good quarter.

Speaker #4: Hi. Good morning. Thank you.

Adam Bowen: Hi. Good morning.

Jim Barber: Hi. Good morning.

Speaker #3: Maybe. Good morning. Maybe just to start, you know, I would love if it would be possible for you to provide some color on how you're thinking about top line revenue as you're closing out fiscal 26 and also beginning to look forward into fiscal 27.

Stephanie Moore: Maybe just

Adam Bowen: Thank you.

Jim Barber: Thank you.

Stephanie Moore: Good morning. Maybe just to start, I would love if it would be possible for you to provide some color on how you are thinking about top line revenue as you are closing out FY26 and also beginning to look forward into FY27. Probably a good place to start. Thanks.

Speaker #3: That's probably a good place to start. Thanks.

Adam Bowen: I'll start it. May end up that Bill has a couple of comments as well when I'm done because I'm going to actually, and I like the question because I think a lot of answers can come together to kind of support this, Stephanie. First, I would say that, the revenue per pound discussions we just had as we move into Q4, I would say I'd classify it as we're encouraged by what we're starting to see. If we continue on the trends we have, we're going to see growth in the fourth quarter. That's statement number one. As we move through this and get closer to business, some things become apparent. First, that I consider us having six growth drivers in the business, that being direct sales, nationals, field, clean room, Canada, and kind of everything else. Five of the six of them are growing.

Jim Barber: I'll start it. May end up that Bill has a couple of comments as well when I'm done because I'm going to actually, and I like the question because I think a lot of answers can come together to kind of support this, Stephanie. First, I would say that, the revenue per pound discussions we just had as we move into Q4, I would say I'd classify it as we're encouraged by what we're starting to see. If we continue on the trends we have, we're going to see growth in the fourth quarter. That's statement number one. As we move through this and get closer to business, some things become apparent. First, that I consider us having six growth drivers in the business, that being direct sales, nationals, field, clean room, Canada, and kind of everything else. Five of the six of them are growing.

Speaker #4: I'll start it. It may end up that Bill has a couple of comments as well when I'm done, because I'm going to actually—and I like the question, because I think a lot of answers can come together to kind of support this, Stephanie.

Speaker #4: First, I would say that, you know, regarding the revenue per pound discussions we just had—as we move into Q4, I would say I'd classify it as we're encouraged by what we're starting to see.

Speaker #4: And if we continue on the trends we have, we're going to see growth in the fourth quarter. Okay, that's statement number one. As we move through this and get closer to the business, some things become apparent.

Speaker #4: First, I consider us as having six growth drivers in the business: direct sales, nationals, field, clean room, Canada, and kind of everything else.

Speaker #4: Five of the six of them are growing. The one that's not is field. And it needs to be corrected. We've made a recent move in bringing Steve in from the outside.

Adam Bowen: The one that's not is field, and it needs to be corrected. We've made a recent move in bringing Steve in from the outside. He's been in the business three months. He's been in the business before and has held various CEO leadership roles, and I am confident in what I've seen in the first three months as he puts the strategy together to not just deal with the field issue that we have, but also to really bring some new views of how to grow this business in the other segments of Vestis. I think lastly, the other thing I'd bring into this, because I'm not going to give guidance for 2027 yet on growth, but I will tell you we plan to grow in 2027. How will be a function of the next couple of months of work.

Jim Barber: The one that's not is field, and it needs to be corrected. We've made a recent move in bringing Steve in from the outside. He's been in the business three months. He's been in the business before and has held various CEO leadership roles, and I am confident in what I've seen in the first three months as he puts the strategy together to not just deal with the field issue that we have, but also to really bring some new views of how to grow this business in the other segments of Vestis. I think lastly, the other thing I'd bring into this, because I'm not going to give guidance for 2027 yet on growth, but I will tell you we plan to grow in 2027. How will be a function of the next couple of months of work.

Speaker #4: He's been in the in the business three months. He's been in the business before and has held various CEO leadership roles and I am confident that what I've seen in the first three months as he puts the strategy together to not just deal with the field issue that we have, but also to really bring some new views of how to grow this business in the other segments.

Speaker #4: Of Vestis. I think, lastly, the other thing I'd bring into this—because I'm not going to give guidance for '27 yet on growth—but I will tell you, we plan to grow in '27.

Speaker #4: How things go will be a function of the next couple of months of work. I think the other thing that's kind of new in the script today, and in the remarks, was this concept of uniformity in the network and/or top to bottom—too much variability.

Adam Bowen: I think the other thing that's kind of new in the script today and the remarks was this concept of uniformity in the network and or top to bottom, too much variability. Super enthused at the work that's been done now to kind of quantify it, in quadrants, and our first two quadrants are as good as you could imagine and exceed most any margin number you can think about. The problem with some of these things in networks is averages of averages don't really tell how good you can be. So we've segmented it. We're going to focus really on quadrants three and four. They will be our number one priority next year. We've talked a lot about capital to grow, maintenance versus growth capital.

Jim Barber: I think the other thing that's kind of new in the script today and the remarks was this concept of uniformity in the network and or top to bottom, too much variability. Super enthused at the work that's been done now to kind of quantify it, in quadrants, and our first two quadrants are as good as you could imagine and exceed most any margin number you can think about. The problem with some of these things in networks is averages of averages don't really tell how good you can be. So we've segmented it. We're going to focus really on quadrants three and four. They will be our number one priority next year. We've talked a lot about capital to grow, maintenance versus growth capital.

Speaker #4: Super enthused at the work that's been done now to kind of quantify it in quadrants and our first two quadrants are as good as you could imagine and exceed about.

Speaker #4: The problem with some of these things in the networks is that averages of averages don't really tell how good you can be. So we've segmented it.

Speaker #4: We're going to focus really on quadrants three and four. They will be our number one priority next year. We've talked a lot about capital to grow, and maintenance versus growth capital.

Speaker #4: Those two quadrants—we will plan to invest about 70% of our plant investments there, which is relatively modest, quite frankly, especially given the free cash flow we're moving out with now.

Adam Bowen: Those two quadrants, we will plan to invest about 70% of our plant investments, which is relatively modest, quite frankly, especially the free cash flow we're moving out with now. Our goal is to move them up, each up one quadrant. Four turns into three turns into two, and so it goes. Then at that point

Jim Barber: Those two quadrants, we will plan to invest about 70% of our plant investments, which is relatively modest, quite frankly, especially the free cash flow we're moving out with now. Our goal is to move them up, each up one quadrant. Four turns into three turns into two, and so it goes. Then at that pointThe kind of growth becomes a natural byproduct because it is not just the margins in the business that they are kind of holding us back, but they are the issue for growth as well, because if they are not performing at the service levels, it is hard to bring on new customers and retain customers.

Speaker #4: They would our goal is to move them up each up one quadrant, four turns into three, three turns into two. And so it goes and then at that point, the kind of growth becomes a natural byproduct because it's not just the margins in the business that they're they're kind of holding us back, but they're the issue for growth as well because if they're not performing at the service levels, it's hard to bring on new customers and and retain customers.

Jim Barber: The kind of growth becomes a natural byproduct because it is not just the margins in the business that they are kind of holding us back, but they are the issue for growth as well, because if they are not performing at the service levels, it is hard to bring on new customers and retain customers. We have seen it is real, it is there. We are going to attack it, not just the way it has been looked at historically, but maybe some of the learnings from the past about asking our really good leaders to move to these quadrants to help us move them forward in a quicker way than just normal course of business, because these networks are really about human capital. We will put the financial capital in making sure it is matched to the right leadership. Look, I am encouraged by it, especially revenue per pound.

Jim Barber: We have seen it is real, it is there. We are going to attack it, not just the way it has been looked at historically, but maybe some of the learnings from the past about asking our really good leaders to move to these quadrants to help us move them forward in a quicker way than just normal course of business, because these networks are really about human capital. We will put the financial capital in making sure it is matched to the right leadership. Look, I am encouraged by it, especially revenue per pound.

Speaker #4: And so we've seen it. It's it's real. It's there. And we're going to attack it not not just the way it's been looked at historically, but maybe some of the learnings from the past about asking our our really, really good leaders to move to these quadrants to help us move them forward in a quicker way than just normal course of business because these networks are really about human capital and we'll put the we'll put the financial capital in making sure it's matched to the right leadership.

Speaker #4: So look, I'm encouraged by it, especially the revenue per pound. I know everybody wants us to grow volume. We will grow volume in '27.

Jim Barber: I know everybody wants us to grow volume. We will grow volume in 2027. How we do that, as I said, we will update that at the end of Q4 as we talk about 2027. Okay? Thanks.

Speaker #4: How we do that, as I said, we'll update that at the end of Q4 as we talk about '27. Okay, thanks.

Stephanie Moore: Appreciate all the color there, Jim. Maybe just a follow-up. Can you help us explain what it means to be in the third or fourth quadrant here? What are the issues? How can it be fixed? How long do you think it can be fixed? Probably most importantly for those listening on the call here, what is the margin gap on the ultimate impact to the bottom line?

Speaker #3: Appreciate all the color there, Jim. And and maybe just a follow-up. You know, maybe could you help us explain what it means to be in into the third or fourth quadrant here?

Speaker #3: You know, what are the issues? How can it be fixed? How long do you think it will take to fix? And then, probably most importantly for those listening on the call here, you know, what's the margin gap on the ultimate impact to the bottom line?

Speaker #4: So I'm I'm that's packed. So so it it is the margin gap top to bottom is is large. That's about all I'm going to say right now.

Jim Barber: That is packed. The margin gap top to bottom is large. That is about all I am going to say right now. The great thing about it is that the top couple of quadrants and the way we have done it, Stephanie, is if we have got roughly 120 to 125 market centers, we put them in clumps of 30. The top two quadrants, I can tell you, exceed anybody's margin view of what this company can produce, even on an average basis. The two of them do, they are there. If you think about that, then you know the business model works. It is correct. If run properly, it produces outputs that, let us just say people do not believe Vestis can produce. We do. We do it already in well over half of the market centers. The other ones struggle, so it is up to us now in year 2.

Speaker #4: But the great thing about it is that the the top couple of quadrants and the way we've done it, Stephanie, is if if we've got a roughly 120 to 125 market centers, we put them in clumps of 30.

Speaker #4: The the top two quadrants I can tell you exceed anybody's margin view of what this company can produce even on an average basis. The two of them do they're there.

Jim Barber: The two of them do, they are there. If you think about that, then you know the business model works. It is correct. If run properly, it produces outputs that, let us just say people do not believe Vestis can produce. We do. We do it already in well over half of the market centers. The other ones struggle, so it is up to us now in year 2.

Speaker #4: And if you think about that, then you know the business model works. It's correct, it's run properly, and it produces outputs that, let's just say, people don't believe Vestis can produce.

Speaker #4: We do. We do it already in well over half of the market centers. The other ones struggle, and so it's up to us now in year two.

Speaker #4: This is why this to me is the number one priority. For next year for us as we move through transformation is to move these quadrants up.

Jim Barber: This to me is the number one priority for next year for us as we move through transformation, is to move these quadrants up. We put the right capital in, the right leadership in, and the right discipline in it, and we are actually building up very unique market center playbooks that leverage where each one is. It is a long story about it, but the whole thing is still based upon service. That does not change. I will ask Bill to add a couple of points to that in a second. But it is about getting those to where they look like they are, let us say, big brothers and sisters in the other network. Then this thing I think will end up surprising people how good this can be as we move forward.

Speaker #4: We put the right capital in, the right leadership in, and the right discipline in it. And we're actually building up very unique market center playbooks that that leverage where each one is.

Speaker #4: And it's a long story about it, but the whole thing is still based upon service. That doesn't change. I'll I'll add ask Bill to add a couple of points to that in a second.

Speaker #4: But it is about getting those to where they look like their, let's say, big brothers and sisters in the other network. And then this thing will, I think, end up surprising people with how good this can be as we move forward.

Speaker #4: But that's—I don't want to quantify it yet, because there are a couple of nuances on how we want to deal with a couple of markets.

Jim Barber: But I do not want to quantify it yet because there is a couple of nuances on how we want to deal with a couple of markets, and that goes hand in hand with the market dynamics that are going on in this industry right now. So we have to play that together. But it is material, and as big as transformation was to 2026 for us, this is that big in 2027 to get this right. Bill, you want to add anything?

Speaker #4: And that goes hand-in-hand with the market dynamics that are going on in this industry right now. So we have to play that together.

Speaker #4: But it is material and it is as big as transformation was to 2026 for us, this is that big in 2027 to get this right.

Speaker #4: Bill, you want to add anything?

Speaker #5: Yeah. I'll add a couple things. Thanks. First of all, as Jim mentioned, that top quadrant is also I know your question originally started with growth, Stephanie.

Bill Seward: Yeah, I will add a couple things. Thanks. First of all, as Jim mentioned, that top quadrant is also, I know your question originally started with growth, Stephanie, is growing. We have got some really good stuff. The margin gap you alluded to, that same gap exists between the top and the bottom across cost metrics, across service metrics, in some cases, in other metrics that are really important to us. So we have launched an intense focus on that quadrant 4, that bottom 30 market centers, that is just kind of kicking off in full steam right now, leveraging some of the momentum we have brought in through the year on some of the cost and service and quality metrics. We are really excited about the fact that these places do need some love. They do need some capital.

Speaker #5: Is is growing. And we've got some really good stuff. And and the margin gap you alluded to, that same gap exists between the top and the bottom across cost metrics, across service metrics, in some cases in in other metrics that are really important to us.

Speaker #5: So we've launched an intense focus on that quadrant four that that bottom 30 market centers that is just kind of kicking off in full steam right now.

Speaker #5: Leveraging some of the momentum we brought in through the year on some of the cost, service, and quality metrics. And we're really excited about the fact that these places do need some love.

Speaker #5: They do need some capital. And Jim mentioned a minute ago that, you know, between 2026 and if you think forward into 2027 in quadrant four, we're we're looking at earmark about 42% of our capex in the plant to those market centers.

Bill Seward: Jim mentioned a minute ago that between 2026 and if you think forward into 2027, in quadrant 4, we are looking to earmark about 42% of our CapEx in the plant to those market centers. We have shown in 2026 that when we invest in those market centers with leadership, when we invest in them with some CapEx, that the market centers do respond, and we do get better outcomes for our customers and for our shareholders.

Speaker #5: And we've shown in 2026 that when we invest in those market centers with leadership, when we invest in them with some capex, the market centers do respond and we do get better outcomes for our customers.

Speaker #5: And for our share owners.

Speaker #2: I'd say the last thing on that that's important is that I don't think Vestis has ever properly put a bottom-up business plan together.

Jim Barber: I'd say the last thing on it that's important is that, I don't think Vestis has ever properly put a bottom-up business plan together. It's happening now for 2027. It'll be very unique to each market center. In some market centers where we're ready to really move growth out, we will move different resources and investments into them in 2027 to do that. The other ones, we'll stabilize them. At times, you don't really want more if you can't handle what you have, so you manage that as a priority. It's going to be very unique. But again, we'll talk more about it, Stephanie, when we roll out 2027 with a lot more flavor of your real question about the margin gaps, so that you can have a better feel for it, because it should roll up to produce our targets and financials for 2027. Thanks for that.

Speaker #2: It's happening now for 27. It'll be very unique to each market center. We will in some market centers where we're ready to to really move growth out, we will move different resources and investments into them in 27 to do that.

Speaker #2: The other ones, well, they'll stabilize them. At times, you don't really want more if you can't handle what you have. So you so you manage that as a priority.

Speaker #2: So it's going to be very unique but but again, we'll we'll talk more about it, Stephanie, when we roll out 2027 with a lot more flavor of your real question about the margin gaps.

Speaker #2: So that you can have a better feel for it because it should roll up to to produce our our targets and financials for 2027.

Speaker #2: So thanks for that.

Speaker #3: Thank you. And last one for me, could you maybe help us understand what a normalized free free cash flow conversion can look like here?

Stephanie Moore: Thank you. Last one from me. Could you maybe help us understand what a normalized free cash flow conversion can look like here?

Speaker #5: Yeah. Hey Stephanie, it's Adam, and I can take that. Thanks for the question. So, year to date through Q3, we're converting at about 54%, which, you know, is very much in line with what the company has said historically about free cash flow converting at around 50%.

Adam Bowen: Yes. Hey, Stephanie, it's Adam, and I can take that. Thanks for the question. So year to date, through Q3, we're converting at about 54%, which you know is very much in line with what the company has said historically about free cash flow converting at around 50%. So that's where we're going to hold as we come through the end of the year. Our full year guidance at the midpoint for our new free cash flow, midpoint of $165 million over the $312.5 million for adjusted EBITDA, has us converting at roughly 53% as we go into FY27. That's really where I think is a good place for us to exit. As we go into 2027 and give you more guidance for next year, you'll hear more from us on what we think the future could look like.

Speaker #5: So that's where we're going to hold as we come through the end of the year. Our full year guidance at the midpoint for our new free cash flow midpoint of 165 over the 312.5 million for adjusted EBITDA has us converting at roughly 53% as we go into FY27.

Speaker #5: And that's really where I think is a good place for us to exit. As we go into '27 and give you more guidance for next year, you'll hear more from us on what we think the future could look like.

Speaker #3: Okay. Well, thank you guys. Appreciate all the color.

Stephanie Moore: Well, thank you, guys. Appreciate all the color.

Speaker #2: Thank you.

Adam Bowen: Thank you.

Speaker #3: Thank you. Our next question comes from Tim Mulroney with William Blair. Your line is now open.

Operator: Thank you. Our next question comes from Tim Mulrooney with William Blair. Your line is now open.

Speaker #5: Yeah. Jim Adam, good morning. Thanks for taking my questions.

Tim Mulrooney: Yeah, Jim, Adam, good morning. Thanks for taking my questions.

Speaker #2: Good morning.

Adam Bowen: Good morning.

Jim Barber: Good morning.

Speaker #5: Jim, I was going to ask you about your plans to drive volume growth, but it sounds like you're planning to give the investment community an update next quarter on that.

Tim Mulrooney: Jim, I was going to ask you about your plans to drive volume growth, but it sounds like you are planning to give the investment community an update next quarter on that. Is that correct?

Speaker #5: Is that correct?

Adam Bowen: Yes, I am. Absolutely.

Jim Barber: Yes, I am. Absolutely.

Speaker #2: Yes. Yes, I am. Absolutely.

Speaker #5: All right. So I'm going to I'm going to hold off on that. I'm just going to ask some different questions. Just building off of Stephanie's last question there, Adam, on free cash flow, what was the primary reason behind the updated free cash flow guidance?

Tim Mulrooney: All right. I am going to hold off on that, and I am just going to ask some different questions. Just building off of Stephanie's last question there, Adam, on free cash flow, what was the primary reason behind the updated free cash flow guidance? What drove you to push that higher?

Speaker #5: What what drove you to to to push that higher?

Speaker #2: Yeah, it's a great question. And, you know, as we exited FY25 last year, we came out with about 2% conversion on free cash flow last year—about $6 million for the whole entire year.

Adam Bowen: Yeah, it is a great question. As we exited FY25 last year, we came out with about 2% conversion on free cash flow last year, about $6 million on the whole entire year. As we started this year looking at the work that we knew we needed to do around working capital and balance sheet management, and just converting adjusted EBITDA to free cash flow, we knew we had some things to go out and do as a part of our transformation. Full credit goes to the team all across Vestis, under Jim's leadership, really driving good working capital management. We have been neutral on working capital for the last two quarters. We had a little bit of benefit from working capital in the first quarter. The team is driving really great collections. Our DSOs are at the lowest that they have been since the company went public.

Speaker #2: So as we started this year looking at the work that we knew we needed to do around working capital and balance sheet management and just converting adjusted EBITDA to free cash flow, we knew we had some things to go out and do as a part of our transformation.

Speaker #2: And full credit goes to the team all across Vestis, you know, under Jim's leadership, really driving good working capital management. We've been neutral on working capital for the last two quarters.

Speaker #2: We had a little bit of benefit from working capital in the first quarter. The team's driving really great collections. Our DSOs are at the lowest that they've been since the company went public.

Speaker #2: So it's really a holistic cross-functional effort to drive free cash flow conversion. And it's exceeding our expectations, you know, especially compared to where we were coming into the year from FY25.

Adam Bowen: It is really a holistic cross-functional effort to drive free cash flow conversion, and it is exceeding our expectations, especially compared to where we were coming into the year from FY25. As we look at these last two quarters of delivering north of $40 million in free cash flow coming into Q4, it just gives us a lot of comfort to say, "Hey, Q4 is going to be another quarter where we get that mid-forties range that we have been putting up the last two quarters." Really excited about the work the team has done, really encouraged about the future around free cash flow conversion. We are normalizing back to where the company has discussed this metric so far. Again, I will give full credit to everyone across the company. It has been a team effort.

Speaker #2: And so as we look at these last two quarters of delivering north of $40 million in free cash flow, coming into Q4, just gives us a lot of comfort to say, "Hey, Q4 is going to be another Q4 is going to be another quarter where we get, you know, that mid-40s range that we've been putting up the last two quarters." So really excited about the work the team has done, really encouraged about the future around free cash flow conversion.

Speaker #2: We're normalizing back to where the company has discussed this metric so far. And again, I'll give full credit to everyone across the company. It's been a team effort.

Speaker #5: Yeah. Yeah. It was it was good to see that. It was good to see that. And I I looked at the working capital metrics there.

Tim Mulrooney: Yeah. It was good to see that. I looked at the working capital metrics there. It looks like some things are moving in the right direction there as well. That was good to see.

Speaker #5: It looks like some things are moving in the right direction there as well. So that that was good to see.

Speaker #2: Yeah. And not to cut you off, it's really exciting this quarter because a big part of our free cash flow is net income. We had $11 million of net income in the third quarter.

Adam Bowen: Not to cut you off, it is really exciting this quarter because a big part of our free cash flow is net income. We had $11 million of net income in Q3, and we have turned net income positive for the year, which is really exciting. To see some of that free cash flow coming from net income and positive earnings per share is just great.

Speaker #2: And we've turned net income positive for the year, which is really exciting. So to see some of that free cash flow coming from net income, and positive earnings per share, is just great.

Speaker #5: Yep. That makes it easier. Okay. That that's really helpful. Thank you for all the color there, Adam. Just the last one for me, the the EBITDA run rate.

Tim Mulrooney: Yep. That makes it easier. Okay. That is really helpful. Thank you for all the color there. Just the last one from me, the EBIT run rate that is kind of being implied here for Q4. Is it fair or is it a good way for us to think about that as a sustainable run rate as you are entering into fiscal 2027? Are there some seasonal factors here in Q4 that would prevent us from thinking about it that way?

Speaker #5: That's kind of being implied here for the fourth quarter. Is it fair, or is it a good way for us to think about that as a sustainable run rate as you are entering into fiscal 2027?

Speaker #5: Or are there some seasonal factors here in the fourth quarter that would prevent us from thinking about it that way?

Speaker #2: I think it's a stable place for you to begin thinking about how we're going to build up FY27. Obviously, there's going to be growth in '27.

Adam Bowen: I think it is a stable place for you to begin thinking about how we are going to build up FY27. Obviously, there is going to be growth in 27. We are targeting enhancements and efficiencies. We are going to come into 27 with a cost-neutral mindset. That is how we build our plan. I think it is a great way for you to begin thinking about how we would build that. Of course, there are some minor seasonal fluctuations throughout the year. You certainly saw that in FY2026. You have seen that before. We are able to manage through that, to be perfectly honest with you. So I would not expect there to be too much fluctuation in that run rate as we enter the year, and it will improve.

Speaker #2: We're targeting enhancements and efficiencies. We're going to come into '27 with a cost-neutral mindset—that's how we build our plan. But I think it's a great way for you to begin thinking about how we would build that.

Speaker #2: And of course, there are some minor seasonal fluctuations throughout the year. You certainly saw that in FY26, and you've seen that before. But I would say we're able to manage through that, to be perfectly honest with you.

Speaker #2: So I wouldn't expect there to be too much fluctuation in that run rate as we enter the year and it will improve.

Speaker #5: Okay. That's really helpful. Thanks, guys.

Tim Mulrooney: Okay. That is really helpful. Thanks, guys.

Speaker #2: Thank you.

Adam Bowen: Thank you.

Speaker #1: You're welcome.

Jim Barber: You are welcome.

Speaker #3: Thank you. Our next question will come from Andy Whitman with Baird. Your line is now open.

Operator: Thank you. Our next question will come from Andy Wittmann with Baird. Your line is now open.

Speaker #1: Great, and good morning. Thanks for taking my questions. I guess, just the— you have the annual revenue guidance; you've got three months in the bag.

Andrew Wittmann: Great, good morning, and thanks for taking my questions. I guess you got the annual revenue guidance. You got 3 months in the bag, and when I do some math on it looks like your Q4 revenue guidance is up at least 2%, 2 percentage points more than that to the top end here. I guess I am just curious as to what that comprised of. You have been running off the volume and the volume comps. I know, Jim, you talked a lot about your market development reps trying to get fair pricing. How much of a factor is that? Is the macro contributing or hurting you in terms of add stops, in terms of number of wares at your existing customers?

Andy Wittmann: Great, good morning, and thanks for taking my questions. I guess you got the annual revenue guidance. You got 3 months in the bag, and when I do some math on it looks like your Q4 revenue guidance is up at least 2%, 2 percentage points more than that to the top end here. I guess I am just curious as to what that comprised of. You have been running off the volume and the volume comps. I know, Jim, you talked a lot about your market development reps trying to get fair pricing. How much of a factor is that? Is the macro contributing or hurting you in terms of add stops, in terms of number of wares at your existing customers?

Speaker #1: And when I do some math on it, it looks like your fourth quarter revenue guidance is up at least 2%, 3 percentage points, more than that to to kind of the top end here.

Speaker #1: So like I guess I'm just kind of curious as to what's that comprised of. You know, is this just you know, you've been running off the the volume and the volume comps?

Speaker #1: Is there I know, Jim, you talked a lot about your market development reps trying to get fair pricing. How much of a factor is that?

Speaker #1: Is the macro contributing or hurting you in terms of ads, stops, in terms of number of wares that your existing customers? I'd love to hear you just talk a little bit about the components behind that and how they how they drive your fourth quarter improvements, which obviously gives you that that good top-line momentum or better top much better top-line momentum into '27, please.

Andrew Wittmann: I would love to hear you just talk a little bit about the components behind that and how they drive your Q4 improvements, which obviously gives you that good top-line momentum or much better top-line momentum into 2027, please.

Andy Wittmann: I would love to hear you just talk a little bit about the components behind that and how they drive your Q4 improvements, which obviously gives you that good top-line momentum or much better top-line momentum into 2027, please.

Speaker #2: I'm going to have Adam start on the 2% number because we have a little bit different number. Let's clean that up. And I'll give you three or four thoughts on the rest, okay?

Jim Barber: I am going to have Adam start on the 2% number because we have a little bit different number. Let us clean that up.

Jim Barber: I am going to have Adam start on the 2% number because we have a little bit different number. Let us clean that up. And I'll give you 3 or 4 thoughts on the rest, okay?

Jim Barber: Yeah.

Jim Barber: And I'll give you 3 or 4 thoughts on the rest, okay?

Adam Bowen: Yeah. So Tim, the way I think about Q4 revenue is let's just compare, establish what our baseline is to make sure we're all on the same page. Q4 2025, if you go look at our printed materials, you'll see a $712 million number there. You have to normalize that number for 13 weeks. Because we had an extra week in Q4 of fiscal 2025. So that 712 becomes really around $660 million that we're going to use as a comparative. So just start there. As you've seen throughout the year this year, we've done a really great job, credit to the team for stabilizing the revenue run rate around that $660 to $663 million range all throughout the year. And that's a great accomplishment coming out of down 3% in prior year.

Speaker #4: Yeah. Yeah. So, Tim, the way I think about Q4 revenue is, let's just compare—establish what our baseline is to make sure we're all on the same page.

Speaker #4: Q4 2025, if you go look at our printed materials, you'll see a $712 million number there. You have to normalize that number for 13 weeks.

Speaker #4: Because we had an extra week in Q4 of fiscal '25. So that $712 becomes really around $660 million that we're going to use as a comparative.

Speaker #4: So just start there. And as you've seen throughout the year this year, we've done a really great job. Credit to the team for stabilizing the revenue run rate.

Speaker #4: Around that $660 to $663 million range all throughout the year. And that's a great accomplishment coming out of, you know, down 3% in prior year.

Speaker #4: So I would think about Q4 as we're moving into exit the year as being generally around the same place for where we are in Q3, which would still be year-over-year growth versus Q4 last year.

Adam Bowen: So I would think about Q4 as we're moving in to exit the year as being generally around the same place for where we are in Q3, which would still be year-over-year growth versus Q4 last year. But I think that's going to get you more in the down 1.5% range if I just do the comparatives there. So I just wanted to lay that out. If you have any questions on that, I can take them and then I know Jim wants to add some things.

Speaker #4: But I think that's going to get you more in the down 1 and a half percent range if I if I just do the comparatives there.

Speaker #4: So I just wanted to kind of lay that out. If you have any questions on that, I can take them and then I know Jim wants to add some things.

Speaker #1: So Andy, on some of the build-ups, I think one of the things that we went through in the discussion today which I'd like to point your eyes to is this concept of the revenue per pound leaving the network versus the cost per pound.

Jim Barber: So Andy, on some of the build up. So I think one of the things that we went through in the discussion today, which I'd like to point your eyes to, is this concept of the revenue per pound leaving the network versus the cost per pound. To just level set the magnitude of why the focus has been what it's been in 2026, and that is that we essentially had looked at the commercial side of the business and recognized that what had been going on prior to starting this transformation was all revenue. Any revenue is good revenue. It's all accretive, and that's not the way it works. Now we are almost 4 quarters into it, and the 4.5% of volume that left us in the quarter had a revenue of $0.55 a pound. The business has a cost per pound of $1.24.

Speaker #1: To just level set the magnitude of why the focus has been what it's been in 2026. And that is that that we went essentially had looked at commercial side of the business and recognized that what had been going on prior to starting this transformation was all revenue.

Speaker #1: Any revenue is good revenue. It's all accretive and that's not the way it works. If you and now we are almost four quarters into it and the 4 and a half percent of volume that left us in the quarter had a revenue of 55 cents a pound.

Speaker #1: The business has a cost per pound of $1.24. If you just let that settle for a minute and you say to yourself, you know, what's more important right now—getting the right volume in the network, or how much of it—I think you can see pretty much in those two gaps why we're doing what we're doing.

Jim Barber: If you just let that settle for a minute and you say to yourself, what's more important right now, getting the right volume in the network or how much of it? I think you can see pretty much in those two gaps of why we are doing what we are doing. This is a couple of quarters on. As far as when does that stop? I think that just is dependent upon each customer's decision on how they look at things. Our job all along in many of these instances, it is almost non-regrettable is what we call it. That is not our long-term strategy, to be clear. We are going to grow volume. I will give you a couple of touch points right now on why I am pretty enthused about what is getting ready to come. I talked about Steve, his background. He is putting his strategy work to it.

Speaker #1: And this is a couple quarters on. As far as, you know, when does that stop, I think that just is dependent upon each customer's decision on how they look at things.

Speaker #1: But but our job all along in in some of these many of these instances, it's it's almost non-regrettable is what we call it. But that's not our long-term strategy to be clear.

Jim Barber: That is not our long-term strategy, to be clear. We are going to grow volume. I will give you a couple of touch points right now on why I am pretty enthused about what is getting ready to come. I talked about Steve, his background. He is putting his strategy work to it.

Speaker #1: We are going to grow volume. And I'll give you a couple of touch points right now on why I'm pretty pretty enthused about what's getting ready to come.

Speaker #1: I talked about Steve, his background—he's putting his strategy work to it. We’ve got a new leader out in the field, Carla. Carla Perez comes to us with a background as well in this industry.

Jim Barber: We got a new leader out in the field, Carla. Carla Perez comes to us with background as well in this industry. She is off and running as well. We have talked about MDRs a bit. The MDRs are the target, and we will give you exact numbers when we get into 2027. We are planning to about triple to go 4x on the MDRs that we have. Where we sit right now as we come out of Q3 and into Q4, is the average weekly revenue being produced by the MDRs is almost twice as what we used to get out of a new sales rep. Twice. Okay? You will see more about that as we go forward. I would say in your adds over stops, the adds over stops are somewhat neutral to a little bit. It is not helping us. We are not getting a lot of lift.

Speaker #1: She's off and running as well. We've talked about MDRs a bit. The MDRs are the target is to and we'll give you exact numbers when we get into '27.

Speaker #1: But we're planning to about triple to go four times X on the MDRs that we have. But where we sit right now as we exit, as we come out of Q3 and into Q4, is the average weekly revenue being produced by the MDRs is almost twice what we used to get out of a new sales rep. Twice.

Jim Barber: Where we sit right now as we come out of Q3 and into Q4, is the average weekly revenue being produced by the MDRs is almost twice as what we used to get out of a new sales rep. Twice. Okay? You will see more about that as we go forward. I would say in your adds over stops, the adds over stops are somewhat neutral to a little bit. It is not helping us. We are not getting a lot of lift.

Speaker #1: Okay? So that you'll see more about that as we go forward. I I would say in your ads over stops, the ads over stops are somewhat neutral to a little bit it's not helping us.

Speaker #1: We're not getting a lot of lift. A lot of that, though, is also tied into some of those customers that were the 55 cent per pound customers who have made certain choices that are just going to have some more stops coming out of them.

Jim Barber: A lot of that, though, is also tied into some of those customers that were the 55 cent per pound customers who have made certain choices. They are just going to have some more stops coming out of them. That is just the way the business runs. To me, as we move through this, direct sales is turning for us right now. The MDRs are already going for us. National accounts continue to do very good. Canada is growing way above, well, not way above. Above what we thought. I will put it to you that way. As I have talked about, it is just the field, and we can fix the field. The field is a lot. That will be the MDRs fixing that, and a lot of that will be the quadrant 3 and 4 market centers joining us and the rest of the company where we need to be.

Speaker #1: That's just the way the business runs. But to me, as we move through this, direct sales is turning for us right now. The MDRs are already going for us.

Speaker #1: National accounts continue to do very good. Canada is growing way above well, not way above. Above what we thought. I'll I'll put it to you that way.

Jim Barber: Canada is growing way above, well, not way above. Above what we thought. I will put it to you that way. As I have talked about, it is just the field, and we can fix the field. The field is a lot. That will be the MDRs fixing that, and a lot of that will be the quadrant 3 and 4 market centers joining us and the rest of the company where we need to be.

Speaker #1: And, you know, as I've talked about, it's just the field. And we can fix the field. The field's a lot out of the MDRs fixing that and a lot of that will be the quadrant three and four market centers.

Speaker #1: Joining us and the rest of the company where we need to be and I'll close with this is that for the first time ever, we're going to have a a leadership conference in the in the first month that we start the business that everyone walks out of line on what their exact role is to grow this this business.

Jim Barber: I will close with this, is that for the first time ever, we are going to have a leadership conference in the first month that we start the business, that everyone walks out aligned on what their exact role is to grow this business. It will come naturally because of the alignment of these in a route based business. That is how it works. It is not one thing that you win with, it is four or five. It will come. We will do Q4, and we will show you that in 2027, how it is going to come, when it is going to come, and why it is going to come. Okay?

Speaker #1: And then it will come naturally. Because of the alignment of these inter-route-based business. That's how it works. So it's not one thing that you win with.

Speaker #1: It's four or five. And so it it'll come and we do Q4 and we'll show you that in '27, how it's going to come, when it's going to come, and why it's going to come.

Speaker #1: Okay?

Speaker #4: And it's really starting in looking our we can look in our filings and see Canada revenue increasing year over year by about 70 bips already in Q3.

Adam Bowen: It is really exciting, Andy. You can look in our filings and see Canada revenue increasing year over year by about 70 bps already in Q3. We are already starting to see some of this happen.

Speaker #4: So it's we're already starting to see some of this happen.

Speaker #1: That's a really good answer. I just want to add maybe one other thing to drill in on, because I really feel like your MDR—your market development reps—comments, Jim, are important, particularly when you said you're getting pretty great productivity out of them and you want to invest there.

Andrew Wittmann: It is a really good answer. Maybe just one other thing just to drill in, because I really feel like your MDR, your market development reps comments, Jim, are important, particularly when you said you are getting a pretty great productivity out of them and you want to invest there. Can you just refresh my, and for the benefit of everyone's view as to what their focus really is? I remember you saying when we met this past summer that there was going to be a big focus on getting fair price there, but it also sounds like you are tasking them with trying to get some deeper penetration of existing customers. Are those still the two primary thrusts of what the market development reps are doing for you?

Andy Wittmann: It is a really good answer. Maybe just one other thing just to drill in, because I really feel like your MDR, your market development reps comments, Jim, are important, particularly when you said you are getting a pretty great productivity out of them and you want to invest there. Can you just refresh my, and for the benefit of everyone's view as to what their focus really is? I remember you saying when we met this past summer that there was going to be a big focus on getting fair price there, but it also sounds like you are tasking them with trying to get some deeper penetration of existing customers. Are those still the two primary thrusts of what the market development reps are doing for you?

Speaker #1: Can can you just refresh my and for the benefit of everyone's kind of view as to what what their focus really is? I remember you saying when we met this past summer that there was going to be a big focus on getting fair price there.

Speaker #1: But it also sounds like you're tasking them with trying to get some deeper penetration of existing customers. Are those still the two primary thrusts of what the market development reps are doing for you?

Speaker #2: Let me say it two to three ways. First, let me segment the business a bit. They are really targeting this non-national space.

Jim Barber: Let me say it to you, Steve. First, let me segment the business a bit. They are really targeting this non-national space. It is about half of the revenue that they are after when you put circles around them. It is much more of a patch based growth strategy because the industry allows, if you are performing as you should be, allows a rational API once a year that is signed in the contract, and we should be able to go out and get that. That is somewhere between 3%, 4%, and 5% typically in the industry. Vestis' history has been, we do not get it and we get less than zero. The MDRs are out changing that pattern, and they are showing us it works right now, and they are not in full force. We only got about 30% of them in the model right now.

Speaker #2: It's about half of the revenue that they're after when you when you put circles around them. And it's much more of a of a patch-based growth strategy because the industry allows if you're performing as you should be, allows a a a rational API once a year that's signed in the contract and we should be able to go out and get that.

Speaker #2: And that's somewhere between 3%, 4%, and 5% typically in the industry. As history has been, we don't get it, and we get less than zero.

Speaker #2: And the MDRs are out changing that pattern, and they are showing us it works right now—and they're not in full force. We've only got about 30 percent of them in the model right now.

Speaker #2: But Steve and Carla and team are running down the road to close that and get them get them in full flight as we move into 2027.

Jim Barber: But Steve and Carla and team are running down the road to close that and get them into full flight as we move into 2027. That is not to say we will not go after new rooftops with the rest of them. We are going to do that. But we will do that when it is and they are already there, so we are not abandoning anything. We are just splitting it as we started here into Q3. Yes, at the same time that they are going in to negotiate and ensure that we secure renewing contracts with the right APIs in them, they are going to try and sell additional value to the customer, be it through various channels. Could be ads over stops, could be direct sales coming in. It could be other issues that they are going to go out there and get that. We capture that if it is a lift as new revenue.

Speaker #2: That's not to say we won't go after new rooftops with the rest of them. We're going to do that. But we will do that when it's and they're already there.

Speaker #2: So we're we're not abandoning anything. We're just splitting it as we've started here into Q3. And yes, at the same time that they're going in to to negotiate and ensure that we secure renewing contracts with the right APIs in them, they're going to try and sell additional value to the customer be it through various channels.

Jim Barber: Yes, at the same time that they are going in to negotiate and ensure that we secure renewing contracts with the right APIs in them, they are going to try and sell additional value to the customer, be it through various channels. Could be ads over stops, could be direct sales coming in. It could be other issues that they are going to go out there and get that. We capture that if it is a lift as new revenue.

Speaker #2: It could be ads over stops, it could be direct sales coming in, or it could be other issues that they're going to go out there and get that.

Speaker #2: And we capture that. If it is a lift, as new revenue, and that goes into the calculation of what the investment can be and the returns.

Jim Barber: And that goes into the calculation of what the investment can be in returns. And by the way, the average is 2%. We've had weeks it's been higher than 2% in the last couple of months. So it's very encouraging, quite frankly. And it's what we kind of thought it would be. And by the way, the way that they'll then be incentivized and earn returns on this for us is the way the entire patch of land grows, not just each individual account. And that means you have to retain customers at the same time.

Speaker #2: And by the way, the average is 2 percent. We've had weeks it's been higher than 2 percent in the last couple of months.

Speaker #2: So it's it's very encouraging, quite frankly. And it's what we kind of thought it would be. And by the way, the way that they'll then be incentivized and and earn returns on this for us is the way the entire patch of land grows not just each individual account and that means you have to retain customers at the same time.

Jim Barber: Therefore, our churn has to continue to go down, and therefore, they also have a very loud voice in customer satisfaction that will add more into next year about some real digital changes we're making this business, that perhaps the industry hasn't seen yet to make sure that, A, we prevent defects, and B, if we have them, we use those to our advantage in the customer relationship versus the past. So you'll hear a lot more about the MDRs, and we'll actually quantify it when we come out in 2027. Okay?

Speaker #2: Therefore, our churn has to continue to go down. And, therefore, they also have a very, very loud voice in customer satisfaction. That will add more into next year about some real digital changes we're making in this business that perhaps the industry hasn't seen yet, to make sure that: A, we prevent defects; and B, if we have them, we use those to our advantage in the customer relationship versus the past.

Speaker #2: So you'll hear a lot more about the MDRs, and we'll actually quantify it when we come out in 2027. Okay?

Speaker #4: Okay.

Speaker #1: Thanks a lot.

Andrew Wittmann: Thanks a lot.

Andy Wittmann: Thanks a lot.

Speaker #2: Yep.

Jim Barber: Yep.

Speaker #3: Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is now open.

Operator: Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is now open.

Speaker #2: Hi, good morning. This is Ronan Kennedy out from Manav. Thank you for taking our questions. You delivered a Q3 EBITDA beat and expect the full remaining $20 million of the FY26 transformation benefit in Q4.

Ronan Kennedy: Hi, good morning. This is Ronan Kennedy out for Manav. Thank you for taking our questions. You delivered a Q3 EBITDA and expect the full remaining $20 million of the FY26 transformation benefit in Q4, yet I think the $10 million prior guidance high upside was removed. Apologies if I missed this, just precisely confirm the puts and takes to that. The second part to an EBITDA question is, do you imply Q4 of roughly $84 million to $89 million is an appropriate starting point for 2027? How should we think about the largest drivers of improvement for that level? Is it field recovery, the quadrant improvement, pricing, volume, network optimization, or something else, please?

Speaker #2: Yet, I think the $10 million prior guidance high upside was removed. Can I just apologize if I missed this? Could you please precisely confirm the puts and takes to that?

Speaker #2: And then a second part to an EBITDA question is do you imply 4Q of roughly to 84 to 89 is an appropriate starting point for '27?

Speaker #2: How should we think about the largest drivers of improvement for that level? Is it field recovery, the quadrant improvement, pricing, volume, network optimization, or or something else, please?

Speaker #4: Yep. Hey, Ronan. I'll start out, and I know Jim will want to jump in here on your last part about the levers. Alicia's talking about the adjusted EBITDA guidance.

Adam Bowen: Yep. Hey, Ronan. I will start out, and I know Jim will want to jump in here on your last part about the levers. Let us just talk about the adjusted EBITDA guidance. It is actually an increase in the midpoint. We were guiding you to $295 million to $325 million for the year as we came out of Q2. That was a midpoint of $310 million. Remember last call, we were giving you the sequential 5% increases and then 5% to 10% for Q4. I would say we are dead in overperforming a bit in Q3, and we are dead in that range for Q4, and we feel comfortable raising that midpoint to $312.5 million. Even though we brought the top end down, we are just tightening the range as we see the business perform through the end of the year to give you a really tight guide for where we expect Q4 to be.

Speaker #4: It's actually an increase in the midpoint. We were guiding you 295 to 325 for the year as we came out of Q2. That was a midpoint of 310 million.

Speaker #4: Remember, last call we were giving you the sequential 5 percent increases, and then 5 to 10 percent for Q4. I would say we're dead on, overperforming a bit in Q3, and we're dead in that range for Q4. We feel comfortable raising that midpoint to 312.5, even though we brought the top end down.

Adam Bowen: I would say we are dead in overperforming a bit in Q3, and we are dead in that range for Q4, and we feel comfortable raising that midpoint to $312.5 million. Even though we brought the top end down, we are just tightening the range as we see the business perform through the end of the year to give you a really tight guide for where we expect Q4 to be.

Speaker #4: We're just tightening the range as we see the business perform through the end of the year, to give you a really tight guide for where we expect Q4 to be.

Adam Bowen: What is driving that between Q3 and Q4, your question on the transformation benefits, I outlined how to think about calculating that and how we think about it in the script. Essentially, it is each quarter's adjusted EBITDA in FY26, compared to the Q4 2025 exit rate of about $65 million. It was $70 million in Q1. That is less 65 is $5 million. You do the math in Q2, you do the math in Q3, the 81 less the 65, that is how you get to 15. As you go into Q4, you can do the math there, and that is where you get the additional 20. So we are at a run rate coming into Q4 of about $81 million. We are only about $5 million away from the new midpoint, $86.5 million for Q4. That is how we get to 20 million. Fifteen million of it is already in the bag.

Speaker #4: And what's driving that between Q3 and Q4? Your question on the transformation benefits—I outlined how to think about calculating that and how we think about it in the script.

Speaker #4: But essentially, it's each quarter's adjusted EBITDA in FY26 compared to the Q4 25 exit rate of about 65 million dollars. And so it was 70 million in Q1.

Speaker #4: That's less 65 is 5 million. You do the math in Q2. You do the math in Q3. The 81 less 65, that's how you get to 15.

Speaker #4: And as you go into Q4, you can do the math there. And that's where you get the additional 20. So we're at a run rate coming into Q4 of about 81 million.

Adam Bowen: As you go into Q4, you can do the math there, and that is where you get the additional 20. So we are at a run rate coming into Q4 of about $81 million. We are only about $5 million away from the new midpoint, $86.5 million for Q4. That is how we get to 20 million. Fifteen million of it is already in the bag.

Speaker #4: We're only about $5 million away from the new midpoint, $86.5 million for Q4. That's how we get the $20 million. $15 million of it's already in the bag.

Speaker #4: And the drivers there is our outsourcing project that we launched in Q4. Many thanks to the team, the very heavy lift there. We've signed a new contract with a leading third-party provider to outsource most of our back office functions and finance, customer service, call center, as well as some areas of information technology.

Adam Bowen: The drivers there is our outsourcing project that we launched in Q4. Many thanks to the team, the very heavy lift there. We signed a new contract with a leading third-party provider to outsource most of our back office functions in finance, customer service, call center, as well as some areas in information technology. That is going to give us the benefit in Q4 with that kind of steady revenue state that I mentioned on a prior question when Andy asked about it a moment ago. So that is kind of the build up for Q4 as we exit into FY27. We are going to give you more detail and color on how we build up the FY27 guidance when we get later in the year. Hopefully, that answers your questions. If I did not get everything, let me know and we can go back over something.

Speaker #4: And that's going to give us the benefit in Q4 with that kind of steady revenue state that I mentioned on a prior question when Andy asked about it a moment ago.

Speaker #4: So that's kind of the build-up for Q4 as we exit into FY27. We're going to give you more detail and color on how we build up, you know, the FY27 guidance when we get later in the year.

Speaker #4: But hopefully that answers your questions. If I didn't get to everything, please let me know and we can go back over anything you need.

Speaker #1: Let me add one point to it that we put in the script is that we are it's this concept of a bonus program. You know, if you if you think about what we talked about and I'll even size it for you.

Jim Barber: Let me add one point to it that we put in the script is that, it's this concept of the bonus program. If you think about what we talked about, I'll even size it for you. When we finish this year, it should come in somewhere between $15 million and $20 million of what was not in last year's EBITDA that is now in our EBITDA. You can do the math on what that looks like. How this thing builds up for 2027, I'd rather hold right now because we're still finalizing the quadrant work on when that's going to come, the MDRs, the new sales, a couple of other things Steve and Carla and team are working on. I don't want to quantify it yet because I think it's super important to quantify it.

Speaker #1: It when we finish this year, it should come in somewhere between 15 and 20 million dollars. Of what was not in last year's EBITDA that is now in our EBITDA.

Speaker #1: And you can do the math on what that looks like. And so, you know, how this thing builds up for '27, I'd rather hold right now because we're still finalizing the quadrant work on what's going to come.

Speaker #1: The MDRs, the new sales, a couple of other things, Steven, Carla, and team we're working on. So I I don't want to quantify it yet because I think it's super important to quantify it.

Speaker #1: As we move out of transformation and into more of a project and initiative world, it will be able to to bring updates to, number one, how it's built and then number two, how we're performing this year.

Jim Barber: As we move out of transformation and into more of a project and initiative world that we'll be able to bring updates to, number one, how it's built, and then number two, how we're performing this year. I'd hold on that, but I don't want you to undersell the fact that $15 million to $20 million has been banked for us, that we don't have to bank again the same way when it comes to year-over-year margin degradation. That's a good story for us, and it's good for our people, too.

Speaker #1: So I'd hold on that. But I don't want you to undersell the fact that $15 to $20 million has been banked for us, that we don't have to bank again the same way when it comes to year-over-year margin degradation.

Speaker #1: And that's a good story for us and it's good for our people too.

Speaker #2: Thank you both. That's extremely helpful. If I may shift gears, I think you indicated decisions around certain market centers and network optimization are being evaluated alongside broader industry dynamics including potential industry consolidation.

Ronan Kennedy: Thank you both. That's extremely helpful. If I may shift gears, I think you indicated decisions around certain market centers and network optimization are being evaluated alongside broader industry dynamics, including potential industry consolidation. Could you just provide your current assessment of current industry dynamics, any changes there, and any potential impacts of industry consolidation in terms of how that potentially shape your thinking around investing in retaining, consolidating, or exiting certain or specific markets?

Speaker #2: Could you just provide your current assessment of current industry dynamics? Any changes there? And then any potential impacts of industry consolidation in terms of how that could potentially shape your thinking around investing in retaining consolidating or exiting certain or specific markets?

Speaker #1: Well, I I would at least the way I think about it, I I'd bifurcate it just a bit. Number one is that, you know, the market centers the market centers in the new Vestas going forward that are in that are not performing as they need to, this is these things once you put the capital in in the right leadership in, number one, I I tend in the past to to see them work.

Jim Barber: Well, at least the way I think about it, I bifurcate it just a bit. Number one is that the market centers in the new Vestis going forward that are not performing as they need to. These things, once you put the capital in and the right leadership in, number one, I tend in the past to see them work. By the way, you can pretty much see that somewhere between six and eight months from the point you put the capital in. I've seen the impact in this network that it can have in a very positive way. Next statement is, in certain situations that market dynamics currently today may be allowing a node in the network to not return shareholder value, you might consider exiting that market center and doing it in different ways. That's one way you have to look at it.

Speaker #1: And by the way, you can pretty much see that it's somewhere between six and eight months from the board to the point you put the capital in.

Speaker #1: And I've seen the impact in this network that can have in a very positive way. Next statement is, you know, in in certain situations that market dynamics currently today may be allowing a node in the network to not return shareholder value, you might consider exiting.

Speaker #1: That market center and and doing it in different ways. So that's one way you have to look at it. We all know there's a merger going on or a potential merger.

Jim Barber: We all know there's a merger going on or potential merger in second request right now. How that plays out, where it plays out, how that impacts Vestis or not, and how the FTC is thinking about the various scenarios that can unfold would also guide us into what we might do longer term. That's not to say, by the way, that Bill and team and the engineers aren't continuing to optimize routes, lower the cost as it is, but we've got to make sure each one, as you think about it, essentially is a small business in and of itself. If it's not accretive for us to put capital allocated to it and return it to shareholders, then we have another obligation to deal with it, right? We'll do that. It's not very quick, but it's already started now.

Speaker #1: In the second request right now, how that plays out, where it plays out, how that impacts Vestis or not, and how the FTC is thinking about the various scenarios that can unfold would also guide us into what we might do longer term.

Speaker #1: And that's not to say, by the way, that Bill and team and the engineers aren't continuing to optimize routes, lower the cost as it is, but we've got to make sure each one, as you think about it, is essentially a small business in and of itself. And if it's not shareholder accretive for us to put capital allocated to it and return it to shareholders, then we have another obligation to deal with it, right?

Speaker #1: And we'll do that. But it's not very quick, but we're starting it's already started now. We're building it up and we're going to have really good conversations with you about that.

Jim Barber: We're building it up, and we're going to have really good conversations with you about that. Of course, I'm not going to tell you what's what, and where they are. But I will tell you that the really, really strong ones exceed my expectations about what this business can actually do, and I'll leave it at that on that point.

Speaker #1: Of course, I'm not going to tell you what's what, where they are, but I I will tell you that the really, really strong ones exceed my expectations about what this business can actually do.

Speaker #1: And I'll leave it at that on that point.

Speaker #2: Thank you very much. Appreciate it.

Ronan Kennedy: Thank you very much. Appreciate it.

Jim Barber: Yeah.

Speaker #1: Yep.

Speaker #3: Thank you. And once again, if you do have a question, you may press star one on your telephone keypad at this time. We'll go next to George Tong with Goldman Sachs.

Operator: Thank you. Once again, if you do have a question, you may press star 1 on your telephone keypad at this time. We'll go next to George Tong with Goldman Sachs. Your line is now open.

Speaker #3: Your line is now open.

Speaker #5: Hi, thanks. Good morning. You continue to exit low-quality volumes in the quarter. Can you discuss how much of the business you still see as low-quality, and how much additional exits you expect to make over the near- to medium-term?

George Tong: Hi, thanks. Good morning. You continue to exit low-quality volumes in the quarter. Can you discuss how much of the business you still see as low quality and how much additional exits you expect to make over the near to medium term?

Speaker #4: Yeah. Hey, George. It's Adam. I'll start there and I know Jim will want to jump in and talk to you about kind of the future and how we're thinking about that.

Adam Bowen: Yeah. Hey, George. It's Adam. I'll start there, and I know Jim will want to jump in and talk to you about kind of the future and how we're thinking about that. Just from my perspective, I think it's underappreciated the level of effort that the team has put in this year to really exit some of this unprofitable volume. To do it at the degree that we've done it, to take out $0.55 revenue per pound and target it in that way and still maintain a very stable top line throughout the year is a Herculean effort. So full credit goes to them. I think we're kind of lapping the exit of the majority of the bad linen volume that we saw came into the business last year.

Speaker #4: Just from my perspective, I think it's underappreciated, the level of effort that the team has put in this year to really exit some of this unprofitable volume.

Speaker #4: To do it at the degree that we've done it, to take out 55-cent revenue per pound and target it in that way and still maintain a very stable top line throughout the year is a Herculean effort.

Speaker #4: So full credit goes to them. I think we're kind of lapping the exit of the majority of the bad linen volume that we saw come into the business last year.

Speaker #4: But as you know, purging your your network of unprofitable volume is a continuous journey. That we're always going to be on. But I think as we enter into Q4, you can really start to see that we've taken out a significant amount of that volume.

Adam Bowen: As you know, purging your network of unprofitable volume is a continuous journey that we're always going to be on. But I think as we enter into Q4, you can really start to see that we've taken out a significant amount of that volume. Kudos to the team for the effort there.

Speaker #4: And and and kudos to the team for the effort there.

Speaker #1: I'll give you I guess one more point, George, is that at least a lot last numbers I remember looking at late last week was it's about 75 percent of that that volume we kept and about 25 percent exited us.

Jim Barber: I'll give you, I guess, one more point, George, is that at least the last numbers I remember looking at late last week was, it's about 75% of that volume we kept and about 25% exited us. As to where it goes, it just depends as each individual customer assesses how they go forward and the choices that they have. But it would be fair to say that I do consider in the past, Vestis was a low pricer in the market, and not by a little, but by margins that don't make sense at $0.55 a pound when your business is $1.24 to run it. So I hope they all stay with us and give us a chance to grow back and support their companies. That will be their choice.

Speaker #1: And as to where it goes, it just depends as each individual customer assesses how they go forward and the choices that they have. But I would also it would be fair to say that I do consider in the past, Vestas was a low pricer in the market and not by a little but by margins that don't make sense at 55 cents a pound when your business is 124 to run it.

Speaker #1: So I I hope they all stay with us and gives a chance to grow back and support their companies. That will be their choice.

Speaker #1: We had to make the choice to stop the degradation of that, and we just couldn't put it away at the right rates.

Jim Barber: We had to make the choice to stop the degradation of that, and we just couldn't put it away at the right rates. Each year, that will change, and we'll modify what we do, how we do it, where we do it based upon where the cost curves are going to go, not where they've been. All those kind of factor into what happens in the future, George.

Speaker #1: And then each year, by the way, that will change, and we'll modify what we do, how we do it, and where we do it, based upon where the cost curves are going to go, not where they've been.

Speaker #1: And so, all those kind of factor into what happens in the future, George.

Speaker #4: Yeah. The RPP growth.

George Tong: That's helpful.

Speaker #5: That's helpful.

Speaker #4: The RPP growth is driven by certainly, as you talked about, the the exited volume, but there are substantial amounts of customers that are paying more and that's also driving the RPP growth on a year-over-year basis.

Adam Bowen: The RPP growth is driven by, certainly as you talked about, the exited volume, but there are substantial amounts of customers that are paying more, and that's also driving the RPP growth on a year-over-year basis.

Bill Seward: The RPP growth is driven by, certainly as you talked about, the exited volume, but there are substantial amounts of customers that are paying more, and that's also driving the RPP growth on a year-over-year basis.

Speaker #5: Got it. That’s helpful. And then you discussed initiatives to sharpen your pricing strategy. Can you estimate how much pricing is increasing on a like-for-like basis, once you exclude the benefit of exits from low-quality volumes?

George Tong: Got it. That's helpful. Then you discussed initiatives to sharpen your pricing strategy. Can you estimate how much pricing is increasing on a like-for-like basis once you exclude the benefit of exits from low-quality volumes, and what your target is for pricing increases on a like-for-like basis?

Speaker #5: And what your target is for pricing increases on a like-for-like basis?

Speaker #1: I I the the way I'm not the reason I'm not going to answer that right now is is simply because that's going very nicely and everywhere but the field.

Jim Barber: The reason I am not going to answer that right now is simply because that is going very nicely in everywhere but the field. The field is where we have to go forward here. Most of that activity was in the field accounts.

Speaker #1: And the field is where we have to go forward here. And so and most of that activity was in the field accounts.

Speaker #4: You mean not.

Adam Bowen: You mean non-national field, right?

Speaker #1: Not national field, right? Non-national, if you call it that, is that so George, I think that that ultimately that section of the the business, which is material in this business, needed to take step one this year and move we'll move into step two.

Jim Barber: Non-national, if you call it that. George, I think that ultimately, that section of the business, which is material in this business, needed to take step 1 this year, and we will move into step 2. A lot of that depends on the quadrant that you are in. If you look to quadrant 1 and quadrant 2 and halfway on quadrant 3, the answer to that question is going to be very good and fine and adjustable, and the MDRs will manage it and grow it. The ones that are not providing the right service, that are not taking care of the quality of the product at the right rate and then put a bad dispatch on the street that we are going to fix, they would have less chance to get that. Averages of averages get you where they are right now.

Speaker #1: A lot of that depends on the quadrant that you're in. So, if you look to quadrant one and quadrant two, and halfway down quadrant three, the answer to that question is going to be very good and fine.

Speaker #1: And adjustable. And the MDRs will manage it and grow it. The ones that aren't providing the right service, they're not taking care of the quality of the product at the right rate and then put a bad dispatch on the street, that we're going to fix, they would have less chance to get that.

Speaker #1: And so average of average gets you where they are right now. So I think it's more about, again—and we would tell you that, George—and we've built up 27.

Jim Barber: I think it is more about, again, and we will tell you that, George, when we build up 2027, because we are going to segment the initiatives where you can better understand the power of each lever, not just one outcome number and question whether or not we can get it. We would rather give you one level down in a manner that converts so you can manage your models the right way and we can manage our business the right way. Then we will get a little bit tighter of that as we end Q4 and in 2027.

Speaker #1: And we'll because we're going to segment the initiatives where you can better understand the power of each lever, not just one outcome number and question whether or not we can get it.

Speaker #1: We would rather give you one level down in a in a manner that that converts so you can manage your models the right way and we can manage our business the right way.

Speaker #1: And then we'll get a little bit tighter of that as we end end Q4 and end 27.

Adam Bowen: Great. Thank you.

George Tong: Great. Thank you.

Speaker #5: Great. Thank you.

Speaker #4: Yep. Thank you.

Jim Barber: Thank you.

Speaker #3: Thank you. And we'll take a follow-up from Stephanie Moore with Jefferies. Your line is now open.

Operator: Thank you. We will take a follow-up from Stephanie Moore with Jefferies. Your line is now open.

Speaker #6: Hi. Good morning. Thanks. Look, I think, Jim, you gave a lot of color this morning, and I appreciate you wanting to build a bottoms-up plan for 2027.

Stephanie Moore: Hi. Good morning. Thanks. Look, I think, Jim, you gave a lot of color this morning, and appreciate you wanting to build a bottoms-up plan for 2027. Maybe it would be helpful if you just kind of tell me what is maybe offsides in my thinking here. If we were to just annualize the updated Q4 EBITDA performance, you called out the 25 in cost cuts for 2027. Obviously, you have a lot of work doing, because we talked through the quadrants. Again, if we kind of annualize that math for Q4, make some assumptions there, is that a pretty good run rate as we start to think about go-forward levels? Again, maybe just tell me what I could be missing in that math.

Speaker #6: But, you know, maybe it would be helpful if you just kind of tell me what maybe offsides in my thinking here. I mean, if we were to just annualize the updated 4Q EBITDA performance you called out the 25 in cost cuts for 2027.

Speaker #6: Obviously, you have a lot of work doing, but we talked through the quadrants. But again, if we kind of annualize that math for 4Q, make some assumptions there, I mean, is that a pretty good run rate as we start to think about going forward levels?

Speaker #6: I mean, again, maybe just tell me what I could be missing in that math and then in the same point, if we look at the margin profile, looks like you're going to be at about 14 percent for the fourth quarter.

Stephanie Moore: And then at the same point, if we look at the margin profile, looks like you are going to be at about 14% for Q4. Again, where can that be over the next couple of years, too? Just wanting to put a bow on everything that was said today.

Speaker #6: Again, you know, where can that be over the next couple of years too? So just wanting to put a bow on everything that was said today.

Speaker #4: Yeah. Stephanie, let me jump in at that. I'm going to give you kind of some color here to think about Q3 and as we enter into 27.

Adam Bowen: Yes, Stephanie, let me jump in at that. I am going to give you kind of some color here to think about Q3 and as we enter into 2027. I know Jim will want to add as well. So if you just take the midpoint of our guidance for Q4, which is $86.5 million, and you put that over roughly the same revenue that we had in Q3, if you just kind of hold that flat, you are going to get an exit EBITDA margin of around 13%. So it is a bit lighter than what you mentioned, that 14%. I just wanted to call that out to make sure you get that level in your models. The way you can think about the ramp, just for today, is $86.5 million exiting times four is going to get you roughly $350 million. It is about $346 million.

Speaker #4: I know Jim will want to add as well. So if you just take the midpoint of our guidance for Q4, which is 86 and a half million, and you put that over roughly the same revenue that we had in Q3, if you just kind of hold that flat, you're going to get an exit EBITDA margin of around 13 percent.

Speaker #4: So it's a bit lighter than what you mentioned at 14 percent. I just wanted to call that out to make sure you get that level in your models.

Speaker #4: And the way you can think about the wrap just for today is 86 and a half exiting times 4 is going to get you roughly $350 million.

Speaker #4: It's about $346 million. And I don't really want you to add that $25 million. I'm going to tell you why. Embedded in Q4 '26 is $20 million of transformation benefits, right?

Adam Bowen: I do not really want you to add that $25 million, and I am going to tell you why. Embedded in Q4 2026 is $20 million of transformation benefits. Right? So if you annualize that 20 times four, that gets you roughly $80 million. That is where the $75 million annualized is coming from as we exit Q4. There is going to be improvements, and there is going to be enhancements in 2027, and we are going to talk about top line and all of that in more detail. But I think if you kind of stick there in that general range for now and let us give you an update in a few months, it would be appreciated.

Speaker #4: So if you annualize that, 20 times 4, that gets you roughly 80 million. That's where the 75 million annualized is coming from as we exit Q4.

Speaker #4: And there's going to be improvements and there's going to be enhancements in in 27. And we're going to talk about top line and all of that in more detail.

Speaker #4: But I think if you kind of stick there and that general range for now and let us give you an update in a few months, it could be appreciated.

Speaker #1: And let me say this: I respect exactly what he said, and I agree with what Adam said. There's a piece, though, that a lot of this depends on what we're going to invest back in the business in 2027.

Jim Barber: Let me say this. So I respect exactly what he said, and I agree with what Adam said. There is a piece, though, that a lot of this depends what we are going to invest back in the business in 2027. So I do believe that the best thing we can do is work on our balance sheet and reinvest in this business and make sure the shareholders are doggone happy when we are done. We are not done with the work yet.

Speaker #1: And so I do believe that the best thing we can do is work on our balance sheet and reinvest in this business, and make sure the shareholders are doggone happy when we're done.

Speaker #1: So that the re— and we're not done with the work yet, Stephanie. We've got to finish that off in the next couple of months here, inside these quadrants, taking Steve's strategy, taking the market dynamics, and laying them over the network to be able to say, "Do we go up, stay the same, or go up based upon what Adam just walked you through?"

Jim Barber: Stephanie, we have got to finish that off the next couple of months here inside these quadrants, taking Steve's strategy, taking the market dynamics, and laying them over the network to be able to say, do we stay the same or go up based upon what Adam just walked you through, based upon what we need to keep versus distributing the bottom line, but knowing that every time we keep a dollar, we are going to get more than a dollar back. Just give us a little bit more time, couple more months, and I think we will have something nice to share with everybody at that time.

Speaker #1: Based upon what we need to keep versus distribute in the bottom line but knowing that every time we keep a dollar, we're going to get more than a dollar back." That's so we'll just give us a little bit more time, a couple more months, and I think we'll have something nice to share with everybody at that time.

Speaker #6: Thanks, Jim. Thank you, Adam.

Stephanie Moore: Thanks, Jim. Thank you, Adam.

Speaker #4: Thank you. Good chatting with you.

Adam Bowen: Thank you. Good chatting with you.

Speaker #3: Thank you. This concludes the Q&A portion of today's call. I will now turn the call back to Stephanie Lee for closing remarks.

Operator: Thank you. This concludes the Q&A portion of today's call. I will now turn the call back to Stefan Neely for closing remarks.

Speaker #4: Thank you, operator. And thank you, everyone, for joining us today. We appreciate your time and your interest in Vestas. If you have any questions, please don't hesitate to contact us at ir@vestas.com.

Stefan Neely: Thank you, operator, 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. We look forward to speaking with you again next quarter. Have a great day.

Speaker #4: We look forward to speaking with you again next quarter. Have a great day.

Speaker #3: Thank you. This concludes today's Vestas Corporation fiscal third quarter 2026 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 Q3 2026 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.

Q3 2026 Vestis Corp Earnings Call

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