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spk13: Good day, everyone, and welcome to the Sintas Corporation announces fiscal 2024 second quarter earnings release conference call. Today's call is being recorded. At this time, I would like to turn the meeting over to Mr. Jared Mattingly, Vice President, Treasurer, and Investor Relations. Please go ahead, sir.
spk08: Thank you for joining us. With me is Todd Schneider, President and Chief Executive Officer, and Mike Hansen, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2024 second quarter results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a 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. 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 discussions on these points contained in our most recent filings with the Securities and Exchange Commission. I'll now turn the call over to Todd.
spk07: Thank you, Jared. We are pleased with our second quarter results and are excited about the future. Second quarter total revenue grew 9.3% to $2.38 billion. Each of our businesses continue to execute at a high level. Our momentum in the business is good and volume remains robust. We can grow in a number of different ways. Contribution to our growth from new business remains strong and comes from companies that either outsource their program today or they are managing it themselves. We continue to have great success cross-selling to existing customers. Retention levels are strong and remain at very attractive levels. Our value proposition of image, safety, cleanliness, and compliance continues to resonate across businesses of all sizes and in all verticals. We continue to be pleased with results from our focus on prospects within the verticals of healthcare, hospitality, education, and state and local government. We recently announced the opening of two clean room facilities one in North Carolina and the other in Wisconsin. These facilities will provide additional capacity in these regions in order to expand our efforts in this area of attractive growth from pharmaceutical and biotechnology companies. The benefits of our strong volume growth and revenue flow through to our bottom line. Gross margin for the second quarter grew 11.6%, and operating income grew 12.3%. Diluted EPS grew 15.7% to $3.61. Cash flow remained strong. Net cash provided by operating activities in the second quarter grew 17.8% over the prior year. Our strong cash flow gives us flexibility to choose how we deploy our capital. In the second quarter, we continued to invest in our businesses. We also acquired several smaller businesses. On December 15th, we paid shareholders $137.5 million in quarterly dividends, an increase of 17.1% from the amount paid the previous December. During the second quarter, we also purchased $320.3 million of Cintas Common Stock under our buyback program. I would like to thank our employees whom we call partners for their continued focus on our customers, our shareholders, and each other. Now, before turning the call over to Mike to provide details of our second quarter results, I'll provide our updated financial expectations for our fiscal year. We are increasing our financial guidance. We are raising our annual revenue expectations from a range of $9.4 billion to $9.52 billion to a range of $9.48 billion to $9.56 billion, a total growth rate of 7.5 to 8.4%. Also, we are raising our annual diluted EPS expectations from a range of $14 to $14.45 to a range of $14.35 to $14.65, a growth rate of 10.5 to 12.8%. Mike? Thanks, Todd, and good morning. Our fiscal 2024 second quarter revenue was $2.38 billion compared to $2.1 billion last year.
spk09: The organic revenue growth rate adjusted for acquisitions and foreign currency exchange rate fluctuations was 9%. Organic growth by business was 7.9% for uniform rental and facility services, 12.7% for first aid and safety services, 17.8% for fire protection services, and 4.7% for uniform direct sale. Gross margin for the second quarter of fiscal 24 was $1.14 billion compared to $1.02 billion last year, an increase of 11.6%. Gross margin as a percent of revenue was 48% for the second quarter of fiscal 24 compared to 47% last year, an increase of 100 basis points. Strong volume growth and continued operational efficiencies helped generate this strong gross margin. Gross margin percentage by business was 47.4% for uniform rental and facility services, 54.5% for first aid and safety services, 48.6% for fire protection services, and 40.9% for uniform direct sale. Gross margin for the uniform rental and facility services segment increased 40 basis points from last year. We continue to leverage our strong revenue growth and extract inefficiencies out of the business in order to expand margins. Our year-over-year improvements are no accident. Our Six Sigma and engineering teams have helped us create efficiencies in the plant to allow us to maximize the utilization of our equipment, labor, and energy. Our smart truck technology allows us to improve our route efficiencies and provide density to our existing routes. While energy expenses comprised of gasoline, Natural gas and electricity were a tailwind of 40 basis points from last year. Please keep in mind that some of the energy benefit is the result of efficiencies just mentioned. As an example, our rental revenue grew organically at 7.9%, but we only added 1% to our route structure since last year. Gross margin for the first aid and safety services segment increased 400 basis points from last year. Our revenue growth is strong, and our value proposition continues to resonate in this segment. Health and safety of employees remains top of mind. Our mix of revenue continues to be healthy, including growing high-margin recurring revenue products like AED rentals, eyewash stations, and water break. We continue to use technology like SmartTruck to optimize our routes and improve efficiencies. And our first aid dedicated distribution center allows us to lower product costs. All of these contribute to our improved margins. Selling and administrative expenses grew $64.4 million, or 11.1% over last year. Strong revenue growth creates leverage, which allows us to invest in the business. We continue to invest in our people, adding selling resources, investing in our management training program to develop future leaders, and expanding our talent acquisition efforts. Operating income of $499.7 million compared to $444.9 million last year. Operating income as a percent of revenue was 21% in the second quarter of fiscal 24 compared to 20.5% in last year's second quarter, an increase of 50 basis points. Our effective tax rate for the second quarter was 20.9%, compared to 22.1% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the second quarter was $374.6 million, compared to $324.3 million last year. This year's second quarter diluted EPS of $3.61, compared to $3.12 last year. an increase of 15.7%. Todd provided our annual financial guidance. Related to the guidance, please note the following. Fiscal 24 interest expense is expected to be $100 million compared to $109.5 million in fiscal 23, predominantly as a result of less variable rate debt. Our fiscal 24 effective tax rate is expected to be 21.3%. This compares to a rate of 20.4% in fiscal 23. The higher effective tax rate negatively impacts fiscal 24 EPS guidance by about 16 cents and diluted EPS growth by about 120 basis points. Our financial guidance does not include the impact of any future share buybacks. And guidance includes the impact of having one more workday in fiscal 23 compared to fiscal, I'm sorry, fiscal 24 compared to fiscal 23. This extra workday comes in our fiscal third quarter.
spk08: I'll turn it back to Jared. Thanks, Mike. That concludes our prepared remarks. Now we are happy to answer questions from the analysts. Please ask just one question and a single follow-up if needed. Thank you.
spk13: If you would like to ask a question, please press star 1 on your telephone keypad now. Please be prepared to ask your question when prompted. You will be allowed to ask one question and one follow-up question. Once again, if you would like to ask a question, please press star 1 on your phone now. And our first question comes from Ashish Sabhadra from RBC. Please go ahead, Ashish.
spk24: Thanks for taking my question. Just on the four verticals that you highlighted as areas of strength in particular, I was wondering if you can quantify how big the combined revenues are from those verticals and how does the growth profile there compare to the company average? Any color. Thanks.
spk07: Good morning, Ashish. This is Todd. Thanks for the question. I don't have a specific number for you as far as that exact number, but I can tell you that our verticals are performing quite well. We're having really good success. Our focus around not just selling, but organizing around those is really paying off for us. I've just got a couple wins I can share with you regarding the verticals. In healthcare, in the acute space, we're having good success and non-acute as well. We've got a scrub rental program to a big hospital network in South Carolina. that is benefiting from a new consistent image, but also identification. The customer told us that they were interested in being able to, pardon me, identify their people, understanding who was supposed to be in what area, and this new scroll program did that. We had a really similar experience with a nursing home in Virginia. Same thing, they were buying their own, but the leadership wanted to be able to identify and have a consistent image with their people. We had a, on the acute side again, a hospital in Florida that we rolled out a new microfiber program because they were struggling with inventory control and product quality, which led to cleanliness concerns. And our program offered some great products, technology to control the inventory, which allowed them to focus more on their patients instead of having to fool around with trying to manage the microfiber. Excuse me. And I've got a couple other examples I thought might be helpful for the group. In our government sector, we just recently rolled out a first aid and AED rental program to a public library system in California, which is, you wouldn't think of a public library system as being a great prospect for us, but it is. They realized that the value it would bring to their employees and being prepared with the AEDs in case it was needed because the public's in their locations. And then lastly, I'll just share with you a little bit on education, a variety of wins there. We had a chemistry department at a nice size university in Virginia. They put all their educators and students in a lab coat program. Maintenance department at a university in California. put all their people in Carhartt uniforms, a rental program from us. They love the Carhartt. And then the last item would be there was a dining facility at a university in Arizona where they put all their culinary people in ChefWorks, which is a big win for those folks. You know, the branded programs with Carhartt and ChefWorks were big wins. So I don't want to belabor it, but I thought I would just share a few wins because I know verticals are of interest to yourself, Ashish, but also plenty of other folks on the call.
spk09: Yeah, the only other thing I might add is, as Todd just talked about, we have so many ways to win and clearly – those verticals are growing faster than the average. So we still are seeing really good momentum in each of those.
spk24: That's a great color, and thanks for sharing those events. It does provide a lot more clarity on those verticals. And if I can ask a quick follow-up, I was just wondering if you could share any update on your technology, the SmartTrip program, and particularly the partnership with Google, Verizon, and SAP. Any updates on that front? Thanks.
spk07: Certainly. You know, I think one of the things we have around here is we don't make money when the wheels are moving. We make money when the wheels stop. And so the way Mike described it, you know, in total for our company, we grew revenues over 9%, but we only added 1% to our route structure in total. So that means we're spending more time with the customer, less time driving, which is better for our customers, better for our partners, and better for Cintas. So we're pleased with that. Our technology, and we still have plenty of room to go there, we're focused on bringing those efficiencies, extracting out the inefficiencies in our business. We sent out a note, a press release regarding our migration this quarter to the Google Cloud. That has been very successful for us. There's a number of benefits that we get from moving from a server farm to the Google Cloud. The first one is it's more secure, so very important to us. Second item is over time, we believe that will be more cost effective for us. And the third is it gives us access to Google's AI platform. So certainly in the very, very early innings, we just migrated, but we think that that will be able to help us longer term. in making it more attractive, making it easier to do business with CentOS, making sure that we are positioning our people to be successful, to point them in the right direction, and leverage those types of tools.
spk13: And our next question comes from Manav Patnik from Barclays Capital. Please go ahead, Manav.
spk22: Thank you. Todd, just to follow up, you know, on all the wins and contracts you talked about, maybe, you know, I guess the question is more around the competitive environment versus is this just, you know, first-time outsourcers? Any trends, any changes you're seeing, you know, from that front, you know, the new business percentage you called out before, but whether that's more market share or just first-time outsourcing?
spk07: Good morning, Manav. Great question. As Mike said, we win in many ways. We have been selling no programmers since the inception of my career, I can tell you that. And we continue to. And I'll just remind you, we service a little over a million businesses, but there's 16 million businesses in the U.S. and Canada. So there's plenty of opportunity there. And we like both. We certainly win some from the competitors. We like growing the pie. And in the examples I was giving, it's a mix. But in large part, it is They were either doing it in-house, meaning they were processing microfibers in-house, or they were telling their employees to go buy product. So, you know, there's different variations of no programmers, meaning some are just, were buying products and providing to their people and telling them to wear them. They were just telling them to show up to work and look good. But nevertheless, we bring so much better consistent program identification, cleanliness, all these, and compliance are big drivers for our customers.
spk22: Got it. And then just on the capital allocation front, I mean, the buyback number, you know, one of the bigger quarters for a while now, I mean, is that Any indication of the M&A market slowing down or just how we should think about that balance there?
spk09: Manav, no change in what we're seeing in M&A. Still, we're working the pipeline as best we can. We've made some nice acquisitions this year. From a buyback perspective, you've heard us speak to it being an opportunistic execution. And that's what you saw this quarter. As we think back about our first quarter results, and we thought they were pretty good. The stock reacted a little bit negatively, and we saw that as a nice opportunity, and we took advantage of it. So it was a good example during the quarter of an opportunistic execution of that buyback program. And the beauty, Manav, as we speak about our capital allocation, We don't always have to choose in the quarter or maybe let's call it for the year, we've invested in the business as we've talked about. Our CapEx is up, which is important to us as a part of that investment. M&A is up from last year. Dividends are up 17% from last year. And we've been able to execute on the buyback program. So when you hear us talk about sort of the four levers of capital allocation, we've done them all, I think, nicely this year. And, again, the beauty of our cash flow and our balance sheet is we don't really have to choose.
spk07: Mike, I would just add that, you know, we think we're being really good fiduciaries of our shareholders' investments. Mike mentioned all the levers. And the net of that is we still have great dry powder, which allows us to – to take on M&A of all shapes and sizes, and we're interested in that.
spk13: And our next question comes from Joshua Chan from UBS. Please go ahead, Joshua.
spk20: Hi, good morning. Thanks for taking my questions. So, Todd, you mentioned the opening of the clean rooms. I was just wondering if you can kind of frame for us what you see as the attractive parts of this business, how is it attractive, and and what kind of opportunity does it mean for Syntax going forward in the clean rooms?
spk07: Thanks for the question, Josh. Yeah, the clean room business is an attractive sector for us. I mentioned pharmaceutical and biotechnology companies, and it seems like there's more and more every year that need that level of cleaning, that level of cleanliness. So we think that bodes well for that business in the future. And, you know, there has been – you've seen some momentum on shoring in that area. And we want to make sure that we have the appropriate capacity to serve our current customers and that we're prepared for the future as well. So we like the trends in that business, and we like the business.
spk20: Great. Thank you for the color there, Todd. And, in fact, if I can follow up with the margin question here. I guess if in the future the energy favorability were to lessen, could you talk to the opportunities that you still have to drive margin expansion and the targeted incremental margins going forward without as much energy tailwinds?
spk07: Yeah, great question. Yeah, so we recognize that energy prices go up and they go down. But one thing that's going to be consistent is we're going to be focused on extracting out inefficiencies in our route structure and in our production facilities. So that will be really important to us. And We think there's certainly ample opportunity there still to go. We've talked about the smart truck technology. That's been impactful to us in many ways. But what's also impactful is, as Mike mentioned, our Six Sigma team of professionals, our engineering professionals, and then layering in with that technology allows us to have a centralized visibility into our operations at a level that we've never had before. in the history of the company, this technology allows us. And it allows us to maximize our labor, our equipment, ultimately our energy spend. And we're focused on extracting out those inefficiencies so that we can manage it moving forward. We love when energy costs go down, but we recognize those markets will move, but we're going to be focused on extracting out those inefficiencies.
spk13: And our next question comes from Heather Balsky from Bank of America. Please go ahead, Heather.
spk19: Sorry about that.
spk28: Thank you for taking my question. First question with regard to the programmers and non-programmers, as we're further and further out from the COVID period, are you still seeing the shift in demand in terms of more non-programmers looking to outsource or do you think it's starting to normalize back to pre-COVID trends?
spk07: Well, Heather, it's a great question. I'll start, and Mike, feel free to chime in. We're, you know... There's various reasons why a prospect would turn into a customer, going from a new programmer to a customer. One of them is, hey, we'd like to outsource it because we're not very good at it or we're struggling to staff and we're struggling to find people to manage this. So that still continues. But there are other reasons. It might be we don't like the image that we're portraying. We don't like the lack of identification. We don't like the lack of compliance. You can provide them, and we know that they're hygienically cleaned. So there's many different motives. One of it might be, hey, we can't staff, and we need help. And we still see that, frankly. And it allows our customers to focus on what's most important to them, taking care of their customers, their patients, their guests, whatever it is, instead of having to manage through these various programs.
spk09: Heather, the no programmers is still, we get more than 60% of our new business comes from no programmers. Your reference to the pandemic might be, we did certainly in the early days, of the pandemic see an increase in personal protective equipment and things like hand sanitizer, those have normalized back to what we would call normal and ongoing levels. So that might be the only change that we had and back to normal.
spk19: Thanks. Thank you.
spk28: And then on the margin front, we're just kind of curious when you think about, you talked earlier about opportunities for efficiencies and further root productivities. When you think about the source of those savings, how much are just organic, your Six Sigma effort, how much is coming from your SAP, and are there still G and K opportunities that you're kind of benefiting from? Thanks.
spk07: Heather it's a good question you know we don't really discern the difference between our Six Sigma team our engineering team and our technologies they all have to work be orchestrated appropriately to get the efficiencies so and that's exactly what we're doing so everybody has to be involved And that's what produces the great results. As for G&K, we've now, I think, about six and a half years since we acquired, if my math is correct. So I wouldn't say that there's anything left on the bone there.
spk13: And our next question comes from Andy Whitman from RW Baird. Please go ahead, Andy.
spk29: Yeah, great. Thanks. Good morning and thank you for taking my questions. I guess I just wanted to ask on the outlook a little bit here, Mike. The second half total revenue guidance is in the 7% range at the midpoint against an organic 9% quarter here. So a degree of deceleration, I guess that was implicit in your previous guidance as well, but just thought maybe give you a chance to elaborate a little bit more on that, talk about what you're seeing in the macro if that's just you guys being kind of your normal prudent approach or if there's something that we should be considering.
spk09: Andy, I'd lead with it's our normal prudent approach. And when you think about where we are, we've talked a little bit already about the growth is still good, momentum is good. And so we like where the business is going. The range for the back half of the year It certainly does imply a little bit over 7% at the midpoint, a little over 8% at the high point. We like that range. The cadence is good for us, as you know. But, you know, look, as we look into calendar 24, there's certainly – is a little bit of uncertainty as to what the new economy may bring, what the Fed movements may bring. And so we think it is wise to be prudent as we look out.
spk29: Great. That's my only question for today. Have a Merry Christmas, guys.
spk17: Thank you. Thank you, Andy.
spk13: And our next question comes from George Tong from Goldman Sachs. Please go ahead, George.
spk16: Hi, thanks. Good morning. Earlier you mentioned that business momentum was good, volumes were robust in the quarter. Can you provide more color on overall customer budget trends and customer sentiment and any changes that you might be seeing in the sales cycle?
spk07: Good morning, George. Forward-looking, as Mike said, there's always – we're not trying to prognosticate exactly how our customers will react to the turning of the calendar year. But we're not seeing any change in sales cycles, and we haven't seen a change in our – and our customer base and how they're reacting to what's going on in the marketplace. So it's kind of business has been consistent, and it's more what Mike referred to the turn of the calendar year, and we'll see how businesses react coming out of the holidays.
spk16: Got it. That's helpful. And also you mentioned cross-selling was good in the quarter. Can you elaborate more on cross-selling and trends that you're seeing and which areas you're seeing most amount of bundling or upsell, cross-sell from?
spk07: Yeah, George, cross-sell is an important component of our growth. And, you know, the nature of it is we're having good success across all of our areas of our business. We're blessed to be in a position where our customers, fortunately, they really like us. They like our relationships. We have people in their businesses on a really frequent basis, mostly on a weekly basis. So that means we have eyes, ears, and minds in their business. and we can help. And it doesn't matter to us what a customer might lead with, whatever they're interested in, but then we will quickly pivot and we can help them in many ways. But just the nature of the size of the rental division is such that because there are so many customers there, there's plenty of opportunity for our first aid and fire business to cross out into that just because of the numbers there. But nevertheless, it's working quite well across all of our organization. We share leads, we share thoughts, and we make sure that the customer is well taken care of.
spk13: And our next question comes from Tim Mulrooney from William Blair. Please go ahead, Tim.
spk14: Yeah, good morning. I just wanted to ask one question. You know, pricing now normalized back to the 2% range. I mean, that means your organic growth was comprised of approximately seven points of volume. I was just hoping you could dig into that a little bit more, because it was a little stronger than I think most of us were expecting. Did you see... An uptick in retention. Did you have a strong quarter with that cross-sell or maybe new account growth? Any details would be helpful.
spk07: Yeah, good morning, Tim. So our new business is robust. As I mentioned, retention levels are very good, and our cross-sell is very good. And the pricing is still lower than last year. It is higher than historical, but it's certainly getting much closer to historical. So when you think about that, our various inputs to growth are all performing well, and we expect that to continue.
spk09: And as we talked, we went in a lot of ways, and the momentum in the rental business is still really good, but we also saw in the quarter some really nice acceleration in first aid and safety from 11% in the first quarter to 12.7% organically in the second quarter. And we saw some nice improvement in fire, where we went from a little over 14% in the first quarter to 17.8 in the second quarter. So we just see some really good momentum in all of our businesses, and particularly those two had some really nice performance in the second quarter.
spk14: Yeah, I did notice that reacceleration across both those businesses. That's helpful color. Thanks, guys. Happy holidays.
spk05: Thank you, Tim. You as well.
spk13: And our next question comes from Andrew Steinerman from JPMorgan Securities. Please go ahead, Andrew.
spk12: Hi. Could you just mention if your ad stops directionally in the uniform rental business was up, down, or flat recently?
spk07: Good morning, Andrew. Our ad stop metrics have been pretty consistent. We haven't seen much of a change in our customer base. And so I'd say that's how I would describe it. You know, we see still positive trends in our ad stop metrics, but that's pretty consistent as it has been for the last six to 12 months.
spk30: Okay. Thank you very much. Yes, sir. Thank you.
spk13: And our next question comes from Jasper Bibb from Truist Securities. Please go ahead, Jasper.
spk11: Hey, good morning, guys. You mentioned the year-on-year tailwind from energy, but was just hoping to get some additional color on other cost inputs, I guess specifically labor and materials.
spk07: Yeah, I'll start. Jasper, good morning. You know, we're seeing, just like you're seeing with inflation in total, we're seeing that come down. It's never coming down as fast as we like, but we are seeing it. You know, cotton is stabilized. We're seeing freight come down, and that's important to us. And the labor market is easier. It's still not easy, but it is easier. So I think that probably the right way to think about it would be, you know, as the labor market eases, and that will lessen pressure on wage growth as well.
spk11: Thanks. And then I wanted to follow up on first aid. Operating margins there were really strong in the first half. Should we think about these like low 20% levels as sustainable going forward? And would you say there's anything that's changed there that's unlocked another leg of operating margin expansion here today?
spk09: Sure. Jasper, we have seen some nice performance in that business. And I spoke to a few of them where from a margin perspective, first of all, The value that we sell with, nothing's more important than the health and safety of your employees, is really still resonating well. And so our growth has been really good in that business. We talked a little bit in the opening comments about sort of the recurring revenue streams of AED rentals, our eyewash stations, and our water break. And these have been great businesses for us. The growth has been really good. And the margins are great for us. Many times these are add-on products to existing customers. But in all three of them, we install, and then we have a recurring service program that goes on after that. And, again, it leads to really nice stickiness and also nice margins. The other thing that I'll point out is we opened a first aid and safety distribution center a couple years ago, and that allows us to source more. It allows us to centralize some of our sourcing, and those kind of things lead to a better product cost. And that, again, drives down the material cost in our first aid and safety business. So the combination of really good sales mix, really good growth in the business, good sourcing, the one I didn't mention was smart truck technology that is also having a benefit there. All of those things are contributing. And so this is not a case of six months of sort of unusual items. This is This is a little bit of a lot of hard work and execution by our first aid and safety partners to really get this margin going.
spk17: Very helpful. Thanks for taking the questions.
spk13: And our next question comes from Faiza Aoui from Deutsche Bank Securities. Please go ahead, Faiza.
spk02: Yes, hi. Thank you, Saul.
spk03: So I wanted to follow up on both the first aid business and the fire business. You touched on the first aid a little bit, but curious on what's driving the acceleration, if you could expand on that, both on first aid and fire. And then as we think about your outlook, do you expect this level of growth to sustain looking ahead? And I know in fire you talked about an SAP implementation that was happening in this fiscal year. So maybe is that helping the top line? Has that happened? How should we think about margins going forward in that business?
spk07: Good morning, Faiza. Thanks for the question. We really like the fire business. It's the only business we're in where you legally have to have it. So there is, I'll call it a double negative, no program market. Everyone is a programmer. But But we are able to cross-sell very well into that market. We're using various technologies that Mike referenced to make sure that we're positioning our partners to be more successful, meaning we use smart truck technology in all of our businesses, and that helps us. But we're getting leverage from our growth, and the growth is attractive. And we think it's – there's certainly – running a business isn't linear, so there will be ebbs and flows. But we like the long-term outlook for the FHIR business. That being said, as you mentioned, we are going through an SAP implementation process. We certainly haven't even implemented at this point, so we haven't seen any benefits just yet, but we're optimistic about how that can help our business over the coming years.
spk09: Maybe I'll add two things to the fire and a little bit of first aid, too. You know, the market opportunity in those businesses is really large. And our expectation, as we've talked about, is that those businesses will continue into the future near that double-digit type of a place. Again, the market opportunity is really large. One last comment on the SAP. We've not started it. And so as we get into that, which is likely going to be more about next fiscal year, we may see a little bit of pressure in the fire segment. Because as you can imagine, when you start to go into an SAP conversion, you don't get benefits overnight. It takes a little bit of time. So we'll have some additional costs in 25 and certainly then setting up really nice benefits into the future for that business.
spk03: Great. Thank you. And then if I could just follow up on the macro environment. You made some comments in response to a previous question around you know, just you're being prudent and, you know, there is some uncertainty. Just given sort of how well you're doing among programmers and, you know, the momentum you're seeing in sort of these other businesses, I'm curious if you can give us a framework in terms of how we should think about the impact of, you know, macro on your business.
spk09: Well, I'll start, Faiza, with... You know, our history has been we grow certainly in multiples of GDP and employment growth, and you hit it. We are able to sell into no programmers. Even when they're not, let's say, adding people, we can take pressure off of them by managing programs for them. So our new business effort is always really good. But certainly, if we see turns in the economy, we've got to adjust potentially. If we see our customers start to reduce their number of people, we've got to adjust. And so it is prudent for us to sort of think about that as we look into our guidance and into the future of the business.
spk31: Understood. Thank you so much.
spk13: And our next question comes from Seth Weber from Wells Fargo. Please go ahead, Seth.
spk15: Hey, good morning and happy holidays, guys. I wanted to just go back to the clean room discussion for a minute. If there's any way to... you know, frame how we should be thinking about that, you know, new facility openings. And are those facilities, you know, higher CapEx relative to a traditional facility? Is there any way to, you know, combine facilities? Or I'm just trying to get a better understanding of this opportunity and what the investment might be for Centos going forward. Thanks.
spk07: Yeah, Seth, thank you for the question. You know, as you know, that's a segment of the uniform market. As I mentioned earlier, it does seem more companies over the last decade or so have higher cleaning quality requirements. So we think there's a tailwind there. As far as the CapEx required for a facility like that, you can think of it as very similar to a uniform facility. The only difference I think that you may want to think about is it serves usually a larger geographic area than we would with a traditional facility. And the reason being is we only have so many of them, and they have to cover the customer base. So as a result of that, we do cover a larger geographic area out of each of those facilities.
spk15: Okay, that's helpful. Is there any way for us to think about how many of these facilities you might be opening over the next couple of years? I saw the press release for the Wisconsin facility, but is this order of magnitude ones and twos, or could this be much bigger going forward?
spk07: Yeah, Seth, you're not going to see ones and twos coming out every quarter or every year based upon the size of the market. So it certainly won't be anywhere near that pace. But it will be based upon the demand from the marketplace. If there's more and more customers that are interested in it, then we'll be prepared to meet that demand.
spk15: Got it. Okay. That's helpful. Thanks. And then maybe just a quick follow-up on the direct. It's nice to see the direct sales business be positive again in the quarter. Is there any color on whether that's coming more from the service side of your customer base, more of the manufacturing side, and any just detailed errors just kind of across the board?
spk07: Good question, Seth. The design collective business, the direct sale portion of it, we've spoken in the past, it's certainly lumpier. And so as far as where that growth is coming from, it's really more national accounts where we would get it, hospitality, lodging. And when they have rollouts or new allotment programs, you tend to get spikes and then And then, so we love the spikes, and then what comes after the spike isn't as good, but I wouldn't think about it as a big growth engine for us.
spk09: Yeah, we typically would say in the low to mid single-digit growth. So this quarter is sort of in line with that expectation.
spk13: And our next question comes from Stephanie Moore from Jefferies. Please go ahead, Stephanie.
spk26: Hi, good morning. Thank you. I wanted to touch a bit on maybe the cross-sell opportunity over time. You know, I think you've provided, you know, you continue to execute very well on your investments, particularly on the technology front, and called out just the enhanced visibility that you have. So maybe you can talk about, given some of these investments, what this might mean for cross-selling, meaning the opportunity to add those additional products. and kind of continue to further penetrate each existing customer. So kind of how are you balancing the incremental products that you can offer over time? Thanks.
spk07: Good morning, Stephanie. Well, you can think about it, you know, we call it cross-sell. There's cross-sell is really, you know, division to division. There's also upsell, which would be, you know, we have products that, you know, our customers don't use all of our products, even within the rental division or the first aid division and what have you. So those are all components of growth for us. And we see a significant, massive, frankly, runway in all those areas. So we're trying to position our employee partners to make sure that they're in the right spot and have the right information to help the customer. And then we're also continually, it's part of our corporate culture, is to invest in new products and new services and We're always working on that, and we get those ideas from those customers, and then we test them, and then we launch them, and we're always working on that. It's always been a component of our growth and always will be.
spk18: Thank you. Appreciate it.
spk17: Thank you.
spk13: And our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead, Scott.
spk27: Thanks. Good morning, everyone. Happy holidays. My first one, I'm going to delve into the SG&A running low double digits growth, something you did last year as well. And you cited investment in selling resources, management training program, tech, and also some talent acquisition efforts. Just curious, and you guys have said on this call, labor is getting better but still a little tougher. Could you elaborate on the labor aspect and kind of what you guys are doing, pushing the selling, and then also curious about the tech aspect. Maybe you've already covered it in the call, if that's what you meant, but just wondering if there's anything extra there. Thanks.
spk07: Yeah, good morning, Scott. The items that you mentioned, they're all really important to us. There's not one that I would call out, but I would think about it this way. We think the future is really bright, and we want to invest for the future. We know we need... the talent acquisition team to be attracting the very best talent. The management trainee program is our leaders of the future. And we think they are a critical pipeline and we're gonna need those leaders. And then the selling resources are – we see – it looks – we think the future is bright with our – how many customers we have, what the size of the market is. I mentioned 1 million customers, but 16 million businesses. So that's all great. And then you kind of wrap it all with technology because – technology will we want to make it easier to do business with us and we want to leverage technology to make our partners more successful point them in the right direction give them the right tools in their toolbox to to spend their time in the right spots but also to to make it easier for the customer to buy easier to do business with in totality
spk27: Great, thanks. Appreciate that. And then not a lot of acquisition activity in the quarter, but there was some, and there was a good amount in the first quarter. I remember you saying it was across all businesses, but we didn't hit it up too much last quarter. Could you talk about what it is that you're acquiring and, you know, clearly across segments, but what the strategies have been there? Thanks.
spk09: Sure, not a lot of change in the strategy, Scott, and that is we love rental tuck-in opportunities, and we've made a number of those this year. And as you can imagine, when we do that in a marketplace, we add immediate capacity utilization improvement, route density, and so those things really help us in the rental business. So we've made some of those. We certainly have made some first aid. acquisitions, and we've made FIRE acquisitions. Again, the dynamic is similar in all three of these. These are really nice tuck-in opportunities that just strengthen our business in the local markets in which we acquire them, and we'll continue to look for those opportunities as best we can.
spk07: One thing I might add is, to Mike's point, we get synergies. It helps us with density, helps us with capacity utilization, allows us to spend more time with the customers. So all that's valuable. But in each of the businesses, depending upon the business we acquire, But normally, when we make an acquisition in rental, first aid, or fire, we're able to provide an offering to that customer base that's broader than what they had in the past. So the rental, we have a broader offering than most companies out there. Certainly in the first aid, we do as well. And depending upon the fire acquisition, that's very consistent. Separate from, then we can cross-sell. So it just adds nice value.
spk13: And our next question comes from Shlomo Rosenbaum from Stiefel.
spk17: Please go ahead, Shlomo. Well, Shlomo, is your line muted?
spk10: Sorry, my line was muted. Sorry. This is a question basically for Mike, just a little bit going through, you know, some of the technical items in the quarter. Receivables days were up two days sequentially. I was wondering if there was a lot of business that came in at the end of the quarter. Are you seeing any changing patterns in what clients are paying or any other factors in that? Because the last time we saw 48 days was during COVID.
spk09: Shlomo, you know, when our quarters end on a holiday, and it seems like too many of them do, It does create a little bit of disruption in terms of the ability to collect the mail, the application. We have seen maybe just a touch of slowing in the AR, but we've not seen any, I'll say, deterioration from the standpoint of additional write-offs. But we did see a little bit of slowing, and the Thanksgiving holiday can usually contribute to that.
spk10: Okay. And in the OPM, the operating margin, the other unit was up very nicely sequentially, even though there's one less day sequentially in the quarter. Could you just give us some of the mechanics or tell us just what's going on on the ground over there? It's increasing the margin very nicely. And, you know, is that something that we should expect to continue at kind of that 16% level?
spk09: Well, certainly the revenue growth is powerful in all of our businesses, and when we see some really nice revenue growth, that's important. The other thing that I would say is, you know, the uniform direct sale business went from a negative 2.7 in terms of revenue growth to 4.7%. And that is important for operating margins, too. So we did see some nice improvement there in the direct sale. Nothing, I would say, that is noteworthy other than, again, some nice acceleration in the revenues.
spk17: And our next question comes from Leo Carrington from Citigroup.
spk13: Please go ahead, Leo. Thank you, and morning.
spk21: If I could ask a follow-up on that point around the one-off or the costs that you called out in Q2 around talent acquisition, training, technology. Were you calling them out because any of these are one-off increases in nature or more to highlight where the spend is? And then in terms of the underlying margins and drop through in Q2 for new organic growth. Do you see that as sustainable when you factor in the additional investment this quarter?
spk09: Well, I'll start with we called them out because we think it's important to make sure that our investors understand that we are looking at the long term, and we want to continue to invest in the business. And those investments are really important, and they set up, let's say, more penetration opportunities, more cross-sell opportunities, but also productivity improvements, capacity utilization opportunities. In these cases, we wanted to call them out to to show that, look, we're focused on the long term, and we're going to continue in the business. As Todd said a couple times, the future is bright for us, and we want to make sure that we take advantage of that bright future by investing in the business. And the call-outs were really more about that. The future is bright. In the quarter... We had incremental margins of 27%. Look, our expectation is that we're going to be in the 20% to 30% range going forward. We recognize that when we're sitting at 21%, they need to be in the higher level of that range. And we think that we can continue to do that. And when we talk about things like SAP and technology and other investments, and by the way, we're able to get 27% even when we're investing in the business. But we give those to say we're setting up those future margin and revenue opportunities. It's important for us to, I think, communicate that.
spk17: Okay, thank you.
spk13: And our next question comes from Tony Kaplan from Morgan Stanley. Please go ahead, Tony.
spk23: Thanks very much. You mentioned the success that you've had with the branded products earlier, particularly with Carhartt and ChefWorks. Could you just remind us if these are exclusive relationships and how long the relationships are for? And then are there any other areas that could benefit from branded products or equipment? that you could offer as well.
spk07: Good morning, Tony. Thank you for the question. So we've had a longstanding relationship with Carhartt and ChefWorks, and we are the exclusive licensees for those folks, for those companies on the rental programs. And so we work with them to design products that the end users want want to wear, but also that goes very well through our processing systems. So that's all very important to us as far as we don't get into contractual arrangements with them, but I can tell you this. We love products that our end users get excited about wearing them, and Carhartt and ChefWorks are two great examples of that. in great companies, great brands, great products. And as far as are there other opportunities, we're constantly looking for that. And we spend a lot of time with our customers and with our working partners to talk about that and to see where those opportunities come from. But those are two great relationships, longstanding relationships that are really important to us.
spk23: Yep, terrific. And maybe if you could just give us your latest thoughts on potential international expansion. That'd be great, thanks.
spk07: I'd say similar to products, we're always looking at those types of opportunities. We certainly know, stay in contact with the people that are running those businesses. But the great news is we don't have to do that in order to be really, really successful in the future. We look at it and say there's, again, we're servicing about 1 million businesses. There's 16 million businesses in the U.S. and Canada. Here's what's really exciting is by the time we get to 2 million customers, there will be more than 16 million businesses in the U.S. and Canada. So that's kind of a bummer if you're running a race, but it's really exciting if you're running a business because once we get to the two-mile mark, the race is going to be extended. So that's separate from we're going to have more products and services over the coming years. So all that being said is we continue to watch it. We evaluate it. We look for the right opportunity. And if that opportunity presents itself, then we will seize it. But it's certainly not – It's not required in order for us to be successful in the future.
spk13: And at this time, there are no further questions. I'd like to turn the call back over to Jared Mattingly to close out the call.
spk08: Thank you for joining us this morning. We will issue our third quarter of fiscal 24 financial results in March. We look forward to speaking with you again at that time.
spk13: This concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you. you Thank you. Thank you. Thank you. Good day, everyone, and welcome to the Sintas Corporation announces fiscal 2024 second quarter earnings release conference call. Today's call is being recorded. At this time, I would like to turn the meeting over to Mr. Jared Mattingly, Vice President, Treasurer, and Investor Relations. Please go ahead, sir.
spk08: Thank you for joining us. With me is Todd Schneider, President and Chief Executive Officer, and Mike Hansen, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2024 second quarter results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a 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. 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 discussions on these points contained in our most recent filings with the Securities and Exchange Commission. I'll now turn the call over to Todd.
spk07: Thank you, Jared. We are pleased with our second quarter results and are excited about the future. Second quarter total revenue grew 9.3% to $2.38 billion. Each of our businesses continue to execute at a high level. Our momentum in the business is good and volume remains robust. We can grow in a number of different ways. Contribution to our growth from new business remains strong and comes from companies that either outsource their program today or they are managing it themselves. We continue to have great success cross-selling to existing customers. Retention levels are strong and remain at very attractive levels. Our value proposition of image, safety, cleanliness, and compliance continues to resonate across businesses of all sizes and in all verticals. We continue to be pleased with results from our focus on prospects within the verticals of healthcare, hospitality, education, and state and local government. We recently announced the opening of two clean room facilities one in North Carolina and the other in Wisconsin. These facilities will provide additional capacity in these regions in order to expand our efforts in this area of attractive growth from pharmaceutical and biotechnology companies. The benefits of our strong volume growth and revenue flow through to our bottom line. Gross margin for the second quarter grew 11.6%. And operating income grew 12.3%. Diluted EPS grew 15.7% to $3.61. Cash flow remained strong. Net cash provided by operating activities in the second quarter grew 17.8% over the prior year. Our strong cash flow gives us flexibility to choose how we deploy our capital. In the second quarter, we continued to invest in our businesses. We also acquired several smaller businesses. On December 15th, we paid shareholders $137.5 million in quarterly dividends, an increase of 17.1% from the amount paid the previous December. During the second quarter, we also purchased $320.3 million of Cintas Common Stock under our buyback program. I would like to thank our employees, whom we call partners, for their continued focus on our customers, our shareholders, and each other. Now, before turning the call over to Mike to provide details of our second quarter results, I'll provide our updated financial expectations for our fiscal year. We are increasing our financial guidance. We are raising our annual revenue expectations from a range of $9.4 billion to $9.52 billion to a range of $9.48 billion to $9.56 billion, a total growth rate of 7.5 to 8.4%. Also, we are raising our annual diluted EPS expectations from a range of $14 to $14.45 to a range of $14.35 to $14.65, a growth rate of 10.5 to 12.8%. Mike? Thanks, Todd, and good morning. Our fiscal 2024 second quarter revenue was $2.38 billion compared to $2.1 billion last year.
spk09: the organic revenue growth rate adjusted for acquisitions and foreign currency exchange rate fluctuations was 9%. Organic growth by business was 7.9% for uniform rental and facility services, 12.7% for first aid and safety services, 17.8% for fire protection services, and 4.7% for uniform direct sale. Gross margin for the second quarter of fiscal 24 was $1.14 billion compared to $1.02 billion last year, an increase of 11.6%. Gross margin as a percent of revenue was 48% for the second quarter of fiscal 24 compared to 47% last year, an increase of 100 basis points. Strong volume growth and continued operational efficiencies helped generate this strong gross margin. Gross margin percentage by business was 47.4% for uniform rental and facility services, 54.5% for first aid and safety services, 48.6% for fire protection services, and 40.9% for uniform direct sale. Gross margin for the uniform rental and facility services segment increased 40 basis points from last year. We continue to leverage our strong revenue growth and extract inefficiencies out of the business in order to expand margins. Our year-over-year improvements are no accident. Our Six Sigma and engineering teams have helped us create efficiencies in the plant to allow us to maximize the utilization of our equipment, labor, and energy. Our smart truck technology allows us to improve our route efficiencies and provide density to our existing routes. While energy expenses comprised of gasoline, Natural gas and electricity were a tailwind of 40 basis points from last year. Please keep in mind that some of the energy benefit is the result of efficiencies just mentioned. As an example, our rental revenue grew organically at 7.9%, but we only added 1% to our route structure since last year. Gross margin for the first aid and safety services segment increased 400 basis points from last year. Our revenue growth is strong, and our value proposition continues to resonate in this segment. Health and safety of employees remains top of mind. Our mix of revenue continues to be healthy, including growing high-margin recurring revenue products like AED rentals, eyewash stations, and water break. We continue to use technology like SmartTruck to optimize our routes and improve efficiencies. And our first aid dedicated distribution center allows us to lower product costs. All of these contribute to our improved margins. Selling and administrative expenses grew $64.4 million, or 11.1% over last year. Strong revenue growth creates leverage, which allows us to invest in the business. We continue to invest in our people, adding selling resources, investing in our management training program to develop future leaders, and expanding our talent acquisition efforts. Operating income of $499.7 million compared to $444.9 million last year. Operating income as a percent of revenue was 21% in the second quarter of fiscal 24 compared to 20.5% in last year's second quarter, an increase of 50 basis points. Our effective tax rate for the second quarter was 20.9% compared to 22.1% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the second quarter was $374.6 million, compared to $324.3 million last year. This year's second quarter diluted EPS of $3.61, compared to $3.12 last year. an increase of 15.7%. Todd provided our annual financial guidance. Related to the guidance, please note the following. Fiscal 24 interest expense is expected to be $100 million compared to $109.5 million in fiscal 23, predominantly as a result of less variable rate debt. Our fiscal 24 effective tax rate is expected to be 21.3%. This compares to a rate of 20.4% in fiscal 23. The higher effective tax rate negatively impacts fiscal 24 EPS guidance by about 16 cents and diluted EPS growth by about 120 basis points. Our financial guidance does not include the impact of any future share buybacks. And guidance includes the impact of having one more workday in fiscal 23 compared to fiscal, I'm sorry, fiscal 24 compared to fiscal 23. This extra workday comes in our fiscal third quarter. I'll turn it back to Jared.
spk08: Thanks, Mike. That concludes our prepared remarks. Now we are happy to answer questions from the analysts. Please ask just one question and a single follow-up if needed. Thank you.
spk13: If you would like to ask a question, please press star 1 on your telephone keypad now. Please be prepared to ask your question when prompted. You will be allowed to ask one question and one follow-up question. Once again, if you would like to ask a question, please press star 1 on your phone now. And our first question comes from Ashish Sabhadra from RBC. Please go ahead, Ashish.
spk24: Thanks for taking my question. Just on the four verticals that you highlighted as areas of strength in particular, I was wondering if you can quantify how big the combined revenues are from those verticals and how does the growth profile there compare to the company average? Any color. Thanks.
spk07: Good morning, Ashish. This is Todd. Thanks for the question. I don't have a specific number for you as far as that exact number, but I can tell you that our verticals are performing quite well. We're having really good success. Our focus around not just selling, but organizing around those is really paying off for us. I've just got a couple wins I can share with you regarding the verticals. In healthcare, in the acute space, we're having good success and non-acute as well. We've got a scrub rental program to a big hospital network in South Carolina. that is benefiting from a new consistent image, but also identification. The customer told us that they were interested in being able to, pardon me, identify their people, understanding who was supposed to be in what area, and this new scroll program did that. We had a really similar experience with a nursing home in Virginia. Same thing, they were buying their own, but the leadership wanted to be able to identify and have a consistent image with their people. We had a, on the acute side again, a hospital in Florida that we rolled out a new microfiber program because they were struggling with inventory control and product quality, which led to cleanliness concerns. And our program offered some great products, technology to control the inventory, which allowed them to focus more on their patients instead of having to fool around with trying to manage the microfiber. Excuse me. And I've got a couple other examples I thought might be helpful for the group. In our government sector, we just recently rolled out a first aid and AED rental program to a public library system in California, which you wouldn't think of a public library system as being a great prospect for us, but it is. They realized that the value it would bring to their employees is and being prepared with the AEDs in case it was needed because the public's in their locations. And then lastly, I'll just share with you a little bit on education, a variety of wins there. We had a chemistry department at a nice size university in Virginia. They put all their educators and students in a lab coat program. Maintenance department at a university in California. put all their people in Carhartt uniforms, a rental program from us. They love the Carhartt. And then the last item would be there was a dining facility at a university in Arizona where they put all their culinary people in ChefWorks, which is a big win for those folks. You know, the branded programs with Carhartt and ChefWorks were big wins. So I don't want to belabor it, but I thought I would just share a few wins because I know verticals are of interest to yourself, Ashish, but also plenty of other folks on the call.
spk09: Yeah, the only other thing I might add is, as Todd just talked about, we have so many ways to win and clearly – those verticals are growing faster than the average. So we still are seeing really good momentum in each of those.
spk24: That's a great color, and thanks for sharing those events. It does provide a lot more clarity on those verticals. And if I can ask a quick follow-up, I was just wondering if you could share any update on your technology, the SmartTrip program, and particularly the partnership with Google, Verizon, and SAP. Any updates on that front? Thanks.
spk07: Certainly. You know, I think one of the things we have around here is we don't make money when the wheels are moving. We make money when the wheels stop. And so the way Mike described it, in total for our company, we grew revenues over 9%, but we only added 1% to our route structure in total. So that means we're spending more time with the customer, less time driving, which is better for our customers, better for our partners, and better for Cintas. So we're pleased with that. Our technology, and we still have plenty of room to go there. We're focused on bringing those efficiencies, extracting out the inefficiencies in our business. We sent out a note, a press release regarding our migration this quarter to the Google Cloud. That has been very successful for us. There's a number of benefits that we get from moving from a server farm to the Google Cloud. The first one is it's more secure, so very important to us. Second item is over time, we believe that'll be more cost effective for us. And the third is it gives us access to Google's AI platform. So certainly in the very, very early innings, we just migrated, but we think that that will be able to help us longer term. in making it more attractive, making it easier to do business with CentOS, making sure that we are positioning our people to be successful, to point them in the right direction, and leverage those types of tools.
spk13: And our next question comes from Manav Patnik from Barclays Capital. Please go ahead, Manav.
spk22: Thank you. Todd, just to follow up, you know, on all the wins and contracts you talked about, maybe, you know, I guess the question is more around the competitive environment versus is this just, you know, first-time outsourcers? Any trends, any changes you're seeing, you know, from that front, you know, the new business percentage you called out before, but whether that's more market share or just first-time outsourcing?
spk07: Good morning, Manav. Great question. You know, as Mike said, we win in many ways. We have been selling no programmers since the inception of my career, I can tell you that. And we continue to. And I'll just remind you, there's We service a little over a million businesses, but there's 16 million businesses in the U.S. and Canada. So there's plenty of opportunity there. And we like both. We certainly win some from the competitors. We like growing the pie. And in the examples I was giving, it's a mix, but in large part it is They were either doing it in-house, meaning they were processing microfibers in-house, or they were telling their employees to go buy product. So there's different variations of no programmers, meaning some were buying products and providing to their people and telling them to wear them. They were just telling them to show up to work and look good. But nevertheless, we bring so much better consistent program identification, cleanliness, all these, and compliance are big drivers for our customers.
spk22: Got it. And then just on the capital allocation front, I mean, the buyback number, you know, one of the bigger quarters for a while now, I mean, is that Any indication of the M&A markets slowing down or just how we should think about that balance there?
spk09: Manav, no change in what we're seeing in M&A. Still, we're working the pipeline as best we can. We've made some nice acquisitions this year. From a buyback perspective, you've heard us speak to it being an opportunistic execution. And that's what you saw this quarter. As we think back about our first quarter results, and we thought they were pretty good. The stock reacted a little bit negatively, and we saw that as a nice opportunity, and we took advantage of it. So it was a good example during the quarter of an opportunistic execution of that buyback program. And the beauty, Manav, as we speak about our capital allocation, We don't always have to choose in the quarter or maybe let's call it for the year, we've invested in the business as we've talked about. Our CapEx is up, which is important to us as a part of that investment. M&A is up from last year. Dividends are up 17% from last year. And we've been able to execute on the buyback program. So when you hear us talk about sort of the four levers of capital allocation, We've done them all, I think, nicely this year. And, again, the beauty of our cash flow and our balance sheet is we don't really have to choose.
spk07: Mike, I would just add that we think we're being really good fiduciaries of our shareholders' investments. Mike mentioned all the levers. And the net of that is we still have great dry powder, which allows us to – to take on M&A of all shapes and sizes, and we're interested in that.
spk13: And our next question comes from Joshua Chan from UBS.
spk20: Please go ahead, Joshua. Hi, good morning. Thanks for taking my questions. So, Todd, you mentioned the opening of the clean rooms. I was just wondering if you can kind of frame for us what you see as the attractive parts of this business, how is it attractive, and and what kind of opportunity does it mean for Cintas going forward in the clean rooms?
spk07: Thanks for the question, Josh. Yeah, the clean room business is an attractive sector for us. I mentioned pharmaceutical and biotechnology companies, and it seems like there's more and more every year that need that level of cleaning, that level of cleanliness. So we think that bodes well for that business in the future. And, you know, there has been – you've seen some momentum on shoring in that area. And we want to make sure that we have the appropriate capacity to serve our current customers and that we're prepared for the future as well. So we like the trends in that business, and we like the business.
spk20: Great. Thank you for the color there, Todd. And, in fact, if I can follow up with the margin question here. I guess if in the future the energy favorability were to lessen, could you talk to the opportunities that you still have to drive margin expansion and the targeted incremental margins going forward without as much energy tailwind?
spk07: Yeah, great question. Yeah, so we recognize that energy prices go up and they go down. But one thing that's going to be consistent is we're going to be focused on extracting out inefficiencies in our route structure and in our production facilities. So that will be really important to us. And We think there's certainly ample opportunity there still to go. We've talked about the smart truck technology. That's been impactful to us in many ways. But what's also impactful is, as Mike mentioned, our Six Sigma team of professionals, our engineering professionals, and then layering in with that technology allows us to have a centralized visibility into our operations at a level that we've never had before. in the history of the company, this technology allows us. And it allows us to maximize our labor, our equipment, ultimately our energy spend. And we're focused on extracting out those inefficiencies so that we can manage it moving forward. We love when energy costs go down, but we recognize those markets will move, but we're going to be focused on extracting out those inefficiencies.
spk13: And our next question comes from Heather Balsky from Bank of America. Please go ahead, Heather.
spk19: Hi. Sorry about that.
spk28: Thank you for taking my question. First question with regards to the programmers and non-programmers, as we're further and further out from the COVID period, are you still seeing the shift in demand in terms of more non-programmers looking to outsource or do you think it's starting to normalize back to pre-COVID trends?
spk07: Well, Heather, it's a great question. I'll start. Mike, feel free to chime in. We're, you know, There's various reasons why a prospect would turn into a customer, going from a new programmer to a customer. One of them is, hey, we'd like to outsource it because we're not very good at it or we're struggling to staff and we're struggling to find people to manage this. So that still continues. But there are other reasons. It might be we don't like the image that we're portraying. We don't like the lack of identification. We don't like the lack of compliance. You can provide them, and we know that they're hygienically cleaned. So there's many different motives. One of it might be, hey, we can't staff, and we need help. And we still see that, frankly, and it allows our customers to focus on what's most important to them, taking care of their customers, their patients, their guests, whatever it is, instead of having to manage through these various programs.
spk09: Heather, the no programmers is still, we get more than 60% of our new business comes from no programmers. Your reference to the pandemic might be, we did certainly in the early days, of the pandemic see an increase in personal protective equipment and things like hand sanitizer, those have normalized back to what we would call normal and ongoing levels.
spk17: So that might be the only change that we had and back to normal.
spk19: Thanks. Thank you.
spk28: And then on the margin front, we're just kind of curious when you think about, you talked earlier about opportunities for efficiencies and further root productivities. When you think about the source of those savings, how much are just organic, your Six Sigma effort, how much is coming from your SAP, and are there still G and K opportunities that you're kind of benefiting from? Thanks.
spk07: Heather it's a good question you know we don't really discern the difference between our Six Sigma team our engineering team and our technologies they all have to work be orchestrated appropriately to get the efficiencies so and that's exactly what we're doing so everybody has to be involved And that's what produces the great results. As for G&K, we've now, I think, about six and a half years since we acquired, if my math is correct. So I wouldn't say that there's anything left on the bone there.
spk13: And our next question comes from Andy Whitman from RW Baird. Please go ahead, Andy.
spk29: Yeah, great. Thanks. Good morning and thank you for taking my questions. I guess I just wanted to ask on the outlook a little bit here, Mike. The second half total revenue guidance is in the 7% range at the midpoint against an organic 9% quarter here. So a degree of deceleration, I guess that was implicit in your previous guidance as well, but just thought maybe give you a chance to elaborate a little bit more on that, talk about what you're seeing in the macro if that's just you guys being kind of your normal prudent approach or if there's something that we should be considering.
spk09: Andy, I'd lead with it's our normal prudent approach. And when you think about where we are, we've talked a little bit already about the growth is still good, momentum is good. And so we like where the business is going. The range for the back half of the year That certainly does imply a little bit over 7% at the midpoint, a little over 8% at the high point. We like that range. The cadence is good for us, as you know. But, you know, look, as we look into calendar 24, there's certainly – is a little bit of uncertainty as to what the new economy may bring, what the Fed movements may bring. And so we think it is wise to be prudent as we look out.
spk17: Great. That's my only question for today. Have a Merry Christmas, guys. Thank you. Thank you, Andy.
spk13: And our next question comes from George Tong from Goldman Sachs. Please go ahead, George.
spk16: Hi, thanks. Good morning. Earlier you mentioned that business momentum was good, volumes were robust in the quarter. Can you provide more color on overall customer budget trends and customer sentiment and any changes that you might be seeing in the sales cycle?
spk07: Good morning, George. Forward-looking, as Mike said, there's always – we're not trying to prognosticate exactly how our customers will react to the turning of the calendar year. But we're not seeing any change in sales cycles, and we haven't seen a change in our – and our customer base and how they're reacting to what's going on in the marketplace. So it's kind of business has been consistent, and it's more what Mike referred to the turn of the calendar year, and we'll see how businesses react coming out of the holidays.
spk16: Got it. That's helpful. And also you mentioned cross-selling was good in the quarter. Can you elaborate more on cross-selling and trends that you're seeing and which areas you're seeing most amount of bundling or upsell, cross-sell from?
spk07: Yeah, George, cross-sell is an important component of our growth. And, you know, the nature of it is we're having good success across all of our areas of our business. You know, we're blessed to be in a position where our customers, fortunately, they really like us. They like our relationships. We have people in their businesses on a really frequent basis, mostly on a weekly basis. So that means we have eyes, ears, and minds in their business. and we can help. It doesn't matter to us what a customer might lead with, whatever they're interested in, but then we will quickly pivot and we can help them in many ways. But just the nature of the size of the rental division, is such that because there are so many customers there, there's plenty of opportunity for our first aid and fire business to cross out into that just because of the numbers there. But nevertheless, it's working quite well across all of our organization. We share leads, we share thoughts, and we make sure that the customer is well taken care of.
spk13: And our next question comes from Tim Mulrooney from William Blair. Please go ahead, Tim.
spk14: Yeah, good morning. I just wanted to ask one question. You know, pricing now normalized back to the 2% range. I mean, that means your organic growth was comprised of approximately seven points of volume. I was just hoping you could dig into that a little bit more, because it was a little stronger than I think most of us were expecting. Did you see... An uptick in retention? Did you have a strong quarter with that cross-sell or maybe new account growth? Any details would be helpful.
spk07: Yeah, good morning, Tim. So our new business is robust. As I mentioned, retention levels are very good, and our cross-sell is very good. And the pricing is still lower than last year. It is higher than historical, but it's certainly getting much closer to historical. So when you think about that, our various inputs to growth are all performing well, and we expect that to continue.
spk09: And as we talked, we went in a lot of ways, and the momentum in the rental business is still really good, but we also saw in the quarter some really nice acceleration in first aid and safety from 11% in the first quarter to 12.7% organically in the second quarter. And we saw some nice improvement in fire, where we went from a little over 14% in the first quarter to 17.8 in the second quarter. So we just see some really good momentum in all of our businesses, and particularly those two had some really nice performance in the second quarter.
spk14: Yeah, I did notice that reacceleration across both those businesses. That's helpful color. Thanks, guys. Happy holidays.
spk05: Thank you, Tim. You as well.
spk13: And our next question comes from Andrew Steinerman from JPMorgan Securities. Please go ahead, Andrew.
spk12: Hi. Could you just mention if your ad stops directionally in the uniform rental business was up, down, or flat recently?
spk07: Good morning, Andrew. Our ad stop metrics have been pretty consistent. We haven't seen much of a change in our customer base. And so I'd say that's how I would describe it. You know, we see still positive trends in our ad stop metrics, but that's pretty consistent as it has been for the last six to 12 months.
spk30: Okay. Thank you very much. Yes, sir. Thank you.
spk13: And our next question comes from Jasper Bibb from Truist Securities. Please go ahead, Jasper.
spk11: Hey, good morning, guys. You mentioned the year-on-year tailwind from energy, but was just hoping to get some additional color on other cost inputs, I guess specifically labor and materials.
spk07: Yeah, I'll start. Jasper, good morning. You know, we're seeing, just like you're seeing with inflation in total, we're seeing that come down. It's never coming down as fast as we like, but we are seeing it. You know, cotton is stabilized. We're seeing freight come down, and that's important to us. And the labor market is easier. It's still not easy, but it is easier. So I think that probably the right way to think about it would be, you know, as the labor market eases, and that will lessen pressure on wage growth as well.
spk17: Thanks.
spk11: And then I wanted to follow up on first aid. Operating margins there were really strong in the first half. Should we think about these like low 20% levels as sustainable going forward? And would you say there's anything that's changed there that's unlocked another leg of operating margin expansion here today?
spk09: Sure. Jasper, we have seen some nice performance in that business. And I spoke to a few of them where from a margin perspective, first of all, The value that we sell with, nothing's more important than the health and safety of your employees, is really still resonating well. And so our growth has been really good in that business. We talked a little bit in the opening comments about sort of the recurring revenue streams of AED rentals, our eyewash stations, and our water break. And these have been great businesses for us. The growth has been really good. And the margins are great for us. Many times these are add-on products to existing customers. But in all three of them, we install, and then we have a recurring service program that goes on after that. And, again, it leads to really nice stickiness and also nice margins. The other thing that I'll point out is we opened a first aid and safety distribution center a couple years ago, and that allows us to source more. It allows us to centralize some of our sourcing, and those kind of things lead to a better product cost. And that, again, drives down the material cost in our first aid and safety business. So the combination of really good sales mix, really good growth in the business, good sourcing, the one I didn't mention was smart truck technology that is also having a benefit there. All of those things are contributing. And so this is not a case of six months of sort of unusual items. This is This is a little bit of a lot of hard work and execution by our first aid and safety partners to really get this margin going.
spk17: Very helpful. Thanks for taking the questions.
spk13: And our next question comes from Faiza Aoui from Deutsche Bank Securities. Please go ahead, Faiza.
spk02: Yes, hi. Thank you, Saul.
spk03: So I wanted to follow up on both the first aid business and the fire business. You touched on the first aid a little bit, but curious on what's driving the acceleration, if you could expand on that, both on first aid and fire. And then as we think about your outlook, do you expect this level of growth to sustain looking ahead? And I know in fire you talked about an SAP implementation that was happening in this fiscal year. So maybe is that helping the top line? Has that happened? How should we think about margins going forward in that business?
spk07: Good morning, Faiza. Thanks for the question. We really like the fire business. It's the only business we're in where you legally have to have it. So there is, I'll call it a double negative, no program market. Everyone is a programmer. But But we are able to cross-sell very well into that market. We're using various technologies that Mike referenced to make sure that we're positioning our partners to be more successful, meaning we use smart truck technology in all of our businesses, and that helps us. But we're getting leverage from our growth, and the growth is attractive. And, you know, we think it's, you know, there's certainly, you know, running a business isn't linear, so there will be ebbs and flows. But we like the long-term outlook for the FIRE business. That being said, as you mentioned, we are going through an SAP implementation process. We certainly haven't even implemented at this point, so we haven't seen any benefits just yet, but we're optimistic about how that can help our business over the coming years.
spk09: Maybe I'll add two things to the fire and a little bit of first aid, too. You know, the market opportunity in those businesses is really large. And our expectation, as we've talked about, is that those businesses will continue into the future near that double-digit type of a place. Again, the market opportunity is really large. One last comment on the SAP. We've not started it. And so as we get into that, which is likely going to be more about next fiscal year, we may see a little bit of pressure in the fire segment. Because as you can imagine, when you start to go into an SAP conversion, you don't get benefits overnight. It takes a little bit of time. So we'll have some additional costs in 25, and certainly then setting up really nice benefits into the future for that business.
spk03: Great, thank you. And then if I could just follow up on the macro environment. You made some comments in response to a previous question around you know, just you're being prudent and, you know, there is some uncertainty. Just given sort of how well you're doing among programmers and, you know, the momentum you're seeing in sort of these other businesses, I'm curious if you can give us a framework in terms of how we should think about the impact of, you know, macro on your business.
spk09: Well, I'll start, Faiza, with... You know, our history has been we grow certainly in multiples of GDP and employment growth, and you hit it. We are able to sell into no programmers. Even when they're not, let's say, adding people, we can take pressure off of them by managing programs for them. So our new business effort is always really good. But certainly, if we see turns in the economy, we've got to adjust potentially. If we see our customers start to reduce their number of people, we've got to adjust. And so it is prudent for us to sort of think about that as we look into our guidance and into the future of the business.
spk31: Understood. Thank you so much.
spk13: And our next question comes from Seth Weber from Wells Fargo. Please go ahead, Seth.
spk15: Hey, good morning and happy holidays, guys. I wanted to just go back to the clean room discussion for a minute. If there's any way to... you know, frame how we should be thinking about that, you know, new facility openings. And are those facilities, you know, higher CapEx relative to a traditional facility? Is there any way to, you know, combine facilities? Or I'm just trying to get a better understanding of this opportunity and what the investment might be for Centos going forward. Thanks.
spk07: Yeah, Seth, thank you for the question. As you know, that's a segment of the uniform market. As I mentioned earlier, it does seem more companies over the last decade or so have higher cleaning quality requirements. So we think there's a tailwind there. As far as the CapEx required for a facility like that, you can think of it as very similar to a uniform facility. The only difference I think that you may want to think about is it serves usually a larger geographic area than we would with a traditional facility. And the reason being is we only have so many of them, and they have to cover the customer base. So as a result of that, we do cover a larger geographic area out of each of those facilities.
spk15: Okay, that's helpful. Is there any way for us to think about how many of these facilities you might be opening over the next couple of years? I saw the press release for the Wisconsin facility, but is this order of magnitude ones and twos, or could this be much bigger going forward?
spk07: Yeah, Seth, you're not going to see ones and twos coming out every quarter or every year based upon the size of the market. So it certainly won't be anywhere near that pace. But it will be based upon the demand from the marketplace. If there's more and more customers that are interested in it, then we'll be prepared to meet that demand.
spk15: Got it. Okay. That's helpful. Thanks. And then maybe just a quick follow-up on the direct. It's nice to see the direct sales business be positive again in the quarter. Is there any color on whether that's coming more from the service side of your customer base, more of the manufacturing side, and any just detailed errors just kind of across the board?
spk07: Good question, Seth. The design collective business, the direct sale portion of it, we've spoken in the past, it's certainly lumpier. And so as far as where that growth is coming from, it's really more national accounts where we would get it, hospitality, lodging. And when they have rollouts or new allotment programs, you tend to get spikes and then And then, so we love the spikes, and then what comes after the spike isn't as good. But I wouldn't think about it as a big growth engine for us.
spk09: Yeah, we typically would say in the low to mid single-digit growth. So this quarter is sort of right in line with that expectation.
spk13: And our next question comes from Stephanie Moore from Jefferies. Please go ahead, Stephanie.
spk26: Hi, good morning. Thank you. I wanted to touch a bit on maybe the cross-sell opportunity over time. You know, I think you've provided, you know, you continue to execute very well on your investments, particularly on the technology front and called out just the enhanced visibility that you have. So maybe you can talk about, given some of these investments, what this might mean for cross-selling, meaning the opportunity to add those additional products. and kind of continue to further penetrate each existing customer. So kind of how are you balancing the incremental products that you can offer over time? Thanks.
spk07: Good morning, Stephanie. Well, you can think about it, you know, we call it cross-sell. There's cross-sell is really, you know, division to division. There's also upsell, which would be, you know, we have products that, you know, our customers don't use all of our products, even within the rental division or the first aid division and what have you. So those are all components of growth for us. And we see a significant, massive, frankly, runway in all those areas so so we're trying to position our our employee partners to to make sure that they're in the right spot and have the right information to help the customer and then we're also continually it's part of our corporate culture is to to invest in new products and new services and We're always working on that, and we get those ideas from those customers, and then we test them, and then we launch them, and we're always working on that. It's always been a component of our growth and always will be.
spk18: Thank you. Appreciate it.
spk17: Thank you.
spk13: And our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead, Scott.
spk27: Thanks. Good morning, everyone. Happy holidays. My first one, I'm going to delve into the SG&A running low double digits growth, something you did last year as well. And you cited investment in selling resources, management training program, tech, and also some talent acquisition efforts. Just curious, and you guys have said on this call, labor is getting better but still a little tougher. Could you elaborate on the labor aspect and kind of what you guys are doing, pushing the selling, and then also curious about the tech aspect. Maybe you've already covered it in the call, if that's what you meant, but just wondering if there's anything extra there. Thanks.
spk07: Yeah, good morning, Scott. The items that you mentioned, they're all really important to us. There's not one that I would call out, but I would think about it this way. We think the future is really bright, and we want to invest for the future. We know we need... the talent acquisition team to be attracting the very best talent. The management trainee program is our leaders of the future and we think they are a critical pipeline and we're gonna need those leaders. And then the selling resources, we think the future is bright with how many customers we have, what the size of the market is. I mentioned 1 million customers, but 16 million businesses. So that's all great. And then you kind of wrap it all with technology. Technology, we want to make it easier to do business with us, and we want to leverage technology to make our partners more successful, point them in the right direction, give them the right tools in their toolbox to spend their time in the right spots, but also to make it easier for the customer to buy, easier to do business with in totality.
spk27: Great, thanks. Appreciate that. And then not a lot of acquisition activity in the quarter, but there was some, and there was a good amount in the first quarter. I remember you saying it was across all businesses, but we didn't hit it up too much last quarter. Could you talk about what it is that you're acquiring, and clearly across segments, but what the strategies have been there? Thanks.
spk09: Sure, not a lot of change in the strategy, Scott, and that is we love rental tuck-in opportunities, and we've made a number of those this year. And as you can imagine, when we do that in a marketplace, we add immediate capacity utilization improvement, route density, and so those things really help us in the rental business. So we've made some of those. We certainly have made some first aid. acquisitions, and we've made FIRE acquisitions. Again, the dynamic is similar in all three of these. These are really nice tuck-in opportunities that just strengthen our business in the local markets in which we acquire them, and we'll continue to look for those opportunities as best we can.
spk07: One thing I might add is, to Mike's point, we get synergies. It helps us with density, helps us with capacity utilization, allows us to spend more time with the customers. So all that's valuable. But in each of the businesses, depending upon the business we acquire, But normally when we make an acquisition in rental, first aid, or fire, we're able to provide an offering to that customer base that's broader than what they had in the past. So the rental, we have a broader offering than most companies out there. Certainly in the first aid, we do as well. And depending upon the fire acquisition, that's very consistent. Separate from, then we can cross-sell. So it just adds nice value.
spk13: And our next question comes from Shlomo Rosenbaum from Stifel.
spk17: Please go ahead, Shlomo. Well, Shlomo, is your line muted?
spk10: Sorry, my line was muted. Sorry. This is a question basically for Mike. Just a little bit going through, you know, some of the technical items in the quarter. Receivables days were up two days sequentially. I was wondering if there was a lot of business that came in at the end of the quarter. Are you seeing any changing patterns in what clients are paying or any other factors in that? Because the last time we saw 48 days was during COVID.
spk09: Shlomo, when our quarters end on a holiday, and it seems like too many of them do, it does create a little bit of disruption in terms of the ability to collect the mail, the application. We have seen maybe just a touch of slowing in the AR, but we've not seen any, I'll say, deterioration from the standpoint of additional write-offs. But we did see a little bit of slowing, and the Thanksgiving holiday can usually contribute to that.
spk10: Okay. In the OPM, the operating margin, the other unit, was up very nicely sequentially, even though there's one less day sequentially in the quarter. Could you just give us some of the mechanics or tell us just what's going on on the ground over there? It's increasing the margin very nicely, and is that something that we should expect to continue at kind of that 16% level?
spk09: Well, certainly the revenue growth is powerful in all of our businesses, and when we see some really nice revenue growth, that's important. The other thing that I would say is, you know, the uniform direct sale business went from a negative 2.7 in terms of revenue growth to 4.7%. And that is important for operating margins too. So we did see some nice improvement there in the direct sale. Nothing I would say that is noteworthy other than
spk17: Again, some nice acceleration in the revenue. And our next question comes from Leo Carrington from Citigroup.
spk13: Please go ahead, Leo. Thank you, and morning.
spk21: If I could ask a follow-up on that point around the one-off or the cost that you called out in Q2 around talent acquisition, training, technology. Were you calling them out because any of these are one-off increases in nature or more to highlight where the spend is? And then in terms of the underlying margins and drop through in Q2, the new organic growth, do you see that as sustainable when you factor in the additional investment this quarter?
spk09: Well, we all start with, we call them out because we think it's important to make sure that our investors understand that we are looking at the long term and we want to continue to invest in the business. And those investments are really important and they set up, let's say, more projects penetration opportunities, more cross-sell opportunities, but also productivity improvements, capacity utilization opportunities. In these cases, we wanted to call them out to show that, look, we're focused on the long term and we're going to continue in the business. As Todd said a couple times, the future is bright for us and we want to make sure that that we take advantage of that bright future by investing in the business. And the call-outs were really more about that. The future is bright. In the quarter, we had incremental margins of 27%. Look, our expectation is that we're going to be in the 20% to 30% range going forward. We recognize that that when we're sitting at 21%, they need to be in the higher level of that range. And we think that we can continue to do that. And when we talk about things like SAP and technology and other investments, and by the way, we're able to get 27% even when we're investing in the business. But we give those to say we're setting up those future margin and revenue opportunities.
spk17: It's important for us to, I think, communicate that. Right there. Thank you.
spk13: And our next question comes from Tony Kaplan from Morgan Stanley. Please go ahead, Tony.
spk23: Thanks very much. You mentioned the success that you've had with the branded products earlier, particularly with Carhartt and Chefworks. Could you just remind us if these are exclusive relationships and how long the relationships are for? And then are there any other areas that could benefit from branded products or equipment that you could offer as well?
spk07: Good morning, Toni. Thank you for the question. So we've had a longstanding relationship with Carhartt and ChefWorks, and we are the exclusive licensees for those folks, for those companies on the rental programs. And so we work with them to design products that the end users want, want to wear, but also that goes very well through our processing systems. So that's all very important to us as far as we don't get into contractual arrangements with them, but I can tell you this. We love products that our end users get excited about wearing them, and Carhartt and ChefWorks are two great examples of that. in great companies, great brands, great products. And as far as are there other opportunities, we're constantly looking for that. And we spend a lot of time with our customers and with our working partners to talk about that and to see where those opportunities come from. But those are two great relationships, longstanding relationships that are really important to us.
spk23: Yep, terrific. And maybe if you could just give us your latest thoughts on potential international expansion. That'd be great, thanks.
spk07: I'd say similar to products, we're always looking at those types of opportunities. We certainly know, stay in contact with the people that are running those businesses. But the great news is we don't have to do that in order to be really, really successful in the future. We look at it and say there's, again, we're servicing about 1 million businesses. There's 16 million businesses in the U.S. and Canada. Here's what's really exciting is by the time we get to 2 million customers, there will be more than 16 million businesses in the U.S. and Canada. So that's kind of a bummer if you're running a race, but it's really exciting if you're running a business because once we get to the two-mile mark, the race is going to be extended. So that's separate from we're going to have more products and services over the coming years. So all that being said is we continue to watch it. We evaluate it. We look for the right opportunity. And if that opportunity presents itself, then we will seize it. But it's certainly not – It's not required in order for us to be successful in the future.
spk13: And at this time, there are no further questions. I'd like to turn the call back over to Jared Manningly to close out the call.
spk08: Thank you for joining us this morning. We will issue our third quarter of fiscal 24 financial results in March. We look forward to speaking with you again at that time.
spk13: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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