Vestis (VSTS) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for fiscal 2023 was $2.8 billion, up approximately 5% from fiscal 2022, with adjusted EBITDA of $404 million, an increase of approximately 8% year-over-year [18][19] - Adjusted EBITDA margin expanded by 42 basis points to 14.3%, despite absorbing $12 million in incremental public company costs [22] - Free cash flow was $190 million, up $27 million from the prior year, with cash from operations increasing to $257 million [24][25] Business Line Data and Key Metrics Changes - Workplace supplies revenue increased by approximately 9% year-over-year, while uniform revenue remained flat [18] - U.S. sales grew by 5.2%, and Canadian sales increased by 4.1%, with the growth mix consistent across both segments [18] Market Data and Key Metrics Changes - Currency fluctuations negatively impacted growth by 60 basis points during the year [18] - The company is focused on cross-selling workplace supplies to existing customers, contributing to revenue growth [10] Company Strategy and Development Direction - The company aims for revenue growth of 4% to 4.5% in fiscal 2024, which is above historical norms of approximately 2% [9] - Strategic initiatives include high-quality growth, efficient operations, and disciplined capital allocation, with a focus on optimizing revenue mix and reducing costs [10][12] - The company plans to exit a relationship with a large direct sale customer, which is expected to improve consolidated margin by approximately 3 basis points on a fully annualized basis [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to maintain EBITDA margins while absorbing public company costs, projecting healthy revenue growth and margin expansion [16] - The company is optimistic about its strategic initiatives and believes it is well-positioned to navigate the operating environment [66][67] Other Important Information - The company expects to incur an additional $15 million to $18 million in public company costs in fiscal 2024, while maintaining a focus on operational efficiency [22][27] - The company has a target leverage ratio of 1.5 to 2.5 by fiscal 2026 and plans to refinance its two-year loan in the second quarter of fiscal 2024 [26] Q&A Session Summary Question: Guidance for fiscal 2024 and components of organic growth - Management expects growth to be driven primarily by volume through cross-selling, with modest pricing adjustments to offset inflation [32][33] Question: Trends in uniform business growth - Uniform growth is expected to be muted due to strategic exits from lower-margin customers, while workplace supplies will continue to see momentum [34][37] Question: Size of the direct sales customer impacting margins - The customer in question generates about $26 million in annual revenue, with a projected impact of approximately 222 basis points on uniform growth [39] Question: Reporting EPS in future guidance - The company plans to report adjusted EPS in future quarters, having decided not to include it in the current fiscal year due to the recent spin-off [40][41] Question: Key initiatives for margin improvement - Focus on cross-selling existing customers and optimizing logistics to enhance operational efficiency and profitability [44][46] Question: Demand trends in key verticals - The company is seeing stable demand across various end markets, with a focus on cross-selling to existing customers [66][67] Question: Trends in medium-sized enterprises versus national accounts - Both segments are valuable, with national accounts providing stability and SME customers showing a willingness to outsource additional services [77][79]