Vestis Corporation Q2 FY2025 earnings call

• Jim Barber to become President and CEO effective June 2, 2025, with Phillip returning to Chairman role.
• Second quarter revenue declined due to lower rental and direct sales, impacted by seasonal volume changes, lost business, and L&Rs.
• Recovered majority of January rental revenue decline, took actions to improve revenue like reducing customer credits by addressing service issues.
• Frontline sales team fully staffed, average productivity up 10%, reoccurring revenue up year-over-year.
• Adjusted credit agreement to provide financial flexibility, restricting dividends and share repurchases until Q1 2027.

Second quarter revenue was $665 million, down ~$18M from Q1 (2.7%). Rental business declined $11M and direct sales declined $7M. Adjusted EBITDA was $63 million, 9.4% of revenue. Revenue from new business contributed 2.4% of revenue growth. Cost of services was $490M, gross margin 26.3%. SG&A was $148M, including a $15M one-time bad debt adjustment and $10M related to executive transition.

• Shifted to quarterly guidance; Q3 revenue expected $674M-$682M; adjusted EBITDA at least $63M, indicating sequential improvement.
• No longer providing free cash flow guidance.
• Encouraged by recent weekly revenue trends, average weekly revenue up 3.4% since January.

• Macro environment uncertainty impacting revenue expectations.
• Service issues leading to volume declines and credits.
• Historical service issues that take time to resolve fully.

Q: Andy Wittmann asked about confidence in Q3 earnings level and service issues.

A: Phillip stated confidence in guidance as trends support it, and Kelly mentioned normalized L&R impact and similar seasonal declines last year.

Q: Shlomo Rosenbaum asked about fixing service issues and volume differences with Cintas.

A: Phillip said they're better organized to implement service improvements, focus on customer centric culture and RSR success; Kelly said volume differences relate to product mix.

Q: Luke McFadden asked about new business outlook and demand environment.

A: Kelly and Phillip said they're optimistic new business gap with lost business will narrow, and no significant demand headwinds from customers.

Q: Ronan Kennedy asked about deleveraging targets and strategic advisors.

A: Kelly said deleveraging target is higher than previous, and Phillip said no active strategic advisor activity.

Q: Stephanie Moore asked about why customers switch to Vestis and management additions.

A: Phillip said 44% new customers are non-programmers and 56% from competitors, and sales leader and COO are still in place.

Q: George Tong asked about year-over-year revenue decline and pricing strategy.

A: Kelly said year-over-year decline due to lost business, volume issues, and national account loss, and pricing directionally positive but specific percentage not disclosed.