信達思 (CTAS) 2021 Q3 法說會逐字稿

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  • Operator

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

  • Today's conference is being recorded.

  • At this time, I would like to turn the call over to Mr. Paul Adler, Vice President, Treasurer and Investor Relations.

  • Sir, please go ahead.

  • Paul F. Adler - VP & Treasurer

  • Good morning and thank you for joining us.

  • With me today is Scott Farmer, Cintas' Chairman of the Board and Chief Executive Officer; Todd Schneider, Executive Vice President and Chief Operating Officer; and Mike Hansen, Executive Vice President and Chief Financial Officer.

  • We will discuss our third quarter results for fiscal 2021.

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

  • I'll now turn the call over to Scott Farmer.

  • Scott D. Farmer - Chairman & CEO

  • Thank you, Paul.

  • Good morning, everyone.

  • The COVID-19 coronavirus pandemic continues, and it remains a significant disruption to the economy.

  • Our fiscal third quarter, which included the months of December, January and February, was particularly challenging.

  • COVID-19 case counts surged from about 180,000 on December 1 to a peak of a little over 300,000 on January 8. Not surprisingly, economic indicators reflected an economic recovery that slowed considerably.

  • In December, the U.S. economy posted job losses again after 7 straight months of job gains.

  • The operating environment was also challenged by severe winter weather.

  • The snow and ice storm in February caused extensive energy blackouts in the U.S., especially in the state of Texas.

  • Despite a very difficult operating environment in late December and into January, our sales rep productivity remained strong and our employee partners persevered enabling us to offset the headwinds and get to flat on a sequential basis.

  • On top of that, we were able to help our customers with large supplies of personal protective equipment before the end of the quarter.

  • We provided more personal protective equipment than ever, enabling us to exceed our financial expectations.

  • Also, on an organic basis, our quarterly revenue was flat year-over-year, a strong accomplishment considering the comparison to the prior year quarter that was not impacted by COVID-19.

  • Looking ahead to our fourth quarter, we expect lower COVID-19 case counts to be the foundation for an improved operating environment.

  • We do not anticipate that personal protective equipment sales will be as strong.

  • So fourth quarter revenue in this product line will decline sequentially.

  • However, we believe that our recurring revenue service -- service revenue will increase solidly on a sequential basis after being flat in the third quarter.

  • Mike will provide more information regarding our fourth quarter guidance soon.

  • Regardless of the operating environment, our employee-partners work with urgency to get businesses Ready for the Workday.

  • Companies want to open their doors every day with confidence that they're ready for their employees and their customers.

  • We help businesses achieve that objective by providing a wide range of products and services that enhance our customers' image and help keep their facilities and employees clean, safe and looking their best.

  • For over 90 years, Cintas has accomplished getting businesses Ready for the Workday in numerous ways, including providing hygienically clean uniforms to auto manufacturers, for example, so that the workers can safely build their cars; restroom supplies and services to professional services firms, so bathrooms are ready for use by employees and clients; hygienically laundered towels at coffee chains, so baristas can serve their coffee lovers; first aid products to restaurants to address the cuts and burns of the kitchen crew; and test inspection and repair services of fire extinguishers and alarm systems to facilities managers to protect employees and customers from danger.

  • The COVID-19 pandemic ushered in for businesses a new era of readiness.

  • Getting Ready for the Workday today also includes taking actions to prevent and reduce transmission of viruses and bacteria.

  • Our solutions for getting businesses Ready for the Workday include: providing hygienically clean scrubs to dentist offices because hygienists feel vulnerable taking them home to launder; sanitizing spray services and disinfectant wipes for food manufacturers, for instance, so that they can routinely sterilize surfaces; hand sanitizer dispensing units to universities so employees, professors and students can keep their hands clean; masks and gloves to city, county and state governments to protect employees when interacting with the public; and hygienically clean isolation gowns to hospitals to safeguard caregivers from the contaminants of the sick.

  • Our value proposition of helping businesses get Ready for the Workday has arguably never been more relevant.

  • Every business has a need that Cintas can help fulfill.

  • And in this unpredictable environment, requiring new and increased demands, businesses appreciate the certainty of Cintas.

  • The Cintas tagline of Ready for the Workday helps describe what we do.

  • It also helps describe who we are.

  • Our employees, whom we call partners, are always Ready for the Workday, whether it's in the best of times or in the most uncertain of times.

  • Our partners are honored to be deemed essential.

  • They are ready to listen, ready to offer solutions, ready to solve problems and ready to be counted on to deliver.

  • And they do.

  • Now I'll turn the call back over to Mike for commentary on our financial results.

  • Mike?

  • J. Michael Hansen - CFO & Executive VP

  • Thank you, Scott.

  • Our fiscal 2021 third quarter revenue was $1.78 billion compared to $1.81 billion in last year's third quarter.

  • Earnings per diluted share, or EPS, were $2.37, an increase of 9.7% from last year's third quarter.

  • The organic revenue growth rate adjusted for acquisitions, divestitures, foreign currency exchange rate fluctuations and differences in the number of workdays was flat for the third quarter of fiscal '21.

  • Organic revenue for the Uniform Rental and Facility Services operating segment was also flat.

  • Organic revenue for the First Aid and Safety Services operating segment increased 17.7%.

  • Gross margin for the third quarter of fiscal '21 was $809.5 million compared to $824.4 million in last year's third quarter.

  • Gross margin as a percentage of revenue increased 10 basis points to 45.6% for the third quarter of fiscal '21 compared to 45.5% in the third quarter of fiscal '20.

  • This increase was despite 1 less workday in this year's third quarter compared to last year.

  • Selling and administrative expenses as a percentage of revenue were 27.2% in the third quarter of fiscal '21 and 28.2% last year.

  • Fiscal '21 third quarter results benefited from increased sales rep productivity and lower discretionary spending.

  • Operating income for the third quarter of fiscal '21 of $326.5 million increased 3.8%.

  • Operating margin increased 100 basis points to 18.4% in the third quarter of fiscal '21 compared to 17.4% in the third quarter of fiscal '20.

  • Our effective tax rate on continuing operations for the third quarter of fiscal '21 was 14.4% compared to 18.9% last year.

  • The tax rate can move from period to period based on discrete events, including the amount of stock compensation expense.

  • Net income from continuing operations for the third quarter of fiscal '21 was $258.4 million, an increase of 10.2%.

  • And again, EPS was $2.37, an increase of 9.7% from last year's third quarter.

  • Our balance sheet and cash flow remained strong.

  • Our leverage calculation for our credit facility definition was 1.6x debt-to-EBITDA.

  • We have an untapped credit facility of $1 billion.

  • During the third quarter of fiscal '21, we purchased $82 million of Cintas common stock under our buyback programs.

  • Earlier this week, on March 15, Cintas paid shareholders $79.5 million in quarterly dividends.

  • For financial modeling purposes, please note that there is 1 more workday in our fiscal '21 than in our fiscal '20.

  • One more workday will benefit fiscal '21 total revenue growth by 40 basis points.

  • One more workday also benefits operating margin and EPS.

  • Fiscal '21 operating margin will be about 12.5 basis points better in comparison to fiscal '20 due to 1 more day of revenue.

  • In fiscal '20, the fourth quarter contained 65 workdays.

  • This fiscal year's fourth quarter contains 66.

  • Please keep these differences in mind when modeling results on year-over-year and sequential basis.

  • For our fourth quarter, we expect our revenue to be in the range of $1.8 billion to $1.83 billion and diluted EPS to be in the range of $2.20 to $2.40.

  • Our fourth quarter effective tax rate is expected to be in the range of 21% to 22.5%.

  • Please note that our guidance does not include any future share buybacks or additional government restrictions on businesses in the event of increasing COVID-19 cases.

  • We're encouraged by vaccinations, stimulus and business reopenings, and we expect an improved operating environment in our fourth quarter.

  • We expect recurring revenue to increase solidly on a day-adjusted sequential basis in the range of about 1% to 2.5% after being flat in the third quarter.

  • However, we do not anticipate that personal protective equipment sales will remain at record levels, so fourth quarter revenue in this product line will decline sequentially.

  • Please keep in mind these points when comparing our fourth quarter guidance to third quarter results.

  • Our fiscal fourth quarter marks the lapping of the onset of the COVID-19 pandemic.

  • Our prior year fourth quarter coincided with a period of greatest GDP decline and job losses resulting from unprecedented restrictions on businesses to help combat the surge of COVID-19 cases.

  • While the pandemic continues, our fourth quarter financial results, including revenue growth, will benefit in part from an easier comparison.

  • Our last year's fourth quarter operating income was also significantly affected by many items caused by the COVID-19 coronavirus.

  • These included additional reserves on accounts receivable and inventory, severance and asset impairment expenses and lower incentive compensation expense.

  • Excluding these items, last year's fourth quarter operating margin was 15.5%.

  • All these items were recorded in selling and administrative expense.

  • The additional inventory reserves account for slow-moving inventory mostly in the Uniform Direct Sales business where customers in some of the most severely impacted industries, such as airlines and hotels, exist.

  • Please keep these points in mind when comparing our fiscal fourth quarter financial guidance to the prior year quarter.

  • I'll now turn the call over to Todd Schneider to discuss the performance of each of our businesses.

  • Todd M. Schneider - COO & Executive VP

  • Thanks, Mike.

  • Uniform Rental and Facility Services operating segment includes the rental and servicing of uniforms, health care scrubs, mats and towels and the provision of restroom supplies and other facility products and services.

  • The segment also includes the sale of items from our catalogs to our customers on ramp.

  • Uniform Rental and Facility Services revenue was $1.42 billion compared to $1.45 billion last year.

  • Our Uniform Rental and Facility Services segment gross margin increased 50 basis points to 46.3% for the third quarter compared to 45.8% in last year's third quarter driven in large part to lower production and service expense as a percent of revenue.

  • Our First Aid and Safety Services operating segment includes revenue from the sale and servicing of first aid products, safety products, personal protective equipment and training.

  • This segment's revenue for the third quarter was $198.5 million compared to $170.5 million last year.

  • The First Aid segment gross margin was 43.5% in the third quarter compared to 48.0% in last year's third quarter.

  • The difference in gross margin is due to revenue mix.

  • In the pandemic, the needs of businesses for personal protective equipment, including masks and gloves has skyrocketed.

  • Even though personal protective equipment is a less predictable revenue stream with lower gross margins than the relatively consistent first aid cabinet service, personal protective equipment is a profitable product line, and we continue to work with urgency to fulfill the needs of businesses.

  • Also note that on a sequential basis, First Aid segment gross margins and operating margins have improved through the pandemic.

  • Our Fire Protection Services and Uniform Direct Sales businesses are reported in the All Other category.

  • All Other revenue was $160.7 million compared to $192.1 million last year.

  • The Fire business organic revenue increased 3.5%.

  • The Uniform Direct Sales business organic revenue growth rate was minus 39.7%.

  • Revenue from our airline, cruise line, hospitality and gaming customers are largely realized within this business line.

  • These industries continue to be among the hardest hit by the pandemic.

  • That concludes our prepared remarks.

  • We're happy to answer your questions.

  • Operator

  • (Operator Instructions) Our first question will come from Tim Mulrooney with William Blair.

  • Timothy Michael Mulrooney - Group Head of Global Services & Analyst

  • Scott, Todd, Mike and Paul, my question, I just have one for you this morning, is on the Uniform Rental segments.

  • Operating margins in this business have ticked up nicely in 2021.

  • And I think some of that was from structural cost savings and maybe some from temporary cost savings.

  • Moving forward, would you expect Uniform operating margins kind of normalize towards that pre-pandemic run rate over time?

  • Or would you expect operating margins to kind of settle at a somewhat higher level than the pre-pandemic run rate?

  • Scott D. Farmer - Chairman & CEO

  • Well, Tim, this is Scott.

  • I'd start by saying that there have been a lot of expenses this year that we have been able to control tightly, discretionary spending, travel, things like that, that impact the P&L.

  • How much of that returns, I'm not sure.

  • I mean we've learned an awful lot.

  • We don't necessarily have to have the large group meetings where everybody is traveling into one town to accomplish that.

  • Some of that will happen, but a lot of that probably won't.

  • But I'd say that in our recurring revenue businesses, as the economy continues to I think improve, you're going to see us need to add some expense back on to the P&L.

  • That might be growth routes in the rental division.

  • As an example, jobs that would help us with growth, additional sales people, sales training, additional headcount in production operations to be able to process things.

  • So I wouldn't expect a linear improvement, but I would tell you that we do think that we will continue to see 20% to 30% incremental margins as we add sales and volume back on to the P&L.

  • And over time, I think that we can maintain margins that will be at least at or above, probably above, where we were pre-pandemic.

  • So that's how I would answer that.

  • Does that help you?

  • Timothy Michael Mulrooney - Group Head of Global Services & Analyst

  • No.

  • That's really helpful, honest, thoughtful answer.

  • I appreciate that, Scott.

  • Operator

  • Our next question comes from Andrew Steinerman with JPMorgan.

  • Andrew Charles Steinerman - MD

  • A question for Todd.

  • When you think of rentals being flat in the just reported quarter, could you just give us a sense of how much ancillary services is contributing versus are you seeing improvement in uniform rentals as well?

  • And a quick comment on how dependent are you in some of the areas like restaurants that are still kind of opening up ahead.

  • Todd M. Schneider - COO & Executive VP

  • Andrew, great question.

  • We had, as was mentioned in the prepared remarks, demand for various items around PPE and et cetera.

  • Other items regarding the pandemic was very strong in Q3.

  • That was a result of what was going on with case counts, and you all saw that.

  • So that was significant for us to the tune of about $45 million more than in Q2.

  • We don't see that as repeating, that level repeating in Q4.

  • But we are very encouraged by what we're seeing in business coming back.

  • So you can see in our sequential improvement what we see coming in Q4 over Q3 even without that level, that elevated level of those types of products and services.

  • As far as restaurants, et cetera, that's certainly a component of our business.

  • We are encouraged by what we're seeing there.

  • With folks' activities increasing, consumer spending increasing, we think people having money in their pockets via stimulus will help that.

  • And we sure hope that the small business folks who have been incredible about weathering the storm that their demand starts to pick up even more.

  • So we're encouraged by what we're seeing.

  • Andrew Charles Steinerman - MD

  • Okay.

  • J. Michael Hansen - CFO & Executive VP

  • Andrew, if I could just add a point of clarification of the $45 million that Todd referred to, that is in the Rental segment as well as the First Aid segment.

  • You saw our First Aid segment had another very good quarter at 17.7%.

  • So we're seeing demand in all of these different kinds of things in -- from all of our customers.

  • And we're doing our best to meet those demands.

  • So it's -- that $45 million, not all within the Rental segment, it's in all of our businesses.

  • Operator

  • Our next question comes from George Tong with Goldman Sachs.

  • Keen Fai Tong - Research Analyst

  • If you exclude the $45 million in PPE lift in the Uniform Rentals business, could you perhaps talk about how revenue trends progressed moving through fiscal 3Q?

  • Scott D. Farmer - Chairman & CEO

  • Yes, George.

  • But to Mike's point, that $45 million was spread out across the -- our -- all of our divisions.

  • It wasn't just a rental lift.

  • But relative to what happened in Q3, I think it's important that we all keep in mind that our third quarter often is a little less predictable than the rest of our year.

  • This year was as well.

  • It has 2 holidays in it with Christmas and New Year's; and our customers sometimes take multiple days off, depending on what day those holidays fall on.

  • There's always the potential of weather issues with snow and ice storms and things like that.

  • And both of those things happened this year.

  • And if you combine that with the increasing COVID cases, it made it a little bit more complicated than it normally does.

  • I would say, if we went into the third quarter, we were very concerned about what we were seeing.

  • COVID cases were on the rise.

  • I said earlier in my remarks that the economy shed jobs for the first time in 7 months in December.

  • So December and into January, really even into February, we saw a very difficult economic environment.

  • But as we got into February, we started to see our recurring revenue start to pick back up.

  • Cases were dropping dramatically from -- I want to say maybe the second week in January, the expected restrictions that governors that we thought were going to put on businesses didn't fully materialize.

  • And so the -- we built some momentum in February that we continue to see as we moved into March.

  • And I think that is reflected in the guidance that we've given for the fourth quarter.

  • Keen Fai Tong - Research Analyst

  • Got it.

  • That's helpful.

  • And just as a follow-up to that, if you look at new business trends and plans for sales force hiring, can you talk a little bit about how the pipeline is building?

  • Scott D. Farmer - Chairman & CEO

  • We're very pleased with our pipeline.

  • Our sales rep productivity continues to be at very, very high levels.

  • We believe that the -- our value proposition is resonating today in the economy more than ever.

  • So we're excited about our opportunities as we look out into the future.

  • There are 16 million or roughly 16 million businesses in the United States and Canada, and we do business with a million of them.

  • And we really like our opportunity as we approach, hopefully, the end of this pandemic and a more normalized economy of our ability to attract new customers.

  • So we're -- the pipeline is relatively full and the reps are performing at high levels, even considering the fact that many times, they're making sales calls over a virtual Teams call or Zoom call and being successful in doing it.

  • So we're excited about getting past this pandemic and getting into a normal economy.

  • We think we'll be -- we're well positioned to take advantage of that.

  • Operator

  • Our next question comes from Hamzah Mazari with Jefferies.

  • Hamzah Mazari - Equity Analyst

  • My question is a little bit more big picture.

  • Pre-COVID, I guess your long-term growth rate was sort of 6% to 8% depending on the year.

  • In a post-COVID world -- and you touched on a little bit of this with some of the ancillary services that maybe benefited from the pandemic, which may normalize, but at the same time, you have these newer verticals you've penetrated; there's some structural outsourcing; maybe in health care, there could be a tailwind.

  • I don't know if that sort of plateaued out or it continues.

  • So when you put all the puts and takes together in a post-COVID world, do you expect your growth rate to be better than what it was prior to the pandemic on a normalized basis as you look out over the next couple of years?

  • Scott D. Farmer - Chairman & CEO

  • Hamzah, that's tough for us to predict.

  • I'm not sure that I'm going to go out and say that we're going to be doing better than we were from a percentage growth standpoint post pandemic than we were pre pandemic.

  • But as I have said, we really like where we're positioned.

  • We've made a lot of investments in the business that we think are beginning to pay off, that allow us to move quicker to be a better supplier to customers.

  • Our customer satisfaction rates that we measure with Net Promoter Scores are at all-time highs.

  • And we have opened up new segments of opportunity for us.

  • We have new products and services that we can offer to more and more businesses.

  • So I'll just answer that by saying, we think we're very well positioned and we're excited about the future.

  • Todd M. Schneider - COO & Executive VP

  • Hamzah, if I could.

  • This is Todd.

  • Just to expand upon what Scott's saying, the real unknown is what is going to happen with the demand for some of these additional services that we've been able to provide.

  • Here's what we know is that demand is going to be higher in the future than it was pre pandemic.

  • And what's exciting is many of our customers didn't even realize that we offered those types of products and services in the past.

  • Let me be clear, there's nothing positive that came out of pandemic, right?

  • But if there is any silver linings, it's the fact that our customers understand more the value that we can provide them and, as Scott mentioned, that our NPS scores are reflecting that.

  • And we think that is a -- the more products and services our customers procure from us, the more value we're bringing to that.

  • And we think that is very positive.

  • The other item that I think is important to understand is that we're going on 2 years now without having had a price adjustment to our customers.

  • We have felt very passionate that it was not the appropriate time to adjust pricing when people are going through so much difficulty fighting for the pandemic.

  • And as a result of that, again, our customers have really appreciated that and it's really positioned us well for the future.

  • We look at the lifetime value of a customer, and we think it is worth more than a short-term approach.

  • So hopefully, all that color helps.

  • Hamzah Mazari - Equity Analyst

  • Yes.

  • That's very helpful.

  • And just my follow-up question and I'll turn it over.

  • Just on the Fire business, I know it's a smaller business for you but it's a good business.

  • Could you maybe talk about how you're thinking about scaling that business up?

  • And the reason I ask is we look at the First Aid business and you did ZEE Medical in 2015 and that business scaled up.

  • Does Fire have the same potential in your mind?

  • And maybe if you could just talk about the competitive dynamic in that business.

  • Scott D. Farmer - Chairman & CEO

  • Yes.

  • The -- we do think the Fire business has an opportunity to scale up.

  • There are lots and lots and lots of small, independent players.

  • There are regional players.

  • There are some PE groups that are doing some regional roll-ups.

  • So there are opportunities for us to make some acquisitions in that business that would help us ramp up scale and geographic coverage.

  • It is a very good business.

  • One of the things that is important to understand is that different states have different licensing requirements for the level of different reps that we have, service technicians that we've had out there performing different levels of service, be it fire extinguisher, repair and replacement versus sprinkler systems and alarm systems.

  • They have different certification levels that they have to have.

  • So it's different than just hiring somebody off of the street.

  • And us being able to train them to be a first aid service rep, these people need to get state certifications and licensing and things like that.

  • But that said, we like our ability to grow in the geographies that we're in.

  • There's a lot of geography that we would like to expand into.

  • And there are lots of opportunities for tuck-in acquisitions in the markets that we're in right now.

  • So we really like that business.

  • And I think over time, we can scale that up to be upsized.

  • I always tell the division presidents, including Fire and First Aid, that their job is to figure out how to get their division to be at least $1 billion in revenue.

  • And that's what they should be thinking about.

  • And that helps us put goals in place and decide what type of resources we want to invest in the different businesses and so forth.

  • But we clearly think that both First Aid and Fire divisions can be over $1 billion in revenue for us.

  • Operator

  • Our next question comes from Andrew Wittmann with R.W. Baird.

  • Andrew John Wittmann - Senior Research Analyst

  • Great.

  • I had one question and then a follow-up.

  • I guess on the first question here, maybe, Mike, over the years, Cintas' growth has been fairly consistent in the characteristics that comprise it between things like price and add-stops and new accounts, even retention from -- to some extent.

  • I mean in normal times, we have a pretty good sense about how that contributes to your year-over-year growth rate.

  • Now that the next few quarters are going to be driven more by a reopening-type growth rate, I was wondering if you could talk about which of those factors you think will contribute more than the historical percentage to the growth and maybe less, just to understand how you're thinking about how this matters and -- will unfold in the next few months, quarters.

  • J. Michael Hansen - CFO & Executive VP

  • Yes, Andrew, boy, it's been a -- it certainly has been a different environment operating in the last 4 quarters and one that's been pretty unpredictable.

  • I think what we'll see, what we've guided to in the fourth quarter and likely will get us off to a start in the first quarter of '22 is the continued reopening of businesses and getting those businesses back to somewhat normalized operations.

  • We were on a nice trajectory of that towards the end of our first quarter this year and into our second quarter, that certainly took a pause.

  • But we've got a lot of customers that still are either not open or at limited capacity.

  • And so I think as we look at the next couple of quarters, maybe even the most of fiscal '22, it's going to be about fully reopening the economy and getting those -- getting our customers and other businesses back to healthy operating environments.

  • That means we'll take businesses off of a held status in the Rental division.

  • We'll start to service first aid cabinets again at a greater pace.

  • We'll start to understand the needs when they open and come off of hold, how can we help them in this new type of environment with all of the things that we've talked about that have been important.

  • So I think it's going to be more of that, the reopening of the economy and getting back to some normal type of process than anything else.

  • Andrew John Wittmann - Senior Research Analyst

  • That's helpful.

  • And then just for my follow-up, I wanted to just talk about inflation a little bit.

  • There's been obviously a lot talked about, and it seems like there's a lot of merit given the amount of stimulus that's going to be hitting the system here -- it's already hitting the system.

  • So I was hoping, Mike, you could talk a little bit about where inflation could hit you, where you might be seeing it today or expect to see it tomorrow.

  • Obvious areas come to mind like energy and I'd be curious as to your thoughts on how that impacts the outlook here for calendar '21, but also maybe even in some of the products that you're selling in the ancillary business and then first aid, labor, obviously.

  • If you could just address inflation, how you affect -- how do you expect to affect you and your ability to recover it in pricing against a recovering but still not a full bore macro?

  • J. Michael Hansen - CFO & Executive VP

  • Yes.

  • So from a -- I'll say, a short term, we could certainly see changes in gas prices at the pump.

  • We saw sequentially an increase in our energy percentage of about 10 basis points, and that certainly could contribute over the course of the next year.

  • I think labor is certainly in the news.

  • And the conversations about wage rates is likely to have some impact on us as well as our customers.

  • We could see, as you mentioned, certainly, in some of the PPE, we have seen quite dramatic changes in prices and costs to us in terms of gloves and masks and sanitizer over the course of the last year.

  • And there's probably a little bit of that continued unpredictability in that kind of product.

  • But Andrew, the really good news in all of that is we've got great efficiency in our business.

  • And so many times, we're able to offset that with current initiatives that we have within the business.

  • But if we can't, we certainly can look to pricing changes into the future.

  • Todd mentioned we have not like that idea in the last year.

  • We did not think it's the right thing to do, but -- and it's been 2 years really since we've done it.

  • But if we see inflation peak, that's an opportunity that we will certainly have to consider.

  • And usually, in the past, that's allowed us to pass on a good portion of those kind of costs, if we can't offset them within our operations.

  • Todd M. Schneider - COO & Executive VP

  • Andrew, it's Todd.

  • Just to build upon that, everything Mike said is right on target.

  • We're in a good position to withstand those adjustments based upon our model, our efficiencies that we can bring to market.

  • But with all these, whether it's inflation in general or wage inflation specifically, our biggest concern is always the impact to our customers.

  • We will manage our business.

  • We'll do it so appropriately.

  • But if it affects our customer base, then that's a much greater concern.

  • And we're hoping that the health of those smaller businesses has been tested and we're -- and hopes that they can continue to withstand and thrive in the new environment.

  • Operator

  • Our next question comes from Toni Kaplan with Morgan Stanley.

  • Toni Michele Kaplan - Senior Analyst

  • Just wanted to ask about the SAP benefits that you are seeing just now that the integration within Rental has been completed.

  • I know we're sort of in a unique period, but just wanted to see if any of those are coming through now or we should be expecting it going forward.

  • Just anecdotally, any benefits from the SAP program.

  • Todd M. Schneider - COO & Executive VP

  • Yes.

  • Toni, this is Todd.

  • We're seeing very nice efficiencies from having be on, the most part, one platform for the entire organization, benefiting our customers in one view of Cintas.

  • It's benefiting our locations and the ability to share inventory, our distribution centers in order to be able to anticipate needs.

  • It's been quite impactful.

  • And a lot of positive things that have come out of having that one platform and the efficiencies that come along with it, both for the customer but also internally, have been very encouraging.

  • Toni Michele Kaplan - Senior Analyst

  • Great.

  • I wanted to also ask about capital allocation.

  • If we hit a period now where demand accelerates, do you expect to be investing more back into the business for organic growth opportunities or M&A?

  • And I saw you were buying back some stock in the quarter.

  • So does that get back to historical levels?

  • Just what are you thinking about allocating capital?

  • Scott D. Farmer - Chairman & CEO

  • Well, if you -- if we start with CapEx, we're still sort of managing through the unpredictability of the economy.

  • So we're probably a little more conservative right now and we'll be in the fourth quarter.

  • But over time, I think our CapEx spend as the economy turns around will get back to a more normalized historical type and that's typically roughly 60% based on growth and 40% on maintenance.

  • So I think we'll continue to see that type of spend.

  • We do generate a lot of cash.

  • We've got a very strong balance sheet.

  • And so we would be interested in acquisitions in all of our businesses.

  • And then obviously, the dividend is important to our shareholders.

  • We have continued to be in a position where we could increase the dividend to our shareholders every year since we went public.

  • And obviously, that is a streak that we'd like to see continue.

  • And then yes, finally, we do have roughly $1 billion left on our authorization, and that is more sort of opportunistic from time to time as we see opportunities to acquire our own stock.

  • And so should we be in a position where we're building cash and we think the opportunity is right, I think that the Board would agree that we would be in a position to buy back some of our stock.

  • You saw a little bit of that in the third quarter when the stock price went down.

  • And so it -- I think that I wouldn't be surprised to see that sort of thing in the future.

  • Operator

  • Our next question comes from Gary Bisbee with Bank of America.

  • Gary Elftman Bisbee - MD & Research Analyst

  • It's impressive to get back to flat year-over-year same-day sales I guess a quarter really before lapping the step down from the pandemic.

  • I wanted to ask about mix within that sale.

  • So can you give us a sense of how meaningful PP&E, sanitizers and other pandemic-driven sales are to the current revenue levels?

  • And so how much the more normal historical mix would still be down, right, in Q3 without that?

  • That's the first question.

  • Scott D. Farmer - Chairman & CEO

  • Well, let me start by saying that things like the hand sanitizer and some of the sanitation products and wipes that we have fit into a recurring revenue stream once we put -- it's like the restroom supplies.

  • Once we put the standout there, we come and service it on a regular basis, make sure they have enough product in there to make it through until their next delivery and so forth.

  • So that is -- that becomes part of the recurring revenue stream.

  • The other products, things like disposable gloves, disposable face masks and things like that are the onetime PPE sale refer to it as onetime, but it's more of a direct sale that can fluctuate up and down depending on customer needs.

  • But we have -- we -- a lot of it depends on geography.

  • It depends on the industry that the customer is in.

  • Some distribution-type businesses, they've increased headcount, increased number of wearers.

  • We -- other businesses have reduced the number of wearers.

  • So it's a little bit all over the board trying to put some parameter on that.

  • Relative to historical average, I'd say, recurring revenue with the understanding that some of that is now the result of hand sanitizer and that's why it's flat through the quarter.

  • And we think that, that revenue is going to pick up as the economy turns around, as our customers get back to being able to open their businesses more fully, bring back some of their headcount.

  • And I believe that an awful lot of the recurring business like hand sanitizer is here to stay.

  • I have said in the past and I continue to believe that it's going to be a long time before a typical American walks into a business, walks into a restaurant, a lobby, a movie theater, any place and isn't looking for a hand sanitizer station after they've grabbed the doorknob going in and out of a public building.

  • We're seeing that in stadiums.

  • We're seeing that at -- in hotels that are open, at elevator stations and that sort of thing.

  • I think that's going to be here to stay.

  • So if I'm right about that, as they bring back and open up their operations more fully, that will be revenue.

  • As they add people back on, that's what revenue on top of where they are right now.

  • Todd M. Schneider - COO & Executive VP

  • Gary, this is Todd.

  • I think it's important to understand also, the vast majority of the products and services we're speaking of, whether it's face shields, gloves, hand sanitizer, cleaning chemicals, all those, we have been offering those for decades.

  • It's not new, right?

  • It's just it's elevated.

  • And we think it will be -- it will maybe not be at the current level, but it will remain elevated into the near and maybe distant future -- or in the near future, certainly, and maybe even much further out than that.

  • So that's exciting for us.

  • We see that.

  • Again, our customers now see that much more of a value in it, in large part, because people are much more focused on hygiene and cleanliness than they were in the past.

  • And many of our customers, they clean for image.

  • And now they are cleaning for health.

  • And that's very much a positive, we think, for society, but also makes our value proposition that much stronger to our customers.

  • So some very positives coming out.

  • Gary Elftman Bisbee - MD & Research Analyst

  • And if I could just clarify one thing in that response.

  • Scott, you said recurring revenues were flat.

  • Did you mean sequentially versus Q2?

  • Or did you mean year-over-year?

  • And if the latter, flat year-over-year, does that imply then that the onetime-ish PP&E sales increase year-over-year was similar to the Uniform Direct Sales decrease, which will allow that to be flat?

  • I just want to make sure I understand exactly what you're saying.

  • Scott D. Farmer - Chairman & CEO

  • I meant sequentially from the second quarter.

  • Gary Elftman Bisbee - MD & Research Analyst

  • Got it.

  • Okay.

  • All right.

  • I mean what I'm trying to solve for is how much the traditional businesses are down.

  • I appreciate everything you're saying about this demand persists and the big uptake in sustainable, recurring sanitizer sales.

  • But in the traditional pre-pandemic business mix, I mean is that still down 5% and it's offset by PP&E up 5%?

  • Or directionally, can you help us understand it?

  • What I'm really trying to solve for is what's at risk of going away over 12 months, 18 months as the traditional business mix obviously comes roaring back?

  • Todd M. Schneider - COO & Executive VP

  • Well, Gary, I think the -- probably the best way I describe it is, as we mentioned, in total for the company, it was up $45 million sequentially.

  • We don't think that will repeat.

  • But we do believe that these elevated levels, relatively elevated levels are here to stay.

  • J. Michael Hansen - CFO & Executive VP

  • Yes.

  • And Gary, the -- to answer what's at risk, it's really premature.

  • Scott talked a little bit about the enhanced value proposition of all of these things.

  • And while we may see -- we have seen some ups and downs in terms of that product mix in the last 3 quarters, we don't expect that to go away overnight.

  • This is not going to be a flip of the switch and the pandemic is over.

  • And so we -- it's hard to say how much of this will continue in the future.

  • Will the frequency of sanitizer spray services stay the same frequency as today?

  • Will the frequency of our ultra clean services stay the same as today?

  • It's hard to tell.

  • But what we fully expect is that this cleanliness idea and value is going to stick around for a while.

  • And so trying to dissect the results by product category and other things, we're not going to get into that because it's too early to tell exactly what that future run rate is going to look like.

  • Operator

  • Our next question comes from Kevin McVeigh with Crédit Suisse.

  • Kevin Damien McVeigh - MD

  • Great.

  • I know you talked to kind of severe weather holiday impact.

  • Is there any way to think about how much the weather, kind of the holiday and then despite the COVID impacted the quarter?

  • And I know it kind of varies across business line, but just any thoughts as to how that impacted the quarter.

  • Scott D. Farmer - Chairman & CEO

  • Well, I guess the easiest way to look at it would be that there was a dip from early December into January.

  • And then revenue started to rebound as we got into February.

  • February was better than January.

  • And obviously, if you look at all that, the quarter winds up being flat sequentially to the second quarter.

  • So you can run the dip down and then dip back up.

  • I would tell you that we do have some momentum as we go into the fourth quarter.

  • And so we're -- we have a better expectation of economic conditions and our business as we get into and through the fourth quarter.

  • Kevin Damien McVeigh - MD

  • Got it.

  • And then just -- is there any way to think about kind of across your client base, what percentage maybe aren't engaged right now or not using product or service versus where it was last quarter and where that's been historically?

  • I know there's probably some seasonality there.

  • But I guess just trying to get a sense of how many clients maybe aren't fully active right now, but expect to start coming back as the economy starts to reopen.

  • Todd M. Schneider - COO & Executive VP

  • So Kevin, I think your question was what percentage of our customers are on hold.

  • So we have -- we had a -- as Mike mentioned, I believe, a strong run-up in the summer into the fall.

  • Some never came back.

  • Some then went on hold.

  • So it's a little difficult to give you an exact number on that.

  • But I can tell you that we're anxious for those folks to get back.

  • We think that there is an incredible amount of pent-up demand that is in the marketplace.

  • You add that with stimulus checks.

  • And we think consumer spending could spike quite strongly in the Q3, Q4 calendar years -- of the calendar year.

  • And we think that will be really positive.

  • If you put that together with the strong value proposition that we have increasingly -- the strong value proposition that we have with our customers, meaning that when they come back, they still have to provide confidence to their employees and their customers, their clients, that they're coming back to a safe environment.

  • And so we think all that combined is going to make for quite a good situation.

  • Operator

  • Our next question comes from Scott Schneeberger with Oppenheimer.

  • Scott Andrew Schneeberger - MD & Senior Analyst

  • Somewhat following up on that last question from Kevin on -- specifically in your airline, cruise line, hospitality, the travel segment, can you put any quantification on how much those are down?

  • And more importantly, maybe just a feel for if you've seen any improvement on those metrics since the trough or if we're still there.

  • And then I will take away from the answer to that last question that, that is one of the categories that you think in the back half of this calendar year could significantly open up.

  • Scott D. Farmer - Chairman & CEO

  • To begin with, most of those -- of the revenue from those customers is in our Direct Sale business.

  • And that business is down about 40% over prior year.

  • And as you analyze that, it's a little different depending on which segment you're talking about.

  • For example, a lot of cruise ships are still at port.

  • So the cruise line business has really been affected.

  • There is some travel happening now, particularly sort of vacation travel.

  • So the hotels are doing a little bit better.

  • The airlines are starting to pick up.

  • And when I say that, I mean their revenue streams to their -- within their own business.

  • We had seen a little bit of improvement from our revenue to those customers.

  • And -- but still down 40% is a pretty significant number.

  • And I think that the -- those businesses will have some form of recovery as the vaccines continue to roll out and people begin to feel safer traveling.

  • I haven't been to the vacation spots in Florida, but I understand that the spring break crowd is maybe not as big as normal, but they're down there right now.

  • So I think there is a -- as Todd said, a pent-up demand for people to be able to go and do things again, vacation again, get on an airplane and go visit family in a different state across the country, that sort of thing.

  • And I think that the big trigger for all that and when that all happens is how soon a good portion of the U.S. population has a vaccine.

  • How long will it take to get back to pre-COVID?

  • That, I don't know.

  • It might take a couple of years, but I definitely could see that there would be some improvement in the second half of the year if the pace of vaccines continues at the rate that it is right now.

  • Scott Andrew Schneeberger - MD & Senior Analyst

  • All right.

  • My follow-up is, you mentioned earlier, it's been 2 years since any change in pricing as -- just as a customer appreciation-type strategy.

  • I'm curious, as we move into the next fiscal year, what is -- might we see that start to happen?

  • Would it be only in specific areas that are seemingly overdue and necessary to cover inflation?

  • Or is that a strategy you'll continue to maintain?

  • What would it take I guess is the question for you to start to get a little bit of sort of with pricing?

  • Scott D. Farmer - Chairman & CEO

  • Scott, thanks for that question.

  • First of all, it's important that you understand that it's not so much that we do it as a sort of a favor to the customer.

  • But from our perspective, we want our customers to survive this pandemic.

  • And we were doing all kinds of things to help them out in that regard.

  • They needed to add things depending on a customer-by-customer basis, but a small business might need to add hand sanitizers and masks and gloves and things from us, but they can't afford all of that.

  • So we help them with adjustments on their invoices, maybe their entrance mats went from a weekly service to a biweekly or monthly service at a lower rate to help them afford what was happening.

  • And it's -- to us, it's the relationship that we have with a customer.

  • We believe we enhance their image of us and their opinion of what type of a provider we are during these type of unfortunate situations.

  • It was similar in the Great Recession.

  • We had the experience of doing things then as well.

  • And the lifetime value of the customer as we come out of this is significant.

  • They like us.

  • They're willing to -- they trust us.

  • They're more willing to hear what we have to offer them when we develop new products and services.

  • They're more willing to try those new products and services because of the relationship that we have with them and so forth and are less likely we think to listen to a competitor's offer.

  • And that all goes into what we would use to make our general calculations about the lifetime value of that customer.

  • So from a price standpoint, yes, we're coming up on 2 years since we last increased -- generally speaking, last increased our prices on our recurring revenue.

  • And that's particularly in the Rental division where that's probably a stronger statement and more relative to the Rental division than others.

  • But we have seen competitors, typical environment, pricing environment in our business is that when they're trying to take our business, they offer ridiculously low prices to try to get our customers' attention.

  • But the way they treat their customers is that they're willing to raise prices to help protect their -- our competitors' bottom line as opposed to help protect the customer.

  • We've seen that in various places in the competitive environment in the last couple of years.

  • We will look at it in the future on a customer-by-customer basis, what type of products and services they need.

  • We -- if we are seeing price increases across the board, we'll have to -- in our own supply chain, we'll have to figure out the right way to pass some of those costs on to our customers.

  • But the fact that we haven't done it in the last couple of years puts us in a pretty darn good position when we sit down to talk to them about the fact that it's time for us to have some price adjustments.

  • And generally speaking, I think that those conversations are going to go well.

  • Will that happen in the near future?

  • That, I can't tell you.

  • I won't -- I can't tell you yet.

  • A lot of it depends on how economic conditions continue to recover.

  • At the pace that we're on right now, I would assume that between that, the potential for energy prices to increase, the potential for inflation to increase, we're eventually going to have to adjust our prices and that will happen.

  • When, I'm not ready to predict.

  • Operator

  • Thank you.

  • This concludes today's Q&A.

  • I would now like to turn the call back over to Paul Adler for closing remarks.

  • Paul F. Adler - VP & Treasurer

  • Thank you, Katie, and thank you, everyone, for joining us this morning.

  • We will issue our fourth quarter of fiscal '21 financial results in July.

  • We look forward to speaking with you again at that time.

  • Good day.

  • Operator

  • Thank you.

  • This concludes today's teleconference.

  • You may now disconnect.