Vestis Q1 2025 Earnings Report

Vestis EPS Results

• Actual EPS: $0.14
• Consensus EPS: $0.12
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.22

Vestis Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $688.89 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Vestis Announcement Details

• Quarter: Q1 2025
• Date: 1/31/2025
• Time: Before Market Opens
• Conference Call Date: Friday, January 31, 2025
• Conference Call Time: 8:30AM ET

Vestis (NYSE:VSTS) provides uniform rentals and workplace supplies in the United States and Canada. Its products include uniform options, such as shirts, pants, outerwear, gowns, scrubs, high visibility garments, particulate-free garments, and flame-resistant garments, as well as shoes and accessories; and workplace supplies, including managed restroom supply services, first-aid supplies and safety products, floor mats, towels, and linens. The company serves manufacturing, hospitality, retail, food processing, food service, pharmaceuticals, healthcare, automotive, and cleanroom industries. Vestis Corporation was founded in 1936 and is headquartered in Roswell, Georgia.

Vestis Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Welcome to the Vestas Corporation Fiscal First Quarter 2025 Earnings Conference Call. At this time, all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation. I would now like to turn the call over to Michael Aurelio, Vice President, Investor Relations.

[Michael Aurelio, VP - Investor Relations at Vestis]

Thank you, Madison, and good morning, everyone. Welcome to the Vestas Corporation fiscal Q1 2025 earnings call.

[Michael Aurelio, VP - Investor Relations at Vestis]

With me here today are

[Michael Aurelio, VP - Investor Relations at Vestis]

our President and CEO, Kim Scott and our CFO, Rick Dillon. As a reminder, a telephonic replay of this call will be available on the Investor Relations section of divestus.com website shortly after the completion of the call. Also, access to the materials discussed on today's call are available on the Vestus website under the Investor Relations section. Before we begin, I would like to remind you that this call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about management's future expectations, beliefs, estimates, plans and prospects.

[Michael Aurelio, VP - Investor Relations at Vestis]

Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our periodic and current reports filed with the Securities and Exchange Commission. We do not undertake any duty to update them. With that, I would like to turn the call over to Kim.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Thank you, Michael. Good morning, everyone. Thank you for joining our fiscal Q1 2025 earnings call. As always, I want to start by thanking our 20,000 dedicated teammates for their hard work as we continue to execute against the tremendous opportunity ahead for Vestas. Our Q1 results came in as we expected.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Last quarter, we communicated Q1 revenue and EBITDA would look similar to the Q4 of FY 'twenty four. We delivered results in line with this commentary, with Q1 revenue of $684,000,000 flat sequentially from Q4 2024 and adjusted EBITDA of $81,200,000 up approximately 1% sequentially from Q4 2024. We also note our Q1 revenue was impacted by unfavorable movement in the Canadian dollar exchange rate, which had a negative 2024, revenue was down 4.7% or 4.5% on a constant currency basis. As we previously discussed, our 20 'twenty four as part FY 'twenty four as part of our profit improvement plan for this line of business. Adjusted for these items, which we believe represents a more accurate reflection of the underlying performance of our business, 1st quarter revenue declined 2.8% on a normalized constant currency basis, and what we expect will be both the toughest comp and the low point for our quarterly revenue in fiscal 2025.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

From a profitability perspective, Q1 adjusted EBITDA was $81,200,000 Our Q1 EBITDA margin was 11.9 percent, down 180 basis points year over year and up 10 basis points sequentially versus the 4th quarter. Q1 cash flow was impacted by normal seasonality, as well as timing that shifted some cash collection into the 2nd quarter, which Rick will discuss in more detail. On an underlying basis, we expect the business to remain highly cash generative and see no change in our outlook for the full year, given this was a Q1 timing dynamic. We were pleased to continue to improve our balance sheet during the quarter, with our gross and net debt declining to $1,290,000,000 $1,270,000,000 respectively, and Q1 net debt to EBITDA of 3.8 times. Now that I've summarized our Q1 results, I want to look ahead to the rest of the year.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

I'm excited by all aspects of our business, but especially by a particular milestone we expect to hit in Q2. Towards the end of the second quarter, we expect new volume growth will exceed lost business, driven by field sales productivity, national account wins, new frontline sales headcount growth and solid retention metrics. Further, we started taking price in Q1, which held well and will continue through the year. In addition to core volume growth and price, we have cost savings benefits throughout the year. And to that end, we are reaffirming our full year FY 'twenty five guidance for revenue and EBITDA.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

We expect our business will grow sales at a rate of 3% to 4%, with EBITDA growth approaching or exceeding 10% in the second half of the year. For FY 'twenty five revenues, there are 4 main drivers that will support our sequential ramp. The first driver is strong new volume wins across SME field sales and national accounts. On field sales, we're seeing the positive effects from organizational changes made last year, with year over year productivity improving 20% this quarter. We believe there's more room to go as we saw some of our regions achieve a 40% increase.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

On national accounts, we are accelerating new business installations and continue to convert our pipeline into new wins. These customers drive route density and leverage our excess plant capacity in our network, which is customer, where Vestas will more customer, where Vestas will more than triple its recurring revenue. This customer will ramp in Q2 and throughout the year. We also won a number of new customers in healthcare and industrial verticals. Our pipeline with national accounts is the strongest it's been since I joined Vestas.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

The second driver in our sequential acceleration is growth with existing customers. During Q1, our revenue from route sales to existing customers increased by more than 50% year over year. The 3rd driver is our hiring pipeline for frontline sales teammates. After intentionally slowing our frontline sales hiring in 2024, we have once again resumed hiring in 2025. January marks the 1st month since pausing in 2024 that we've had a positive net change in sales headcount.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

These new hires will drive sales in 2025 and beyond as we introduce these teammates into a more professionalized selling environment. The 5th driver is our retention metric. In the Q1, our customer retention rate was 92.9%, up 30 basis points year over year and up 2 80 basis points versus the 4th quarter. As we've mentioned in the past, we feel it is most useful to evaluate retention on a full year basis, which we believe is most indicative of our underlying performance. Going forward, we will continue to report customer retention on an annual basis with quarterly disclosure focused on the in period revenue impact from lost business.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

To recap, I believe in our sequential revenue guidance because of the new customers we're winning across SMEs and national accounts, our ramp in sales force hiring, our growth with existing customers and our Q1 retention metrics. For FY 'twenty five EBITDA, in addition to the net volume improvement, there are 3 main drivers that support our sequential ramp. The first driver is meaningful cost savings from operating more efficiently. We are pulling several levers, including driving merchandise reuse programs and logistics optimization initiatives. The second driver is optimizing our workforce to further drive cost performance and structural profitability of our business.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

During Q1, we took further action to rationalize build operations and back office G and A where appropriate, with the majority of P and L benefits to come in future quarters. The final driver of our EBITDA ramp is our in select in year pricing. We have improved our market segmentation and we observed pricing in Q1 stuck better than in other quarters. We expect to continue to realize net positive price increases with our existing customer base in FY 'twenty five. So to recap, a lot is working well at Vestas.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Churn is in line with our expectations. Build sales productivity is ramping nicely. Our sales hiring pipeline is robust. We're winning with national accounts. And we have pricing and cost savings through the rest of the year.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

We're excited by our business' fundamentals and the sequential ramp we expect through the year. Before I turn the call over to Rick to discuss the financials, I'd like to provide some additional color on our outlook. For the full year, we continue to expect the underlying business to deliver 1% to 2% core revenue growth and 40 basis points of core adjusted EBITDA margin expansion, normalized for the fiscal 'twenty four customer exit billings and direct sales impact that I previously discussed. We continue to expect this core performance to be driven by positive contributions from both net volume and pricing for the full year fiscal 2025. As we deliver on our plan, we expect to see sequential improvement in both revenue and EBITDA through the balance of the year, with our strongest performance in the Q4.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

On a year over year basis, we continue to anticipate 3% to 4% top line growth and EBITDA growth approaching or exceeding 10% in the second half of the year. Finally, I want to discuss 2 personnel changes that we announced this morning. First, our Chief Legal Officer and General Counsel, Tim Donovan, will be retiring next month. I'm pleased to announce that Busch Bouchard will soon be appointed asbestos' Chief Legal Officer, General Counsel and Corporate Secretary. Butch brings over 30 years of public company legal experience and was most recently Chief Legal Officer at Team Inc, which is a global industrial services company.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

We're excited to welcome Butch to the team, and we thank Tim and wish him all the best in his retirement. Additionally, we announced that our Chief Financial Officer, Rick Dillon, will be leaving the company as a part of the transition of the CFO role. I want to sincerely thank Rick for his significant contributions to Vestas. His leadership in preparing for Vestas' separation as a stand alone public company and building out our public company finance capabilities will have a lasting positive impact on our company. We remain grateful for his service to the company, and we wish him continued success.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

I'm also excited to announce that Kelly Jansen will be joining Vestas as our new CFO. Kelly has over 25 years of financial leadership leadership experience, and since October, she has been supporting us as a finance consultant. Previously, Kelly worked in the industrial distribution space as the CFO of BlueLinx from 2020 to 2023. Kelly brings a tremendous skill set, particularly in financial and business process optimization. And under her proven leadership, we believe we will be able to significantly advance our finance organization in support of future value creation.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Lastly, regarding our comments last quarter about potential interest in Vestas, we continue to have strategic advisors retained and are focused on our operations and delivering on our 2025 financial outlook. We will not be commenting further. With that, I'd like to turn the call over to Rick. Rick?

[Rick Dillon, EVP & CFO at Vestis]

Thanks, Kim, and good morning, everyone. So let's start with the Q1 revenue bridge on Slide 9. Revenue of $684,000,000 was up 10 basis points sequentially versus the 4th quarter on a constant currency basis and in line with expectations, with favorable customer retention having a positive impact on our sequential results. Excluding the one time exit billings and the large direct sale customer loss from the prior year, revenues were down 2.8% year over year. The impact of rental growth was offset by lower pricing year over year and the impact of lost business.

[Rick Dillon, EVP & CFO at Vestis]

Volume growth from recurring revenue, including new customers and expanding our services with existing customers, provided approximately 7.30 basis points of growth in the quarter. New customer growth contributing approximately 600 basis points and existing customer growth contributed 140 basis points with revenue from route sales up over 50% year over year. The gap between new customer growth and lost business is closing with the impact of lost business exceeding the contribution from volume growth by only 8,000,000 in this quarter. Our Q1 net volume performance represents a 39% improvement from the prior year and a 43% sequential improvement, marking the 1st sequential improvement since fiscal 2023. Our Q1 retention also improved by 40 basis points year over year and 2 80 basis points sequentially.

[Rick Dillon, EVP & CFO at Vestis]

Improved retention during fiscal 'twenty four and in the Q1 of 2025 resulted in a 16% reduction in

[Rick Dillon, EVP & CFO at Vestis]

the overall impact of lost business.

[Rick Dillon, EVP & CFO at Vestis]

Rollback of prior year pricing actions. We expect to see positive pricing in the back half of the year as we lap difficult comps in the first two quarters. Direct sales drove an approximately 120 basis points decline in the Q1 year over year, driven primarily by the lost revenue from the large direct sale national account previously disclosed. FX

[Rick Dillon, EVP & CFO at Vestis]

was

[Rick Dillon, EVP & CFO at Vestis]

a 20 basis point headwind during the quarter with the Canadian exchange rate lower than the prior year and the rate assumed in our guidance. Moving on to Slide 11 and adjusted EBITDA. Adjusted EBITDA was approximately $81,200,000 in the Q1 of fiscal 2025, in line with our expectations for sequential performance relative to Q4 and resulting in a decrease of approximately $17,000,000 from the Q1 of fiscal 'twenty four. The operating leverage on new business was more than offset by the impact of lost business and the rollback of prior year pricing actions. Cost reduction initiatives, continued network optimization efforts and lower energy costs were partially offset by the impact of prior year one time exit billings, expected labor increases and increased freight costs associated with positioning inventory in our network for new business installs.

[Rick Dillon, EVP & CFO at Vestis]

On a sequential basis, EBITDA margins increased 10 basis points to 11.9% in the Q1 of 2025. EBITDA margins were 13.7% in the Q1 of '24. Turning to cash flow on Slide 11. We generated approximately $4,000,000 in cash from operations in the Q1 compared to $52,000,000 in the Q1 of last year. This excludes the cash from the sale of the Japan joint venture completed during the quarter.

[Rick Dillon, EVP & CFO at Vestis]

Q1 is seasonally our lowest cash generating quarter due to certain annual payments including things like insurance premiums and incentive compensation. The decrease year over year reflects lower EBITDA between years and a $6,000,000 investment in inventory to support growth. In addition, there was approximately $20,000,000 of cash collections on trade and other receivables that shifted into January due to the timing of the holidays and our quarter end date. We continue to focus on inventory management through sales and operations planning and garment reuse initiatives. The increase during the quarter is to position the right inventory in our facilities to support growth as we prepare for several large installs.

[Rick Dillon, EVP & CFO at Vestis]

Net capital expenditures were approximately $15,000,000 during the 4th Q1, essentially flat with Q1 of 2024. The negative free cash flow in the quarter was driven by the receivable timing previously mentioned. In January, we recovered the $20,000,000 collections deficit from the last week of December. This was simply a timing shift. We continue to expect our cash conversion rate to be on average approximately 50% on an annual basis.

[Rick Dillon, EVP & CFO at Vestis]

On an underlying basis, we expect the business to remain highly cash generative and see no change in our outlook for the full year. We utilized proceeds from the sale of the Japan GP to make voluntary principal payments of approximately $20,000,000 during the quarter, reducing our net debt to $1,274,000,000 We ended the quarter with a net debt to EBITDA ratio of 3.8 times. Given the expected increase in LTM EBITDA and cash generation, we expect this to be the high point of our leverage ratio as we progress through the year. We remain confident in our ability to meet our targeted leverage level of 1.5x to 2.5x by the end of fiscal 'twenty 6. Al will conclude by providing a few more details on our fiscal 2025 outlook on Slide 14.

[Rick Dillon, EVP & CFO at Vestis]

We remain on track to deliver our guidance for the year. We continue to expect revenue of $2,800,000,000 to $2,830,000,000 and adjusted EBITDA of $345,000,000 to $360,000,000 This would result in revenue growth from approximately 0% to 1% and an EBITDA margin of 12.3 percent to 12.7%. As a reminder, our Q1 included a 20 basis point headwind related to Canadian dollar exchange rates versus prior year and the rate assumed in our guidance. We expect this to continue to be a headwind as we progress through the year. We believe our growth and cost initiatives support sequential improvement in our results as we progress through the year, including Q2, which is typically our lowest growth quarter.

[Rick Dillon, EVP & CFO at Vestis]

We expect to return to year over year growth in the back half of the year. Kim talked about the many drivers of this sequential growth, including field sales productivity improvements, national account wins, new hires and selective price increases. We remain excited about the momentum in our business and the trajectory of the business heading into 2026. Lastly, as Kim mentioned, I will be leaving Vestas on February 14. It gives me great pride to see the green shoots and underlying momentum in our business.

[Rick Dillon, EVP & CFO at Vestis]

I am glad to be leaving the company in a strong position, delivering against its financial commitments with a long runway to capitalize on value creation opportunities ahead. I am especially proud of the finance team and their contributions and accomplishments over the last 3 years. I've had the chance to work with Kelly for the last few months and I'm confident I'll leave them in good hands. So, I want to say publicly, thank you, Kim, and the rest of my Vestas teammates and I wish you and the company continued success. That concludes our prepared remarks for today.

[Rick Dillon, EVP & CFO at Vestis]

We thank everyone for joining us and we will now open the line for questions.

[Operator]

The floor is now open for questions. And our first question is coming from Andy Wittmann with Baird. Please go

[Operator]

ahead.

[Operator]

Please go ahead, Andy Wittmann. Your line is open.

[Andrew Wittmann, Senior Research Analyst at Robert W. Baird & Co]

Sorry about that. Hi, good. Thanks for taking my questions. I had a question on pricing. I guess I want to start there.

[Andrew Wittmann, Senior Research Analyst at Robert W. Baird & Co]

I saw that the in year pricing contribution to the Q1 results was 0.4%, pretty similar to the 0.6% of last quarter, but down kind of just a smidge. Kim, you mentioned in your script that you're expecting to kind of get more pricing and that it was well received. Is the pricing ramp that you're expecting here in fiscal 'twenty five kind of more back end loaded? Or maybe you could give some detail about the cadence and a little bit more color on what you're seeing on the pricing absorption there?

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Yes, sure. So thank you for your question, Andy. It's great to hear from you this morning. I would start by saying you're right in my message around the fact that we are demonstrating the ability to stick price and maintain higher levels of pricing. We expect that that will continue, not accelerate, but continue through the balance of the year.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

We will lap negative pricing comps that are happening in the 1st and second quarter of the year in the back half of the year. So we'll net positive pricing overall for the full year. And the way we're doing that is really through the ability to hold on to that price better with our existing customers. You'll recall that we spoke a lot about improving our service performance, earning the right to take price. And we feel really confident that we've gained a great deal of traction in terms of improving the customer experience.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

And so that is earning us the right to take and hold that price. We've also spent time with our frontline teammates, training them and helping them have those conversations with customers and understand how to discuss and explain pricing tactics. So we feel really good about the ability to generate net positive pricing in the full year. And you should expect that that will be generally in line

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

with our normal annual price increasing levels.

[Andrew Wittmann, Senior Research Analyst at Robert W. Baird & Co]

Okay. That's helpful. Thank you for that context. Just for my follow-up, I guess I want to kind of ask on the cost side of the ledger here as well. I mean, just looking at the P and L, like the SG and A line and other things, it looks like there have been some pretty significant cost reductions.

[Andrew Wittmann, Senior Research Analyst at Robert W. Baird & Co]

I guess, 2 part question. One is, can you talk a little bit about what areas that you addressed specifically for efficiency here in the last 3 months? And you did mention that you're not quite done with some of your efficiency actions. And I was wondering kind of what you still see in the future as the areas that need that can be addressed?

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Yes, certainly. So we are really generating tremendous momentum in many cost takeout areas as well as productivity areas of our business. So we continue down the path of our logistics optimization strategy. We continue to accelerate that work. So we've gotten significant footing around optimizing our network, and we continue to conduct those activities across our facilities.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So we're generating savings and productivity from being more efficient from a logistics perspective. We continue to improve the use of existing garments. So our merchandise reuse initiative related to improving our used fill rate metric drives also cash benefits as well as cost out in the period. And then we did take some specific action around optimizing our workforce out in the field as well as in our back office G and A. And we did not enjoy a full quarter of those activities in the Q1.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So we will see full quarters of those benefits flow through in the second, third and fourth quarter. And then the final area is around plant operations and working to become more efficient in our plants related to labor efficiencies and productivity with our frontline workforce. So Andy, we've got a really full portfolio of productivity and cost out initiative. And we continue to fill that pipeline and we continue to optimize. And we will always do that.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

But in particular, you're going to see a full second,

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

3rd

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

and 4th quarter of this cost takeout initiative that we did in the Q1, only seeing a partial contribution in Q1.

[Andrew Wittmann, Senior Research Analyst at Robert W. Baird & Co]

Great. Thank you.

[Operator]

Thank you. And we will take our next question from Andrew Steinerman with JPMorgan. Please go ahead.

[Andrew Steinerman, Equity Research Analyst - Business & Info Services at JP Morgan]

Hi, Kim. Could you comment on the direction of the NPS scores? I remember the last time you commented on them with this group, you said they were at 12 month highs. That was a couple of quarters ago. Could you just remind us how often these scores are measured at a company level?

[Andrew Steinerman, Equity Research Analyst - Business & Info Services at JP Morgan]

And then give us some qualitative comment, has there been a reduction of service issues and how that was achieved?

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Yes, great question. So we really look at NPS at the most macro level on an annual basis. So we'll come back to that and talk about that annually. But we look every day at leading indicators around service related requests. So as a customer calls in with a service need of some sort, we call those SRs and we manage service requests on a very tactical and daily basis.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

And those service requests have very specific reason codes attached to them. And those reason codes help us generate credo bars and understand what are the key drivers of customer service requests. You might recall in the past, I spoke about those and I specifically called out on time delivery and shortages as being key opportunities to improve

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

the customer experience and to reduce those service requests.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

And I'm really proud of improve the customer experience and to reduce those service requests. And I'm really proud to say that we are reducing those service requests related to those key Pareto bars in those key areas around on time delivery and around shortages. So overall, we are seeing continued improvement in the customer experience, and we can see that daily in the reduction of service requests related to these key focus areas. And also, I will add some more color around that, Andrew, is we're seeing great success cross selling our existing customers multiple products and services. And that is also a great indicator that our customers are having a good experience because they're choosing to buy more from Vestas.

[Andrew Steinerman, Equity Research Analyst - Business & Info Services at JP Morgan]

Okay. Thanks, Kim.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

You're welcome. Thanks, Andrew.

[Operator]

Thank you. And we will take our next question from Shlomo Rosenbaum with Stifel. Please go ahead.

[Shlomo Rosenbaum, Managing Director at Stifel Institutional]

Hi. Thank you very much. Hey, Tim, could you dig in a little bit more to some of the efficiency efforts? I can talk about 15 logistics ops and monetization events and merchandise reuse up to 10% to record high that's in the slide deck. How much do those two items move the needle?

[Shlomo Rosenbaum, Managing Director at Stifel Institutional]

In other words, with those things happening in the quarter, did that add $5,000,000 of EBITDA? Or I'm just trying to figure out how material the items are that you've already done and how should we think about that going forward?

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Yes. So well, we will always continue to focus on this portfolio of productivity initiatives and cost out initiatives. So I also think you should think of it as a never ending program. So every year, I'll be challenging my team to identify these opportunities and to execute against them. We were very explicit about the logistics optimization opportunity.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

As we were preparing to spin the company out, you might recall we did a pretty significant network optimization study, and we found a tremendous significant network optimization study, and we found a tremendous opportunity to consolidate, in some cases, depots into existing market centers. We found opportunities to optimize customer routes and to serve them more efficiently. And so we are very explicitly moving down that path, and we've been doing that for several years now. So you'll continue to see cost out from that program over the next probably 3 years. And then we'll continue to optimize that network as we grow.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So that is a gift that keeps giving as we move through the quarters. The cost takeout program was very explicit. And while I'm not going to give specifics around the actual contribution of that cost takeout, it was significant in the year. And I believe there is more opportunity to continue to optimize our workforce and to optimize the way that our teams operate. The next level of that is really going to be though through automation and through really eliminating work and digitizing work.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So more to do there before we hit the next leg of the back office G and A cost out. And then as it relates to used fill rate, we did get the full year numbers last year. So I think it's important just to note that as we continue to reuse existing garments, we will continue to lower amortization. So you'll be able to see that in our financials as we report amortization numbers. So I would just point you to that and encourage you to continue to watch that amortization cost line as a function of revenue, and you'll be able to see what we're driving there related to use fill rate.

[Shlomo Rosenbaum, Managing Director at Stifel Institutional]

Okay. And then can

[Shlomo Rosenbaum, Managing Director at Stifel Institutional]

you just talk a little bit about what's going to drive the revenue growth? Like how much should we expect to be able to come over time from pricing? And what would it take to get like the volumes to really materially go up from here? Are you thinking about hiring much more aggressively now? I know you talked about net hiring is up.

[Shlomo Rosenbaum, Managing Director at Stifel Institutional]

Is this going to be more of a selective or do you feel a program or do you feel like with the leadership you have in sales now, you're at a point where it makes sense to really implement a much more aggressive hiring program?

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So I'll start with the broad macro question around price and volume and how they contribute to our strategy to create value. So we will take pricing at normal pricing levels, as we did historically pre COVID. And we feel very confident that we've achieved the ability to do that. And we saw good pricing stick in Q1 per normal pricing level. So I think of pricing as a normal activity that we'll do on an annual basis and it is not the key to our strategy.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

And then I'll point you to the key to our strategy, which is to drive volume through our system. So volume is incredibly important. I was very pleased to share on the call this morning that we expect new volume wins to outweigh losses as we kind of exit the second quarter. So we're very pleased that we expect to see that shift, and we'll start to see positive volume growth in the system. The reason that is so important to us and powerful for us is because we are sitting on roughly 35% idle plant capacity.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So we're going to generate significant operating leverage as this volume flips positive and we push volume through the system. So it is definitely about generating incremental volume and driving that volume. How are we doing that, I think, is the second part of your question. And we're doing that really through 3 legs of the stool. So first, I would think about national account volume.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

We've talked a great deal about accelerating our pipeline, the health of our pipeline, some of these key customer wins that we've been highlighting for you. And we feel extremely confident about the power of our national account pipeline and our ability to convert that to new wins and then to install that business. We are seeing great results there and we're very, very pleased with the work the national account team is doing. The second leg of the stool is SME sales through our frontline field team and we talked a lot about that over the past year. That team has been revamped.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

That team has been that team has been revamped. That team has been professionalized under our new sales leadership, and they are starting to drive higher levels of revenue per head or productivity per head. We are now at the point where we would like to add more teammates to that team, putting them into a professionalized selling environment where they're going to be highly productive. So we do aim to grow the sales team. I spoke about the fact that we've seen a positive add of sales headcount now in January, and we're going to continue to add that headcount.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

But when you think about what should the size of the team be, it really depends on 3 knobs. It depends on what type of turnover you're seeing. It depends on what type of productivity you're seeing and then how fast are you hiring them and how productive are they. So we're going to just keep dialing those knobs and

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

turning those knobs until we get the right formula. But we are

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

going to add teammates until we get the right formula. But we are going to add teammates to that team. And then the 3rd leg of the stool is retention. And we're very pleased to see the fruits of our labor around improving the customer experience. We're seeing positive improvement in customer retention rates.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

And that will also contribute to our volume strategy.

[Shlomo Rosenbaum, Managing Director at Stifel Institutional]

Thank you.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Welcome. Thank you.

[Operator]

Thank you. And our next question is coming from Stephanie Moore with Jefferies. Please go ahead.

[Harold Antor, Senior Equity Research Associate at Jefferies LLC]

Hello. This is Harold Lonta on for Stephanie Moore. So I guess just on the retention front, I know you saw an improvement in the quarter. I guess could you talk about the factors that's contributing to that improvement? And then how should we think about the retention throughout improvement throughout the rest of the year?

[Harold Antor, Senior Equity Research Associate at Jefferies LLC]

And I guess, what are you underwriting your attention for the fiscal year?

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So I

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

think I got your question there, Harold. So your question is, what are we doing to drive retention improvements in the system? And what do we expect for the balance of the year? Is that your question?

[Harold Antor, Senior Equity Research Associate at Jefferies LLC]

Yes.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So I'll point you back to all of the efforts that we really undertook really in Q2 of last year, shifting the team to focus very aggressively on enhancing the customer experience. And so we have been hyper focused as a team on really driving a delightful experience for our customers from on time performance to rolling out standard operating procedures to improve shortages and to make sure our customers get everything they want the first time that it's delivered and really shifting our team's focus around delighting the customer. We are definitely seeing that that body of work is making a difference and we are seeing improvements in service requests and our customers are responding very positively to the work that we are doing to take great care of them. So I would point to that as the key reason around why our customers are staying. I would also point you to the fact that we've been very thoughtful in our pricing strategies and about how we take price and how we approach that pricing activity with the customer.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So we feel that we've taken a very balanced approach to pricing and appropriate approach as well as driving an enhanced customer experience. And both of those factors are contributing to improved customer retention. Through the balance of the year, we continue to expect good performance related to retention. We saw improvement in Q1 and we expect that we will hold that improvement. And we will always be focused on retaining as many customers as we can.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So we won't be satisfied with our performance for the year, but we do ahead.

[Operator]

Thank you. And our next question is coming from Manav Patnaik with Barclays. Please go ahead.

[Ronan Kennedy, Analyst at Barclays Capital]

Hi, good morning. This is Ronen Kennedy on for Manav. Thank you for taking my questions. Could I just please ask how you would characterize the macro in the demand environment and conversations with customers? And then if there's any particular regions or key strategic sub verticals, a particular strength or weakness?

[Ronan Kennedy, Analyst at Barclays Capital]

And then one more element to the question, please. Any implications or impacts of that you're seeing already or potentially of new policy from the new presidential administration, such as the 25% tariffs in Mexico? If I'm not mistaken, I think you have manufacturing facilities there.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Okay, Ronen. I'm going to try to take that. I think that's 4 questions,

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

but I'm with you. So let

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

me start with the first one. It's good to hear from you. The first one, I believe, is around demand and are we seeing any shift in the macroeconomic environment. And I would just point everyone back to this $48,000,000,000 market that we estimate we are participating in, there is plenty of opportunity for growth and we are not seeing a shortage of leads or the ability to go out and hunt and find opportunities for new business. So I feel very confident that there's lots of market share out there for us, And we're attacking that.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

And I spoke a moment ago about our very strong national account pipeline and the fact that we're generating great new wins off of that pipeline. And we're seeing our salespeople sell more. So we feel really good about that. I would also point you to the diversification of our end market. So we operate in many verticals as you guys all know.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So even if a particular industry is negatively impacted, for some reason, we have lots of end markets and verticals to hunt in. So we feel really confident that we're well insulated from some type of particular downturn in one particular industry. So feeling good about sub verticals, I think that was the second part of your question. Are we seeing any particular weakness in any particular vertical or end market? I would say not at this time.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

We are very diligent about measuring the performance with existing customers, understanding what's happening with teammates and wearers that are using our products with those customers, and we're not seeing any significant shifts there. As it relates to your question around tariffs and policy and are we seeing any impacts that the new administration affecting us, at this time, there is no specific effect on our business. But we are closely monitoring all of the actions that the administration is taking. We're keenly aware of the conversations that are taking place around tariffs. We've been working to de risk our supply chain and have been very mindful of this well before the election and feel really confident that we are in a good place as it relates to that.

[Ronan Kennedy, Analyst at Barclays Capital]

Thank you very much. Appreciate you covering on all aspects of that multifaceted question.

[Ronan Kennedy, Analyst at Barclays Capital]

For

[Ronan Kennedy, Analyst at Barclays Capital]

the CapEx, the guidance of 3% of revenues, could you confirm what the priority areas of investment are?

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Yes. I could do that. And Britt, feel free to jump in here as well if needed. But essentially, our CapEx is supporting a couple of key areas. We have general maintenance CapEx always, of course.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

And we have CapEx related to kind of keep the lights on if you want to to think about it that way. Then we have some CapEx that goes towards our optimization efforts. So as our logistics team is working on plant consolidation, we may need to buy a linen press and move it into a facility as an example. We might need to replace a roof on a building. So these are very very basic general maintenance type activities for the most part that consume our 3%.

[Ronan Kennedy, Analyst at Barclays Capital]

Okay. Thank you. I appreciate it.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Yes. Thanks for your questions. It's good to hear from you.

[Operator]

Thank you. And our next question is coming from Sam Cusworth with William Blair. Please go ahead.

[Sam Kusswurm, Equity Research Associate at William Blair]

Hey, thanks for taking our questions.

[Sam Kusswurm, Equity Research Associate at William Blair]

Just a few short ones here.

[Sam Kusswurm, Equity Research Associate at William Blair]

I was hoping you could comment just a bit more on the health of your national account pipeline and just maybe any industries or markets where you're seeing that particular strength occurring and possibly where specifically you're trying to target for the remainder of the year?

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Yes. Hi, Sam. It's Yes. Hi, Sam. It's great to hear from you and thank you for your question.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

I feel incredibly energized, to be quite frank, around our national account pipeline and the leadership of that team is doing an incredible job. I would put it in a few buckets the way that you should think about it. One of those buckets is existing national account customers and further penetrating them. So you would have heard the example that I used about the restaurant customer and continuing to gain new business with that customer and tripling our revenue with them in due course. That is a target area for us.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So we have built out existing customer share of wallet opportunities. So you should think about that as one leg of the stool. Also, we are very focused on large customers that have the opportunity to be a preferred account customer, meaning they have multiple locations. We can establish national account pricing with them and then we can go and target their local branches. So think about that as a large bucket of customers.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Those could also be GPO customers and other types. We mentioned a large food services company last quarter. That would be a great example of a large parent company that has multiple child locations that we can go after target. And then we are also seeing really strong performance in healthcare, not only in our industrial rental business, but also in our clean room business.

[Sam Kusswurm, Equity Research Associate at William Blair]

Got it. A couple of color. Last one for us. Maybe just provide an update

[Sam Kusswurm, Equity Research Associate at William Blair]

in relation to your merchandise reuse initiatives and maybe just speak to the

[Sam Kusswurm, Equity Research Associate at William Blair]

progress there as it relates to operating efficiency.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Yes, I'm really proud of the team. So this is a multi unit location effort. So think about more than 100 and 15 locations who have a stock room, and we're trying to teach those teammates how to reuse existing garments, garments that we have already purchased and already started amortizing or maybe already fully amortized in our system. So the entire notion of the program of merchandise reuse is don't buy new stuff and inject it into the system and start amortizing again, use the products that you already have. And so this has been a groundswell of an effort with an army down on the ground in each of our market centers working with our great stockroom managers to help them understand and prioritize reuse of existing garments.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So we continue to focus on fast moving SKUs. We continue to make sure we're also selling fast moving SKUs that are in our system so that

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

we can reuse those products and we will have a bulk of those in the stockrooms over time. So it's

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

about in the stockrooms over time. So it's about prioritizing what we sell upfront and then ensuring that we reuse those like SKUs that are in our stockroom as much as we possibly can. So we just keep driving that

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

number up as we improve performance in

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

each stockroom and as each of our stockroom performance in each stockroom. And as each of our stockroom managers becomes more skilled in this area, we continue to see that number move up. And we think there is more room to go. But again, I'll point you back to amortization and also to cash because it improves our need to put inventory on the floor and to invest capital in inventory. So you're going to see benefits over time, both on cash flow related to inventory and on amortization costs.

[Sam Kusswurm, Equity Research Associate at William Blair]

Got it. We'll leave it there. Thank you.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

All right. Thanks, Sam. Appreciate your

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

questions.

[Operator]

Thank you. Our next question is coming from George Tong with Goldman Sachs. Please go ahead.

[George Tong, Analyst at Goldman Sachs]

Hi, thanks. Good morning. You talked about making progress with on time deliveries and shortages. Can you elaborate on your progress with these and other initiatives to improve customer service quality?

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Yes. Hey, George, thank you for your question. I'll start with on time delivery because we're incredibly excited about the way that we're interfacing with our customers related to on time delivery. So around the 3rd, Q4 of last year of FY 'twenty four, we actually launched an automated notification to our customers real time, letting them know that we had bumped their docks, we had delivered their product and we were now leaving their facility. And so our customers have responded incredibly well to this because it holds us, A, accountable.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

It provides great transparency to the customer that we did what we said we were going to do and we delivered on the promise. And so we're actually providing these real time notifications. The other thing that it does, George, is it holds our own team accountable because now we're going to notify the customer real time when we bump and leave their dogs. And so we have to be on time and we have to deliver that promise because we're measuring it and we're holding ourselves accountable in front of our customers. So we are seeing a great response both from our customers and from our frontline RSRs who are delivering those products and services.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

So we feel really, really positive about the work we're doing there. Our national account team is also seeing a great benefit in this feature. And as they're outselling customers, we're really proud to highlight this. It's something that we offer that we think is really a game changer for our business. Secondly, on shortages, we have been working really hard around helping our teams learn better operating procedures around how to load trucks.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

And so we have rolled out a very robust standard operating procedure. And in the locations that have been using that standard operating procedure for an extended period of time, we are actually seeing a step change in improvement related to shortages. We're also seeing an improvement related to shortages for those who have mastered the on time delivery and the notification. So those two things are working really well hand in hand. So we feel really good about where we are related to the customer experience.

[George Tong, Analyst at Goldman Sachs]

Got it. That's helpful. And then earlier, you noted that Salesforce headcount hiring has resumed this year. Can you discuss how quickly you plan to increase Salesforce headcount and what strategies you have to increase sales headcount retention?

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Yes. We've done a great deal of work around several areas that we believe are supporting our frontline field sales team. I will start with our new leader, Pete Rigo, who came in at the end, I think, around Q3 of last year. He has done an exceptional job of really institutionalizing the playbook around how we sell, how we onboard teammates, how we train those teammates, even how we recruit those teammates and what types of teammates we recruit to ensure that they're going to be successful in the selling environment here. And so we feel outstanding that we are now onboarding teammates through what I would call somewhat of a sales boot camp.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

We're literally bringing them here into the teammate support center here at the corporate headquarters where I sit. And we're training those teammates by 1 individually and in groups as they come into our team. We've also enhanced our recruiting procedures. So we have a talent acquisition team that has been very focused on making sure that we recruit the right type of teammate that's going to be successful in our environment. So we've changed the profile of who we are recruiting, what type of background and skills they have.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Then we're training them better as they onboard and we're seeing great signs of not only improving turnover, but improving that teammate's productivity earlier in their life cycle with Vestas. So we are now ramping up our hiring practices. As I mentioned, we added more sales teammates in January, and we will continue to build that sales team over the coming year.

[George Tong, Analyst at Goldman Sachs]

Got it. Very helpful. Thank you.

[Kim Scott, President & CEO of Aramark Uniform Services (AUS) at Vestis]

Thanks, George. Appreciate your questions.

[Operator]

Thank you. This concludes the Q and A portion of today's call. Thank you. This concludes today's Vestas Corporation fiscal Q1 2025 earnings conference call. Please disconnect your line at this time and have a wonderful day.

Participants

Executives

• Michael Aurelio, VP - Investor Relations
• Kim Scott, President & CEO of Aramark Uniform Services (AUS)
• Rick Dillon, EVP & CFO

Analysts

• Andrew Wittmann, Senior Research Analyst at Robert W. Baird & Co
• Andrew Steinerman, Equity Research Analyst - Business & Info Services at JP Morgan
• Shlomo Rosenbaum, Managing Director at Stifel Institutional
• Harold Antor, Senior Equity Research Associate at Jefferies LLC
• Ronan Kennedy, Analyst at Barclays Capital
• Sam Kusswurm, Equity Research Associate at William Blair
• George Tong, Analyst at Goldman Sachs