信達思 (CTAS) 2025 Q1 法說會逐字稿

Good day, everyone, and welcome to Cintas Corporation announces fiscal 2025 first-quarter results conference call.

(Operator Instructions) At this time, I would like to turn the call turn the call over to Mr. Jared Mattingley, Vice President, Treasurer, and Investor Relations.

Please go ahead, sir.

Thank you, Russ.

Thank you for joining us.

With me today are Todd Schneider , President, and Chief Executive Officer; and Mike Hansen, Executive Vice President, and Chief Financial Officer, who will discuss our fiscal 2025 first-quarter results.

After our commentary, we will open the call to questions from analysts.

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 as from and former that Review'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 Securities and Exchange Commission.

I'll now turn the call over to Todd.

Thank you, Jared.

We are pleased with our start to fiscal year 2025.

Our first quarter results reflect the strength and breadth of Cintas value proposition for businesses of all types and stellar execution by our employee partners.

First quarter, total revenue grew 6.8% to $2.51 billion, an all-time high for revenue and a quarter.

First quarter revenue growth was negatively impacted by one less workday in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024.

On a same day work basis, first quarter revenue growth was 8.4%.

The organic growth rate, which adjust for the impacts of acquisitions, foreign currency exchange rate fluctuations in the fact that there was one less workday in the quarter was 8.0%.

Interest and taxes business divisions contributed to our success in the quarter.

As Mike will detail, our rental division was right where we like them to be.

And our First Aid and Safety and Fire Protection businesses each generated double digit year-over-year growth, demonstrating the complementary nature of our platform and our long runway for future growth.

The value of the products and services Cintas delivers continues to resonate with customers of all sizes and across industries.

We remain focused on the tremendous opportunity we have to serve 60 million businesses across North America.

In the first quarter, we continued to experience strong demand for our services, not only from existing customers but across our new business pipeline.

Businesses across our four focus verticals of healthcare, hospitality, education and state and local government continued to perform well.

Our top line results flow through to our bottom line.

Gross margin for the first quarter increased 9.7% over the prior year to a record 50.1%.

Operating income of 22.4% as a percent of revenue was also an all-time record, an increase of 12.1% over the prior year.

Diluted EPS reflects the recent in full for one stock split group grew a robust 18.3% to $1.10.

Earnings growth continues to reflect our relentless focus on operational excellence in every aspect of our business, including strategic sourcing and supply chain initiatives that drive down our material cost route and energy optimization with Smart Truck and leveraging our SAP system to minimize the efficiency of our facilities.

Cash flow was very strong in the first quarter with free cash flow increasing 62.4% over the prior year.

Our cash generation enabled us to deploy capital across each of our capital allocation priorities.

We continue to focus our strategic investments and our customers and our employee partners.

This strategy is reflected in our capital allocation priorities that continue to position us to deliver long-term value for our shareholders.

In the first quarter, we continued to invest in our businesses through capital expenditure of $92.9 million and made acquisitions in each of our three route-based segments.

Our technology investments are a significant area of reinvestment.

We are making great strides to implement better technology driven solutions to standardize our processes across our operations.

These investments have enabled us to provide more flexibility to our customers, including increased garment sharing and achieving more nimble and efficient product sourcing.

Coupled with our ongoing partnership with Verizon, Google, and SAP, we're able to make our employee partners jobs easier and get the right products to our customers faster.

We are seeing these efforts continued to improve customer experience and possibly impact our margin profile.

In addition to making the investments in our business to fuel future growth, returning capital to since our shareholders through dividends and share repurchase remains a key priority.

Cintas increases quarterly dividend by 15.6% per share which resulted in an aggregate quarterly cash dividend payment of $157.9 million on September 3.

This marks the 41 consecutive year that we increased our dividend, meaning we have maintained this practice every year since going public.

We also purchased $473.6 million worth of common stock during the quarter.

Before I turn the call over to Mike to provide details of our first quarter results, I'll provide our updated financial expectations for fiscal year, which reflect the momentum we carried through the first quarter and the exceptional dedication of our employee partners in helping our customers meet image, safety, cleanliness, and compliance needs.

We are increasing our financial guidance range for fiscal 2025.

We are raising our annual revenue expectations from a range of $10.16 billion to $10.31 billion to a range of $10.22 billion to $10.32 billion, a total growth rate of 6.5% to 7.5%.

We expect our organic growth rate to be in the range of 7.0% to 8.1%.

We are also raising our annual diluted EPS expectations from a range of $4.6 to $4.19 to a range of $4.17 to $4.25 of growth rate of 10.0% to 12.1%.

The future sent us remains bright, and I look forward to the year ahead.

With that, I’ll turn the call over to Mike to discuss the details of our first quarter results.

Thanks, Todd, and good morning.

Our fiscal 2025 first quarter revenue was $2.5 billion compared to $2.34 billion last year.

The organic revenue growth rate, adjusted for acquisitions, foreign currency exchange rate fluctuations and a difference in the number of workdays was 8%.

Total growth was negatively impacted by 160 basis points due to one fewer workday in the first quarter compared to the prior year period.

As a reminder, we have two fewer workdays in fiscal 2025 compared to fiscal 2024.

One impacted our first quarter, and the second will impact our fourth quarter.

Each of our fiscal 2025 quarters has 65 days.

Organic growth by business was 7% for Uniform Rental and Facility Services, 14% for first-aid and safety services, 13.8% for fire protection services and uniform direct sale was down 1.8%.

Gross margin for the first quarter of fiscal 2025 was $1.25 billion compared to $1.14 billion last year, an increase of 9.7%.

As Todd mentioned, gross margin as a percent of revenue reached a milestone 50.1% for the first quarter for fiscal 2025 compared to 48.7% last year, an increase of 140 basis points.

Robust volume growth continues to generate strong operating leverage.

Our gross margins also increased as a result of our world-class supply chain investments we have made in technology and continued operational efficiencies.

Gross margin percentage by business was 49.3% for Uniform Rental and Facility Services, 57.7% for First Data Safety Services, 50.2% for Fire Protection Services and 40.6% for uniform direct sale.

Gross margin for the Uniform Rental and Facility Services segment increased 120 basis points from last year.

We continue to generate leverage as a result of our strong revenue growth.

Great performance from our supply chain is lowering our product costs.

We continue to realize benefits from our technology investments, and we are extracting inefficiencies from the business through our six Sigma and engineering teams.

Gross margin for the First Aid and Safety Services segment increased 180 basis points from last year.

As with our rental business, strong revenue growth continues to create leverage.

Our sales mix continues to be favorable with more profitable first aid products and increases in our recurring revenue products like AED's, iWatch stations and Waterbury.

Our technology investment in Smart Truck continues to provide a route optimization and improved efficiencies.

And we continue to see sourcing benefits from our first state dedicated distribution center that we opened several years ago that has allowed us to lower product costs.

All of these contribute to improved margins.

Selling and administrative expenses as a percentage of revenue was 27.6%, which was at 20 basis point increase from last year.

We continue to make strategic investments in technology and in our partners.

First quarter operating income was $561 million compared to $500.6 million last year.

Operating income as a percentage of revenue was 22.4% in the first quarter of fiscal 2025 compared to 21.4% in last year's first quarter, an increase of 100 basis points.

Our effective tax rate for the first quarter was 15.8% compared to 19.2% last year.

The tax rate in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock based compensation.

Net income for the first quarter was $452 million compared to $385.1 million last year.

This year's first quarter diluted EPS of $1.10 compared to $0.93 last year, an increase of 18.3%.

As Todd mentioned earlier, we generated strong cash flow.

Our first quarter free cash flow increased 62.4%.

This has allowed us to invest back in the business, which has resulted in first quarter capital expenditures of $92.9 million.

Our investments include technology to grow the top line and expand margins, automation to improve efficiencies in our plants and additional processing capacity where needed.

We expect capital expenditures to finish between 3.5% and 4% of revenue for the year.

Todd provided our annual financial guidance related to the guidance.

Please note the following.

Fiscal 2025 net interest expense is expected to be approximately $101 million compared to $95 million in fiscal 2024, predominantly as a result of higher variable rate debt used to complete a portion of the previously mentioned share buybacks.

Our fiscal 2025 effective tax rate is expected to be 20.4%, the same compared to our fiscal 2024.

And guidance does not include any future share buybacks were significant economic disruptions or downturns.

With that, I'll turn it back to Todd for some closing remarks.

Thanks.

Thank you, Mike.

Before we conclude, I'd like to take a moment to thank our employee partners for their continued efforts on behalf of Cintas and our customers in the first quarter.

As I've said before, our culture is our greatest competitive advantage.

Our partners fueled our success, and we believe deeply in the importance of each employee partner having ownership and the company to share collectively in that success.

The Cintas shares reach record highs in the spring, our Board of Directors approved a four for one split of our common stock, which went into effect before the market opened on September 12.

We are proud to enhance the accessibility of Cintas shares for all of our investors, especially for our employee partners to take and continued share in the future growth of Cintas

.

As we look ahead to the rest of fiscal '25, our outlook reflects our continued confidence in our strategy and value proposition of helping our customers achieve their image, safety, cleanliness, and compliance needs.

We remain focused on delivering outstanding customer experiences and making the necessary investments in the business to sustain our growth for the remainder of fiscal 2025 and beyond.

I'll now turn the call back over to Jared.

That concludes our prepared remarks.

We are now happy to answer your questions from the analysts.

Please ask just one question and a single follow-up if needed.

(Operator Instructions) George Tong, Goldman Sachs.

Hi, thanks.

Good morning.

Can you talk a little bit about the overall selling environment and what you're seeing any changes in customer purchasing behaviours in response to the overall macro environment in evolving macro uncertainty.

Good morning, George, thanks for the question.

We have not seen much change in our -- in the customer behavior, which was just 60 days ago that we reported our full fiscal year 2024 earnings.

But we haven't seen much change

.

We still see nice demand from our customers.

We're helping them with their image, their safety, their cleanliness, and the compliance needs and that frees them up to focus on what's most important for them, taking care of their guests, their people, their patients, whatever their constituents are.

So not much change, I would say in the sales cycle or in the demand of the customer.

Got it.

And you continue to highlight health care, hospitality, education, and government as key focus for the goals for the company.

Can you talk a little bit more about traction you're seeing in those verticals and how growth and performance here comparing versus the broader company?

Yes, certainly

.

So those -- we've chosen those verticals very well, we've invested in them.

We run them not like just the sales vertical, but we look at them as how do we take care of those customers holistically.

And I thought I would just give an example of that, but it all starts with our culture.

We have a spirit of positive discontent is what we call it.

Its Cintas which is meaning we're constantly focused on improving and innovating

.

And we also believe that the answers are not at our desk, meaning we believe the answer is out with our customers and our employee partners.

So we travel and we get laid out.

We talk to our customers about where we can help them.

And I have two examples where we're helping customers in the healthcare area that came exactly from those conversations.

The first was, and we've spoken a little bit about this with government dispensing.

We're continuing to have a very good success with this technology and our healthcare customers what they told us was they had a problem managing their inventory in this case of scrubs as they didn't have accountability with the scrubs.

So when you don't have accountability, there's hoarding of garments that occurs, which leads to a lack of availability, meaning the first person to get there, it takes garments.

And then those who show up later don't get the garments.

And as a result, the health care customers costs for the most part invested in what I'll call substandard product because they wanted while when they didn't have control over the inventory, they won as cheap as possible.

So in this technology addresses those issues and today were being used in many clinical areas, labour and delivery, emergency room, operating rooms, radiology, Cath labs, ICU are some examples.

We're doing that.

We found the exact same opportunity, meaning when we spoke to our customers that we asked them, what else can we help the US.

And they said we are having a heck of a problem with privacy Curtis.

And what they told us is that it was one of their top compliance issues and those are privacy burdens when you think about those that are in patient rooms to recover areas, emergency rooms and acute care, but they're also in non-acute throughout in surgery centers and medical centers.

And they have to be cleaned.

They have to be cleaned on a frequent basis.

And so it's a real compliance challenge for our customers.

So while we listen to them and we didn't just take over the problem, we studied it and came up with some great products and technology.

Those products have some patterns on them as well and the technology allows us to do compliance.

So it makes for in total, it makes for a safer environment and a more compliant environment.

And it frees up the environmental services that those organizations who are cleaning patient rooms in other areas where conditions provide care.

So a safer, cleaner, more compliant, and more efficient environment.

So I thought that might help just to give a little bit of color around what we're doing in that particular vertical, but it really starts with our culture and we listened to our customers where can we help?

And then we'll dive and we provide the solutions.

Tim Mulrooney, William Blair.

Tim, this is Luke McFadden on for Tim Mulrooney.

Thanks for taking our questions today.

I might have missed it in your prepared remarks, but could you provide the breakdown in new sales between market share wins and conversion of no programmers for the quarter?

Yes, good morning.

We did not specifically, but no change to that trend.

On average were historically about two out of three of our new customers come from what we call the no program market.

The no program market with meaning that they are not with a traditional competitor.

Now that doesn't mean that they're not using products and services, meaning we might go in and they need help with -- they might own a [map] They might have soaps, they might buy uniforms.

But they're not with a traditional competitor.

So they may be spending money on these products and certain of those products have, but we redirect them to ourselves to help them do it better, faster, smarter, cheaper or in many cases.

Understood.

Really helpful.

And then kind of just sticking on that topic with my follow-up.

It sounds like that no programmer penetration continues to be an area of strength in the business.

Was hoping you could offer maybe some insights into the typical profile of these recent no programmer conversions or the majority of these recent wins of a particular business size and the concentrated in any specific end market or the relatively broad-based?

Well, that's the beauty of our business.

We service a little over 1 million customers in their 16 million businesses in North America, US, and Canada.

And so the wins come from all industries, all shapes, sizes of businesses.

And that's why we're so bullish on the future because we see that opportunity that white space out there as a significant opportunity to help customers.

And we're still and obviously the very much early innings there.

Andrew Steinerman, JPMorgan.

Hi, this is Andrew.

If I could talk about merchandise amortization in the quarter year-over-year?

How much is merchandise amortization, a headwind or tailwind?

And what have you assumed for the fiscal year in terms of trends and merchandise amortization?

Good morning, Andrew.

The material cost has been an area of strength for us and I'll say, the rental business, but also the others.

But I'll stick to the rental business for a second.

Material cost has been trending nicely, and we work hard at that material costs.

So, within there, you can think about our global supply chain and finding better ways to source better cost of product.

And so they've done a really great job there, despite the really good business growth volume growth that we've had.

And the other thing that we really worked hard at, as you know, Andrew, is in our stock rooms and the sharing of garments.

And so we the more we share in terms of our garments, the more pull percentage we get out of the stock rooms, and that means we are injecting fewer governments into service.

And so the combination of those things have created some nice tailwind.

And you see that showing up in our gross margin, we would expect that will continue through the fiscal year.

Jasper Bibb , Truist Securities.

Hey, good morning, guys.

Wanted to ask about Smart Trunk and the Google partnership.

I think you announced that Bob will over a year ago now (technical difficulty) where you might be seeing some associated marginal efficiency benefits at this stage?

Yes, Jasper, thank you for the question.

Smart Truck is as a reminder, as proprietary technology that we work to develop.

It is -- it's been very helpful for our business.

But more specifically, it's helpful for our customers because we're able to instead of spending time driving, we're able to spend more time with our customers.

So and when we're there with our customers and gives us opportunity with eyes and ears and mines in those business to solve problems for them, I'm aware whether it's something else in our business, like I mentioned with in healthcare, with the government dispensing and scrubs and privacy cartons.

So more time with the customer is really valuable for us. separate from the fact that we like to share and here we don't make money when the wheels are moving, we only make money and generate revenue when that will stop on our trucks.

So that's been valuable.

Our relationship with Google has been a very advantageous.

And as important as our relation with Google is Google's relationship with SAP.

So having that all combined gives us insight into our business, helps us to leverage our infrastructure and leverage our employee partners to put them in the right spot, the right place, the right time.

So we believe that is going to be beneficial to the future.

And we really value those relationships.

Thanks.

And then maybe following up on that last point on tend to look pretty good growth in prior in the quarter.

Any color on an underlying operating margin for that business was in the first quarter?

And would be great to hear how some of the initiatives you're doing there like SAP implementation and some of the G&A investments and called out in the past are where we stand today?

Yes, good question.

So would love the fire business.

It is growing really nicely.

The organic opportunity is amazing.

The M&A opportunity is really attractive for us and yet we're investing in that business.

We're investing in our SAP system, and we're excited about that, about having some of our route based systems on one system.

We think that will really give us some insights into our customers that we don't have today.

But the opportunity out there for fire is it's incredible just because that you would every business generally business we're in.

The every business really have it, the services around it, whether it's some sprinklers, alarms, in certain cases, fire extinguishers, emergency lights.

So we think the runway is really attractive in that business.

We like the margin profile, we know how to run the business.

We know the mix of business that's attractive.

As a result, not every M&A opportunity that comes down the pike is a really attractive for us, but we know how to do it and we will be aggressive as appropriate.

Maybe I'll offer two things with that as well.

You heard me say in the prepared remarks, this was the second quarter in a row that gross margin in the fire business was 50%.

And so that is a reflection of a lot of the things that I talked about in terms of really going well and running the business well.

We are in the midst of that SAP implementation that we've talked about.

And I think back in July, I mentioned that there would be a little bit of pressure on higher margins in fiscal 2025 because of that implementation.

And so you see a little bit of that coming through fire SG&A.

And if you look at the all other operating margins were down a bit from Q4 to Q1.

And it's a bit of that reflection of the SAP implementation.

As you've seen in our first-aid and safety and rental businesses that SAP implementation, it certainly takes some time, but there are some really nice benefits subsequent to getting that system in and running it and learning how to run it.

But as we've talked about, the fiscal 2025 may show a little bit of pressure in SG&A and fire business.

Certainly, that is all incorporated into the guide, the overall guide that we've given.

Manav Patnaik, Barclays.

Ronan Kennedy on for Manav.

The strong growth (technical difficulty) sourcing supply chain hack operating efficiencies and (technical difficulty) mix of 20 bps from energy.

Can I please confirm whether there's any one time factors in there

?

Or is it the more sustainable drivers and do you see upside to the margin expansion opportunity

?

Ronan, thanks for the question.

No one timers to call out as far as some where we can go with this year.

We're focused on extracting out inefficiencies in our business and there's more to come

.

So we don't like to put a ceiling on our aspirations there.

But we see opportunity in our business to extract that inefficiencies.

And so we will continue to do that.

I think from an operating margin standpoint, we've talked about 25% to 35% incremental.

And I think our guide that reflects in that range.

And, broader (technical difficulty) dynamic and, potential implications of potential M&A and your thought process, capital allocation?

Great.

Well, M&A is an important component of our business has been and will be.

We are it's worked very well for our business for our customers, our shareholders throughout_zt.

And, we certainly stay aware of what's going in the marketplace and we like our competitive position.

We think, we're in a good spot.

We will continue to invest to make sure that we're appropriately positioned to compete in the marketplace moving forward.

So, that's where -- our focus is and that's what we'll continue to do.

Joshua Chan, UBS.

Hi, good morning.

Todd, Mike and Jared.

Thanks for taking my questions.

On the rental business.

Could you confirm that you haven't seen much change in where levels and kind of relatedly, if you were to see where levels start to moderate the economy, could you talk about the syntax playbook and that scenario and what you can do to sustain the attractive growth that you're used to seeing?

Thank you,

Joshua.

Thanks for the question.

I'll start.

Mike, feel free to chime in.

We certainly love when jobs are being added.

We haven't seen real change in our wearer levels.

But that being said, our business, we've demonstrated that we can grow our business in multiples of GDP and multiples of employment growth.

So, we are certainly not reliant on that.

With, that being said a lot when jobs are being at, I think it's good for our economy and it's good for our customers and it's good for our business.

So, but we're not reliant on that.

We've also demonstrated that we can grow our business in virtually every type of economic cycle that we've seen.

So, we're focused on doing just exactly that investing for the future to position, our employee partners to take incredibly good care of our customers.

And we'll continue to invest in that so that we can be positioned to be really successful for the future.

Great.

Thank you for the color and, and on your guidance was the quarter -- was the growth in Q1 better than your internal expectation.

And I guess I'm asking in the context of you raising the four year guidance exception at the low and just wanted color on your thoughts around that.

Thanks so much for your time.

Sure.

Well, I'll say this.

The growth, we saw some nice growth in the first quarter and generally it lines up with where we like to be.

It was at the high end of our guide.

But as we now have a quarter in the books, it's a little, we can feel a little bit more confident to bring up the low end of the guide.

If you think about that guide range, it's a same work date growth range of 7.3% to 8.4% for the year.

And, when you think about the implied guide range for the rest of the year Q2 through Q4, we're not too far different from that 6.9% to 8.3% on the same work day basis.

So, look this 8% growth that we saw in the first quarter, organic growth is right where we want to be and the guide, I think for the rest of the year is a reflection that look, we have some confidence in the way we're operating.

We haven't seen a lot of change in the operating environment and the growth still looks good.

Andy Wittmann, Robert W. Baird.

Great.

Thanks.

And good morning.

Thank you for taking my questions.

You guys in the script, you talked about Six Sigma, you talked about your engineering teams, degree of automation.

So I was just wondering if you could talk about the roll out of things like RF ID inside your plants.

I know that you've been kind of testing this for a while and I think maybe that, you're ramping this a little bit more.

I thought maybe, Todd, you could comment on that specifically and kind of where you are and if this is the direction we're heading and really how long does it take you to get to that promised land where this is the way that your business runs on a day to day basis?

I guess, maybe there'd be a similar question related to, the Auto Sort station.

I think in the past, you guys have talked that you like Auto Sort like half of your business, roughly.

I was just wondering, if there's any new developments on that, like cheaper technologies that make it so that you can deploy it more widely or I know that sometimes like space considerations in your plant have been a limiting factor.

Any technologies that have been developed, that allow you to broaden, the roll out of your Auto Sort station.

So just was hoping you could talk about those two things in particular.

Certainly.

Thank you, Andy.

I think it, let's go back to our culture.

We have this, we call this a spirit of positive discontent.

So, and part of that is we are constantly innovating.

It's just, it's in our DNA.

It always has been since I've joined the company and I'm sure it always will be.

So, we're always trying to find ways to uh make it easier for our partners to our employee partners to provide services, products and services to our customers and easier for our customers to do business with us.

So, RFID, you mentioned, we've been using RFID for many years in our business, in certain areas of that.

And we're continuing to test and innovate.

And hopefully there's a future where we can have that more broadly in our business.

But whether it's controlling inventory is important to us important to our customers.

So, we're always innovating in that area and that will continue.

Similar with Auto Sortition in our facilities, in our rental facilities.

So, we're innovating and we see opportunities there.

We have invested in some proprietary technology there that allows us to more broadly leverage that those technologies to extract out inefficiencies in our business.

So, you're right footprint can be an issue with certain technologies with Auto Sortition.

And, we look at that and say, well, there's going to be a better way and we've invested and we're bullish on that, moving forward.

Those things all take time.

We're constantly tweaking, to make sure we nail it.

But, we'll continue in that path.

Appreciate those perspectives thought, maybe I'd ask you about some innovation, maybe that you're, that's relevant to the top line financials of your business.

You've talked so much about health care, government education.

It's been a well tried thing for a while now.

But I mean, you guys are always trying to open up new and markets and I thought maybe you could talk about some of the developing end markets that maybe you're getting more excited about things around residential home services.

Is that an opportunity for you and can you just talk about.

If you can play there and in the size of that market in comparison to some of these other growth markets that you've talked about in the past.

Thanks for the question, Andy.

So, that's spirit of positive discontent flows through every area of our business and we're always looking for the next best vertical not prepared to speak about anything where, we see an investment in a particular vertical.

Home residential services is not high on our list.

It's not been an area of focus.

It's a very different business.

Certainly, they have needs for our products and services.

But that has not been an area of a significant investment for us.

Shlomo Rosenbaum, ST Nicholas.

Hi.

Thank you.

I want to get back to a question.

I think that George was touching on.

I know there's broad based growth but were there particular types of clients or verticals that you might want to call out over here in terms of, really stand out growth during the quarter.

Shlomo, I would say that, our business in totality is functioning at a very good level.

So, no particular vertical to call out.

Besides, the investments we've made in health care, hospitality, education and state and local governments, we've been investing there and we'll continue to.

If you look at, how particularly the jobs reports there.

They've been good in those areas.

Not shocking that health care with the demographics of North America that there's continued investment there.

So, but we still see really good runway in all those businesses and we expect them to grow better than we do on average.

If they weren't, then why would we have a vertical?

So, nothing specific to call out besides what I just mentioned that.

Thanks.

And this is just a housekeeping item for Mike.

Just the pressure.

He says you purchased about $474 million in stock and I go to the cash flow statement, it looks like $615 million.

Can you just talk about what the difference is between what's on the cash flow statement?

What's in the commentary?

The commentary reflects the Board approved -- buyback authorization.

The cash flow reflects that plus the impact of stock option exercises and restricted shares.

So in other words, when we have employee partners that exercise a stock option, there are some shares that are effectively withheld or purchased for taxes for the exercise.

The netting of shares, etcetera for restricted shares that invest same thing.

We are withholding shares for taxes.

That's the difference.

Ashish Subadra, RBC.

Thanks for digging my question.

I just wanted to follow up on the margin front of really solid margin expansion in the quarter of the 38% incremental margins were above your like a midterm guidance of -- 25% to 35%.

And that's despite one fewer working day headwind.

So as we go through the year, obviously, you've made out multiple different margin expansion drivers.

But how should we think about the incremental margins for the rest of the year?

Thanks.

We gave the 25% to 35% range and that's where our target is.

The business isn't wholly linear and so there are some periods where we invest a little bit more.

There are, so we'll be a little bit lower in that range and there are some quarters where we'll be higher in the range.

Generally speaking, as we think about this year though, we've got 65 work days in each of our quarters remaining.

And so there's a little bit of the variability because of work days, that's not going to be there.

But I expect it, we'll run within that range, some quarters at the higher end, some at the lower end.

That's the way we'll go through the, as we move into the future.

Todd talks about so many initiatives and Six Sigma projects and investments and this just sort of can move us through that range, sometimes even in and out of that range.

Generally speaking, though our expectation is we will be in that range.

And that will be the really good news, that means margin improvement for the year.

That's great color.

And maybe just a quick follow up on M&A.

I just wanted to follow up on our earlier question on M&A.

If you can talk about your M&A pipeline and appetite for potentially a large M&A deal as well.

Thanks.

Well, thanks for the question.

First off, again, M&A has been an important part of our strategy.

And we've shown it can work really well for our business, for our customers, shareholders, all involved.

And we're open to deals of various shapes and sizes across the entire platform.

If you're speaking of what has been public with investors being courted by a international company.

That acquisition in particular would pose particular challenges because it's been historically under invested asset.

So, it would make it hard for us to generate the level of value we expect from M&A in that particular one.

In M&A, in general, it's again, it's important to us and we think it's really attractive.

It's hard to predict when sellers are ready to transact.

And uh it takes you know, two to dance in those categories.

So, but we're very much in that area of the business.

We're very interested in M&A and a more general basis

Faiza Alwy, Deutsche Bank.

I wanted to talk about the First Aid business because we're seeing organic revenue growth acceleration in that business.

And I'm curious, if you can talk about your drivers there and really what expectation is for, you know, the long term opportunity here.

I don't know, if you can talk about a potential cam or how we should think about the sustainability of -- teams type of building in that business.

Faiza, thank you for your question.

The First Aid -- Safety business has been great.

The buying motives resonate with our customer base.

There's 16 million businesses in North America, maybe not every single one of them is a great candidate, but a large portion, our great candidates for our products and services that we provide.

So, to a certain degree the pandemic changed some things with regards to that business, meaning people, how they look at their the health and wellness of their people and of their facilities.

And we think that's been positive for our business.

So, providing whether it's a first aid cabinet, AEDs.

For in the case of sudden cardiac arrest.

Our eye wash stations that are for health and wellness.

And certainly our water break where it provides potable water for people that and in various dimensions that makes it accessible for them.

So all those have been really attractive.

So the mix of business is really good.

But meaning, back, during the pandemic, it was more probably PPE focused.

So that mix of that business has changed.

But the demand has been very attractive.

So we've invested there.

We've invested in technology, We've invested in sales people, service partners to take great care of our customers.

And I neglected to mention we have a really nice training and compliance business which helps our customers stay in compliance with the various needs they have, whether it's forklift training, First Aid, general First Aid training, certainly CPR training are all things that we think we can invest in more significantly and provide more value to the customers.

And are you finding that there's, revenue synergies with the uniform business?

I know that you're running the businesses separately, in terms of, certainly there's different trucks and things like that.

But I'm curious like what percentage of sort of new customers that you have in this First Aid & Safety business or existing, you know, uniform customers?

Or is it a whole new type of customer that you're attracting

Faiza, is a good question.

I don't have that number specific for you, but I'll say this.

We do run separate trucks to those customers and we found that having that focus organized around that business specific has been really beneficial for us.

But we share data, -- we share data within our customers and opportunities.

And as I mentioned, we have this infrastructure of employee partners that are in those customers.

And when they're visiting with those customers, they have eyes, they have ears, they have minds and they can help provide solutions to those customers.

So it's easy enough to say, hey, I noticed you might have a need for this or they may ask us.

So there's a mix.

So, there's -- some of it were.

The very first time we do business with the customers through First Aid, sometimes it's through fire, sometimes it's through rental.

Just the sheer scale of rental certainly makes it for a nice cross selling opportunity because we have -- we've been in that the longest.

It's our heritage business and it's our largest business.

But, so we really don't care where we can start with the customer.

We just want to do business with them and then we'll leverage that infrastructure, that data to try to cross sell as best as possible to provide additional solutions for those customers.

Stephanie Moore, Jeffrey.

Hi, good morning.

Thank you.

I wanted to touch on maybe the competitive environment within your vended market.

If you're seeing anything in terms of stepped up competitive activity in the form of maybe aggressively going after existing customers, maybe a little bit challenging from a pricing standpoint, any color there on the competitive activity would be great.

Thanks.

Good morning, Stephanie.

We operate in a really competitive environment and it's been competitive since I started with a company in 1989.

And I'm sure it'll be competitive for the future.

So, one of the differences that is how we approach the business.

We look at the new program market as a an incredible opportunity.

We service a little over a million customers or 60 million businesses.

The white space out there is amazing.

And we see that opportunity, where they can buy today and we can help them today.

So growing that pie is significant.

That being said, yeah, it's really competitive.

Always has been, I wouldn't say there's a real change in competitive behavior.

We're focused on trying to invest in our business to make sure we provide the best solutions for our customers and position our people, best to compete in the marketplace.

And it's certainly very important to us.

Great.

And then just as a follow up.

You touched on this actually a couple questions ago.

But clearly, there's some kind of potential industry consolidation activity going on.

As you think about that, if you were to see your industry continue to consolidate, how do you think that would impact you thoughts on competitive activity in a more consolidated environment?

And the likes of that?

Thanks.

Good question.

So we, certainly pay attention to that.

We never underestimate our competition.

And, we deal with competitors that are very good at what they do.

So, industry consolidation would that have a dynamic impact.

We don't think so.

But, we always have our head on a swivel and we're making sure that we are focused on investing in our business to best position our people to take care of our customers and to provide the best solutions for our customers.

So, that's where we're spending our time investing and focusing.

But we pay very close attention to the competitive landscape.

Keeping in mind that, we compete every day against what we might call nontraditional competitors.

So those who are providing direct sale uniforms, Amazon, Walmart.

We're competing against all different kinds of competition.

So, industry consolidation is not necessarily a bad thing for us.

It will continue to be competitive.

Yeah, I completely agree, Mike.

As I mentioned, we walk into a business, they may not be with a competitor.

But in many cases, they've got the products and services or something very similar, as what we're, what we can provide.

They're getting it from those nontraditional sources.

We think we can do it better, faster, smarter, cheaper in many cases for the prospect of the customer.

And that's where we've been successful in growing our business.

And, I guess, just to take that one quick point.

I mean, you basically said it's always been competitive if you had a, greater consolidation, do you think it would be even more, with maybe another player that's new to the North America?

Do you think they would end up being actually a more or less competitive environment?

It's hard to imagine it being even more competitive, it's really competitive today.

But if you're international competitor to work to enter, we don't see the competitive dynamic changing.

And again, our focus would remain on delivering great value our customers on a daily basis.

Scott Schneeberger, Oppenheimer.

Thanks very much.

I have two.

I'll, ask them both up front since we're getting late here.

First one, uniform direct sales, the organic declines they persisted for I think five quarters now.

And I know this is a lumpy business.

And in the years prior is very strong.

But could you guys please elaborate on trend over the balance of the year?

What we might see there to the extent you have visibility.

And then the second question is free cash flow really strong in the first quarter, CapEx appears on pace, so it looks like the strength was something working capital driven.

Could you discuss it?

Was this a timing issue or should we anticipate a particularly strong cashier in fiscal 2025?

Thanks,

Thanks for the question.

I'll talk a little bit about the direct sale business, and Mike if you like to respond regarding the cash flow.

Scott, you nailed it.

It's a lumpy business, roll outs of national accounts, those types of national customers are highly impactful.

And you also nailed that they had incredible growth going back a couple of years.

So just really more timing, lumpiness.

No real change in that business.

We like where we're positioned and feel like we're in a good spot for the future.

Regarding cash flow your rights, Scott.

Free cash flow was really strong for us, some of that is timing.

So for example, you see some real working capital change in accrue compensation, related liabilities.

That's a little bit more timing.

From an accounts payable, we got a nice benefit from accounts payable.

We've been working hard in accounts payable to extend some terms.

And, that's paying off with a nice benefit in the cash flow.

For the year generally speaking though, we look at it to be in the typical range.

So free cash flow conversion of net income in the 90% to 100% range, which is sort of typically where we have been.

That's where we expect to be for the rest of the year or for the full year in total.

Jason Hobbs, Wells Fargo.

Hey, good morning and thanks for taking my questions.

I'm curious, if you could remind us what level of price increases you're putting in this year.

And then I'm curious what the reception has been like from your customers?

Jason, our price adjustments are a component of our growth and certainly not where we're focused in on how we grow our business, but it's a component.

And our price adjustments are way lower than they were at the peak of inflation and they're back much closer to historical today.

And how they're received.

Those are always challenging conversations and try to position our people on a daily basis to provide the best service so that they can go better.

But it's always challenging.

And it's been challenging my entire career on price adjustments.

So we just, we try to focus our time on how to best position our people, how to train them, and how to give them the best products and services so that they can provide the most value.

Got it.

That makes sense.

Thank you.

And, it's a good to take away my next question.

I was curious about the hiring market for your own business and I'm curious if it's gotten any easier or harder to hire people.

Jason, good question.

I call it similar, right.

Similar meaning, it's always been a challenge to find great people, and that's what we're focused on.

The hiring market, it has eased, there's no doubt from, pandemic craziness.

But, it's certainly easier, but never easy.

That's what we're seeing in our business.

We're still investing for the future and the reason we're investing is because, we see the opportunities that I had

Thank you.

And at this time, there are no further questions.

I'll turn the call back over to Jared for closing remarks.

Thank you, everyone for joining us this morning.

We will issue our second quarter of fiscal 2025 financial results in December.

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

This concludes today's conference call.

Thank you for your participation.

You may now disconnect.