Welcome to the Vestis Corporation Fiscal Q1 2024 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 one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. 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 Brian Johnson, Chief Accounting Officer. Please go ahead. Thank you, Angela, and good morning, everyone. We appreciate your participation in Vestis Corporation's Fiscal Q1 2024 earnings call. With me here today are our President and CEO, Kim Scott, and our CFO, Rick Dillon. As a reminder, a telephonic replay of this call will be available on the investor relations section of the vestis.com website shortly after the completion of the call. Also, access to the materials discussed on today's call are available on the Vestis website under the investor relations section. Before we begin, I would like to remind you that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about management's future expectations, beliefs, estimates, plans, and prospects. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our periodic and current reports filed with the Securities and Exchange Commission. We do not undertake any duty to update them. With that, I would like to turn the call over to Kim. Thank you, Brian. Good morning, everyone, and thank you for joining our fiscal first quarter 2024 earnings call. Before I discuss our results, I'd like to thank our 20,000 dedicated teammates for their outstanding work and unwavering commitment to our success as we complete our Q1 as a standalone, publicly traded company. Every day, our teammates are focused on taking great care of our customers and each other. We continue to bring our purpose to life here at Vestis, delivering uniforms and workplace supplies that empower people to do good work and good things for others while at work. You may have also seen our filing yesterday that Chris Synek, who was our Chief Operating Officer for a short time, has resigned from the company for personal reasons. We appreciate Chris's contributions to Vestis, and we wish him all the best. Now, turning to our results. In the Q1, we delivered disciplined, high quality revenue growth of 2.5% and an adjusted EBITDA margin of 13.7%, which is up 60 basis points from Q1 2023 and includes the absorption of incremental public company costs in the period, with earnings per share of $0.22 in the quarter. Last year's first quarter revenue included the benefit of a $13 million temporary energy fee that did not repeat in the quarter. Excluding the impact of this temporary energy fee and impact from foreign exchange rates, revenue growth was 4.5%, with a balanced contribution from both volume and pricing on an underlying basis. This demonstrates that our high-quality growth strategy is effective and accelerating our ability to grow well above historical norms. As Rick will cover in more detail, we continue to remain disciplined and focused on delivering growth that improves our revenue mix and generates operating leverage across our system. We are pleased to see the positive results of our strategy manifest as we deliver growth and margin expansion in tandem, while also absorbing new public company costs that entered our system in the quarter. Our results also support our capital allocation strategy, with deleveraging as a priority. As we move through the balance of the year, we expect acceleration in our growth rates that will follow similar patterns from prior years, and additionally, we will lap the temporary energy fee beginning in Q3. We are also seeing opportunity for additional pricing actions in the back half of the year. As a result, I remain confident in our ability to deliver our full year guidance of 4%-4.5% revenue growth and adjusted EBITDA margin of 14.3%, which, as a reminder, equates to approximately 50-60 basis points of margin expansion, offset by the impact of new public company costs in the period. During the first quarter, we continued to advance Vestis' strategic plan, which we shared with you during our September 2023 Analyst Day. We are generating great momentum as we execute against our strategic priorities, which include high quality growth, efficient operations, disciplined capital allocation, and a performance-driven culture. Turning to high quality growth, we continue to prioritize the highest margin growth opportunities, both within our existing customer base and as we target new customers in select verticals. You can see the positive impact of our strategy in the quarter as we continued to intentionally shift our mix towards higher penetration with existing customers on existing routes, largely through our route service representatives cross-selling workplace supplies to our current customers. Workplace supplies growth was approximately 4% in the quarter, supported by an approximate 25% increase in route sales activity versus this period last year. Our mix shift also includes a purposeful moderation of our lower margin direct sales business, and when excluding the impact of this strategic decision, our uniforms business grew approximately 1% this quarter. This mix shift related to direct sales also delivered approximately three basis points of margin improvement across our consolidated results. In parallel, we continue to execute against our efficient operations initiative. We are delivering a step change improvement in the way we operate, optimizing our network, reducing empty miles, and lowering fuel consumption across our system. In the first quarter, we have already completed another 13 routes and network optimization events, with many more planned for the balance of the year and beyond. This demonstrates great momentum when compared to the 26 events we completed last year. Year to date, we've successfully deployed new telematics technology across 89% of our fleet and fully deployed new routing and scheduling technology and processes across North America. All a part of our strategy to establish the capability to continuously optimize our network and our routes. We've also accelerated our work on reducing amortization costs through the reuse of existing garments in our system. In the Q1, e saw improvements in our use fill rate across 103 of our target facilities. These efforts will serve us well in the coming years as existing amortization rolls off, and we accelerate the reuse of existing garments across our stock rooms over time. We remain committed to delivering profitable growth that leverages existing capacity across our network, therefore requiring modest capital investment of approximately 3% across the 5-year period. We also remain focused on strengthening our balance sheet position. As Rick will discuss, we are currently in the market on the refinancing of our two year term loan, and overall, we seek to operate in a target leverage range of 1.5-2.5, and maintain a flexible financial position that will continue to allow us to invest in high return opportunities in the future. So in summary, this is a fantastic business and we see tremendous opportunity for continued value creation. We are delivering against our plans and our commitments, and we remain confident in our full year outlook. We are making substantial progress against our strategic initiatives, and we continue to build an amazing and inspiring culture here at Vestis, supported by our incredible, highly engaged teammates, who, quite frankly, are enjoying the thrill that comes with winning. I'm delighted with our progress and excited about what lies ahead for us. I'll now turn things over to Rick to cover the financials in more detail before we take your questions. Rick? Thanks, Kim, and good morning, everyone. Before I jump into the first quarter results, I'd like to remind you that prior year reporting is on a carve-out basis and does not fully reflect the additional costs associated with operating as a standalone public company. So turning to the first quarter results, revenue of $718 million increased 2.5% year-over-year. Excluding the impact of the temporary energy fee and foreign exchange, revenue grew 4.5%. Revenue from workplace supplies is up 4% and uniforms is up 0.2% compared to the prior year, with a balanced contribution from volume and price on an underlying basis. As a reminder, uniforms includes our direct sale business, which is down approximately 4% year-over-year, as we continue to optimize the business as part of our high quality growth strategy. As Kim noted, excluding direct sales, our uniform business grew 1% in the quarter. From a segment perspective, U.S. sales grew 2% and Canada sales were up 3%. The mix of growth between uniforms and workplace supplies within the segments was consistent with our consolidated results. Turning to profitability, first quarter 2024 adjusted EBITDA was $98 million, an increase of 7% year-over-year. The U.S. segment increased 13%, while Canada declined 5%. The favorable impact of operating leverage from revenue growth with existing customers, $7 million in carryover benefits from workplace optimization actions taken in the back half of fiscal 2023 and lower energy costs, more than offset the impact of increased labor costs, increased bad debt expense, and $3 million of incremental public company costs. Lower energy costs were driven by reduced fuel consumption from our route optimization efforts and favorable rates, primarily on natural gas utilized in our plants, which were in line with expectations. The increased bad debt expense year-over-year is because the prior year's first quarter profitability included the favorable impact of a bad debt reserve reduction to right size the reserve for improved collections that did not repeat in the current year. As a reminder, we continue to expect incremental public company costs of $15 million-$18 million for the year, inclusive of TSA payments to Aramark, as we build out our corporate structure and IT infrastructure. Profitability of our Canada segment was negatively impacted by increased merchandise amortization costs as we made strategic investments to improve product quality for our customers and higher than expected fleet maintenance costs. Overall, Adjusted EBITDA margin expanded 60 basis points year-over-year to 13.7%. Interest expense on our outstanding term loans was approximately $29 million in the quarter, and our effective tax rate was 27%, in line with expectations. All combined to deliver an Adjusted EPS of $0.22 per share for the first quarter of 2024. Moving on to liquidity. We generated $51.5 million in cash from operations in the first quarter, an increase of $43.5 million. Prior year operating cash reflects an inventory build in early 2023 to support growth and a $16 million payment of deferred payroll taxes under the CARES Act. CapEx was $17 million during the first quarter of 2024, up slightly from last year and in line with our expectations. Free Cash Flow in the Q1 was $34.6 million, with cash conversion in excess of 100% of net income. We ended the Q1 with $48.9 million in cash on hand and a net debt to EBITDA ratio of 3.85x. We recently launched a process to refinance our two year, $800 million term loan with a seven year Term Loan B, and we expect to close the transaction in the coming weeks. The term loan will mature in 2031, and our existing five year term loan matures in 2028. Once the financing is complete, our new capital structure will continue to provide us the flexibility we need to execute our strategy and support our capital allocation priorities, including achieving our optimal net leverage range of 1.5 to 2.5 times by fiscal 2026. Before we turn to your questions, I'd like to take a moment to discuss the full year outlook. As Kim mentioned earlier, we remain confident in our ability to deliver our full year guidance of 4% to 4.5% revenue growth and an adjusted EBITDA margin of approximately 14.3%. As we look forward to the balance of the year, we expect to see revenue growth patterns that are consistent with prior years. So if we look at the quarterly growth rates in fiscal 2023, adjusting for the impact of the energy fee in the first half, growth accelerates as we move through the year. We lapped the temporary energy fee at the close of the Q2 with a $13 million impact in Q2. Our initiatives to drive disciplined, high quality, profitable growth are gaining momentum, and we look forward to sharing more as we progress throughout the year. That concludes our prepared remarks, and operator, please open the lines for questions. The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Thank you. Our first question comes from Seth Weber with Wells Fargo Securities. Please go ahead. Oh, hey, guys. Good morning. Thanks for taking the question. I guess maybe, Kim, in your prepared remarks, you mentioned something about an opportunity to get more pricing as we're going through the year. I was wondering if you could expand on that a little bit. Yeah, certainly. Good morning, Seth. Thank you for your question. So we do see the opportunity to take some incremental pricing in the back half of the year. We've been very thoughtful and I would say somewhat moderated about pricing in the first quarter. You all know, we've been very diligent about passing through inflationary costs over the last year to year and a half in our business, and so we've been managing that and monitoring it very closely just to see customer attrition and, you know, modeling and understanding how customers are responding. So we have some carryover pricing that's still coming into our business from FY 2023 actions. And aside from that, we took very moderated, normal levels of pricing in Q1 related to kind of our typical annual price increase process. But we have been surgically analyzing opportunities to take price more strategically. I'll give you some examples around what I mean by that. What I mean by that is looking at customer cohorts and identifying groups of customers that may be underpriced on specific products, as an example. So we segmented our customers, and we identified customers who may have certain products or services that are below the average as it relates to price. So we will be taking price around certain specific kind of product lines with those customers. We've identified customers who may receive more than one stop in a week, but they're only being charged for one stop, and it's very appropriate that there would be incremental charges for multi-day service. So we've identified that cohort of customers, and we'll be taking price to charge those customers accordingly for multi-day service. Then we'll also take some more general pricing, but in a very surgical way, with a lot of analysis around which customers will be impacted, and what the current relationship and state and condition of the relationship is with that customer. So we definitely see the opportunity. We will be doing that in the back half of the year, particularly towards kind of the end of the second quarter, quite frankly, and then you'll see some of that roll through in the third and fourth quarter. Super, super helpful. Thank you. And then maybe, Rick, if I could ask a follow-up. Just the call out on in Canada, the higher investments for new merchandise and, you know, kind of elevated fleet maintenance costs, do you expect that to continue through the year, or is that more of a first half event? Or just how should we be thinking? You know, I guess the maintenance costs in particular, how we should be thinking about that? Yeah, so I'll kind of take that to start with, and then Rick, you can jump in if needed. So there are really kind of two drivers in Canada, as you heard from us. So you have a driver around some higher amortization costs related to some new product that we injected into the system, really for customer satisfaction. Some of it was for new business, because you can see those growth rates in Canada. But we also made a purposeful decision to inject some new products into existing customers, really kind of self-funding quality, if you want to think about it that way, in the name of customer satisfaction. So those products carry amortization costs, so you'll see them with us for a while until we lap, you know, the amortization of whatever those particular products was, you know, was based on their life cycle. And then as it relates to fleet maintenance, we've actually done a great deal of evaluation related to the Canadian fleet, and we found that historically, before my time and before we brought in new logistics leadership, the Canadian fleet wasn't really a part of the central procurement strategy as it relates to allocating new fleets and new assets to the field. And so we found an opportunity to start upgrading the age of the fleet in Canada. And before that opportunity was identified, they were driving more than normal maintenance costs. And so that's what caused us to ask the question, "Hey, what's happening with maintenance costs in Canada? Right. As we evaluated that, we discovered that the Canadian fleet was significantly older than the U.S. fleet. So we recognized an opportunity to inject some more assets. And it's really not about injecting more CapEx in our total system. It's just about redirecting some of the fleet that we would have put into the U.S., into Canada. So they're slated now to get about 102 new assets in their market, in the fiscal year, and over time, that will help improve the age of the fleet, and it'll start lowering that maintenance cost. So, it's hard to tell you exactly when you're going to see that, cost dissipate a hundred percent, but we certainly know that we're taking the right actions by upgrading the age of the fleet, and you'll begin to see that maintenance cost roll off over time. Appreciate the color. Thank you, guys. Take care. You bet. Thanks, Seth. The next question comes from Shlomo Rosenbaum with Stifel. Please go ahead. Hi, thank you very much for taking my questions. I thought I would just start with how progress you're seeing in terms of the cross-sell. It's a major focus for the company, and, you know, are you seeing that kind of progressing, strengthening as the quarter goes on? And maybe just take the opportunity to discuss the overall selling environment, and maybe I'll follow up after that. Yeah, certainly, Shlomo, good morning, and thank you for joining us and for your question. So to begin with, on cross-sell, which, to remind everyone, is really leveraging our outstanding route service representatives who are servicing, you know, our customer on a weekly basis to also cross-sell existing products and services to them that they're not using today. And if you guys will recall, we called out in the Analyst Day that about our customers are only using about 30% to 40% of the available products and services. So it is a key component of our strategy to cross-sell the base and to gain share of wallet with existing customers, increase revenue per stop. We are very pleased with the way that our route service representatives have embraced this as a new part of our DNA, and a part of our go-forward strategy. So we are seeing momentum build. In fact, you might have heard me call out that when you compare routes that had selling activity on them in Q1 of this year versus Q1 of last year, we're seeing roughly a 25% increase in selling activity. So we know that we have earlier in the year than we did last year, more activity around route sales. We're in the middle, as an example, right now, of a route sales contest, which is where we get a dramatic lift in revenue per stop with our route service representatives, and we are definitely seeing momentum build around that as we launch the contest, which is a normal part of our cycle, and we expect it to do that. So we feel very good. You know, it'll be a while before you actually see the number of products and services per customer move dramatically. So we're not going to try to share that metric every quarter because it would be rather static. But probably on an annual to eighteen-month basis, we'll re-look at the total number of products and services used per customer and use that as a proxy for success as well. But we feel really good about the progress around route sales, and customers are quite engaged around adding additional products and services. Secondarily, to the second point of your question around the general selling environment, we're also seeing really good progress with our frontline account executives, driving revenue per head, and we're working very hard to continue to grow new business, particularly in those target micro verticals that we spoke about. And so we've gone about building go-to-market strategies for those eight micro verticals. They're all in different stages of their life cycle, as you can imagine. But, you know, auto was the example that I gave on Analyst Day. We're seeing very good progress penetrating that sector. We're seeing leads up in that sector. We're seeing close rate up in that sector. As an example, we see, you know, a 1% improvement in the revenue contribution from automobile dealers now that we have focused on that vertical, just to give you an example. Overall, we feel good about our progress. We do anticipate a ramp up as we move through the year, very similar to the patterns that you saw last year, in our business as you see growth accelerate, and then also keeping in mind that we'll lap that temporary energy fee at the end of the second quarter. Okay, thank you. Just maybe, Rick, maybe you could just talk a little bit, the growth is supposed to accelerate through the year. Maybe you could give us a little bit of a bridge. There's a couple of moving parts over here. You have, you know, in the beginning of the year, I believe there's a rationalization of the direct sales, kind of one-off in the SKUs. You had a strategic exit of a client that's supposed to go on, and then you have kind of pricing that's supposed to kick in later. Is it—can you kind of bridge us in how we should think about the cadence of growth through the year and how these different items will impact the revenue, you know, for the next three quarters? ... Sure. So, on a prior call, we talked about a direct sale customer that we were parting ways with, and that was $13 million in the back half of the year. So we kind of quantified that, and you should expect to see that. That's in our direct sales, so that will impact on a reported basis. You'll see that in uniforms. As we look at how we progress through the year, we've got another quarter here in Q2 that has energy-free pressure, and so the growth rate year-over-year will, that'll be a headwind for that growth. What we wanted to make sure everyone understood, because we're not, we don't guide the quarters, but the progression will be very similar to what you saw in prior years and in particular 2023. So we're reporting 2.5 here, and then we've got another quarter with a $13 million headwind here in Q2, and then as you continue to see growth rates advance, and then in Q3 and Q4, although you will see a $13 million direct sale headwind, we still expect to see accelerated growth in those quarters. Because as we said in our year-end call, we knew that was out there, and our guidance has already factored that in. Okay, thank you. The next question comes from Andy Wittman with Baird. Please go ahead. Oh, great. Thanks for taking my question. You had a comment in your prepared remarks about optimization events, and I just was hoping that you could talk about what those are. I think you mentioned there were 13 of them. Just trying to understand the significance of what one optimization event could be, and how we should think about these types of things unfolding throughout the course of the year and what they can mean to the profit margin profile. Absolutely. Good morning, Andy. So when we are referencing the optimization events related to logistics and routing and scheduling, I'd take you back to our strategy when we spoke a great deal about optimizing our routes and building our logistics muscle. And we spoke about the very intensive study that we did with Chainalytics around all of our flows between our plants and our customer locations, and the opportunity to optimize those flows. And you may remember in Analyst Day, we gave some case studies around some specific markets and going in and rerouting customers to the proper plant location, but also looking at our cross-docks and depots and where those are located, and identifying opportunities to drive less miles to serve our customers, essentially. And if you just kind of summarize it, that's really what we're doing, is we're reducing empty miles across the system, either through mapping customers to the right location, making sure drivers make all right turns on the routes and that they're being efficient with how they drive, or also just looking at cross-docks and shuttles that we're doing to drive wasted miles to serve customers through cross-docks versus directly from plants. And so when we talk about these events, these could be markets or groupings of routes in really large markets where we're going in and actually running optimization, replanning routes and putting customers in the right plants on the right routes, and resetting that process. And so when we say that we've already done 13, pictures, you know, last year we did a total of 26, and so what we're trying to emphasize here is that in the first quarter, we've already done half as many as we did last year. And so we're building momentum around that. And when we first started, you know, we had to build the muscle and teach the organization how to do this. I spoke a little bit about, you know, ensuring that we got the change management right, that we were engaging with customers, that we were doing the handoff and the change effectively and creating no disruption for our teammates or for our customers. So we were kind of going slow in the beginning, not slow, but in a moderated way to make sure we did this thoughtfully. Now we're starting to ramp this thing up and we're gaining more traction. We modeled doing kind of a right sizing over the five-year period, but at the same time, we're also institutionalizing these tools. So when I talk about adding the telematics across all of our fleet, that's so we can ensure that we're running routes in compliance with how we'd like to do that. And also, when we talk about Dispatch Track being implemented as our routing and scheduling tool, now it's a dynamic tool. You know, every time we win a new customer, we're properly adding it to the right route through the lens of logistics. And so, I would think about it as there's a great one-time resetting that's taking place that drops out dollars in terms of reduced fuel and lowering empty miles. And then there's also this, this building of this muscle that makes us smarter and better every time we add a customer and run a route, in perpetuity. So that's what we're speaking about, Andy, when we talk about these events. That's really good color. Thank you. I guess for my follow-up question, I wanted to ask just kind of about the macro that you're seeing out there. If you could just talk maybe about the level of a benefit that you might be getting from added wares or at your existing accounts, or I guess the amount of wins that you're getting from customers that have not been a user of a rental program in the past. So we are seeing conversion of non-programmers. So when we talk about our account executives out selling, we really enjoy that particular prospect. And so a lot of our focus while we're out on selling new business and prospecting, you know, potential new customers are around non-programmers. And so we are seeing good growth with our account executives, with new business, new customers around non-programmers, certainly. And that is a key focus for us, quite frankly. As far as trends around add wearers, quite frankly, it varies by end market. You know, we're quite diversified, as you know, in a lot of different end markets. And so we are seeing some, like I'll give healthcare as an example, where we're seeing good growth in healthcare. There are others where, restaurants, as an example, where we're actually seeing more closures and more customers that are closing business or going out of business. So it really varies by vertical, Andy, and we're kind of managing that tactically by end market. ... Thank you. You bet. Thank you. The next question comes from Stephanie Moore with Jefferies. Hi, good morning. Thank you. Hey, Stephanie, good morning. I wanted to maybe touch more, a little bit more so on the margin expansion opportunity. I think, you know, very nice progress in the quarter. You called out an improvement in fill rates that you're seeing and just your inventory reuse program gaining traction. Could you talk a little bit about maybe frame it from an innings perspective, where you are in this inventory reuse program? If you can provide any kind of specific KPIs of the maybe benefit you're seeing at the facility level from some of the early initiatives that you've made, any update there would be great. Thank you. Yeah, we're very pleased with the progress we're making around the reuse of merchandise, and, you know, we think about this as a very long-term strategic initiative. So as you all know, as we launch new customers, we inject new product in the system, and the amortization clock starts ticking. Every time we issue a new product, we start the clock on amortization, and that amortization stays with us for a period, depending on what the product is and what the amort timeline is that's been set. This initiative around improving the use of existing garments that are already either amortizing in our system but not being used currently, or perhaps they've rolled off and there's no amortization tied to them, we essentially already paid for them, and they're sitting in our stockroom. So we have launched a series of initiatives across our stockroom around teaching our teammates how to better reuse these existing assets that are either partially amortized or fully amortized. We are seeing a tremendous response from our field team, and we are already, I would say, starting to see a step change, kind of embracing of the idea of pulling these fast-moving SKUs to the front of your stockroom and injecting those to customers rather than injecting new. So you would have heard me mention in my script that we saw, you know, across more than 100 facilities, we're already seeing a really strong improvement around the use fill rate. It takes time for that to actually flow through the financials because you still have the other products in the system being amortized. So you should think about this in about a year. We will be coming back and talking with you about the improvements that we're seeing around not only amortization, but also inventory, and the management of cash related to inventory, because this is a play as it relates to cash management and also a play relating to pushing down OpEx costs by kind of pushing down that amortization curve by injecting reused garments. Just as a reminder, on Analyst Day, we talked a little bit, a rule of thumb, a percentage point of improving our use fill rate. You asked for a metric. We're really using a metric called use fill rate. So for every issue that we do to a customer on how many are used garments versus new garments, and you get about $1.4 million in savings for every percentage point that you improve. And I'll tell you, we have a lot of percentage points of improvement opportunity. So more to come on this one, but I would not think about this in the year. I would think about this very strategically. This is a long game, and it's going to be extremely beneficial, once we see some of that old amort roll off, and then we start to continue to inject these new to offset the need for new garments. Great. No, that's, that's very insightful. And then maybe just a follow-up to the first question in the Q&A on the pricing side. You know, maybe, you know, it was kinda... I think my understanding that the guidance at first didn't really account for, you know, a ton of pricing this year, for, I think, obvious reasons, just given what we're seeing in inflation and really the opportunity that you have on your side. Now it sounds like you do have some opportunistic op areas to take price, which I think you explained very clear and exciting. So is, does this more so give us more? Should we think about it as driving, you know, incremental comfort in achieving the guidance for the year? Could it drive potential upside? How should we think about maybe this change on the pricing front? Yeah, I would think about it as additional comfort to give you confidence, such the same confidence we have, that we're gonna ramp up the growth rates in the back half of the year and deliver against the, you know, the 4% to 4.5%. So, and certainly, you know, we're gonna be opportunistic and take price whenever we can. But we do expect to also see our volumes ramping around our route sales average when we look at our route drivers and around our AE sales. We have initiatives in place to continue to ramp. But yes, you should think about pricing as a providing a level of comfort that we have that lever as well, and we're being very thoughtful about how to use that lever. Yeah, and the surgical pricing was in our guide. And so if you remember, we talked at Analyst Day, the disciplined pricing that Kim led with, but that there were opportunities for surgical pricing. Yes. We're really just capitalizing on that. We knew it was out there, and we're giving you the flavor of the timing so that you can help understand the progression of revenue. Okay. No, that's, that's clear. Thank you, guys. Thank you, Stephanie. The next question comes from Andrew Steinerman with J.P. Morgan. Hi, Kim. I thought maybe we could spend a little bit more time on Chris's leaving. You know, he was COO for really kind of a brief stint. It was great spending time with him in September. You've labeled it as a, you know, leaving for personal reasons. So I just wanted to make sure when we say personal reasons, that means it's totally unrelated to Vestis's, you know, management, business, et cetera. And then also, are you gonna hire somebody in that COO position now that Chris has left? Yeah. Thank you, Andrew, and thanks for joining us today. So, I will briefly address just Chris's departure. So Chris has made the decision to leave the organization, as we said, for personal reasons. And, you know, just so everyone understands Chris's timeline, he was with us for a very brief time. So Chris joined on 11 September, a couple of days before Analyst Day. Analyst Day was on the 13th. So I want to reassure everyone that Chris's departure does not impact our strategy or our ability to deliver against our strategy. You know, this plan has been in motion for a very long time, for the 2.5 or 2, 2+ years that I've been here. And so we feel really confident that we will continue down the path that we are down. That path was well in motion before his arrival. He's made the decision to depart, and we wish him all the best, and, you know, thank him for the few months that he was here and for the time that he contributed. But Andrew, I can assure you that I have no concerns about our business, our business performance, and how we're tracking against our strategy. As it relates to backfilling, I'm actually very excited that the team is back reporting to me. So, they were essentially reporting to me before we created this COO role, and for now, they're all going to continue to report back into me. They're aware of that, and they're excited about that. I'll remind you guys, you know, I am an operator. I've been a COO. I love, love getting down into this business and, and helping make this business better, so I'm actually quite excited. So we're going to take our time and be very thoughtful. Our organizational design will evolve, whether that's another COO or that's a, you know, two in a box with a field leader and a salesperson, we'll figure all of that out in due course. Right now, I'm pleased to have the team back with me. We have great momentum, and we're going to continue down the path that we're on. So we feel very good with no concerns regarding Chris's departure. Thanks, Kim. You bet. Thank you. The next question comes from Manav Patnaik with Barclays. Please go ahead. Hi, good morning. This is Ronan Kennedy on for Manav. Thank you for taking my question. I was hoping that you could please comment on retention, the trends and the drivers, whether it's service quality, you know, the predictive analytics, the digital tools, and conversely, what reasons for attrition would be outside of the deliberate exits, say, specifically within uniform direct sales? And then also, any further color on drivers of new business beyond the non-programmers, specifically as to how and why Vestis is winning? Sure. I mean, I think I didn't catch your name. Yeah, we didn't catch your name. I'm sorry. Who is this? Sorry, it's Ronan Kennedy on for Manav. Oh, okay. Okay, yeah, sorry. I, I couldn't hear you. Good morning. So we'll start with retention. Sure. So just to take you back, you know, we have been talking about retention, and using the stat greater than 90%, which is what we filed in the Form 10, and we continue to maintain retention above that level. So I'll start there, that we have no real surprises as it relates to retention, and we're where we expected to be for the most part. We did talk about some attrition as it relates to direct sale and some strategic decision to kind of throttle down. So you'll recall, in our full year earnings for FY 2023, I shared with you a large direct sale customer that will be rolling off, partially in the back half of the year and partially in FY 2025. So we do expect to see that in our numbers. We also have, you know, from time to time, a large national account that may choose to go elsewhere or to self-serve. So you're always going to see some of that. Those are larger events. They happen as a part of an RFP process. But generally speaking, when you look at the rest of retention and you look at reason codes to answer your question around why would you see customers leave, we are seeing small to medium enterprise customers with an uptick in business closures. And so just important to note, as we look at reason codes, we are monitoring that very closely. And it's also when you try to drill it down a little bit further, you can see a trend. As an example, in Canada, there's a trend with restaurants. So when you look at what is happening around business closures, particularly with small to medium enterprise, we're going pretty deep and granular to understand what are those patterns and trends around why customers leave. We're seeing a slight uptick in customers going out of business in those small to medium enterprise verticals, particularly around restaurants, as an example. So we're managing that and monitoring that very closely. Conversely, though, we have a lot of opportunity to self-serve and help ourselves as it relates to retention. So we're actually quite focused on a series of initiatives, everything from improving the customer experience with the digital portal that we've talked about to actually changing incentives for our field team around customer retention, as an example. So we have a whole series of initiatives designed to put the customer first, to drive customer satisfaction, and to help ourselves. And quite frankly, in this model, the single best way to grow is to retain the customers you already have. So we're very focused on doing that, but also at the same time, understanding why customers might leave. So we've got a lot of work going on around this tower, and we just brought on a new Chief Commercial Officer, Steven Mohan, who has been here, I think less than 60 days now, and he is already all over, digging in and understanding these causal factors and putting programs around them. So we feel good about our future, our long-term future as it relates to retention. That's very helpful. Thank you. And then can I just ask for your comment on trends with regards to your input costs? Obviously, you touched on the energy and the related surcharge or lack thereof for the H1, but also what you're seeing from a material inflation standpoint, labor dynamics, especially in consideration of the higher unionization, et cetera. Sure. So from a labor perspective, we're seeing, you know, a little over 5%, which is what we expected coming into the year. And so as we've talked before, the union contracts give us pretty good visibility to what that rate might look like, and we are kind of on plan relative to labor. And that it's manifesting itself even on our retention of our existing workforce that's improving year-over-year, which is giving us some operating efficiencies as well there. From an input cost perspective, we aren't seeing, parking energy for a second, we're not seeing significant movement in our input costs that will drive any type of variance in the current year. And we continue to monitor that, monitor our suppliers, and have a good forward view of inventory requirements and costing. And our Mexico facility also gives us a lot of opportunity to head off supply chain both disruptions as well as unnecessary, from our perspective, cost increases. And so feel good about the material costs. From an energy perspective, we talked about the fuel service charge, but we also, as we said last time, are seeing in the front half some favorable energy costs, driven primarily by rates. And we expected to see that. You'll probably continue to see it in Q2. We believe it'll flatten out as we get here in the back half of the year. So no change in our expectations on energy. Thank you very much. Appreciate it. Thanks. The next question comes from George Tong with Goldman Sachs. Hi, thanks. Good morning. Hi, George. Good morning. Hello. In the uniforms business, you mentioned growth was 1%, excluding the moderation from direct sales. Can you discuss some of the factors you're seeing that may be causing uniforms growth to come a bit below some of what your competitors are seeing, where growth is tracking somewhere north of 5%? Yeah, so a couple, couple of things I would say first, and then I'll directly answer your question, is also, you know, keep in mind that uniforms is not always apples to apples across us and our competitors. So just making sure that you're dissecting what's inside those uniform categories. For us, it is just uniforms. And so we'll start there. The ADS impact is very clear and known. I think you guys are pretty well aware that we're purposefully throttling that down and being very mindful. And we were getting good growth rates in uniforms in historical periods prior to this strategy from ADS. Quite frankly, sometimes we used it to prop up the growth rates, just to be honest with you. Not that there's anything wrong with doing that, but it's not a margin accretive strategy. So we have purposefully said, "Hey, time out, let's tone this thing down." Our ADS direct sale team members are doing a great job selling the right stuff to the right customers. So we're very pleased and, and proud of them for doing that. So when you normalize for that purposeful decision to throttle down, you do get a 1% growth rate. So thank you for pointing that out. I think that's really important. It's also important to note that we've got a couple of things that are happening. I mentioned the, we are growing in this space. Obviously, I mentioned the eight micro verticals and that we're going to market very surgically and targeting very specific verticals with a propensity for cross sell. That is very moderated growth, so not all verticals are equal. We're not targeting everything aggressively. We're being very smart about which leads we're pursuing and which customer types we're pursuing. So that also has an impact on the growth rate, because we're not just growing for growth's sake. We're growing in a very targeted way so that we can get margin expansion and the propensity for cross sell. I did mention that we do see an uptick in business closures as it relates to our SMEs, so that also has an effect on the number as it relates to the impact of retention on the uniforms number, and we're very transparent about that. We're very aware of it, and we're managing that very closely. And then we also have a national account loss, but we haven't talked about it a lot because it wasn't a strategic loss. It was an unfortunate loss from our clean room business last year, and it was a loss that continued to flow through in the first two quarters of this year, which also affects that uniforms number. And again, we haven't talked about it a lot because it's a regrettable loss. It wasn't part of our strategy, but it's just part of the nature of doing business. So we also had, George, that impacting our growth rates in the uniform sector in the period, and we will see that loss still impacting us in the second quarter of the year. So just keep that in mind as you're looking at the business, because we, you know, while we regret losses like that, the underlying health of the business is tracking exactly like we want it to track, with AE sales up, targeting the micro verticals and getting the RSR cross sells on the workplace supplies. We feel very good about the underlying health of the business, despite some of those factors that are muting the uniforms growth rate. Yeah, very helpful color. Thank you for that. And then you mentioned progress with driving new business growth in your eight new micro verticals. Can you share some additional details on your micro vertical strategy, traction with growth, new examples to provide beyond auto dealerships, and perhaps how much new business is coming from your micro verticals? Yeah. So they're all in different life cycles. So, you know, auto dealer is the one that I've chosen to share publicly. We're not gonna talk about the other seven specifically because we don't want to give away all the hard work we did on our growth strategy to others, and we think it's competitively sensitive. But I can tell you that we are methodically tracking our go-to-market progress in each of these eight micro verticals. And the way that we have approached this is that we're all in different stages of life, so some are easier to ramp and faster to move because we're already aggressively in the vertical. We already have the capability to sell, and anybody can sell it, right? So if you're selling to an auto dealer, it doesn't take a specialized salesperson. Any of our account teammates can be equipped with training and collateral and go in and sell to an auto dealer. So that's a vertical that's moving very quickly because we said, "Let's go." We're already doing that very well out on the West Coast, which I think I shared that example with you guys in Analyst Day. So that's an example of a targeted micro vertical that we're already penetrating. And I used that example a moment ago when someone asked the question earlier. But we're measuring things in each of these micro verticals, and they're metrics like sales activity. So how much sales activity, meaning how many leads did we have with these customers, and how many calls did we do with these customers last year versus now that we're in the vertical? We're tracking that metric. Auto dealers, as an example, sales activity is up 19%. Then we're looking at, okay, the sales activity is up, are we actually winning any more business? So then we're also measuring total win opportunities before we aggressively focused on this vertical, and now. As an example, auto dealers is up 2%. So our win opportunities, how many new business opportunities are we winning, is up 2%. Then we're also looking at how much weekly revenue are we getting from this vertical, and are we seeing improvements in the vertical? In auto dealers, in Q1, we have a 47% increase in weekly revenue. So again, another great piece of data that tells us that we are gaining traction in this micro vertical. So these are the kinds of things that we're measuring by vertical, and the life cycle is different depending on the vertical. There are some that are more complex, and the go-to-market strategy and the build-out is taking longer, and we'll eventually see the same results in that vertical as we do in auto dealers, as an example. And over time, when our mix really shifts, you'll probably see us evolve the actual end markets that we talk about, and we'll segment our revenue. But this is very early days. You're not gonna see enough shift in the mix yet for us to kind of change the end markets that we're talking about. But over time, you will learn about these other micro verticals, these more specific targets, and we'll talk about them. But for now, we'll stick with auto dealers just as the example. So I hope that was helpful, George. Yes, very helpful. Thank you. The next question comes from Michael O'Brien with Wolfe Research. Please go ahead. Hi, good morning, guys. Thanks for taking my question. Two quick ones here. Regarding contract renewal, are you guys seeing any disruptions regarding the separation? Sometimes when you see these new Spin Cos come out, you see some issues going on with contract renewals with their existing clients. And then the second question is, regarding the margin expansion opportunities, is stranded cost reductions factored into your 2024 guidance? Thank you. Michael, good morning. Thank you for your question. We'll start with contract renewals. We have had, I would say, a seamless transition as it relates to our customer agreements and our relationship with our customers as we've spun out. So, the agreements were transferable. They directly move over to Vestis, and so we have not had to go out to customers and repaper or renew contracts as part of the spin. So the spin activity itself did not trigger the need to reengage the customer around the contract. We've been very clear with customers, and we used talking points at the beginning when we spun out that, "Hey, your contract is just eventually going to say Vestis on it instead of Aramark Uniform Services." And we have had no friction as it relates to that at all, and customers have continued in their current relationship with us with no drama, if I can use that phrase. So no, no concerns there at all, we feel very good about that. As it relates to stranded costs, we actually have done an amazing job pre-spin of making sure that we right-size this business, and you guys might remember that we talked about stripping out about $28 million of back office and build costs pre-spin so that we could prepare for the ingestion of Pubco costs. So we feel really good that we're running a tight operation, that we're not sitting on waste other than, and I won't call this waste, it's just a necessary cost of spinning. There is duplication of cost in our system as it relates to paying Aramark for a TSA for certain services while we are ramping up, in particular, our IT team to be prepared to stand alone and support us as it relates to IT infrastructure and cybersecurity. So there's some duplication of cost that will take place kind of in the first year, and we've been pretty transparent about that as well. But otherwise, we were operating quite independently from Aramark. Our business models are completely different. We're running on separate systems, separate teammates, separate functional structures. So, we feel like we're in a really great place and, and we're operating quite efficiently. Okay, great. Thanks for the color. Thank you. We have time for one more question, which comes from Scott Schneeberger with Oppenheimer. Please go ahead. Thanks. Good morning. One for each of you. Rick, real quick, just curious, you mentioned the DSO tick up, but you mentioned it, you kind of spoke it all away as, oh, it was a tough year-over-year comp from the one-time event prior. Just curious, because, we've heard over the course of the call some small business issues in Canada. Just, if you could just clarify that it was uniquely the comparison and nothing else is amiss there that we might see in upcoming quarters. And then just one separate one I'll ask. Kim, you mentioned incentives that you use with the field on the cross sell. I'm curious, how fluid have you been in the use of those incentives? Is that something new? Is that something that's been ongoing? And are there any new initiatives with regard to these field enhancements, sales enhancements that you're initiating? Thanks for taking both. Sure. So from a DSO perspective, so my comments spoke to the bad debt expense year-over-year, and the majority of what we're seeing in terms of a negative comp is we trued up the bad debt reserve that was on our books last year. And that was a result of carrying higher reserves coming out of COVID to acknowledge the exposure, and we finally trued up the last portion of that in the 2023 first quarter. And so you're seeing last year, we had some strong variability in bad debts because we effectively reversed a reserve. This year, to your comment on DSO, we're not seeing a meaningful movement year-over-year in DSO that's driving negative activity. And so that's why we really called out that this is, although, as Kim noted, we do see some of the SMEs going out of business year-over-year, the big driver for us relative to bad debt is that reserve reversal. That actually is a headwind, and we're still delivering margin expansion despite not having that in the current year. Yeah, and I would just add to that, we have a very concerted team focus on bad debt down to the market center level. So our teams, in coordination with our accounting team and our collections team, work very diligently around identifying customers of concern. We have a weekly process where teammates between market centers and collections are on the phone working through which customers do we need to be engaging with. So I feel like we have a very good handle on managing DSO and bad debt, and we are in a much better place than we were a couple of years ago. I think we've really matured as an organization to collaboratively drive down bad, bad debt with our customers. And to Rick's point, you're really looking at kind of a one-time step change that took place last year. I'm very proud of our team, that we're, that is really, it is a headwind for us, and we're overcoming that and still driving margin expansion in the quarter among the Pubco costs and many other things that are entering our system. So I think it really demonstrates to the market the underlying performance here is very, very strong. As it relates to your question around incentives for frontline sales teammates, particularly our route service representatives, who are doing such a great job selling, we are very pleased with the incentives that we have in place for them, and what we've been doing now is helping them understand what this means to them financially. And so I've mentioned before that we have always had provisions inside our collective bargaining agreements that allows us to pay our teammates commission, our frontline RSRs commission for selling. What we haven't done well in the past, and we're doing well now, is actually calculating for them what that means. So on your route, you have a certain number of customers that have the ability to buy more products and services, and here's what it means to you financially, to you personally, as you cross-sell these customers and get the commission and also make your route more valuable. So we have worked very diligently now to start putting that information in front of our frontline teammates so that we can motivate and inspire them to sell more, so that they can provide more and better for their families. So we think that we're making a real connection now between what the opportunity is for the company and what the opportunity is for the frontline teammates. So we're not actually changing the incentives in the agreement. We're just helping them understand how valuable they can be to them. We do have also sales contests, which are a ton of fun and very important to this process as well, because they inspire and excite and engage our teammates across the field around competing against one another to sell. And there are all kinds of things, from prizes and dollars to just plain old bragging rights, that allow people to get also excited about winning and building that muscle around selling. The other thing that I had mentioned on incentives, which is not related to sales, and it might have been what triggered your question, is we actually changed our field incentives this year around retention. So as we're getting our teammates focused on, you know, the single best way to grow, which is keep the customers you already have, we actually modified some of our management team out in the field, our frontline management team incentives, to link their bonus incentives to include retention metrics. And we think that is very important to make sure that we're very focused on the customer experience. So that's where we stand as it relates to incentives, Scott. Hope that was helpful. It was. Thank you both. You bet. Thank you. This concludes the Q&A portion of today's call. I would now like to turn the floor over to Kim Scott, President and CEO, for closing remarks. Thank you. I would like to thank everyone for joining today to learn more about Vestis or to hear more about how we're progressing against our strategy. I could not be more pleased with our outstanding teammates and the great work that they are doing to advance this strategy, and we feel so strongly that the value creation opportunity here is simply tremendous. Hopefully you enjoyed learning more about our progress today, and we look forward to talking with you again after the Q2. Thanks for joining. Thank you. This concludes today's Vestis Corporation fiscal Q1 2024 Earnings Conference Call. Please disconnect your line at this time and have a wonderful day.