CTAS - Earnings call transcript Q2 2018

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Operator

Good day, everyone, and welcome to the Cintas Quarterly Earnings Results Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Mike Hansen, senior VP of Finance and Chief Financial Officer. Please go ahead, sir.

Michael Hansen

you us thank and evening, for tonight. joining Good Cintas' and Treasurer. me is President Adler, Paul With Vice I a to I'm going us am tonight, our to cough battling through turn little bit it remarks. over prepared Paul get a to of so

Paul Adler

and refer risks Private litigation views and most to Thank these to civil that Act which the of harbor forward-looking subject reflect forward-looking could those as statements statements. results events are statements This the Litigation in recent XXXX you, forward-looking Securities performance. Reform current a to provides on actual future uncertainties, financial differ SEC. the we cause These our discussion Mike. safe with contained points contains may company's you from filings materially The for discuss. I from conference call to

for We quarter adjusts The operating that to November Services year's was for Safety $X,XXX,XXX,XXX, was the Aid Fiscal quarter the quarter, over G&K acquisitions second in exchange revenue increase compared second of in by quarter. segment was impacted for expenses negatively First XXXX organic $XXX rate of year. and quarter growth acquisition report growth second $XX last was Rental million related Services of Services was last XX, to integration Facility impacts the last about compared million XX.X%. the organic income rate which and Operating of to second and for of which $X and transaction the segment foreign the million to the such million growth expenses XX.X% ended income an quarter. The second X.X%. $XXX of year's are second rate pleased revenue X.X%, organic revenue the was Uniform fluctuations, and currency rate,

XX.X%. margin, intangible acquisition. points negatively accounting operating XX% expense XX.X% asset Excluding year income resulting G&K from G&K operating XX year. the integration and price basis was by the last impacted integration quarter G&K margin Operating excluding was versus transaction expenses, purchase income increased Current and expenses, transaction second amortization of

operating of due from to depreciation negatively current EPS, system, by Net share, diluted resource or operations addition, of the was per planning XX for quarter and respectively. year SAP. impacted impacted second expenses earnings In continuing margin by was income fiscal the and costs enterprise and XXXX of our implementation basis points fiscal and million second $X.XX acquisition related respectively. EPS in $X.XX $X.XX, XXXX and were the $XXX transaction G&K quarters negatively fiscal to XXXX, and of integration

a EPS XX.X% expenses, these Excluding was increase. versus last year, $X.XX $X.XX

Farmer, of was As quoted today's to in proceed the press and our CEO, Scott integration planned. release, Chairman G&K continues as

closing of quarter. increased pace second in Our the operations duplicate

realize Also, operating Cintas XX have We first twice $XX to synergies, have in system. right been almost XX% the closed about us second now converted G&K quarter, quarter This synergies in which operations. million with expectations. locations our amount the to the of enabled in in activity line of the achieved is

system on to of SAP progress significant A have been operating from the XX which implementation addition, converted operations our the schedule. remains SAP, was In in total old of made new system.

organic is X continued. growth solid helping revenue of mission our customers employees The quarter per growth steadfast Workday second the of on important earnings by progress share on was Ready evidenced one execution the and day-to-day and on get of strong rates. Meanwhile, profitable the G&K for Our focus SAP. investments, our strong

in range be to the $X.XX second in of expect are the revenue of annual quarter to our of We to a $X,XXX,XXX,XXX range increasing for As continuing result and fiscal our operations to EPS $X.XX. $X,XXX,XXX,XXX XXXX. fiscal XXXX we guidance from now results, be

following $XX acquired assumptions Note million future business, integration range XX%. approximately of that revenue EPS reform pretax of $XXX includes $XXX a million to tax year effective million; It synergies any excludes expenses. G&K XX% related transaction the and to prior assumes to guidance Our to of and rate amount $XX of G&K our also guidance $X.XX. $XXX the compared million million; to a of contribution about

While does transaction that do this will acquisition. remainder G&K not and U.S. the future range that to We year. incurred comment continue estimate want to of XXXX expect guidance will any to integration the EPS we fiscal we include to as I in be the expenses expenses, Cintas significant these $XX There million the million be full will significant these benefits. expenses of from fiscal impact tax $XX reform. on for integrate

in more by The growing are our namely, increase and Tax reduction to boost Healthy for and debt have businesses. our tax benefit good, cash. States, invest of cash with high many expect reform business hand the acquisitions, in legislation quickly paid our earnings The we amounts the and customers profitable of the on Cintas. majority a cash have we corporate then a vast Cintas' of our earnings to historically share President customers from to Also, United an their will and be for us As of tax signing grow additional event repay course, will dividends and additional reform the rate. will enable of priorities, the investments, for tax business. repurchases. accounting rate

tax revalue will We deferred to liabilities. need

quarter rate negative will in effective a addition, lower our rate be year. blended tax the a January for the third applied in rate fiscal effective X, and In resulting tax corporate tax

based more XX% upon need guidance to tax because the effective laws. XX%, reform is new rates we pretax to of understand tax time EPS Our

to the X% to rate preliminary new this However, the we you laws, full we for fiscal results of range the be provide XX%. expect analysis. tax of year in effective to do want tax our with Under the

'XX rates our We into months. this the over fiscal year incorporate several lower will next guidance

be has year that for differ, the as number year XXXX. year expect of note in fiscal fiscal as and in basis in and negative We many generally a cost, QX, material however, XXXX of to and rental contains number workdays the fiscal expenses, QX XX XX within do XXXX XX and effective of are points on range quarter of a same large to including QX, workdays approximately depreciation determined One being Please follows, of thereafter operating The on fiscal a in per impact amortization workday quarter XX% in due monthly in QX. on the expense tax to quarter our less XX%. XXXX XX margin XX rate instead expense by basis workday basis. a

Other. Rental Sale business. Uniform two Fire Facility reportable of and Uniform segments, Services. Aid business Protection All Services; Services have Other consists The Direct our We operating Safety of in our First and All and included is remainder and

Other and of items and supplies All presented Services as provision of from the and First route. Other the facility XX.X% and on the mats Services towels are customers was and statement. combined operating and and servicing Rental quarter. other income second to products Services and on last of Services restroom rental revenue and uniforms, of Facility catalogs sale includes services. Safety Facility year's segments the compared Aid to Uniform increase our $X,XXX,XXX,XXX, and segment also our This includes Rental an Uniform

rate acquisitions X.X%. the growth currency Excluding rate exchange foreign organic and the was impact of changes,

last levels G&K and decrease margin Uniform quarter, for A lower Our to of inclusion In in of slight year's gross time, this second integrate margin we XX.X% from second and segment XX.X% results was legacy gross of margins Facility second quarter XX G&K quarter. from year's this increasingly realize year-over-year the a business. will improve decline Cintas' Rental margin basis the points Services more the further synergies. we as a in business the

is fuel XX in a Cintas greater improvements from due lower last in resulting Half the This capacity factors Cintas a the significant legacy was of of second drive as of of business is the quarter. higher The percent segment in much expense margin. the density expense points legacy benefit G&K energy that G&K the was route to along G&K result Total of gross year's lacking business reducing of one possesses. the that route the revenue instance, than smaller density, redundant percent will business. increase revenue For G&K. with energy savings margin the is basis than gross as a larger

Our First rate million, than the second the of second in was safety which On quarter. $XXX aid segment's basis, segment last this the last revenue This operating organic XX.X% an Aid quarter first from gross XX.X% training. and XX second year's growth was increase year's the products, for compared in includes points. and higher quarter, Safety XX.X%. segment an quarter was was to This margin segment's servicing second for of Services XX.X% sale and revenue products basis

While year-over-year to we business lapped, still have driven grow. acquisition the strong improvements margin synergies improvements to margin continues largely by as expect been gross ZEE gross

generally are to All as Our growth Direct low businesses Fire are are install Sale dollar and Sale business digits Other we reported account. Protection the volatility, Services Uniform a long-term rates Uniform and in multimillion single such when category. subject Direct

a intangible in XX.X% XXX year of asset quarter. impacted organic an healthy second second expense Fire amortization in Our Other year's gross of XX.X% Current of the purchase year's quarter SG&A margin negatively to business, year at last percentage resulting growth had in acquisition. this revenue the to was second strong businesses the a quarter year's XX.X% for was and compared was compared G&K margin. were increases basis increase compared fiscal for last each quarter, $XXX Both was million, of second expenses continues rate X.X% revenue of points price an to gross as basis second All the The Other pace. Selling XX.X% second by XX points. from however, quarter. administrative accounting increase to X.X%. last grow All year quarter

SAP depreciation In prior include quarter to in pilot XX points addition, the the and SAP The year current from because any impacted project implementation basis was phase. not depreciation expense did negatively second still year SG&A due was by costs.

continuing quarter. can Note equates last XX.X% benefit items. effective on for XX.X% $X.XX rate Our to year-over-year. year's reserve second EPS on discrete the bills releases the effective to fluctuate second rate a compared from tax relating quarter tax to operations that for tax to based was and quarter-to-quarter This

of guidance earlier, XX%. stated EPS pretax rate XX% effective tax a As our to assumes reform range

balance and the Capital was X cash the XXXX million the of and quarter activities of securities of flow $XXX November $XX operating million. free million. fiscal year from in were million, was for was fiscal of million equivalents first expenditures as XX flow months marketable half end. first and $XXX we $XXX cash Our of had $XXX as Cash

million Our Services; Uniform $X All follows, million and $XX Facility Other. operating X-month Rental the million and Safety; Aid First was CapEx segment in period in by as and for $XXX in

the We expect of CapEx million fiscal $XXX be million. to $XXX XXXX range in year to

debt rate and was leverage debt December X.Xx in last our from of November As This debt-to-EBITDA. was coupon of $X,XXX,XXX,XXX $XXX cash of November borrowings on $X.XX XX, our to million of of commercial X, debt long-term per fixed end short-term we debt X, under a million consisting of $X,XXX,XXX,XXX, Subsequent XX, with X an paper a on year's of hand $XXX increase debt. At quarter X/X% XX.X% December matured. over and paid was share, dividend paid On total dividend. with program.

XX an flow our capital May this years. debt-to-EBITDA our consecutive concludes to expect enduring It to to to That to cash at and for increase strategy have we our decrease leverage X.Xx X.X value. remarks. We dividend XXXX. deploying is and approximately illustrates to of ratio XX, allocation cash part our our remain prepared effectively strong, continue increased important shareholder Overall, commitment

happy questions. are your to answer We

Operator

first Morgan [Operator Toni Kaplan Instructions] go Stanley. to And from we'll

Toni Kaplan

remarks? growth and I revenue didn't gave catch you rate prepared in G&K if the the

Michael Hansen

not, did better. -- quarter, X.X% it is slightly which year-over-year down the the We for about was but

that saw an probably range. increased Paul mentioned You had

so still X.X%. -- than down better what expected, but and it slightly was about And we

Toni Kaplan

those coming ask have just in would helpful. I changes any color you are And -- you see yes, yet? together? basically, be know wanted And to just helpful. deal environment seen that's I the companies expecting impact acquisition, closed, any from about but Aramark's the to -- AmeriPride Okay, hasn't that competitive any any given on X

Michael Hansen

hasn't deal as mentioned. you Well, the closed,

today, it's see not we And The won't industry, so ago. impact to I and would do would it I after expect much the X still it competitive months changed, if very until very closes. that be competitive. from I some is still say, environment say, would though, we're --

Toni Kaplan

of Can not would you quarter. you is Got give it. a normalized of just expect this rate Aid, in what pace us And double And growth this hold if lastly, double-digit growth to a on long maybe that segment, little you up? you just First color in consider growth normalized? had how you bit think another digit

Paul Adler

hope Toni, Well, we forever. it's

Toni Kaplan

Yes, I'm sure.

Paul Adler

the to of expectations come. grow got a drive the products safety have business, Certainly, those and cabinets Aid, opportunity required and There's high that We cabinets. be growth continued good and our organic in for single still base First and plenty to with services, of customer still lot digits. OSHA others have other to

Operator

And we'll from take Barclays. Patnaik from a Manav question

Manav Patnaik

made pace of that's your The year and, with versus all you changed. that $X million. a guess, was, growing first But for what the million for G&K, question maybe was hasn't the guess, think comment than you indicated I of I I and really faster the expected synergies synergies guess, broadly, for guidance this I $XX

I wondering So a disconnect how comments think was that? was just there we X between if should those or of

Michael Hansen

second number have comment expectations. see to line up. think expect quarter, I Paul's increased the but was it in did certainly with accelerated is synergies We that our and in go certainly

first quarter, that but had quarter. couple If at you talked locations the consolidated end first in being the first about we a of the many dozen remember after quarter,

were synergies second during well those And able the from as some see quarter. others as we so to the

line it quarter. on so an what but we expected, in first with where the acceleration certainly we is of And saw

Manav Patnaik

the Got the heavy on locations XX% be were assume that fair much it. the smoother integration? and of Or to the And probably right? not locations XX% lifting bigger is that, comment a G&K moved it Cintas should remaining forth. platform so then and that Is operation to

Michael Hansen

No, it and on our timetable really based geographies is markets.

a it -- Still of and large small many well. is to locations. and combination do, so but And locations going both

Manav Patnaik

the last I from were on tax I offsetting reduction rate? was the wondering, Okay. And of the reform, just tax corporate if color one just pieces then the had legislation a any, I guys just gave. some what versus you But in was appreciate

Michael Hansen

from we think is rate. the kind rate drop there ongoing XX% When the of corporate an that about are obviously, in XX%, big there of -- to benefit, a

we're million, on Section have the However, executive longer Section might no any comp is something which a XXX is There is couple the of manufacturing had will that $X that there's XXX(m) deduction things impact is some reform about onetime you point some look, taxing for and loss We But generally that's a then will, foreign credit speaking, toll related I next thoughts. also guidance our say, us. certainly that But over of called impact. over very more And an the out. I months, E&P. the all still existing, tax the impact, time of likely There to more it. with of about course done. specific But spend of of if the do charge, getting excited need we'll to the details. certainly would update the certainly that couple to the give for small

Operator

now And we'll go Wittmann Baird. from to Andy

Andrew Wittmann

and that you the balance profile of quarter outlook the there I -- the Is you business on the guidance, tax think in it profitability something of That's help as is last in quarter I there. rate the the my at year? you an right look looks guess that EPS question earnings it the implicit first The took the was of here XX%. down, is the the tax there like an expected reform, maybe changed XX%. business for was

Michael Hansen

to Are you saying tax as it reform? relates

Andrew Wittmann

difference? XX% for wondering rate that Well, I help, looks no, XX%, think, so $X.XX just guide it equal. should the what the I it's I I think, mean, guidance now like, explains to be wasn't tax range was EPS, previous But else about all much, that of was

Michael Hansen

quarter, I workday. strong. of are keep in that has going no, year to third pretty good loss into read thing in second think And year one our with detail have we're of than kind for Well, of the half the still that an But still to whole set the year. mind very lot quarter additional to and the the we're that wouldn't of is be margins a up we back pleased other half a fact of the

Andrew Wittmann

in talking going that the before to prerequisite a said they And I to revenue selling or do is one, G&K then synergy. that but pretty I my you've all just locations pretty you've with those stuff, number to the wanted facilities like consistently now are some right. All be system number the able the that? can get you you've to start that curious, on know were of of talked of the good to to past over go on I'm next system for on getting about after a you got longer, take need of G&K

Michael Hansen

create No. When to But from to ball perspective can time a to little location into start once to upon we location be available training a to impact. to about take bit going more Cintas the products get a an They talking one that. start conversion. and that rolling services. gets on, location have we no, It's can and conversations of will start and on, system get is

Andrew Wittmann

have contribution, you we later some Can in 'XX? fiscal think, here

Michael Hansen

No. expecting I'm fiscal anything not 'XX. in

Andrew Wittmann

quarter on synergies, first million the realized $X And $XX and just quarter. if then million was cost this approximately in the

per should we for take $XX of those just $XX is to synergies? you cost year, the How which of end run you range year. could the that If pretty your synergies out? does we some cost about million deceleration of of the the low Are exceed quarter the much rate balance for the the that quarters, for level me last gets you the guidance X from million at it think targets like the -- year? look should expect Or laid you of

Michael Hansen

heavy there would year. say, lot in lifting a go to the back the of We, of still is I half

opportunity XXX. to to execute more as But than that timing Our there possibility that thing the range, that's the exceed range think to of can high XXX say I number would well. end I yes, entire to a get certainly. goal that. that we long continue to of be synergy an there's as of is a for that increase will that But we a

Operator

comes Schneeberger next from question And from Scott our Oppenheimer.

Scott Schneeberger

some impact a you the up X. items a little bit you kind said on curious, have and to revenue by just just talk was quarter. had in more last And to Could Can $XX the the Guys, an you second. and update, believe then I last one $XX X just us quarter. it EPS million give with about next little of give follow clarity? what There in million would was an I'll us hurricane time

Paul Adler

Yes, estimates the at Scott. time. our That was

in of that got of million to You about And half million, be correct. said $XX we the would that $XX QX.

Fortunately, we have and call We to much facilities, didn't up able on had we to were in we damage be good our always mentioned last that the shape. and running. were

So million million it $X only customers quickly surprise, could in $X up running is $X back of, and million. they pretty And for most. the probably about million to pleasantly to impact line was X the just top dependent and then it upon get how our up was the remaining instead quarters, running. quickly. And get quarter, what, $X line top But at

So really the out good turned from be a the to news top is this nonevent to line. headwind

Scott Schneeberger

And good the a in guessing, mean, was to quarter factor went guidance up than revenue our that, quarter. revenue? I'm contributed increased a and Okay. that year at the had for did you outperformance least and the versus more I what this guys you in estimate sizable

Paul Adler

million. our guide, quarter, I in if and as mean, But it $X I was No, about was was of million the $X it don't only second $X headwinds I yes, -- to it expected million know maybe last based said, we only certainly, sizable. upon

benefits million than the much of top that. million, we see line was certainly $X yes, but So $X more

Michael Hansen

expected. organic little Scott, was -- better our to we mentioned, legacy than well. a And continues own had the think, G&K bit I growth I and the revenue Yes, as perform

Scott Schneeberger

tax third tax in being you XX% kind have reform, of that And that and fiscal just have quarter. last XX% deferred 'XX curious mentioned, I you heard revalued. heard thereafter. negative in the had a a for even I'm two-pronger rate thought fiscal The some to the tax liabilities I rate you But the will Great. question. may tax I

going the when gets when it's Is -- you actually lower fiscal of be impact. that's to in third So year in the quarter the factored to XX% that speak for right? that XX%, 'XX

Michael Hansen

gave was Paul the deferred that XX% for fiscal 'XX of because revaluation to range of tax X% The Yes. that balances.

creates when us. -- the So accounting on think event this We about January President X, you if signs revalue taxes. for deferred an that Trump

in and the And XX%. keep deferred tax have there that have deferred booked, down -- impact -- go time be those question the they reduction 'XX, deferred at And negative to in mind, will third a significant XX% is We the a But reevaluation benefit But that idea rate. the about disruption, kind all the quarter. that and to of adjustments charge. may thereafter we of we expect or, to tax a to That the XX% to the that's taxes. at third be the in taxes call was, smaller no it book are will let's toll look, XX% it, as today other going recorded create normalized be quarter. but thereafter, rate in

above are audits events of cause that ongoing that's but times, or may that Now an what move rate. terms discrete at happened always items in we're clearly, kind of thinking below like range us and to there other that

Scott Schneeberger

you for cash will That's event? And question, helpful. the benefits, it. that the the missed to this just the your XX%, Yes, of reform I thought how did Could that. you have part this excess so X% of last tax thanks about you. from to talk Got of may kind process and get customers alluded for obviously, the you'll a you benefit on use priority totally

Michael Hansen

call invest that, business, but cetera. we're our generated always think we've partners, is our to that our That also flow past, Well, in And that's in certainly our when business. priority. in evaluating et capital expenditures, is the the would employees, whom first in cash our say then about I Scott. first in we you investing that priority

continue look when will right make value. opportunities is for at sense priority the second to they M&A The we

continue buyback. to likely will We share at dividend look then increases and

both to to terms That's we're and want on the and time need some don't important new we time long-term. our changed going take that but certainly, say that the hasn't So on quick short-term going we're need. to we're of an we to -- this any in I wrinkle is decisions make that. prioritization And would spend much, opportunity

Operator

we'll go Steinerman Andrew to now And JPMorgan. from

Andrew Steinerman

organic total the the from a of the the doing implied the has bit for a And second ago? company revenue quarter revenue constant What's is increased dollar mostly half Or changed around growth in year? currency better? that G&K little

Michael Hansen

a same be both It's and Andrew, quarter the we growth, mind, under about our quarter the kind the being bit fourth the keep going organic growth will first G&K of when to think of be little for quarters, now. third organic in lapped, is calculation impacted that we've been right. by deal X

So -- math are just simply a we problem. it's

fourth to going the see quarter. are in growth organic We drop

growth 'XX, will, your that our the the that's We the down in revenue. we're move you expect nice going third. of growth fourth, to we've simply Cintas in would So guidance, It's bit just First and and of performance to Safety. organic the that if suggest performance quarter lapped both. that relatively to It's bit back see way nice as we little organic a then normalized, of accelerate begin I legacy come a in And have little because organic to answer about in levels. G&K it's in little to Aid the it's to math the to a especially works. going of businesses, bit another our question also

Operator

Research. Northcoast from Healy John from comes question next Our

John Healy

philosophical to guys ask you about for a just pricing. I question wanted

I the pursue an And does maybe or should made in calendar years? last about the comes economy it's curious what increases to you approached annual remind pricing couple a more when customer to over see how level, guys have cause confident better comments be spot your the you maybe I you of you about was your you was in basis? that of in at you've just more simply do than trying if be in tax know couple the price clear of that reform me, most and years, to on last up the just could price With if think if you 'XX. the -- and contract you

Michael Hansen

in more it say as fiscal have the the would probably quarters, be customers, the not seems said all our more that in but is year. of to beginning that year, I've increases very several bit It But during price way. We probably competitive. of that fiscal that's remains still. but the a beginning I close environment Well, little last pricing the constructive of

terms that our of we're the conversation philosophy, our a In to all value about of it's providing customers.

it about a wear services cetera. the et so the tear service And we're is of the and conversation different that customer-by-customer and products component, the providing, garments,

things And a go different of that so lot it's into pricing.

John Healy

to acquisitions you're And kind pursue deal AmeriPride. want a you Aramark's into feel I clearly, type And from post so, you you acquisitions, FTC to sense. size? do pursue kind Makes to down of like ask get assets that about at that limited guys question terms When G&K? doing look that in a of capable big think of of of X standpoint business. Xx of When investments the you do size a that from can now, you you're months with the or leverage it, call you

Michael Hansen

about able speaking opportunities could and be think opportunity, we'll look, we're that Rental do I specifically really some take a there depend look are if that it challenges. deal? to Uniform to would at that I all think And specific business, large on us. Well, do the we'd available a be

Our how those evaluate look goal it would about feel at be challenges. to we take and a

we -- And look, a so, say could. that's not whether or to John,

deal any the will come depends some with just challenges. big likely it opportunity, think but I on

Operator

Mazari Now we will Macquarie. go Hamzah from to

Mario Cortellacci

what further If in I'm This Cortellacci, like? we in Or there last is is piggyback Mario better expect the pricing? consolidation filling the for that off look space, to Hamzah. question. Actually can would

Michael Hansen

years. environment couple look, maybe bit mentioned competitive change. fairly way It's I for been last more in is that to Well, constructive I the a many the But pricing expect that little don't that years, today.

think will uniforms. players very And rent has to I because -- national. both it competitive there are everyone and there be not regional to continue are many local,

a provide Aramark/AmeriPride have value. to there is think I I good -- competitive. see because be I changing so we much continue And of don't it's show the to to going it can continue we think that to But deal.

Mario Cortellacci

Okay. as frame us, longer-term well. And know you've about this could for touched on SAP in But you implementation? I benefits the the I then, the of how already are past you thinking guess,

Michael Hansen

that to of this we better our types to opportunities we for allows quickly system to and us see will services. entire specifics have Sure. much We It are love more different existing once information business look customers to be that products provide at on. -- that able us target the exist industry target and once prospects,

more And will than our people our anything, and the we more and salespeople believe, so efficient. productive information, be to service allow

Operator

we'll from RBC And Markets. go Gary now to Capital Bisbee

Gary Bisbee

another see me industry, earn margin gets at you've Is the their competed is This point? their some -- as the is return or this a that regularly. away, risk has think approach different about a focus. on an Let competitive thoughts as take always you acknowledged that industry of that -- the whatever that that Is do after-tax that -- savings risk? What any reform that the tax a been pricing. will to

Michael Hansen

We're are of how a is it. it could into going a that I early to see priced our I little to little too think could on wrinkle. keep to wrinkle that It in it's bit products marketplace. our a and going tell, add Certainly, have eyes way our bit the we're a to little and eyes but that early, the services throw But think of Gary. a something that out. certainly keep on plays it's

Gary Bisbee

investment first the of to I the tax does you do the the Okay. of realize more couple about differently hire debt. is to to not And thinking All you as down plan of make accelerate quickly I question. on you pay ton right. over staying probably think the invest, any going raise and your the early, out -- for realize investment but likely then a wages people stuff Or to really? it's to would projects? thing But Does you've just next more it got more years, plans? outline have theme on one

Michael Hansen

to going and going We're evaluate, and are -- things Yes, I likely are all think, foremost, operators. Gary, first that we, we long-term the those on are to table. we

best busy signed -- first we're we an with there But some invest, so, will it this answer. to it's how longer-term going that, to of to there have that spend And be any is we decisions how day, make is look, But for time not impact. invest will stronger a I think even a And but don't us the be could -- can decisions. because have this evaluating long-term. evaluate bit do get the new -- short-term this need could some yet, we're have it's and -- little and more It's certainly benefit. to how just I to it, best thing

Gary Bisbee

Is CapEx to conversion, then thought enough. the for flow it soon would net likely that deduct next meaningful immediately likely the you of income your to want view CapEx? five from be at percent any on eligible? at -- assume be years. that? of And cash your to your that most Or a yet me or have would however cash also to it CapEx to likely right benefit is have to Fair improve it ability too would a you least have and put It would seem that's a look

Michael Hansen

we that X CapEx And years. I'm us. like for us. need will rules. going certainly flow I little time yes, the next benefit have a research Gary, cash could that bit spend specifics I immediate positive think over to certainly of be that, I because that exactly the it little the it. believe But improved need do qualifies, more to create it's we that think of more a an bit on on expensing But, -- to those -- I I but I

Gary Bisbee

to reacceleration with through just at just overlap one is then normal are one the of Or is me. for your Although, the of flattening non-tax to then you've it some it What more the then would those territories, territories? get just in their out close been and hiring Just G&K. it towards [indiscernible] that trying think salespeople the I that growing? business point will lap work is -- key that, the accelerating impact? Talk about back factors out how cross-sell you the level? organic would the rest base And growth think once Okay. math Is that Cintas in the

Michael Hansen

of those. three all it's think I Gary, Yes.

is First of is that and they stop, first decrease to hired. going all, that we probably salespeople itself to fourth We in brought -- going have we all, or of the G&K positions that revenue the bottom -- quarter. our had. out, But legacy many on the for open

the we productivity so what the and hiring from have training, see we second. some we And and quarter far. to first like We improvements saw nice in been

those know, our bit So sell accounts all time every we takes probably of week over accumulate many it little a with of and as -- small accounts Gary, single for and to time. you business, small

better a fiscal that business And salespeople. block we so with from fiscal of enter 'XX, think bit about new that we will momentum little as year

have 'XX, see customers. terms going we're will some penetration lastly, bottom 'XX. and start of some of seen I cross-sell don't then the impact. of any And trough should believe the in impact fiscal benefits But see into we in revenue We those overall. to to the start see to yes, fiscal we'll

really I that of and though, a of legacy think business back biggest year seeing momentum a then new about cetera. thing announcement on those reverse the is of get effort, G&K the because et after the the acquisition the track will retraining, salespeople

Operator

next Great from comes Stratton question Our David Lakes Review. from

David Stratton

give you gross I couldn't for know said the Cintas tell, don't number I not, quarter? legacy did a if or margin you

Michael Hansen

not, did David. We

gross G&K. to a into those what of what it very, operations perspective, margin becomes was separate versus number a Cintas consolidated difficult was have very legacy We what the legacy was locations, legacy Cintas from

David Stratton

impacts year talk like customers you in saw then, energy a field? the of costs in for And quarter you up your to the rest regard energy minute in shaping you. and would you see that then and about what if the Got

Michael Hansen

the for flattish half a the that your of the I of Well, slight for second maybe of slight overall answer quarter, would say increase, total X.X% Did we energy saw question? year, increase. second to rate revenue.

David Stratton

that's yes. I guess -- good. then No, And Yes.

Paul Adler

that line, think base. quarter lapped And have customer last we've the do things that. to counts and on we an we I And that stabilization David, kind are in top all business. that of about talked you rig definitely we mentioned watch in that as how seen our performing from customers, the indicator and of too,

lot a that So it's line haven't in garments. the stable, base of but growth flame fueling customer of type we garments, resistant seen

Operator

now And to we will go Tim Mulrooney Blair. from William

Timothy Mulrooney

synergies. quarter, in you Last million $X at were

system But and Some activities are last a of you is other $XX continuing get the major there few were just synergy to G&K that dozen benefit to financial reducing at quarter functions outlined of the this system, payroll activities headquarters major quarter? the the actions branches. any mainly consolidating former into million Or figure? converting from this

Michael Hansen

you that those just primarily It's mentioned. Yes.

many locations. a So the the the reduction corporate those of almost benefits of quarter a it savings, getting of consolidation G&A full and the continued is number of of now of

is things. those yes, of So it all

start And Cintas through we'll we're to using forward, we G&K move sourcing items left look there are that. are opportunities out to continuing through and at the need then through that, as inventory, we the we supply legacy in As so the to burn are that to much the burn systems once we've convert and that really chains. order because still past, to talked

some that We expect will create saving opportunities. that,

Timothy Mulrooney

Okay.

for the at some is sourcing, below sales material energy X.X% mean, today. mean, some about you said on X% talked that also I could I perhaps to, density get side, of saving there that energy point? You could room to what was get

Michael Hansen

But this I'll on of gas mentioned, fuel lot about prices of business, well, revenue. I that for of say X% think a it of block if we that look, G&K is way, were Well, depends the Paul that day. --

rerouting certainly. savings. an And we so have and system allows we those to begin pull And is route the us get process, that there as that opportunity down, and then converted to the optimization do some

quarters That get So those the environment? think in Tim. to right, over of don't say, kind come today's -- several complete as so. below plans. next Could X% start are it's we would I integration I you it will

think a to would it I XX for X% But probably of probably it again, that to company. could from basis can points about that X% something business. get down the standpoint to as of I XX we closer come down think block

Timothy Mulrooney

Got it.

you that more. Okay. staying facilities couple since on say then closed, Did you And maybe XX acquisition was just closed synergies, Mike? the a

Michael Hansen

Yes, we did.

Timothy Mulrooney

about were simple Is following closing. about at I XXX at are deal But XXX I locations today? -- think math, you mean, you just the that

Michael Hansen

at specifically that, I but I but that. looked haven't at believe it I haven't math, sounds your looked reasonable.

Timothy Mulrooney

And That split guess. I by consolidation just bit facilities? between was Yes, the SG&A today, still to $XX million was evenly expect the in on little that million you be XX and XXXX to a curious, million of then not important. then that majority than synergies was pretty higher SG&A? And I $XX is expecting. $XX of I end the

Michael Hansen

optimization. versus I more to correct it's of quarter, of margin. By route end conversion XX-XX that Tim, more to the and the of start close split consolidation a and get For the to you in the year, yes, of as benefits gross were that we going margin pretty and of locations system SG&A terms towards think it's gross the tilt

we will margin. towards think I So gross to start tilt more heavily the

Operator

from Sean go Markets. Egan And to KeyBanc Capital we'll now

Sean Egan

if within the the of of talk one light and Cintas those clear systems the revenue just can in any curious any X.X% balance decline XX% if off you you're I'm performance the quick locations, about differential G&K one wondering in Just Just for G&K? me. seeing yet. difference legacy on

Michael Hansen

No. No, we're not, Sean.

is any period that disruption yet. converted, I any Cintas of it's -- you're that hasn't that hasn't disruption or comparing as location, conversion. converted I'm of a that location hasn't whether think, there we had converted legacy conversion, if is one one sorry, system to issue move implementation And the G&K, a during

-- at the we're anything is point. some so certainly, conversion of we're that nothing of would impact seeing But still seeing, not And early this material in of in that performance so we're I separation that say system disruption. the process terms

Operator

a take follow-up Andy Wittmann Baird. we'll And from question from

Andrew Wittmann

the rate growth little mean, kind a really the that's just bit top in But there? comment key wondering talk both add-stop of a First of can and Aid I whether is is if of little bit to business, you're bringing business wins into the to new the you I'm a more and really being on wanted retention? new customers focus impressive folks or about it's Similar or for brought businesses. competitive that your new on the I just penetration even in, that And questions characteristics more in Mike, a comment rental, Great. and tilted line

Paul Adler

Andy, metric year. but of in speak typically this of. at positive and Yes. growth to of really Still the is the new on penetration. remarkable the it's drivers it Nothing time business the add-stops, add-stops are positive, main

changing, really. It's So retention consistent to of as and not question well. answer anything specifically in still about pricing your terms been

then, there. us changes a new expectation customers, Aid, digits, significant mix the of want for penetration. also handle high it's And but good good about no First of benefit employees, that brand value to the single who the and service compliance to growing provide some still were So a talking them yes, and we again, earlier and their

handling and training We continue and ancillary training. significant becomes overall it's revenue. the a significant that safety materials and That's on becomes things a a of in a part that or revenue portion to more and whether becoming the products on of and the can base, That -- offer evolve other continuously cabinets there safety training CPR. that training services more safety in to lot and around put business like we

Michael Hansen

integration Andy, nice investment productivity of Aid sales in XX in fairly the from partners. Safety -- salespeople of our sized remember, some ZEE out a of new months process. First real just and And seeing good about coming business, if that we're you we're we're kind out

Operator

back further remarks. over any there I'll are no turn questions. conference additional closing to for the And you, Mike, or

Michael Hansen

much us tonight Thank you. time. to greetings for we quarter with that you to look third in March forward again Thank and very issue at earnings season's joining our speaking and you We'll all.

Operator

participation. This does for today. Thank you for our your conclude presentation

now may disconnect. You

Cintas (CTAS) 21 Dec 172018 Q2 Earnings call transcript