Good day, everyone, and welcome to the Cintas Corporation announces Fiscal 2023 Fourth Quarter and Full Year Results Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Jared Mattingley, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Thank you for joining us. With me is Todd Schneider, President and Chief Executive Officer; and Mike Hansen, Executive Vice President and Chief Financial Officer, who will discuss our fiscal '23 fourth quarter results. After our commentary, we will open the call to questions from analysts. Private Securities and Litigation Reform Act of 1995 provides a Safe Harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission. I'll now turn the call over to Todd.

Thank you, Jared. Fourth quarter total revenue grew 10.1% to $2.28 billion. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 10.3%. We are pleased with these fourth quarter results, where each of our businesses continue to grow and execute at a high level, especially coming off our highest growth quarter in fiscal '22. Fourth quarter gross margin was $1.09 billion. Gross margin increased 210 basis points from 45.6% to 47.7%, an increase of 15.1% over the prior year. Operating income for the fourth quarter of fiscal '23 of $470.8 million, increased 16.4% over the prior year. Operating margin increased 110 basis points to 20.6% from 19.5% in the prior year. Fourth quarter net income was $346.2 million, an increase of 17.6%. Earnings per diluted share for the fourth quarter were $3.33, an increase of 18.5% over the prior year fourth quarter. These results conclude a fiscal year of significant accomplishments, including the following: Fiscal year '23 revenue was a record $8.82 billion, an increase of 12.2%. Organic growth was also 12.2% for the year. We saw double-digit organic growth for every quarter during fiscal '23. We were once again named to the prestigious Fortune 500 for the sixth consecutive year. It is an honor to be recognized among the most successful and respected companies. Operating income grew 13.6% for the year. When you exclude both fiscal '22, $12.1 million gain on the sale of operating assets and a $30.2 million gain on an equity method investment transaction, operating income grew 16.7%. EPS grew 11.5% for the year, excluding the previously mentioned prior year gains, EPS grew 15.2%. We increased our quarterly per share dividend by 21.1%. We've increased our dividend every year since going public, which is 39 consecutive years. As part of our steadfast commitment to corporate responsibility, we issued our third environmental, social and governance, or ESG report. Each year, we continue to make the report more robust. Cintas was founded on a sustainable business model. Our corporate culture is based on doing what is right and challenging ourselves to improve. We're proud of these results and the efforts of our employees whom we call partners. I'll now turn the call over to Mike, to provide details of our fourth quarter results. J. Michael Hansen: Thank you, Todd, and good morning. Our fiscal '23 fourth quarter revenue was $2.28 billion compared to $2.07 billion last year. The organic revenue growth rate, adjusted for acquisitions and foreign currency exchange rate fluctuations was 10.3%. Uniform Rental and Facility Services operating segment revenue for the fourth quarter of fiscal '23 was $1.77 billion compared to $1.6 billion last year. The organic revenue growth rate was 9.1%. As we've done in the past, I will share revenue mix of the Uniform Rental and Facility Services operating segment for the fourth quarter. Keep in mind, there can be small fluctuations in mix between quarters. Uniform Rental was 48%, dust [ph] was 18%, hygiene was 16%, shop towels were 4%, linen, which includes microfiber wipes, towels and aprons was 10%, and catalog revenue was 4%. These percentages are consistent with last year, which speaks to the robust demand across all of our products and services. Our First Aid and Safety Services operating segment revenue for the fourth quarter was $249.8 million compared to $218.2 million last year. The organic revenue growth rate was 14.1%. Our Fire Protection Services and Uniform Direct Sale businesses are reported in the All Other segment. All Other revenue was $261.5 million compared to $226.2 million last year. The fire business revenue was $173.5 million, and the organic revenue growth rate was 17.3% resulting in a strong finish to the year. The Uniform Direct Sale business revenue was $88 million, and the organic growth rate was 11.5%. This strong performance exceeded our expectations as robust demand continued for these products and services. Gross margin for the fourth quarter of fiscal '23 was $1.09 billion, compared to $946.2 million last year, an increase of 15.1%. Gross margin as a percent of revenue was 47.7% for the fourth quarter of fiscal '23 compared to 45.6% last year, an increase of 210 basis points. Energy expenses comprised of gasoline, natural gas and electricity were a tailwind, decreasing 65 basis points from last year. Strong volume growth from new customers and the penetration of existing customers with more products and services help generate great operating leverage. Gross margin percentage by business was 47.7% for Uniform Rental and Facility Services, 51% for First Aid and Safety Services, 47.9% for Fire Protection Services and 36% for Uniform Direct sale. Fourth quarter SG&A was 27.1%, which was up 100 basis points from last year. We've continued to invest in selling resources and branding initiatives, and our insurance costs were higher. We are self-insured, which means our insurance costs can fluctuate from quarter-to-quarter. Fourth quarter operating income was $470.8 million compared to $404.4 million last year. Operating income as a percent of revenue was 20.6% in the fourth quarter of fiscal '23 compared to 19.5% in last year's fourth quarter. Our effective tax rate for the fourth quarter was 22.4% compared to 22.8% last year. Net income for the fourth quarter was $346.2 million compared to $294.5 million last year. This year's fourth quarter diluted EPS was $3.33 compared to $2.81 last year. I'll now turn the call back over to Todd to provide his thoughts and our financial expectations for fiscal '24.

Thank you, Mike. As we move into fiscal '24, we will celebrate our 40th anniversary of being a publicly traded company. Back then, we were excited about what laid ahead. Today, we are equally excited about the significant opportunities that the future holds. Our value proposition remains strong, and our prospects for continued profitable growth are great. Every business goods producing or services providing has a need for image, safety, cleanliness and compliance. We work with businesses to help them build a better workday. We provide the products and perform the services better, faster and more economically freeing businesses to concentrate on their core competency. A year ago, I introduced three priorities: branding, ESG and technology to help drive our focus, continue to differentiate us in the marketplace and provide increased competitive advantages. I'm pleased with our progress in each of these key areas. Our branding efforts continue as more and more businesses have learned how we can help them get ready for the workday. We continue to make progress on our ESG goals and our sustainable solutions focus on reducing, reusing, recycling and repurposing our textiles. These solutions continue to resonate with our customers and prospects as we help them achieve their sustainability initiatives. I want to spend a minute speaking about technology, in particular, our digital transformation journey. We've been very successful thus far in using technology to drive efficiencies in our production facilities, efficiencies out on the routes with our trucks via our proprietary Smart Truck technology, and we are in the early innings of our My Cintas customer portal, which makes it easier for our customers to do business with us. As we look to the future, we're very excited to have great technology partners in SAP and Verizon, which are helping us to provide a better customer experience and improve efficiencies within our business. We are excited to announce today that we have an additional strategic technology partner with Google, leveraging their Google Cloud platform. As a result of these relationships, it positions us at the forefront of technology innovation. We are still in the very early stages of our digital transformation journey, and we are excited about the impact it will have on our customers and our company in total. We are confident technology will be a competitive advantage for us now and well into the future. I will now provide our guidance for fiscal '24. Our fiscal year '24 -- for our fiscal year '24, we expect our revenue to be in the range of $9.35 billion to $9.5 billion, a total growth rate of 6.1% to 7.8%. We expect diluted EPS to be in the range of $13.85 to $14.35, a growth rate of 6.6% to 10.5%. Please note the following: fiscal year '24 interest expense is expected to be approximately $98 million compared to $109.5 million in fiscal year '23, predominantly as a result of lower variable rate debt. This may change as a result of future share buybacks or acquisition activity. Our fiscal '24 effective tax rate is expected to be 21.3% compared to a rate of 20.4% for fiscal '23. The higher effective tax rate negatively impacts fiscal '24 EPS guidance by about $0.16 and diluted EPS growth by about 120 basis points. Guidance does not include any future share buybacks or significant economic disruptions or downturns. And guidance includes the impact of having one more workday in fiscal '24 compared to fiscal '23. This extra workday comes in our fiscal third quarter. We're excited about next year and beyond. The future of Cintas remains bright. I'll turn the call back over to Jared.

That concludes our prepared remarks. Now we are happy to answer questions from the analysts. Please ask just one question and a single follow-up as needed. Thank you.

[Operator Instructions] And our first question today comes from Andrew Steinerman with JPMorgan Securities.

Hi. I'd like to talk about net realized price as part of the organic revenue growth in the fourth quarter and into the guide. And I think you might need to remind me, I think there's no explicit gas surcharge that Cintas puts on, but obviously, gas prices are down year-over-year. And how does that factor into pricing? And just overall, how has Cintas done in terms of raising price to their B2B customers versus the input costs?

Good morning, Andrew, thanks for the question. Yes, good question. We're -- from a pricing standpoint, as we have spoken about in past quarters, is our pricing has been certainly above historical during fiscal '23, as it needed to be because of the cost inputs. When we think about what that will look like moving forward in our '24 guide, we expect that pricing will return closer to historical and our cost inputs are in a similar spot, as you saw in the CPI report that came out yesterday and the PPI report that came out this morning. We are seeing inflation coming down. I think our team has done a pretty amazing job of managing input costs, both our operational team but our supply chain team which has really benefited us. So it's -- we do not rely upon pricing as the only lever to gain leverage to expand margin. We are committed to extracting out inefficiencies in our business, and you're seeing that. And you've seen that in fiscal '23. And our guide for fiscal '24 reflects incremental -- attractive incremental margins, and we're going to do it successfully, and we're going to expect that inefficiencies in our business to help us expand margins. J. Michael Hansen: Thank you, Andrew, I might just add two things. One, specifically, we do not have a fuel surcharge. And secondly, you made a comment about our price increases offsetting input costs and I think the best -- the way to think about that is margins in the fourth quarter were up 110 basis points. Margin for the fiscal '23 year were up 70 basis points and our guidance implies margin improvement throughout the range of guidance for next year. So, keep that in mind as we think about pricing versus input costs, et cetera, we're still raising margins, improving margins.

Great. Thank you.

Our next question will come from Faiza Alwy with Deutsche Bank Securities.

Yes. Hi, good morning. I wanted to talk about the type of economic or macro environment that you're embedding in your guide. I know you said that significant economic disruptions or downturn is not assumed, but give us a sense of what type of economic environment you're assuming?

Faiza, thank you for the question. We're not guiding towards a significant economic disruption. Trying to predict economic indicators is certainly very challenging. But I can tell you what's going on, what we're seeing in our business, which is we haven't seen much change in our customer behavior. Our sales productivity is very good. Our customer retention levels remain quite strong. And there is -- there's still really good interest in our products and our services. Know programmers are still going very well. And there's still the majority of the new accounts that we sell. So we like that very much. We like expanding the pie and those customers are seeing value in what we're providing. We also like our vertical strategy that -- the vertical sales strategy that has been working quite nicely for us. So I would say, reasonably so business as usual is what we would expect. We recognize there will be ups and downs in macro environments, but we're not guiding towards anything -- any economic downturn.

Great. Thank you. And then if I could just follow up on the -- you mentioned the Google partnership. Maybe give us a sense of where you see that partnership going over the next few years? What some of the benefits might be as you think about your digital transformation strategy?

Certainly. Our relationship with Google gives us a better, faster, smarter, cheaper way to store our critical data. But we see it as it can do so much more, due in large part because of the relationship that Google has with SAP and the relationship we have with SAP and now Google. As you all know, we have had a very successful relationship with SAP for over a decade now. And we've spoken in the past that it is much more than just a customer vendor relationship. It's a strategic relationship. So you combine that with just a couple of months ago, SAP and Google announced that they have an expanded partnership. And what that's going to do is it's going to allow our SAP data to be connected with the Google Cloud Data and analytics technology, which will give us access to their advanced AI and machine learning capabilities. So we're excited about that. It's going to -- we think we can benefit for many years to come as this type of relationship. But you asked Faiza for a few examples. So I'll give you a few to help give a little color around it. We see having these technologies connected, the opportunity to put in front of our sales organization instead of calling, I'll say, more blindly on who to try to sell our services to, we call it next best prospect for our sales team to have real technologies to push in front of them. Here's where you go spend your time. We think that's significant and can have an impact on our productivity and our retention and morale productivity, all those things. Next best product for the customer. So instead of just trying to figure that out, we can put that in front of our sales team to -- and our service team to make sure that they're talking to our customers about the next best product that would fit based upon other customer behaviors. We think certain customer service functions could be enhanced nicely over the coming years. There is -- we all use Google Maps, and we see an opportunity to leverage Google Maps to even further enhance our Smart Truck technology to make routing even more dynamic, which will save us time, saves us energy, saves us -- allows for more time in front of our customers instead of on the road. And then just one more, I would say is that, our service team, we're blessed to have a lot of customers. We want to make sure that they're spending -- they're in front of the right customers at the right time. And we see the potential to leverage that type of technology to point them in the right direction to make sure that they're focused on any at-risk customers and customers that we need to enhance the effort with them with the people in front of them. So hopefully, that gives you a little color around it. Again, this is not -- we don't see this as an event, we see this as a process and the coming years, we think it can be very impactful for our business and our customers.

Great. Thank you so much. Really appreciate it.

Next question comes from Ashish Sabadra with RBC.

Thanks for taking my question. I wanted to turn down into the First Aid and Safety Services we saw some material acceleration in growth there. I was wondering if you can talk about what's driving that strength. And then as you think about '24 any puts and takes that you would call out? Or how do we think about that momentum going forward? Thanks.

Thank you, Ashish. I'll start, and if Mike wants to chime in. The First Aid and Safety business is going quite well. We really like that business. We've -- we see significant opportunities in the future there. And we're getting leverage there, really growth -- the strong growth is really helping us get some real leverage but the mix of business is very attractive. We spoke about during the peaks of the pandemic now, there was more PPE sales and safety sales. And the mix is now back to what we really like, it's a cabinet sale that are repeat in nature and higher margin. So we really like the mix, but the growth in total is great. And I would tell you that the value proposition is really resonating our customers are trying to make sure that they're reinvesting in their people. Health and wellness is a concept that is resonating very strongly in the marketplace, and we're leveraging that and benefiting from that. And on top of that, we're also -- we have inefficiencies in that business as well. So we're extracting out those inefficiencies. They're going to help us continue to expand our margins. But we like the position we're in, we like the tailwinds we have with the health and wellness, and we think the future is quite bright in that area.

That's very helpful color. I just wanted to drill down further on the vertical sales strategy. Obviously, you mentioned you're seeing some pretty good success on that front. I was wondering if you could drill down further on the key verticals. And then also on your health care initiative, how those are trending, but also any other verticals that you would call out? Thanks.

Certainly. Our key verticals where we're focusing our time is health care, education and government. We've organized around those verticals. We have products and services that are attractive to them. Certain service functions dedicated to them. And as a result, we're really benefiting from it. And we very much think that they're smart verticals to invest in. And as a result, they're growing really attractively. And customer retention is good, new business is good. And we think that there's a real long opportunity here for us to continue to invest in these into the future. Certainly, the demographics of health care are quite attractive. But education and government are doing well in addition, and we're going to continue to invest in those areas. So it's paying dividends for us.

That’s very helpful color. Thank you very much.

Your next question comes from Manav Patnaik with Barclays.

Good. I think historically, you've talked about how almost two-thirds of that -- two-thirds of new sales come from those known programmers. I just wanted to update that and kind of tied to that. What is the competitive environment look like? Have there been any changes? Because your two public comps, obviously, there's a lot of changes going on at each of the organizations?

Yes, Manav, you were -- I couldn't hear the first part, but I think I understand your question. I'll try to answer it. And if I don't, then please let me know. The know programmers are -- it's going quite well. And it has historically been a significant portion of what we sell, and it continues to be a significant portion of what we sell. And we have products and services that are attractive to them. We have a sales effort that is, I'd say, skilled at identifying and delivering the message to those folks. And I think it's important to understand that with know programmers, it's not always -- I would say rarely is it just all incremental new spend to them. Many, many cases, we are able to -- they're spending those dollars somewhere in many cases, with other vendors, maybe not a direct competitor, but they're spending money on compliance and image and safety and cleanliness, those types of things. And as a result, we're able to redirect those dollars to us, in many cases, save the money. So don't think of it all as, oh my gosh, is there an end to that because if the economy -- there's any stress in it that they're not going to be able to sell know programmers there, quite the opposite. We're -- we see a very, very long runway there. So that's attractive. As far as the competitive set, I mean, we operate in a very competitive industry, a very competitive environment. I would say I haven't seen any changes to the competitive landscape from that standpoint. So I'll leave it at that.

Okay. And then just one quick follow-up I had, I think I understand that the Google partnership the benefits it potentially brings with any sense of time line? Like when does this start happening, when you get the data on the cloud and then you start seeing some of these benefits?

Well, it's certainly going to be a process. We just entered into our relationship with them recently. We've had meetings with them to talk about where we're going to go here. And as I mentioned, it's not an event. It's a process. But we see some low-hanging fruit, I guess is the best way to say it. But as we have gone down this path, more ideas are coming out. So we think we can benefit for years to come with this opportunity. And I won't go into too much detail just because we see some competitive advantages there. And so as a result, we'll keep those to ourselves. But we think the runway is long and attractive.

Okay. Thank you.

And our next question comes from Josh Chan with UBS.

Hi, good morning, Todd, Mike and Jared, congrats on a strong quarter. My first question, when you are selling First Aid and Fire, basically those adjacent businesses, how much of that growth is selling to existing customers? And how much of it gets you kind of entirely new customers that don't run uniform from you?

Yes. Josh, it's a good question. It's a mix. Cross-sell has been very helpful for us over the last number of years and will continue to be. But we love new customers. And the Fire and First Aid, there is some overlap, but not complete overlap. And so it allows us to get into speaking to customers about that. And the first time they may have done business with us at all. So -- and then we -- separately we have an enterprise sales organization that will call a customer or prospect. And frankly, it doesn't really matter to us what they start with. It's whatever the customer is interested in. If a customer doesn't do any business with us and they want to start -- their interest is in Fire, wonderful, or if it's in First Aid, wonderful, or rental garments, then we go where the interest is and then we expand out that relationship from there. So we love the fact that there isn't complete overlap, and it gets us into new opportunities and then we cross-sell like crazy.

Great. That makes sense. Thanks for the color. And I guess for my follow-up, if I look at your incremental margin, it's climbed pretty steadily through 2023. I assume if you got better alignment between price and cost. So how are you thinking about the cadence of incremental margins looking into 2024? J. Michael Hansen: Josh, our incremental margin for the total company in fiscal '23 was 26.8%, a little bit up from the previous year. And Josh, it's -- there can be ups and downs from quarter-to-quarter in the way that we invest or in the cost that we see. And so we don't necessarily try to predict one quarter at a time. We do certainly believe we can get incremental operating margins in that 20% to 30% range from quarter-to-quarter generally, but it's going to go up and down, again, based on what we are doing within the business, some initiatives that we may or may not roll out. So the bigger focus for us is on the full year, and our goal is to get those incremental attractive enough that it improves margins over the year. So I wouldn't call it linear at all, I wouldn't call it flat. It's going to be based on how we're managing the business.

That’s great. Thanks for the color and thanks for your time.

Your next question comes from Justin Hauk with R.W. Baird.

Good morning, everyone. I wanted to -- I guess, my first question, maybe a follow-up on Andrew's question, just on the implied revenue growth, the 7% in 2024. And maybe you can kind of pull out the puts and takes, but that's coming off of a 12% you just did here in '23, that was off of already a really strong 10%. 7% is more, I guess, kind of in line with kind of your long-term historical organic growth. And so -- maybe you can just give us the puts and takes. Is it all pricing that accounts for the delta because it sounds like your new business and retention and kind of existing sales are all still very strong? So I'm just trying to understand the moving pieces?

Thanks for the question, Justin. I'll try to answer and see if Mike wants to expand upon it. So when you think about our growth, Q4 growth was around 10%, which is really nice growth, especially considering a strong comp of last year of 12.7%, which was our strongest growth of the year, that year. So if you compare that 10% to the -- I'll call it the top end of our guide or in the mid-7s to higher 7s, you can think of that as really pricing returning back to closer to historical levels. And as I mentioned earlier, the reason that we see this as appropriate and is we're seeing an easing of inflation. And we saw that -- you can see that in the drop in the cost of energy that we've seen, the benefit we received in Q4. And as I mentioned earlier, also you saw it in the CPI report yesterday and the PPI report today. So -- and as you appropriately said, I mean, we're guiding towards a more historical type of growth volume growth is really good still. Pricing will return closer to historical appropriately so. But all that being said, we will still have -- we're guiding towards incremental margins and operating margin expansion. So pricing is a lever, but it's not our only lever available to us in order to expand margins.

Okay. No, that's helpful. I mean that's I guess, kind of what you were implying, but I wanted to clarify that, that was kind of the magnitude of the change. I guess the second question, just on the insurance cost increase, and maybe SG&A as a percentage of revenue in general, how much of an impact was that in the quarter? And then is that kind of a run rate headwind that you'll face next year? And the reason why I ask is, obviously, you're implying margin expansion here, but your SG&A as a percentage of revenue is still pretty low versus kind of pre-COVID levels. And so just trying to understand how much structural SG&A leverage gain you have here versus returning to more of a normalized level? J. Michael Hansen: Justin, because we are self-insured, those claims can -- they can kind of move up and down throughout the year. There's nothing that we would say is structural related to that. It's just a product of being self-insured. We ended the year at 26.9% in SG&A, that is, gosh, a couple of 100 basis points maybe lower than pre-COVID in the last few years, and you've heard us speak about this. Look, we've worked hard to get it to that level, and we don't want to get back to historical levels. So our expectation is we're going to continue to find ways to better leverage SG&A, particularly G&A to make sure that it contributes to our margin expansion into the future. So we're going to continue to work hard to look for opportunities to bring it down and do not expect it to return to those higher 20 places that we were in pre-COVID.

Great. Okay, I appreciate it. Thank you.

And we'll hear next from George Tong with Goldman Sachs.

Hi, thanks. Good morning. You mentioned there hasn't been much change in customer behaviors based on what you're seeing. Can you elaborate on how customer budgets, sales cycles in the sales pipeline are evolving with the current environment?

Good morning, George. It's a pretty -- the environment hasn't changed significantly. The health of customers is varies based upon geographic, what type of business they're in, small, medium, large, those types of things. But generally speaking, the sales process and has not elongated the sales pipe looks very good. We like the spot we're in. And we have invested appropriately. We're in the right -- we've got the right products and services. We've got the right focus on our customers, and we think that we're well positioned for the future. And we certainly are trying to make sure that we're planning for the long term. And we're -- as I mentioned earlier, not trying to be an economic forecasting business, but we are making sure that we're watching our business very closely and hoping for clear sailing ahead with the economy. That being said, we will find a way to be successful as we have in the past.

Got it. That's helpful. And then I wanted to drill down further into your healthcare vertical, which you touched on earlier, COVID certainly provided a notable lift to the health care business. Can you talk a little bit about how quickly the health care business is growing, what new business trends there look like and what mix of revenue we currently represent?

Certainly, George. The healthcare business has been strong for us for a number of years. And is large part not just having a sales focus, but organizing around those customers, products, services, our service organization. So it's more than just sales. It is making sure that we look at it as a business. And it's growing -- it's accretive to our growth rates. We see very long runway there. As I mentioned earlier, the demographics are really attractive. But the pipeline of sales growth looks robust. And that's because of years of investment in making sure we're really well positioned, and we see that continuing.

Got it. And just the mix of revenue? J. Michael Hansen: I don't have that in front of us, George, right now. In the past, it's been about 7%. And it's -- I'd say that it's growing faster than average.

Got it. Thank you.

Your next question comes from Tim Mulrooney with William Blair.

Yes. Good morning. On the First Aid business, specifically, pre-pandemic operating margins were closer to 15%. They went down several 100 basis points. I know from the sell through a lower-margin PP&E in '21 and '22. But now it looks like you're sitting at 19%. I mean that's a big jump from pre-pandemic levels. Would you expect, I guess, Mike or Todd a little bit of a give back at some point? Or do you expect to keep and build on those margin gains that you've made this year?

Yes, Tim, we do not expect to give back, we expect to maintain and build on those improvements. And we're leveraging certainly the total growth, the benefits of health and wellness being important to people in the marketplace. The mix of business being attractive and we've fundamentally focused on extracting out inefficiencies in the business. So -- and we're not giving those back. So yes, we see the future is bright for that business.

Yes. Okay. It was more than just sales mix. It sounds like you did some structural things. J. Michael Hansen: Yeah. Tim, we talk a lot about the mix certainly returning, and that's being -- that's a big part of it. But as Todd mentioned, our first aid safety partners have a lot of things going on in terms of business improvement opportunities from sourcing better, to routing better, to sales productivity improving, to penetration opportunities. There's a lot going on in that business. And we've attributed a lot, you're correct, to the revenue mix, and that has been important in terms of the height of the pandemic to today. But there's also a lot that's going on in the business that is working towards structural improvements in the business that create long-term efficiencies and you're seeing that. And that's why we don't expect to give it back. There's nothing that we are underspending or underinvesting in to get these margins. These are real business improvements that are sustainable. And that's what we love about the business. It has been growing nicely, it's resonating with our prospects and customers. And it's pretty exciting to think about that business in our fiscal '24 topping $1 billion for the first time. So we do love the business, and there's a lot of good work going on there.

That is exciting, and I appreciate the extra color there. Mike, that's very clear. If I could just shift gears really quickly. One of your competitors recently commented that they saw customer retention rates come down a little bit recently. But it was kind of more of a normalization, okay, like following a boost over the last several years, when things were good. Now that kind of back towards historical rates. I'm curious and some investors are curious if you guys saw something similar to any material degree, did you see retention rates kind of jump up a little bit in fiscal '22 and '23? And have you seen that pull back or normalize, so to speak, more recently? Thank you.

Great question, Tim. So, over the past few years, we've seen a nice improvement to our customer retention levels through the pandemic. We think that we handle that really strategically, intelligently and thought about the long term. And we saw our customer satisfaction scores go up at that same time. And we've continued to see those same levels of customer satisfaction and retention levels. So no, we have not seen a change from that standpoint. And we're always working on improving our business and making sure that we are super focused on making sure we're taking great care of our customers and staying attentive to their needs, is a big part of what makes us successful. So we've not seen a change, and we're focused on making sure that doesn't happen.

Got it. Thank you.

We'll hear next from Kartik Mehta with Northcoast Research.

Good morning. I wanted to ask your expectations for ad stops as we go into fiscal '24. It seems as though companies are starting to slow down their hiring. And I'm wondering what type of impact that's included in the guidance or what you're anticipating?

Kartik, we have not seen a change to our ad stops metrics, and we are expecting that, that will continue. We're -- part of it is because of the diversity of our customer base, not just good producing services providing and the broadness of our customer base. We're not dependent upon any one particular area and we expect to grow in multiples of GDP. And all that being said, we expect that and stops metrics will continue on its path.

Perfect. And then Mike, you might have said this, so I apologize if you already talked about this. But just the impact from energy costs in FY '24 versus FY '23, what you've included or anticipated. J. Michael Hansen: So let me -- I'll give you a couple of numbers. Fourth quarter total energy for the total company was 1.8% for the fourth quarter. For the year, that was 2.2%. So for the year -- this year -- fiscal '23 compared to '22, it was down 10 basis points. So it's roughly flattish. As we think about '24, look, the prices at the pump spiked in June of last year. And so our first quarter numbers of last year were fairly high. And so we may get a little bit of a tailwind in Q1 and then our expectation is we'll turn roughly flattish.

Okay. Thank you very much. I really appreciate it.

Next, we'll hear from Seth Weber with Wells Fargo.

Good morning. I wanted to just circle back to the revenue guidance point again for a second. I'm just -- it sounds like First Aid Safety and the Fire business both have very strong momentum, so I'm just trying to understand the construct of the revenue guide, whether you think all three segments will be in that kind of 6% to 8% range or will there be some above and some below to kind of put out to that 6% to 8% range? Because it seems like there's still a lot of momentum in the First Aid Safety and Fire business.

Well, Seth, good morning. We like the momentum in all of our businesses. So will there be some above, some below? Yes. But it's -- but generally speaking, we see in the mid-to-high single digits would be probably where you can think of it. And it's -- and as I mentioned earlier, the -- we're up against comps that are significant, partly because of pricing being above historical in the past, well above historical, now it being closer to historical.

Okay. Maybe, Mike, my follow-up question just on CapEx. It's kind of pushing up towards that 4%ish number again. Is that the right way to think about it for fiscal '24? And then can you just give us any color on what that -- whether that's brick-and-mortar or whether just where that spending might be going from a capacity perspective or whatnot? J. Michael Hansen: Sure. Yes, we would expect 3.5% to 4% of revenue. Look, when we've had a really good couple of years of volume growth, we have capacity needs in certain places. Capacity is local in our business, but we have capacity needs. And we want to continue to invest for growth. And so there will be everything from added washers and dryers and specific wash alleys to some of a few bricks and mortar new buildings and other investments in the business that allow us to continue to have the capacity we need to grow. So it is kind of back to that historical 3.5% to 4% range. That would be our expectation.

Got it. I appreciate guys. Thank you very much.

And we'll move next to Heather Balsky with Bank of America.

Hi, thank you for taking my question. I know you've got a question earlier about sort of the trend in sales and the difference is related to pricing. I'm curious, focusing specifically on the uniforms business. You've been growing organically 9% to -- and 11% the last few quarters. If presumably were well past the COVID recovery period. I'm just curious what's enabled you to drive that outperformance versus kind of pre-COVID levels? And if you think that sustainable going forward?

Good morning, Heather. So yes, our Uniform Rental business is performing quite well. We've -- we think we have invested appropriately in the sales organization. We really like where we're going there. We like the productivity levels. They've continued to go up. And there's plenty of inputs to productivity and it's whether it's products that we launch, services that we launch, the retention levels of our people, the leadership of the organization to make sure that we're driving items that make them more successful. So no, it's going well, and our service organization is doing an outstanding job with customer retention, making sure, as I mentioned earlier, our customer satisfaction scores are near all-time highs. And as a result of that, our lost business, our customer retention, the appropriate way to say it. Our customer retention is really attractive. So our new is up and our customer retention is improved over pre-COVID levels. So those are big for us and having a really positive impact on the business.

Great. Thank you. That's really helpful. And I feel like I have to ask an AI question here. You guys talked about being early in your digital transformation journey. Are you guys looking at any investments on the AI side in terms of efficiencies and sort of behind the scenes type benefit? I'm just curious. Thanks.

Yes, Heather, we're certainly investigating and investing in opportunities. And we think we're with the right partners. When you think about Verizon, SAP and Google, having those three as the -- our technology -- our strategic technology partners, we think we're with the right folks. And we don't just have a customer vendor relationship with them, we have a strategic relationship with them, and they're helping us -- they are and will help us to leverage those opportunities in the marketplace. So I can't lay out specifics for you, but I'll just tell you this, we're -- we see the opportunity to invest in that area, and we are doing so appropriately because we think it will pay big dividends. That being said, it will be -- we'll be speaking about this for many, many years to come because we think the benefit has a real -- has a lot of legs to it.

That’s really helpful. Thank you.

Your next question comes from Scott Schneeberger with Oppenheimer.

Thanks very much. Guys, kind of a cautionary question. It sounds like things are going really well and recent economic indicators feel pretty good, but just curious to hear what the plan is if -- as your guidance expects no softness in the economy, how are you looking at what levers would you pull on the efficiency side? What should give us assurance you'll be in good shape if you're not able to get some of the leverage you've been getting on the top line? Thanks.

Scott, let me make sure I understand. You're saying if we can't get to leverage or if the economic environment changes?

If the economic environment dips in below kind of status quo and really deteriorate, just curious what kind of leverage you guys would pull to maintain the financial sense?

Yes. Certainly. Good question. I -- we have a very tenured, very experienced leadership team, management team that has been through the cycles. It seems like you name it, we've been through it, and we expect to be successful in all environments. Now -- so your -- the question is a tough one to answer because the economic downturn, how deep is it? How long is it? How broad? And so trying to understand that is challenging. But we expect to be successful in all economic environments. If you're talking about a massive downturn in '08, '09, that might be different. But we're ready. We know how to do this. We have demonstrated our ability to be successful in and all these different types of economic environments. We have grown our sales and profits in 52 -- in the last 54 years. And my expectation is we will absolutely do so and we will find and fight and a way to be successful in whatever economic environment. So plenty of levers available to us. And we think we've got the right team in place to manage that.

Thanks. I appreciate that. And then for the follow-up, it's a bit of a two-parter and one to your housekeeping. I was just curious, your -- thanks for answering on Seth's question on CapEx, what that will look like, just other uses of capital as we head into fiscal '24, thoughts on buybacks, thoughts on M&A, any other cleanup on the balance sheet you were considering? And then that second part would just be, if you could remind us what a one day -- one extra workday quantitative impact is that in fiscal '24 versus '23? J. Michael Hansen: Sure. From a capital allocation, I'll start with our expectation is that cash flow is going to continue to be very good in fiscal '24. And secondly, our balance sheet is in great shape. We -- as of May 31, we have no variable debt. And so we can do a lot of things with great cash flow and a great balance sheet. We would love to use that on M&A if the opportunities come along, and we'll be as aggressive as we can be in terms of looking for them and making sure that they come at the right value, but we love that opportunity. Buyback is another great opportunity, again, with good cash flow and a great balance sheet, we can put that cash to work, and we certainly could do it in the form of a buyback. So, look, our capital allocation philosophy and strategy hasn't changed. And with -- again, with a healthy balance sheet and a healthy cash flow, we can do some good things with that as we look forward to fiscal '24. Your second question of the one workday for a fiscal year. In this case, it would be about a 40 basis point benefit to growth -- sales growth. And think about it as about a 12 basis point benefit on bottom line on operating margin.

Great, thanks. Appreciate all the color.

Your next question comes from Shlomo Rosenbaum with Stifel Nicolas.

Hi, thank you for taking my questions. I wanted to just ask a little bit more on kind of the hiring environment at your clients. You said you're not expecting it to change. It's been a very strong hiring environment for the last several years since that kind of initial dip in COVID. Is there a way that you think about it in your mind in terms of the strong hiring environment and just kind of clients adding personnel driving some of that revenue growth, particularly in the Rental Uniforms division? Or do you think it's really a lot more of the company's own efforts in terms of cross-selling, finding new customers and pricing? Then I have a follow-up.

Good question, Shlomo. We love it when our customers are hiring more employees and it certainly allows you to swim a little bit downstream then. But we've got to find ways to add value to customers even when they're in the more flattish type environment. That being said, there is still almost 10 million job openings. So that's very encouraging. We'd love to see those jobs filled. But we are -- we're going to find a way to be successful whether our customers are hiring at rapid rates or at much lower rates, we're going to find a way to be successful. And that is impacted by our ability to -- we would call it cross-sell, bring more value to the customers in other products and services that they may have with maybe a new business unit, but maybe within that business unit just selling more items. So there's a lot of inputs to that and how we categorize it. But we're -- we like the spot that we're in. And we think the products and services and the value proposition that we're providing is resonating with people. And would certainly love the economic to continue or even improve.

Okay. Great. And then just on a follow-up. Maybe you could talk a little bit about the margin just on a sequential basis of looking at the First Aid and Safety. And then kind of the other division, you had a sequential decline despite revenue going up in the Rental Uniforms you have continuing to go up? Or was there something particular on the insurance side that hit the other divisions? Or is there some particular investments that are going on right now? Just if you can give a little bit of a sequential color on what's going on with the operating margins? J. Michael Hansen: Sure, Shlomo. Look, the First Aid margin was at 18.8% in Q4, still a really healthy place to be. And nothing noteworthy other than growth is -- organic growth still is very good, gross margin is still very good, and we continue to invest for the future. So nothing noteworthy there. From the all other perspective, the Fire operating margin in Q4 was slightly over 20 and so that's a great place for us in that business. The direct sale business was 3.5%. So quite a bit lower. And that business can move up and down and have a little bit more volatility than the other businesses just because of the nature of it. We still love the business. It grew nicely, but mix can have an outsized effect on that operating margin and it sort of did in the fourth quarter. As we move forward, from a First Aid perspective, we still expect the really positive margins that we've seen as we've discussed a few minutes ago. And we still expect Fire to continue to perform very, very well like it has in fiscal '23.

Thank you.

Your next question comes from Toni Kaplan from Morgan Stanley.

Thanks for squeezing me in. I wanted to follow up on First Aid growth. You talked about the Cabinet business contributing it again, which is great. I was hoping you could talk about, is that sort of an industry penetration is growing? Or is it the product set relatively new. I know you're investing in it during COVID. Have you been sort of incentivizing your sales force to sell more cabinets? And are you taking share? Just wanted to get a sense on how long the sort of 20% growth in cabinets can continue and if there are any other factors you'd call out as well? Thanks.

Thank you, Toni. We -- the answer is yes. All the above is what we're doing. We see a long runway in the First Aid business. We're -- the vast majority of what we sell are people that are do-it-yourself. There's -- as you think about, there's 16 million businesses in North America, there is a significant opportunity to sell our First Aid cabinet services, but our other services as well, whether they be AEDs, wash stations, those types of items that really have value to customers. And that health, safety, compliance tailwind, we don't see that changing. People are investing in their organizations, and we see that as a tailwind for many years to come and the market is really, really big. So that's where we're -- we love the growth that we're seeing in that business, and we're continuing to invest appropriately to make sure that it continues.

Terrific. And this should be a short one, but hoping you could talk about maybe the sensitivity of the business from inflation. So presumably, your costs come down as if inflation comes down, so how should we be thinking about maybe like the impact to margin for each point inflation comes down or however you want to frame the sensitivity there? Thanks. J. Michael Hansen: Toni, that's a really difficult thing to try to say one point of inflation equals x points of margin. That's pretty difficult to do. But I'd maybe say this. When you think about our cost structure, we've got a really nice mix of cost types, if you will. So we certainly have things like labor that are impacted by inflationary pressures. And we work very, very hard on that over the course of the last five years, I would say. And we're in a good spot. But then we also have this large part of our cost structure that is amortizing. And it allows us to effectively see any inflationary impacts coming if they are coming and plan for them accordingly. And so we may plan for that in terms of our pricing approach, we may plan for that in terms of other initiatives. But the point is, because we're amortizing those costs, it takes a while for inflation to get to us, and during that period of time, we can plan and we can anticipate better. While we're on that bucket, I would say our global supply chain really does a nice job of not being single sourced. And so when there are some inflationary pressures in various parts of the world or in our supply chain, because we're not single source, we have the ability to move volume a little bit in flex, we have choices. And that's important for us. And it has been important for us over the course of the last two years in the high inflationary environment. And then the third bucket that I would throw out is sort of that infrastructure. We've got a large infrastructure, 400-plus locations around the country. And when we are growing really nicely, we're leveraging it very, very well, and we've done that over the course of the last few years. And so Toni, we're not a product company that is dramatically affected by today's inflation. And you hear us talk about pricing is just one lever that we have to get margin improvement. And that's because of, number one, we've got this sort of diverse cost structure. And number two, we've got a lot of initiatives and things that we're working on. And it gives us choices. And that's the -- that's really the key for us in terms of fighting inflation. So hopefully, that answers the question. It's not an easy metric for us because of the cost structure that we have and the initiatives that we have, and it also depends on where the inflation comes from.

Super. Thanks a lot.

And this concludes our question-and-answer session. I'd like to turn the call back to Mr. Mattingley for any additional or closing remarks.

Thank you for joining us this morning. We will issue our first quarter fiscal '24 financial results in September. We look forward to speaking with you again at that time. Thanks.

This concludes today's conference call. Thank you for attending.