Vestis Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2025

There are 10 speakers on the call.

Operator

Welcome to the Vestas Corporation Fiscal Second Quarter twenty twenty five 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.

Speaker 1

Thank you, operator, and thank you all for joining us. With me are Philip Holliman, Interim Executive Chairman, President and Chief Executive Officer and Kelly Jansen, Executive Vice President and Chief Financial Officer, and they will discuss our fiscal twenty twenty five second quarter results. After commentary, we will open the call to questions from the analysts. The Private Securities Litigation Reform Act of 1995 provides the Safe Harbor from civil litigation for forward looking statements. This conference call contains forward looking statements that reflect the company's current views as to future events and financial performance.

Speaker 1

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 will now turn the call over to Philip.

Speaker 2

Thank you, Michael. Good morning, everyone, and thank you for joining us. Before we get into the quarter, I want to highlight the news we announced after market closed yesterday. Jim Barber, former Chief Operating Officer of UPS, will be stepping into the role of President and Chief Executive Officer, effective 06/02/2025. At that time, I will return to my role as Chairman of the Board.

Speaker 2

Jim is a proven leader with a track record of driving profitable growth, and I look forward to working closely with him to ensure a seamless transition. With that, let me turn to our results. I will begin my remarks with an overview of the second quarter performance, specifically what changed between Q1 and Q2 and why we did not deliver the revenue growth that we expected this quarter. I'll then discuss actions that we have been taking to improve our performance as well as the positive results we are seeing from those actions. At the end, I will turn it over to Kelly to review our financials in more detail before we take questions.

Speaker 2

Second quarter revenue was $665,000,000 which declined approximately $18,000,000 from Q1 or 2.7%, a significant difference from the growth we implied in our guidance. Excluding a $15,000,000 onetime bad debt adjustment that Kelly will discuss, adjusted EBITDA was $63,000,000 or 9.4% of revenue, a two fifty basis point reduction compared to Q1. This decrease in margin from our lower revenue demonstrates the operating leverage inherent in our relatively fixed cost structure, which in times of revenue growth is beneficial. During the quarter, dollars 7,000,000 of decline was related to direct sales and $11,000,000 of the decline was from our rental business, which we had expected to grow given the previous trends. While this was partially driven by lost business in excess of new business, the main reason for the decrease was lower adds over stops, which is how we describe volume changes with our existing customers.

Speaker 2

In January, we saw a significant decline in volume as some customers seasonally adjusted their demand for our products, specifically workplace supplies. For example, many of our hospitality customers have lower demand in the weeks following the holiday season. Additionally, within our rental business, we periodically bill customers for inventory that they have either lost or ruined, which we call L and Rs. This revenue can fluctuate from quarter to quarter. And during quarter two, we had approximately $4,000,000 less L and R compared to Q1.

Speaker 2

And while these are not the results we expected to deliver, I want to convey a few things. First, over the course of the second quarter, we have recovered the majority of the January decline in rental revenue. Second, we have taken meaningful actions to further improve revenue, including focusing on decreasing the number of credits being issued to our customers. We have done this by improving specific customer service issues such as product shortages and cleaning quality and have seen a positive impact from these actions on our revenue run rate in a relatively short timeframe. Together, these improvements supported our April average weekly revenue returning back to December levels.

Speaker 2

And finally, we continue to take steps to improve our forecasting capability. Let me be clear, we are disappointed with our second quarter performance. It does not represent our long term potential in the attractive uniform and workplace supplies market. We can and we will do better through serving our customers, executing our strategic priorities and delivering for our shareholders. That said, I would like to highlight several positive trends.

Speaker 2

Last quarter, we said we expected new business to exceed our lost business by the end of Q2. While the impact of lost business was still higher than new business in Q2, the GAAP narrowed in the quarter as the impact of lost business declined by approximately 10%. New business contributed 2.4% of revenue growth or approximately 1,000 basis points on an annualized basis due to strong performance in both frontline sales and national accounts. Our frontline sales team is now fully staffed and average productivity per sales representative increased by approximately 10% over the course of the second quarter. Collectively, our field sales and national account teams installed 35% more reoccurring revenue year over year and 10% more than in the first quarter.

Speaker 2

While we still have more work to do, we have demonstrated that we can win and are winning. With new growth and customer retention, my focus has been improving customer service and operational effectiveness. I've been meeting with our teams and visiting our facilities to determine where we need to take immediate action in these areas. And I want to thank our teammates across the market centers for their support. We are moving with a sense of urgency to drive a customer centric mindset across all levels of the organization.

Speaker 2

I am particularly focused on positioning our route sales representatives for success. These teammates play a critical role as the face of investors to our customers. This includes enabling field service teams to deliver best in class service from the start with enhanced ability to solve customer issues in real time. It also means ensuring our teams can support our customers' needs by delivering high quality products on time and in full. And the accumulation of all these efforts will provide the foundation for return to growth and long term value creation.

Speaker 2

Before Kelly covers our financial results in more detail, I want to acknowledge our partnership and precision since joining investors in mid February. As she will discuss, although we are updating our guidance to better reflect our recent performance, I am encouraged that we have now delivered sequential monthly revenue growth in each month since January, including April. I am also pleased that we successfully executed an amendment to our credit agreement that gives us additional flexibility through the end of fiscal twenty twenty six. We want to thank our lenders for their partnership and support of Vestas. We remain focused on delevering and disciplined capital allocation.

Speaker 2

Let me conclude by saying that while we had a challenging second quarter, we are encouraged by recent trends and are taking actions to improve our performance. We are entering Q3 in a strong position and I believe we will grow revenue and expand our margins as we move forward. Now, will turn it over to Kelly.

Speaker 3

Thank you, Philip, and good morning, everyone. I will first go over the second quarter financial results and at the end give an update on guidance. Revenue during the quarter was $665,000,000 down 5.7% year over year and down 2.7% when compared to the first quarter of twenty twenty five. The $18,000,000 sequential decline in revenue was due to an $11,000,000 decrease in rental revenue and a $7,000,000 decrease in direct sales. Within rental revenue, growth from new business contributed $17,000,000 or 2.4% of revenue during the quarter.

Speaker 3

As Philip mentioned, we continue to see solid momentum in both our field and national account sales organization, which collectively installed 35% more recurring revenue year over year and 10% more than in the first quarter. These new customer installations were skewed toward the second half of Q2, providing a tailwind going into Q3 as we realize our benefit for a full quarter of revenue. The revenue impact in the second quarter from lost business was approximately $20,000,000 which is an improvement of roughly 10% when compared to the lost business impact in the first quarter. On a rolling twelve month basis, our customer retention was 92.4% at the end of Q2, which is relatively consistent with the annual rates we have seen in previous years. We remain highly focused on both generating new business and effectively managing our lost business.

Speaker 3

Revenue from existing customers declined approximately $8,000,000 in the second quarter compared to Q1, which includes the $4,000,000 in L and R revenue that Philip discussed. We continue to realize price increases with our existing customers. And while new pricing has been partially offset by price adjustments elsewhere, our overall net pricing was positive by $3,500,000 as compared to the first quarter. Net volume from existing customers, which we call ads over stock, declined 6,500,000 in Q2 relative to the first quarter. We saw a significant decline in volume as some customers seasonally adjusted demand for our products, specifically workplace supplies.

Speaker 3

Additionally, our revenue was negatively impacted by volume related credits issued to customers to address service concerns. Over the course of the last two months, we have further increased our efforts to mitigate these issues and as a result have seen a significant reduction in weekly customer credits. In our direct sales business, the $7,000,000 or almost 18% sequential decline in revenue primarily reflects typical seasonality as our fiscal first quarter is historically our strongest quarter for direct sales. Over the last couple of years, our direct sales revenue also declined by a similar percentage between the first and second quarters. On a year over year basis, the decline in direct sales was primarily due to the non regrettable loss of a large national account customer that we exited in the middle of fiscal twenty twenty four.

Speaker 3

As a reminder, this customer represented approximately $26,000,000 in annual revenue, which has been fully out of our revenue run rate since the fourth quarter of last year. Cost of services in the quarter was $490,000,000 and gross margin was 26.3%, down approximately 130 basis points when compared to the first quarter of this year. On a sequential basis, cost of services declined by $5,000,000 due primarily to lower net volume. It's important to note that currently our cost of services is relatively fixed, which results in gross margin compression when our revenue declines. We are highly focused on controlling our operating costs and evaluating opportunities to drive further reductions and improve profitability.

Speaker 3

For the second quarter, SG and A was $148,000,000 approximately $27,000,000 when compared to Q1. This includes the $15,000,000 1 time bad debt expense adjustment as well as $10,000,000 related to recent executive transition. Adjusting for these items, SG and A increased $2,000,000 sequentially, primarily driven by higher selling expense as we continue to successfully ramp our frontline sales team. Net loss for the quarter was $28,000,000 and diluted loss per share was $0.21 On an adjusted basis, net loss was $6,000,000 and diluted loss per share was $05 The second quarter tax rate was 18.6% and we recorded a tax benefit of $6,000,000 during the period. Second quarter reported adjusted EBITDA was $48,000,000 and excluding the $15,000,000 1 time bad debt adjustment was $63,000,000 representing a margin of 9.4%.

Speaker 3

This compares to 11.9% in the first quarter of twenty twenty five and twelve point four percent in Q2 of twenty twenty four. Now moving on to cash flow and working capital. During the quarter, we generated $7,000,000 of operating cash flow. However, cash flow was $7,000,000 negative, reflecting lower profit and higher working capital. The increase in working capital was primarily due to $30,000,000 of investment in inventory to support new customer installations as well as improve our ability to serve existing customers more effectively.

Speaker 3

This investment included $6,000,000 of purchases we bought in anticipation of tariff. Given current inventory levels, we do not anticipate the need to continue making significant investments over the remainder of the fiscal year. During the quarter, we spent approximately $14,000,000 in capital expenditures. And for the year, we expect total capital investment to be around $60,000,000 the majority of which is related to market center facility improvements. Looking at our balance sheet, at the end of the second quarter, debt was $1,310,000,000 and our principal bank debt outstanding was $1,170,000,000 which is a reduction of $327,000,000 since the end of fiscal twenty twenty three.

Speaker 3

Our liquidity position is strong with no debt maturities until 2027 and $293,000,000 of available liquidity, including $264,000,000 of undrawn revolver capacity and $29,000,000 of cash on hand. We are pleased to have executed an amendment to our credit agreement this quarter and I want to thank our lenders for their support of Vestas. The primary change to the agreement was to effectively increase the net leverage covenant ratio for each of the next six quarters through the end of fiscal twenty twenty six. This includes extending the current 5.25 times covenant ratio by another year, after which the covenant ratio steps down to five times in Q3 twenty twenty six, '4 point '7 '5 times in Q4 twenty twenty six and four point five times in Q1 twenty twenty seven and beyond. I would also like to note that the amendment includes an allowance exclude the one time $15,000,000 bad debt expense adjustment from our Q2 covenant adjusted EBITDA and that the company's Q2 adjusted EBITDA is $63,000,000 for the purpose of determining the net leverage covenant ratio of 4.2 times for the second quarter.

Speaker 3

As part of the amendment, we have agreed to restrict all dividends and share repurchases through the end of Q1 twenty twenty seven. We have the flexibility to reinstate the dividend or repurchase shares earlier if we delever below 4.5 times for two consecutive quarters prior to 2027. Due to timing, we already paid the Q2 and Q3 dividends during our second quarter. So there will be no additional dividend payments going forward. Our guiding principles for capital allocation are to maintain a strong balance sheet and allocate capital toward high return opportunities with a focus on delevering.

Speaker 3

The amendment to our credit agreement provides additional financial flexibility and balance sheet support as we continue to focus on these goals, including the elimination of the dividend, which allows us to direct an even greater percentage of available cash generation towards reducing net debt. Now turning to guidance. Given the recent events, as well as the increasingly uncertain macro environment, we are shifting to quarterly guidance rather than providing a full year outlook. Our recent weekly revenue trends suggest that our third quarter revenue will be in the range of $674,000,000 to $682,000,000 and we expect adjusted EBITDA to be at least $63,000,000 indicating sequential improvement as we continue to invest in the resources we need to drive sustainable and profitable growth. We will continue to focus on improving free cash flow conversion over the long term, but we will no longer be providing guidance for free cash flow.

Speaker 3

We are disappointed with our first half results. However, we are moving forward with intentional steps to strengthen operations and enhance our profitability in the second half of this year and beyond. I want to emphasize that we are encouraged by recent trends. Our average weekly revenue has improved for three consecutive months and our current run rate is 3.4% higher than it was in January. We are winning more business and improving our customer service, which is resulting in less revenue being returned to our customers.

Speaker 3

Overall, we are entering Q3 in a stronger position than we were in heading into Q2. Finally, we continue to have a healthy balance sheet with the credit amendment providing additional financial flexibility through the end of next year. Philip and I would like to thank you for your time this morning. And with that, I will turn the call back to the operator for your questions.

Operator

The floor is now open for questions. Our first question comes from Andy Wittmann with Baird. Please go ahead.

Speaker 4

Great. Excuse me. Good morning and thank you for taking my question. I guess, I wanted to start with trying to understand your confidence level that this earnings level that you've guided to here for your fiscal third quarter is the right level and the confidence that you have that this is in fact kind of marking the bottom. Guess you mentioned that it's a little bit higher than the second quarter that you just reported.

Speaker 4

You talked about the weekly revenue. But the organic revenue growth did decelerate quarter over quarter. You talked about elevated credits during the quarter. You said that maybe it's getting a little better now, but it sounds like there's still kind of a service issue at its core. These are these have been issues for some time and they don't usually change in one quarter.

Speaker 4

So Philip, I just thought maybe you could just comment on your confidence around this being the bottom and fundamentally the service at the root of all of this.

Speaker 2

Andy, thanks for your question. Yes, we do have confidence. I do have confidence in our guidance for next quarter. But obviously, we're looking at it to make sure that the trends that we see are sustainable going forward. And with our new CEO coming in, it's a matter of saying that the trends that we are seeing support this guidance through next quarter and then we'll go from there.

Speaker 2

But so yes, I feel confident in the guidance.

Speaker 3

Yes. And if I can add in there, Andy, another reason why we would feel confident around it is because if you normalize the $4,000,000 L and R impact this year, our rental business declined last year as well from declined this year $7,000,000 from Q1 to Q2 and we saw a very similar impact last year. So we believe a lot of the decline was related to seasonal decreases that our existing customers related to our existing customer volume. Many of our customers decreased their volume for certain products depending on their needs during the holiday period. And then we saw that increase come back during the quarter.

Speaker 3

And as I mentioned, month over month, we saw revenue increasing. And not only did we see it through March, but we've actually seen that increase through April, which in fact was different last year where we saw it tail off a bit. So we actually believe the trends are very positive and we're as Philip mentioned, we're going to wait and see, but I do feel confident in the way things are going at this moment.

Speaker 2

And, Annie, I would also say that we have a much better handle on our numbers from a financial standpoint as we look at different aspects of as over stops that we feel really, really good about having a much better understanding of the numbers and what we need to do to improve.

Speaker 4

Got it. Okay. I had kind of two other questions that I wanted to get in front of you as well. And in your prepared remarks, Philip, we heard a lot about quarter, you talked about being fully staffed on sales. But given where the new revenue might be residing here, I was wondering if there's any other actions that you can take on the cost structure.

Speaker 4

I know there have been many significant actions already taken over the past couple of years. And so I don't know if there's more that can be done, but I didn't hear you to refer to any or if that's not part of the strategy, that's fine. But I was just hoping that you would address that. And then my follow-up after that was probably more for Kelly and heard the comments that you were going to be commenting on free cash flow guidance. Obviously, the past, said, think about it as 50% of EBITDA.

Speaker 4

But if you're not willing to comment on that, I was hoping maybe you could just talk about some of the puts and the takes that we should all be thinking about as it relates to your free cash flow given this new kind of earnings level that seems to be emerging here? So those two questions then I'm done. Thank you.

Speaker 2

Okay. I'm going to start with Kelly answering the second question and then I'll come back and answer the first question that you asked.

Speaker 3

Yes, sure. And Andy, like we said, we're not as we're not guiding cash flow for the year. However, if you look at the Q2 results, we did make an investment in $30,000,000 of inventory over the quarter, which we had said for the rest of the year, we would not be really needing to increase. And when you normalize for this effect, you can think about free cash flow on an annualized basis. We're currently at the range of about $80,000,000 when you also layer in some of the seasonal dynamics we see in the first quarter.

Speaker 3

So that's kind of a better view of how to think about cash.

Speaker 2

And the first part of your question, Andy, we are continuing with our efforts and better utilizing of our assets and facilities and being more efficient. So we continue that work. At the same time, we did a lot of work a lot of work was done, I should say, in the past year on cost reduction. And I'm at the point now, Andy, and I believe we're at the point where we need to settle down and really look at making absolutely sure that we are investing where we need to help retain customers and provide better service. So it's a fine balance there, but we need to make absolutely sure that we're able to service our customers in a very robust, solid customer centric kind of a focus.

Speaker 4

Makes sense. Thank you very much.

Operator

Thank you. And next we'll go to Shlomo Rosenbaum with Stifel. Please go ahead.

Speaker 4

Hi. Thank you very much.

Speaker 5

Hey Phil, I'm just the issues that seem to be going on at least in the service issues seem to have been going on for a while. And the company seem to have been working on it in order to address it. And I'm just just want to get your view as to what really has to be done here to fix some of those things. And then we're not seeing volume issues from Cintas. They basically said that things were pretty steady.

Speaker 5

And I'm trying to figure out why the there would be more of concern amongst your client base than what we're seeing from Cintas? And after that, maybe I'll ask one follow-up.

Speaker 2

Yes. The in the service area, we are now and what we've done over the last few weeks, we are better organized in providing the right resources to implement both the improvements that need to be made in the plant and the improvements that we need to make in service, making sure that we have some resources that are focused on that, helping to implement and execute those improvements in the locations. So that's the part of why I see it improving. Also, we've been talking a lot about culture and being focused on the customer and being customer centric and making absolutely sure that we're doing that. The other part of it is what I often say, and I think I said it in my remarks, is that we need to be always working towards positioning our RSRs for success because they are, of course, the face of the company and they have the relationships with the customer, and we need to make absolutely sure that they have the products with complete loads that they need to fully service the customer.

Speaker 2

We're doing training in that area and really focused on how we can best make our RSRs successful. So that gives me more confidence. I understand your point around we've been working on these things. I would say we now have a renewed focus on making absolutely sure that we're getting these things implemented.

Speaker 3

Yes. Related to the volume question, I think it probably has to do with different mix of products. Certainly, they have a number of products we don't carry. And then within the rental space where we are similar, I think we might have a little heavier mix towards some of the linen areas and some of the with our food and beverage and hospitality businesses. So with that, that's where we actually saw the decline coming out of December and actually the return as well coming back into March is really in that space with those types of customers as they're able to kind of make decisions up or down in those product areas.

Speaker 3

So I think that could be a contribution. I can only speak to what we have seen and that's really where we see the impact this And

Speaker 2

as you noticed, we have started to talk about credits, the amount of credits that we issued. And the real opportunity there is to fix the performance issues that cause credits to happen, and that's where we're focused.

Speaker 5

Got it. And then just given the service issues and the need for more volume, you're bringing in someone new who's got experience, who's got to come in with the ability to make the changes that he wants to make. Would you envision that realistically he's going to want to invest a lot more money to turn this company around? And so what we should be seeing is an investment period in order for the company to get to that service level, get to that sales level, get to the operational efficiency level that you need?

Speaker 2

Yes. I don't want to prematurely speak for our new CEO that's coming in. I'm sure he will be considering all aspects of our business and how best to move forward. So time will tell. I think that we're transitioning what

Speaker 4

I

Speaker 2

would consider to be a very robust base of operation and that he will determine where we go from here.

Speaker 4

Thank you.

Operator

Thank you. And next we'll go to Tim Mulrooney with William Blair. Please go ahead.

Speaker 6

Hi, good morning. This is Luke McFadden on for Tim Mulrooney. Thanks for taking our questions today. So just looking at your slides, it does look like that gap between new and lost business continued to shrink here in the second quarter. I was hoping you could give us a sense for when you'd expect that to turn positive for just the outlook for the remainder of the year.

Speaker 6

Should we continue to see that gap narrow?

Speaker 3

Yes. Well, of course, we're very optimistic that we will continue to narrow that gap as we go forward. I don't have a specific time period of when we would say definitively that our new would exceed loss. All I can say is that we are certainly ramping up our new sales. We're seeing a lot of momentum in that area, as we mentioned in our remarks, specifically related to our field sales ramp as we've been investing in that team.

Speaker 3

And then of course, you saw the improvement in the loss versus last quarter. So I can tell you that Wit is a highly focused area for us in both of those pieces, and I'm hopeful that we'll start to the new will start to overtake the loss in the near future.

Speaker 2

And we're now fully staffed in our sales organization and our productivity levels are increasing. As Kelly just said, I'm very optimistic that we will cross over, including the fact that we will continue to improve our loss business.

Speaker 6

Understood. Very helpful. And then maybe just switching gears here a little bit, thinking about the demand environment. With all the recent headline news related to tariffs and more uncertain macroeconomic outlook. Can you update us on how conversations with your clients have been trending?

Speaker 6

Any color around net wear metrics or changes in demand conditions would be really helpful. Thanks so much.

Speaker 2

Yes. We really haven't seen any groundswell of information around from our customers as it relates to their staffing levels and their needs. We really haven't seen that decline. Our new business is going quite well, which is clearly an indication of continued momentum in this the very strong industrial laundry rental. Haven't had anything that has popped up that would indicate that there's a headwind ahead.

Speaker 2

We are I think as we said in our statement, from a demand planning standpoint and tariffs, we're watching that, covering that. But again, don't see any real cutbacks from our customers.

Speaker 6

Understood. Thank you.

Operator

Thank you. We'll go next to Manav Patnaik with Barclays. Please go ahead. Manav, your line is open.

Speaker 7

Hi, apologies. This is Ronen Kennedy on for Manav. Good morning and thank you for taking my questions. If I may, I'm just looking to quickly confirm three things to be absolutely clear. They were touched on in a certain extent in the prior

Speaker 7

But the results and suspension of the annual guidance, that is primarily attributed to the internal challenges, right? It's not uniform and ancillary services market. It's not necessarily the macro or the strength of the consumer. And then on the much needed fundamental cultural transformation, can we just confirm how we should think about how long that will ultimately take to need to take place? What inning you're in?

Speaker 7

And then lastly, I apologize if I missed this, but on the past two quarterly calls, spoke to having retained strategic advisors to evaluate alternatives. Is there an update there, please?

Speaker 3

Sure. I'll take the guidance question and then I'll pass it on to Philip. So the reason we've gone to Q3 guidance only and suspended the rest of the year is probably a combination of us getting ourselves realigned with our forecasting as well as the fact that while we have not seen specific indicators related to the macro environment in our current results, certainly there is a lot out there as it relates to potential future impact. So it's somewhere in between the two and we'll kind of go from there we'll go from here as we think about guidance in the future of how we will do that.

Speaker 2

Okay. And as far as the strategics are concerned, we don't have any active activity at this point in time. And so that's all I can say about that. We don't have any active activity in that area. The cultural transformation, that's an interesting and provocative question.

Speaker 2

We are working to make absolutely sure that we're looking at some pretty fundamental themes from a cultural standpoint. We can start with accountability to make absolutely sure that all the leaders, managers are accepting, fully aware of their accountability, working very effectively, working on making sure that we're working effectively as a matrix organization. That's a part of this transformation. And make absolutely sure that we're working with our frontline teammates, listening to them, understanding what their needs are for us to have the success that we know that we can have. So that cultural transformation will take time.

Speaker 2

I can't put a date on that. I think a big part of it is going to be around Jim and our with him being our new CEO as we continue to move forward.

Speaker 7

Thank you. Appreciate that. And as a follow-up, if I may. How should we think about what was the initially guided targets for deleveraging and a leverage target?

Speaker 3

Yes. Well, what I can tell you is that we are very committed to a strong balance sheet, to delevering as a priority. And right now, I'm not really going to put out an actual target, but we would suggest that would be probably something that would be a little bit higher than what has been previously discussed in the past. Certainly not above three, but something potentially that could be higher than the 1.5 to two.

Speaker 7

Okay. Thank you.

Operator

We'll go next to Stephanie Moore with Jefferies. Please go ahead.

Speaker 3

Hi, good morning. Thank you.

Speaker 8

I appreciate the commentary and kind of the backward looking kind of what has happened over the last several months and the likes. But as we look forward and you continue to stem some of those customer losses and offset those losses with hopefully some new wins, can you talk a little bit about why a customer would switch their provider to the likes of Vestas versus maybe a competitor? Are you seeing some of those wins come from maybe first time outsourcing or the like? But I guess just given maybe the events of the last year or so and maybe some of the service issues, what is the playbook for your sales rep to go out and win that new business? Thanks.

Speaker 2

Yes. As you know, we have new leadership in our sales organization. But just as an example, in Q2, our field sales team sold well over 7,500 new accounts. 44% of them were non programmers and 56% of them were taken from competitors. So that split is really good that they're going after and we're able to sign up non programmers, but also that we're competing with folks that are existing providers to those companies.

Speaker 2

And so when we look at our service level, we're telling them and working with them to make absolutely sure that we're providing the very best service possible to meet their needs and being, again, very customer centric around that. We've got some new tools that we new processes that we've put in place to make sure that we retain that new business once we get it. And then obviously, we've got to continue to work with our existing customers because we want our existing customers to, of course, stay with us and we even want to go beyond that. We actually want them to recommend us to others. So that's an even higher bar.

Speaker 2

But so whether it be service outages from the competition that they're having problems with that we're going to fix or whether it be at times price may do it as we look at being competitive. But again, 44% of our new customers were actually no programmers.

Speaker 8

Great. And actually, I just had one follow-up to that. I just wanted to confirm, I think in prior quarters, there's been some management additions that you just called out, a new head sales, COO. Just confirming both of those individuals are still with Vestas.

Speaker 2

Yes. Our sales leader, Senior VP is still in place, Pete Rigo and our COO and over operations, Bill Seward, is still in place, yes.

Speaker 8

Got it. All right. Thank you. Appreciate the time.

Speaker 2

Thank you. And

Operator

next, we'll go to George Tong with Goldman Sachs. Please go ahead.

Speaker 9

Hi. Thanks. Good morning. I wanted to discuss the broader selling environment. So revenue declines in the quarter widened even though comps were easier in the prior year.

Speaker 9

Can you just elaborate on what could have caused year over year revenue declines? And how much of it was due to internal issues versus evolving competitive dynamics versus macro considerations?

Speaker 3

Hi, George. Let me make sure I'm understanding your question. So for the year over year revenue climb, that's driven by a number of things. One is we did have the lost business that did exceed the new business. Obviously, we're narrowing that gap, but certainly year over year that was a fairly significant factor.

Speaker 3

We also did have the adjustment the lower volume with existing customers. I think it's very similar conversation as it relates to some of the service discussions that Philip had service items that Philip had, some of the credits and as well as potentially some of those changes in inventory demand depending on some of our mix of customers. We also had reduction in direct sales related to the loss of that large national account we had talked about and that had a relatively significant impact on the year over year. And then last year, we had some unusual positive exit billings for a couple of our customers that did not repeat this year. So those were the larger items that caused the year over year.

Speaker 3

I'd say we are not contributing really any of that to a macro environment change that's happened from last year to this year. And in addition, we think that we've made a lot of improvements in recent weeks and months as it related to some of the drivers that drove that reduction. So let me know if that answers your question. Happy to add anything to that.

Speaker 9

Okay. No, I think that's helpful context. The question stems from the fact that the sort of the two year stack on growth seems to have worsened. So it's not really like a comp issue from certain revenue streams or lost accounts, but that's helpful color. I guess if you look at pricing on Slide four, you disclosed $3,500,000 of revenue sequentially quarter Can you talk about how much the year over year change on pricing was?

Speaker 9

And what your overall longer term strategy for pricing increases will be going forward?

Speaker 3

Yes. Directionally year over year, the pricing was a little bit even less than that. It's really kind of incorporated into our change in existing customers, that $6,000,000 that we talked about on Page three. But we're seeing a relatively similar trend as it relates to pricing.

Speaker 9

So percentage, so are you seeing 1% contribution from price? Is pricing down? Is it negative 1%? What kind of percentage can you provide?

Speaker 3

Yes. Relative pricing year over year was certainly a bit of a positive as it relates to that, and it was in a similar range of what the pricing was here for the quarter.

Speaker 9

Okay. Got it. Thank you.

Operator

And this concludes the Q and A portion of today's call. I'd like to turn the call back over to Philip Holliman for closing remarks.

Speaker 2

Thank you all for joining us today. We believe there is a significant opportunity for Vestas in the attractive uniform and workplace supplies market. We have a profitable business model with financial flexibility to achieve our objectives, and we are moving with a sense of urgency to enhance our execution and strengthen our core business. These efforts will set the foundation for sustainable, profitable growth and long term value creation. We look forward to engaging with you further in the days and weeks ahead.

Speaker 2

Thank you.

Operator

Thank you. This concludes today's Vestas Corporation fiscal second quarter twenty twenty five earnings conference call. Please disconnect your line at this time and have a wonderful day.

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Key Takeaways

  • Leadership transition: Jim Barber, former COO of UPS, will become President & CEO effective June 2, 2025, while current CEO Philip Holliman returns to Chairman.
  • Q2 results miss expectations: Revenue of $665 million declined 2.7% QoQ and 5.7% YoY, with adjusted EBITDA of $63 million (9.4% margin) excluding a $15 million bad debt charge, driven by a $7 million direct sales drop and $11 million rental decline.
  • Operational challenges and recovery: Seasonal demand dips and lower “L&R” rental billing, plus customer credits for service issues, led to revenue decline, but actions on shortages and cleaning quality have returned weekly revenue to December levels by April.
  • Sales momentum improving: New business contributed 2.4% revenue growth, lost business impact narrowed by 10%, and frontline sales—now fully staffed—installed 35% more recurring revenue YoY and 10% more than Q1.
  • Q3 guidance set: The company expects Q3 revenue of $674 million–$682 million and adjusted EBITDA of at least $63 million, while suspending full-year outlook amid uncertain macro conditions.
A.I. generated. May contain errors.
Earnings Conference Call
Vestis Q2 2025
00:00 / 00:00