信達思 (CTAS) 2015 Q2 法說會逐字稿

Good day, everyone, and welcome to the Cintas quarterly earnings results conference call.

Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Bill Gale, Senior Vice President of Finance and Chief Financial Officer.

Please go ahead, sir.

Thank you for joining us this evening.

With me is Mike Hansen, Cintas' Vice President and Treasurer.

After our commentary, we will be happy to answer questions.

The Private Securities and Litigation Reform Act of 1995 provides a Safe Harbor from civil litigation for forward-looking statements.

This conference call contains forward-looking statements that reflect the Company's current views as to future events and financial performance.

These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss.

I refer you to the discussion on these points contained in our most recent filings with the SEC.

As we've reported in today's press release, our results for continuing operations, adjusted to exclude all impacts of the document management businesses, are more representative of our ongoing performance.

Therefore our discussion of the Company's performance will be based on that, the exclusion of document management.

We are pleased to report second-quarter revenue of $1.123 billion.

Organic revenue growth, which adjusts for the impact of acquisitions, foreign currency, and the Shred-it transaction, was 7.2% for the second quarter.

Rental organic growth was 8.1%, and First Aid, Safety and Fire Protection Services organic growth was 12.1%.

The performance of our sales force in both businesses remained strong, and penetration of additional products and services into existing customers continued.

Our second-quarter gross margin was $481.4 million, or 42.9% of second-quarter revenue.

This was a nice improvement over last year's 41.3%, as we continued to leverage our infrastructure, continued to operate very efficiently, and increased our revenue per stop from added penetration at existing customers.

Second-quarter operating income was $181.6 million, or 16.2% of second-quarter revenue.

This was a 20.7% increase over last year's second quarter operating income of $150.5 million, or 14.3% of last year's revenue.

Second-quarter net income and earnings per diluted share, as adjusted, also improved nicely, compared to last fiscal year's second quarter amounts, as adjusted.

Second-quarter net income was $103.7 million, which was 9.2% of revenue, and grew by 24% over last year's second quarter.

Second-quarter earnings per diluted share, as adjusted, was $0.86, which grew over 26%, compared to last fiscal year's second-quarter figure, as adjusted, of $0.68.

As Scott Farmer indicated in our press release today, our employees, who we call partners, have executed our game plan very effectively, and we look forward to the second half of our fiscal year.

We are updating our FY15 guidance as a result of our second-quarter results.

Before discussing the guidance, though, let me make a few comments on our views of the economy.

We have certainly been pleased with US employment growth in the last few months.

While the employment growth continues to be more narrow than we would like, the overall growth totals have been good.

This has not yet translated into marketable improvements in our Rental net add-stops metric, but our customers are recognizing the value of our products and services, and our penetration continues to be solid.

Our guidance assumes that the US economy will remain in this current state during the second half of our fiscal year.

We do believe, however, that this economic state is fairly fragile.

Many macro factors, such as interest rate environment, energy prices, and global economic issues, could upset the US momentum, and so we are hesitant to turn too optimistic.

With these views in mind, and based on our second-quarter results, we now expect our FY15 revenue to be in a range of $4.45 billion to $4.5 billion.

We now expect our FY15 earnings per diluted share guidance to be in the range of $3.49 to $3.54.

When excluding the special items of the impact of the document shredding business, and the additional gain on the Shred-it transaction, the impact of the sale of stock in an equity investment, and the impact of the discontinued operations, including the sale of Document Storage and Imaging business, we expect FY15 earnings per diluted share guidance to be in the range of $3.20 to $3.25.

This EPS guidance is detailed in the table within today's press release.

I will now turn the call over to Mike for more details on the second-quarter performance.

Thanks Bill, and good evening.

Before moving into the second-quarter results, let me remind you that there were 65 work days in this year's second quarter, which is the same as last year's second quarter.

Looking ahead to the remainder of FY15, we will have 65 work days in each quarter, for a total of 260 work days for the fiscal year.

These workday figures for FY15 are the exact same as in FY14, so we will have no work day differences or adjustments for the remainder of this fiscal year.

We have three reportable operating segments.

Rental Uniforms and Ancillary Products, Uniform Direct Sales, and First Aid, Safety and Fire Protection Services.

Uniform Direct Sales and First Aid, Safety and Fire Protection Services are combined and presented as other services on the face of the income statement.

The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms, masks, towels and other related items.

This segment also includes restroom supplies, and other facility products and services.

Rental Uniforms and Ancillary Products revenue was $865 million, which is up 7.6% compared to last year's second quarter.

Organic growth, which excludes the impact of acquisitions and foreign currency changes, was 8.1%.

Organic growth was higher than total growth because of the weakening of the Canadian dollar.

As Bill mentioned, the performance of our sales team continued to be strong.

We did not see a marketable improvement in net add-stops compared to last year's second quarter, but we did see our typical season net adds for jackets and entrance mats.

Entrance mat net adds were somewhat stronger than last year, due to the early wintry weather this year.

Penetration of additional products and services to existing customers remained strong.

Our Rental segment gross margin was 44.8% for the second quarter, an increase from 42.9% in last year's second quarter.

Energy-related costs were 20 basis points lower than in last year's second quarter.

We have continued to leverage our infrastructure and are operating very efficiently.

The second quarter Rental gross margin of 44.8% was a decrease from this fiscal year's first-quarter gross margin of 45.1%, due to a number of items, none of which are significant.

Energy-related costs in the second quarter were 20 basis points lower than in this fiscal year's first quarter.

Our Uniform Direct Sales operating segment includes the direct sale of uniforms and other related products to national and regional customers.

Uniforms and other related products are also sold to local customers, including products sold to rental customers through our direct sale catalog.

Uniform Direct Sales revenue for the second quarter was $117.5 million, which was 3.6% lower than last year's second quarter.

When adjusting for foreign currency changes, the organic decrease was 3.2%.

Uniform Direct Sales gross margin was 27.6% for the quarter, a decrease from last year's second quarter gross margin of 28.8%.

This decrease was due to lesser volumes, and a mix towards lower margin accounts.

Our First Aid, Safety and Fire Protection Services operating segment includes revenue from the sale and servicing of first aid products, safety products and training, and fire protection products.

First Aid, Safety and Fire Protection revenue for the second quarter was $140.4 million, which is 12.7% higher than last year's second quarter.

Organic growth was 12.1%.

As has been the case for the last few years, this business continues to execute at high levels, and continues to innovate with new products and services.

This segment's gross margin was 43.8% in the second quarter, which is slightly above last year's second quarter of 43.4%.

Energy-related costs were 20 basis points lower than last year's second quarter.

The second-quarter gross margin of 43.8% is fairly consistent with this fiscal year's first-quarter gross margin of 43.7%.

Energy-related costs were 20 basis points lower than the first quarter.

Moving to a few comments on the document shredding business, as a reminder, under US Generally Accepted Accounting Principles, we will continue to include document shredding results in last fiscal year's income statement.

However, beginning with the first quarter of this year, FY15, we no longer record any document shredding revenue, gross margin, or operating income.

Instead, we will simply show our share of the partnership income in our corporate operating segment.

During the second quarter of FY15, there was a slight loss of $300,000 net of tax from the partnership.

Switching to selling and administrative expenses, total Company SG&A was 26.7% as a percentage of revenue in the second quarter, compared to a total Company SG&A in last year's second quarter of 28%.

When excluding the impact that document shredding had on last year's second quarter SG&A and revenue, last year's adjusted total company SG&A was 27% as a percent of the adjusted revenue.

The decrease in SG&A as a percent of revenue from last year's adjusted 27% to this year's 26.7% is made up of a number of minor changes from last year, none of which are of any significance.

Looking ahead to our third-quarter, keep in mind that payroll taxes reset with the new calendar year.

We expect this resetting to increase third-quarter payroll taxes by roughly 80 basis points over second-quarter levels.

Our effective tax rate was 37.4% for the quarter, compared to 37.8% last year.

The effective tax rate can fluctuate from quarter to quarter, based on tax reserve builds and releases relating to specific discrete items.

We expect the FY15 effective rate to be 37.3%.

As we discussed on our first-quarter conference call, we changed our accounting classification of the Document Storage and Imaging business to discontinued operations, effective with this fiscal year's first-quarter reporting.

The classification of this business as discontinued operations means, under US Generally Accepted Accounting Principles, that we must condense all income statement impact from the business into one line on the income statement for all periods presented.

As a result, we no longer show any Document Storage and Imaging revenue, gross margin, or operating income in either this year's or last year's income statement.

Instead, the entire results in both years are condensed into one line on the income statement, entitled Income from Discontinued Operations Net of Tax.

For this year's second quarter, we had $17 million of net income from discontinued operations, net of tax.

This income resulted in earnings per diluted share from discontinued operations of $0.14.

Included in this net income figure is a gain on the sale of the Document Storage and Imaging business, totaling $16.3 million, net of all related expenses and taxes.

As we announced on November 6, 2014, we sold this business in three separate transactions, which closed this past October and November.

The aggregate consideration of these businesses was roughly $180 million.

We received roughly $160 million of cash at closing, with holdbacks of roughly $20 million to be determined over the next 12 months.

The gain in this second quarter was computed based on the $160 million of cash received at closing.

Our cash and cash equivalents were $827 million at November 30, an increase of $245 million from the $581 million at August 31.

Again, we received cash of $180 million from the sale of Document Storage and Imaging -- $160 million.

The remaining increase was generated from our operating cash flow.

Keep in mind that we paid our annual dividend of $202 million on December 5.

Accounts receivable increased $21 million since August 31, due to the increase in sales.

New goods inventory and in-service inventory levels at November 30 were $236 million and $528 million, respectively.

These balances are fairly consistent with the balances on August 31.

Accounts payable increased roughly $30 million since August 31, due to the timing of vendor payment due dates.

Current accrued liabilities were $503 million at November 30, an increase of $210 million.

This increase was due to the accrued dividend of $202 million at November 30.

Note that the assets and liabilities classified as held for sale at August 31 were sold as part of the Document Storage and Imaging sale, except for certain Document Storage real estate properties that remain classified as held for sale at November 30.

These properties are currently being leased to the buyers of that business.

Long-term debt remained at $1.3 billion, representing roughly 1.7 times EBITDA.

And finally, CapEx for the second quarter was about $45 million.

Our CapEx by operating segment was as follows: $35 million in Rental, $3 million in Uniform Direct Sales, and $7 million in First Aid, Safety, and Fire Protection.

We expect CapEx for FY15 to be in the range of $250 million to $275 million.

That concludes our prepared remarks, and we will now be glad to answer any of your questions.

(Operator Instructions)

Manav Patnaik, Barclays.

This is Greg actually calling on for Manav.

Just wanted to get some details on your energy costs in this lower cost environment.

Does the current guidance that you have assume that oil prices and gas stay this low, or is there a potential upside should we remain at these low rates?

Greg, as you know, our guidance has a range of about $0.05 and our basic assumption is that, generally speaking, the experience that we had in our second quarter will continue for the rest of the year.

So let me just give a little color on that, because we anticipated this.

If you look at the average price of fuel, and this is taken from the US Energy Information Administration, in our fiscal second quarter, the average price of gas was $3.13 a gallon, and the average price of diesel was $3.71 per gallon.

In the first quarter, the average price of gas was $3.54 a gallon, and the average price of diesel was $3.88 per gallon.

Keep in mind a little over 50% of our fleet is diesel, and we have not seen the dramatic drop in diesel prices that we have been seeing in gas prices.

But if you think about what happened in our energy prices from the first quarter to the second quarter as a basis of revenue, we had about a 14 or 10 basis point decline in the cost of our revenue.

So while it's having an impact, we would expect the kind of experience we had in the second quarter to continue through the year.

If we get what we saw late in the second quarter continue through the year, then that would help us, all else being equal, to achieve toward the higher end of the guidance.

Okay, very helpful and I guess along the same theme, I was wondering if you have gotten any feedback from your customers on the lower costs and if it's impacting their business, and maybe specific to your energy customers, how big is that to you, and what do you expect that impact to be for those contracts?

Well no particular industry is overly significant to us, but there's no question that if these energy prices continue at these levels, our exploration customers, which have been pretty robust here in the last several years, are going to be impacted.

And therefore if they start laying off some of their employees, that will certainly have an impact on our revenue from those type of customers.

It's not material, but it will have -- it will be negative.

On the other hand, lower energy prices would seem to me to drive some benefit for other types of businesses.

So I think it's hard to really say whether or not it's going to have a negative or a positive impact on the Company, because there's going to be some industries that will benefit and some that won't.

Fair enough, and if I can sneak in one more, just on the buybacks, slowed down this quarter.

Does that have anything to do with the special dividend, and what's your appetite for buybacks going forward?

Yes, we are certainly -- keep everyone in mind, we bought $250 million worth of stock late in our fourth quarter into the first quarter this past fiscal year.

We did pay the special dividend in addition to our regular dividend in early December.

We also have indicated that we are very interested in making acquisitions, and we are continuing to pursue a fairly active pipeline.

Obviously, nothing significant has happened at this point, or we would have announced it.

In view of the fact that we may not find the acquisitions that we would like to have, I think the Board has shown in past experience that we will certainly be active in purchasing our own stock, if warranted.

Okay.

Very helpful.

Thank you.

Andy Wittmann, RW Baird.

First, I wanted to give a very sincere congratulations to you, Bill, on a great career, and many successes to you and Mike also.

Big shoes to fill.

Bill, I think we will all miss your ability to put a dollar outlook on the economy when your numbers are actually quite good, so that's probably what I will miss most about these calls.

Thank you for the kind words, Andy.

That being said I have to dovetail that into a question, because I think this is a question that everybody's going to be asking.

When you look at the guidance range, it looks like there's a material deceleration in the growth rates that you're assuming in EPS.

The fuel benefit only gets better from the average levels here that you saw in the second quarter, you alluded to that's upside, and puts it on the top line here, but is there something in the business here that you are seeing either somewhat offset on the cost side coming in, or a deceleration in some of the businesses that we should be aware of, that leads you to guidance range that you've given here?

As Mike mentioned in his comments, keep in mind we've got the payroll tax reset, which is approximately an 80 basis point impact in our third quarter.

We also have a second quarter which our experience in our workman's comp and auto claims was better than it had been in the previous couple of quarters.

We tend to see a slight increase in our medical costs in our third quarter.

So with that said we see a little bit of headwinds there, which will impact the SG&A line, and thus would impact the overall margins.

I think we've got to keep in perspective that the energy cost, I tried to put that when I responded to Greg in the first question, is not as significant as some may believe.

Certainly, we would benefit from continued low gas prices, but it's not as significant as I think some people think, because our overall energy costs are 2.5% of revenue, of which the delivery side of it is approximately 1.5%.

Now with that said, we still would like to see a broader employment growth.

We have not seen any adds to speak of at existing customers.

We have seen additional penetration of products and services at our customers, but we have yet to see really the uniform wearers being added.

Were that to happen, then we would certainly be at the upper end of the guidance, but based on our current view, we thought the guidance we provided was appropriate.

Got it.

So you mentioned efficiency, obviously the business model has got some leverage in it, but efficiency was a word that was mentioned a few times.

Last we checked, the implementation of SAP to the uniform business, the Rentals segment, still more in the future than the present.

Is there anything structurally that's new and different, or are we seeing other things like leverage, and frankly price contribution adding more to the margin expansion we're seeing here?

I think those are the key questions, and I will leave it there.

Andy, you are right.

The last two things you hit on, leverage of the infrastructure and the price increases have certainly benefited margins.

The SAP system is still in its early stages.

We will not be piloting anything, at the earliest until our FY16, and therefore there really won't be anything benefiting us, probably until the latter part of 2017 or 2018.

So right now, it's really one of just getting additional volume within our routes, and through our plants.

We mentioned previously that we will be constructing some new facilities in various markets.

We're not moving as rapidly as we once thought, as we continue to look for the appropriate pieces of land.

And therefore, that's one of the reasons why you saw a reduction in the CapEx guidance, because we don't think we'll be moving as fast with that new construction, as we originally thought.

So I would say that as long as we can continue to leverage what we've got, we'll continue to see margins at these levels.

As for the SG&A I talked about earlier.

On the pricing, would you say that pricing continued to get better sequentially here, is the environment getting better?

We're a little concerned, it's okay through the second quarter, but as we see these lower gasoline prices in the headlines, we're wondering is that going to create some difficulty for the industry to continue to get the kind of pricing that we've been seeing lately.

So I think there is a concern out there that we'll have to make sure that we explain this properly when we continue to try to get price increases.

All right, thanks again, guys.

Sara Gubins, Bank of America -- Merrill Lynch

Good afternoon.

Maybe just a follow-up on the discussion around pricing.

Could you give us any sense of the magnitude of price increases that you are seeing?

No.

Sara, we don't talk about those in any magnitude publicly.

As we said in the first quarter, and a little bit today, we did see an improvement in the pricing environment in the last six months, compared to a year ago.

Right, okay.

Last quarter when you talked about margin expectations, it sounded like you were thinking that they would be flat in the absolute versus the first quarter, and then of course in the second quarter, they were up quite nicely.

I'm wondering what drove the surprise, if it was a surprise, but what drove the surprise in the quarter, and it may have been pricing, and it may have been a little bit of energy, but I'm wondering if there was anything else?

Well in the second quarter relative to the first, our overall gross margins were about the same, which was a very good level year-over-year, helped by the nice pricing environment, helped by leverage of our infrastructure, and the penetration of new products and services.

The real sequential margin improvement was in that SG&A, where Bill mentioned we had better worker's comp and auto experience in the second quarter.

And the other thing we talked about in the first quarter was the extra G&A, if you will, because of the document shredding contribution, so we lost quite a bit of revenue to cover that extra G&A.

And we've done a very good job of managing our cost structure, and rationalizing that G&A to the organization that we have today, and so we're pleased with the execution there.

Great, and then just last question.

Would it be possible to give any more color on what's driving the strong uniform rental growth, and I'm thinking new programs versus some market share shift?

I think a lot of it is driven by the strong execution of new business by our sales organization.

So new customer adds, primarily from the [no programmer] side.

Again, approximately two-thirds of our new business is coming from customers who have not used the services before.

But I think it also was driven by the additional products and services.

As we've spoken about for the last several years, we continue to expand our offerings, both within the Rentals segment, as well as within the First Aid and Safety segment to provide additional things to our customers, and I think that has helped the growth rates in both those segments.

Great.

Thank you.

Dan Dolev, Jefferies.

Thanks for taking my question.

Question on the gross profit in uniform rental.

So if I look at the incremental margins in Q1, they were very strong in the mid-70s.

They decelerated a little bit in Q2.

My question is, it stopped an accelerating trend which started early last year.

My question is, it seems like it should be accelerating given the cheaper energy prices, so what made it decelerate?

And the second part of the question is, what kind of level do you think you can maintain throughout 2H?

Thanks

Well Dan, in both quarters, our gross margin was very strong.

And it's been that way for a number of quarters now.

We continue to get very healthy incremental gross margin in that business.

And as long as we continue to penetrate and make our customers more valuable, as long as we can continue to grow without adding capacity, it should be healthy.

Overall, that incremental margin was still very healthy.

Absolutely, but you see that not decelerating significantly below, call it the mid-60s to high 60s?

Well Dan, some of that depends on the mix of the revenue that comes, and we've talked a little bit about adding some capacity, rental processing capacity in a few markets in the future.

It depends on the timing of that capacity addition, and it depends a little bit on the mix of revenue that we get.

If we see a marketable improvement in our customers' hiring, we may see even better incremental margin.

Great, thank you, and congrats again for both of you for the promotion and for the retirement.

Thank you, Dan.

Joe Box, KeyBanc Capital Markets.

I just want to take the rate question from earlier, take it from a different angle.

When you guys are looking at rates, and you are saying that rates are actually up, are you looking at core rental rates, or are you maybe looking at say a yield number that might include ancillary fees like lost waivers, stuff like that?

Just trying to understand what it is.

What you mean by rates, Joe?

Maybe the core rate that you might charge a customer per day?

When you are saying pricing is going up?

When we talk about pricing being a little bit of a better environment today than a year ago, what does that mean?

Is that your question?

Correct.

Generally, that means when we are renewing some accounts, we're able to do it at a little bit of a better level.

When we have -- our contracts generally have an annual price increase opportunity, and that annual price increase opportunity can be a little bit easier.

And it just comes back to our ability to speak to the value that we are providing to our customers, and we've been able to do a pretty good job of that in the last six months.

That's good to hear, Mike, I just wasn't sure if it was that you were maybe able to tack on some additional surcharges, and that was able to raise the bill.

And then you were maybe considering that core pricing, but it doesn't sound like that's the case.

Maybe just switching gears then, I'm curious from a high level, are you starting to see new business formation?

Are you still seeing subtractions?

Has that been a positive driver, or is the organic growth really more a function of ancillary products to existing customers at this point?

Well there is still no question we're adding new customers, Joe.

Is that indicative of the economy adding new businesses?

I don't think we really can say that for sure, because there are so many businesses that were out there that weren't using our services, so I don't think we could tell you that there's all these new business adds or whatever.

I can just say, from our perspective, we're able to get more companies to take our services, and we're getting more of our existing customers to take some of our other services.

So I think those are the two primary reasons why you are seeing the growth.

Understood.

Just one last follow-up for you.

Are the payroll taxes higher than they would normally be in 3Q, so there would actually be a year-over-year impact, or are you just pointing out the sequential change?

Sequential change.

We're just trying to make sure that everyone understands that.

No.

It's not a year-over-year thing, it's a sequential change.

Okay, so I guess I'm really just trying to understand then why there wouldn't be better SG&A leverage in the back half of the year, and I certainly understand there are some minor things in there like auto claims and worker's comp.

Well, there's a lot of things in there, and I think what we're telling you is that we would not expect there to be a significant improvement in the overall SG&A number.

At this point, we think we've done a pretty good job, given the fact we lost a lot of revenue from the document shredding and document storage transactions, and we're trying to get that revenue right-sized, or those costs right-sized for the remaining revenue.

I think so many of you do your models, and then you want to assume the same level of SG&A from the second quarter to the third quarter, so we are telling you that's not the case.

What we're also telling you is that we would expect the rates that we saw in the second quarter, adjusted for payroll taxes, adjusted for potential increases in workman's comp type costs, to basically be comparable for the rest of the year.

Understood.

Thanks, and great quarter.

Scott Schneeberger, Oppenheimer.

Thanks.

Let me add guys, Bill and Mike, congratulations to both of you.

Bill, you covered it well earlier, but just curious if you could add, if you are willing to do so at this juncture, your oil and gas exposure as an end market, just as part of the total mix.

I know you mentioned that you didn't think it would be too material on a direct level, maybe on a broader level over time, but just curious on that, thanks.

Scott, it's in the low single digits.

It's nothing of any significance.

I don't have the exact number, but as you have followed us for years, there's just no one industry that really impacts us all that much.

Great, thanks.

Appreciate that.

And curious on the M&A pipeline, you addressed that a little bit earlier as well.

I would appreciate if you could delve a little bit more into the types of things you are seeing?

You obviously have a lot of cash available on the balance sheet right now, a lot of flexibility with things that you do.

I know this will come across as a dumb question, but is document management, which seems to have some M&A activity, completely out of the picture?

Thanks.

Oh yes.

Document management is completely out of the picture.

We've disposed of the storage and imaging business, and we still have our 42% share of the joint venture, but we will not be pursuing any document management transactions within Cintas any longer.

We certainly are going to pursue acquisitions in our other businesses, and we will continue to do so.

There are some big ones, there are some small ones, and there are some good regional players.

We also will continue to pursue other businesses that either will complement one of the segments we're already in, or may perhaps even be another new segment, although historically, we've never gone into a brand-new segment in any big way, without testing it first.

So I just wanted to be sure everyone understands that we are actively pursuing things within First Aid, Safety, Fire as well as in the Uniform side of the business.

And we will continue to do so.

But we will not make an acquisition that doesn't make sense economically, just because prices may have become a little frothy.

Great, and good job, and congratulations again.

Andrew Steinerman, JPMorgan.

I was wondering if, Bill, you meant to say to get to the higher end of the revenue guide that would need add-stops to pick up.

I know you said something similar to that, but is that what you meant?

I really didn't address the revenue, Andrew.

I was talking more about the profit side, because I think it was more of a margin question.

To get at the high -- yes.

No.

I would tell you that the high end of the revenue guidance does not assume a significant improvement in add-stops.

It would assume a continued good pricing environment, a continued impact of good new business results, and the penetration that we've seen.

If we were to see a lot of our customers really adding people, and therefore increasing the revenue per stop in a significant way, we certainly would be able to get to that top end of the guidance, plus some, as we go forward.

I'm still sort of curious about the add-stop, and wondering if you think add-stops will increase this cycle.

Because when I look at the labor reports, the diffusion index is broadening out, and is including categories that seem extremely relevant for uniforms like manufacturing and warehousing and transportation.

But perhaps they are adding people in areas that aren't uniformed, or something along those lines, that I was just wondering if you feel like if this continues, that add-stops will go up?

I certainly hope so, but I will tell you from our experience with our existing customers, we are not really seeing that type of activity.

We're not seeing declines either.

Right.

Which category do you think it needs to kick in more for add-stops to go higher?

Which category?

You mean --

Manufacturing, transportation?

Services.

I think just generally services, that's the bulk of our customer base, are in the service sectors.

Okay.

Thank you very much.

Ladies and gentlemen, that does conclude our Q&A session.

I'd like to turn the call back over to Mr. Bill Gale for closing remarks

Again, I want to thank everyone for joining us this evening.

And on behalf of all my fellow partners here at Cintas, and our management team, we want to wish you a very happy holiday season.

Mike will be back in March to give you our third-quarter results.

Ladies and gentlemen, that does conclude our conference for today.

We do appreciate your participation.

Have a great day.

Thank you.