Vestis Corporation

Welcome to the Vestas Corporation Fiscal Second Quarter 2025 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. To enable others to hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Michael Aurelio, Vice President, Investor Relations.

Thank you, operator, and thank you all for joining us. With me are Philip Holliman, Interim Executive Chairman, President and Chief Executive Officer, and Kelly Jansen, Executive Vice President and Chief Financial Officer, and they will discuss our fiscal 2025 second quarter results. After commentary, we will open the call to questions from the 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 will now turn the call over to Philip.

Thank you, Michael. Good morning, everyone, and thank you for joining us. Before we get into the quarter, I want to highlight the news we announced after market closed yesterday. Jim Barber, former Chief Operating Officer of UPS, will be stepping into the role of President and Chief Executive Officer. effective June 2, 2025. At that time, I will return to my role as Chairman of the Board. Jim is a proven leader with a track record of driving profitable growth, and I look forward to working closely with him to ensure a seamless transition. With that, let me turn to our results. I will begin my remarks with an overview of the second quarter performance. specifically what changed between Q1 and Q2 and why we did not deliver the revenue growth that we expected this quarter. I'll then discuss actions that we have been taking to improve our performance, as well as the positive results we are seeing from those actions. At the end, I will turn it over to Kelly to review our financials in more detail before we take questions. Second quarter revenue was $665 million, which declined approximately $18 million from Q1, or 2.7%, a significant difference from the growth we implied in our guidance. Excluding a $15 million one-time bad debt adjustment that Kelly will discuss, adjusted EBITDA was $63 million, or 9.4% of revenue. a 250 basis point reduction compared to Q1. This decrease in margin from our lower revenue demonstrates the operating leverage inherent in our relatively fixed cost structure, which in times of revenue growth is beneficial. During the quarter, $7 million of decline was related to direct sales, and $11 million of the decline was from our rental business. which we had expected to grow given the previous trends. While this was partially driven by lost business and excess of new business, the main reason for the decrease was lower ads over stops, which is how we describe volume changes with our existing customers. In January, we saw a significant decline in volume as some customers seasonally adjusted their demand for our products. Specifically, workplace supplies. For example, many of our hospitality customers have lowered demand in the weeks following the holiday season. Additionally, within our rental business, we periodically bill customers for inventory that they have either lost or ruined, which we call L&Rs. This revenue can fluctuate from quarter to quarter, and during quarter two, we had approximately $4 million less L&R compared to Q1. And while these are not the results we expected to deliver, I want to convey a few things. First, over the course of the second quarter, we have recovered the majority of the January decline in rental revenue. Second, we have taken meaningful actions to further improve revenue, including focusing on decreasing the number of credits being issued to our customers. We have done this by improving specific customer service issues, such as product shortages and cleaning quality, and have seen a positive impact from these actions on our revenue run rate in a relatively short timeframe. Together, these improvements supported our April average weekly revenue returning back to December levels. And finally, we continue to take steps to improve our forecasting capability. Let me be clear. We are disappointed with our second quarter performance. It does not represent our long-term potential in the attractive uniform and workplace supplies market. We can and we will do better through serving our customers, executing our strategic priorities, and delivering for our shareholders. That said, I would like to highlight several positive trends. Last quarter, we said we expected new business to exceed our lost business by the end of Q2. While the impact of lost business was still higher than new business in Q2, the gap narrowed in the quarter as the impact of lost business declined by approximately 10%. New business contributed 2.4% of revenue growth, or approximately 1,000 basis points, on an annualized basis, due to strong performance in both frontline sales and national accounts. Our frontline sales team is now fully staffed, and average productivity per sales representative increased by approximately 10% over the course of the second quarter. Collectively, our field sales and national account teams installed 35% more recurring revenue year-over-year and 10% more than in the first quarter. While we still have more work to do, we have demonstrated that we can win and are winning with new growth and customer retention. My focus has been improving customer service and operational effectiveness. I have been meeting with our teams and visiting our facilities to determine where we need to take immediate action in these areas. And I want to thank our teammates across the market centers for their support. We are moving with a sense of urgency to drive a customer-centric mindset across all levels of the organization. I am particularly focused on positioning our route sales representatives for success. These teammates play a critical role as the face investors to our customers. This includes enabling field service teams to deliver best-in-class service from the start with enhanced ability to solve customer issues in real time. It also means ensuring our teams can support our customers' needs by delivering high-quality products on time and in full. And the accumulation of all these efforts will provide the foundation for a return to growth and long-term value creation. Before Kelly covers our financial results in more detail, I want to acknowledge our partnership and precision since joining investors in mid-February. As she will discuss, although we are updating our guidance to better reflect our recent performance, I am encouraged that we have now delivered sequential monthly revenue growth in each month since January, including April. I am also pleased that we successfully executed an amendment to our credit agreement that gives us additional flexibility through the end of fiscal 2026. We want to thank our lenders for their partnership and support of Vestas. We remain focused on delevering and disciplined capital allocation. Let me conclude by saying that while we had a challenging second quarter, we are encouraged by recent trends and are taking actions to improve our performance. We are entering Q3 in a strong position, and I believe we will grow revenue and expand our margins as we move forward. Now I will turn it over to Kelly.