Cintas Q3 2025 Earnings Call Transcript

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Provided by AlphaStreet
March 26, 2025
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Operator

Good day everyone and welcome to the Synthes Corporation Announces Fiscal 2025 Third Quarter Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr Jared Manningly, Vice-President, Treasurer and Investor Relations. Please go-ahead, sir.

Jared S. Mattingley
Vice President, Treasurer & Investor Relations at Cintas

Thank you, Ross. Thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer; and Mike Hansen, Executive Vice-President and Chief Financial Officer. We will discuss our fiscal 2025 3rd-quarter results. After our commentary, we will open the call to questions from analysts. The Private Secur 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 Securities and Exchange Commission. I'll now turn the call over to Todd.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Thank you, Jared. We are pleased with our strong 3rd-quarter results. 3rd-quarter total revenue grew 8.4% to $2.61 billion. Our organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations was 7.9%. Our results reflect great execution by our employee partners across each of our business segments. Uniform Rental and facility services continues to perform well with organic growth of 7% and our First Aid and Safety Services and Fire Protection services businesses grew double-digits, underscoring the comprehensive value proposition we offer to customers of all types and sizes. Gross margin for the 3rd-quarter grew 11.1% over the prior year to 50.6%, an all-time high.

Operating income increased 17.1 -- excuse me, me, 17.1% to 23.4%, which was also an all-time high. Our 3rd-quarter profitability includes a $15 million gain on the sale of property. Excluding that benefit, operating income as a percent of revenue was 22.8%, the second-highest in history. Diluted EPS grew a robust 17.7% to $1.13. Our strong earnings growth and profitability reflect our continued operational excellence via sourcing and supply-chain initiatives, route and energy optimization and technology-enabled efficiency in our facilities. For example, we continue to leverage our SAP system to standardize our processes across our operations.

These initiatives are improving the way our employee partners work-in getting the right products to our customers faster, improving both the customer experience and our margin profile. Cash-flow this year continues to be very strong. Our free-cash flow for the first-nine months of the year increased 14.5% over the prior year. Our strong cash-flow generation enabled us to deploy capital across each of our capital allocation priorities, starting with investing back-in the business, including products and technologies to support our employee partners as they look to sustain attractive growth levels and create value over the long-term.

Additionally, we made strategic acquisitions across -- across each of our three route-based segments in the quarter. Returning capital to shareholders also remains a key priority. Syntas paid a quarterly cash dividend of $0.39 per share on March 14, and we continue our opportunistic approach to share buybacks. Before turning the call over to Mike to provide details of our 3rd-quarter results, I'll provide our updated financial expectations for the remainder of our fiscal year, which reflect our continued momentum and confidence in our outlook. We are updating our annual revenue expectations from a range of $10.255 billion to $10.32 billion to a range of $10.28 billion to $10.305 billion.

As we enter our last quarter of fiscal 2025, we have narrowed our revenue guidance to increase total revenue growth and organic revenue growth at the midpoints of the guide. The $15 million reduction at the top-end of the range reflects the negative impact of the foreign currency exchange rate experienced in the 3rd-quarter and the expected impact for the 4th-quarter. Please keep in mind that the impact of foreign currency exchange rate fluctuations does not impact organic growth. Our organic revenue growth rate -- excuse me, our organic revenue growth guidance is now to be in the range of 7.4% to 7.7%.

We are also raising our annual diluted EPS expectations from a range of $4.28 to $4.34 to a range of $4.36 to $4.40, implying a growth rate of 15% to 16.1%. I want to thank all of Syntas' employee partners for their outstanding work and dedication to our customers with our culture of continuous improvement, superior products and services and the strong value proposition We offer to our customers. We remain poised to deliver sustained growth and value-creation for the rest of fiscal year 2025 and beyond. With that, I'll turn the call over to Mike to discuss details of our 3rd-quarter results.

J. Michael Hansen
Executive Vice President & Chief Financial Officer at Cintas

Thanks, Todd, and good morning. Our fiscal 2025 3rd-quarter revenue was $2.61 billion compared to $2.41 billion last year. The organic revenue growth rate adjusted for acquisitions and foreign currency exchange rate fluctuations was 7.9%. As Todd alluded to, foreign-exchange rates negatively impacted 3rd-quarter revenue growth by-40 basis-points. Organic growth by business was 7% for Uniform rental and facility services, 15% for First Aid and safety services, 10.6% for Fire Protection services and Uniform Direct Sale was down 2.3%. First, gross margin for the 3rd-quarter of fiscal '25 was $1.32 billion compared to $1.19 billion last year, an increase of 11.1%.

Gross margin as a percent of revenue was an all-time high at 50.6% for the 3rd-quarter compared to 49.4% last year, an increase of 120 basis-points. Robust volume growth, operating leverage and continued operational efficiencies helped generate this strong gross margin. Gross margin percentage by business was 50% for Uniform rental and facility services, 57% for First Aid and Safety services, 49.9% for fire Protection services and 41.2% for Uniform Direct Sale. Gross margin for the Uniform Rental and Facility Services segment increased 120 basis-points from last year.

Our progress year-over-year reflects our focus on operational excellence initiatives combined with leverage from strong revenue growth. We continue to realize benefits from our technology investments and extracting inefficiencies from the business. Gross margin for the First Aid and Safety Services segment increased 70 basis-points from last year with strong revenue growth continuing to create leverage. Our sales mix remains favorable with more profitable First Aid products and increases in our recurring revenue products like AED rentals, iWash stations and water brick.

Our technology investment in Smart truck provides route optimization and improved efficiencies, and we continue to see sourcing benefits from our first day dedicated distribution center that have allowed us to lower product costs. All of these contribute to improved margins. Selling and administrative expenses as a percentage of revenue was 27.2%. As Todd shared, there was a $15 million gain on the sale of property during the 3rd-quarter of fiscal '25. Without that gain, selling and administrative expenses would have been 27.8%. Last year, there was a $15 million agreement in-principle to settle a purported class-action contract dispute.

Without that $15 million settlement, selling and administrative expenses last year would have been 27.1% instead of the reported 27.7%. 3rd-quarter operating income was $609.9 million compared to $520.8 million last year. Operating income as a percentage of revenue was 23.4% in the 3rd-quarter of fiscal '25 compared to 21.6% in last year's 3rd-quarter, an increase of 180 basis-points. Adjusted for the gain on the properties sale, operating margin in the 3rd-quarter of fiscal '25 was 22.8%, the second-highest in Centa's history. Our effective tax-rate for the 3rd-quarter was 21% compared to 19.9% last year.

The tax-rate in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the 3rd-quarter was $463.5 million compared to $397.6 million last year. This year's 3rd-quarter diluted EPS of $1.13 compared to $0.96 last year, an increase of 17.7%. When adjusted for the $15 million property sale, EPS was $1.10. As Todd mentioned earlier, we continue to generate strong cash-flow. Over the first-nine months of the year, our free-cash flow increased 14.5% over the prior year. This has allowed us to invest back-in the business, which has resulted in the 3rd-quarter capital expenditures of $99.9 million.

We expect capital expenditures for the year to finish close to our target of 4% of revenue. As Todd provided our annual financial guidance related to the guidance, please note the following. First, fiscal '25 revenue guidance accounts for the impact of negative foreign currency exchange rate fluctuations. While the first-half of the year was negatively impacted by only 10 basis-points or $5 million, the second-half of the year is expected to be negatively impacted by approximately 40 basis-points or $16 million. Fiscal '25 net interest expense is expected to be approximately $100 million compared to $95 million in fiscal '24., our fiscal '25 effective tax-rate is expected to be 20.2%.

Please note that this implies a 4th-quarter effective tax-rate of 23% compared to an effective tax-rate in last year's 4th-quarter of 21.4%. You. As a reminder, there are two fewer work days in fiscal '25 compared to fiscal '24, which has a negative impact on total revenue growth of about 80 basis-points for the year. Also, as a reminder, the upcoming 4th-quarter will have one less work day than last year's 4th-quarter. This will negatively impact the 4th-quarter total revenue growth by about 160 basis-points. Guidance does not include any future share buybacks or significant economic disruptions or downturns. I'll now turn the call-back over to Todd for some closing remarks.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Thank you, Mike. Before we open the line to Q&A, I want to address the announcement we made on Monday afternoon. The Syntas has terminated discussions with regarding Centas' proposal to acquire Universe for $275 per share in cash. After we publicly announced our proposal in early-January, we engaged with UniFirst and its advisors in an effort to reach a mutual agreement regarding a transaction that we believe offers tremendous value for customers and shareholders. Despite considerable efforts, we were unable to have substantive engagement with Universe regarding key transaction terms.

While we continue to believe in the merits of a transaction, we do not believe further discussions are warranted at this time. As you all can appreciate, we won't have -- we will not have more to say on this matter. As our 3rd-quarter performance demonstrates, we remain focused on executing our strategy and taking great care of our customers and we look-forward to the great market opportunity ahead. With that, I'll turn it back over to Jared.

Jared S. Mattingley
Vice President, Treasurer & Investor Relations at Cintas

Thanks, Todd. 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 if needed. Thank you.

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Operator

If you would like to ask a question, please press star one on your telephone keypad now. Please be prepared to ask your question when prompted. You will also be allowed to ask one follow-up question. Once again, if you would like to ask a question, please press star one on your phone now. And our first question comes from George Tong from Goldman Sachs. Please go-ahead, George.

George Tong
Analyst at The Goldman Sachs Group

Hi, thanks. Good morning. Can you talk a little bit about how customer purchasing behaviors and sales cycles are changing given the currently evolving macro-environment? Thank you.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Good morning, George. So the customer behavior, I would say, say, is remains stable. You know our new business and our retention rates continue to be attractive. Our ad stops metrics really there has been no significant change. We certainly recognize there is more uncertainty in the marketplace right now and we are reading similar things to what you're reading and we continue to monitor things, monitor things. But -- but our value proposition continues to resonate, especially in the periods of uncertainty like this. Outsourcing can improve and steady cash-flow and saves time that can be spent on people's business on our customers' business.

So no real change, I would say to the -- to customer behavior at this point, sales cycles, etc. But we're certainly monitoring it and paying close attention as, again, we're reading same things you're reading.

George Tong
Analyst at The Goldman Sachs Group

Got it. That's helpful. And just as a quick follow-up, you mentioned last quarter that you're experiencing some pricing normalization as inflation normalizes. Can you talk a little bit about how pricing trends are performing this quarter compared to past quarters?

Todd M. Schneider
President & Chief Executive Officer at Cintas

A great question. You know the pricing environment as always, it's Always challenging. It has been my entire career, and I'm sure it will be in the future. Our pricing is right at historic levels. So again, there is more uncertainty in the market than there was 90 days ago, but we really haven't seen any change from that standpoint. And I'd like to just say that I'm really proud of the organization. Being able to grow at attractive levels the way they are and expand margins by extracting out inefficiencies in our business. It's been -- it's been impressive to watch in an environment that has been certainly a little bit more uncertain with the news that has been coming out-of-the administration and other areas of our economy.

George Tong
Analyst at The Goldman Sachs Group

Very helpful. Thank you.

Operator

And our next question comes from Jasper Bibb from Truist Securities. Please go-ahead, Jesper.

Jasper Bibb
Analyst at Truist Securities

Hey, good morning, guys. I was hoping you could update us on what you're seeing on the COGS side related to tariffs on Mexico and China. And I guess, is there any way to frame the exposure to purchasing from those countries and what you might be able to do to offset any potential increased costs with your source of efforts?

Todd M. Schneider
President & Chief Executive Officer at Cintas

Good morning, Jasper. Yeah, first-off, it's -- it's too early to tell any tariff impact that might have. Certainly, we were well aware of April 2 that the administration is going to be announcing a potentially additional tariffs, but it's too early to tell at this point. I'll say this, our supply-chain organization is a strategic advantage for us. So we have less than 10% of our products are sole-sourced. We're in a really good position to negotiate from that standpoint. And certainly, it is something that we're watching. But we're -- we think we've got a real competitive advantage there. The geographic diversity that we have, as I mentioned, the dual sourcing and our corporate culture traits a positive discontent and competitive urgency.

They fuel process improvements that drives us to be more efficient. So we think we're in a good position there. We're certainly paying very close attention to it and we will pivot as appropriate and we believe we're well-positioned to pivot. All that being said, as you're aware, it takes a while for products to get through the system for us. Whether it is a manufacturing it, has to get into our inventory, then it has to be purchased by our locations and then we amortize it. So we have really good visibility on what our costs will look like, which gives us time to pivot and time to address these subjects with customers as appropriate?

Jasper Bibb
Analyst at Truist Securities

Thanks for. Thanks for that. And then maybe stepping back on the M&A question, are you thinking about the opportunity to consolidate, I guess, more midsized private platforms that could be available in rental uniform or your other industry verticals and I guess, separately, how would you characterize the pipeline of those smaller tuck-in size deals for that?

Todd M. Schneider
President & Chief Executive Officer at Cintas

Great question. So first of all, we have -- M&A is has been an important part of our strategy for the last I would say, 30, 40 years. So that's important to us. And we love M&A. We love tuck-ins. Tuck-ins are very attractive for us, allow us to bring efficiencies on route, bring customers on where we can offer additional -- a wider breadth of products and services to those customers. And in certain cases, we're able to bring on M&A that allows us to have additional capacity. So that's all important to us and we are always in search of that.

You really can't pace it and that pacing is really around, in certain cases, family dynamics, whether or not a -- an operator is getting to a retirement age or an operator doesn't have children that is interested in participating or whatever. So it's tough to pace those and predict them, but we're active in the market and we are pursuing M&A in all of our route-based segments and we think it's a -- it's great use of cash for us.

Jasper Bibb
Analyst at Truist Securities

Thank you. Thanks for taking the questions guys.

Operator

And our next question comes from Manav Patnaik from Barclays. Please go-ahead, Manav.

Manav Patnaik
Analyst at Barclays

Hi, good morning. This is Ronan Kennedy on for Manav. Thank you for taking my question. Could I please reconfirm the primary drivers of these of the impressive margins, especially at the GM level? And then also the sustainability of those drivers and how that will evolve going-forward in consideration as to whether the 25% to 35% incremental range is still the right way to think about it.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Good morning, Ron. And I'll start, Mike, if you want to chime in. We're -- first-off, yeah, we believe the 25% to 35% incrementals are -- are the area that where we want to point towards and we believe we can continue to do that. It's really driven by a solid execution in our key initiatives. As I speak about often, our corporate culture is our greatest competitive advantage and it drives the behaviors around trying to execute at high levels, but also, you find ways to extract out inefficiencies. That being said, strong revenue growth is a very powerful leverage for us.

And we've executed nicely upon in addition to that, the material cost improvements we've seen that through improved sourcing, the technology that we deployed into our facilities that allows us to get better reuse of garments has been important to us. And then, you know, I would say the other infrastructure improvements that we've made through our engineering department and our Six-Sigma Blackfeld teams have been encouraging for us. And we still see that target of 25% to 35% incrementals of being where we're focused on and where we plan to drive towards.

Manav Patnaik
Analyst at Barclays

Thank you. Appreciate it. And then going, I guess, to a more granular level with that question, how should we think about the current operating and incrementals for the respective segments, uniforms and First Aid drivers and sustainability there? And I guess also for Fire Protection, I understand there is going to be some potential impacts of SAP conversion next year, but just anything to be mindful of margin-wise by segment specifically?

Todd M. Schneider
President & Chief Executive Officer at Cintas

Yeah. I spoke a little bit to the rental -- the garment sharing that the technology we're deploying in our -- in our facilities, our smart truck technology that we're leveraging across all of our route-based systems, our route-based businesses have been important for us. Just speaking of first aid, really, again, really good organic revenue growth, which is giving us real leverage. The value proposition in that business is resonating big-time. We talk our -- the leadership of our organization, first aid speaks about what's more important to a customer than the health and safety of a business's employees and their customers.

So that value proposition is resonating. The mix of revenue in the first aid business is attractive. It's in recurring type of areas of our business. And our sourcing organization has done a really nice job with our dedicated First Aid distribution center. And as I mentioned, Smart truck. And in the fire business, our -- the leverage that we're getting is again on attractive revenue growth, deploying technology to make our people more successful and more efficient. And you're correct, we are investing in deploying SAP into that business and we're encouraged about as we get through the deployment there, reaping some benefits in that business as well.

Manav Patnaik
Analyst at Barclays

Thank you. Thank you. Thank you. I appreciate it.

Operator

And our next question comes from Tim from William Blair. Please go-ahead, Tim.

Luke McFadden
Analyst at William Blair

Hey, good morning. This is Lou McFadden on for Tim. Thanks for taking our questions today. Maybe starting off one here just on the macro picture. Fully recognize you're not providing guidance for 2026 at this time. But just curious kind of at a high-level, how should we think about the setup heading into next fiscal year, given organic growth in the business remains Pretty healthy, but obviously, there's a decent amount of uncertainty out there right now.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Yeah, good morning. Yeah. So we're certainly monitoring it very closely. But we're positioning our people to be successful in the short, mid and long-term. So we're investing in our business so that we have great products, great services and provide a real value proposition to our customers. So we've shown the ability to grow our business in just about every economic environment that is -- that we've seen over my career. And we've shown the ability to grow in multiples of GDP. And we certainly love it when people are hiring more workers, but -- but we've been able to grow in-spite of that.

So whatever the economic environment that is thrown at us, we plan to be successful and we're organized around that. We're investing for that and we see -- see that opportunity moving forward. So we'll continue to monitor it very closely and watch the impact to the economy and to our customer-base and we'll pivot appropriately. But nevertheless, we think our value proposition resonates with folks and helping them run a better business.

Luke McFadden
Analyst at William Blair

Understood. Thanks. That's really helpful. And then maybe switching gears a bit here. You've spoken recently about government as being a focused vertical. Just curious how you're thinking about that opportunity in light of the administration's intentions to reduce spending broadly across the federal government agencies. Thanks.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Thank you. Great. Good question. You know, keep in mind, you know we have a very broad customer-base. But the efforts that are going on there, it's still too early to tell what exactly is going to happen. As you have seen, the efforts are really around the federal government and our focus has been on state and local governments. So there's certainly a possibility, the work still needs to be done at the state and local government level. So as you know, as the federal government shrinks, it's very possible that the state and local government just take on more work. So we're watching that.

We've recently -- and from a state and local standpoint, we had a local public school system that is a very large public school system come to us and talk about, hey, is there ways that you can take cost-out? And in that case, we consolidated suppliers, meaning that provided us more business, but lowered their overall total cost of their program. And so this allowed us to streamline invoicing for the customer, which a lowered administrative burden for the school system. So net-net, we took cost-out of the total $1 that were in their budget, but we were able to enjoy a larger portion of that wallet.

So these are -- we expect that certainly that may very well be a more common subject in the future, but we're having those types of conversations with all customers and certainly our school systems are not immune to that. So we think we're in a good spot.

Luke McFadden
Analyst at William Blair

Yeah. Great. Thanks so much.

Operator

And our next question comes from Andrew Steinerman from JPMorgan Securities. Please go-ahead, Andrew.

Andrew Steinerman
Analyst at JPMorgan Securities

Hey, Mike. Two questions, one small one, one math one. So what was energy and fuel costs as a percentage of revenues in the just reported 3rd-quarter? And my second question is, could you tell us what's implied, what's embedded in your full-year organic revenue growth guidance. When you look on a sequential basis at the 4th-quarter that we're in now versus the 3rd-quarter, and you can imagine I'm talking about organic constant-currency sequential same-day basis.

J. Michael Hansen
Executive Vice President & Chief Financial Officer at Cintas

Let me start, Andrew, with energy and the energy for the quarter was -- for the total company was 1.7% of revenue. That's the same as last year's 3rd-quarter. Rental was 2%, same as last year, 2%. From an organic guide, you know, Andrew, we just -- we talked about a 40 basis-point impact on total revenue in the 3rd-quarter because of FX. We expect that to be fairly similar in the 4th-quarter. And in addition to that, in the quarter, we had Call-IT, 70 basis-points of M&A impact. Actually, it was 90 basis-points of M&A impact with a 40 basis-point headwind. To get to that 50 basis-point differential, something not too different than that in the 4th-quarter is where I would be guiding you.

Andrew Steinerman
Analyst at JPMorgan Securities

Right. So maybe let me just ask it one other way. When you look at the sequential revenue for the 4th-quarter that we're in versus the 3rd-quarter we just reported, are you assuming a normal seasonal pattern?

J. Michael Hansen
Executive Vice President & Chief Financial Officer at Cintas

Well, we would assume a normal seasonal pattern in the performance of the business and the underlying performance of the business. Yes. The FX is a little different in that we have seen a change in the FX in this back-half of the year, both in terms of the size of the move and the and the quickness of the move that is -- that is not usual for us. And that's why we've called out the Canadian FX impact.

Andrew Steinerman
Analyst at JPMorgan Securities

Good. Okay. Thank you.

Operator

And our next question comes from Justin Hawk from RW Baird. Please go-ahead, Justin.

Justin Hauke
Analyst at Robert W. Baird & Co

Yeah, great. Thank you. I guess I just wanted to follow-up on that question that was just asked because it would look like the 4th-quarter organic constant-currency and Workday adjusted implied number with having that same FX headwind and the M&A contribution would be closer to like 6% versus the 7 -- high sevens that you've done in the last two quarters. So I guess I just am curious why there would be kind of a deceleration there. And then the second one and this is also just purely a number question, but the $15 million gain on-sale, which segment was that in on the SG&A line? Thank you.

J. Michael Hansen
Executive Vice President & Chief Financial Officer at Cintas

Okay. I'll answer the second question first. That was -- it was a spread across for both this year and last year spread across each of our segments. So from a 4th-quarter revenue standpoint, Justin, let's keep in mind that there is one less work day, right? So that is 180 basis-points of growth impact. So if you take that -- if you take the guide range and solve it for the 4th-quarter, yes, you are going to see deceleration in total growth, mainly because we have the headwind of one less work day. So when you -- when you add-back that 180 basis-points to our growth, you get something very similar to what we've been doing for the full-year, both in growth -- excluding the workday impact as well as the organic growth. We expect to have a pretty good quarter in the 4th-quarter. That's what the guide is leading us to.

Justin Hauke
Analyst at Robert W. Baird & Co

Okay. All right. Thank you for clarifying that. I guess we'll check the math on the workplace, but it sounds like it should be similar to what you. Thank you.

Operator

And our next question comes from Ashish Sabadra from RBC. Please go-ahead, Ashish.

David Paige
Analyst at RBC Capital Markets

Hi, good morning. This is David Page on for Ashish. Thanks for taking our questions. Yeah, can you just dive a little bit deeper into Uniform Direct sales. It looks like sequentially it performed better, but still a little down. So any color there? And then as a follow-up, just circling back to the capital allocation. Can you just give us an overview, I guess, like the valuations and the multiples you're seeing out in the market and absent of any March M&A would you shift towards a buyback? Thank you.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Yes, thanks for the question. First-off, our uniform drug sale business is historically there is some lumpiness to that business was improved sequentially and but we are -- that's a very important business to us. It's a strategic business, serves a -- we sell a lot into those customers, not just uniform direct sale, but they are outstanding prospects for Uniform rental, also for facility services, first aid and Fire services. So that's a strategic business for us that sets the table for us to sell additional services. And yeah, there are -- there can be some lumpiness But we think we're well-positioned in that business. Regarding capital allocation, just to remind you, our number-one use of cash is investing back-in the business. So we want to invest back-in the business because we want to make sure that we're positioning our people to be highly successful. Yeah, with the appropriate capacity, the appropriate technology, tools, products, services, training, all that is very important. Second item for us would be M&A. And I think we've shown to be very good stewards of capital as it relates to that. We're making strategic acquisitions, really attractive businesses that we can bring our products and services to and also bring our efficiencies to. And but it starts with when you have those strategic M&A, it starts with the most important resources there, certainly our products and trucks and kind of systems, what have you, but it's really the people and success really well-run businesses that fit nicely into our network. And then lastly, buyback. We have a dividend buyback returning back to the shareholders. As I mentioned, March 14, we paid out our dividend. And then buyback, we have always looked at buyback as a opportunistic way to redeploy capital back to our shareholders and give a return. And there were no buybacks in Q3, but we see -- we think we're -- our balance sheet puts us in an incredibly good position to deploy as-needed.

David Paige
Analyst at RBC Capital Markets

Great. Thank you.

Operator

And our next question comes from Scott Schneeberger from Oppenheimer. Please go-ahead, Scott.

Scott Schneeberger
Analyst at Oppenheimer & Co. Inc

Thanks very much. I just wanted to touch base on, I think it's pronounced, the acquisition you made a quarter or two ago. Any learnings or just a progress report there and any evolution or opportunity to offer new products not only stemming from perhaps that, but from other acquisitions or ideas or initiatives you've come with recently? Thanks.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Thanks for the question, Scott. HIPSH is how you pronounce it. And it's a company that we've admired for decades. And that was in a particular case where it was in the family for generations and the owner, Jim Vadre, passed away and in the family then saw it as the most appropriate decision to merge their business in with Syntas. So great example of an outstanding company, great customer relationships. We received a capacity in those markets as well. But the most important thing that we got there were certainly the people and the customers.

We love the capacity. But it's about the now Centas employee partners and their customers. And in every time we acquire a company, we learn and we get better as a result of that. We learn from them. Hopefully, they learn a little from us, but the most important thing is we get usually really good people. In that case, we absolutely did and great customers that we're going to try to make sure we nurture and hang on to and grow.

Scott Schneeberger
Analyst at Oppenheimer & Co. Inc

Great. Thanks. Appreciate that. And for the follow-up, just free-cash flow has been very strong this year. Looks like in working capital, you've been making a lot of improvement. Just curious what has occurred structurally, perhaps thinking ahead to the out years, are you going to be able to achieve a new level? And how should we think about free-cash flow as a percent of revenue perhaps? And are you moving in a very positive direction and maybe some discussion of how that's occurred? Thanks.

J. Michael Hansen
Executive Vice President & Chief Financial Officer at Cintas

Sure, Scott. It's free-cash flow has been strong for us and last year was quite a strong year and we've grown about 15% over last year. We have generally from a net income conversion to free-cash flow, we've generally been in a 90% to 100% type of a range and that's where we are this year and that's where our expectation would be as we go into the next several years. And we have -- there are times, for example, where we may we may spend a little bit more on inventory as we did in the 3rd-quarter, you saw inventory go up just a little bit to maybe get-out ahead of the tariffs.

Todd talked about how we're dealing with tariffs and maybe make a little bit more of an investment in the near-term to make sure that we've got the inventory we want at the cost that we want. And so there can be various quarters ups and downs. But generally speaking, we like our ops cash-flow to be in that 110 million to 120 range, and we like our free-cash flow to be in that 90% to 100% range. I would expect that going-forward too.

Scott Schneeberger
Analyst at Oppenheimer & Co. Inc

Great. Thanks.

Operator

And our next question comes from Shlomo Rosenbaum from Stifel Nicolas. Please go-ahead, Shlomo.

Shlomo Rosenbaum
Analyst at Stifel Nicolaus

Hi, thank you. I just have a few questions out there. Todd, are you seeing any change at all competitively? One of your major competitors has just seen a lot of change on the top of their organization. I was just wondering, is that something that you kind of notice on-the-ground or is that not really noticed on-the-ground over the last kind of year, year and a half?

Todd M. Schneider
President & Chief Executive Officer at Cintas

Yeah. So good morning, Slomo. Thanks for the question. Yeah, it's -- we operate in a very competitive industry. It always has been. So nothing noteworthy as far as the change there. Certainly, we're aware of the changes in the organization at the top-level of the organization you're speaking of, but I don't know that that's changed any dynamic of how people are taking care of their customers and what have you. Well, and just keep in mind that how we -- our new business wins tend to come from the vast majority are from, we Call-IT no programmers, those who or are not renting when we walk-in and when we'll walk out, they are.

So it's -- yeah, we love winning business in all ways. But for the past several decades, we've grown our business primarily by growing the pie of customers, those who were sourcing products somehow, they might be buying it on the Internet or they might be buying it at Costco or Walmart or what have you. And then -- and we've shown a better, faster, smarter way. Even with garments, especially with garments, I would say, everybody is wearing garments and that's just a matter of what's the best way to obtain those garments. So in fact, I've got a couple of examples I'll give you.

We recently converted over a large equipment manufacturer that was purchasing flame resistant clothing from a competitor. They were really excited about our Car Hunter branded -- Car Hart branded flame resistant clothing line and they were looking for a higher-quality garment to improve employee comfort and overall satisfaction. And as we dug into it, we were actually able to save them some dollars in the rental program because of the turnovers that they had. And also our first aid and safety team at the same time was able to provide some essential training for that customer around their electrical program in conjunction with some recent OSHA guidance change on that subject. So that's an example where they were certainly wearing garments.

They were -- but they weren't -- we're not taking it from a rental competitor there, but they -- but it resulted for the customer and a safer, more compliant customer with happier wears and lower overall costs. So I've got other examples like that we've seen. You just recently converted over a Fortune 500 global field service company with thousands of remote service technicians that were in a direct purchase program. Again, they were dealing with loan lead times, how do they repair the garments, how do they replace them, size changes, new hires.

And the challenge is the workforce doesn't report back to a central location. So in that case, we place them in a managed program where their employees were able to clean their own product of clean the garments, but we manage The inventory, size changes, repairs placements. So I give those examples because, yeah, certainly, we're always interested in the competitive landscape. It's always been competitive, always will be. But where we see the greatest opportunity is to expand that pie and sell programs, manage programs into companies that are buying product and-or haven't seen the value yet in having a uniform program and we grow that pie. So it's really important to us. It's been a key strategic lever for us for decades and will continue into the future.

Shlomo Rosenbaum
Analyst at Stifel Nicolaus

Great. Thank you. Just one follow-up for Mike. Can you just give us a heads-up and what the days look like for the quarters in fiscal year '26 for our modeling? Like is the year the same? Are there any nuances between the quarters?

J. Michael Hansen
Executive Vice President & Chief Financial Officer at Cintas

Yeah. Shlomo, they are all the same. As current as fiscal '25, so the quarters, the days per quarter and fiscal '26 are the same as in as in fiscal '25. 65 in every quarter.

Shlomo Rosenbaum
Analyst at Stifel Nicolaus

Thank you.

Operator

And our next question, a question comes from Stephanie Moore from Jefferies. Please go-ahead.

Harold Antor
Analyst at Jefferies Financial Group

Hello, this is Harol Anta on for Stephanie Moore. So I guess just real quick on the tech investment side. You talk about SAP, Smart Direct,, Portal. I know you still have some -- I know you're still rolling it out. So if you could just provide us a sense of where you are, at least like which inning you're in along that journey? And I guess if you're doing any other incremental tech investments in the business that you're waiting to materialize, that would be helpful. Thank you.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Yeah, Harold, we are -- thanks for the question. We are always making tech investments because it's -- it's important to make our employee partners more successful and provide more value to our customers. So specific to the portal, yeah, it is rolled-out. Once we roll-out the fire business under SAP, all of our route-based businesses will be on that the same portal. Portal and we see advantages absolutely today and we see advantages coming in the future as we expand it out, but also offer for more of benefits to the customers.

So when you think about it, they can pay, they can service -- make service requests, they can manage their program in totality and they can buy. So all that is an additional conduit for the customer to be able to work with us and make it easier to work for work with us. So, and that's a fundamental concept that we have here is that we want to make it easier for the customer to do business with us and make it easier for our employee partners to do their jobs. So yeah, you'll see continued investment in that and that will be going on for many, many years.

Harold Antor
Analyst at Jefferies Financial Group

Thank you for the color. And I guess just on your verticals, healthcare, hospitality, foodservices, anything to call-out there? Are you seeing any new business wins in any particular vertical this quarter or any in the pipeline that you would like to call-out? And then I guess also on the new business win side, it sounds like you've seen some new business wins on the larger side. So are you -- when you look at your new business wins, are they more so coming from national accounts now versus small businesses? Anything around there that would be helpful. Thank you.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Thanks for the question, Harold. I -- just to address the back-half of your question. The examples I gave you were a couple of larger ones, but we have wins of all shapes and sizes, all industries, really small companies or larger ones, you name it, we have it. But as far as the verticals are concerned, they're all performing well. We're happy with our investments there. We think we've chosen really good verticals and we've organized around them as well, servicing them, selling them, managing them, all that is very important. In the healthcare, I'll give you a couple -- you asked for a couple of -- and examples of wins.

We rolled-out our healthcare privacy curtain business product-line about a year or so ago. And we just recently sold a large multi-state healthcare network that were into this privacy curtain service. Prior to us, the customer was trying to manage the tracking, the exchange, the cleaning of the curtains themselves, which is what most of that market is. And we came in with our patented curtain system and proprietary technology and it's had a really positive impact on their business. We received a letter from the customer and they told us the following. They told us, first-off that our services allowed them to have to now achieve 100% compliance with regulators.

The program has generated over 20% savings, cost-savings for them from them managing themselves. It has also helped them reduce hospital-acquired infections, which is obviously very, very important. And then lastly, our programs enhance the patient and employee satisfaction level at the hospital network. So a lot of wins there and that came from the customer. And I'll give you one other one. We had from a healthcare scrub dispensing program, we converted over recently a 14 hospital network that was renting scrubs from a traditional supplier, but one that had inadequate inventory control.

And as a result, lost scrubs were a real problem for the customer and showing up in loss charges and a lack of supply for the wearers, which was a real pain point for the administrators, the hospital administrators because, yeah, the cost was a real problem. But when they didn't have product for the employees, then that's a really big problem. So we deployed our patented dispensing technology, which eliminated the loss charges and the frustration around the lack of supply. But it also allowed us to invest in a more comfortable high-quality scrub and added net savings for the customer.

So a real win-win for the healthcare worker and the administrators. And another example of in both those cases, they we're deploying better products, technology, positioning our people to take better care of the customer. And in most almost all those cases, we're helping to save them money.

Harold Antor
Analyst at Jefferies Financial Group

Thank you for all the color. Really appreciate it.

Operator

And our next question comes from Tony Kaplan from Morgan Stanley. Please go-ahead, Tony.

Toni Kaplan
Analyst at Morgan Stanley

Thanks so much. I was hoping you could give us an update on cross-selling, how many products on average each customer is purchasing, how that's trended? And just maybe what -- where are you seeing the most cross-selling or add-ons? Like is there a specific type of product or within a certain market?

Todd M. Schneider
President & Chief Executive Officer at Cintas

But we have opportunities to sell a vast majority of our products into our -- even our rental customers, separate from that to sell -- to cross-sell within the business units. So we're really having great success with each of them. Our fire business is the only business that we're in where you legally have to have it in order to operate your business. So you know every, every business in the country are is a prospect for us in that case. So that's a certainly a simpler one because every customer that we service is a -- a -- is a great candidate for our fire service, whether it'd be a sprinkler, alarm, fire extinguishers, emergency lights, etc.

But we're having great success and continue to have great success with cross-selling our first aid products, AEDs, eyewash, water break, first aid cabinets, that's going quite well. But the opportunity we have is immense to cross-sell and upsell within our current customer-base, all while we're focused on bringing in additional customers into the frame.

Toni Kaplan
Analyst at Morgan Stanley

Great. And then just as a follow-up on outsourcing. We talked about it a couple of times how there could be an opportunity if customers want to reduce their budgets that you can provide some help to them there. Just wanted to get a sense of historically when you've seen sort of periods of budget tightening or uncertainty, like Do you tend to see that outsourcing accelerate like just obviously, that could be offset by other things, but do you -- have you seen that historically and just maybe an update on outsourcing and how that's been trending over the last, Call-IT, few months?

Todd M. Schneider
President & Chief Executive Officer at Cintas

Sure. Tony, it's good question. You know, when -- if a customer cuts back on the number of employees that they may have, there's still work to be done. And in many cases, they look to an alternative source to help them get that work done. And because we're there, we have eyes, ears and minds in our customers on a very, very frequent basis, it allows us to see opportunities and help them with those. In many cases, we hear from them, oh my gosh, you didn't take care of this for me. Thank you. I don't have to put the cash-flow upfront and I can just outsource it to you. So that happens, that absolutely happens.

When customers are trying to cut-back on cost. In many cases, they might be spending money in another -- with another vendor that not a traditional direct competitor that you would think of, but they might be buying it from a website as a -- an opportunity -- has been an opportunity and will be in the future and we'll pivot as appropriate based upon what we see with our customer-base.

Toni Kaplan
Analyst at Morgan Stanley

Perfect. Thanks.

Operator

And our next question comes from Jason Haas from Wells Fargo. Please go-ahead, Jason.

Jason Haas
Analyst at Wells Fargo & Company

Hey, good morning and thanks for taking my questions. Wanted to follow-up to response to an earlier question on pricing to see if you could put a finer point on it. I think you had said that we're right in the historical range, which my understanding of the historical range was that 0% to 2%. And I thought at least as of last quarter, the pricing was running more like 2%. So I wasn't sure if that implies that there's been further moderation in pricing from last quarter and now we should think about closer to the midpoint of that range. So if you could just help clarify that would be helpful.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Well, Jason, I'll -- the way I'd describe it is, pricing hasn't changed. It's a -- exactly where it was last quarter, which is about historical levels. And so really no change to the environment from what we described last quarter.

Jason Haas
Analyst at Wells Fargo & Company

Got it. Okay. That's helpful. Thanks for clarifying. And then just on the incremental margins on the thought that 25% to 35% is the right range. I think we're going to be definitely will be above that this year, it seems. So can you help me just understand what are the -- what would drive the incremental margins back-down to that 25% to 35% range. I'm not sure exactly what the gain on-sale, the $15 million gain on-sale. So like I assume that's not a recurring -- I don't know if there's vehicle sales or what, but I assume that's not a recurring benefit. And then I know that there's the SAP implementation for Fire, but is there anything else to think about that sort of brings those incremental margins back-down lower going-forward?

Todd M. Schneider
President & Chief Executive Officer at Cintas

Thank you. Well, Jason, first-off, that land sale was -- is not reoccurring. So that was a one-timer. As far as incrementals moving forward, so we're constantly making investments. So it's running a business is not linear and we suspect that we'll have a over-time of incrementals between 25 and 35, which we're really proud of and think are really attractive and right where we want to be. We want to make sure we're investing appropriately in the business. And so we're doing exactly that, whether it comes from -- we'll be, to your point, investing in technology. We're investing in infrastructure, more products and services, training and all those items are very important for us so that we can continue to provide a great working environment for our employee partners and a great value proposition for our customers.

J. Michael Hansen
Executive Vice President & Chief Financial Officer at Cintas

Jason, I might add when there are times also when you're -- when we're computing that incremental margin where last year's margin has an impact. So for example, especially if you removed the $15 million settlement from a year-ago. Our second-half of fiscal '24 was -- we made a nice jump-in operating margin so when you do that, that also has an impact on that incremental calculation. So it's dependent on where we were last year, what our levels and cadence of investments are this year as well. But the really good news is, as Todd has been saying, our initiatives -- these initiatives that we talk about all-the-time, they are not one-time, but they are just changing the way we do business and that gives us confidence that we can still work-in that range for years to come.

Jason Haas
Analyst at Wells Fargo & Company

That's great. Thank you.

Operator

And our next question comes from Leo Carrington from Citigroup. Please go-ahead, Leo.

Leo Carrington
Analyst at Smith Barney Citigroup

Good morning. Thank you. On the topic of M&A away from UniFirst itself, are there any other large M&A targets in North-America? And if not in uniform rentals, where does this leave you? Other route-based service targets of interest maybe outside of North-America or are you just solely focused on the tuck-in? Thank you.

Todd M. Schneider
President & Chief Executive Officer at Cintas

Yeah, Leo, thanks for the question. Yeah, well, we really don't get into any particular M&A particular deals. But I'll say that our focus is on North-America. And we still see a great runway there. We service 1 million customers. There are 17 million businesses in the US and Canada. So we see the opportunity to in what is still a very fragmented business for M&A as an opportunity, but also just the selling more customers and bringing on more customers.

So we don't see a need to expand outside of North-America at this point. We're always watching and we have relationships with the appropriate people in various geographies, which we stay-in touch with because we want to make sure we're in touch with the market. But we don't see a need. We have an incredible opportunity here in North-America, what we think is greatest economy in the world and that's where our focus is. And as far as any particular M&A, we're not -- we're interested in buying great companies. They have great customers and great employees that we can bring into the family.

Operator

Thank you. And at this time, there are no further questions. I'd like to turn the call-back over to Jared for some closing remarks.

Jared S. Mattingley
Vice President, Treasurer & Investor Relations at Cintas

Thank you for joining us this morning. We will issue our 4th-quarter of fiscal '25 financial results in July. We look-forward to speaking with you again at that time. Thank you.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect. The host has ended this call. Goodbye

Corporate Executives
  • Jared S. Mattingley
    Vice President, Treasurer & Investor Relations
  • Todd M. Schneider
    President & Chief Executive Officer
  • J. Michael Hansen
    Executive Vice President & Chief Financial Officer
Analysts

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