Vestis Corporation Q3 FY2025 earnings call

Jim Barber's Remarks - Transition and Vision: Thanked the board and leadership team for facilitating his transition to CEO. Highlighted the company's potential with a route-based asset-intensive model, emphasizing local execution, strong customer relationships, and operational discipline. Spent time getting to know the business, focusing on pricing, product mix, cost optimization, and technology investment. - Focus Areas: Emphasized value-based pricing, improving service quality for customer retention, optimizing product mix for margin-accretive growth, and enhancing cost of service through various initiatives. Also mentioned investing in modernizing technology infrastructure. ### Kelly Janzen's Remarks - Financial Performance: Reported revenue of $674 million, down 3.5% y-o-y. Discussed rental and direct sales performance, business retention, cost of services, SG&A, adjusted EBITDA. - Cash Flow and Balance Sheet: Generated $23 million of operating cash flow and $8 million of free cash flow. Total debt was $1.32 billion, with strong liquidity and no debt maturities until 2027. Focused on maintaining a strong balance sheet and allocating capital toward high-return opportunities.

Revenue during the third quarter was $674 million, down $24 million or 3.5% year-over-year compared to Q3 2024. The decline in revenue was due to an $18 million decrease in rental revenue and $6 million of lower direct sales. Within rental revenue, growth from new business or conversion contributed approximately $45 million or 6.7% of revenue year-over-year. On a rolling 12-month basis, business retention as measured in revenue dollars was 91.9% at the end of Q3. Cost of services in the quarter was $492 million and gross margin was 27%, down approximately 200 basis points year-over-year. SG&A for the third quarter was $122 million, a decrease of approximately $8 million year-over-year. Third quarter reported adjusted EBITDA was $64 million, representing an adjusted margin of 9.5%.

Forward-Looking Statements - Jim Barber indicated near-term financial performance is expected to be similar to Q3. Goal to finalize the operating plan for 2026 during the remaining fiscal year. - Kelly Janzen expected near-term financial performance to continue trends similar to Q3 and looked forward to providing details of 2026 expectations in the next call.

Q: Ronan Kennedy asked for a recap of strengths and weaknesses after Jim's time engaging with the business.

A: Jim Barber stated he came due to his background in similar network-based businesses, saw similarities with Vestis, noted opportunities in turnover and plant optimization, and saw alignment for growth in 2026.

Q: Luke McFadden asked about hiring behavior and free cash flow.

A: Jim Barber said hiring behavior was neutral; Kelly Janzen said they would continue tight working capital management and focus on cash.

Q: Anna Wu asked about the uniform rental industry health, competitive landscape, and sales environment in end markets.

A: Jim Barber said the segment health was fine with non-program growth, discussed the 120 closed-loop networks and end markets like hospitality, healthcare, retail remaining consistent.