Cintas Corporation

Q4 2021 Earnings Conference Call


spk_0: hey everyone and welcome to the sent off the fourth quarter of fiscal year twenty one earnings release conference call delayed call is being recorded at this time i would like to turn the ball over to mister paul adler vice president treasure investor relations please go ahead there
spk_1: thank you back and thank you for joining us with me today it got farmers and top executive chairman of the board of directors touch snyder president and chief executive officer and mike hampton executive vice president and chief financial officer we will discuss our fourth quarter results for fiscal twenty twenty one after our commentary will be happy to answer questions the private securities litigation reform act of nineteen ninety five provide a safe harbor from civil litigation for forward looking statements it conference call contains forward looking statements that reflect the company's current views as the future events and financial performance please forward looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those we made scuffs i refer you to the discussion on it points contain normal street and filings with the fcc on out during the call ever the vikings thanks for our fiscal two thousand and twenty one fourth quarter revenue was one point eight four billion dollars compared to one point six two million dollars in last year's fourth quarter an increase of thirteen point three percent or infertility chair or u p s were two dollars and forty seven cents an increase of eighty three percent from last year's fourth quarter he organic revenue growth rate adjusted for acquisitions divestitures foreign currency exchange rate fluctuations and differences in the number of work days was eleven point five percent for the fourth quarter of fiscal twenty one organic revenue for the uniform rifle and facility services operating segment was thirteen point seven percent organic revenue for the first date and safety services operating segment decline six point eight percent gross margin for the fourth quarter of fiscal twenty one was eight hundred and fifty nine point one million dollars compared to seven hundred and seven point eight billion dollars in last year's fourth quarter gross margin as a percent of revenue increased three hundred and ten basis points to forty six point eight percent for the fourth quarter of fiscal twenty one compared to forty three point seven percent in the fourth quarter of fiscal twenty spelling and administrative expenses improved as a percent of revenue the twenty seven point four percent in the fourth quarter of fiscal twenty one compared to thirty point nine percent last year operating income for the fourth quarter of fiscal twenty one of three hundred and fifty six point four million dollars in creating seventy one point eight percent operating margin increased six hundred and sixty basis points to nineteen point four percent in the fourth quarter of fiscal twenty one compared to twelve point eight percent in the fourth quarter of fiscal twenty fiscal twenty fourth quarter operating income was affected by many items caused by covert nineteen including additional reserves on accounts receivable an inventory severance and asset impairment expenses and lower instead of compensation expense excluding these items the fiscal twenty fourth quarter operating margin was fifteen point five percent all these items were recorded and last year sell him illustrated expenses our affected of tax rate for the fourth quarter of fiscal twenty one was nineteen point four percent compared to twenty point four percent last year the tax rate can move from period period based on it's free events including the impact of stock compensation net income for the fourth quarter of fiscal twenty one was two hundred and sixty seven point seven million dollars an increase of eighty five point two percent dps was two dollars and forty seven cents an increase of eighty three percent from last year's fourth quarter or balance sheet in cash flow remain strong or leverage calculation for our credit facility definition was one point five times get the the dup at may thirty first twenty twenty one on june first twenty twenty one two hundred and fifty million dollars of debt bearing an interest rate of four point three percent matured and was or he paid with cash on hand we have an untapped credit facility of one billion dollars during the fourth quarter of fiscal twenty one and our first quarter of fiscal twenty two to date we purchased nine hundred and seventy nine million dollars of syntax common stock under our buyback program on june fifteen twenty twenty one syntax paid shareholders seventy nine point two million dollars and quarterly dividends for the fiscal year ended may thirty first twenty twenty one revenue was seven point one two billion dollars compared to seven point zero nine billion dollars for fiscal twenty dps for fiscal twenty one where ten dollars and twenty four cents compared to eight dollars and on and eleven cents for last fiscal year revenue and adjust the dps and grown fifty of the past fifty two years it's called twenty one free cash flow which is defined as net cash provided by operating activities left capital expenditures with one point two two billion dollars an increase of fourteen point seven percent compared to last year for a fiscal twenty two we expect our revenue to be in the range of seven doubt seven point five three billion dollars to seven point six three billion dollars and eluded dps to be in the range of ten dollars and thirty five cents to ten dollars and seventy five cents please note the following regarding our guidance our fiscal twenty two effective tax rate is is expected to be in the range of nineteen point five percent to twenty point five percent compared to rate of thirteen point seven percent in fiscal twenty one but higher effective tax rate negatively impacts it's cool twenty two eat yes guidance by about eighty five cents and e p s growth by about eight hundred basis points titans does not include any future share buybacks or potential tax reform we remain in a dynamic environment that can continue to change our guidance contemplates have steadily improving economy absent any economic war pandemic related setbacks for financial modeling purposes please know that there are no worked a differences when comparing fiscal twenty two to twenty one both fiscal years contain sixty six days in the first quarter sixty five in the second sixty four in the third and sixty six in the fourth quarter i'll now turn the call to paul for comic here in the performance of each of our businesses thanks like view to own rental and facility services operating segment included the rental and survey thing of uniforms healthcare scrubs maps and towels and the provision of restroom supplies another facility products and survey isis the segment also includes the sale of items from our catalogues to our customers autograph uniform rental and facility services revenue was one point four seven billion dollars compared to one point two seven billion dollars last year or uniform rental and facility services segment gross margin and crete four hundred and ten basis points to forty seven point seven percent for the fourth quarter compared to forty three point six percent and last year's fourth quarter driven a large part by lower production and service expense of the percent of revenue while some inflationary pressures increase certain cause these were more than offset by increased revenue from businesses reopening or increasing capacity as coven nine pm case counts fell and restrictions on businesses were reduced our first date mvp services operating segment includes revenue from the sale and survey thing a first date products safety products personal protective equipment and training the segments revenue for the fourth quarter was one hundred eighty six point nine million dollars compared to one hundred ninety six point three million dollars last year first aid fourth quarter revenue was up against the very difficult comparison and last year's fourth quarter and response to the onset of the kobe nineteen pandemic personal protective equipment sales surged also the first a camel service business will not impacted until late and last year's fourth quarter when did this restriction became widespread as a result in the division posted a twenty one point nine percent organic revenue growth rate and last year's fourth quarter the first eight segment gross margin was forty three point zero percent in the fourth quarter of this fiscal year compared to forty six point one percent last year the different thing gross margins is due to read next and we guy had last quarter less personal protective equipment with solid in the fourth quarter and in the third quarter however as a percentage of total division revenue personal protective equipment revenue was still a significant percentage while profitable personal protective equipment revenue as lower gross margins in the first day a cabinet served think that they expect gross margins to improve the quarterly as the cabinet served a thing that has continued to grow and get closer to the pre cold and percent of total division round our fire protection services and uniform direct fail businesses are reported in the all other category the other revenue was one hundred and eighty one point nine million dollars compared to one hundred and fifty two point three million dollars last year the fire business organic revenue increased twenty two point four percent gross margin improved seventy basis points uniform direct fail business organic revenue growth rate was six point two percent and gross margin increase two hundred and eighty basis points i'll now turn the call over the top for our final prepared remarks thanks paul we are pleased with our fourth quarter financial results they concluded fiscal year of significant accomplishment in putting the fine we'll keep our customers place a bit of clean safe and reading for the work workday by providing essential central products and services we procured hard to find and potentially life saving items such as face masks and gloves provided identically clean healthcare scrubs and isolation down and develop services including hand sanitizer dispensing phantasm spray services and disinfecting white i'm not a murderer scores weekend all time high because we consistently delivered for our customers and providing me to products and services and been flexible with service agreement terms during the pandemic we were again name to the prestigious fortune five hundred climbing thirty one spots to rank get number for ten on the two thousand and twenty one left it's an honor to be recognized among the most successful and respected companies the allocated capital to improve shareholder returns we pay down debt producing interest expense we increase the annual dividend ten point two percent and change from an annual give them to quarterly dividend to return cash to shareholders more timely we've increased the lebanon thirty seven consecutive years also in fiscal two thousand twenty one and up until today we repurchase two point seven million shares of scimitar stock for total of nine hundred seventy nine million dollars as part of our steadfast commitment to corporate responsibility we issued our inaugural environmental social and governance or yes to report we are committed to protecting the environment and hansen your humanity and supporting the communities where we do business and in addition to these many accomplishments and despite the unprecedented challenges of the i keep endemic we grew up to school your revenue and just a dps hiking a plank or or your partners enough nine so proud of their truly impressive achievements the center stories one grow girl we burn revenue and adjust the dps and fifty of the past two years the only exceptions for the great recession years are successful long term financial formula is organic revenue growth in the mid thigh single digits double digit earnings per share growth significant cash generation improving deployment of excess cash to further generate strong shareholder returns our prospects for to comfort continued growth are great and i'm result in part from a strong value proposition and a bath total addressable market we have a product or service to up nearly every doesn't get ready for the work that examples include scrub rental to hospitals and dentist rg supplies and services to professional services firms more care services including walk out match and miles to retailers or think products to hotel and restaurant kitchens for cut and burns fire protection services to to sell these managers and university and per and personal protective equipment to city maintenance and sanitation department the renting have helped her scrubs and my fortune gowns is indicative of a broad uniform mental opportunity plus we are so much more than in uniform company more than half of our of our revenue is from facility services including hygiene for credit for care items such as woke up maps and dust deathmatch cleaning told like micro fiber maps and towels first aid cabinet services personal protective equipment and fire protection services including test and inspection of extinguishers and alarms a total addressable market is the fifteen to twenty million businesses we don't currently sells every business goods producing or services provided as a need for image safety cleanliness or compliance every business has a nice and thus can fulfill additionally the company eighteen pandemic ushered in a greater focus on help readiness and outsourcing of non core activities the never get opportunities for new rebels continue to exist because of the medium businesses to instill confidence in the employees customers students patients etc but they will remain healthy and safe the new service since we launched including hand sanitizer span dispenser service and fantasizing spray service of a long run way to does consists of consistently invested in technology to support from a reasonable location of the a enterprise retorts planning system for by benefits and three main areas one is operational efficiency our our drivers utilized personal ralph computers which are similar to a cell phone to access data and process transactions real time also snp enabled us to have this ability to laundered plants docker image already across our operations helping improve profit profitability be of the sharing it we use of revenue producing assets and the technology helps us improve working capital be a tiger management of supply chain the majority second benefit is david analytics can enhance business reporting these results from having the order the case cycle in one system sep enables us to analyze process to extract information from extremely large datasets helping us target penetration cross selling and pressing opportunities and at the content of the manage is improve customer service well as a p our customers can pay bills and communicate with us twenty four hours a day seven days a week we expect the ease of doing business with a will help us improve customer retention also customers can order products and services be as a p resulting in improve turnaround time and pastoral realization of product and service him i'm a few more words regarding yesterday and the start of our comfort them for the from the start of our company and the great depression the symptoms business model was wholly based on sustainable practices wash and reuse we have been great corporate responsibility story to tell we will continue to expand our yesterday recording and are excited about issuing or next report this year and finally i'd like to say thank you on behalf of all since are simply partners to scott farmer for eighteen years of service as chief executive officer under staffed leadership the company's revenue grew from two point six nine billion dollars in two thousand and three to seven point one two billion dollars in fiscal twenty twenty one god success when let's talk through years filled with challenges changes and opportunities he couldn't really great recession a largest acquisition koba nineteen pandemic and the integration of s a p technology across the organization we thank god for a service to the company of feel we're grateful that he remains as executive chairman thank you god your i'd like to take this moment to thank all of my son off partners across the company i'm proud of our many collective accomplishments including the innovative products and services that we provide our customers as well as the tremendous delegation alarm reporters without room
spk_2: we wouldn't be successful
spk_1: or companies live in a position of financial strength with the strongest and most experienced management team that we ever had and executing a proven strategy that is allowed our continued success even through the recent game down it's been a true honor and privilege for me to have led his company a ceo for the last eighteen years and i'm as excited about our future is i ever been and i look forward to watching his leadership teamsters the continued success in the future that concludes are prepared remarks are happy to answer your questions
spk_0: thank you and if you would like to ask a question please signal by pressing star one on your telephone keypad if you're using a speakerphone please make sure your muse function is turned off to allow your signal to reach our equipment what's your name is been announced you will have the opportunity to ask your question along with one additional follow up question again please press star one to ask a question and will pass for just a moment allow everyone an opportunity to signal in our first question comes from andrew whitman with art of you baird please go ahead
spk_3: great and thanks for taking my question scott congratulations on a great run it's been a pleasure and we look forward to so have you associated maybe when he comes to cincinnati next time
spk_4: you bet on i do
spk_3: yeah so i guess getting onto to do this year little bit a a maybe this is for mike there's been a lot of focus on inflationary factors in in what i heard here and you're prepared remarks and in your release was that sounds like you're getting good operating leverage but i was just hoping you could trillion in talked about some of the key factors you've talked about in the past certainly labor is is one or the come up a lot broadly across the street is talking about some other things like health care travel the dimension merchandise costs i is what if you talk about sort of key buckets and and talk about the offsets said that you have baked into guidance because it looks like you're margin guidance is flat up slightly the and so i was just kind of hoping to talk about some of the moving pieces and side of that as to why you feel you can offer somebody said once that might be creeping and
spk_1: sure i'll begin and end certainly thought and job in but as it relates to guidance you're right andrew the the implied margins would be at the low end of the guidance of flattish to at the high end up but around seventy basis points so pretty good range and the you know you've heard of talk a lot about we've made some some really great progress we've made some difficult decisions they're through this pandemic in and be ashamed to go backwards
spk_5: in sin and this guidance is is
spk_2: suggesting that we don't intend to
spk_1: and so how do we are we think about this inflation certainly labor as you mentioned the andrew is a big component of our cost structure and you know that the really good news for us as we we
spk_6: we've been working on
spk_1: on the labor rates for some time so this isn't something that is catching us by surprise and over the last several years we've been we've been increasing the the labor rates i'm and so certainly a leave the labour environment is a difficult one from the standpoint of the supply of of of people hiring has been a little bit more difficult but we don't expect that the the increasing wages around us is really going to be a significant issue we've been working on that for years and and dumb don't expect that to to to really be that the a difficult for us as we move into the future the on i would add to that includes life as we're we raised to veto wage rates of all of our lead people are distribution centers officers production over service sir frontline service personnel as we don't have a bit catch up as a result of that there are other businesses out there
spk_7: pros wages in the pandemic
spk_1: i
spk_2: because it was a year they might have of a catch up the make and will have that
spk_1: so are you know on on that to say that but i don't think that so far we've seen issues where the labor rates are know cause clauses no significant problems but we're more concerned about what happens to our customers as a result of this
spk_2: and so will be will be watching that very closely and or stopped at a great question where around where did good sapping position we like where we are there were young we liked cam the fact that we've got than addressing the subject over the course of a number of years and it's got point
spk_1: there are currently now even and the weekend or pandemic like your work get into one during the courts and the right thanks and couldn't care of our our partners didn't work because we knew that that would see things coming right and i am were permitted to itself that's important to was certainly a other input costs or and cost of goods on and our on our supply chain team is working harder than ever and they're going great job and panting through the process to get the goods that we need to make sure we're servicing our customers which and on a great job at i end up to manage our our construction from that standpoint know but we like the spot where him and out and ah and we anticipate getting yeah quite some leverage on know the additional wow revenue that we are again we we've done such a great job to such a big jump forward now from physical twenty to fiscal twenty one that as might stated you'll be chained to go backwards and were out we're focused on going forward and any and or maybe i'll add a couple other i don't see the saw of energy and i was thirty basis points higher in our fourth quarter then our third quarter i'm about forty basis points year over year we've built that kind of increase into our guidance and certainly there is room within our guidance for for a larger increases than that but that but something that will keep our eye on we are
spk_8: the we are constantly are working on improving efficiency is not productivity levels ah routing and are those things will all have a positive impacts
spk_1: from a material costs standpoint i you know that the the good news is many of our rental items or amortized so when we when we see increases and costs of they generally tend to take a long time to to make it to our piano and they must they they have to last for a while a so that they they they bleed in over time and and so we'll obviously we've got a great global supply chain thought thought about and they adapt and so when we see inflationary pressures we look for for opportunities to adapt to that new of environment then and i think over the course of the last year we talk a lot about our supply chain they've done a great job job and and we anticipate that they'll continue two on to to do a very good job now at having said that you know there are a lot of challenges in in that supply chain and in hiring and we've talked about and we're not immune to inflationary pressures they are built into our guys but on but but the other thing is we have an increase our pricing for two years right and out by a we'd certainly believe that that is an opportunity for us as we move into that new fiscal year and we have a selectively started to do that and in some areas pricing is local for us it's customer but customer decision and where we believe it makes sense or we will do that and and so that is that is certainly something that is available to us when we believe that that that than that cost pressures warranted
spk_3: again all of that is doping to our games which assumes ah i'm not not just keeping them the great leap forward that we made in fiscal twenty one but even continuing to improve upon
spk_1: that's really helpful thank you and i just my my one follow up and system trying to get a sense of the reopening benefits the you're getting are expecting and a sequential basis how much is left after than a quarter and ended june is there still businesses that are are closed for you or substantial lee clothes for the revenues are so de minimis that they might be considered closed or in a sequential basis be starting to feel like things are are fairly normal here june july time period
spk_9: thank you
spk_1: to our andrew my talked about pricing being a local subject reopening is a local subject as well i'm i'm from them but most part most businesses are back certainly canada is spam not a little slower the come back because the vaccination rates and government down government down affect him back flare other never lamps in general most businesses are back are now are they back at all levels that we think they will be the future now on and we're committed to were helping them with mom or of animal products and services to work to help them from be prepared as their employees come back and
spk_2: or customers come back to it so they can be yeah they to be in the marketplace so i hope that helps yeah i would add this is got i would have been doing you know repatriate canada will be in in the position that the us is some time he ended the summer with reopening but they're on a steady pace
spk_0: that it in a direction the year and the biggest issue that we have is businesses are open but are what about seven million fewer people employed right now and we're prepared dumber and so there's a lot of room there and i think as federal or unemployment benefits side
spk_10: with september
spk_11: you we hope to see that the our customers that are open be able to get themselves back to full sapling and out battle obviously you are benefit our business
spk_1: thank you move in and or next question will go to an off picnic with a barclays capital please go ahead
spk_12: thank eg the mine guys
spk_1: so i was hoping you'd help us with in a cascading of organic goes by segment in and still on the see a lot of uncertainty potentially out days and thank you for getting for the against as is helping has anything to call out in terms of modeling added that treats segment yet month i honest tired and he would so love and i think you've seen for guidance weeks back expect a range of that five eight to seven two for me a growth rate we have think about up and around division is aren't lot of by far the largest division said there will be an arranged by we expect that on all of our businesses sam meaning the other businesses fire first aid and are drexel business will all be on bridget duckworth businesses and now and this fiscal year so i'm a we feel very very positive about all of them and i look forward to growth and that each other's sentences yeah i think we might see a lake it'll have a little never a little bit of that bumping it's in the first date business
spk_11: and he saw that their their revenue is a little bit lower growth why's that a bitch day i had a decline in the fourth quarter they have such a strong year last year particularly in the fourth quarter in the first quarter we may see a little bit on a of vibe pumping is truly year but job but at the it's a great business it's in in improving
spk_1: we're seeing the recurring business and the mix start that turned back to where we like it and and celeste it's been throughout the year maybe a little bit of a different performance than we're used to seeing it from a steadiness perspective
spk_9: okay that makes sense and then if i can just ask around cap location and in the bed the by backwards that pretty big number the nine on in touch million the talked about to can you just ah help us understand you know it back in the context of the enemy pipeline and what we should expect
spk_1: going forward yeah so that amount of our commitment and sandstone number one priority is to them that back and or business to learn to grow at a number of customers we haven't grow those customers and invest in iran and or infrastructure our second one answer to invest in amman emanate and that we're very focused on am and i ah active in that area ah and damn it's a it's a big push for us and then third of their and some are consistent with what are approaches in the basket there is some a capital data
spk_13: i saw in excess of that them will return of back to the shareholders in the form of that increase in give it an an down and repurchase of the stock as appropriate
spk_0: am i have this is paul and i'll just die want to add that you know we're so fortunate to have such a strong balance sheet the cash flow is so strong
spk_14: you know we did that by back in our leverage this one point five times as we mentioned in the script so fortunate to be in a position where you know what we do with the david and and the buybacks doesn't preclude us from him and a or any other activities because of the about boundary i thank you
spk_1: thank you and our next question comes from andrew steinman with jp morgan securities please go ahead hi when you frame fiscal twenty two revenue growth could just talk about you know some verticals i he area which murder caused you think will be or above the average growth of of the guide and you know which verticals might take longer to on to read and on you know maybe maybe they're just kind of slow growth verticals toa enters the time on your as we look at the business the i'm certainly be hospitality business is on you read about it in the papers or use you care about booking so whether are their lines or hotels etc on that in some a vertical that we think will be i positive this year i'm or the healthcare vertical it's going to continue to well to be strong for us ah hospitals are up for catching up on now voluntary type of fat
spk_15: procedures which is hoping that i am we have a very attractive value proposition in both of those areas as well ah education government are
spk_14: but now that we expect to be quite strong for us
spk_15: oh well there was a yeah the mix of business i think you will see will be different in those areas ah left pp and more focused on not more of a traditional type of approach that we've had an aspect that but those those keep articles iran are all position well ah and you think of a mod are all positions
spk_0: quite well our hospitality probably the best
spk_16: a are there any slower growth wrote a poser really is rising tide here yeah i won't say i i don't know come to mind where i would say yes lower type of growth that it's just dumb our kind of a rising tide is the best trying to put great thank you
spk_1: thank you and our next question else from hamza missouri jeffries please go ahead a good morning text the rhine gunning filling in for on the
spk_12: my first question just around the fire protection business and if you could just talk about the competitive dammit dynamic there and any opportunity for larger scale i'm in a in that business kind of similar to a do with the medical on the first date died
spk_1: yeah ryan and the time we like our position in the bible of really like the bar business i'm and their rob we understand the how to go to market how to make attractive margins in that business and we're investing are investing in amman a we're investing in infrastructure to up the make sure that we're all around were able to service all of our customers and i'm wow your we have a national offering ah in that business some the a sub contracting but never a very attractive national approach and were position well out of ah how we know our our culture our infrastructure how we execute the to a good spot and up and there's a good momentum in that business there was some yeah you think about right it's all are legally you have that have that those products and services but never labs are there was some pent up demand and it from ah our repairs right so what have you think about them your you have someone come through and looks at you were on your your your fire equipment and damage
spk_16: there's some items at need to be repaired or during a pandemic people more so anxious to spend money on those types of subjects and up ah but as serve as were coming out of it where does where does he in that area
spk_1: for many reasons but one of which is some opened up the man on repair or which is great business worse guy day that helpful arm and switching over could you provide any kind of visibility on like how much of your field you consider today it pandemic like nonrecurring versus recurring in have had kind of define that
spk_15: yeah i'm a great question so i'm only giving about damn
spk_17: well that's called pp items that doesn't work or really pandemic related
spk_1: are they are still at levels elevated found pre pandemic ah but we do not expect them to love repeat and the levels that they were in and twenty one have you think about our our diamonds
spk_18: are we we think we would be a with with bpp that doesn't repeat if it had good at the does repeat them ie we would be in the yeah you're on the high end about two percent from asia internal growth rate settle well the think about that way about the how much as some will not be were
spk_0: speeding or that we don't expect to repeat
spk_19: wow which kind of demonstrates or the mix of businesses and gonna be back coach much closer to traditional in a know that momentum their to get to the grocery to that we gotta towards got it thank you very much
spk_1: thank you and or next question come from george tong with goldman sachs please go ahead hi thinks the morning in the uniform mental segment he can you talk a bit about sales rep productivity trends and how the pipeline is performing especially moving through the quarter and entering fiscal twenty twenty two george i'm glad you asked about that damn i've been so impressed by our sales organization the creativity the flexibility the urgency the intensity about which winning they go about their jobs and on and how they have adapted to a crazy environment and i and a we try to work very hard to position them with great products and services said that dumb people that are very much want to take their calls and up so our we like where that having the mix of business would obviously changing bomb but it's getting back to much more traditional george and but there is a young ah there is a strong audience for that the ourselves partners and them by whom they're calling on partly because you're there was there were some items that you were when it when people were going for pandemic said i i i can make a decision on on uniforms right now but i need some critical product felt like this is ron
spk_19: we provided us couldn't critical products and services and is positioned up now that it's i'm closer to businesses getting back to normal the weather's okay now way the talk about the those types of items so all that is positive for us
spk_1: ah your well as we went through it he have them the folks didn't realize that data we had all the products or services that we do so that open some doors and and we're continuing to operate in those doors to help them from a business
spk_15: that's very helpful up and then then a use the health care and hygiene those are a very strong categories are over the past year can you describe what kind of performance are expecting structurally from those health care and hygiene categories not just the fiscal twenty twenty two but really looking forward and then a dive
spk_1: you can tell people he talked a little bit about normalization there and first aid mix going back to you know of levels of time which has a margin to buckle up about that evolving mix as well in the implications for growth and profitability yes georgia of started to flow might start all one hour job then you'll have a week circuit in the past about them hygiene at climbing as the all those subjects that the pandemic of done for those subjects or what nine eleven did to security add twenty seven twenty years ago and also so what we're seeing is there's a greater focus on not i'm on a at the hotel employees called out of patience out outside of gas students ah and hygiene a part of that so now we see that as a young or something that will be elevated i'm into the future and out we think that's good for society that's good for our business and and good certainly for all as individuals so we can of as gonna be something as elevated down a plane perpetuity as far as pp normalization on your there is on ah there was a breakneck pace to get up pp he last year or because folks couldn't keep the doors open in certain cases that could work so there was some real peace last year that is certainly last week's back this year the variance the delta variant on i think god that brings a bit of allow card and the that ah witcher we're not gonna try to project but nevertheless it as you see as we got throughout the year you will see much more normalization and you'll see more of people using our traditional cabinets the first day products and some cabinets as we say on and and and pp will love will be a more moderate now just keep in mind we've always been on the pp business and we've always provided these products or services is because they were elevated we will continue our our our offer them up as more people get back to work in offices and and machine shops and the of government now and education are there will be more people that will be consuming yeah from a persistent when our our our traditional types of bandages and up and tablet teixeira to have a negligible color it and george is paul is one of the as you mentioned first date specifically two sides gonna make sure we've provided not clarity of air your that business sam is my said alluding to it's yeah we're in a transition period where he had caused point so much pp he was provided we seize the opportunity to come through for our customers and provide for monitors and masks and visors et cetera so it's an outsize you know percent of the revenue that will transition as we've been talking about the last couple of quarters what we have liked i want to make sure everybody understands that first day that this you is getting back to that more recurring revenue stream with that cabinet service business which we're very excited about and he had to think about nine percent or up i think digit type of the growth rate for on a first aid
spk_20: i am fiscal twenty two yeah that's come coming off a huge growth rate he was a lot of pp so still strong performance and what what the i would make sure he but on a message that in order to dry or high single digit growth rate and twenty two with pp a declining that cabinet service business is growing bear
spk_0: very strongly and what that will do then is an approved the margins going forward for the first a business and fiscal twenty two we probably won't get back the all the way to a pre cold and level of in terms of margins and first day because just like many of our businesses you it's a lot of small transactions or so
spk_21: some a mental that ask the build ah but but definitely the margins will continue to improve through the year as we get back to think this campus
spk_1: very healthy thank you thank you are next question will come from tony kaplan with morgan stanley please go ahead thank you i'm an eight have that the margin guidance earlier in the call and address the inflation and past but wanted to see if you could provide maybe some additional detail around which business find here expecting to see them most strength am from a margin perspective well as tony i would say you know all of our we expect all our proof or businesses to perform very very well and in order for us to to be able to guide in the way that we did from about the flash to up seventy basis points yeah we're going to need it performs out of all over businesses nap that translates into very good incremental margins i ate especially in our rental business it certainly is paul just described it means that we're going to see some nice improvement in our first date margins as we see a bit of a mix shift we expected to continued good performance in our fire business as i as as we mentioned twenty two percent organic growth in the fourth quarter we've got some great momentum and will get some nice leverage as we move into the year not and then certainly are direct sale of business or those margins i would expect from a percentage standpoint to really increase nicely as we see those that see the revenue start to combat that will allow us to get a little bit more efficient and and certainly be a little leverage our infrastructure in that business so we're we're looking for margin a good margin performance and all of our businesses all contributing to that guidance range margin improvement and all contributing to a real healthy twenty to thirty percent incremental margins tony the island i say we were driving towards a all our business is growing incremental march and twenty or thirty percent but when you think about obviously the mix is going to change in all those businesses
spk_21: and each of them sold with exception of fire there was some pp and are so there's
spk_1: we'll get back to more traditional pick max and up that am the young a lever john the additional revenue is can help us that's great and and near prepared remarks you mention the fifteen to twenty million and he says that you don't currently service could you talk about the recent industry outsourcing trends has that have you seen that accelerate or or flat and can it out you go about reaching out to those businesses is that as an initiative a big opportunity for him any more so than historically to have actually think about the opportunity yes tony the on the outsourcing trends continue wow and that has been positive in addition out on the young the focus on bringing manufacturing back to the united states and none and canada we think will be a positive just dumb that's obviously you're only innings on both of those we think will be an odd opossums for our business far reaching out on your we have an idea significant investment an hour in our infrastructure the and of part of that and structure that are around faith and or that is in our sales organization the so that is a significant investment you probably also seen i hope you've seen our some of our investment and mass media that though that work that we're leveraging because we thank god i'll admit it can pay dividends for our that infrastructure
spk_0: and other more thing where you're from customers
spk_11: and prospects frankly is our hey i didn't know you did that when that that you that now that is a product or service that they didn't realize that we provided so our time the lumberjack and get the message out ah and have to get a viable were cover to our around for infrastructure
spk_1: thank you thank you are next question comes from tim mulroney with william blair had the morning as i wanted to check in on the health care opportunity which i was gonna lot of attention on recent calls me of and talked about a lot yet today are you previously stated that think i think of the verbal could expand from kind of seven percent of sales today towards potentially ten percent sales of the next several years but i know things are changing rapidly these days so with another three months under your belt curious of those expectations have changed at all in either direction our chemists retarded i'll start alone a we don't see momentum slowing down in that area again hospitals are getting that will look back and more normal operation how they run their business and i'm are value proposition resonates with them we've talked of
spk_22: often about a diverse products and services that we provide scrubs being a big one isolation gowns but also cleaning products to help them
spk_1: provide a healthy environment he also yeah there's a whole lot more focused on on health and welfare now obviously you know your business
spk_23: because those are what they do for eleven years always been a major focus on providing an environment that dumb
spk_1: that allowed or
spk_24: hi patient satisfaction that was not only and not help but also an image so it's it it when you think about what they need it's a great vertical for us in the products and services we provide ah on and there's a long run like there we're we're providing products or services to
spk_25: how can to should have that damn i'd like to think you'd you'd be impressed by the name of what the list of people we do business with so who's who
spk_1: in that business but nevertheless ah and you were not nearly as penetrate is where we can be should be a movie so loud so we're very much in the early evening sun on not on that vertical still okay great thanks to him just switching gears i apologize gr ready you justice but but how did energy costs impact the results this this quarter an idol on and on the the year over year sequentially or have are you on presented but you also talk about your expectation for energy cost it's built into your guidance meet me for your sleep debt but then also for your production plants thank you i came our our total energy costs for the quarter were two point one percent of revenue that's up thirty basis points from the third quarter and that self forty basis points from a year ago
spk_26: so we could certainly see some increase within a quarter our expectation is that those will remain elevated during fiscal twenty two
spk_0: up at those levels maybe even a little bit fire
spk_27: so that's what we've we've got incorporated most of that increase being priced at the pop so our gas in our service santa or routes so i've only gotten in india in the guidance great thank you thank you internet sweating come from gary busy with thank them their security i at the morning
spk_28: yeah i guess on revenue at first i put one clarification on question they wanted to clarify so i single digit for first aid i heard that
spk_27: some discussion of the top
spk_28: i think the term on is single digit the right number for the year but but you know maybe declines in the near term as you get through the office
spk_27: cops is not as a question is is that a statement on that business and in the question then on revenue on the rental business right the long term growth rates been sort of in line with this guidance you got easy cops you had sequential improvement drought last year the fourth quarter and quite strong growth
spk_28: i guess i wonder why wouldn't be positioned to grow faster than the historical long term trend even those factors in this year
spk_1: it is did the hygiene business within rentals have an outside benefit from neither rolls off and is that a drag are there other factors yeah just your normal conservatism that might be weighing on that that thank you to gary as first the first aid yeah i think about it is a single digits or for the year and might stated on cue for let us your q one me too for of twenty was was a segment on a huge growth rate for the first a business as was
spk_17: q one so and so the cop from from the right now our weren't word were really big so as every year goes on
spk_1: the pp you will conquer will lessen our and as a result them are around or growth rates will be week will be found in that business so the bubbling up at my spoke about we simply that the people he can't our in the early portions of the of this fiscal year versus laugh as part of the rare top
spk_27: yeah well as we mentioned about there's there's our pp and that and in our result from last year and rental as well
spk_1: and that again just going back to our toll on a guidance on illegal if they if the pp earn a wouldn't repeat that we do not believe it will out of this year then are you begin to be around in the number with your money as far as internal growth so and how far into the ace i really don't know ah but left an ill will we be picking up at i'll echo on a basis points and grow if that pp repeated so it's a headlamp we're proud that we provided the product to our customers are customers really bad you did it open doors she's upon but it kept their doors opened in many cases an art an hour on our never motor scores are reflected so they were have were very appreciative that we are able to provide his back and services if they need him again will provide on we just don't think that though to be at the levels are that they weren't ass thank you and then the quick follow up in the path mike i think you've provided breakdown of the rentals business revenue in the fourth quarter by the merits of segments i wonder if you be willing to do that again this year yeah gary is it all and with you yeah we get we have that information for you you may and and i would profited by by me a famed your first of all ah i'm we provided typically is your cue for sample a you for fiscal twenty one vs fiscal twenty obviously because there's a lot of noise and these figures excuse me a match on yeah it's it's an unprecedented time fiscal twenty fourth quarter with the onset of the pandemic sell lot of job losses lot of pandemic driven demand is todd your said for certain names of pp so when the throw that out there first but last year's fourth quarter so physical twenty two for to love one rental with fifty percent of the of the segment next of dust which is the on a walk off matched miles that was eighteen percent of the mix hygiene products ah those are the soaps the air fresheners sanitizing dispensers accent or that's fourteen percent last year chow chows were four lane and ten and the catalogue business which is more like the directs the small direct the all components of the rental business a products off the route from the the drivers alice four percent to the next year's next uniform rental forty eight percent dust seventeen percent hygiene seventeen percent shop cows for is nine
spk_0: david catalogue five so again obviously
spk_29: cool did impact in a result of not necessarily in a reflective of future performance ah like with the of eat this this the break out you can obviously see how strongly hygiene performed on typically like in the and that you for fiscal twentieth
spk_1: it was mostly restroom type item soaps and air fresheners the paper but in this que for twenty one ah that hygiene percentage group greater driven by the sanitizer dispensers this fans that sanitizing sprayed like cetera and then that catalog naughty dog a little bit from four percent of five percent that's where a lot of the pp he in the uniform rental episode the services business believe talked about hit is is is recorded the masks gloves those types of items thank you
spk_17: thank you and or next question comes from scotch neuberger with oppenheimer please go ahead
spk_1: ah thanks very much an of for my first one i just want to follow up on the or the emanate comment earlier it sounded like yeah yeah the very active pipeline that you're pursuing i'm just curious to begin elaborate a little bit on yeah what what areas you may be pursuing and size and targets in and and how right things are arm and in the navy at the at what you're seeing with regard to multiples good or bad and the environment thanks goddamn out the for each of our businesses were positive
spk_15: but talk is certainly some geographic expansion is well so we're work or highly active well there's the folks that are out of elite answering phones
spk_1: and up and taking calls and we'll see where that goes down certainly yeah you wonder about the changes to and attacks potential case the taxes will that debris things up there will be interesting to see what happens with that as far as the sides and month multiple those such a thing to your lan there's a new era everything some from a very small to medium size types of will comment on else but it's another all active and up and your web part of it is because some you love love multiple if you look at historically in the in the marketplace so those are pretty high and up i'm i'm widowed were quite active in that area because some or we'll get from a very long term approach and i'm him and we know when know when we we make the effect of acquisitions that though it positions us to watch a girl does as well those are because of were bribed offering a products and services that we bring to the table that many cases up the folks at were speaking to don't have the never oddness it allows for us to our take a long term approach and blow those businesses whether it's just in that area the business or across on get across our each of our a bar and abreast right thanks appreciate that know my my fall of two bit of it's a two party but it's high to get a pretty well on a pod section in there in a press release i mention of by investment in continue investing and technology competitive advantage to toby the elaborate on that and then that that the the back part of the a question is no cap exes was with down a lot in now that the patch fiscal year almost half of what it was and says we are nineteen ah and and down good bit from fiscal twenty two years where that goes this year and del and and and maybe any time to with did it without the cat machine thanks they have all started with the of attack question and then know my can handle the catholics if he prefers the i'm a scam weird were investing heavily there because done leave your we see a need to have remotely whether it's productivity or from a competitive advantage all areas of our business we talked about leveraging as a p leveraging out of the platforms that that come along with that that done that customer benefits and on ah operational benefits for us and then obviously the data that goes along with that adapting said your we see around some opportunities and automation that we've been investing in over the years and we feel that the and opportunities other two were good efficiencies algarve fleet or that down there were investing in that we think can pay big dividends in that area and of are so we're we're focused on know i'm doing such and making of usually do business with sent off settle were and with a girl as you do that done that does that the like leverage for us so our leverage in the marketplace so of michael pollan alleges aim of cap exclusion share from a from a camp bags perspectives that clearly the the amounts were down in in the this past year because capacity needs just want the same as they had been in the previous years we certainly kept up the the cat facts from maintenance activities but as we you know there is there's a bit of a lag between when we need new capacity and when it's revenue starts that has started to come back and we've we've seen some momentum but there will be a little bit of a lag in the cap that having said that i expect we'll get back to historical levels by the end of the earth fiscal year that puts is probably in the two hundred two hundred fifty million dollar range for fiscal twenty two but but certainly when we invest we will certainly when we need to invest whether it's capacity technology or or of
spk_29: otherwise we will certainly do that
spk_0: yet the great news is i you know regarding our investments in new york pieces them sep the we talk about all i mean a lot of attic that the spending in that that so somebody the major expenses behind us and down
spk_25: yeah took us a while to roll out and get the entire network in that they pee wee and the gj acquisition and and more locations and
spk_30: and slow down the time to complete it then we had a pandemic ah
spk_25: and so you'll be exciting thing is he additional investment will continue be made throughout the business course still and technology by a lot of it's already paid for and now it's affecting your the system taking you know that the that the toys that speak out of the box and not just using it
spk_1: for the x's and o's of running a business but you're using it should to me that competitive advantage to give us the data analytics and the other advantages that we haven't had previously thanks how much
spk_25: thank you and our final question today comes from kevin mccarthy with a credit suisse please go ahead he guides this is actually bryan on for kevin thanks for reasons and here
spk_1: thanks to the commentary time around the the car sort of on the reopening and you know you don't expect you not all customers are quite back yet so just chilling in that little bit how have we think about you know sir what percentage of clients or you're still in active vs may be yeah know how that compares to
spk_22: out of businesses or ya attrition that we would see just a ticket have frame that and and yeah
spk_1: any he and or commentary around how that shakes out geographically either he and he got the or by vertical your new us to our our own have a specific number for you but batista generally speaking of i'd say most businesses are back to some degree not only back to go full bore ah we mention kanda specifically of an outlier on which we expect that was just say by august september to be back cam much closer to normal
spk_31: but them now one big issues and solder seven million people less working today than there were a year ago or so
spk_30: one and up
spk_22: of those seven million people are what how or more sometimes where's a will be but damn there's a percentage of and that we want those answer my he those folks get back to work
spk_25: and i am now and whether they're wearing uniforms or
spk_1: our utilizing our first a gunman of products and services all that an impact us so and oh you the for the most part businesses are back there certainly not anywhere near where we think they will be overtime got it okay and in the last on you for us you guys talked about continued to expand on e s t reporting and you're certainly what we've noticed is
spk_15: that yeah she's forced him to focus on the internal operations but when he treated you can use touch on
spk_1: mika how you guys help your customers achieve various tools thanks yeah right a great question you have to give an hour and our heritage or what we do our him and frankly yeah and some of the rental doesn't what our industry does or the impact in their hands on saving our customers water our energy ah what we do to treat water instead of going down into the sewer because those products whether their garments or or towels or what have you all that they're gonna be either i'm a purchase been thrown in the garbage were purchased and cleaned and home ah in both cases we are helping substantially those folks helping the him by harmon
spk_0: i am not in helping to save
spk_1: ah landfill space hoping to fill earns humid save water energy and the cleanliness of water as well
spk_0: tom and i'll make was told the story well enough in the past because i'm at our heritage we are i'm ah a a a wash and reuse deserts and done and again without our industry

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