Good day, everyone, and welcome to the Cintas’[Author ID1: at Thu Jun 3 07:08:00 2021 ] Quarterly Earnings Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Paul Adler, Vice President, Treasurer,[Author ID1: at Thu Jun 3 07:08:00 2021 ] and Investor Relations. Sir, please go ahead.

Good morning and thank you for joining us. With me today is Scott Farmer, Cintas’ Chairman of the Board and Chief Executive Officer; Todd Schneider, Executive Vice President and Chief Operating Officer; and Mike Hansen, Executive Vice President and Chief Financial Officer. We will discuss our third quarter results for fiscal 2021. After our commentary, we will be happy to answer questions. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the SEC. I'll now turn the call over to Scott Farmer.

Thank you, Paul. Good morning, everyone. The COVID-19 coronavirus pandemic continues,[Author ID1: at Thu Jun 3 07:13:00 2021 ] and it remains a significant disruption to the economy. Our fiscal third quarter,[Author ID1: at Thu Jun 3 07:14:00 2021 ] which included the months of December, January,[Author ID1: at Thu Jun 3 07:14:00 2021 ] and February was particularly challenging. COVID-19 case counts surged from about 180,000 on December 1 to a peak of little over 300,000 on January 8. Not surprisingly, economic indicators reflected an economic recovery that slowed considerably. In December, the U.S. economy posted job losses again after seven straight months of job gains. The operating environment was also challenged by severe winter weather. The snow and ice storm in February caused extensive energy blackouts in the U.S., especially in the state of Texas. Despite a very difficult operating environment in late December and into January, our sales rep productivity remained strong and our employee partners persevered enabling us to offset the headwinds and get to flat on a sequential basis. On top of that, we were able to help our customers with large supplies of personal protective equipment before the end of the quarter. We provided more personal protective equipment than ever, enabling us to exceed our financial expectations. Also, on an organic basis, our quarterly revenue was flat year-over-year, a strong accomplishment considering the comparison to the prior year quarter that was not impacted by COVID-19. Looking ahead to our fourth quarter, we expect lower COVID-19 case counts to be the foundation for improved operating environment. We do not anticipate that personal protective equipment sales will be as strong, so fourth quarter revenue in this product line will decline sequentially. However, we believe that our recurring revenue service -- service revenue will increase solidly on a sequential basis after being flat in the third quarter. Mike will provide more information regarding our fourth quarter guidance soon. Regardless of the operating environment, our employee partners worked with urgency to get businesses ready for the workday[Author ID1: at Thu Jun 3 07:30:00 2021 ]Ready for the Workday[Author ID1: at Thu Jun 3 07:30:00 2021 ]. Companies want to open their doors every day with confidence that they’re ready for their employees and their customers. We helped businesses achieve that objective by providing a wide range of products and services that enhance our customers' image and help keep their facilities and employees clean, safe, and looking their best. For over 90 years, Cintas has accomplished getting businesses ready [Author ID1: at Thu Jun 3 07:30:00 2021 ]for the workday[Author ID1: at Thu Jun 3 07:30:00 2021 ]Ready for the Workday[Author ID1: at Thu Jun 3 07:30:00 2021 ] in numerous ways, including providing hygienically clean uniforms to auto manufacturers, for example, so that the workers can safely build their cars; restroom supplies and services to professional services firms so bathrooms are ready for use by employees and clients. Hygienically laundered towels to coffee chains, so B[Author ID1: at Thu Jun 3 07:22:00 2021 ]b[Author ID1: at Thu Jun 3 07:22:00 2021 ]aristas can serve their coffee lovers, first aid products to restaurants to address the cuts and burns of the kitchen group, and test inspection and repair services of fire extinguishers and alarm systems to facilities' managers to protect employees and customers from danger. The COVID-19 pandemic assured [[Author ID1: at Thu Jun 3 07:24:00 2021 ]ph[Author ID1: at Thu Jun 3 07:24:00 2021 ]] [Author ID1: at Thu Jun 3 07:24:00 2021 ]in for business as a new era of readiness. Getting ready for the workday[Author ID1: at Thu Jun 3 07:30:00 2021 ]Ready for the Workday[Author ID1: at Thu Jun 3 07:30:00 2021 ] today also includes taking actions to prevent and reduce transmission of viruses and bacteria. Our solutions for getting businesses ready for the workday[Author ID1: at Thu Jun 3 07:30:00 2021 ]Ready for the Workday[Author ID1: at Thu Jun 3 07:30:00 2021 ] include providing hygienically clean scrubs to dentist offices,[Author ID1: at Thu Jun 3 07:24:00 2021 ] because hygienists feel vulnerable taking them home to launder. Sanitizing spray services and disinfectant[Author ID1: at Thu Jun 3 07:25:00 2021 ] [Author ID1: at Thu Jun 3 07:25:00 2021 ]disinfecti[Author ID1: at Thu Jun 3 07:25:00 2021 ]ng [Author ID1: at Thu Jun 3 07:25:00 2021 ]wipes for food manufacturers, for instance, so that they can routinely sterilize surfaces. Hand sanitizer dispensing units to Universities,[Author ID1: at Thu Jun 3 07:26:00 2021 ] so employees, professors, and students can keep their hands clean. Masks and gloves to city, county, and state governments to protect employees when interacting with the public. And hygienically cleaned isolation gowns to hospitals to safeguard the [Author ID1: at Thu Jun 3 07:26:00 2021 ]care givers from the contaminants of the sick. Our value proposition of helping businesses get ready for the workday[Author ID1: at Thu Jun 3 07:30:00 2021 ]Ready for the Workday[Author ID1: at Thu Jun 3 07:30:00 2021 ] has arguably never been more relevant. Every business has a need that Cintas can help fulfill, and in this unpredictable environment requiring new and increased demands, businesses appreciate the certainty [[Author ID1: at Thu Jun 3 07:31:00 2021 ]ph[Author ID1: at Thu Jun 3 07:31:00 2021 ]][Author ID1: at Thu Jun 3 07:31:00 2021 ] of Cintas. The Cintas' tag line of [Author ID1: at Thu Jun 3 07:31:00 2021 ]ready for the workd[Author ID1: at Thu Jun 3 07:30:00 2021 ]ay[Author ID1: at Thu Jun 3 07:30:00 2021 ]“[Author ID1: at Thu Jun 3 07:31:00 2021 ]Ready for the Workday[Author ID1: at Thu Jun 3 07:30:00 2021 ]”[Author ID1: at Thu Jun 3 07:31:00 2021 ] helps describe what we do. It also helps describe who we are. Our employees whom we call partners are always ready for the workday[Author ID1: at Thu Jun 3 07:30:00 2021 ]Ready for the Workday[Author ID1: at Thu Jun 3 07:30:00 2021 ] whether it's in the best of times or in the most uncertain of times. Our partners are honored to be deemed essential. They are ready to listen, ready to offer solutions, ready to solve problems, and ready to be counted on to deliver, and they do. Now, I’ll turn the call back over to Mike for commentary on our financial results. Mike?

Thank you, Scott. Our fiscal 2021 third quarter revenue was $1.78 billion compared to $1.81 billion in last year's third quarter. Earnings per diluted share or EPS were $2.37, an increase of 9.7% from last year's third quarter. The organic revenue growth rate adjusted for acquisitions, divestitures, foreign currency exchange rate fluctuations, and differences in the number of workdays was flat for the third quarter of fiscal '21. Organic revenue for the Uniform Rental and Facility Services operating segment was also flat. Organic revenue for the First Aid and Safety Services operating segment increased 17.7%. Gross margin for the third quarter of fiscal '21 was $809.5 million compared to $824.4 million in last year's third quarter. Gross margin as a percentage of revenue increased 10 basis points to 45.6% for the third quarter of fiscal '21 compared to 45.5% in the third quarter of fiscal '20. This increase was despite one less workday in this year's third quarter compared to last year. Selling and administrative expenses as a percentage of revenue were 27.2% in the third quarter of fiscal '21 and 28.2% last year. Fiscal '21 third quarter results benefited from increased sales rep productivity and lower discretionary spending. Operating income for the third quarter of fiscal '21 of $326.5 million increased 3.8%. Operating margin increased 100 basis points to 18.4% in the third quarter of fiscal '21 compared to 17.4% in the third quarter of fiscal '20. Our effective tax rate on continuing operations for the third quarter of fiscal '21 was 14.4% compared to 18.9% last year. The tax rate can move from period-[Author ID1: at Thu Jun 3 07:34:00 2021 ] [Author ID1: at Thu Jun 3 07:34:00 2021 ]to-[Author ID1: at Thu Jun 3 07:34:00 2021 ] [Author ID1: at Thu Jun 3 07:34:00 2021 ]period based on discrete events,[Author ID1: at Thu Jun 3 07:34:00 2021 ] including the amount of stock compensation expense. Net income from continuing operations for the third quarter of fiscal '21 was $258.4 million, an increase of 10.2%. And again, EPS was $2.37, an increase of 9.7% from last year's third quarter. Our balance sheet and cash flow remained strong. Our leverage calculation for our credit facility definition was 1.6x debt to EBITDA. We have an untapped credit facility of $1 billion. During the third quarter of fiscal '21, we purchased $82 million of Cintas' common stock under our buyback programs. Earlier this week,[Author ID1: at Thu Jun 3 07:35:00 2021 ] on March 15, Cintas paid shareholders $79.5 million in quarterly dividends. For financial modeling purposes, please note that there is one more workday in our fiscal '21 than in our fiscal '20. One more workday will benefit fiscal '21 full revenue growth by 40 basis points. One more workday also benefits operating margin and EPS. Fiscal '21 operating margin will be about 12.5 basis points better in comparison to fiscal '20 due to one more day of revenue. In fiscal '20, the fourth quarter contained 65 workdays. This fiscal year's fourth quarter contains 66. Please keep these differences in mind when modeling results on a[Author ID1: at Thu Jun 3 07:36:00 2021 ] [Author ID1: at Thu Jun 3 07:36:00 2021 ]year-over-year and sequential basis. For our fourth quarter, we expect our revenue to be in the range of $1.8 billion to $1.83 billion,[Author ID1: at Thu Jun 3 07:36:00 2021 ] and diluted EPS to be in the range of $2.20 to $2.40. Our fourth quarter effective tax rate is expected to be in the range of 21% to 22.5%. Please note that our guidance does not include any future share buybacks or additional government restrictions on businesses in the event of increasing COVID-19 cases. We are encouraged by vaccinations, stimulus,[Author ID1: at Thu Jun 3 07:37:00 2021 ] and business reopenings,[Author ID1: at Thu Jun 3 07:37:00 2021 ] and we expect an improved operating environment in our fourth quarter. We expect recurring revenue to increase solidly on a day adjusted sequential basis in the range of about 1% to 2.5%, after being flat in the third quarter. However, we do not anticipate that personal protective equipment sales will remain at record levels, so fourth quarter revenue in this product line will decline sequentially. Please keep in mind these points when comparing our fourth quarter guidance to third quarter results. Our fiscal fourth quarter marks the lapping of the onset of the COVID-19 pandemic. Our prior year fourth quarter coincided with a period of greatest GDP decline and job losses resulting from unprecedented restrictions on businesses to help combat the surge of COVID-19 cases. While the pandemic continues, our fourth quarter financial results, including revenue growth will benefit in part from an easier comparison. Our last year's fourth quarter operating income was also significantly affected by many items caused by the COVID-19 coronavirus. These included additional reserves on accounts receivable and inventory, severance and asset impairment expenses,[Author ID1: at Thu Jun 3 07:39:00 2021 ] and lower incentive compensation expense. Excluding these items, last year's fourth quarter operating margin was 15.5%. All these items were recorded in selling and administrative expense. The additional inventory reserves account for slow moving inventory mostly in the Uniform Direct S[Author ID1: at Thu Jun 3 07:39:00 2021 ]s[Author ID1: at Thu Jun 3 07:39:00 2021 ]ale business, where customers and some of the most severely impacted industries such as airlines and hotels exist. Please keep these points in mind when comparing our fiscal fourth quarter financial guidance to the prior year quarter. I’ll now turn the call over to Todd Schneider to discuss the performance of each of our businesses.

Thanks, Mike. The Uniform Rental and Facility Services operating segment includes the rental and servicing of uniforms, health [Author ID1: at Thu Jun 3 07:40:00 2021 ]care scrubs, mats,[Author ID1: at Thu Jun 3 07:40:00 2021 ] and towels and the provision of restroom supplies and other facility products and services. The segment also includes the sale of items from our catalogs to our customers on route. Uniform Rental and Facility Services revenue was $1.42 billion compared to $1.45 billion last year. Our Uniform Rental and Facility Services segment gross margin increased 50 basis points to 46.3% for the third quarter compared to 45.8% in last year's third quarter, driven in large part to lower production and service expense as a percent of revenue. Our First Aid and Safety Services operating segment includes revenue from the sale and servicing of first aid products, safety products, personal protective equipment,[Author ID1: at Thu Jun 3 07:41:00 2021 ] and training. This segment's revenue for the third quarter was $198.5 million compared to $170.5 million last year. The First Aid segment gross margin was 43.5% in the third quarter compared to 48.0% in last year's third quarter. The difference in gross margin is due to revenue mix. In the pandemic, the needs of businesses for personal protective equipment, including masks and gloves has skyrocketed. Even though personal protective equipment is a less predictable revenue stream with lower gross margins than the relatively consistent first aid cabinet service, personal protective equipment is a profitable product line,[Author ID1: at Thu Jun 3 07:43:00 2021 ] and we continue to work with urgency to fulfill the needs of businesses. Also note that on a sequential basis, First Aid segment gross margins and operating margins have improved through the pandemic. Our Fire Protection Services and Uniform Direct Sale businesses are reported in the All Other category. All Other revenue was $160.7 million compared to $192.1 million last year. The Fire business,[Author ID1: at Thu Jun 3 07:43:00 2021 ] organic revenue increased 3.5%, the Uniform Direct Sale business organic revenue growth rate was minus 39.7%. Revenue from our airline, cruise line, hospitality,[Author ID1: at Thu Jun 3 07:44:00 2021 ] and gaming customers are largely realized within this business line. These industries continue to be among the hardest hit by the pandemic. That concludes our prepared remarks. We are happy to answer your questions.

Thank you sir. [Operator Instructions] Our first question will come from Tim Mulrooney with William Blair.

Good morning, Scott, Todd, Mike, and Paul. My question, I just have one for you this morning on the Uniform Rental segment. Operating margins in this business have ticked up nicely in 2021, and I think some of that was from structural cost savings,[Author ID1: at Thu Jun 3 07:45:00 2021 ] and may [Author ID1: at Thu Jun 3 07:45:00 2021 ]be some from temporary cost savings. Moving forward, would you expect uniform operating margins to kind of normalize towards that pre-pandemic run rate over time or would you expect t[Author ID1: at Thu Jun 3 07:45:00 2021 ]h[Author ID1: at Thu Jun 3 07:45:00 2021 ]e [Author ID1: at Thu Jun 3 07:45:00 2021 ]operating margins to kind of settle at a [Author ID1: at Thu Jun 3 07:45:00 2021 ]somewhat higher level than the pre-pandemic run rate? Thank you.

Well, Tim, this is Scott. I’[Author ID1: at Thu Jun 3 07:46:00 2021 ]d[Author ID1: at Thu Jun 3 07:46:00 2021 ] will [Author ID1: at Thu Jun 3 07:46:00 2021 ]start by saying that there have been a lot of expenses this year that we have been able to control tightly, discretionary spending, travel, things like that, that impact the P&L. How much of that returns, I'm not sure. I mean, we wanted an awful lot, we don't necessarily have to have the large group meetings where everybody is travel[Author ID1: at Thu Jun 3 07:46:00 2021 ]ling into one town to accomplish that. Some of that will happen, but [Author ID1: at Thu Jun 3 07:46:00 2021 ]. But [Author ID1: at Thu Jun 3 07:47:00 2021 ]a lot of that probably won't. But I'd say that in our sequential -- in our recurring revenue businesses, as the economy continues to, I think, improve, you're going to see us need to add some expense back on to the P&L. That might be growth routes in the rental division as an example. Jobs that would help us with growth, additional salespeople, sales training, additional headcount in t[Author ID1: at Thu Jun 3 07:47:00 2021 ]he [Author ID1: at Thu Jun 3 07:48:00 2021 ]production operations to be able to process things. So, I wouldn't expect a linear improvement, but I would tell you that we do think that we will continue to see 20% to 30% incremental margins,[Author ID1: at Thu Jun 3 07:48:00 2021 ] as we add the sales line back on to the P&L, and over time I think that we can maintain margins that will be at least at or above, probably above where we work [Author ID1: at Thu Jun 3 07:48:00 2021 ]were [Author ID1: at Thu Jun 3 07:48:00 2021 ]pre-pandemic, so that's how I would answer that. Does that help you?

That's really helpful, honest[Author ID1: at Thu Jun 3 07:49:00 2021 ]. Honest[Author ID1: at Thu Jun 3 07:49:00 2021 ], thoughtful answer. I appreciate that. Scott, thanks for taking my question.

Okay. Thanks, Tim.

Thank you. Our next question comes from Andrew Steinerman with J.P. Morgan.

Hi, there. A question for Todd. When you think of rentals being flat in the just reported quarter, could you just give us a sense of, you know,[Author ID1: at Thu Jun 3 07:50:00 2021 ] how much ancillary services is contributing versus are you seeing improvement in Uniform Rentals as well? And a quick comment on how dependent are you in some of the areas like restaurants that are still kind of opening up ahead?

Andrew, great question. We had -- as was mentioned in the prepared remarks, demand for various items around PP&E and et cetera, other items regarding the pandemic was very strong in Q3. That was a result of what was going on with case counts, and you all saw that. So, that was significant for us to the tune of about $45 million more than in Q2. We don't see that as repeating -- that level repeating in Q4, but But [Author ID1: at Thu Jun 3 07:51:00 2021 ]we are very encouraged by what we're seeing in business coming back. So, you can see in our sequential improvement, what we see coming in Q4 over Q3, even without that level, that elevated level of those types of products and services. As far as restaurants, et [Author ID1: at Thu Jun 3 07:51:00 2021 ]cetera, that's certainly a component of our business. We are encouraged by what we're seeing there with folks’[Author ID1: at Thu Jun 3 07:52:00 2021 ] activity increasing, consumer spending increasing. We think people having money in their pockets via stimulus will help that, and we sure hope that small business folks who have been incredible about weathering the storm, that their demand starts to pick up even more. So, we're encouraged by what we see.

Okay. Thank you.

Andrew, if I could just add a point of clarification of the $45 million that Todd referred to, that is in the rental segment as well as the First Aid segment. You saw our First Aid segment had another very good quarter at 17.7%. And so,[Author ID1: at Thu Jun 3 07:53:00 2021 ] we're seeing demand in all of these different kinds of things in -- from all of our customers, and we're doing our best to meet those demands. So,[Author ID1: at Thu Jun 3 07:53:00 2021 ] it's -- that $45 million is not all within the rental segment, it's in all of our businesses.

Okay. Thank you.

Thank you. Our next question comes from George Tong with Goldman Sachs.

Hi, thanks. Good morning. If you exclude the $45 million in PPE lift in the Uniform Rentals business, could you perhaps talk about how revenue trends progressed moving through fiscal 3Q?

Yes. George, but to Mike's point that $45 million was spread out across the -- [Author ID1: at Thu Jun 3 07:54:00 2021 ]all of our divisions, it wasn't just a rental lift, but relative to what happened in Q3, I think it's important that we all keep in mind that our third quarter often is a little less predictable than the rest of our year, and this [Author ID1: at Thu Jun 3 07:55:00 2021 ]. This [Author ID1: at Thu Jun 3 07:55:00 2021 ]year was as well. It has two holidays in it with Christmas and New Year and our customers sometimes take multiple days off depending on what days[Author ID1: at Thu Jun 3 07:55:00 2021 ] those holidays fall on. There's always a potential of weather issues with the [Author ID1: at Thu Jun 3 07:55:00 2021 ]snow and ice storms and things like that, and both of those things happened this year, and if you combine that with increasing COVID cases, it made it a little bit more complicated than it normally does. I would say as we went into the third quarter, we were very concerned about what we were seeing. COVID cases were on the rise. I’ve said earlier in my remarks that the economy shed jobs for the first time in s[Author ID1: at Thu Jun 3 07:56:00 2021 ]even [Author ID1: at Thu Jun 3 07:56:00 2021 ]7 months in December. So, December and into January, really even into February, we saw a very difficult economic environment, but as we got into February, we started to see our recurring revenues[Author ID1: at Thu Jun 3 07:56:00 2021 ] start to pick back up. Cases were dropping dramatically from -- I want to say, maybe the second week in January, the expected restrictions, the [[Author ID1: at Thu Jun 3 07:57:00 2021 ]indi[Author ID1: at Thu Jun 3 07:57:00 2021 ]s[Author ID1: at Thu Jun 3 07:57:00 2021 ]c[Author ID1: at Thu Jun 3 07:58:00 2021 ]ernible[Author ID1: at Thu Jun 3 07:57:00 2021 ]][Author ID1: at Thu Jun 3 07:57:00 2021 ] [Author ID1: at Thu Jun 3 07:57:00 2021 ]govern[Author ID1: at Thu Jun 3 07:57:00 2021 ]an[Author ID1: at Thu Jun 3 07:57:00 2021 ]ce [Author ID1: at Thu Jun 3 07:57:00 2021 ]that we thought were going to put on businesses didn't fully materialize. And so, the -- [Author ID1: at Thu Jun 3 07:58:00 2021 ]we built some momentum in February that we continued[Author ID1: at Thu Jun 3 07:58:00 2021 ] to see as we moved into March, and I think that is reflected in the guidance that we've given for the fourth quarter.

Got it. That's helpful. And just as a follow-up to that, if you look at new business trends and plans for sales force hiring, can you talk a little bit about how the pipeline is building?

We're very pleased with our pipeline. Our sales rep productivity continues to be at very, very high levels. We believe that the -- our value proposition is resonating today in the economy more than ever. So we're excited about our opportunities as we look out into the future. Our[Author ID1: at Thu Jun 3 07:59:00 2021 ] [Author ID1: at Thu Jun 3 07:59:00 2021 ]--[Author ID1: at Thu Jun 3 07:59:00 2021 ] [Author ID1: at Thu Jun 3 07:59:00 2021 ]T[Author ID1: at Thu Jun 3 07:59:00 2021 ]t[Author ID1: at Thu Jun 3 07:59:00 2021 ]here are 16 million or roughly 16 million businesses in the United States and Canada, and we do business with a million of them. And we really like our opportunity as we approach hopefully the end of this pandemic, and a more normalized economy of our ability to do [Author ID1: at Thu Jun 3 08:00:00 2021 ]attract new customers. So,[Author ID1: at Thu Jun 3 08:00:00 2021 ] we're -- the pipeline is relatively full,[Author ID1: at Thu Jun 3 08:00:00 2021 ] and the reps are performing at high levels, even considering the fact that many times they're making sales calls over a virtual Teams [Author ID1: at Thu Jun 3 08:00:00 2021 ]teams [Author ID1: at Thu Jun 3 08:00:00 2021 ]call or Zoom call and being successful in doing it. So,[Author ID1: at Thu Jun 3 08:00:00 2021 ] we're excited about getting past this pandemic and getting into a normal economy. We think we'll be -- we are well-[Author ID1: at Thu Jun 3 08:01:00 2021 ] [Author ID1: at Thu Jun 3 08:01:00 2021 ]positioned to take advantage of that.

Thank you. Our next question comes from Hamzah Mazari with Jefferies.

Hey, good morning. My question is a little bit more big picture. Pre-COVID, I guess your long-term growth rate was sort of 6% to 8% depending on the year. In a post-COVID world, and you touched on a little bit of this with some of the ancillary services that may be benefited from the pandemic,[Author ID1: at Thu Jun 3 08:01:00 2021 ] which may normalize. But at the same time, you have these newer verticals you've penetrated, there's some structural outsourcing, maybe in health [Author ID1: at Thu Jun 3 08:01:00 2021 ]care that could be a tailwind. I don't know if that sort of plateaued out or it continues, so [Author ID1: at Thu Jun 3 08:02:00 2021 ]. So [Author ID1: at Thu Jun 3 08:02:00 2021 ]when you put all the puts and takes together in a post-COVID world, do you expect your growth rate to be better than what it was prior to the pandemic on a normalized basis,[Author ID1: at Thu Jun 3 08:02:00 2021 ] as you look out over the next couple of years?

Hamzah, that’s tough for us to predict. I'm not sure that I'm going to go out and say that we're going to be doing better than we were from a percentage growth standpoint, post-pandemic and [Author ID1: at Thu Jun 3 08:02:00 2021 ]than [Author ID1: at Thu Jun 3 08:02:00 2021 ]we were pre-pandemic. But as I’ve said, we really like where we're positioned. We've made a lot of investments in the business that we think are beginning to pay off, that allow us to move quicker to be a better supplier to customers. Our customer satisfaction rates that we measure with Net Promoter S[Author ID1: at Thu Jun 3 08:03:00 2021 ]s[Author ID1: at Thu Jun 3 08:03:00 2021 ]cores are at all-time highs, and [Author ID1: at Thu Jun 3 08:03:00 2021 ]. And [Author ID1: at Thu Jun 3 08:03:00 2021 ]we have opened up new segments of opportunity for us. We have new products and services that we can offer to more and more businesses. So,[Author ID1: at Thu Jun 3 08:03:00 2021 ] I'll just answer that by saying, we think we're very well-[Author ID1: at Thu Jun 3 08:04:00 2021 ] [Author ID1: at Thu Jun 3 08:04:00 2021 ]positioned, and [Author ID1: at Thu Jun 3 08:04:00 2021 ]. And [Author ID1: at Thu Jun 3 08:04:00 2021 ]we're excited about the future.

Got it.

Hamzah, if I could -- this is Todd. Just to [Author ID1: at Thu Jun 3 08:04:00 2021 ]expand upon what Scott’[Author ID1: at Thu Jun 3 08:04:00 2021 ]s[Author ID1: at Thu Jun 3 08:04:00 2021 ] is [Author ID1: at Thu Jun 3 08:04:00 2021 ]saying, the real unknown is what is going to happen with the demand for some of these additional services that we've been able to provide, here's what we know is that demand is going to be higher in the future than it was pre-pandemic. And what's exciting is, many of our customers didn't even realize that we offered[Author ID1: at Thu Jun 3 08:50:00 2021 ] those types of products and services in the past. Let me be clear, there's nothing positive that came out of the [Author ID1: at Thu Jun 3 08:51:00 2021 ]pandemic, right, but if there is any silver linings, it[Author ID1: at Thu Jun 3 08:51:00 2021 ] is the fact that our customers understand more the value that we can provide them, an[Author ID1: at Thu Jun 3 08:52:00 2021 ]d[Author ID1: at Thu Jun 3 08:52:00 2021 ] as [Author ID1: at Thu Jun 3 08:52:00 2021 ]. And [Author ID1: at Thu Jun 3 08:52:00 2021 ]Scott mentioned that our NPS scores are reflecting that. And we think that is a -- the more the products and services our customers procure from us, and [Author ID1: at Thu Jun 3 08:52:00 2021 ]the more value we're bringing to them, and we think that is very positive. The other item that I think is important to understand is that we're going on 2 years now without having had a price adjustment to our customers. We have felt very passionate that it was not the appropriate time to adjust pricing when people are going through so much difficulties fighting through [Author ID1: at Thu Jun 3 08:53:00 2021 ]for [Author ID1: at Thu Jun 3 08:53:00 2021 ]the pandemic. And as a result of that,[Author ID1: at Thu Jun 3 08:53:00 2021 ] -- [Author ID1: at Thu Jun 3 08:53:00 2021 ]again,[Author ID1: at Thu Jun 3 08:53:00 2021 ] our customers had [Author ID1: at Thu Jun 3 08:53:00 2021 ]did[Author ID1: at Thu Jun 3 08:53:00 2021 ] [Author ID1: at Thu Jun 3 08:53:00 2021 ]really appreciated that and truly positioned us well for the future. We look at the lifetime value of a customer and we think it is worth more than a short-term approach, so [Author ID1: at Thu Jun 3 08:53:00 2021 ]. So [Author ID1: at Thu Jun 3 08:53:00 2021 ]hopefully all that cover [Author ID1: at Thu Jun 3 08:53:00 2021 ]co[Author ID1: at Thu Jun 3 08:53:00 2021 ]lor [Author ID1: at Thu Jun 3 08:53:00 2021 ]helps.

Yes, that's very helpful. And just my follow-up question and I'll turn it over. Just on the Fire business, I know it's a smaller business for you, but it's a good business. Could you maybe talk about how you're thinking about scaling that business up? And the reason I ask is, we look at the First Aid business and you did ZEE Medical in 2015,[Author ID1: at Thu Jun 3 08:54:00 2021 ] and that business scaled up. Does Fire have the same potential in your mind,[Author ID1: at Thu Jun 3 08:54:00 2021 ] and maybe if you could just talk about the competitive dynamic in that business.[Author ID1: at Thu Jun 3 08:54:00 2021 ]?[Author ID1: at Thu Jun 3 08:54:00 2021 ]

Yes. The -- we do think the Fire business has an opportunity to scale up. There are lots and lots and lots of small independent players, there [Author ID1: at Thu Jun 3 08:55:00 2021 ]. There [Author ID1: at Thu Jun 3 08:55:00 2021 ]are regional players, there are some PE groups that are doing some regional roll-ups[Author ID1: at Thu Jun 3 08:55:00 2021 ]rollouts[Author ID1: at Thu Jun 3 08:55:00 2021 ]. So,[Author ID1: at Thu Jun 3 08:55:00 2021 ] there are opportunities for us to make some acquisitions in that business that would help us ramp up scale and geographic coverage. It is a very good business. One of the things that is important to understand is that different states have different licensing requirements for the level of different reps that we have, service technicians that we've had out there performing different levels of service be it [Author ID1: at Thu Jun 3 08:55:00 2021 ]via [Author ID1: at Thu Jun 3 08:55:00 2021 ]fire extinguisher repair and replacement versus sprinkler systems and alarm systems. They [Author ID1: at Thu Jun 3 08:56:00 2021 ],[Author ID1: at Thu Jun 3 08:56:00 2021 ] they [Author ID1: at Thu Jun 3 08:56:00 2021 ]have different certification levels that they have to have. So,[Author ID1: at Thu Jun 3 08:56:00 2021 ] it's different than just hiring somebody off of the street,[Author ID1: at Thu Jun 3 08:56:00 2021 ] and us being able to train them to be a First Aid service rep. These people need to get state certifications and licensing and things like that. But that said, we like our ability to grow in the geographies that we're in. There's a lot of geography that we would like to expand into, and there are lots of opportunities for tuck-in acquisitions in the markets that we're in right now. So,[Author ID1: at Thu Jun 3 08:56:00 2021 ] we really like that business. And I think over time, we can scale that up to be of size [[Author ID1: at Thu Jun 3 08:57:00 2021 ]ph[Author ID1: at Thu Jun 3 08:57:00 2021 ]][Author ID1: at Thu Jun 3 08:57:00 2021 ]. I always tell the division presidents, including Fire and First Aid, that their job is to figure out how to get their division to be at least a $1 billion in revenue, and [Author ID1: at Thu Jun 3 08:57:00 2021 ]. And [Author ID1: at Thu Jun 3 08:57:00 2021 ]that's what they should be thinking about. And that helps us put goals in place and decide what type of resources we want to invest in the different businesses and so forth, bu[Author ID1: at Thu Jun 3 08:57:00 2021 ]t [Author ID1: at Thu Jun 3 08:57:00 2021 ]. But [Author ID1: at Thu Jun 3 08:57:00 2021 ]we clearly think that both First Aid and Fire divisions can be over a $1 billion in revenue for us.

Thank you. Our next question comes from Andrew Wittmann with RW. Baird.

Great, and thanks for taking my questions. I had one question and then a follow-up. I guess, on the -- the first question here maybe, Mike, over the years Cintas' growth has been fairly consistent in the characteristics that comprises between things like price and stocks and new accounts, even retention from –[Author ID1: at Thu Jun 3 08:58:00 2021 ] to [Author ID1: at Thu Jun 3 08:58:00 2021 ]some extent. I mean, in normal times, we have a pretty good sense about how that contributes to your year-over-year growth rate. Now that the next few quarters are going to be driven more by a reopening-[Author ID1: at Thu Jun 3 08:59:00 2021 ] [Author ID1: at Thu Jun 3 08:59:00 2021 ]type growth rate, I was wondering if you talk about which of those factors you think will contribute more than their historical percentage to the growth and maybe less, just [Author ID1: at Thu Jun 3 08:59:00 2021 ]. Just [Author ID1: at Thu Jun 3 08:59:00 2021 ]to understand how you're thinking about how this matters and it [Author ID1: at Thu Jun 3 08:59:00 2021 ]will unfold in the next few months or quarters.

Yes, Andrew, it's been a -- it certainly has been a different environment operating in the last four quarters, and one that's been pretty unpredictable. I think what we'll see, what we've guided to in the fourth quarter and likely will get us off to a start in the first quarter of '22,[Author ID1: at Thu Jun 3 09:00:00 2021 ] is the continued reopening of businesses and getting those businesses back to somewhat normalized operations. We were on a nice trajectory of that towards the end of our first quarter of [Author ID1: at Thu Jun 3 09:00:00 2021 ]this year and into our second quarter that certainly took a pause, but [Author ID1: at Thu Jun 3 09:00:00 2021 ]. But [Author ID1: at Thu Jun 3 09:00:00 2021 ]we've got a lot of customers that still are either not opened or at limited capacity. And so, I think as we look at the next couple o[Author ID1: at Thu Jun 3 09:00:00 2021 ]f [Author ID1: at Thu Jun 3 09:00:00 2021 ]quarters, maybe even the most of fiscal '22, it's going to be about fully reopening the economy and getting those -- getting our customers and other businesses back to healthy operating environments. That means we'll take businesses off of held [[Author ID1: at Thu Jun 3 09:01:00 2021 ]ph[Author ID1: at Thu Jun 3 09:01:00 2021 ]][Author ID1: at Thu Jun 3 09:01:00 2021 ]a health [Author ID1: at Thu Jun 3 09:01:00 2021 ]status in the rental division. We'll start this [Author ID1: at Thu Jun 3 09:01:00 2021 ]to service First Aid cabinets again at a greater pace. We'll start to understand the needs,[Author ID1: at Thu Jun 3 09:01:00 2021 ] when they open and come off of hold, how can we help them in this new type of environment with all of the things that we've talked about that have been important. So,[Author ID1: at Thu Jun 3 09:02:00 2021 ] I think it's going to be more of that. The reopening of the economy and getting back to some normal type of process than anything else.

That's helpful. Then just for [Author ID1: at Thu Jun 3 09:55:00 2021 ]from a [Author ID1: at Thu Jun 3 09:55:00 2021 ]follow-up, I wanted to just talk about inflation a little bit. There's been obviously a lot talked about and it seems like there's a lot of merit given the amount of stimulus that's going to be hitting the system here. [Author ID1: at Thu Jun 3 09:55:00 2021 ]It[Author ID1: at Thu Jun 3 09:56:00 2021 ]’[Author ID1: at Thu Jun 3 09:56:00 2021 ]s[Author ID1: at Thu Jun 3 09:56:00 2021 ] -- its [Author ID1: at Thu Jun 3 09:56:00 2021 ]already hitting the system. So,[Author ID1: at Thu Jun 3 09:56:00 2021 ] I was hoping, Mike, you could talk a little bit about where inflation could hit you, where you might be seeing it today or expect to see it tomorrow. Obvious, areas that [Author ID1: at Thu Jun 3 09:56:00 2021 ]come to mind like energy and be curious as to your thoughts and [Author ID1: at Thu Jun 3 09:56:00 2021 ]on [Author ID1: at Thu Jun 3 09:56:00 2021 ]how that impacts the outlook here for the calendar '21?[Author ID1: at Thu Jun 3 09:56:00 2021 ].[Author ID1: at Thu Jun 3 09:56:00 2021 ] But also, maybe even in some of the products that you're selling in the ancillary business and in First Aid, labor, obviously, if you could just address inflation, how you affect [Author ID1: at Thu Jun 3 09:57:00 2021 ]-- how you expect it [Author ID1: at Thu Jun 3 09:57:00 2021 ]to affect you and your ability to recover it in pricing against a [Author ID1: at Thu Jun 3 09:57:00 2021 ]recovering, but still not full bore macro. Thanks.

Yes. So,[Author ID1: at Thu Jun 3 09:57:00 2021 ] from a -- I'll say a short-term, we could certainly see changes in gas prices at the pump. We saw sequentially an increase in our energy percentage of about 10 basis points, and that certainly could contribute over the course of the next year. I think labor is certainly in the news and the conversations about wage rates is likely to have some impact on us as well as our customers. We could see, as you mentioned, certainly in some of the PPE, we have seen quite dramatic changes in prices, in costs to us in terms of gloves and masks and sanitizer over the course of the last year, and [Author ID1: at Thu Jun 3 09:58:00 2021 ]. And [Author ID1: at Thu Jun 3 09:58:00 2021 ]there's probably a little bit of that continued unpredictability in that kind of product. But, Andrew, the [Author ID1: at Thu Jun 3 09:58:00 2021 ]really good news and [Author ID1: at Thu Jun 3 09:58:00 2021 ]in [Author ID1: at Thu Jun 3 09:58:00 2021 ]all of that is we've got great efficiency in our business. And so, many times we're able to offset that with current initiatives that we have within the business. But if we can't, we certainly can look to pricing changes into the future. Todd mentioned, we have not liked that idea. In the last year, we did not think it's the right thing to do. But[Author ID1: at Thu Jun 3 09:59:00 2021 ], and it's been 2 years really since we've done it. But if we see inflation peak, that's an opportunity that we will certainly have to consider. And usually in the past, that's allowed us to pass on a good portion of those kind of costs,[Author ID1: at Thu Jun 3 10:20:00 2021 ] if we can't offset them within our operations.

Andrew, it's Todd. Just to build upon that, everything Mike said is right on target. We're in a good position to withstand those adjustments based upon our model, our efficiencies that we can bring to market. But with all these, whether it's inflation in general,[Author ID1: at Thu Jun 3 10:20:00 2021 ] or wage inflation specifically, our biggest concern is always the impact to our customers. We will manage our business, we will do it so appropriately. But if it affects our customer base, then that's a much greater concern. And we're hoping that the health of those smaller businesses has been tested, and [Author ID1: at Thu Jun 3 10:21:00 2021 ]. And [Author ID1: at Thu Jun 3 10:21:00 2021 ]we're in hopes that they can continue to expand and thrive in the new environment.

Thank you. Our next question comes from Toni Kaplan with Morgan Stanley.

Thank you. Just wanted to ask about the SAP benefits that you are seeing just now that the integration within Rental has been completed. I know we're sort of in an[Author ID1: at Thu Jun 3 10:22:00 2021 ] unique period, but just wanted to see if any of those are coming through now or for [Author ID1: at Thu Jun 3 10:22:00 2021 ]we should be expecting it going forward,[Author ID1: at Thu Jun 3 10:22:00 2021 ] just anecdotally any benefits from the SAP program. Thanks.

Yes. Toni, this is Todd. We are seeing very nice efficiencies from having beyond for the most part one platform for the entire organization benefiting our customers in one view of Cintas. It's benefiting our locations in [Author ID1: at Thu Jun 3 10:22:00 2021 ]and[Author ID1: at Thu Jun 3 10:22:00 2021 ] [Author ID1: at Thu Jun 3 10:22:00 2021 ]the ability to share inventory, our distribution centers in order to be able to anticipate needs. It's been quite impactful and a lot of positive things that have come out of having that one platform and the efficiencies that come along with it both for the customer, but also internally have been very encouraging.

Great. I wanted to also ask about capital allocation. If we hit a period now where demand accelerates, do [Author ID1: at Thu Jun 3 10:23:00 2021 ]you expect to be investing more back into the business for organic growth opportunities or M&A, and [Author ID1: at Thu Jun 3 10:23:00 2021 ]. And [Author ID1: at Thu Jun 3 10:23:00 2021 ]I saw you’re buying back some stock in the quarter. So,[Author ID1: at Thu Jun 3 10:23:00 2021 ] does that get back to historical levels, just [Author ID1: at Thu Jun 3 10:23:00 2021 ]? Just [Author ID1: at Thu Jun 3 10:23:00 2021 ]what are you thinking about allocating capital?

Well, if we start with CapEx, we're still sort of managing through the unpredictability of the economy. So,[Author ID1: at Thu Jun 3 10:24:00 2021 ] we're probably a little more conservative right now and will be in the fourth quarter. But over time, I think our CapEx spend as the economy turns around and [Author ID1: at Thu Jun 3 10:24:00 2021 ]will [Author ID1: at Thu Jun 3 10:24:00 2021 ]get back to a more normalized historical type,[Author ID1: at Thu Jun 3 10:24:00 2021 ] and that's typically roughly 60% based on growth and 40% on maintenance. So,[Author ID1: at Thu Jun 3 10:24:00 2021 ] I think we'll continue to see that type of spend. We do generate a lot of cash. We've got a very strong balance sheet. And so,[Author ID1: at Thu Jun 3 10:24:00 2021 ] we would be interested in acquisitions in all of our businesses. And then,[Author ID1: at Thu Jun 3 10:25:00 2021 ] obviously, the dividend is important to our shareholders. We have continued to be in a position where we could increase the dividend to our shareholders every year since we went public, and obviously that is a streak that we'd like to see continue. And then, yes, finally, we do have roughly a [Author ID1: at Thu Jun 3 10:26:00 2021 ]$1 billion left on our authorization, and [Author ID1: at Thu Jun 3 10:26:00 2021 ]. And [Author ID1: at Thu Jun 3 10:26:00 2021 ]that is more sort of opportunistic from time-to-time as we see opportunities to acquire our own stock. And so, should we be in a position where we're building cash and we think the opportunity is right, I think that the Board would agree that we would be in a [Author ID1: at Thu Jun 3 10:26:00 2021 ]position to buy back some of our stock. You [Author ID1: at Thu Jun 3 10:26:00 2021 ]W[Author ID1: at Thu Jun 3 10:26:00 2021 ]e [Author ID1: at Thu Jun 3 10:26:00 2021 ]saw a little bit of that in the third quarter,[Author ID1: at Thu Jun 3 10:26:00 2021 ] when the stock price went down. And so, it -- I think that I wouldn't be surprised to see that sort of thing in the future.

Thank you. Our next question comes from Gary Bisbee with Bank of America.

Hey, guys, good morning. It's impressive to get back to flat year-over-year same day sales, I guess, a quarter really before lapping the step down from the pandemic. I wanted to ask about mix within that sale. So, can you give us a sense of how meaningful PP&E sanitizers and other pandemic driven sales are to the current revenue levels? And so,[Author ID1: at Thu Jun 3 10:27:00 2021 ] how much the more normal historical mix would still be down, right in Q3 without that? That's the first question.

Well, let me start by saying that things like the hand sanitizer and some of the sanitation products and wipes that we have fit into a recurring revenue stream,[Author ID1: at Thu Jun 3 10:28:00 2021 ] once we put this like the restroom supplies, once we put the stand out there,[Author ID1: at Thu Jun 3 10:28:00 2021 ] we come in [Author ID1: at Thu Jun 3 10:28:00 2021 ]an[Author ID1: at Thu Jun 3 10:28:00 2021 ]d[Author ID1: at Thu Jun 3 10:28:00 2021 ] [Author ID1: at Thu Jun 3 10:28:00 2021 ]service and [Author ID1: at Thu Jun 3 10:28:00 2021 ]it [Author ID1: at Thu Jun 3 10:28:00 2021 ]on a regular basis, make sure they have enough product in there to make it through till their next delivery and so forth. So that is -- that becomes part of the recurring revenue stream. The other products, things like disposable gloves, disposable face masks,[Author ID1: at Thu Jun 3 10:29:00 2021 ] and things like that are the one-time PPE sale, I[Author ID1: at Thu Jun 3 10:29:00 2021 ] refer to it as one time, but it's more of a direct sale that it can fluctuate up and down depending on customer needs. But we have -- a lot of it depends on geography, it depends on the industry that the customer is in, some distribution-[Author ID1: at Thu Jun 3 10:29:00 2021 ] [Author ID1: at Thu Jun 3 10:29:00 2021 ]type businesses they've increased headcount, increased number of wares, we -- other businesses have reduced the number of wares. So,[Author ID1: at Thu Jun 3 10:29:00 2021 ] it's a little bit all over the board trying to put some parameter on that relative to historical average.[Author ID1: at Thu Jun 3 10:30:00 2021 ],[Author ID1: at Thu Jun 3 10:30:00 2021 ] I'd say recurring revenue with the understanding that some of that is now the result of hand sanitizer and that's where it is flat through the quarter. And we think that that revenue is going to pick up as the economy turns around, as our customers get back to being able to open their businesses more fully,[Author ID1: at Thu Jun 3 10:30:00 2021 ] bring back some of their headcount, and [Author ID1: at Thu Jun 3 10:30:00 2021 ]. And [Author ID1: at Thu Jun 3 10:30:00 2021 ]I believe that an awful lot of the recurring business,[Author ID1: at Thu Jun 3 10:31:00 2021 ] like hand sanitizer is here to stay. I have said in the past,[Author ID1: at Thu Jun 3 10:31:00 2021 ] and I continue to believe that it's going to be a long time before a typical American walks into a business, walks into a restaurant, a lobby, a movie theate[Author ID1: at Thu Jun 3 10:31:00 2021 ]re[Author ID1: at Thu Jun 3 10:31:00 2021 ], any place and he isn't looking for a hand sanitizer station after they grabbed the doorknob going in and out of a public building. We're seeing that in stadiums, we're seeing that at -- in hotels that are open, at elevator stations, and that sort of thing[Author ID1: at Thu Jun 3 10:32:00 2021 ].[Author ID1: at Thu Jun 3 10:32:00 2021 ]that's where[Author ID1: at Thu Jun 3 10:32:00 2021 ] I think that's going to be here to stay. So,[Author ID1: at Thu Jun 3 10:32:00 2021 ] if I'm right about that, as they bring back and open up their operations more fully, that will be revenue,[Author ID1: at Thu Jun 3 10:32:00 2021 ] as they add people back on revenue on top of where they are right now.

Gary, this is Todd. I think it's important to understand also the vast majority of the products and services we're speaking of, whether it's face shields, gloves, hand sanitizer, cleaning chemicals, all those, we have been offering those for decades. It's not new, right, it's just -- it's elevated. And we think it will be -- it will maybe not be at the current levels[Author ID1: at Thu Jun 3 10:33:00 2021 ], but [Author ID1: at Thu Jun 3 10:33:00 2021 ]. But [Author ID1: at Thu Jun 3 10:33:00 2021 ]it will remain elevated into the near and maybe distant future,[Author ID1: at Thu Jun 3 10:33:00 2021 ] or in the near future certainly,[Author ID1: at Thu Jun 3 10:33:00 2021 ] and maybe even [Author ID1: at Thu Jun 3 10:33:00 2021 ]much further out than that. So that's exciting for us. We see that -- again, our customers now see that much more of a value in it, in large part because people are much more focused on hygiene and cleanliness than they were in the past. And many of our customers, they cleaned for image, and [Author ID1: at Thu Jun 3 10:34:00 2021 ]. And [Author ID1: at Thu Jun 3 10:34:00 2021 ]now they are cleaning for help[Author ID1: at Thu Jun 3 10:34:00 2021 ]health[Author ID1: at Thu Jun 3 10:34:00 2021 ]. And that's very much a positive we think for society, but also makes our value proposition that much stronger to our customers. So,[Author ID1: at Thu Jun 3 10:34:00 2021 ] some very positives coming out[Author ID1: at Thu Jun 3 10:34:00 2021 ]up[Author ID1: at Thu Jun 3 10:34:00 2021 ].

And if I could just clarify one thing in that response. Scott, you said recurring revenues were flat. Did you mean sequentially versus Q2 or did you mean year-over-year? And if the latter, flat year-over-year, does that imply then that the one-time-ish PP&E sales increase year-over-year was similar to the Uniform Direct sales decrease, which would allow that to be flat? I just want to make sure I understood[Author ID1: at Thu Jun 3 10:37:00 2021 ]understand[Author ID1: at Thu Jun 3 10:37:00 2021 ] exactly what you're saying.

I meant sequentially from the second quarter.

Got it? Okay. All right. I mean, what I'm trying to solve for is, how much the traditional businesses are down. I appreciate everything you're saying about this demand persists in the big uptick [Author ID1: at Thu Jun 3 10:38:00 2021 ]uptake and [Author ID1: at Thu Jun 3 10:38:00 2021 ]in sustainable recurring sanitizer sales, but [Author ID1: at Thu Jun 3 10:38:00 2021 ]. But [Author ID1: at Thu Jun 3 10:38:00 2021 ]in the traditional pre-pandemic business mix, I mean, is that still down 5% and it's offset by PP&E up 5% or directionally, can you help us understand it? What I'm really trying to solve[Author ID1: at Thu Jun 3 10:39:00 2021 ] [Author ID1: at Thu Jun 3 10:39:00 2021 ][[Author ID1: at Thu Jun 3 10:38:00 2021 ]ph[Author ID1: at Thu Jun 3 10:38:00 2021 ]][Author ID1: at Thu Jun 3 10:38:00 2021 ]solve [Author ID1: at Thu Jun 3 10:38:00 2021 ]for is what's at risk of going away over 12 months, 18 months, as the traditional business mix obviously comes roaring back.

Well, Gary, I think the -- probably the best way to describe it is, as we mentioned, in total for the company, it was up $45 million sequentially. We don't think that will repeat, but [Author ID1: at Thu Jun 3 10:39:00 2021 ]. But [Author ID1: at Thu Jun 3 10:39:00 2021 ]we do believe that these elevated levels, relatively elevated levels are here to stay.

Yes, and Gary,[Author ID1: at Thu Jun 3 10:39:00 2021 ] the -- to answer what's at risk, we're -- it's really premature. Scott talked a little bit about the enhanced value proposition of all of these things. And while we may see,[Author ID1: at Thu Jun 3 10:40:00 2021 ] we have seen some ups and downs in terms of that product mix in the last three quarters. We don't expect that to go away overnight. This is not going to be a flip of the switch and the pandemic is over. And so,[Author ID1: at Thu Jun 3 10:40:00 2021 ] we -- it's hard to say how much of this will continue in the future. Will the frequency of sanitizer spray services stay the same frequency as today? Will this [Author ID1: at Thu Jun 3 10:41:00 2021 ]the frequency of our ultra clean services stay the same as today? It's hard to tell. But what we fully expect is that this cleanliness idea and value is going to stick around for a while. And so, so [Author ID1: at Thu Jun 3 10:41:00 2021 ]trying to dissect the results by product category and other things, we're not going to get into that,[Author ID1: at Thu Jun 3 10:42:00 2021 ] because it's too early to tell exactly what that future run rate is going to look like.

Thank you. Our next question comes from Kevin McVeigh with Credit Suisse.

Great, thanks. I know you talked to kind of [Author ID1: at Thu Jun 3 10:42:00 2021 ]the severe weather holiday impact. Is there any way to think about how much the weather under [[Author ID1: at Thu Jun 3 10:42:00 2021 ]ph[Author ID1: at Thu Jun 3 10:42:00 2021 ]] [Author ID1: at Thu Jun 3 10:42:00 2021 ]the holiday and then the spike in COVID impacted the quarter? And I know it kind of varies across business lines, but [Author ID1: at Thu Jun 3 10:42:00 2021 ]. But [Author ID1: at Thu Jun 3 10:42:00 2021 ]just any thoughts as to how that impacted the quarter?

Well, I guess, the easiest way to look at it would be that there was a dip from early December into January, and then revenue started to rebound as we got into February. February was better than January. And obviously, if you look at all that,[Author ID1: at Thu Jun 3 10:58:00 2021 ] the quarter winds up being flat sequentially to the second quarter. So,[Author ID1: at Thu Jun 3 10:58:00 2021 ] you can run that down and then dip back up. I would tell you that we do have some momentum as we go into the fourth quarter. And so,[Author ID1: at Thu Jun 3 10:59:00 2021 ] we’re -- we have a better expectation of economic conditions and [Author ID1: at Thu Jun 3 10:59:00 2021 ]in our business as we get into and through the fourth quarter.

Got it. And then just is there any way to think about kind of across your client base, what percentage maybe you [Author ID1: at Thu Jun 3 10:59:00 2021 ]are engaged right now, or [[Author ID1: at Thu Jun 3 10:59:00 2021 ]indiscernible[Author ID1: at Thu Jun 3 10:59:00 2021 ]][Author ID1: at Thu Jun 3 10:59:00 2021 ] [Author ID1: at Thu Jun 3 10:59:00 2021 ]not using [Author ID1: at Thu Jun 3 10:59:00 2021 ]product or [Author ID1: at Thu Jun 3 11:00:00 2021 ]service versus where it was last quarter and where that's been historically. I know there's probably seasonality there, but I guess just trying to get a sense of how many clients maybe aren't fully active right now, but you expect to start coming back as the economy starts to reopen.

So, Kevin, I think your question was what percent of our customers are on hold? So,[Author ID1: at Thu Jun 3 11:00:00 2021 ] we have, we had a -- as Mike mentioned, I believe,[Author ID1: at Thu Jun 3 11:01:00 2021 ] a strong run up in the summer and into the fall, [Author ID1: at Thu Jun 3 11:01:00 2021 ]some never came back, some of them went on hold. So,[Author ID1: at Thu Jun 3 11:01:00 2021 ] it's a little difficult to give me [Author ID1: at Thu Jun 3 11:01:00 2021 ]you [Author ID1: at Thu Jun 3 11:01:00 2021 ]an exact number on that. But I can tell you th[Author ID1: at Thu Jun 3 11:01:00 2021 ]at[Author ID1: at Thu Jun 3 11:01:00 2021 ] [Author ID1: at Thu Jun 3 11:01:00 2021 ]t[Author ID1: at Thu Jun 3 11:01:00 2021 ]his, [Author ID1: at Thu Jun 3 11:01:00 2021 ]we're anxious for those folks to get back. We think that there is an incredible amount of pent up demand that is in the marketplace, you had that with stimulus checks, and [Author ID1: at Thu Jun 3 11:02:00 2021 ]. And [Author ID1: at Thu Jun 3 11:02:00 2021 ]we think consumer spending could spike quite strongly in the Q3, Q4 calendar years -- of the calendar year. And we think that'll be really positive. If you put that together with the strong value proposition that we have increasingly, the strong value proposition that we have with our customers, meaning that when they come back, they still have to provide confidence to their employees and their customers, their clients, that they're coming back to a safe environment. And so,[Author ID1: at Thu Jun 3 11:03:00 2021 ] we think all that combined is going to make for a [Author ID1: at Thu Jun 3 11:03:00 2021 ]quite a good situation.

Thank you. Our next question comes from Scott Schneeberger with Oppenheimer.

Thanks very much. Good morning. Somewhat following up on that last question from Kevin. On [Author ID1: at Thu Jun 3 11:03:00 2021 ],[Author ID1: at Thu Jun 3 11:03:00 2021 ] [Author ID1: at Thu Jun 3 11:03:00 2021 ]specifically in [Author ID1: at Thu Jun 3 11:03:00 2021 ]your airline cruise line hospitality, the travel segment, can you put any quantification on how much those are down,[Author ID1: at Thu Jun 3 11:03:00 2021 ] and more importantly,[Author ID1: at Thu Jun 3 11:03:00 2021 ] maybe just a feel for if you've seen any improvement on those metrics since the trough or [Author ID1: at Thu Jun 3 11:04:00 2021 ]? Or [Author ID1: at Thu Jun 3 11:04:00 2021 ]if we're still there? And then I will take away from the answer that [Author ID1: at Thu Jun 3 11:04:00 2021 ]to [Author ID1: at Thu Jun 3 11:04:00 2021 ]last question that, that[Author ID1: at Thu Jun 3 11:04:00 2021 ] is one of the categories that you think in the back half of this calendar year could significantly open up.

To begin with, most of those -- [Author ID1: at Thu Jun 3 11:04:00 2021 ]the revenue from those customers is in our direct sale business,[Author ID1: at Thu Jun 3 11:04:00 2021 ] [Author ID1: at Thu Jun 3 11:04:00 2021 ]a[Author ID1: at Thu Jun 3 11:04:00 2021 ]nd [Author ID1: at Thu Jun 3 11:04:00 2021 ]. And [Author ID1: at Thu Jun 3 11:04:00 2021 ]that business is down about 40% over prior year, and [Author ID1: at Thu Jun 3 11:04:00 2021 ]. [Author ID1: at Thu Jun 3 11:04:00 2021 ]An[Author ID1: at Thu Jun 3 11:04:00 2021 ]d [Author ID1: at Thu Jun 3 11:04:00 2021 ]as you analyze that, it's a little different depending on which segment you're talking about. For example, a lot of cruise ships are still at port, so the cruise line business has really been affected. There is some travel happening now,[Author ID1: at Thu Jun 3 11:05:00 2021 ] particularly sort of vacation travel. So,[Author ID1: at Thu Jun 3 11:05:00 2021 ] the hotels are doing a little bit better, the airlines are starting to pick up. When I say that, I mean they are [Author ID1: at Thu Jun 3 11:05:00 2021 ]their [Author ID1: at Thu Jun 3 11:05:00 2021 ]revenue streams to -- within their own business. We had seen a little bit of improvement from our revenue to those customers. And -- but still down 40% is a [Author ID1: at Thu Jun 3 11:06:00 2021 ]pretty significant number, and [Author ID1: at Thu Jun 3 11:06:00 2021 ]. And [Author ID1: at Thu Jun 3 11:06:00 2021 ]I think that the [Author ID1: at Thu Jun 3 11:06:00 2021 ]those businesses will have some form of recovery as the vaccines continue to roll out and people begin to feel safer travell[Author ID1: at Thu Jun 3 11:06:00 2021 ]ing. I haven't been to the vacation spots in Florida, but I understand that the spring break crowd is maybe not as big as normal, but they're down there right now. So,[Author ID1: at Thu Jun 3 11:06:00 2021 ] I think there was a -- as Todd said, a pent up demand for people to be able to go and do things again, vacation again, go get on an [Author ID1: at Thu Jun 3 11:07:00 2021 ]airplane and go visit family in a different state across the country, that sort of thing. And I think that the big, the big[Author ID1: at Thu Jun 3 11:07:00 2021 ] trigger for all that and when that all happens is how soon a good portion of the U.S population has a vaccine. How long would [Author ID1: at Thu Jun 3 11:07:00 2021 ]will [Author ID1: at Thu Jun 3 11:07:00 2021 ]it take to get back to pre-COVID? That I don't know, it[Author ID1: at Thu Jun 3 11:07:00 2021 ] might take a couple of years, but [Author ID1: at Thu Jun 3 11:07:00 2021 ]. But [Author ID1: at Thu Jun 3 11:07:00 2021 ]I definitely could see that there would be some improvement in the second half of the year if the pace of vaccines continues at the rate that it is right now.

Thanks for that, Scott. My follow-[Author ID1: at Thu Jun 3 11:08:00 2021 ] [Author ID1: at Thu Jun 3 11:08:00 2021 ]up is, you mentioned earlier it's been 2 [Author ID1: at Thu Jun 3 11:08:00 2021 ]two [Author ID1: at Thu Jun 3 11:08:00 2021 ]years since any change in pricing as a customer appreciation type strategy. I'm curious, as we move into the next fiscal year, what is -- might we see that start to happen? Would it be only in specific areas that are seemingly overdue and necessary to cover inflation or [Author ID1: at Thu Jun 3 11:08:00 2021 ]? Or [Author ID1: at Thu Jun 3 11:08:00 2021 ]is that a strategy you'll continue to maintain? What would it take, I guess, is a question for you to start to get a little bit assertive with pricing. Thanks.

Scott, thanks for that question. First of all, it's important that you understand that it's not so much that we do it as a [Author ID1: at Thu Jun 3 11:09:00 2021 ]sort of a favor to the customer, but [Author ID1: at Thu Jun 3 11:09:00 2021 ]. But [Author ID1: at Thu Jun 3 11:09:00 2021 ]from our perspective, we want our customers to survive this pandemic,[Author ID1: at Thu Jun 3 11:09:00 2021 ] and we were doing all kinds of things to help them out in that regard. They needed to add things,[Author ID1: at Thu Jun 3 11:10:00 2021 ] depending on the customer-by-customer basis. But a small business might need to add hand sanitizers and masks and gloves and things from us, but they can't afford all of that. So,[Author ID1: at Thu Jun 3 11:10:00 2021 ] we help them with adjustments on their invoices. Maybe their entrance mats[Author ID1: at Thu Jun 3 11:10:00 2021 ]match[Author ID1: at Thu Jun 3 11:10:00 2021 ] [ph[Author ID1: at Thu Jun 3 11:10:00 2021 ]] went from a weekly service to a biweekly or monthly service at a lower rate to help them afford what was happening. And it's [Author ID1: at Thu Jun 3 11:10:00 2021 ]to us, it's the relationship that we have with the[Author ID1: at Thu Jun 3 11:10:00 2021 ]a[Author ID1: at Thu Jun 3 11:10:00 2021 ] customer. We believe, we enhanced[Author ID1: at Thu Jun 3 11:11:00 2021 ] their image of us and their opinion of what type of a provider we are during these types[Author ID1: at Thu Jun 3 11:11:00 2021 ] of unfortunate situations. It was similar in the great recession. We had the experience of doing things then as well,[Author ID1: at Thu Jun 3 11:11:00 2021 ] and the lifetime value of customers[Author ID1: at Thu Jun 3 11:11:00 2021 ]'s[Author ID1: at Thu Jun 3 11:11:00 2021 ] we come out of this is significant. They like us, they're willing to -- if they trust us, they're more willing to hear what we have to offer them when we develop new products and services. They're more willing to try those new products and services because of the relationship that we have with them and so forth,[Author ID1: at Thu Jun 3 11:12:00 2021 ] and are less likely we think to listen to a competitor's offer, and [Author ID1: at Thu Jun 3 11:12:00 2021 ]. And [Author ID1: at Thu Jun 3 11:12:00 2021 ]that all goes into what we would use to [Author ID1: at Thu Jun 3 11:12:00 2021 ]and [Author ID1: at Thu Jun 3 11:12:00 2021 ]make our general calculations about the lifetime value of that customer. So, from a price standpoint, yes, we're coming [[Author ID1: at Thu Jun 3 11:12:00 2021 ]ind[Author ID1: at Thu Jun 3 11:12:00 2021 ]iscernibl[Author ID1: at Thu Jun 3 11:12:00 2021 ]e[Author ID1: at Thu Jun 3 11:12:00 2021 ]][Author ID1: at Thu Jun 3 11:12:00 2021 ]up on[Author ID1: at Thu Jun 3 11:12:00 2021 ] 2 years since we last increased, generally speaking last increased our prices on our recurring revenue,[Author ID1: at Thu Jun 3 11:13:00 2021 ] and that's particularly in the Rental division where that's probably a stronger statement and more relative to the Rental division than others. But we have seen competitors’[Author ID1: at Thu Jun 3 11:13:00 2021 ] typical environment, pricing environment in our business,[Author ID1: at Thu Jun 3 11:13:00 2021 ] and is that when they're trying to take our business, they offer ridiculously low prices to try to get our customers’[Author ID1: at Thu Jun 3 11:14:00 2021 ] attention. But the way they treat their customers is that they're willing to raise prices to help protect their -- our competitors bottom line as opposed to help protect the customer. We've seen that in various places in the competitive environment in the last couple of years. We will look at it in the future on a customer-by-customer basis, what type of products and services they need. We -- if we are seeing price increases across the board, we'll have to -- in our own supply chain, we'll have to figure out the right way to pass some of those costs on to our customers. But the fact that we haven't done it in the last couple of years puts us in a pretty darn good position when we sit down to talk to him [Author ID1: at Thu Jun 3 11:15:00 2021 ]them[Author ID1: at Thu Jun 3 11:15:00 2021 ] [Author ID1: at Thu Jun 3 11:15:00 2021 ]about the fact that it's time for us to have some price adjustments. And generally speaking, I think that those conversations are going to go well. Will that happen in the near future? That I can't tell you. I won't -- I can't tell you yet. A lot of it depends on how economic conditions continue to recover. At[Author ID1: at Thu Jun 3 11:15:00 2021 ] at [Author ID1: at Thu Jun 3 11:15:00 2021 ]the pace that we're on right now,[Author ID1: at Thu Jun 3 11:15:00 2021 ].[Author ID1: at Thu Jun 3 11:15:00 2021 ] I would assume that between that the potential for energy prices to increase, the potential for inflation to increase, we're eventually going to have to adjust our prices and that will [Author ID1: at Thu Jun 3 11:16:00 2021 ]that'll [Author ID1: at Thu Jun 3 11:16:00 2021 ]happen. When? I'm not ready to predict.

Thank you. This concludes today's Q&A. I would now like to turn the call back over to Paul Adler for closing remarks.

Thank you, Katie, and thank you everyone for joining us this morning. We will issue our fourth quarter of fiscal '21 financial results in July. We look forward to speaking with you again at that time. Good day.

Thank you. This concludes today's teleconference. You may now disconnect.