Cintas Corporation

Good day, everyone, and welcome to the Cintas Corporation announces fiscal 2025 fourth quarter and full year results conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jared Mattingly, Vice President, Treasurer, and Investor Relations. Please go ahead, sir.

Thank you, Ross. Thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer of Jim Rosakis, Executive Vice President and Chief Operating Officer, and Scott Garula, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2025 fourth quarter and full year 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 discussion on these points contained in our most recent filings with the Securities and Exchange Commission. I'll now turn the call over to Todd.

Thank you, Jared, and thank you all for joining us. I'd like to take a moment and welcome Jim and Scott to our call today. Jim is a seasoned leader that brings 26 years of experience with Cintas, and over the last two years has served as Cintas' Chief Operating Officer. Scott was recently appointed as our Chief Financial Officer and brings with him over 29 years of experience, including leading each of our route-based businesses. On today's call, I'll start by sharing an overview of the quarter, the year, and our outlook for fiscal 2026. Jim will share some more detail on our segment performance and the drivers in the business. And Scott will wrap up with more detail on our financials. We are pleased to have delivered a strong fourth quarter to close out another impressive fiscal year for Cintas. We delivered robust top-line growth and maintained healthy margins in cash flow, demonstrating the value, excuse me, demonstrating the strength of our value proposition. In the fourth quarter, total revenue grew 8% to $2.67 billion. Our organic growth rate, which adjusts for the impacts of acquisitions, foreign currency exchange rate fluctuations, and workday differences, was 9%. We continue to execute at a high level across each of our businesses, including organic growth of 7.2% in the uniform rental and facility services segment, and 18.5% in our first aid and safety segment. All other, which includes our fire protection services and uniform direct sales, grew organically by 11.1%. Turning to profitability, gross margin for the fourth quarter grew 9.1% over the prior year from 49.2% to 49.7%. Operating income as a percentage of revenue increased 9.1% over the prior year, and diluted EPS increased 9% to $1.09. We remain confident the strategic investments we've made in the business position us to capitalize on future growth opportunities. Those investments include technology that makes it easier for our employee partners to do their jobs, such as our SAP system and Smart Truck platform, investments in our infrastructure to increase capacity and position our employee partners for success, as well as investments in management trainees in selling resources. For the full year, fiscal 2025 revenue was a record $10.34 billion. an increase of 7.7%. Organic growth was 8% for the year. Our top-line growth continues to underscore the strength of Cintas' value proposition. Operating margins for the full year were 22.8%, an increase of 14.1%, and an all-time high compared to our prior year operating margin of 21.6%. Diluted earnings per share of $4.40 grew 16.1% over the prior year. Balanced capital allocation remains a key pillar of our strategy. In the fourth quarter and throughout fiscal 2025, we continue to deploy capital across all of our strategic priorities, including reinvesting in our products, people, and technologies to ensure we are best positioned to deliver value for our customers. Looking ahead to fiscal 26, our financial expectations reflect both the strength of the underlying business and our commitment to disciplined execution. Scott will later touch on the assumptions included in our guidance. We expect our revenue to be in the range of $11 billion to $11.15 billion, the total growth rate of 6.4% to 7.8%. We expect diluted EPS to be in the range of $4.71 to $4.85, a growth rate of 7% to 10.2%. Our fourth quarter and full year 2025 results and 2026 outlook underscore the strength of our business model and our ability to execute in a dynamic environment. Fiscal 2025 now marks 54 years out of the last 56 years that we've grown sales and adjusted EPS. I want to thank all of our employee partners for their hard work and dedication. With our culture of continuous improvement, superior products and services, In disciplined execution, we are well positioned for sustained growth and value creation. Lastly, we were named to the prestigious Fortune 500 for the ninth consecutive year. It is an honor to be recognized among the most successful and respected companies. We're proud of these results and the value we continue to deliver for Centos' shareholders.

With that, I'll turn it over to Jim for additional insights. Thanks, Todd, and good morning. We continue to grow at attractive rates by helping new customers meet their needs of image, safety, cleanliness, and compliance. We are seeing success in adding new products and new services to existing customers. Our retention rates are right at our all-time highs, and pricing continues to be at our historical levels. Turn to the fourth quarter organic growth by business. We grew 7.2% for uniform rental and facility services, 18.5% for first aid and safety services, 12.1% for fire protection services, and uniform direct sale was up 9%. As we've done in the past, I will share a revenue mix of the uniform rental and facility services operating segment for the fourth quarter. Keep in mind there can be small fluctuations in mix between quarters. Uniform rental was 48%, dust was 19%, hygiene was 16%, shop towels were 3%, linen, which includes microfiber, wipes, towels, and aprons was 10%, and catalog revenue was 4%. These percentages are consistent with last year and demonstrate we continue to experience strong demand across all our products and services. Gross margin percentage by business was 49% for uniform rental and facility services, 56.8% for first aid and safety services, 49.3% for fire protection services, and 41.6% for uniform direct sale. Gross margin for the uniform rental facility services segment increased 40 basis points from last year. Our progress year-over-year reflects the positive impacts made by our excellent supply chain team, as well as cost savings initiatives such as our garment sharing, technology enhancements like our auto sortation systems and our plants, and our proprietary smart truck solution that makes our routes more efficient. Gross margin for the first aid and safety services segment increased 140 basis points from last year, with strong revenue growth continuing to create leverage. a healthy revenue mix that includes growth and high margin recurring revenue products like AED rentals, eyewash stations, and water break, as well as cost savings initiatives such as Smart Truck and improved sourcing. Before I turn over to Scott, I'd like to share an example that demonstrates how we're delivering for our customers. A customer in the southeast part of the country has been a valued customer for over 10 years. For most of that time, we provided them exclusively with facility services, products, and services. Their maintenance department uniforms were direct purchase, what we would call a no programmer. Our customer approached us to see if we could help them address three key pain points. One, the initial investment ongoing costs associated with replacing uniforms due to turnover and damage made it difficult to forecast spend and manage cash flow. Two, their employees expressed a strong preference for the convenience and professionalism of a laundered uniform program over washing their uniforms at home. Three, their managers found that overseeing uniform logistics in-house took valuable time away from focusing on their core business operations. In response, we successfully introduced our uniform rental program on top of our facility services offering. But the story doesn't end there. We also earned the trust of their culinary department, onboarding those employees who had previously been with a traditional uniform competitor. The switch was driven by a premium ChefWorks exclusive attire and the opportunity for vendor consolidation. This example underscores several points. First, we don't always have to leave with uniforms. In this case, we had a long, successful relationship with a customer built on our facility services offering. Second, we can grow in a variety of different ways. We can convert no programmers to a rental program. We can add new customers who are currently with another uniform rental provider by offering premium products and services. And we can grow by adding new products and services to our existing customers. This example also illustrates how CentOS is more than a service provider. We are true problem solvers committed to helping our customers succeed. And by staying attuned to their feedback, we continue to strengthen our relationships and expand our footprint across industries. And I'll turn it over to Scott for additional details on capital allocation strategy and 2026 Outlook.

Thank you, Jim, and good morning, everyone. As Todd mentioned, we closed our fiscal year with strong financial performance. Our balance sheet remains healthy and during fiscal 2025, we generated $1.6 billion of free cash flow. In the fourth quarter, we were able to put our capital to work through capital expenditures of $114.6 million, acquisitions of $34.1 million, dividends of $157.8 million, and share repurchases of $256.7 million. Our effective tax rate for the fourth quarter was 22.1%, compared to 21.4% last year. For fiscal 2025, the effective tax rate was 20% compared to 20.4% the prior year. During fiscal year 2025, we deployed significant capital across each of our capital allocation priorities. This capital allocation strategy has been effective for many years and has served us well. We invested $408.9 million in capital expenditures, which helps support investments in our technology and infrastructure. Capital expenditures were 4.4% of revenue, which is right where we like to be. We invested $232.9 million in acquisitions in fiscal 2025, representing our largest year of M&A activity in almost 20 years, excluding our 2017 acquisition of G&K. These acquisitions span across each of our three route-based segments, adding new customers, extending capacity, and delivering compelling synergies. By optimizing our existing route structure, we've been able to spend more time with customers while reducing time spent on the road. Acquisitions remain an important lever for growth, enabling us to broaden our offerings and deliver greater value to our stakeholders. Additionally, we returned over $1.5 billion to shareholders through dividends and share buybacks. Almost $612 million in dividend payments marks the 41st consecutive year that we've increased our dividend, which is every year since going public. We also repurchased approximately $935 million of shares during fiscal year 2025. Todd provided our fiscal 2026 outlook at the start of the call, and I'd like to provide some context on a few assumptions underpinning our guidance. Please note that both fiscal 2025 and fiscal 2026 have the same number of work dates for the year and by quarter. Our guidance does not assume any future acquisitions. Our guidance assumes a constant foreign currency exchange rate. The fiscal 2026 interest net is expected to be approximately $98 million. The fiscal 2026 effective tax rate is expected to be 20%, which is the same as fiscal 2025. And our guidance includes no future share buybacks or significant economic disruptions or downturn. With that, I'll turn it back over to Todd for closing remarks.

Thank you, Scott. As we look ahead to fiscal 2026, our results reflect the strength of our strategy and the value we provide in helping our customers meet their image, safety, cleanliness, and compliance needs. We remain focused on delivering exceptional customer experiences while continuing to make the necessary investments in our business to sustain long-term growth value creation. Our confidence in our ability to navigate the current environment and capitalize on future opportunities remains strong. Jared, back to you.

Thanks, Todd, Jim, and Scott. 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.

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 also be allowed to ask 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 George Tong from Goldman Sachs. Please go ahead, George.

Hi, thanks. Good morning. Starting at a high level, can you talk a little bit about what the overall selling environment looks like, including how sales cycles are performing and how client sentiment is trending?

Good morning, George. Thanks for the question. I'll start, and Jim, if you want to add any color. No real change to the customer behavior. Sales cycles, new business remains strong. Retention rates are still at very attractive levels. Ad stops, really no significant change there. there are certain, or excuse me, clearly there's more uncertainty in the marketplace with tariff, trade, tax, or excuse me, tariff slash trade, taxes, which has a little bit more clarity, and interest rates. But nevertheless, our value proposition continues to resonate, and it resonates in virtually every economic cycle, hence our 54 of the last 56 years. And we expect that to continue, and we like the position we're in. Anything else, Jim, on customer behavior that you'd like to contribute?

Yeah, I think maybe, Todd, the only color I would add on that is that the customer behavior offers an opportunity for us to add value to our customers. I was recently at an operational visit. And in a routine conversation, one of our employee partners was at a customer site. And as you can imagine, during traditional rapport building, the customer expressed concern regarding the overall uncertainty in a macro environment. Our employee partner turned out an opportunity to discuss further CentOS products and services. And we found out that we were able to go ahead and save this customer significant money on something as simple as disposable gloves. So there certainly is a degree, as you described, of a little bit of uncertainty. That uncertainty creates opportunity, and the customers are looking for answers, and oftentimes they'll provide those answers for them.

Very helpful. And then my follow-up, you're continuing to see and deliver operating margin expansion on a year-over-year basis, but incremental margins stepped down this quarter from what was 40%, 50% before to around 25%. Can you talk a bit about what factors may be causing this? causing this narrowing rate of margin expansion?

Yeah, George. Yeah, we had another really good profit quarter. We did run 22.4% operating profit for the quarter. That brings us to 35% incrementals for the year, excluding our land sale. I will say last year Q4 was by far our best profit quarter. So the comparables were certainly tougher. And as you know, running a business isn't linear, but we like where we are. We're right in that sweet spot of 25 to 35 percent incrementals, and we're investing for the future. And we're doing that because we see the opportunities ahead, and we like what the opportunities look like for us, so we're investing appropriately.

Got it. Very helpful. Thank you. Thank you.

And our next question comes from Jasper Bibb from Truist Securities. Please go ahead, Jasper.

Hey, Dan and Dave. I know you're going to give a little bit more color on the cadence of your 26 outlook, as I imagine you're going to have a lot more difficult comps on the incremental margin front in the first half versus the second half.

Jasper, thanks for the question. Yeah, on the revenue side, we just finished a very successful year where we grew 7.7%, which is right where we want to be. The 26 revenue guide calls for 6.4% to 7.8% of growth, which again is right where we like to be and sets us up for another really good year. We're performing well, and we like the momentum that we have in the business. On the EPS side, We had a great year in FY25, and we think we're set up for another really good year in FY26. The guide calls for EPS growth of 7% to 10.2%, which infers margin expansion throughout the guide. And at the midpoint of revenue EPS guide, it also represents operating margin above 23%. and incrementals in the high 20s. So this is all consistent with how we got it last year. And this year, certainly the macro environment, there's a little bit more uncertainty. But we think we're well-positioned to navigate the environment and have another very successful year in 26.

Hoping maybe you could give some color on what you're seeing in the ad stops. and how you're thinking about that trend in your fiscal 26 guidance.

Yeah, Jasper, good question. You know, we have an incredibly broad customer base. So we have, you know, some customers that are absolutely thriving in this environment. Some are dealing with input costs challenges. But the net-net is, you know, our – customer base is still performing well, and we think that we're in a good position there. Keep in mind, 70% of our customer base are in the services providing sector, 30% in the goods producing. So from an AdStop standpoint, we think we're in a good spot. We don't give out that specific number, but we like the momentum that we see in our business.

Thanks for taking the question.

And our next question comes from Manav Patnik from Barclays Capital. Please go ahead, Manav.

Hi, good morning. This is Ronan Kennedy. I'm from Manav. Thank you for taking my questions. You touched on this in response to Jasper's question, but if I may just look to go a little more granular. The 26 guide, the implied operating income margins at 25%, I think, are at the lower end of the midterm guide at 25% to 35%. and then 23 and 27 at the low and high ends, respectively. There's obviously an element of operating leverage at play and revenues, but any further insights you can shed as to the puts and takes to the drivers of those incrementals, whether it's the positive impacts of supply chain tech initiatives or the negative impact, say, of the SAP implementation for fire protection? Any further insights on kind of puts and takes to those incrementals, please?

Yeah, thank you, Ronan. Yeah, we like our guide. We think the incrementals are right where we want to be. You know, certainly there is, we will be continuing to invest in SAP in our fire business. That's not an inexpensive effort there. But that's all contemplated in our guide, as is, you know, any input cost there. challenges that are thrown our way as a result of the macro environment that we're dealing with, et cetera. So we feel good about the spot we're in from an incremental margin standpoint. Again, 25% to 35%. And we're investing appropriately. Running a business isn't linear. So we... But we're focused on the long term and positioning our partners and our customers to be incredibly successful. And we like the spot that we're in.

Thank you. And then for my follow-up, please. Similar question, but in relation to revenues. The range, the guided revenue range is, I think, under 40 basis points, which you understandably indicated is right where you want to be. I also think that range is consistent with the guided range for F-25s. Can you give us any further insight as to what that contemplates from organic by department or the expected contributions from, say, price, new biz, et cetera, versus historicals? Any further insight there, please? We'd greatly appreciate it.

Yeah, certainly, Ronan. Yeah, again, we like our guide on the revenue as well. We think we're positioned there. The net for us, we want to grow our business in the mid to high single-digit revenue. We certainly expect that our rental business will be similar and our fire and first aid businesses be in the double digit area. And then in our uniform direct sale business, as we've detailed out, we are not trying to grow that as aggressively. Low single digits would be a good way to think about it. But it is a very strategic business because those rather large customers we sell our route-based businesses into as well. So that's kind of how we think about it.

Thank you very much. Appreciate it. Thank you.

And our next question comes from Tim Mulrooney from William Blair. Please go ahead, Tim.

Todd, Jim, Scott, good morning. Good morning, Tim.

Thanks for taking my question. Just the first one on the quarter. your fourth quarter result here, organic growth was 9%. That was well above consensus. I think it was also above what was implied by your own guidance range that you provided last quarter. So I'm just curious what business lines or sectors picked up during the quarter relative to your own expectations.

Yeah, thank you, Tim. Yeah, we're really proud of our fourth quarter performance. It did exceed our expectations. I think underscores the momentum we have in our business, but we did have for some, I'll call it more discreet type of one-time benefits in the area of our first aid business. We were propelled by, I mean, a great performance in our training area, which those tend to be a little bit more discreet one time in nature. Our uniform direct sale business grew 9%. which was a really strong close to what was a bumpy year. So, you know, a little bit more one time in nature there. But we're really proud of the performance in the close to the year. And we think we're well positioned for FY26.

Okay.

No follow-up needed. Thanks, guys.

Thank you.

And our next question comes from Andrew Steinerman from J.P. Morgan. Please go ahead, Andrew.

Hi. You know, the quarter ended, you know, six weeks ago, and I just wanted to get a sense of how the current quarter started, just, you know, what's already kind of behind us in June, in the first couple weeks of July in terms of revenue growth momentum. Has it, you know, sort of been consistent with the way, you know, you finished the quarter this And then I'll just ask my second question also. I just saw some discussion. I was just wondering if there's any recent changes to your go-to-market strategy, particularly around national accounts.

Good morning, Andrew. Thanks for the question. First off, yeah, you're right. I mean, because of this being our Q4 call, we are further into our quarter than normal. Um, and the start of the years, uh, it's starting, um, uh, exactly the way we expected and, um, uh, and it's, uh, reflected in our guide. So, um, uh, kind of, well, I would say consistent with, uh, what, uh, what we expected for the start of the year. As for our, our go-to market strategy, no, that really hasn't changed. You know, uh, websites change, um, uh, and we talk about, uh, you know, trying to, uh, position ourselves appropriately to all of our customers. But we've been in the national account business for 30 plus years. I'd say virtually my entire career. And the only thing I would call out is our vertical strategy is obviously has been different over the last five to 10 years. And that has performed well. So No other change, no real change in our market strategy. We're constantly reinvesting in our products and services to make them of more value to our customers and to position our employee partners to make it easier to take care of our customers. So there's always refreshes going on, a product here, a product there. That's just part of our culture to try to make sure we're positioned to be as successful as possible.

Sounds right. Thanks.

Thank you.

And our next question comes from Josh Chan from UBS. Please go ahead, Josh.

Hi. Good morning, Todd, Jim, Scott, Jared. As you look into your different cost buckets kind of going into 2026, you know, material, labor, your fleet, anything to highlight in terms of the trajectory of cost changes and maybe on the material side, could you touch on potential tariff impact and how that could impact kind of the cost thing?

Yeah, good morning, Josh. I want to just speak a little bit about that subject. We believe we're in a good position to navigate through what is clearly a very dynamic environment with challenges like tariffs and what have you. We think it gives us an opportunity to flex our strength, which is our people and our culture. which in all this is reflected in our guide. We contemplated some additional expense into the guide, but we think some real advantages. First off, the nature of how we expense our goods in our largest businesses is because we amortize it, it gives us time. It also, you probably noticed our balance sheet, our inventory is up. So we've anticipated and managed this appropriately. And I'd like to also say that we've navigated this very successfully in the past. You know, the past five years, whether it's been inflation or supply chain challenges, Our global supply chain has shined and has been a competitive advantage for us in the marketplace. As a reminder, we source products all over the world, so we have great geographic diversity, and we also have 90% or so of our products, we have two or more sources. You put that together with our buying power, All that gives us options and leverage. So we think that that positions us well. And you put on top of that our corporate culture traits of positive discontent, competitive urgency. It fuels us to look at process improvements and finding ways to extract inefficiencies out of our business so that we can be more efficient. We don't take the approach that, well, if a tariff is going to raise a cost, then we just got to eat that and pass it along to our customer. That's not how we run our business, and it's not how we've run it in the past, and it's not how we're going to run it in the future. And we think it gives us an opportunity to shine.

Josh, if I might add to that, you know, I think Todd did a great job describing the supply chain. He also talked about some of the work we're doing to remove inefficiencies. We have several initiatives ongoing. Some were mentioned in our prepared remarks that are all in play and, again, contemplated in next year's expectations. But garment sharing would be one that I think would be worth highlighting here. We continue to leverage the SAP platform to be able to share goods that we have in inventory across our entire network. And that's been quite effective and we think we've got some room to go on that one. Automating within our plants and deploying auto-sortation technology in our plants. We have about 50% of our plants have some degree of auto-sortation and we're in the middle of trying to deploy more of that. In the past, it's been challenging due to our plants being all different shapes and sizes. We believe that we've developed technology to overcome that and limit the disruption. So those are in motion, and we expect those to continue to deploy this year. Todd mentioned operational excellence. Operational excellence is us really maximizing the assets specifically in our rental business around the plant. That allows us to continue to defer capital expenditure, and it also allows us to run those plants more efficiently, allowing us to wash fewer loads, consume less energy, less chemistry and water within our facilities. And then maybe last that I would be mentioning would be our smart truck initiative that's been ongoing now for several years that allows us to incrementally route our fleets more efficiently, get the more time in front of the customer, but certainly route growth is significantly less than what our revenue growth is, and we're going to continue that in this next fiscal.

That's great, Carlo. I appreciate the context there. That's really helpful. And then, I guess, for my follow-up, I think, Scott, you highlighted the M&A spend this past year. Just wondering if you could comment on the prospects of M&A kind of going forward and how the pipeline of the bolt-ons look at the moment.

Thank you. Well, why don't I start a little bit on pipeline, and then Scott can talk about capital allocation. You know, M&A is tough to predict, but it's very important to us. you know, these relationships that we have, you know, we've had for decades. And trying to figure out when a business is going to be interested in selling is, I mean, it's not random, but it is certainly tough to predict. We had a great year, and we leveraged those relationships that we've had for decades. But we're in the business of buying really good businesses, And when you buy really good businesses, you get a lot of things, but you get customers and you get employee partners and are the most important areas. And in certain cases, we get capacity. And if we don't get capacity, we get really good synergy. So we'll continue to work our pipeline together. But nevertheless, we can't time it, but we're highly active so that when somebody is interested, we're well positioned for that. Scott, do you want to talk a little bit about capital allocation?

Yeah, thanks, Todd. As I mentioned in our prepared remarks, our approach to a balanced capital allocation strategy has served us well for many years. I've been part of that in my prior roles and really don't see a change in that in the future. And continue not only to invest in M&A activity, we'll continue to reinvest back in the business via capital expenditures and continue to invest in both dividends and be opportunistic with share buybacks.

Great. Thank you for your time and congrats on a good quarter.

Thank you. Thank you.

And our next question comes from Jason Haas from Wells Fargo. Please go ahead, Jason.

Hey, good morning, and thanks for taking my questions. I'm curious if you expect the industry to pass on higher price increases in fiscal 2026, given the tariff-driven inflation, and if that's something that you've baked into your guidance, assuming you could take more price as well, or if that could represent upside. Thank you.

Thanks for the question, Jason. Our pricing strategy is we're back at historical levels on pricing. We certainly don't control how our competitors price things, but we expect to be at historical levels of pricing. you know, what we know of the environment today. We think we're well positioned. It's contemplated in our guide. And as I mentioned earlier, we don't just run our business in a manner where, well, if a tariff comes through and there is some cost increase, first off, we don't just accept that. And then secondly, we find ways to run our business more efficiently because, you know, You know, we operate in a competitive environment, competitive marketplace. And as a result, we want to make sure that we're being great fiduciaries for not only our shareholders and our partners, but our customers. So our guide contemplates historical pricing, and that's, you know, how we would plan to manage the business.

Okay, thank you. That's helpful. And then as a follow-up, I was curious, in this environment, if you're seeing more competitive wins, particularly from some of your larger competitors that are out there, since it seems like your growth rates are quite elevated versus what we've seen from others. Thank you.

Yeah. So, again, thanks for the question. You know, I know real change in the marketplace, I'd say, from a competitive landscape. It's been competitive my entire career, and I'm sure it will be into the future as well. That being said, we don't look at it as a – As a finite pie, we have a little over a million business customers. There's 16 to 17 million businesses in the U.S. and Canada. So we look at it as an opportunity to go and sell more to those customers who are not buying from us today. And then we have this incredible opportunity to sell more products and services to our current customers. So how someone else in our direct competitor might be growing, that's not of interest to us. We're more focused on how can we provide more value to our customers? How can we position our employee partners to be more successful? We want to be easier to do business with. We want to be easier for our partners to sell and and easier for our customers for them to do business with us. Thank you. That's very helpful.

And our next question comes from Ashish Sabhadra from RBC. Please go ahead, Ashish.

Thanks for taking my question. I just wanted to focus on the four strategic verticals, healthcare, government, education, and hospitality. I was wondering if you could just provide any update on those fronts and any big initiative as we go into 2026. Thanks.

Good morning, Ashish. Thanks for the question. I'll start, and then Jim, feel free to chime in. We like all our verticals. We think we've chosen them really well. As a reminder, we don't just sell into those verticals. We organize around them. from a business standpoint to make sure that we can service them appropriately and provide better value. But we think we've chosen them quite well and we expect them all to perform above our average growth rates. Jim, anything specific on verticals you'd like to call out?

I guess I would just add that by organizing around the verticals allows us to gain intimate knowledge and really understand the industries well. Therefore, we're able to collaborate and innovate solutions that we bring to the marketplace that not only allow us to have solid growth within those verticals, but oftentimes those solutions could expand outside of those verticals. And one we've discussed In the past, it's been our healthcare journey, and our journey with really what initiated scrub dispensing. That dispensing service now is out beyond just healthcare, and we see lots of applications for that. We've gone on a recent journey in healthcare to really innovate and change how we go to market for privacy curtains, and we believe that those are indicative in the types of solutions that you're able to bring to marketplace when you get that involved and invested in particular verticals. and we want to continue to do that moving forward.

Ashish, we hear from our customers, as Jim mentioned, when you organize around them and you spend that much time with them, you hear where they need help and where they're struggling for whether it's cleanliness or compliance or image or safety. And Jim just walked through the privacy curtains, and it's a great example where customers really struggle with that, with the compliance issues which affects cleanliness. And we didn't just roll out privacy curtains. We invested in technology around that and also in improving how they function. And as a result of that, we have patents around that, and we've got a lot of customers that have been really excited and happy about what we're doing there.

That's a great color. And maybe just on the follow-up, we've seen some material acceleration in the first aid business. It seems like based on the prepared remark that it was broad-based across products, but I was just curious if there is incremental traction that you're getting for certain products or just improving penetration. Any color there will be helpful. Thanks.

Yeah, great question. We love the first aid business, and it's performing at a very exciting clip. And the value that they provide to the customers is reflecting. Jim talked a little bit about that we've got some good momentum around certain products and services. AEDs have been in great demand. That's been good. Our water break, our eyewash stations, those recurring revenue type products are really good for us. But our cabinet business is attractive. So we've invested appropriately there, and we're seeing the benefits of that. That being said, we did benefit from a spike in training during the quarter, which we don't expect to continue at those levels. But nevertheless, we think we're well positioned to be successful in the marketplace in the first aid business.

That's great, Philip. Thank you.

Thank you. And our next question comes from Shlomo Rosenbaum from Stifo & Nicholas. Please go ahead, Shlomo.

Hi, thank you for taking my questions. I want to piggyback a little on Ashish's question. In that first aid business, how much of that revenue would you say is more kind of recurring, and how much of that business is usually training and other areas that might be more one-timish?

Yeah, good morning, Shlomo. Yeah, we don't give out the exact percentages as far as revenue that's recurring versus more on consumption. But nevertheless, we're constantly reinvesting in that business to try to come up with products and services that are of real value to the customers. And we're seeing the benefits there. So that's part of our culture is that reinvestment. And we'll continue down that path. And we think, again, we're well positioned to be successful in that market. And the demand is showing there. And we expect that that business will grow in the low double digits moving forward, and we like the spot for there.

Okay, thank you. And just for the follow-up, could you comment a little on the spike-up in uniform sales? And, you know, usually I know you expect it to grow in the low single digits, and was there something that will carry forward into the next quarter or two, or was it really just kind of a one-quarter kind of fulfillment of something?

Good question, Shlomo. Yeah, in the uniformed direct sale business, we do expect that to grow into low single digits. It was a bumpy year for them, and they had a really strong close, but I would not expect that that would continue into the fiscal year. We plan for that business to grow into low single digits, and because of the nature of it with rollouts, it can be a little bit of lumpiness to that. And Q4 was a really strong close to the year.

Thank you. Thank you.

And our next question comes from Stephanie Moore from Jefferies. Please go ahead, Stephanie.

Great. Good morning. Thank you. I was hoping you could talk a little bit about some of your end market exposure, if you're seeing any kind of weakness or strength in particular end markets, you know, maybe the manufacturing sector, for example, has been kind of weak across the board here in the U.S., but any areas of weakness or areas of strength that you could call out. Thank you.

Good morning, Stephanie. In general, again, we have an incredibly broad customer base, whether it's by business type, NAIC code, and also geographically. And so no real weakness that we're seeing whatsoever in the marketplace. Certainly the goods producing, you know, customers have been under more pressure the last few years. The services providing customers are trying to fulfill demand. So, you know, the net-net of it is no real weakness that we're seeing there. You know, we would be encouraged to see more production coming back into the U.S. from the goods producing sector, and we would... we're hoping for more certainty as far as what the tax, or excuse me, what the trade looks like, which will allow business people to invest appropriately, and we are hopeful that that will come here in the near future.

Got it. And then really just any kind of, I guess just one follow-up here, you know, as you think about your M&A opportunity, obviously you've given some color today on kind of your continued focus on M&A, but are there any areas or that you would look at expanding an M&A outside of kind of the core uniform area?

Yeah, thanks for the question, Stephanie. First off, we're inquisitive in each of our route-based businesses. And that's a key component of our strategy. We love when we make an acquisition. I talked about synergies, and I talked about capacity. But it does give us an opportunity to go to those customers with a broader breadth of products and services that we can help them with. So that's an important function. But yeah, we're inquisitive in each of our route-based businesses. Um, and, uh, uh, and we're always, you know, uh, various people bring us, um, opportunities outside of those, uh, and, um, uh, and, uh, we don't need to, we don't need to go outside of those. The opportunity in our, in our business, uh, is significant. Um, the, um, uh, as I mentioned, you know, a little over a million business customers, whether it's 16, 17 million businesses in US and Canada. Uh, so the opportunity, uh, looking forward is, uh, uh, very encouraging and, uh, And we're staying disciplined while being aware of opportunities that are out there. But all three route-based businesses, we're trying to make deals.

Thank you. Appreciate it.

Yes, ma'am. Thank you.

And our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead, Scott.

Thanks very much. Todd, I believe you mentioned progress relating to smart truck and improved sourcing. Could you please elaborate on that? And then my follow-up, I'll ask up front for Scott. It sounds like we should be expecting 4% of revenue capex again in fiscal 26. I'm just curious, digging in. From the One Big Beautiful Act, Bill Act, anything to expect there impacting cash flow? in 26 or any other aspects of the business?

Thanks, guys. Well, thank you for the question, Scott. Yeah, as I mentioned, and I think Jim expanded upon it, smart truck has been a great investment for us. It's technology that allows us to spend more time with the customer and less time driving. And as we like to say around here, we don't generate any revenue when the wheels are turning. We only generate revenue when the wheels stop. And that technology has allowed us to improve upon that. Jim mentioned that we're adding routes at certainly a slower pace than we're adding revenue. And that speaks to just what I mentioned. From a sourcing standpoint, we're constantly working on improving sourcing. We have seen benefits over the past few years. with our centralized purchasing, with our first aid distribution center. But our sourcing organization is, they're working overtime right now. And because of the environment with tariffs being uncertain there. But we're encouraged by what they do, how they do it. And again, we think this will give them an opportunity to shine. Scott, if you want to talk a little bit about CapEx and Cash Club.

Thanks, Todd. Thanks for the question, Scott. Regarding CapEx, you know, it came in at 4% of revenue in fiscal year 25, and we expect to be in that, you know, 3.5% to 4% going forward. As we know, I mean, investments can fluctuate from quarter to quarter and year to year, but we like to be in that 3.5% to 4%. range as a percent of sales. I believe your second question was related to the tax bill. And we are not, you know, based on the strength of our balance sheet and financials, we're not expecting any material impact from the tax bill on our tax rate, cash flow, or the business in general.

Great. Thanks, guys.

Thank you.

And our next question comes from Tony Kaplan from Morgan Stanley. Please go ahead, Tony.

Hi, good morning. This is Yehuda Silverman on the line for Tony Kaplan. So just had a quick question about new sales. Typically, what's the main driver for a customer to switch providers? Is there a certain product or area that's more or most attractive to customers?

Thank you for the question, Jude. We don't care where the customers start doing business with us. whether it's uniforms or FS, as Jim spoke about earlier with his example in his prepared remarks, first aid, fire, uniform, direct sale. We just want to start doing business with them. And as we do business, we think that that makes it easier because they historically have a very good experience, and then it leads to, well, what else can you help us with? And when you have... eyes and ears and minds in your customer's place of business on a frequent basis, it breeds confidence and it breeds the opportunity as they look out and say, what else can we help you with? Excuse me, Jim mentioned a little bit about It really varies based upon where we get started, but also the impetus for a customer to switch. Because of the white space out there where there's so many businesses that are self-serve, that's where we really focus our time. And they're all spending money to some degree on items, meaning they're all wearing – their people are wearing clothes. Their people are getting – They're getting disposables from somewhere. It might be an e-commerce or it might be a brick and mortar retail store. So it really doesn't, it varies based upon where the customer is, where their business is at that point. They may be dealing with an environment where they don't have as many people, but the work still needs to be done. Or they're struggling to keep up with demand. And you can help me with this. Take this off my plate. Be happy for you to do that. Jim, anything else you'd like to add there?

The only thing I would say is, you know, the new business wins converting from a traditional competitor over to us. They happen for a variety of different reasons, and we believe we have a lot of differentiators from the product line to the service to the technology offerings for the customers. But just as maybe a level setting is that about two-thirds of our new business comes from what we call no programmers, or really that, as Todd described, the do-it-yourself for the folks that are purchasing from some retail or e-commerce type of solution. And that's where we focus a lot of our time, and that's where we have the most success. That's been a strategy for years and will continue to be a strategy, and we know that that resonates well in the market.

Great. Thank you.

And our next question comes from Kartik Mehta from North Coast Research. Please go ahead, Kartik.

Hey, good morning. Todd, maybe on the first aid business, and I know that you're able to get pricing on the uniform side just because of the service level you're providing. And I'm wondering, as you look at the first aid business and that double digit growth, what component is price and what's your ability to get price increases?

Good morning, Cardick. Great question. I'm You know, the first aid businesses from a pricing strategy is the same as how we run our other businesses, and they're back to historical levels. And so the vast majority of our growth in that business is volume growth. You know, we're not growing our business because of, or any of our businesses, because of pricing being the major strategy here. We're growing it because we're providing more value, more products, services to customers. So that volume is growing. That's the same in each of our businesses. And that's an important component of our strategy. So, yeah, can we get some price? Yes, but it's at historical levels. And we're excited about the value that we're providing the customers in the first aid, but all of our businesses.

And just to follow up, a different topic, just use of AI, kind of where you are in Cintas, more from is it today more of a cost, is it a benefit, or is it neutral?

Great question, Kartik. I appreciate that. We've been investing in technology for years, and we will be doing so, I'm sure, in perpetuity. And I'll start with our investment in what I call our rock-solid foundation of SAP. And then moving on to, then we started investing in data analytics once we had that ability of accessing the data. And then algorithms. And now machine learning and artificial intelligence, which is certainly in the early innings for us, but we see opportunity there. So, yeah, we're making investments, and we're doing so because we think, you know, we're excited about where we think we can take this technology and for it to be easier for our employee partners to do their job and make it easier for customers to do business with us. You know, an example of that is we talked about with smart truck technology. That's not artificial intelligence, but it is certainly, that has been important to us. And the learnings that we've had there, we're making it better and better. Garment sharing applications, as Jim mentioned, similar. You know, we're getting efficiencies out of our most critical assets. And all this makes it for our employee partners to be more successful and productive and to take administrative time out of their day. We also see opportunities with technology and machine learning to direct them where to spend their time. So we think that's important. All this will show up, Kartik, in, I'll say, incremental improvements over many years, but important investments for us to make so that we can get those incremental investments and benefits for many years to come.

Thank you. I appreciate it.

Thank you. Great. And we have run out of time for our question and answer session, so I will turn the call back over to Jared for closing remarks.

Thank you, Ross, and thank you for joining us this morning. We will issue our first quarter of fiscal 2026 financial results in September. We look forward to speaking with you again at that time. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

The host has ended this call.

Goodbye.