信達思 (CTAS) 2015 Q4 法說會逐字稿

Good day everyone, 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. Mike Hansen, Vice President of Finance and Chief Financial Officer.

Please go ahead, sir.

Thank you, and good evening.

Thanks for joining us tonight.

With me is Paul Adler, Cintas Vice President and Treasurer.

We will discuss our fourth-quarter and full-year results for FY15.

In addition, we'll provide guidance for FY16, and after our commentary, we'd be happy to answer any questions.

The Private Securities 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 reported today, in today's press release, our results for continuing operations, adjusted to exclude all impacts of the document management businesses and the first quarter benefit from the gain on the sale of stock in an equity method investment, are more representative of our ongoing performance.

Therefore our discussion of the Company's performance will exclude these items.

We are pleased to report fourth-quarter revenue of $1.142 billion.

Organic revenue growth, which adjusts for the impact of acquisitions, foreign currency, and the Shred-it transaction, was 6% for the quarter.

Full fiscal year revenue was $4.476 billion, representing organic growth of 7.1% over the prior fiscal year.

While revenue on our Uniform Direct Sales segment was unchanged compared to FY14, our two largest segments, Rental Uniforms and First Aid Safety and Fire Protection, grew organically for the year by 7.7% and 9.2% respectively.

The performance of our sales force in both businesses was strong.

We saw profitable business and penetrated existing customers with our broad line of products and services.

Fourth-quarter operating income was $177 million, which was 15.6% of revenue compared to adjusted operating margin of 15.4% in the prior year.

Full fiscal year operating income was $696 million, or 15.6% of revenue.

This represents a 120 basis point improvement over last year's adjusted operating margin.

We are pleased with our ability to leverage our infrastructure and with the results of our increased focus on managing our cost structure following the Shred-it transaction.

Additionally, we benefited from lower energy-related costs compared to last year.

Paul will discuss the energy-related costs in more detail.

Earnings per diluted share as adjusted for the fourth quarter were $0.86, representing an increase of 11.7% over last year.

For the full fiscal year, EPS was $3.35, an increase of 21.8% over last year.

As our CEO, Scott Farmer, stated in today's press release, we also demonstrated our continuing commitment to providing shareholder value through our stock buyback program.

We purchased 4.4 million shares of our common stock during the fourth quarter and into the first quarter of FY16 for $370 million.

FY15 was a very successful year for Cintas.

We thank our employees, whom we call partners, for their hard work in ensuring this outcome.

Yesterday, the Company announced that it has entered into a definitive agreement to sell its investment in Shred-it for approximately $550 million to $600 million before taxes.

The transaction is expected to close in the fourth quarter of calendar year 2015, subject to obtaining regulatory approvals and satisfaction of other customary closing conditions.

These proceeds will be in addition to the $180 million received at the closing of the partnership transaction on April 30 of 2014, and the $113 million received in May of 2015 in the form of a dividend from Shred-it.

Looking forward to FY16, we expect revenue to be in the range of $4.700 billion to $4.780 billion.

We also expect double-digit EPS growth in the range of $3.74 to $3.83.

This guidance includes the impact of having two more work days in FY16 compared to FY15.

Our guidance does not include any EPS impact from the recently announced agreement to sell our investment in Shred-it, nor does it include any deterioration in the US economy or any additional share buybacks.

The EPS guidance is detailed in a table within today's press release.

I'll now turn the call over to Paul for more details on Company performance.

Thanks, Mike.

First, please note that there were 65 workdays in this year's fourth quarter which is the same as last year's fourth quarter.

The full FY15 had the same number of days as FY14 of 260 days.

FY16 will have 262 workdays, 2 more than FY15.

For FY16, the number of workdays by quarter are 66 in the first quarter, 65 in the second and third quarters, and 66 in the fourth quarter.

As Mike stated, total revenue increased organically by 6.0% in the fourth quarter and by 7.1% for the full fiscal year.

Total Company gross margin was 42.6% for the fourth quarter of this year, compared to 42.2% in last year's fourth quarter and adjusted.

Total Company energy-related expenses for this year's fourth quarter were 2.2%.

Last year's fourth quarter energy-related expenses were 3.0%, excluding document management.

For the full year, total Company gross margin was 42.9%, an increase of 120 basis points over the prior year adjusted margin of 41.7%.

For the full year, total Company energy-related expenses of 2.5% were 40 basis points lower in FY14 as adjusted to exclude document management.

I will discuss gross margin and energy-related expenses by segment in just a moment.

Before doing so, let me remind you that 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 income statement.

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

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

Rental Uniforms and Ancillary Products revenue was $873 million, an increase of 5.8% compared to last year's fourth quarter.

Organic growth, which excluded the impact of acquisitions and foreign currency exchange rate changes was 6.5%.

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

For the full year, Rental Segment total growth and organic growth was 7.2% and 7.7% respectively.

Rental Segment revenue mix for the fourth quarter of FY15 was unchanged from the prior year quarter.

The revenue mix was as follows.

Uniform rental, accounted for approximately 52% of revenue, thus control comprised mainly of entrance mats, accounted for 19%, hygiene and other services, including restroom supply, cleaning services, and chemical services was 16% of revenue.

Shop towels were 5% and linen and other, which is mainly non-person specific garments such as aprons and butcher coats, was 8%.

Our rental segment gross margin was 44.0% for the fourth quarter, an increase from 43.6% and last year's fourth quarter.

Energy-related costs were 90 basis points lower than in last year's fourth quarter.

For the year, rental segment gross margin was 44.6%, an increase of 130 basis points, compared to the prior year period, about 50 basis points of which was due to lower energy-related costs.

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 fourth quarter was $118 million, an increase of 0.3% compared to last year's fourth quarter.

When adjusting for foreign currency exchange rate changes, organic growth was 1.1%, for the quarter and flat for the full fiscal year.

Uniform Direct Sales gross margin was 29.8% for the fourth quarter compared to 30.0% in the prior-year quarter.

For both the full FY15 and FY14, gross margin was 28.5%.

The decrease in energy-related costs benefited gross margin 30 basis points and 10 basis points in the fourth quarter and full year periods, respectively.

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 fourth quarter was $150 million, which was 9.8% higher than last year's fourth quarter.

Organic growth was 7.3%.

For the full year, segment total growth and organic growth was 10.5% and 9.2% respectively.

This segment's gross margin was 44.4% in the fourth quarter, compared to 44.6% in the prior year period.

Energy-related costs were 60 basis points lower than in last year's fourth quarter.

For the year, first aid safety and fire protection segment gross margin was 44.1%, an increase of 30 basis points compared to the prior year.

Energy-related costs were 40 basis points lower than FY14.

Regarding selling and general and administrative expenses, total company SG&A was 27.0% as a percentage of fourth-quarter revenue, compared to a total Company SG&A and last year's fourth quarter of 27.8%.

When excluding the impact that document shredding had on last year's fourth-quarter SG&A and revenue, last year's adjusted total Company SG&A was 26.8% as a percentage of the adjusted revenue, while we had an increase in legal and professional expenses in the fourth quarter.

Full-year SG&A as a percentage of revenue was 27.4% for FY15, the same percentage as in FY14 when adjusted for document shredding.

Our effective tax rate for the fourth quarter was 37.6%, compared to 40.4% in the prior year period.

The full year 2015 effective tax rate was 37.2%, compared to 38.3% in FY14.

The higher FY14 effective tax rate was the result of a number of discrete items related to the Shred-it transaction.

We expect the FY16 effective tax rate to be 37.3%.

Our cash and marketable securities were $433 million at May 31, an increase of $30 million from the $403 million at February 28.

Cash provided by operating activities was $202 million in the fiscal fourth quarter, driven by net income and increases in working capital, resulting from the timing of vendor and other payments compared to the previous quarter.

In the fourth quarter of FY15 we received a dividend from Shred-it of $113 million and finally, the Company paid $237 million in the fourth quarter to repurchase common stock.

Capital expenditures for the fourth quarter were $54 million.

Our CapEx by operating segments was as follows.

$44 million in Rental, $3 million in Uniform Direct Sales, and $7 million in First Aid Safety and Fire Protection.

We expect CapEx for FY16 to be in a range of $250 million to $300 million.

That concludes our prepared remarks.

We are happy to answer your questions.

(Operator Instructions)

George Tong, Piper Jaffray.

Hi, this is Adrian Paz on for George Tong.

And I wanted to, Mike, dive into the Rental Uniform segment, and there's been a bit of deceleration there from prior quarters.

Maybe you can touch on trends that you're seeing there that would contribute to the deceleration there?

And also I wanted to know if you're maybe seeing softness from the manufacturing sector due to the stronger dollar.

Sure.

So our rental organic growth -- it did come down a bit from the third quarter to the fourth quarter, and there were several things that accounted for that.

First of all, we did see a little bit of softening in our net add-stops performance, a little pullback from our customers, I would say in the mid, middle of the quarter, we started to see a little bit of a worsening trend and that actually continued into our first quarter.

We also saw a little bit of a pullback from our national account customers, especially in our emergency services business.

We saw a little bit of a negative impact from the oil and gas that we've talked about in the past.

And then, lastly, I would say, we did see a little bit of an impact from pricing, from the standpoint of the year-over-year impact.

So let me talk a bit about pricing.

Last year in the fourth quarter, we talked about how we saw improvement in the pricing environment.

And that carried throughout our FY15.

And we really didn't see much of a change in our fourth quarter.

But one thing to keep in mind is we did lap the beginning of that -- what we saw was a bit of an improved environment, so the year-over-year growth was affected by a little bit.

So I would say those four things contributed to a little bit of a deceleration in that rental organic growth.

From a manufacturing segment standpoint, I can't say that we saw anything unusual or any significant trend or noticeable trend.

Great.

Thank you.

That's very helpful.

Can you touch on your capital allocation plan with the divestiture, or the sale of the Shred-it transaction.

It seems like you have a really strong balance sheet at this point.

Maybe you could touch on what your -- if you are looking at any particular segment for M&A or just M&A plans in general?

Well, the -- so certainly, when we think about our cash usage, we want to make sure that we're growing organically and we'll spend what we need to on CapEx.

Secondly, we really do like acquisition opportunities if they are at the right value and they create synergies and long-term benefits for the Company.

We certainly would be actively involved in looking at businesses, acquiring businesses, in our current businesses, if the value was there.

If we felt like synergies were available.

So we certainly have an active corporate development team and certainly are open to making acquisitions, again, that are at the right value and that can provide long-term value for us.

Certainly, after that, we've shown that we will increase the dividend.

We've done so every year since we went public in 1983, and so dividends are an important part of our capital allocation.

And then, lastly, as you've seen in the last quarter or so, the buyback program is very important to us.

As we mentioned, we acquired $370 million of our stock in the last quarter and into the first quarter, so when we think about capital allocation, those are our thoughts.

Now, certainly, with the Shred-it transaction that will close in the fourth quarter, our Board will be busy thinking about how to deploy that cash, what is the appropriate way to use that, and we'll certainly be actively thinking in terms of how to use that.

And looking at perhaps your M&A pipeline, are you really looking for larger transactions or are you happy with the maybe just bolt-on opportunities?

We would look at both bolt-ons.

We certainly love bolt-ons because they create some great synergies for us.

But we certainly would be open to larger transactions, again, as long as they created the value that we felt like we needed, the synergy opportunities and a long time value for Cintas.

Great.

Thank you.

Gary Bisbee, RBC Capital Markets.

Hello.

Good afternoon.

Hi, Gary.

A couple questions if I could.

The first aid fire safety organic growth slowed a little more and my sense coming out of last quarter, Paul, was that there had been a little weather impact that maybe would bounce back.

Is there anything more specific you'd call out in any thought process and how that might trend given this recent period of deceleration of organic growth?

Yes.

We are still pleased with the performance of the business.

On the fire side of that business, there does tend to be a little bit more project work and we did see a little bit of pullback in that project work in the fourth quarter, so there is -- there are repairs that we do.

There are new product sales, like fire extinguisher sales to customers, and we saw a little bit of a pullback in the fourth quarter, nothing that we believe to be creating a trend.

We still feel very positive, particularly about the service side of the Business.

It's been performing very well, and so I think that's what we've seen in the Business in the last quarter, but in our minds, nothing to be concerned about.

Okay.

And then, on the gross margins, it looks like both rentals and first aid, if you back out the benefit from energy, would have seen the gross margins decline somewhat year over year.

That's obviously a change from what's been a real strong trend for quite some time.

Is there anything in particular going on there?

I guess comps probably weren't real easy, but are you spending more?

Is there anything else?

How do we think about that flowing into your guidance for next year?

Yes.

I think, first let me say, we feel like we had a great year in those businesses, where the gross margin and rental went up about 130 basis points.

In first aid it went up about 30 basis points.

We continue to invest in both businesses and I think in the fourth quarter we saw a little bit, maybe, of pulling repair and maintenance into the fourth quarter that may have happened in the first quarter.

I think we started hiring a little bit early for the businesses on the routes, particularly.

So we added routes maybe a little bit more aggressively in both businesses than we have and probably just setting the table for FY16.

So as we think about the guidance, I would say we still believe that there is gross margin opportunity.

We think incremental margins are going to be healthy.

As it relates to our rental business, we've talked a little bit about, during FY15, about pushing some capacity growth into FY16.

That goes into our guidance thinking a little bit, and the other thing is when we -- from the standpoint of energy, so gas, fuel prices for us, we've included an expectation that fuel prices for the year would be about the same in FY16 as in FY15.

Both years would be about 2.5%.

On the flipside though, as I mentioned from a rental organic growth standpoint, we did see a little bit of negative impact from our oil and gas customers in the fourth quarter, and we've also included in our guidance into FY16 that that kind of performance would continue, as long as we see the fuel in that 2.5% range.

So the point is, on a net basis, while we got a benefit, certainly, in FY15 from net oil and gas and the fuel costs, we think it might turnaround a little bit in FY16.

That sounds prudent and then just one other one -- I assume you have a pretty good sense of what your cost base for the shredding business is, so should we think of taxes eating up a big piece of those proceeds?

Or is it fairly minor, and I guess I'd say the same for the dividend?

Yes.

So we've got a fairly complex transaction, so we're going to be working on taxes up to the point of time that we closed that transaction, but as of May 31, our book value was $219 million, and that came down because of the dividend.

So we have to record that dividend as a reduction in our book value of our investment.

So you can think of the cash that we received, let's call it the midpoint of $575 million, compared to a book value of, as of May 31, $219 million, that's that $350-ish million gain.

And so we'll pay taxes on that gain and probably an easy way to think about that at the moment is using our 37.3% against that.

One thing from a cash standpoint to keep in mind is that the gain we recognized a year ago was a deferred tax gain, so we didn't pay taxes on that piece of the gain.

So we'll have to do that as well when we receive the cash at closing.

Does that make sense?

So I would say it's going to be a fairly good-sized tax bill, but we'll have a lot of cash left over.

And we'll certainly provide more details as we get through those calculations and we firm up the amount of the proceeds.

Perfect.

That's very helpful.

Thank you.

Sara Gubins, Bank of America, Merrill Lynch.

Hi.

Thank you.

Good afternoon.

Hey, Sara.

A couple of questions about guidance, could you help us think about how much of a benefit from the Shred-it JV is in your FY16 guidance?

Yes.

As Paul mentioned, there is no benefit in the FY16 guidance as it relates to Shred-it.

So let me --

Yes.

Let me make a couple points on that.

We are going to continue to own 42% of Shred-it until that transaction closes.

So roughly for the first half of the year, we will record our share of the Shred-it income, just like we did in FY15.

We -- because of the transaction and you probably had seen that there was an IPO process as well, we didn't -- we just didn't have clarity on what that performance might look like, and so we've not included any impact from the Shred-it net income performance that we will share in.

And then, once -- we haven't received the cash yet.

We need to close that deal first.

And until we do that, we're not ready to provide any other guidance on how that cash may impact us.

One thing about the first -- particularly the first quarter, as it relates to our share of the Shred-it income, they have the IPO process going as well as this transaction that we announced yesterday, and there will likely be a fair amount of transaction-related expenses that we will share in.

Now, when we record that, when we record our share of those expenses in the first quarter and in the second quarter, keep in mind those are non-cash -- that is a non-cash entry for us, and the impact is, it reduces -- it increases our book value even more, so it's just an offset.

We get that gain back when the transaction closes.

Got it.

Okay.

So just to make sure that I understand it, in the first quarter we'll see some expenses which are not incorporated into the guidance.

But at the same time in the first probably half of the year, we'll see a benefit from the JV which is also not incorporated into your guidance.

No.

I would say that in the first quarter we're going to see more than likely a negative impact because of the transaction expenses, and I'm not ready to comment at all on what we'll see in the second quarter.

But regardless, none of that impact is contemplated in the guidance that we've given.

Okay.

And could you tell us what the share count is that you are using for the guidance?

Sarah, it's 115 million for FY16.

Okay.

And could you help us think about what might drive you to the higher end of the revenue range for the guidance at 6.8%?

I think the continued execution by our businesses -- I think our partners have done a fantastic job in FY15, and we need to continue to execute well, so our sales performance needs to continue as it has done.

We need to continue to be able to penetrate existing customers, and we believe that we've got a lot of penetration opportunities left.

So we need to continue to penetrate our customers, and we need to execute.

So I think the range of guidance that we are giving is certainly what we believe to be an achievable range and I think if we execute well, like we have this year, we can get towards the top end of that range.

Great.

And then just last question, you mentioned that you were seeing a bit more pricing pressure after having had it improve for the last year.

Is this coming in particular regions or from particular types of competitors?

I'm wondering what's driving the change there.

So I'm sorry -- maybe I wasn't clear.

We haven't seen a change in the pricing environment of any significance.

Pricing is still competitive.

It always has been in our business.

It always will be.

So pricing is still competitive, but we haven't seen much of a change in our fourth quarter compared to our third quarter, second quarter, et cetera.

What my point was, in the fourth quarter of last year we saw a bit of a change at that point.

Where we saw an improved environment for pricing.

And we -- you know, quite honestly, we've talked a little bit about training our people to speak to our customers about the great value that we are providing to our customers.

And so a year ago, we saw a bit of a change from the third quarter to the fourth quarter in terms of that pricing environment.

And now we've lapped that change.

And so, what that does is has a little bit of an impact on our year-over-year growth as it relates to the third-quarter growth compared to the fourth-quarter growth.

Got it.

Thanks very much.

That's very helpful.

Sure.

Nate Brochmann, William Blair.

Good evening, gentlemen.

Hello, Nate.

So I want to talk a little bit, obviously with the document management business, you did a great job kind of growing that with a few acquisitions but growing it organically and then getting a fairly positive shareholder wealth creation event out of that.

And I was just wondering when you think about the business now as it stands in terms of the portfolio services, what do you expect to have and to be able to grow in terms of replacing that business?

And what could be the next big opportunity or what else is in the hopper in terms of things to think about?

Well, the great news is our growth this year has replaced it.

Our revenue in FY15 is almost the same as in FY14 so the good news is we have replaced it.

Now, clearly, how do we continue to grow into the future?

From a rental business, we need to continue to create solutions for our customers that are of high value.

We need to get more note programmers into uniform rental programs, things like new types of Carhartt programs, FR, fire resistant clothing offerings, so we need to continue to create innovation.

We need to create innovation with our facilities, services products, and services.

And we need to continue to penetrate.

We've got quite a, we believe to be, quite a penetration opportunity in our customer base, and the nice thing about having about 1 million customers is we've got a lot of warm leads out there that we can continue to work to penetrate.

From a first aid safety and fire business standpoint, it's this -- it's a bit of the same, we need to go out and capture new customers and we need to continue to look for adjacencies under the umbrellas of safety and protection and we've done a very nice job in creating product adjacency that we can then sell into existing customers.

So to answer your question about how do we continue to grow?

And what's the next business?

We feel like we've got a lot of opportunity in our existing businesses.

Now, having said that, we certainly would look for other ideas that might be wholly new businesses, but it's got to be a business that can create a good long-term value for us.

And you know, Mike, I think that's actually an important point and like the rental segment.

Is that it's not just the additional uniform wearer base that as you develop these new fabrics that you're able to attack a whole different suite of end markets.

Correct?

Yes.

That is correct.

Right.

And you know, more retail-inspired offerings certainly helps, as well.

Correct.

Okay.

And that's actually a good lead-in and I apologize for asking another question on guidance, but I'm presuming as you mentioned that there is probably a little bit of pessimism in terms of just looking at the revenue line, both on the oil and gas customers, as well as just kind of looking at some of the add-stop.

I know that we've gone from negative to neutral, a little positive here and there and now back to negative.

And we're not really getting that run rate, so I think that most in the guidance is probably a little bit of pessimism around the oil and gas and the ad-stop with the optimism coming from the new customers and the penetration, et cetera, in terms of the same playbook.

Correct?

That is correct, and Nate I should probably point out one additional item.

We've seen a fair amount of movement in the Canadian exchange rate during the year.

Keep in mind our guidance is total revenue growth.

For the current fiscal year, so for FY15, our average currency exchange rate was about CAD1.15 and we have seen that now go to closer to CAD1.20, CAD1.25 and so our guidance assumes CAD1.25 for FY16.

So that does have about a 50- to 60-basis point, negative impact on total revenue growth.

So having said that, let me put that aside and make sure that I am also talking about, look, we feel really good about the business.

We've had some really nice momentum, and so we believe that we do have some real nice opportunities, but you're right.

We've got a little bit of headwind in the Canadian currency, we've got a little bit of headwind in the oil and gas impact, and a little bit of headwind in the net add-stops area.

Okay.

So obviously if any of that kind of changes and we get a different flow we could get a little upside there.

And then just in terms of the bottom line, you talked about the incremental margins and the gross margin opportunity and maybe even pulling some growth investment into this quarter relative to next year.

But is there any additional catch-up, any additional investment at this point that we need on either the hiring front and the sales side or an extra layer of new routes that we were playing catch up on in terms of thinking about?

Or is normal growth investment with that level of revenue in mind?

Yes.

I would say it's the normal investment that we've made with the exception of, we've talked a little bit about the processing, rental processing capacity.

But aside from that, we've been continuously investing in routes in the rental business and the first aid safety and fire business.

We'll continue to do that.

But generally it's a bit of business as usual.

I don't see any need for an accelerated rate of investment, unless something changes like we do see a dramatic change in net add-stops or a dramatic change in the economy.

Okay.

Great.

I appreciate the time.

Sure.

Scott Schneeberger, Oppenheimer.

Thanks.

Good afternoon.

I was just curious on all the discussion on the bit of the decline in net add-stops and in rental in the quarter and moving to the first quarter.

I understand it's incorporated in the guidance and I would think -- but could you take us a little bit further into what you think is driving that or what you're seeing beyond what you've said already, or is there really not much to add?

Well, I don't know that there is much to add other than to say we have seen a little bit of a bumpy economic ride.

There have been some ups and downs in employment.

Some months have been narrower than others.

We've seen some macro events that have probably given businesses pause.

We've seen a stronger US dollar.

We've got the prospect of interest rates.

So I think we've seen a little bit of a bumpy ride.

And I would say, aside from that bumpy ride, I don't have a lot of additional color to add, other than the oil and gas impact certainly.

Great.

Thanks.

And then, just I have two others, both kind of quirky.

You mentioned legal and professional was elevated in the fourth quarter.

I'm curious -- was that just associated with what was going on with Shred-it, or is there something else on the legal side that we should be concerned or aware about?

Yes.

That was generally a good part of that.

And nothing else --

Related to the transactions.

Okay.

Thanks and then lastly, just an update on the ERP and its influence on CapEx, where we are in that cycle, just want to make sure we're aware of where you are on that.

Yes.

We've talked about that being about $100 million project.

We've spent about half of that in FY15.

The project is right where we wanted it to be.

We're still very optimistic that that will continue on that calendar that we've talked about, and so I would expect that we could see another $40 million to $50 million of CapEx during FY16.

We've talked about FY17 would be the year when we start the rollouts and start to see some impact, potentially midyear to the end of the year.

Excellent.

Thanks very much and nice work.

Thanks.

Andy Wittman, Robert W. Baird.

Hello.

Thanks for taking my question I wanted to, Mike, ask a little bit about the strategic decision on the exit of Shred-it.

I mean, first time you contributed in the joint venture you got the synergies and created the value.

You really weren't substantially selling the business, but now you elected to sell it you could have been the buyer on it and bought it back in.

So what were you seeing in the business as it related to the rest of your business that made it the right decision for you to exit that today?

Well, if we go back a year ago, some of the things that we've talked about related to that business -- we really do believe that it was a good business for us.

We took a business, changed a business model from on-site to off-site shredding.

We added our people, our culture, our processes, and we felt like we really made a -- created a great business.

But there were some things that we didn't like as much, and that is, generally what we found is the decision-maker was different than the decision-maker for most of our businesses.

The commodity impact was a bit of a bumpy ride through the years and we weren't crazy about that.

We felt like -- we were a little concerned that there weren't many product adjacencies for us in that business, so the growth was coming from volume primarily.

And so for those reasons we -- and then finally, we weren't seeing enough, or improvement quickly enough and that was one of the main reasons why we also wanted to do the transaction with Shred-it a year ago.

When we think about how that's gone over the last year, as I've mentioned several times over the last few quarters, we've been very pleased with how the business has progressed, how the integration has progressed.

But when we think about our investment, there is a lot of uncertainty in the macro environment.

There's a lot of uncertainty about how commodities will continue to affect that business.

There's uncertainty in the way of the stock market as it related to the IPO alternative, with Greece and China creating some wild rides.

There's uncertainty as it relates to being a minority owner and having a bit of a limited influence.

And then finally, there was uncertainty as it relates to the impact that it would have on our P&L.

And so generally speaking, the thoughts that we had a year ago for making the transaction and the uncertainty about the position that we were in, led us to believe that taking the certainty of this deal was a great opportunity for us.

Why is there a $50 million range that you are highlighting, Mike?

Why is it a number?

The total purchase price is $2.3 billion for the entire company.

But we have to pull out debt and some transaction expenses and so there's -- there can be a little bit of movement in those and, as in most deals, there's a little bit of a hold-back and so, that's the reason for the range.

Is it a fair playbook to look at the first time you contributed this to the joint venture where you wound up doing a decent sized special dividend and then followed up some buyback?

Is that, you think, a decent null hypothesis going into assumption as to how the capital redeployment might go?

I'd hate to speculate on that, Andy.

We haven't closed the deal yet so we don't have the cash.

Our Board -- so we just announced it yesterday, so our Board will certainly have that on their agenda and give a thoughtful process to how we put that cash to work.

So I'm -- I can't speculate on that yet.

But as you know, we've shown a, very much a willingness to put that cash to work.

And then my final question if you'll afford me one more is, just your comments on the sales productivity, it sounds like it must've been really strong in the fourth quarter.

Can you give us a sense about how the sales productivity this fourth quarter compared to the sales productivity last fourth quarter?

We did see some very good productivity from our sales reps.

It was probably relative to the prior year, our best quarter of the year.

I'd rather not get into too much detail but it was a good quarter for us.

Our people -- our partners have been very productive.

Our training processes have gone very, very well.

We have very good products and services to arm them with and they've done a very nice job.

Okay.

Well that seems like it would have an implication then for the revenue growth rate since that wasn't all captured as new business in the fourth quarter, that should give you at least some visibility into the revenue growth that you have next year.

Is that fair?

It is fair.

It does give us a bit of a nice start to the year.

Okay.

Thank you very much.

Sure.

Manav Patnaik, Barclays.

Hi.

Good evening.

Firstly, congratulations on the way you did your portfolio realignment.

The one question I had, I mean, is around M&A.

You talk about the appetite.

You said you'd love to do tuck-ins and maybe even the larger one occasionally, but if I look at the history, I mean, in uniform, you haven't done a deal in the last two years, really.

In first aid, also it's been like two or three a year going back the last three years if I look at the disclosures, so maybe you can just help us understand the pipeline that you see.

Are there opportunities?

I know you'd love to do it, but does it seem like there's a lot out there?

There are opportunities.

Now I would say that in our rental business and probably our first aid business, are there as many opportunities as there was 15 years ago?

Probably not.

But there are opportunities.

There are very good opportunities and we'll continue to explore them, but they have to be at the right value for us.

We generally need a willing seller, and so far we just haven't seen the alignment, but we're certainly active and will not hesitate to make an acquisition, particularly in our existing businesses that we believe has good value.

Okay.

And is the preference for larger deals -- like, what is the -- is there an active consideration to look at the larger ones versus the smaller ones, or not really?

I would just say that we certainly would be involved if there was a willing seller or a process, and we think a large acquisition could, at the right value, be accretive for us.

And so we would certainly take a look.

Okay.

And then, just last one for me.

I know you talked briefly about some of the trends and for the net add-stops, but generally speaking, is there any way for you to characterize based on what you have seen historically, where we are in terms of innings or however you want to characterize it in terms of the upsets and just employment -- I mean improvement on the employment front?

I'm not sure that I can give you a specific in terms of innings or where I think we are.

We've had a fairly nice stretch of economic performance, albeit bumpy.

But we've had a fairly nice stretch of economic performance over the last several years.

How long will that continue?

I'm not sure.

What I do know is that we will do our best, through any economic cycle, to continue to penetrate existing customers and find ways to create value to know programmers.

But I'm not sure I can give you a specific inning or timeframe on it.

Okay.

All right.

Fair enough.

Thank you.

Okay.

Shlomo Rosenbaum, Stifel.

Hi, thank you for squeezing me in here.

Most of my questions have been answered, I just want to touch on two items that were brought up a little bit earlier.

Just on the add-stop metric, what's the -- what has the trajectory been, I'm not talking about the last quarter, but the last few years and -- has that really been on more of an upswing if you what chart that?

And where do we stand versus, let's say where we were seven or eight years ago before we had kind of the great depression or the great recession?

Where do we stand versus that?

Because that was always viewed as kind of a lever.

Are we back to levels that we had seen prior to things going bad or where do you see it right now?

I would say that the performance has certainly been more choppy in the last several years.

Going back to pre-recession, I don't have that at my fingertips, but I will tell you over the last few years, because of the choppiness that we've seen in the ads and stops, we've talked a lot about it seeming to have a positive trend, only to turn next quarter into a bit of a negative trend.

Because of the choppiness that we've seen, the overall impact to the Business, I would say, has been a bit muted, and there still is opportunity to see a better impact.

I was just looking at -- if you think about the jobs that are in the historically strong uniform rental sectors, they are still at -- some are still at lower levels than pre-recession.

And I think that is just a reflection of the bumpiness and inconsistency that we've seen in the last several years.

Okay.

And then, one other thing that was brought up before and I just want to touch on, do you have any recent new introduction of products or services that have been added like what you did with Carhartt and what you had done with the Diversey agreement and what you've done with the floor washing?

Is there anything recent that's been added that seems like it's another potential open end market for you?

Well, we're always working on innovation, Shlomo, but I will tell you that our chemical business, our Carhartt business, they are still relatively small, and we've got a lot of growth opportunity still in those.

And the other one that I would mention is our signature series hygiene products.

And even though we've introduced those a few years ago, it takes a little bit of time to get those penetrated to -- throughout the country, and so we are still working on those.

We are focused on continuing to drive penetration.

I don't have any new things to talk about.

We certainly know that innovation is important and we're working on it.

But I don't have anything new to talk about you.

We're just focused on continuing to penetrate with some of these newer products and services where we've got a lot of room.

Okay.

Great.

Thank you so much.

Sure

At this time we have no further questions in the queue.

Thank you very much for joining us tonight.

We will be issuing our first-quarter earnings in late September and we look forward to speaking with you again at that time.

This does conclude today's conference.

We thank you for your participation.