Vestis Corp Q3 FY2024 earnings call

• Third quarter results align with expectations, with reaffirmation of full-year fiscal 2024 guidance and EBITDA margin trending toward the higher end of the range.
• Customer retention rates improved year-to-date, with a 210 basis point increase vs. fiscal 2023.
• New leadership hired: Bill Seward as Chief Operating Officer and Pete Rego as Head of Field Sales, resulting in a net $4 million cost savings.
• Strategic organizational changes include a sales center of excellence, a dedicated national account growth team, and collapsed field operations structure, generating ~$8M annualized gross cost out and ~$4M net annualized savings.
• Welcomed new Board members Keith Meister and Bill Goetz.
• Focus on improving customer service: real-time delivery notifications, standard operating procedures for shortages, and a logistics leader overseeing tactical inventory to enhance service levels.

Revenue for the third quarter was $698 million, a 1.6% year-over-year decrease. Adjusted EBITDA was $87 million, with an adjusted EBITDA margin of 12.4%, flat sequentially from the second quarter. The uniform business segment was down 3.5% year-over-year, while the workplace supplies segment was flat year-over-year. Absolute revenue was $698 million, and adjusted EBITDA was $87 million with a margin of 12.4%.

• Reaffirmed full-year fiscal 2024 revenue and EBITDA margin guidance, with EBITDA margin trending toward the higher end of the range.
• Expect Q4 sequential EBITDA step down of ~$7M due to onetime items like pull-forward of direct sales and final exit billings, and price erosion.
• Full-year incremental public company costs expected to be ~$18M.

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Q: Andy Wittmann asked about customer losses and impact on 2025.

A: Ricky T. Dillon explained reduced hole for 2025 from losses vs. 2024; Kimberly T. Scott discussed retention stabilization and need to accelerate sales team to absorb rollover losses.

Q: Andrew Steinerman asked about pricing moderation and erosion.

A: Ricky T. Dillon explained sequential pricing impact, positive realized pricing but sequential decline, and year-over-year erosion from prior year off-cycle pricing.

Q: Shlomo Rosenbaum asked about retention metrics volatility.

A: Ricky T. Dillon discussed quarterly volatility and focus on year-to-date retention; Kimberly T. Scott mentioned service excellence and internal benchmarks for higher retention.

Q: Stephanie Moore asked about retention targets and organic growth.

A: Kimberly T. Scott and Ricky T. Dillon discussed retention improvement, service focus, new sales leadership, and national account pipeline.

Q: Ronan Kennedy asked about new business bid activity and pricing pressure.

A: Kimberly T. Scott separated national account and SME pricing dynamics, and discussed operational efficiency initiatives.

Q: Timothy Mulrooney asked about service efficacy and on-time delivery.

A: Kimberly T. Scott discussed implementation of new processes, real-time delivery notifications, and standard operating procedures for shortages, with progress being made.

Q: George Tong asked about service practice spread and pricing outlook.

A: Kimberly T. Scott discussed phased implementation of service practices; Ricky T. Dillon discussed normalized pricing impact.

Q: Oliver Davies asked about cross-selling acceleration and sales staffing.

A: Kimberly T. Scott discussed route service representatives' cross-selling success and frontline sales productivity, noting higher sales rates with lower headcount.