Cintas Aktie

Good day, everyone, and welcome to the Cintas Corporation Announces Fiscal 2026 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 Mattingley, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Thank you, Ross, and thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer; Jim Rozakis, Executive Vice President and Chief Operating Officer; and Scott Garula, Executive Vice President and Chief Financial Officer.

We will discuss our fiscal 2026 third quarter results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission.

I'll now turn the call over to Todd.

Thank you, Jared. We are pleased to have delivered another successful quarter, showcasing the resilience and strength of our value proposition. Cintas achieved record revenues and strong operating margins while continuing to invest for future growth. Third quarter total revenue grew a strong 8.9% to $2.84 billion. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 8.2%. Each of our three route-based businesses continues to grow at attractive rates.

Turning to profitability. We achieved all-time high gross margins in each of our three route-based businesses. Strong top line growth along with benefits from our strategic investments and cost-saving initiatives continue to help drive margin expansion. Gross margin as a percent of revenue was 51%, a 40 basis point increase over the prior year. Operating income grew to $659.9 million, an increase of 8.2% over the prior year. When you adjust for the onetime gain we recognized in the third quarter of last year, operating income would have grown 11%.

Diluted EPS of $1.24 grew 9.7% over the prior year. When you adjust for the onetime gain we recognized in the third quarter of last year, diluted EPS would have grown 12.7%.

Turning to guidance. We are raising our fiscal 2026 financial guidance. We expect our revenue to be in the range of $11.21 billion to $11.24 billion, a total growth rate of 8.4% to 8.7%. We expect adjusted diluted EPS to be in the range of $4.86 to $4.90, a growth rate of 10.5% to 11.4%. The adjusted EPS guide does not include the impact of nonrecurring transaction expenses related to UniFirst.

Before I turn the call over to Jim, I'd like to provide some comments on the recently announced merger, our agreement to acquire UniFirst. We remain excited about this opportunity and the long-term value creation for Cintas and its shareholders, our employee partners and the team partners of UniFirst that benefits to our collective customers. When we announced the transaction 2 weeks ago, we indicated that the merger was subject to approval by UniFirst shareholders, regulatory clearance in both the U.S. and Canada and other customary closing conditions. We and UniFirst have begun the process for satisfying these closing conditions. In order to avoid creating speculation, we will not be providing any additional commentary on the process. We will, however, update the market as appropriate.

With that, I'll turn it over to Jim to discuss the details of our third quarter results.

Thank you, Todd. Our business continues to perform exceptionally well. We're adding new customers who rely on us for image, safety, cleanliness and compliance needs, while successfully cross-selling additional solutions to our existing customer base. Retention remains at record levels, while pricing is consistent with historical levels.

Turning to our business segments. As Todd mentioned, we delivered attractive growth rates across all of our business segments. Organic growth by business was 7.3% for Uniform Rental and Facility Services, 14.6% for First Aid and Safety Services, 10% for Fire Protection Services and 3.1% for Uniform Direct Sale. Gross margin percentage by business was 50.3% for Uniform Rental and Facility Services, 58.1% for First Aid and Safety Services, 50.5% for Fire Protection Services and 41.4% for Uniform Direct Sale.

Gross margin for the Uniform Rental and Facility Services segment increased 30 basis points from last year. The 50.3% gross margin is the highest gross margin ever for this segment. We executed at a high level in the third quarter and our continued strong top line growth helped drive results. We've been laser-focused on managing the many inputs we control effectively. We've invested in technologies like SAP to improve our capabilities and the strong performance of our supply chain continues to be a significant strategic advantage for us.

Gross margin for the First Aid and Safety Services segment was 58.1%. This is also an all-time high. We are investing in route capacity to serve more customers, leadership and management trainees to build our talent pipeline, advanced technologies to drive efficiency, and we're adding selling resources, all of which are fueling the attractive double-digit growth we are seeing.

It's important to remember that margins of all our businesses can fluctuate from quarter-to-quarter based on several factors, including things like revenue mix and the timing of our investments. Incremental margins were effectively 28% for the quarter after adjusting for the onetime gain on the asset sale last year, right in line where we like to be. The current macro environment is certainly complex. We help businesses navigate this environment by letting them focus on running their business. Delivering consistent excellence in a complex environment is never easy, but customers want reliable partners with proven solutions.

Our diversified customer base and strong value proposition continues to resonate, particularly in our four verticals, health care, hospitality, education, and state and local government. In addition to being aligned with resilient sectors of the economy, our addressable market is very large and our solutions remain essential for businesses of all sizes regardless of how complex the economic environment. We have consistently shown ability to convert businesses over to a managed rental solution, typically around 2/3 of all of our new customers. In addition, we've shown the ability to grow multiples of job creation and GDP.

Lastly, we're very enthusiastic about integrating UniFirst and its team partners into our organization, which we believe will strengthen our ability to better serve our customers. As a reminder, we anticipate that transaction will close in the second half of calendar 2026.

With that, I'll turn the call over to Scott to discuss our operating income, capital allocation performance and 2026 guidance assumptions.

Thanks, Jim, and good morning, everyone. The exceptional results we delivered in terms of revenue growth and gross margin expansion, translated into continued strength in operating margins and cash flow.

Selling and administrative expenses as a percentage of revenue was 27.8%, which was a 60 basis point increase from last year. When you adjust for the onetime gain on the asset sale last year, SG&A would have been flat year-over-year.

Third quarter operating income was $659.9 million compared to $609.9 million last year. Operating income as a percentage of revenue was 23.2% in the third quarter of fiscal 2026 compared to 23.4% in last year's third quarter. Adjusting for the onetime gain last year, operating income as a percentage of revenue would have increased 40 basis points year-over-year. Our effective tax rate for the third quarter was 20.6% and compared to 21% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation.

Net income for the third quarter was $502.5 million compared to $463.5 million last year. This year's third quarter diluted earnings per share was $1.24 compared to $1.13 last year, an increase of 9.7%. Earnings per share increased 12.7% after you adjust for the onetime gain last year. Our disciplined approach to capital allocation has positioned us well to finance the recently announced agreement with UniFirst.

With leverage expected to be about 1.5x debt-to-EBITDA at closing, we maintain flexibility for deploying capital across each of our priorities. During the first 9 months of fiscal 2026, we have returned $1.45 billion in capital to our shareholders in the form of dividends and share buybacks.

Earlier, Todd provided our updated guidance for the remainder of the fiscal year. In addition, please note the following in the guidance. Both fiscal 2025 and fiscal 2026 have the same number of workdays for the year and by quarter. Our guidance does not assume any future acquisitions. Our guidance assumes a constant foreign currency exchange rate, the fiscal 2026 net interest expense of approximately $101 million, a fiscal 2026 effective tax rate of 20%, which is the same compared to our fiscal 2025, and the guide does not include the impact of any future share buybacks or significant economic disruptions or downturns.

As both Todd and Jim have mentioned, we are excited about the recently announced UniFirst acquisition. While the deal is expected to close in the second half of calendar 2026, we expect to incur nonrecurring transaction costs related to the acquisition. The adjusted diluted earnings per share guide excludes the estimated impact of these transaction costs. Transaction costs expected to be incurred during fiscal 2026 are estimated to have an impact on diluted earnings per share in the range of $0.03 to $0.04. In addition, beginning with the fourth quarter, we will break these costs out on our income statement as a separate line item to provide visibility to these transaction-related costs.

With that, I'll turn it back to Todd for some closing remarks.

Thank you, Scott. In closing, our strategic investments in technology, capacity, talent and sales capabilities are driving solid growth and margin progression. These commitments position us to sustain long-term performance while helping customers achieve and surpass their image, safety, cleanliness and compliance goals. We're maximizing returns on every dollar invested to maintain our momentum and deliver superior service to our customers. I'd like to thank our employee partners for their exceptional dedication to our customers and the outstanding work they do for Cintas every day.

I'll now turn it back over to Jared.

Thank you, Todd. That concludes our prepared remarks. Before opening it up for questions, I'd like to reiterate Todd's earlier statements about the UniFirst acquisition process. In order to avoid speculation, we will not provide any additional commentary on that process. We will update the market, however, as appropriate.

Now we are happy to answer questions from the analysts. [Operator Instructions] Thank you.

[Operator Instructions] And our first question comes from Tim Mulrooney from William Blair.

Just two procedural ones. Scott, I just wanted to follow up on the guidance thing that you were mentioning at the end. How much of that $0.03 to $0.04 of EPS related to the UniFirst transaction was incurred in the third quarter versus expected in the fourth quarter? I didn't see a reconciliation table for the third quarter. I just wanted to make sure everyone is aligned on their models. And I also noticed SG&A was a little bit higher in the third quarter than what folks were expecting. So I thought maybe there was a little bit of deal-related expense there in the third quarter, I'm not sure.

Yes, Tim, good question. The estimate that we provided of that $0.03 to $0.04 is related to the fourth quarter and the fiscal year guide. Any costs that were incurred in Q3 were immaterial.

As far as the comment on SG&A being a little higher, just to remind everyone of that onetime gain last year that represented about 60 bps. So when you take that into consideration, SG&A was effectively flat year-over-year. And if you go back really over the last 3 fiscal years, Q3 is typically elevated due to the timing of certain expenses like the reset of payroll taxes. In fact, when you go back to last fiscal year and you back out the adjustment for the onetime gain, we were up 100 basis points sequentially last year and actually 70 basis points sequentially, if you go back to fiscal year '24. So we feel really good where we are with the SG&A expenses. And when you back out the onetime gain, it's flat year-over-year.

Yes. Good point, Scott. I think maybe consensus didn't fully factor in everything because of the onetime gain last year. So that's a good reminder.

And then just as my follow-up, apologies if I missed it, but how much were energy costs as a percentage of revenue in the quarter? And what's your expectation for next quarter, given the increase we've seen in oil prices over the last few weeks. I think this is an important question for investors.

Yes. Tim, good question. Energy for the quarter was 1.7%, which was flat year-over-year and up 10 basis points over the previous quarter. Certainly, the increase in gas prices will have an impact. But just I want to remind everyone that only 60% of our energy costs are related to fuel for our vehicles, which when you do the math on that, that equates to about 100 basis points. So if you just look at fuel has been continuing to increase, but if you assume a 30% increase in fuel cost that would be sustained over an entire quarter, that would add 30 basis points of cost to our results. So yes, it has an impact, but not something that we feel that we can overcome and we have contemplated this in our guide.

And our next question comes from George Tong from Goldman Sachs.

Can you provide an update on higher-level customer purchasing behaviors in the current macro environment, if you're seeing any changes, any increases or reductions?

George, this is Todd. I'll take that question. It is -- Scott and Jim have spoken about it, it is certainly a complex environment. But our customer base has been quite resilient. I think it ties back into our value proposition, continuing to resonate. When you deal with these types of complex environments, it can create opportunity for you as well. And we help our customers run a better business. And by outsourcing items to us that in most cases, what they were solving that somehow, some way in their own fashion and in their own business by outsourcing it to us, it allows it to free them up to focus on running their business and taking care of their guests or their patients or their customers, however you want to phrase it. But no real change in the customer base pretty resilient. And I think our value proposition continues to resonate.

Got it. That's helpful. And then going back to an earlier point on fuel, you mentioned that fuel expectations are contemplated in your full year guide. Can you elaborate on what exactly you're assuming for the remaining quarters of the year in terms of how fuel will trend? And how you plan to pass along any changes in fuel costs to customers in the form of pricing?

Yes. Thank you, George. As Todd mentioned, I mean, clearly, this is a dynamic environment. And our guide includes our best estimate of the increase in energy cost. As far as our approach to mitigating this or I think you've said passed along, I'll let Todd answer that.

Yes. So George, it is certainly a dynamic environment. Hence, you look at what oil prices were doing last night and then what they're doing this morning. So they're changing by the minute. That being said, we've got it contemplated in our -- an increased level of gas prices at the pump into our guidance.

And as far as how we handle that, we do not have a fuel surcharge that historically is not how we handle it. As Scott correctly pointed out, if you think about the fuel at the pump, it accounts for about 100 basis points of our total as a percent of sales. So it's not our largest cost.

And we also take the approach that we think long term about this, and we find other ways to extract out inefficiencies. We don't just look at it and say, "Well, this happened. So we've just got to pass it on." We want to be better than that. And we want to focus on being consistent for our customers and extracting out inefficiencies in other ways that we have in our business and still hitting our goals as a -- financial goals as a company while we're doing that.

And our next question comes from Justin Hauke from R.W. Baird.

I guess I had one question just kind of on the CapEx expectations. Your CapEx as a percentage of revenue has historically been a lot lower than UniFirst has been. Obviously, you guys are much, much bigger, so that's part of it. But I guess just philosophically, looking at their assets and the systems to kind of get to Cintas levels. Just thinking about -- do you expect the CapEx to kind of trend a little bit higher as a percentage of revenue in the first couple of years of integration?

Yes, Justin, good question. And I would just say we just announced the agreement a couple of weeks ago. We'll know a lot more as we close the deal. But when we closed this merger, we still expect not only will we continue to generate strong cash flow, UniFirst generates strong cash flow. We'll have a strong balance sheet. We talked on our UniFirst call about at closing, we would expect debt-to-EBITDA being at 1.5.

So we're in a great position. And I don't see our capital allocation priorities really changing. Our first priority has always been reinvesting back into the business through CapEx, followed by strategic M&A. And then I will continue to look at returning capital back to our shareholders in the form of dividends and buybacks. So more to come on what we would look at in the future with CapEx as a percent of revenue as we close the deal. But I would really not anticipate any material changes in our capital allocation priorities.

Justin, I'd just like to add to that, that UniFirst's CapEx was higher. They were certainly trying to catch up on the technology subject and other areas. And we obviously -- we're in a really good position from a technology footprint, and we'll continue to invest in there because we have to make sure that we're positioned to compete in the marketplace.

That being said, one of the uniquenesses about UniFirst versus most companies that transact like this, is they were not for sale. And as a result, they ran their business very much thinking in the long term, they invested for the long term. So it's -- we're not acquiring an asset that needs a significant amount of CapEx investment into facilities and to get it up to standard. They run a really good business, they think about how to run a business very similar to us. The cultures are very similar. They think long term, they think about investing for the long term for their people and their customers. And as a result, we think that positions us incredibly well for the future.

Yes. No, certainly, I agree on all that. I think that's it. My other questions have been answered on the items that you already addressed.

And our next question comes from Manav Patnaik from Barclays.

This is Ronan Kennedy on for Manav. You commented on retention at record levels, pricing at historic levels. Could you please provide some further color as to how we should think about what those levels are as a reminder. And then the trends and drivers versus your expectations for new business and cross-sell? And then anything to call out from specifically strong organic drivers at a respective segment level, please?

Ronan, this is Jim. I'll take that question. I'll start with it. And if we start to think about our growth formula and what we're attempting to achieve every quarter, we do like to target that mid- to high single-digit total growth rate as an organization. The major contributors to that growth as you correctly pointed out, is our new business acquisition. And a reminder, 2/3 of that new business acquisition comes from that no-programmers or do-it-yourselfers space, and that continues to perform very well for us, and we really like the trend line there.

Retention levels for us has stayed around that steady, that 95% rate, and we are really comfortable with where that is. At this point, pricing is at our historical levels, which we've considerably said is in that 2% to 3% range. And then the remainder of the growth, if you kind of put all those together, you start with a negative 5%, you add in 2% for pricing, and you want to get up to 8%, the majority of that is new business, but then the remainder is that cross-selling opportunity selling into the current customer base, which has been highly effective for us this year.

And we think that there's a long runway of opportunity within our current customer base as we continue to provide great value. We think about it in long term. We've made nice investments in the product line and the technology and try to make it easier to do business with us and the customers in this type of an environment is complex, are looking for steady answers and they know they can rely on us. So we've had a lot of success this past year. So I would say new business and cross-sell slightly continuing to improve and the others right where we expected them to be.

Jim, I appreciate it. And then for my follow-up, kind of a follow-up to Tim and George's questions. But beyond gas prices, I guess, focusing on the all-time high gross margins in each of the segments. Can you just further unpack the drivers there? I know it's strategic investments, cost initiatives and assess the sustainability of them. I know there may be a potential immediate impact if there is inflation, but also unpack the other components of your key cost buckets from a gross margin standpoint beyond gas, whether that's materials or the production expense, the labor, et cetera. So drivers of gross margins and sustainability in near term and longer term, given the kind of dynamics?

Ronan, I'll start on that and see if anybody wants to add color. And I'll start at the consolidated level, and say that the gross margin at 51% for the quarter, obviously, a great quarter for us. The team did an excellent job at execution for the quarter. And I think a little bit of that is a demonstration of our culture and the belief that nothing is ever as good as it can be and that there's always an opportunity to improve processes and work out inefficiencies.

But if we look at and we think about the quarter in and of itself, first of all, there was no one-timers, nothing significant from a one-timer perspective that helped the quarter. The key drivers of that is our primary focus, which is revenue growth, and we like strong revenue growth to continue to create leverage. And that certainly contributed in all three of our route-based businesses. We are always looking for initiatives to remove inefficiencies and expenses out of the business. And you can see that across all of our businesses, certainly in our rental business is a big focus for them.

Maybe the other one to call out is revenue mix in both our First Aid and Fire Protection businesses. That's important for us and revenue mix can fluctuate a little bit quarter-to-quarter. So this was a good quarter for us on that revenue mix. And then, of course, timing of investments and what those investments look like.

So all around a strong quarter of execution. So the team did a fantastic job, and those were the key inputs. But then, just a quick reminder that it can fluctuate quarter-to-quarter. Running a business isn't linear and that we're going to continue to make investments in the business for the short-term delivery of results and then long term to be able to set ourselves up for long-term continued success.

And then anything to be mindful of from the other cost buckets and potential inflation there on, whether it's materials, labor or otherwise?

Ronan, thanks for the question. This is Todd. Certainly, it's a dynamic environment on tariffs as well. But our supply chain team has done a magnificent job of navigating that we've said in the past, we're not immune to tariffs. But any increase in tariff or decrease in that is going to take time to run through our system, whether we have to get into our supply chain and then amortize that. So I would say nothing material there to factor in.

And our next question comes from Josh Chan from UBS.

I guess in terms of your investments, how do you feel about your level of investments kind of exiting 2026 and into '27? Just thinking about how well funded do you think your growth initiatives are at this point?

Josh, one of the things about our culture here at Cintas is we are constantly investing. And as a result, yes, certain years, you might see more than others. But we think we're in a really good spot from a -- what we have been investing and what we will continue to invest. So I wouldn't say anything -- no material change there. You should expect us to continue to invest because we look at the future, and it looks incredibly bright. We look at the opportunity out there in the white space of converting over no-programmers, and we want to go after that. We're competing in an environment where there's 16 million to somewhere maybe up to 20 million businesses in the U.S. and Canada. And there's 180 million people that go to work every day in the U.S. and Canada. That opportunity is immense. So we're investing for the future because we think the future looks really bright, and we have to position ourselves to be able to compete in those areas.

Sure. That makes a lot of sense. And then I guess in terms of your comment about the good balance sheet position. Does that imply that you can continue to perhaps repurchase stock as you desire even through this process? Or how should we think about sort of the pace of buybacks?

Josh, thanks for the question. As I mentioned, we continue to generate strong cash flow, strong balance sheet. And certainly, we're not going to be limited due to our capital allocation. However, there are restrictions from the time that we signed the agreement with UniFirst through the expected UniFirst shareholder votes. You might also guess that we were limited during Q3 with share buybacks, just to being in a quiet period as we negotiated the UniFirst agreement and completed confirmatory due diligence. But once those restrictions are lifted, we'll continue to be opportunistic with our buyback strategy.

And our next question comes from Jasper Bibb from Truist Securities.

Just wanted to ask what you're seeing in wearer levels at existing customers in uniform?

Jasper, I'll start. As I mentioned, our customer base is quite resilient. So if anything, our growth from our current customers has slightly improved. Wearer levels are -- when we see the jobs reports, but are meaning that they're not as robust as what we would like. But nevertheless, our customers are still quite resilient and hanging on to their people. And we just see an amazing opportunity to sell other items, cross-sell other items into those -- into that customer base, but things are pretty steady.

Nice, that makes sense. And then I know we just got UniFirst. But after that closes, I imagine you're going to be looking for more acquisitions outside the uniform business. So just any thoughts on what might be next for you after that point? And maybe how you're thinking about the consolidation opportunity in the Fire business would be interesting.

Sure, Jasper. We're acquisitive in each of our route-based businesses. We'll certainly be busy in our rental business here shortly. But the strength of our balance sheet, the strength of our infrastructure and our other businesses allow us to be acquisitive in all those. So we will continue to go down that path. And those are tough to pace and tough to predict on deal flow, but it won't change how we think about it.

That being said, in the Fire business you asked specifically, the mix of business really matters to us. So we try to think long term about that. We prefer service business much more so than installation type business. So it just has to be the right deal. But we have been very acquisitive in that business over the past months and years, and we'll continue with that approach.

And our next question comes from Andrew Steinerman from JPMorgan Securities.

This is Alex Hess on for Andrew Steinerman. I want to touch on a couple of recent initiatives you have. First is the recently announced 3-way contract with you guys, Ford and Carhartt, and the second being the launch of what I think is a new personalized Apparel+ program on your website. Both of those seem to be targeting the trades and manufacturing a bit more. Just wanted to maybe start, is there something you're seeing in those goods providing industries that maybe you're leaning into those a little more for sales growth near term?

Alex, thank you for the question. I'll start. Our relationship with Carhartt and with Ford goes back many, many years. And we have a great relationship with both organizations. And this is about providing products that people want to wear. And in the case of Ford, I know Jim Farley was passionate about providing the products that his people want to wear and would be proud to wear. And our relationship with Carhartt, was an absolute natural. So we're excited about that.

Certainly, the trades are something that we think, is growing in demand and is an incredible opportunity for us those are people that, frankly, we don't have nearly as many people in the trades in our uniform program as we should, and they're all wearing garments. They're in jobs that are perfectly position for us to tap into. So we're excited about that, and we see the future looks really bright in that area as far as Apparel+, Jim?

Yes, I'll add a little color there, Alex, and I appreciate the question. And Apparel+ really goes back to the core of our company culture and values, which is a culture of innovation and continuing to be dynamic and move to where the opportunity is and where the opportunity will present themselves in the future. And so Apparel+ is just another movement towards that. So we want to be able to outfit any job imaginable across North America. And we want to make sure that we have the right apparel in those industries for what people want to wear, what they choose to go to work in, and it's been very successful for us.

Regarding specialty trades, I think Todd outlined the fact that, that market is really a large employment market. They resonate well with our value proposition, and there's a tremendous amount of opportunity. In fact, I have an example of one that I brought here for our call today. And as we always speak about 2/3 of our new customers come from the unserved market, and we always want to illustrate what does that look like? Why do customers continue to partner up with Cintas and what do they see as a main driver of the value proposition.

So I have a property maintenance example here. And this company was going ahead and they were buying uniforms for their employees, a combination of retail and e-commerce, with the primary objective that they wanted to look professional and they want to look good and cohesive in front of their customer base. But what they found out over time is that they weren't able to accomplish that objective that they were -- as they bought year after year, the styles would change, they would be inconsistent on an annual basis.

What employees determined was clean and what represented the company well would vary, depending on the individual employee. The management team was spending a bunch of time administering the program in ordering in size changes and any time things were worn out. So it took them a bunch of time. And then, of course, budgeting was all over the place. Sometimes they had big spikes in budgets, other times they had very little, made it really hard for them to manage their P&L.

When they were introduced to the fully managed rental program for Cintas, they saw all the things that they wanted out of the program. They were able to get higher quality uniforms that were very comfortable, that were branded with specifically the Carhartt name, things that their employees really wanted to wear. They got a nice consistent image across the board because all of their employees are wearing exactly the same thing, and they were in good and usable and presentable conditions because of our professional laundry service that was provided with them. They were able to get time back in their day because they were no longer in a uniform business. They were in the business of taking care of their customers, which they certainly appreciated, and it made budgeting a whole lot easier.

So that's exactly why we want to continue to expand the product line to be able to show other industries, the benefits here of our rental program and why we think that we have such a massive market opportunity.

Got it. That's awesome, guys. And then maybe as a follow-up. Obviously, you guys are in the midst of implementing SAP into the Fire segment, and you guys have implemented SAP into a host of acquisitions over the years. Maybe you can just highlight one on Fire, the progress and prospective benefits, but also just sort of learnings from running that ERP implementation successfully over the years and what you might be able to do with that going forward?

Yes, Alex, we are preparing to implement our SAP into our technology into the Fire business. And we're excited about that. We think it's going to bring standardization with that, allows for a better customer experience. And with that, it also allows for a better employee partner experience. So we focus on these technologies to allow us to make it easier to do business with us and make it easier for our employee partners to do their jobs. So we think it will do just exactly that. And that shows up in all kinds of different ways, retention of customers' retention of our employee partners, productivity, those types of things.

That being said, it takes time. And technology is certainly never easy to implement. But we have really good muscle memory there, and we're well prepared to roll that out. And once we close on our deal with UniFirst, we're highly positioned to do the exact same thing. And I think we'll see the same experience. I think the team partners at UniFirst will be excited about it, make it easier to do their jobs, make it more valuable to the customers, make it easier for the customers to do business. And we think long term about those subjects as you go through the challenges of integrating technology, but the long-term impact is powerful for our business.

And our next question comes from Jason Haas from Wells Fargo.

This is Jun-Yi on for Jason Hass. Can you walk us through some of the key puts and takes to consider for 4Q organic revenue growth by segment? I believe you guys had some onetime benefits in 4Q last year in Uniform Direct and First Aid and Safety. Could you remind us how big those impacts were? And any other factors to consider across the board?

Thank you for the question. I'll start. And I appreciate you pointing it out because the comparative for Q4 is -- on revenue growth is significant. It was our highest revenue growth quarter last year. The organic was at 9%. And we did have some onetime benefits, specifically in our First Aid business that ran 18.5% organic growth. We certainly do not anticipate that again. And then in our Uniform Direct Sale business as well.

In First Aid, we had an increase in the training business that helped us as it relates to AED training. So that was a spike that we -- again, we don't think is going to occur at those levels. And the Uniform Direct Sale business can be a little lumpy, but it had a really good quarter. So yes, hopefully, that gives you a little bit of color around the tough comparative in Q4.

Todd, I might just add, like, first off, I'd just say we had an outstanding quarter this quarter. Jim mentioned that we continue to execute at a high level. We feel that the guide for Q4 is not only a good guide, but it's also consistent with the guide that we gave at the end of the second quarter.

I guess let me kind of walk through a little bit of math there that last quarter, the organic growth at the high end of the range was 8%. And if you look at the guide for this quarter, this quarter is also at 8%. And then if you even take it a step further and look at it another way, last quarter, we issued a guide for the second half of the year to grow organically 7.8%. In Q3, we just delivered a growth rate of 8.2% organically. And when you combine that with the Q4 implied of 7.6%, you get an average of 7.9%. So really effectively right in line with the guide that we gave last quarter.

Great. That's really helpful. And as my follow-up, I understand that most of your new business comes from no-programmers. But I want to see if you've seen any change in the competitive environment recently following your acquisition and also given changes in the macro and geopolitical environment?

Thank you for the question. It is -- the geopolitical environment is certainly have a dynamic impact on things. But from a competitive set standpoint, no real change, keeping in mind, as you referenced, 2/3 of our new customers come from that no-program market. So when you're competing with e-commerce and you're competing with retail and you're competing with other managed programs, relative to all that, we also have traditional competitors. So no real change to that competitive set. It's incredibly competitive, and that's the way it always has been and will be.

That being said, we are focused on delivering value to that set of prospects out there. There are so many businesses. We do business with a little over 1 million businesses, and there's whatever, 16 million to 20 million businesses in the U.S. and Canada, the opportunity out there is immense. And we're focused on delivering our message and getting our team positioned to better serve that market and get the word out better to that market because so many of them don't realize what we can do for them. And many of them also think that they're not a big enough business to have a program like we offer, which is incredibly contrary to how we make a living, which is servicing Main Street USA is -- and our average size customer is -- spends about $10,000 a year with us. So trying to get that message out to that prospect base is incredibly important to us.

And our next question comes from Ashish Sabadra from RBC.

This is Will Qi on for Ashish Sabadra. I just wanted to ask on route density and the incremental opportunities there around footprint, especially with the UNF acquisition in mind. Retention is still at high, will any retention dips result in kind of reorganization there? Or do you still see a lot of opportunity kind of increasing the sell-through on those routes and just further fleet optimization?

Why don't I start on that one, and then I'll see if anybody else wants to add color. I think, Ashish, you all are probably aware of our SmartTruck technology and how we approach routing and routing efficiency. And the first thing that we try to do with routing and routing efficiency is be as little disruption as possible, whether that's within our own facilities or when we make an acquisition. And especially when we make acquisitions, we recognize that the most important component of the acquisition and the customers and the new employees that we brought on board, we try to be as little disruption as possible to those two constituents. And we spent a lot of time trying to win over hearts and minds and build trust.

And then we implement our SmartTruck technology. And SmartTruck allows us to make incremental moves and to gain efficiency over time rather than a wholesale route consolidation all at one point. We don't like doing that. We don't like a big route reorganizations within a facility at one point because it could be highly disruptive. So we love the SmartTruck technology. It's been effective for us over the last several years. It's been one of the contributors to continuing to elevate our gross margin, and that would be our approach with any future acquisitions.

And our next question comes from Faiza Alwy from Deutsche Bank.

I wanted to see if you've gotten any feedback from any of your larger customers around the announced acquisition of UniFirst. And really related to that, I'm wondering if we should be expecting any type of dissynergies when you initially make the -- when the acquisition is completed?

Faiza, as far as our customers, as you can imagine, we stay really close to our customers, and we're getting a good response from them. They understand that they have many options, and they make that very clear to us that they have many options, which puts them in a good leverage position.

And whether it's a national account or a local account, they have the same options. And our national customers still the vast majority of them are simply hunting licenses. So they'll negotiate centralized terms and conditions and then they allow their locations to decide who they want to do business with whether they're on contract or not. So they have the exact same choices that any local company would have. And they're very clear about that, that, hey, this -- we think this will be good for us. You'll bring better technology, better infrastructure, speed of delivery to our locations. You'll allow -- you to spend more time with our business instead of driving all those things are very positive. So the response has been quite good.

Any dissynergies? So I don't know that I would describe it that way. Certainly, we'll have our onetime costs. But we think that the combination of our two companies is going to be really good for all of our constituents, our customers, our employee partners, team partners and our shareholders.

Great. And then just a follow-up on that. I'm curious if you're doing anything differently kind of in terms of managing the business or in the timing of investments, things like that up until the acquisition? And is that's going to be a factor in terms of how we should think about incremental margins in the near term? I see the implied kind of 4Q guide, but just curious if you're just managing things a little bit differently?

Yes. Thank you for the question, Faiza. Yes, our incrementals that we're guiding towards in Q4 are very attractive. But that is not because of a change in approach. That's simply what we've been predicting and timing around for the year. And I wouldn't see a change in our approach in general as you speak to that. We're investing for the long term and we'll take our normal prudent approach as we think about investing for our business.

And our next question comes from Connor Cerniglia from AllianceBernstein.

I wanted to follow up on employment trends you've been seeing and get an update versus last quarter. Are you seeing any changes in the conversion cycle or win rate for first-time buyers? And within that specific verticals, call it, health care or education, are they proving more resilient? And which areas are you seeing more weakness?

Good question, Connor. Yes, I wouldn't say we see any change in the conversion rate as it speaks to converting over that prospect base. As it relates to our verticals, we think we've chosen our verticals really, really well. And I think the employment data would defend that statement, meaning that if you look at health care, hospitality, education, state and local government have all fared reasonably well as it relates to employment. And we think the future there looks bright as well.

And our next question comes from Seth Weber from BNP Paribas.

Just a quick one for me. Just on the Fire ERP implementation. I think we had previously talked about like 100 basis points margin headwind next year for '27? I just wanted to sort of mark-to-market and see where we're at from an expense perspective, if that's still the right way to think about it? Just 100 bps for this segment.

Yes. This is Scott. Thanks for the question. As Todd mentioned, some of the impact on next year's -- on the segment is going to be dependent on the rollout in the Fire business. We're satisfied with our progress today. Still not clear on exactly when next fiscal year, that will be fully rolled out, but the progress is good. If you looked at an entire year, it would be the 100 basis points that you referenced. Then depending on when we actually go live with the entire business, it will be something less than that because we're not anticipating us to be fully rolled out by June 1.

And with that, we need to end our Q&A session for today. I'd like to turn the call back over to Jared for closing remarks.

Thank you, Ross, and thank you for joining us this morning. We will issue our fourth quarter of fiscal 2026 financial results in July. We look forward to speaking with you again at that time.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good day, everyone, and welcome to the Cintas Investor Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jared Mattingley, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Thank you, Ross, and good morning, everyone. This call and the Q&A session that follows will contain forward-looking statements. Actual results could differ materially from projected or estimated results. In particular, forward-looking financial information for the post-closing combined company is inherently uncertain due to a number of factors outside of Cintas and UniFirst's control.

Information regarding factors that could cause differences in actual results is available in today's press release and presentation and in Cintas' and UniFirst's SEC filings. The information presented and discussed on this call is representative of today only. Cintas and UniFirst assume no obligation to update any forward-looking statements. This call is copyrighted and may not be used without written permission from Cintas and UniFirst.

Here with me today are Todd Schneider, Cintas' President and Chief Executive Officer; and Scott Garula, the company's Chief Financial Officer. Jim Rozakis, Cintas' Chief Operating Officer, will also be available during the Q&A portion of the call. This morning, we announced that Cintas has entered into a definitive agreement to acquire UniFirst. The transaction is subject to the completion of customary closing conditions, including regulatory approvals and approval by UniFirst shareholders. We have made today's presentation deck available on the Investor Relations section of our website. You can access it now and follow along throughout the call.

While this call will be mainly focused on the transaction, we appreciate that many of you will also be interested in our upcoming financial results. Todd will briefly touch on some top line performance figures from our most recent quarter, which were included in the press release that we issued this morning. Beyond that, we will not be sharing any further details until our third quarter earnings call scheduled for March 25.

Before we begin, please review the forward-looking statements and non-GAAP disclosures in the presentation and in our press release. I will now turn the call over to Cintas' President and Chief Executive Officer, Todd Schneider. Todd?

Thank you, Jared, and good morning, everyone. We appreciate you all joining us on short notice. Earlier today, Cintas announced it has agreed to acquire UniFirst in a cash and stock transaction that values UniFirst at $5.5 billion. Given the strategic and financial value this unlocks for Cintas, UniFirst and our customers, reaching this point has been an important priority for us.

The extensive quoting process with UniFirst leadership team, the Board and the Cardi family has only served to reinforce our view that our 2 companies are a great fit. Scott and I will now share details about the transaction, and then we'll open it up to questions. At its core, the transaction is all about combining the complementary capabilities of Cintas and UniFirst to enhance our ability to deliver customer Workday solutions across North America.

Both companies have a rich heritage of putting our customers first, and this transaction will advance our ability to serve them. By doing so, we are delivering on our commitments and promises to customers while simultaneously creating value for our shareholders. We operate in a highly competitive market that is serviced by a broad range of diverse and well-resourced companies. With UniFirst, we will enhance our capabilities to compete in this marketplace and deliver greater efficiency to customers, which will ultimately benefit workers with more reliable, cost-effective garment and facility service and first aid and safety programs backed by continued innovation.

The transaction also amplifies and accelerates the benefits of our ongoing investments in technology, including route optimization, digital platforms and automation. We're pleased with the technological advancements that we have made as a stand-alone company, and we will have a more enhanced approach to our technological advancements by combining with UniFirst.

And finally, we're confident that the combination will create compelling financial benefits, including operating cost synergies that will enable benefits -- enable benefits to customers and create long-term value for shareholders. When you combine all these strategic points, this is about building a more efficient business that's better equipped to compete in a dynamic and evolving industry. When we think about acquisitions at Cintas, it really comes down to 2 things: customers and employees to serve those customers.

I have followed UniFirst for 35 years. I know the kind of business they run and the employees they attract, and I have a deep respect for both. Their customer base, geographic footprint and operational model complement ours. So this is truly an ideal strategic fit. We firmly believe this transaction will help us become more efficient and better equipped to compete in a dynamic evolving industry, which will enhance the long-term value for customers and shareholders alike.

In order to deliver on those objectives, we'll need the team partners from UniFirst. We'll be adding 300,000 customers, and we simply can't service them without a team. That's why we look forward to welcoming the overwhelming majority of the UniFirst team to Cintas once the deal closes. Our 2 companies share so much in common rooted in our shared commitment to customer service, which adds to my confidence that combination will lead to even better results for our customers and our shareholders.

Let me expand on 3 ways that combining our capabilities will enhance our ability to serve customers and workers. First, by combining our complementary product and service capabilities, we will be able to meet a wider array of customer needs and help them simplify vendor management.

We will also be able to offer more customized solutions to address our customers' specific diverse needs. Second, we will be able to deliver enhanced operational efficiency and reliability. Our increased reach means we will be able to bring more services to more customers in more locations, while at the same time, our technology investments will make it easier for those customers to adopt and manage those services. This means that some Cintas and UniFirst customers will be able to add new products and services from the combined business, which will make our offering more competitive in a dynamic evolving industry.

And finally, we will unlock greater innovation and further enhance our customer value proposition. By bringing our brands and our workforces together, we will ensure even greater consistency in delivering high-quality products and services to meet our customers' safety, cleanliness and compliance needs. We will quickly develop and deploy innovative solutions. Both Cintas and UniFirst have invested considerably in technology to support our customers and enable our employees to operate more efficiently. The benefits of those investments will continue and expand post transaction. Investments in digital infrastructure, route optimization, ERP systems, CRM platforms, analytics and automation are expected to bring greater consistency, lower service costs and shorter delivery times.

In addition, we will be able to provide more data-driven insights to our customers, enabling them to optimize their services. Finally, we will deliver an even more seamless experience across customers. All of this translates into our ability to spend more time with customers to better understand their needs and help them operate more efficiently.

As we have demonstrated throughout our history, that translates into better customer outcomes and improved growth and value for Cintas. We wanted to highlight that even with an expanded customer base, we continue to have considerable growth potential and runway ahead of us for a combined company. The combined technology platform will help Cintas be a more competitive player in last mile logistics in the highly fragmented North American markets we serve as well as against other procurement options, including direct purchase, direct managed programs and hybrid approaches.

There are over 16 million businesses and more than 180 million workers in this area and less than 8 million workers currently wearing garments from Cintas or UniFirst. At closing, the combined company will serve approximately 1.5 million customer locations. So the runway for growth remains significant. With that, I'll now turn it over to Scott to discuss the financial profile and transaction details. Scott?

Thanks, Todd, and good morning, everyone. First, I want to express my excitement for the transaction as well as my appreciation to our respective transaction teams that completed a tremendous amount of work to help get us to this point.

Now let me briefly outline some of the notable financials in connection with the transaction. We have identified approximately $375 million in operating cost synergies expected to be realized within 4 years. These synergies come from 3 primary areas: First, operational efficiencies, which reflect procurement and sourcing ability, SG&A integration and best practice sharing across service, logistics and plant operations. Second is technology integration, including the acceleration of digital route optimization and fleet efficiency tools, integrated ERP and customer management platforms and expanded data analytics. And finally, improved customer service with greater route density, improving service consistency and cost efficiency, supply chain resilience and broader product portfolios.

Importantly, these are operating cost synergies only and do not factor any top line benefits into the model. That said, we expect the transaction to be accretive to Cintas earnings per share by the end of the second full year after closing. Under the terms of the agreement, UniFirst shareholders will receive $310 for each share of UniFirst common stock and UniFirst Class B common stock they own, comprising $155 in cash and 0.772 shares of Cintas stock based on a Cintas share price of $20.77.

As Todd mentioned, the transaction represents approximately $5.5 billion in enterprise value and an implied multiple of approximately 8x trailing 12 months EBITDA, including synergies. The acquisition will be financed with cash on hand, committed lines of credit and/or other available sources of financing. Cintas has also secured fully committed bridge financing for the transaction. Pro forma leverage at closing is expected to be approximately 1.5x debt to EBITDA. This maintains our strong investment-grade profile and preserves capital allocation flexibility.

Importantly, we expect earnings per share accretion by the end of the second full year after closing, no change to our dividend philosophy and continued commitment to disciplined capital allocation. We believe this structure balances immediate value to UniFirst shareholders while preserving long-term value creation for Cintas shareholders. Before I turn it back to Todd for some closing remarks, a note on timing. We expect the deal to close in the second half of calendar year 2026. The Croatti family affiliates have agreed to vote in favor of the transaction, which is subject to UniFirst shareholder approval and other customary closing conditions. With that, I will turn it back to Todd.

Thank you, Scott. As you can probably tell, we are genuinely excited about this transaction. Before we wrap up our prepared remarks, I'd like to briefly touch on our preliminary third quarter results. As Jared mentioned, we'll be hosting our third quarter earnings call on March 25, but we did want to provide some top line consolidated figures for you.

Third quarter total revenue grew a strong 8.9% to $2.84 billion. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 8.2%. We look forward to getting back together with you in a couple of weeks to discuss the quarter in more detail.

Turning back to UniFirst. Let me close by highlighting a few key points. First, the combination meaningfully advances our long-term strategy. It enhances our ability to better serve customers across North America. Second, the transaction reflects our disciplined approach to capital allocation. We are acquiring a high-quality asset with clear actionable cost synergies and a compelling value accretion. Third, we believe we can seamlessly integrate UniFirst into our business post closing.

Cintas has successfully completed and integrated many acquisitions over the years, including the G&K transaction back in 2017. We will apply that same integration discipline here. We recognize this is a significant transaction and firmly believe that we will be successful in the long run based on our previous M&A and integration experience as well as what I alluded to earlier and that both companies are squarely focused on providing the best possible customer service experience.

We are confident that together, we will build a more competitive, more resilient, more innovative company. And again, until the transaction closes, both companies will operate independently. Before we open the line for questions, I'd like to take a moment to recognize the incredible employee partners at Cintas and the team partners at UniFirst. Their collective dedication, professionalism and commitment to service excellence are what enable us to deliver essential Workday solutions to businesses and workers across North America every day.

We are deeply grateful for their hard work. We are excited about what this next chapter will bring as we move forward together. With that, I'll turn it back to Jared.

Thank you, Todd. As you can imagine, we have a number of things in the works at Cintas as we roll out this news across all of our stakeholders today, but we do want to answer your questions. Remember, we'll be back in a couple of weeks to discuss Q3 earnings. So please keep your questions focused on the transaction. With that, Ross, please open it up for questions.

[Operator Instructions] And our first question comes from Manav Patnaik from Barclays.

Congratulations on finally getting to this point. My first question is, you've done, I guess, deals of proportionate size with G&K and even before that, you had a few. I guess my question is, is there any reason to believe the upside from execution you had from those deals, can they be repeated here? And kind of tied to that, your management bandwidth to handle the execution of the size of this deal?

Manav, thanks for your question. We're highly confident in our position in preparing to integrate. We have, as you referred to, a significant repetition with G&K in 2017. That muscle memory is alive and well. And one of the great things that we -- benefits that we have is that a significant portion of the management team at Cintas was here and was highly involved in that transaction back in 2017. So we didn't even really have to dust off the materials. We know the playbook and the team is ready to execute.

They are leveraging their experiences and learnings from the last experience. And regarding the bandwidth, we have a high degree of respect for the UniFirst team, the leadership team, all the team partners. And as I mentioned, we expect that the overwhelming majority of those team partners will be joining Cintas. And when we think about transactions, we think about -- you get a lot of resources with M&A, but the 2 most important are the customers and the people that serve those customers. So we'll be focused on putting together a great plan to make sure that we retain both so that we can be highly successful.

Got it. And then if I could just follow up, Scott, I think you mentioned that there were no revenue synergies included in the numbers you gave out. which makes sense. But maybe just some help on where those could come from because presumably that would be the expectation.

Manav, this is Jim. I'll take that question on the operational synergies. And I think you think of those from really 4 major cost categories. One, first being our material cost, as we've spoken many times about our sourcing capabilities, and we expect to continue to be able to drive down expenses there to improved sourcing. Second would be in that material cost bucket in addition would be stockroom optimization.

As we've discussed in the past, we have deployed technology for garment sharing, and we believe we can employ that technology across the UniFirst network. That will allow us to improve the speed of getting products to customers, so increasing overall customer satisfaction while being able to reduce cost. The second bucket that we would think about would really come from production, and we would be able to go ahead and implement our operational excellence process throughout the UniFirst network there, which we would be able to continue to deploy automation.

And both of those will allow us to operate more efficiently and improve capacity utilization across that network. The third bucket would be delivery expense where we would be able to implement our SmartTruck technology, which will improve overall routing efficiency and again, improve that capacity utilization. And then the final bucket to think about would be G&A, where we'd be able to remove duplicate costs. As we think about revenue synergies, and these have not been contemplated in our model here, but we certainly do have a long-standing history of making M&A.

So while it would be hard to speak about this one at this point in the transaction, we can speak to what we've seen historically as we've made other acquisitions across the board. And that is we have -- typically, we are able to show up with a larger, more broad and complete product line offering. And over time, the customers of our newly acquired companies, they're able to see the value in enhancing and expanding the relationship with Cintas. And through our cross-sell efforts, we've been successful in creating that value and being able to expand the relationship. So we expect that this will look the same.

And our next question comes from Tim Mulrooney from William Blair.

This is Sam on for Tim. I guess I wanted to first ask about more of the regulatory angle as we think about the larger workwear industry. Are there any end markets or applications where a uniform rental program is just clearly the preferred option? And I guess what I'm asking is, are there certain instances where it will be difficult for regulators to make the case that there are good alternatives to a uniform rental program such as a direct sales program?

Sam, thanks for the question. First off, we're highly confident in the regulatory process. We're going to work together with the 2 companies to make sure that we have a clear straightforward and strategic approach. As you mentioned, there's -- it's a large market that we compete with all kinds of different companies. And even the largest of users and those who get more soiled, we have many, many, many examples where they buy and others clean for them. They may have a managed program where they will buy and tell their employees to clean them.

They may have a program where they buy and they have a company -- an outsourced company, just clean them, which virtually any company can do that or they may have a hybrid program. So we don't see any end markets that are concern whatsoever as a result of our analysis that we've completed on this and our experience with these and competing with these -- all these different companies that can offer these programs.

Got it. That's helpful. And then maybe just trying to be thoughtful here, but what are some of the top execution risks in your mind that could delay the cost synergies you outlined, be it IT, labor, customer retention or even route redesign?

Yes. Well, certainly, when we think about the transaction, I mentioned employee partners, team partners and customers. That's where our focus is. we will be able to deliver on synergies, we say over 4 years because those take time. And with that, technology is always a -- we're not a technology company, but every business is a technology company now because every business either is in the business of creating it or using it. So we think about that, and we are well down the path of preparing for that to make sure that we have a seamless integration for not only our customers, but for all of our employee partners.

And that certainly is a focus because we want to make it easier for our people to do their roles, to do their jobs, and we want to make it easier for our customers to do business with us. So we'll be focused on that. There's plenty of planning that has gone into this, and we feel incredibly well prepared to handle this. As I mentioned in the earlier response, we have a lot of repetitions here, and we have great muscle memory and tenure that allows for us to be highly prepared to execute and mitigate any risk whatsoever.

And our next question comes from Jasper Bibb from Truist Securities.

Maybe following up on an earlier question. I'm wondering how you're thinking about the potential initial revenue churn at close, maybe using the experience of G&K as a benchmark. I think that deal was maybe like 9% or 10% new G&K customers. Hard to say at this point, I know, but do you think that benchmark would be any different in this deal?

Jasper, thanks for the question. It's -- quite frankly, we haven't -- we just announced we haven't closed. So I'd say it's just too early to get into those levels of details. But you can certainly anticipate we will be prepared to do so as we get down further the line.

Makes sense. And then -- could you maybe -- I know it's a bigger deal. Can you maybe compare for us how this integration looks maybe compared to the G&K integration from a complexity, from an integration standpoint or maybe the product lines are a little bit different. Just any detail there on how you're applying the learnings from the G&K deal to UniFirst would be helpful.

Yes. It's certainly a larger scale, but the concepts are identical. And as I mentioned, the team is in place and has repetitions, has the playbook and is ready to go. Once we get our transaction closed, we will execute and do what we have historically done, which is execute at a very high level, and we're prepared to do that.

And our next question comes from Jason Haas from Wells Fargo.

I'm curious if you could talk about how the UniFirst, I guess, Board and family thought about the deal just because we know there's been a history where you guys are interested in the acquisition. It seems like they had held out for a while. So I guess why now? What got them to the table? And why is now they're at time?

Jason, it's a good question. I'd start with this. I've learned over the years, it can take time. And working through these deals, they're usually complex. And you have to recall, this is a family-controlled asset, and it took time for us to make the case. It is a real positive for the UniFirst team members and the customers of UniFirst.

And I believe the deal structure played a role in it as well, meaning the mix of consideration from all cash to a mix of stock and cash is certainly a benefit, and it better aligns the interest among all parties with mutual benefits to both sides. So if you don't mind, I'll take a moment to just describe some benefits of the deal structure of meaning the 50% cash and 50% stock.

First is we get to leverage the strength of our premium market valuation. The strength of our market premium of Cintas provides an attractive currency for us to use for the acquisition of companies with lower valuation. And as you have done the math, the dilution is minimal. It also preserves our capital allocation flexibility, meaning we're going to have very low leverage. By using a portion of the proceeds of stock, we will complete the transaction with an expected leverage of 1.5x debt to EBITDA.

This flexibility for future capital allocation deployment is really important to us and allows us to maintain our current strong investment-grade credit ratings. And also, with using 50% cash and 50% stock, it allows us to avoid almost $140 million a year of interest expense. so significant. And it also provides upside opportunity for [indiscernible] -- excuse me, for UniFirst shareholders on the future success of the merger, meaning keep in mind, 82% of the common shareholders at UniFirst also own Cintas stock.

So they win twice. That applies for all those common shareholders who are going to benefit from the immediate premium that they get, but they also get to enjoy the benefits of the Cintas execution and the ride along the way. And that will apply to everyone who is a shareholder of UniFirst and at close will be a shareholder of Cintas. And then lastly, it does provide some tax benefits to the sellers. So I think all those came together to make this a really good deal for all parties involved.

Got it. That certainly makes sense. And then as a follow-up, I assume that UniFirst is going to be brought into the Cintas brand and the go-to-market will be all in one motion together. So it's not necessarily my question, correct me if that's wrong, but I assume that's the case. But I guess my question is, what sort of costs are there to do this integration? Are there investments needed in facilities or anything like that, that we should be aware of?

This is Scott. I would just say that given where we're at in the deal, the fact that we just announced today, it's a little early. But just think about it, generally expect these to be in line on a proportional basis with what we experienced with G&K. I know there was an earlier question about modeling. But I would say in this area, think about it the same way that we experienced with G&K. And some of the onetime expenses that I would think about is severance, retention, lease termination and those type of expenses. So as we get closer to the closing the deal, we'll certainly be able to give some more color on that topic.

Got it. I don't know if I'm able to squeeze in one more, if I can. Just a follow-up on that. Do you plan to have adjustments? Like will those be added back to get to adjusted EPS? Because I know you typically don't use those too heavily, but given the size of the deal, I was curious if that's the case here.

Yes. good question. And yes, just like you saw with us with G&K, we will report on adjusted EPS as well as GAAP EPS after closing.

And our next question comes from Stephanie Moore from Jefferies.

This is Harold on for Stephanie Moore. So I guess just on the regulatory approval side, do you guys -- I guess, given the strong overlap, how should we think -- do you guys expect any future divestitures across any regions? Or I guess, how are you guys thinking about that as you progress through the regulatory approval process?

Harold, we do not anticipate any divestitures, and we don't think there's any need to whatsoever. As I mentioned, the combined entity is going to serve 1.5 million customer locations in a market that has more than 60 million businesses. And those companies that we compete with retail, e-commerce, other outsourced solutions, hybrid programs and traditional competitors as well. So we don't see any need whatsoever for that.

And as I mentioned, we'll have less than 8 million wears in an area that has 180 million people that go to work every day that are all wearing apparel that we can provide that is -- so it is a massive market with very large and sophisticated competitors. And we believe that this deal will help us and position us to better compete in that, which we think is going to be really good for businesses, customers and workers.

And our next question comes from Shlomo Rosenbaum from Stifel, Nicolaus.

And my congratulations to you guys getting to this point. As I look at the announcement this morning versus what you guys were talking about a little over a year ago, it looks like the deal price is higher, the structure is 50-50 versus all cash. And the synergies and the timing basically seem kind of the same, like $375 million over 4 years. What I wanted to understand is when you sat there with the Croatti family, what were the sticking points that got you over this point? I mean there's a lot of focus that you guys had on terms of overwhelming majority of employees are going to be retained. Is that something that was an issue for them that they were so concerned about?

And is that something that in any way changed the expectation that you had in terms of synergies that you could get that are beyond the baseline? I guess my question is, is there any concessions that you had to make that would limit the upside that you could get over several years versus what you would have thought a year ago in the way that the deal was coming and what you were offering at that point?

Shlomo, thanks for the question. It's -- as I mentioned earlier, it's -- these deals take time. This -- when you have a family asset like this, it's an emotional deal. And sometimes it just takes time for these things to make their course. We have made no commitments that would limit our ability to benefit from everything we plan with the transaction. And so what got them over the top, it's a question better posed to them. But I mentioned deal structure. And I think their confidence in our ability to make sure that this transaction goes really well.

They are going to be -- it's going to be a big portion for them as shareholders, it will be very important to them. And the more time we spent with them, I think they feel quite good about our ability to integrate and extract out the synergies that we need and have a long successful course together. Now at Cintas, we make decisions based upon our principal objective. And our principal objective focuses on a lot of things, but it focuses on the long term and it focuses on our key -- 3 key constituents, which are our shareholders, our customers and our employee partners.

This deal checks the box for all 3 and as well as the long-term success of our organization. So we feel really good about it. And I believe the Croatti family and all UniFirst shareholders should feel the same.

Okay. And I want to go back to just one question that was asked before, like you haven't talked about revenue synergies. But -- and obviously, we appreciate you keeping being conservative. But if we were to think about it and to just start with if what are some of the obvious items that you will be able to bring to the UniFirst customers in a more complete offering that they're not offering right now in terms of a high-level thing that might be, hey, we do this really well and we offer it and they just don't do that or they're not really a presence in the market for that.

Yes, Shlomo, I think Jim referred to it as we have a really broad suite of products and services. And there's -- and when we -- almost every time we make an acquisition, we are able to bring that broad suite of products and services to that new customer base. We don't do it immediately. We do it over time. And that is one of our competitive advantages in the marketplace. And we see that as an important role.

And if history is any indication of the future, we think that customer base will really enjoy learning about that and see opportunities to help them run a better business to bring efficiencies to their business and allow them to focus on what makes them successful. So I'd say that's probably the way to think about it. We would sure hope we would get revenue synergies, but we're not modeling that as far as when we think about making the deal.

And with that, this concludes the question-and-answer session. I'll turn the call back over to Jared for closing remarks.

All right. Thank you, Ross, and thank you all for joining us this morning. We appreciate your continued interest in Cintas, and we look forward to speaking with you soon when we share our third quarter results later this month. Thank you.

This now concludes today's conference call. Thank you for your participation. You may now disconnect.

Good day, everyone, and welcome to the Cintas Corporation Announces Fiscal 2026 Second Quarter Results Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Jared Mattingley, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Thank you, Ross, and thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer; Jim Rozakis, Executive Vice President and Chief Operating Officer; and Scott Garula, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2026 second quarter results. After our commentary, we will open the call to questions from analysts.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission.

I'll now turn the call over to Todd.

Thank you, Jared. We had another successful quarter, reflecting the strength of our value proposition. Cintas delivered record revenues and strong operating margin performance, while we continue to invest in our business to position the company for the future. Second quarter total revenue grew a strong 9.3% to $2.8 billion. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 8.6%. Each of our 3 route-based businesses had strong revenue growth in the quarter.

Our business continues to operate at a high level as our employee-partners deliver strong execution across the board and maintain a clear focus on driving value for our customers and shareholders. Gross margin as a percent of revenue was 50.4%, a 60 basis point increase over the prior year. Operating income grew to $655.7 million, an increase of 10.9% over the prior year. Diluted EPS of $1.21 grew 11% over the prior year.

Our strong revenue growth is creating leverage and our cost savings initiatives and investments we've made are helping to improve our employee-partners' productivity and help them deliver better solutions for our customers. Our operating margin for the company was an all-time high. The operating margins for our 2 largest route-based businesses were also all-time highs, reflecting the high level of execution by our employee-partners.

Turning to guidance. We are raising our fiscal 2026 financial guidance. We expect our revenue to be in the range of $11.15 billion to $11.22 billion, a total growth rate of 7.8% to 8.5%. We expect diluted EPS to be in the range of $4.81 to $4.88, a growth rate of 9.3% to 10.9%.

With that, I'll turn it over to Jim to discuss the details of our second quarter results.

Thanks, Todd. This quarter marked another period of solid progress for our business as we continue to advance the rollout of our technology initiatives and build on the strong foundation of organic growth we have established. Our focus on innovation, operational excellence and customer engagement is delivering measurable results. We are strengthening our relationships with existing customers through expanded offerings and superior service, which has led to all-time highs in retention rates while also successfully attracting new customers who see the clear benefits of partnering with us. These achievements reflect the commitment and talent of our employee-partners whose efforts are positioning us for sustained success.

Turning to our business segments. Organic growth by business was 7.8% for Uniform Rental and Facility Services, 14.1% for First Aid and Safety Services, 11.5% for Fire Protection Services and 2% for Uniform Direct Sale. Gross margin percentage by business was 49.8% for Uniform Rental and Facility Services, 57.7% for First Aid and Safety Services, 48.2% for Fire Protection Services and 41.9% for Uniform Direct Sale.

Gross margin for the Uniform Rental and Facility Services segment increased 70 basis points from last year. The 49.8% gross margin is the second highest gross margin ever for this segment. The strong revenue growth in this segment is helping to create leverage. In addition, our supply chain team and process improvement initiatives from our engineering and Six Sigma Black Belt teams continue to help expand our margins while navigating the current economic environment.

Gross margin for the First Aid and Safety Services segment was 57.7%. This equals their previous all-time high set last year. As we mentioned previously, the mix of revenue and timing of investments can impact this business from quarter-to-quarter. We are pleased our investments to grow this business are generating strong double-digit revenue growth while being able to expand our gross margin.

We are growing in many ways. We're adding new business with over 2/3 being converted from no-programmers. We are cross-selling to existing customers. Our retention rates are at all-time highs, and we continue to experience success in our focus verticals of health care, hospitality, education and state and local governments.

Our strong culture of execution, combined with multiple growth levers, has positioned us, over the years, to grow in multiples of jobs growth and GDP. All businesses have a need for image, safety, cleanliness and compliance. Our value proposition resonates in all economic cycles as evidenced by our growth in sales and profit in 54 out of the last 56 years.

With that, I'll turn it over to Scott to discuss our operating income, capital allocation performance and 2026 guidance assumptions.

Thanks, Jim, and good morning, everyone. As Todd mentioned, we continue to perform at a high level as evidenced by record level revenue and operating margins for the second quarter. Selling and administrative expenses as a percentage of revenue was 27%, which was a 20 basis point increase from last year.

Second quarter operating income was $655.7 million compared to $591.4 million last year. Operating income as a percentage of revenue was 23.4% in the second quarter of fiscal 2026 compared to 23.1% in last year's second quarter, an increase of 30 basis points and an all-time high.

Our effective tax rate for the second quarter was 21.2% compared to 20.7% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation.

Net income for the second quarter was $495.3 million compared to $448.5 million last year. This year's second quarter diluted earnings per share was $1.21 compared to $1.09 last year, an increase of 11%. For the second quarter, our free cash flow was $425 million, an increase of 23.8% over the prior year. Our strong cash generation allows us to have a balanced approach to capital allocation in order to create value for our shareholders.

In the second quarter, we continued to invest in our businesses through capital expenditures of $106.3 million. Also in the second quarter, we were able to make strategic acquisitions totaling $85.6 million in all 3 of our route-based businesses.

During the second quarter, we paid dividends in the amount of $182.3 million. Also during the second quarter and as of December 17, we were active in the buyback program with repurchases of $622.5 million of Cintas shares. That is the third largest share repurchase we've made in a quarter. During the first 6 months of fiscal 2026, we have returned $1.24 billion in capital to our shareholders in the form of dividends and share buybacks.

Earlier, Todd provided our updated guidance for the remainder of the fiscal year. As you contemplate the guidance, it is important to remember that during the third quarter of fiscal 2025, we recognized a $15 million gain on the sale of an asset. That will not repeat and will be a headwind when comparing the third quarter results year-over-year.

In addition, please note the following in the guidance. Both fiscal 2025 and fiscal 2026 have the same number of workdays for the year and by quarter. Our guidance does not assume any future acquisitions. Our guidance assumes a constant foreign currency exchange rate, fiscal 2026 net interest expense of approximately $104 million, a fiscal 2026 effective tax rate of 20%, which is the same compared to our fiscal 2025, and the guidance does not include the impact of any future share buybacks or significant economic disruptions or downturns.

With that, I'll turn it back to Todd for some closing remarks.

Thank you, Scott. Looking ahead to the second half of fiscal 2026, we are right where we want to be, and our focus remains on helping customers meet and, in many cases, exceed their image, safety, cleanliness compliance needs. We remain committed to leveraging our investments to sustain our positive momentum and deliver exceptional customer service. I want to thank our employee-partners for their incredible commitment to our customers and everything they do for Cintas.

I'll now turn it back over to Jared.

That concludes our prepared remarks. Now we are happy to answer questions from the analysts. [Operator Instructions] Thank you.

[Operator Instructions] And our first question comes from Tim Mulrooney from William Blair.

Only 10 minutes on the prepared remarks. That's what I'm thankful for this holiday season. So just one question from me. There continues to be a lot of noise in the labor market data. But I think most would agree that we've seen a softening trend in terms of hiring activity over the last several months, at least on balance. And I'd be curious to hear if you've seen any material change in employment levels across your customer base, if what we are seeing in the broader payroll numbers are playing out in your world or if the reported job losses are more in the white-collar world where you're providing some services, but those folks don't typically wear uniforms.

I know you've emphasized your ability to grow in all types of environments, but I'd be interested in your take on more of the underlying dynamics here given the number of businesses that you service week-to-week.

Well, thank you, Tim. We are certainly -- we're reading the same things you are. We're watching jobs reports as we always do. And as we spoke about in our prepared remarks, as a reminder, we've shown the ability to grow in multiples of GDP and jobs growth for a long time now. And we certainly love it when our customers are adding employees and their businesses are really healthy and that's how -- we love that. But we don't need it in order to grow our business the way we like to.

That being said, to your point, I think you have to dig past the headlines on the jobs report. First off, we've picked our verticals really well, very strategically. And the employment picture for them is, if you look at it, it's positive. Health care, education, hospitality, state and local government, those are good. The services providing sector continues to show growth. And the goods-producing sector isn't performing as well, but the specialty trades within them are doing well. And that's -- those are obvious uniform wearers and users of our services.

So there are certainly many jobs that are under pressure, hence, what you see in the headlines and the market reports. But they are certainly more generally white-collar jobs, IT, financial, back office that are really not end markets for us, as you pointed out, Tim.

And our next question comes from Manav Patnaik from Barclays.

I also just had one broader question, maybe just following up from that one. I know you've obviously shown that you guys can outperform and execute in any kind of environment. But just maybe help us appreciate like what is your downturn playbook look like? Like if unemployment does crack, how do you still keep up these kind of high single-digit growth levels? Like which levers typically make up more? Is it all of them? Just any color there would be helpful.

Yes. Good question, Manav. We certainly have a wide array of products and services that we provide, and we service a wide breadth of customers as well. So our target of mid- to high single-digit organic growth is important to us. And we have so many different ways to grow that it gives us flexibility. Certainly, new business is important to us.

And when you think about a business that -- when they have less people, that can certainly impact us. But they also have still other needs that they need to address. And in many cases, they don't have enough people to address those, and they look to us to outsource for those items. So new business is important. We are still very early in the innings of cross-selling all of our various products and services into us.

So trying to gain growth from our current customers is an important lever for us. So that's all valuable. M&A tends to get better during those periods of times as well. But we're -- we have many levers in addition to, obviously, the ones that I mentioned that I think give us real optionality. And certainly, when we look at no-programmers, that's a big opportunity for us.

And Manav, this is Jim. Perhaps I can give just a little more color on how much opportunity really lies within our current customers. And as Todd mentioned in his prepared remarks, our objective is to first supply our customers with a great experience with us, and that starts at the foundational level. And then we earn the right now to be able to ask them for more opportunities and to steer more of their spend that they already have over to us.

And just due to the nature of our service model, we're in their facilities so frequently that we get a really deep understanding of what their needs are and where the opportunities may come from. So I have an example here of a property management company that we service out on the West Coast. And we've been servicing that facility for a number of years for uniform rental for all the folks who work on the property.

And during our routine visits, our team uncovered that they were doing bulk orders from an e-commerce solution for all their restroom supplies. And when inquiring with the company, they realized that they were tying up cash flow, they were tying up really precious real estate space and storage space that they did not want to tie up and they were taking a lot of their labor and manpower to go ahead and inventory all of those goods.

Our folks went in and introduced the concept of outsourcing that to us and utilizing the Cintas hygiene program. They found out that now their spend is much steadier than it was in the past. It makes it much easier to budget. They're not tying up that space. And maybe most importantly, their team is not involved in taking their precious time away from what they focus on, going ahead and managing hygiene inventories. They let us handle that for them. So just a small example of activities that happen across 1 million-plus customers every day.

And our next question comes from Andrew Steinerman from JPMorgan.

I definitely heard the pluses and minuses about the customers' employee base. But I just didn't quite get a [ compilation ] if ad stops are changed year-over-year. I surely heard the separate point that you continue to grow with same customers. So just a comment on ad stops year-over-year.

And then my second question is, with the acquisitions that were completed in this second quarter, how much will that add to second half of the year revenues?

Well, I'll take the first half, Andrew. So thank you for the question. As we mentioned and through Jim's example, we talked about all the various products and services we can provide for our customers, and it's broad and growing. So from that standpoint, growth from current customers, I would describe it as very stable, if anything, slightly positive. So we're in a good position. Our current customers see the value proposition that we can offer to them, and that actually helps with retention as well.

Scott, if you want to address the second half?

Yes. Thanks, Todd. And, hello, Andrew. We've talked in the prepared remarks, the acquisition impact during the second quarter was about 70 bps. And if you think about the rest of the year and our guide, we obviously assume no new acquisitions. You can assume that there's a normal tail when it comes to the acquisition volume. And generally, for the second half of the year, you would assume about half of the second quarter impact, so call it, 30 to 35 bps.

And our next question comes from Josh Chan from UBS.

Congrats on a really strong quarter. I guess, my two questions. One, I think both Todd and Jim mentioned that retention rates are at record levels. Usually, you see those in stronger economic times. So maybe could you talk about how you're able to achieve strong retention rates even in these types of climate?

And then, I guess, my second question is on the incremental margins, I think both Q1 and Q2 were within your longer-term range, but maybe towards the lower end. So any way to think about how that kind of transpires in the second half would be great.

Josh, I appreciate that. I'll take the first half regarding retention, and Jim will address the incrementals. Our retention rates are -- they're at all-time levels, and we have been for several quarters now. And it speaks to a number of things. First off, the execution by our team is impressive. They're doing a great job, making sure they're taking great care of our customers. That is easy to say, really hard to do, starts with our supply chain team, our operations organization. They're doing a great job.

And that all ties back into our culture. And we have spoken over and over again about the fact that our culture is our ultimate competitive advantage. And it shines even brighter in economic environments that are a little bit more uncertain than others. And it's showing up big time for our folks.

We're also providing great value for our customers, and they're seeing it with not only the products, but the services, the technology that we're utilizing. And the technology investments that we've made help accomplish 2 things at a 30,000-foot level. One is it makes it easier for our partners -- our employee-partners to service and take care of our customers to provide value for them. And the second one is it makes it easier for our customers to do business with us. So when you add those up, all that, you mix it in, it adds up to retention rates that we find very attractive.

Jim?

Yes, Josh, I'll get to the second question regarding margins. So first of all, we ran 27% incremental margin for the second quarter, which we really like. And that's right in our stated range of that 25% to 35%. That range is really important for us because that allows us to continue to invest in the future growth of the business while being able to expand margin along the way. So we really like that. That allows us to make the investments in technology, the necessary investments in capacity, bench strength, selling resources. All of those are really critically important to us. So that would be really right in the sweet spot of the range.

Now a couple of things to keep in mind with regards to incrementals this year and how it plays out for the remainder of the year. First off, we're coming off of a comparison to last fiscal year, which is a really tough comp. Last fiscal year, we ran, in the second quarter, incrementals of 49.7%. That's an outperformance, not what we normally expect. So we're really pleased with the 27% this quarter given that comparison. In fact, if you look at the whole first half of last year, we ran an incremental of 44.3%.

So really, really high in the beginning of last fiscal year, settling back into our range this fiscal year. A couple of other things maybe to keep in mind is what the guide implies with regards to incrementals for this fiscal year. If you look at the whole year across the board, incrementals would imply somewhere between the 29% and 30% when you adjust for the $15 million asset sale from last fiscal year. So that's right in the heart of where we want to be, perfect level of investment continuing to fuel the future growth.

And if you look at the back half of the year, that would imply incrementals of 30% to 33%. So moving back up towards the high side of that range. So we're really pleased with where we are. We like the outlook of the year, and we think that's a great spot for us to run the business.

And our next question comes from Jasper Bibb from Truist Securities.

I wanted to get an update on your experience with sourcing costs and tariffs so far this year. I guess, how have things trended relative to your expectations when you initially set guidance for the year?

Jasper, thanks for the question. Yes, the tariffs, it is certainly a dynamic environment as it relates to that. But we continue to execute at a high level. As I mentioned earlier, our culture, when the times are challenging, you might have to run at higher RPMs, but we're executing at a high level. We're not immune from impacts of higher costs from tariffs. But our supply chain has always been a competitive advantage. And when you're in this type of environment, it's that much more of an advantage.

Now keeping in mind, the ability to -- they're flexible and adaptable. And part of how they have that optionality is because we source from all over the world, and we do have really good geographic diversity. And we've spoken in the past that 90-plus percent of our products, we have 2 or more options. So that optionality is incredibly important when it comes to an economic -- excuse me, a sourcing environment and what we're dealing with.

The guide does contemplate the current environment for tariffs. So it's coming in very similar to what we expected. You recognize that we do have the ability to -- we amortize most of our goods. So as a result of that, it does give us time to pivot and adapt. But it's coming in about where we expected. But we're certainly staying on our toes because the sourcing environment is dynamic and the tariff environment is -- there certainly could be changes coming as well.

And then really healthy margin in the First Aid business this quarter. Can you provide a bit more detail on what the underlying mix has looked like in that business this year? I know you were a bit heavier on the training side for the end of last year. So curious if that's flipped back some more recurring revenue?

Yes. We're -- we love the First Aid business. It is a great business for us. We're very pleased with that. And you've seen that they've had outsized performance for a period of time now. One of the things that -- the mantra that we have and the leadership of our organization there talks about there's nothing more important than the health and wellness of a business' employees and customers. We completely agree with that. And you're seeing really good growth in that business. We see them as a low double-digit grower for the foreseeable future. So that's great.

That being said, certainly, the mix of business can have an impact on the margins in that. So we like the range we're in. But if we have a little bit of change in mix, and there's a little change in margin within a range for us, we're okay with that. We're investing for the future, providing more value to our customers. And running a business isn't linear.

So we're not focused on just a pure, hey, we've got to get another certain amount of basis points lift in gross margin in that business. We think it's important that we are running a range that's really attractive so we can grow our operating margins. But mix of business really is impacted by that.

So Jim, anything else that you'd like to comment on that?

No, Todd. I think you hit all the main points of what really drives this business. The only other thing I might just say is the team did a fantastic job in the quarter of execution, and we're really pleased with the results and where they stand.

And our next question comes from Andrew Wittmann from R.W. Baird.

I just thought I would give you guys an opportunity or hear -- I'd like to hear a little bit about the competitive environment. Obviously, over the last couple of years, you've had some competitors that have really gone on a volume chasing spree. You guys have obviously executed very well amongst all this. But I was just wondering what you're seeing out there and how that's affecting your price realization.

Andrew, thanks for the question. Yes, I mean, as you know, we operate in a very competitive environment, always have, always will. My entire career, it's always been like that. And we certainly do win some business from competitors. But as you know, that's not where our focus is. Our focus is on signing new customers that weren't programmers when we walked in. And when we walk out, they are.

And as a result of that, still over 2/3 of our new customers are coming from that sector. And the white space is incredibly large there with us servicing a little over 1 million customers, but there's still 16-plus million businesses in the U.S. and Canada. So that's really attractive for us. So I mentioned our retention rates are at all-time high. That's helping us as well.

But that's really about the value proposition that we're providing for our customers, which starts with our culture and is executed through our employee-partners. But it is a -- we're pleased with how our folks are performing, competing in the marketplace and really attacking that large TAM out there of that no-program market, which we think -- we're really excited about.

Great. Just for my follow-up, I thought I would just ask a little bit on the M&A side. Obviously, last fiscal year was one of your bigger years that you had since for a while. A pretty big quarter here in terms of capital deployment towards M&A. Maybe, Todd, you could just talk about kind of the funnel here. Do you feel like -- thinking about the amount of capital deployment last year is, again, doable this year with the progress that you made this year so far?

Andrew, great question. First off, just capital allocation in general, we're very pleased with how we're going there. We invested over $100 million in CapEx for the quarter, $85 million in M&A. All 3 route-based businesses, we were acquisitive in. And then on top of that, $182 million in dividends paid out and over $600 million in buybacks. So we really like that capital allocation strategy. We've shown to be good fiduciaries with that, and M&A is certainly a part of that.

As I mentioned, we had a really good quarter. We had a great year last year. But as you know, it's hard to predict. M&A tends to be a little unpredictable and lumpy, whether it's because there's family-owned businesses that are waiting on their -- the next generation, whether they want to move on or not. And we do love M&A of all shapes and sizes. We love tuck-ins. We like new geographies.

And when we make M&A, we always -- we value so much of it, but there's -- the #1 things that we get out of it are the people that are running the business and the customers. And we try to make sure that we can get synergies if it's a tuck-in. And if it's not a tuck-in, then we get extra capacity, And we also then have more customers that we can cross-sell. So all that's attractive.

The pipe, we are always working on that pipe. Jim and I and our corporate development team are all in that game together. We have relationships that are going back decades, and we're ready and willing for M&A to be an important component of our strategy moving forward.

And our next question comes from George Tong from Goldman Sachs.

You touched on some of this, but can you provide a high-level overview on what you're seeing with sales cycles and broader customer purchasing behaviors? And if you've noticed any meaningful changes from prior quarters?

George, nothing specific to call out. We certainly operated in easier environments, as this economic environment, it's a little less certain than we like. But despite that uncertainty, the value proposition continues to resonate. As I mentioned earlier, especially in periods of uncertainty, it can do that. Outsourcing can save money, improving steady cash flow and saving time that can be spent on running the business.

That was referenced in Jim's example that we talked about earlier. I've already referred to retention rates being at very attractive levels. And I also mentioned our growth from our current customers was steady and, if anything, improved slightly. So we think we're in a good spot, and we like where we're pointed.

Got it. That's helpful. And then just a follow-up. You took up your full year guide for revenue. Can you talk about how much of the increase reflects upside in the quarter versus what you were internally expecting compared to maybe a stronger outlook for the remainder of the year?

Yes. We're -- first off, our guide for the year is really good. It looks right where we want it to be. If you look at the guide for -- or excuse me, the guide for the year is showing growth of 7.8% to 8.5%, midpoint of 8.2%. It's right where we want. I think it's also important to recognize that the comps do get tougher in the second half for growth. Last year's second half growth was about 90 basis points higher than the first half of last year.

So we've booked a good performance, but we're going to be up against tougher comps in the second half on growth than we were in the first half. But we're pleased with where we are, and we're pleased with our guide. And we think that we'll be able to get some leverage as we move forward on that guide, which will help fall to the bottom line, hence, the EPS guide as well.

And our next question comes from Jason Haas from Wells Fargo.

I just wanted to follow up to get some more detail on the timing of the tariff costs. It sounds like those have maybe started to flow through the P&L, but there's more impact to come. Is that like a fair understanding? And then how is the industry reacting? How are you reacting? Have you started to raise prices? Have your competitors begun raising prices? How should we think through that?

Jason, well, a few things. First off, as tariffs come through, I mentioned that we have optionality. So don't think of it as simple as, well, tariffs are a significant impact. We just haven't seen it yet. That's not the case because our culture is such that we don't just accept that. We've got to go find ways to improve. We've got to find -- work at higher RPMs to find other additional suppliers to take cost out of our business as well. And we're doing all that. I mentioned we're not immune from it. But we're working really hard to mute that subject as very best we can.

As far as pricing is concerned, we take a long-term approach on pricing. We are at what I'll call historical type levels. But our philosophy is we care about the long-term value of a customer. So we're focused on growing our business via volume growth, not just pricing. We're going to go out and extract out the inefficiencies of our business that will help us -- allow us to grow our margins at attractive levels, along with the revenue growth to help us get leverage.

But we don't simply just pass along those costs to our customers and -- because we operate in a really competitive environment, and those customers have choices. So we've got to work really diligently to mute the cost impacts of tariffs and other costs that are going through so that -- and we're extracting out those inefficiencies and doing the very best we can to make sure that we're positioned for success to grow our margins.

Great. That's very helpful. And then as a follow-up, can you just refresh us on the timing of the SAP Fire implementation costs? Are you still expecting a greater headwind to margins in Fire in the second half of the year as that system gets turned on and start recognizing the amortization?

Jason, thanks for the question. These ERP implementations take time. And we are experiencing some additional costs now, for sure, but there is more cost to come in the future. We're working really hard on this implementation. We think it will be really valuable for our employee-partners and our customers. But -- so we're investing for the future in that business. You see that we're growing it really attractively. We're not only growing it attractively, but we are also highly acquisitive in that business.

So when you think about the Fire business, think about it this way. We are also dealing with M&A that comes to us. And as I mentioned earlier, M&A, you can't predict it exactly, but -- and in that business, we are -- some of our M&A allows us to be tuck-ins, but others are actually geographic expansion. And when we make M&A in that business, and you get M&A expansion, it is -- for a period of time, that doesn't run at the margin profile that we do.

We've got to make sure that we get our operating protocols in place. And as you can see, M&A account for 340 basis points of total growth for Fire in Q2. So that's a component of any margin pressure that we have in that business, little bit of SAP, but we're investing for that in that business because we think the future is really, really bright, and we're quite optimistic about the coming years.

Jason, this is Scott. I just might add, as Todd mentioned, the ERP implementations take some time. We've got some experience with that in our Rental business as well as First Aid and Safety. And we are expecting the Fire rollout to carry on into next fiscal year. And I would just look at the impact for fiscal year '27 to be around that 100 basis points for the Fire Protection business.

And our next question comes from Faiza Alwy from Deutsche Bank.

So I wanted to ask about your technology [indiscernible] I think it's well understood that you guys are at the forefront of implementing the latest and greatest in terms of technology. So I just wanted to get an update on what are -- if there are any recent initiatives you'd like to talk about and maybe the [indiscernible] on those type of investments, whether it's AI related or anything else you would want to highlight?

Yes, we are investing in technology, have been for many years and will be probably in perpetuity, just it's the nature of how business works now. And we are -- we spoke about in the past, we're seeing benefits, whether it's in material cost or cost of goods, production, delivery cost, all those, you're seeing that. We talked about Smart Truck helping us from a technology standpoint. Garment utilization being on one system allows us to share garments and reduce our cost there. All that is important.

Certainly, AI, we see obvious opportunity there. We're in the early stages, as many companies are, on the AI front. And I include that into our total technology investment. But we're optimistic about where that will impact us in the future, and we are organizing and investing appropriately to make sure we leverage those opportunities.

And our next question comes from Stephanie Moore from Jefferies.

I think 2 areas of your strategy were very clear this morning and, obviously, have been clear for some time now. And the first is, obviously, the record retention levels that you guys continue to see as well as, as you called out, your investments in key verticals and just the strength that you're seeing there despite the uncertain macro.

So kind of given these 2 factors, maybe talk about how your view on pricing can change because it would seem like, look, retention is very strong. You're also in these verticals where you're seeing a lot of impact, but also continuing to build out your value with these customers. So i.e., I would assume being much stickier. So maybe just talk about how that can inform your pricing strategy going forward.

Our pricing strategy hasn't changed. And as I mentioned, we're running at historical levels. And I also mentioned, we think long term about these subjects. So our strategy around pricing, thinking long term, has helped the retention rates. So we're focused on growing our margins, but we're not going to do that just through pricing.

We have to go extract out inefficiencies because we operate in a very competitive market. And we have many competitors, whether it is what you might think of as a traditional competitor, but online, e-commerce, the big box retail, we compete with all these people. And as a result, we've got to be focused on providing great value and that applies to our key verticals as well.

Each of our verticals, we operate in a very competitive environment. And we're focused on providing the value, extracting out those inefficiencies. But -- because we do not operate -- never have and never will operate in an environment where we can just adjust price up because it's an ultra-competitive environment.

And our next question comes from Scott Schneeberger from Oppenheimer.

It was asked earlier a question on sales cycles, and you guys covered the spectrum with the answer pretty well. I'm curious, just to ask that a little different way, what you're seeing behaviorally from large customers as opposed to small customers? Are you seeing any softness or strength in one or the other? Just any indications on those on size category?

Yes. Good question, Scott. As you can imagine, we watch our customer base really closely. But we have such a wide breadth of customers and products and services, but it's a -- that wide breadth of customers, whether it's geographic or by NIC code, you name it, we service it. And so nothing to call out specifically there. We've got certain customers that are thriving, certain ones are having more challenges. But we're -- I wouldn't say anything specific to call out regarding the customer base.

If we want to go to the fourth decimal type, we could get into those levels. But I don't think it's appropriate at this point because in general, our customer base has been pretty stable. And as I mentioned earlier, if anything, we had a slight improvement there.

And did some, as you guys mentioned, very large buyback in the quarter. And clearly, we infer from this call, you're interested in being acquisitive. But it seems like we're going to see some large buybacks from you going forward based on what we've just seen. And your leverage is below 1x, ticked up a little bit using a little bit of short-term borrowing to do it. What's the propensity to take the leverage higher and do that? How aggressive might we see you be with the buybacks? And where would you take the leverage?

Good question. We view buybacks as an excellent use of cash to provide shareholder return. That being said, we have been very transparent on this. We view it as an opportunistic approach. So I wouldn't just simply model in that we are going to lever up and be highly aggressive on buybacks. We'll be opportunistic and handle that as we have in the past. And if you look at our history, even our 5-, 10-, 20-year history, we've been pretty consistent on that, our capital allocation approach. And I wouldn't expect a change to our approach there. We'll continue to look at that opportunistically and return that back to our shareholders as appropriate.

And our next question comes from Shlomo Rosenbaum from Stifel.

The first question I have was just hoping to get more detail on the growth verticals versus the rest of the business. Maybe you could talk a little bit about the growth of those verticals in aggregate versus the rest of the business and maybe versus each other and what percentage of the business they are right now?

And then just a separate -- just a deep dive a little bit more on one of the verticals. In terms of some of those like scrubs business that you guys have been very successful in, how much of a differentiator is it for you in terms of being able to use your balance sheet to have those dispensers out there and really invest in effective dispensers?

Jim, why don't you take the first half, and then I'll talk about the dispensers.

Sure. Yes, Shlomo, as we mentioned in our prepared remarks, we continue to see really good success across all 4 of our verticals of health care, hospitality, state and local government and education. We continue -- right now, health care is the largest and probably the most developed. We've been in that business the longest. That one represents about 8% of our total revenue, is growing. And all 4 of them, by the way, are growing slightly faster than the aggregate of the company, but all the company -- we're getting demand in all of our business lines.

So we're seeing good growth across the board. But right now, health care is about 8% of total. And if you put all 4 together, they're about 11%. But we really like the trajectory and the total available market in each one of those. So we continue to organize around those and put good resources toward them.

Yes. And I'll take the second half, Shlomo. As a reminder, we don't just sell into these verticals. We organize around them, whether it be customer service, the routing of that, which would take a little bit away from density, but we think it's so important to be experts in that business so that we can provide that much more value. So that helps us get better at finding the next products and services that those customers want and help us provide a better customer experience.

That being said, you mentioned dispensers. We have deployed dispensers at many customers. And the value that we bring is significant there because it changes the game for them and allows them to look at the product differently. Instead of looking at the product as a commodity, that's -- and let's go with the cheapest one we can, they can provide a better value product because they have control over that inventory.

So that's all important. And we're blessed to have a great balance sheet. We have a balance sheet that allows us to invest for those customers and ultimately get a return for our company, provide a better value and value proposition for the customer, better products, better service, better technology, and that gives us a strategic advantage.

And our next question comes from Toni Kaplan from Morgan Stanley.

I was hoping you could talk about -- if you think about your business long term, [indiscernible] you're already growing high single digits, great. Where do you see the next like step-up of growth coming from? Is it from the key verticals? Is it from new geographies, new products? I guess, when you think about your penetration in the key verticals, like how do you think about long-term sustainability of growth at this level and where the biggest growth drivers come from?

We really like the growth levels that we're at. You see that, organically, we're growing at that mid- to high single-digit revenue number. And then we've had some nice M&A advantage as well. So we really like where we are. And it all goes into the algorithm. Our verticals, as Jim mentioned, are growing at a higher rate than our business overall, and we expect that. We're always looking at new products and services that we can launch and do launch, and that goes into our algorithm as well.

New geographies, we have the coverage that we really like in our Rental and First Aid businesses. The Fire business, we are still rolling out some flags in that area. So you'll get some geographic expansion there, but we've already spoken to that. But the great news is, for all of us, that we don't need to take our models and go to other geographies, but we certainly need to continue to invest in our business, continue to invest in capacity, invest in new products and services, invest in new technologies so that we can continue to grow at these levels.

And we like these levels of growth because we can organize around them, we can plan for them, we can staff for those, we can invest capital for those levels. And when we grow at these levels, it gives us the opportunity to get leverage and margin expansion as a result.

Toni, this is Scott. I might just add that we obviously had an outstanding quarter in the second quarter, strong growth performance from all 3 of our route-based businesses. We had a favorable comp in Q2 to last Q2. And as we talked about earlier, when we think about the second half of the year, I think Todd mentioned this, we do have some more challenging comps, and you can see that in our guide for the second half of the year.

But whether it's the first half of the year or our guide for the second half, we're right in the stated range of that mid- to high single-digit growth. And as Todd mentioned, the growth algorithm we have, we have a lot of confidence in that we can sustain that level of growth moving forward.

At this time, there are no further questions. I'll turn the call back over to Jared for closing remarks.

Thank you, Ross, and thank you for joining us this morning. We will issue our third quarter of fiscal 2026 financial results in March. We look forward to speaking with you again at that time. Thank you.

This now concludes today's conference call. Thank you for your participation. You may now disconnect.

Good day, everyone, and welcome to the Cintas Corporation Announces Fiscal 2026 First Quarter Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jared Mattingley, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Thank you, Ross. Thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer; Jim Rozakis, Executive Vice President and Chief Operating Officer; and Scott Garula, Executive Vice President and Chief Financial Officer.

We will discuss our Fiscal 2026 First Quarter Results. After our commentary, we will open the call to questions from analysts.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties and 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. We are pleased with our start to fiscal year 2026, reflecting the strength of our business model and the dedication of our employee partners. Our first quarter performance is a testament to the strength of our value proposition. First quarter total revenue grew 8.7% to $2.72 billion.

The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 7.8%. This is right where we like to be. Each of our three route-based businesses had strong revenue growth in the quarter.

Gross margin as a percent of revenue was 50.3%, a 20 basis point increase over the prior year. Operating income grew to $617.9 million, an increase of 10.1% over the prior year. Diluted EPS of $1.20 grew 9.1% over the prior year. Our culture continues to be our greatest competitive advantage. We've shown an ability throughout the years to perform well in a variety of macroeconomic environments. Our ongoing investments continue to help drive revenue growth and expand margins. These investments include technology to make it easier for our employee partners to do their jobs, whether that is growing the business or making us more efficient.

Reflecting our strong first quarter performance, we are raising our fiscal 2026 financial guidance. We expect our revenue to be in the range of $11.06 billion to $11.18 billion. a total growth rate of 7% to 8.1%. We expect diluted EPS to be in the range of $4.74 to $4.86, a growth rate of 7.7% to 10.5%. With that, I'll turn it over to Jim to discuss the details of our first quarter results.

Thanks, Todd. I want to begin by discussing our strong revenue performance. Our employee partners continue to perform at a high level and demonstrate that our value proposition resonates with all types of customers. We are seeing great success in converting no programmers, selling additional products and services to existing customers as well as retaining our value to customers. Let me provide an example.

Recently, there was a department of transportation located in Northwest that was to do-it-yourselfer or what we refer to as a no-programmer. The employees purchased the more they're on clothing, while the highway department provided the required high visibility safety path to be worn over their personal governments. They reached on Express challenges with their Safety Best program, including the time and effort to missing the program budgeting difficulties and inconsistent compliance among workers. Cintas was able to offer a solution with our recently expanded line of cohort high-visibility safety apparel. These high visibility garments were well received by the employees and have allowed the highway department to receive the benefits of the Cintas rental program by providing an exclusive cohort branded rental garment for daily use, Cintas' reliable service, a reduction in administrative time and effort, more predictive budgeting, the convenience of a laundry service and improve safety compliance among their workers.

This example illustrates how our value proposition continues to resonate with customers in many different verticals and throughout various economic cycles and to customers of all types, including no-programmers.

Now turning to our business segments. Organic growth by business was 7.3% for Uniform Rental Facility Services. 14.1% for First Aid and Safety Services, 10.3% for Fire Protection Services and Uniform Direct Sale declined 9.2%. Gross margin percentage by business was 49.7% for Uniform Rental and Facility Services, 56.8% for First Data Safety Services, 48.9% for Fire Protection Services and 41.7% for Uniform Direct Sale.

Gross margin of the Uniform Rental Facility Services segment increased 40 basis points from last year. This improvement is a result of strategic sourcing by the supply chain team and process improvement initiatives from our engineering and Black Belt teams. In addition, strong revenue growth is helping to generate leverage.

Gross margin for the First Aid and Safety Services segment was 56.8%. We are pleased our investments to grow this business are generating strong double-digit revenue growth while maintaining attractive gross margin. Selling and administrative expenses as a percent of revenue was 27.5%, which was a 10 basis point decrease from last year.

With that, I'll turn it over to Scott to discuss our operating income, capital allocation performance and 2026 guidance assumptions.

Thanks, Jim, and good morning, everyone. First quarter operating income was $617.9 million compared to $561 million last year. Operating income as a percentage of revenue was 22.7% in the first quarter of fiscal 2026 compared to 22.4% in last year's first quarter. This was an increase of 30 basis points.

Our effective tax rate for the quarter was 17.6% compared to 15.8% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the first quarter was $491.1 million compared to $452 million last year. This year's first quarter diluted EPS was $1.20 compared to $1.10 last year, an increase of 9.1%.

Cash flow provided from operating activities was $414.5 million. Our strong cash generation allows us to have a balanced approach to capital allocation in order to create value for our shareholders.

In the first quarter, we continued to invest in our businesses through capital expenditures of $102.0 million.

Although not significant, we were able to make acquisitions in all three of our route-based businesses. We also returned capital to shareholders via our quarterly dividends and announced an increase of 15.4% in our quarterly cash dividend. This marks the 42nd consecutive year that we increased our dividend, meaning we have maintained that practice every year since going public in 1983.

Also during the first quarter and as of September 23, we were active in the buyback program with repurchases of $347.4 million of Cintas shares.

Earlier, Todd provided our updated guidance for the remainder of the year. That guidance assumes the following expectations: please note both fiscal 2025 and fiscal 2026 have the same number of workdays for the year and by quarter. Our guidance does not assume any future acquisitions, our guidance assumes a constant foreign currency exchange rate, the fiscal 2026 net interest expense of approximately $97.0 million a fiscal 2026 effective tax rate of 20.0%, which is the same compared to our fiscal 2025.

And finally, our guide does not include any future share buybacks or significant economic disruptions or downturns.

With that, I'll turn it back to Todd for some closing remarks.

Thank you, Scott. Looking ahead to the remainder of fiscal 2026, our outlook reflects continued confidence in our strategy and in the value we provide by helping customers meet their image, safety, cleanliness and compliance needs. We remain committed to delivering exceptional customer experiences and making the investments necessary to sustain growth for fiscal 2026 and well into the future. As always, I want to express my appreciation to our employee partners for their dedication to Cintas and our customers. Our culture remains our strongest competitive advantage. I'll now turn it back over to Jared.

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.

[Operator Instructions] and our first question comes from Manav Patnaik from Barclays Capital.

I just had a question. The highway example, I guess, you gave in converting from no-programmer to your customer was very helpful. In the context of more budget pressures if the macro weakens, I was hoping you could give us some historical anecdotal examples maybe. I think that's a positive for you guys in terms of accelerating the pace of converting no-programmers to your clients?

I think we've demonstrated that we can grow in many ways. And certainly, in environments where people are under more pressure then we help customers in those circumstances to free up cash flow, we help them to -- for budgetary purposes, give them back more time. And if you think about an environment where in Jim's example, where the customer was struggling to manage the program. This frees them up and frees them up to focus on other areas. We like to talk about when you outsource to us, it allows our customers to then focus on their customers, gives them back time, gives them back certain times to save them money. Certainly smooth out budgeting and cash flow.

So we've demonstrated we have the ability to do that. And we're able -- we're confident we're able to continue to convert no-programmers or the do-it-yourselfers over. And we've been doing that for many years, and we'll continue to do that as well.

Got it. And just as a follow-up, on the fire side, the decline in gross margins, I'm guessing, is that because the SAP implementation is in full swing now? Or just any updates on that, please?

Yes. Certainly, we're busy working on SAP for our fire business and there are additional costs that come along with that. But we're quite bullish on that business and we're investing for the future in that business. And that includes all kinds of different investments with bench strength operational capacity technologies around that, not just SAP but other items. So that -- as we expand that business, we're going to continue to make investments. And those investments are smart and important for us to be successful, not just in the near term but in the long term as well.

And our next question comes from George Tong from Goldman Sachs.

Can you provide an update on the overall selling environment, including client budget trends and sales cycles?

George, as far as customer behavior, we really -- there's nothing specific to call out. I wouldn't say there's any changes to sales cycles, nothing like that. It is -- we're certainly operating in a, I'll call it, a somewhat uncertain environment. But right now -- but despite that uncertainty, the value proposition that we provide continues to resonate and can, as I referred to earlier, can even improve during uncertain periods. The outsourcing can improve and steady the cash flow that I talked about. But we continue to sell good new business. We like that very much. Retention rates are still at very attractive levels. And the customer base that you asked about was steady. If anything, I would say, improved slightly during the quarter.

Got it. That's helpful. And then you increased revenue guidance as well as your EPS guidance. Can you elaborate on parts of the business that outperformed your initial expectations to drive this increase in the outlook?

Great question, George. Thank you for that. The guide first off is right where we like to be. We're performing really well, and we like the momentum we have in the business. I'd just like to point out the implied growth in Qs 2 through 4 is higher than the opening guide at all points within the range. And we like the range that we're in, especially with this, as I mentioned, somewhat uncertain environment. But our three route-based businesses are all performing very well and we like the momentum we have in each of those. And we're encouraged by that momentum. And again, our value proposition is continuing to resonate and has in all kinds of environments, and it's showing a strength in the current operating environment.

And our next question comes from Tim Mulrooney from William Blair.

This is Luke McFadden on for Tim Mulrooney. So we've seen growth in on-farm payrolls decelerate somewhat meaningfully over the last few months. I'm curious if this showed up at all in net wearer levels across your rental business during the quarter.

Yes, Luke, thanks for the question. Certainly, when we've seen that -- we're reading the same information that you're reading about the employment levels. But our team continues to execute at a very high level. I mentioned the uncertainty environment can create opportunities for us. And we've demonstrated that we can grow in excess of jobs growth in GDP. So we would way rather swim downstream and have jobs be incredibly abundant, but we've demonstrated that we can win in many ways.

Certainly, converting over no-programmers is a very important component of our growth. selling additional products and services into our existing customers. I mentioned we have -- our retention levels are really good. And we do take business from the competition, all that, although that's not our major focus.

M&A has been important to us over the past few quarters, and we can talk about that more, but we like the pipeline there, and pricing is included as well. But we have the ability to grow. And we'd love employment to pick up dramatically, but we're not counting on that, and we're going to continue to run our business and grow it successfully. Sure, we'd love for it to be easier, but it's -- we're doing it in an impressive manner.

Really helpful. And if I can just build off of that, I heard the comment earlier about strength just in terms of demand actually growing through the quarter. Could you perhaps just elaborate on that a little bit and maybe talk about just demand trends through the first few weeks of the second quarter here?

Yes. Nothing really, I would say different in the start of the quarter compared to the results that we're posting. But you see that our rental business is performing well. And you referred to earlier, the employment levels. Again, as I mentioned, we'd like to swim downstream with employment. But we're continuing to grow our business at attractive levels without that. But nothing -- no real changes in the demand from Q1 to 2 so far. But we like the momentum we have in each of our route-based businesses were into, as you saw, is performing well, but they're all performing well. So we're encouraged by that.

And our next question comes from Andrew Steinerman from JPMorgan.

This is Alex Hess on for Andrew. I wanted to start with the comment about -- to refocus on the customer base being steady or if anything, improving slightly. When you guys make that call out, like what are you actually looking to make that? Is that anecdotal? Is that based on any piece of data you look at? Like we all see the jobs number. We all see the macro data -- just trying to understand exactly what you're trying to point investors to when you make that call out? And then I'll ask my follow-up.

Yes. Thank you, Alex. Sir, [ wears ] matter to us for sure, but we have many ways to grow our business. And I think it would probably be appropriate. Jim, if you have an example to maybe share on how we go about doing that?

Yes, sure. I think that we could talk a little bit about our strategy to expand our relationship with our current customers. We brought that up a little bit on the last call. And effectively, we said we don't really matter. It doesn't matter to us which business line we start with the customer. Our objective is to get a business line into a customer to create an exceptional customer experience to build a relationship to become a trusted resource for that customer. So how does that play out over time?

Well, we have, again, an example here of a customer out in the Southwest. That was a manufacturing customer. I've been a long-term customer of ours, utilizing our uniform mental program. They are going through an exciting time, and they're expanding their business. opening on online and opening another building. In during those conversations, our folks are actively involved in conversations with them on a day to day. And again, trusted resource, they asked about setting up the garments, the rental program, uniform rental program in the new building. And during those conversations, the customer expressed how busy they were. It's an exciting time, but obviously a lot on their plate, and they needed some help and ask what other items we can help out with. And we were able to go ahead and add facility service line to the new building. We're able to add our first at safety services to a new building and fire protection services to the new building. So this is an example of us being in the door, having a great relationship, the customer looking at us as a trusted resource and in a time of a lot of work and being a little bit slightly overwhelmed with the new assignment. They look at us to say how can you help? And we were able to go in and provide all those resources, add value to the relationship. And in many cases, this is things that we're going to have to spend money on anyhow. So just diverting that spend to us because we've established ourselves as a trusted resource.

Understood. Appreciate that. And then just thinking about positioning for -- everybody's got peak job fears right now, but maybe the other side of that if we are at something like trough unemployment or trough nonfarm payroll growth and that reaccelerates, maybe helping us think to where you guys can go from here? And then if you don't mind, I'll throw one quick more. Any comments on sort of the inventory and uniforms and service injection that we saw this quarter?

Yes. So Alex, regarding employment, we're not in the prediction and business of what will happen with there. I would delight us. If our customers all we're hiring a lot more people, but we're not forecasting for that. And then we're planning to grow our business in the -- I'll say, with the current environment. And our guide reflects I think attractive growth without the employment picture being real favorable. So yes, we'd love that. That would be super. Regarding the inventory items, Scott, do you want to take that?

Yes. Thanks, Todd. I would just answer that question that you've seen a nice steady uptick in growth in our rental business really over the last 4 quarters. We continue to see strong growth out of both our First Aid and Safety business as well as our Fire business. And when that happens, we've stated in the past that we're going to have a use of capital, and that would include the injection of garments for the Uniform Rental business. So I would say that's just reflective of the growth that you're seeing in all 3 of our route-based businesses.

And our next question comes from Joshua Chan from UBS.

Great job growing through an HP environment I guess I'm wondering, as you look at the different verticals within your business, are you seeing customers behave differently in some of the more stressed verticals, recognizing that you can kind of grow through any of the environment, but just wondering if there's any subtle behavior change kind of by vertical?

Josh, good question. We're not seeing really any change in behavior in each of the verticals. Again, we think we've chosen those verticals really well. They're all accretive to our growth. And just as a reminder, we don't just sell into them. We organize around them and spend an inordinate amount of time with those customers trying to help them run their business.

So -- but I wouldn't speak to any real change in behavior there. As a reminder, it's health care is a great vertical for hospitality business as well. the education vertical and then the state and local governments. All are performing well and pretty consistently as well.

Great. And I noticed that on the EPS guidance, it's a little wider at this juncture of the year than it was last year at this time. Is there any color regarding that or kind of the thought process behind that?

No, I wouldn't say, Josh, I wouldn't read anything into that. We like where our guide is. We like where our business is performing. And as we think about that, it is a -- we're in a position where the guide would explain to you that we're in a spot where we think our incrementals are attractive. We're able to grow the business nicely. It's right where we like to be, meaning we're performing really well and like the momentum the -- we've increased the guide at all points in the within the range. Q2 through 4 implied guide also increases at all points within the range. And then also the incrementals are right where we like them to be at that stated 25% to 35% range. And it also implies margin expansion within there as well.

This range, Josh, allows us to make the investments that we need for the long term. And -- but being able to make those investments while improving margins at the exact same time, it's real strength of our business.

And our next question comes from Jasper Bibb from Truist Securities.

I joined a little bit late, so apologies if you already covered this, but I was just hoping you could update us on what you're seeing on the tariff-driven expense growth front at this point, and maybe how that's compared to your initial expectations for the year?

Jasper, thanks for joining the call, and that subject has not come up yet. So glad you asked. As you know, the situation around tariffs has been really dynamic, and we certainly aren't immune from any impact of higher costs as a result of tariffs. However, I'll say our global supply chain is a true competitive advantage for us. And our team really exemplifies our corporate culture. Our traits are positive discontent and competitive urgency, they fuel our process improvements and drive us, and frankly, to be more efficient.

So we don't simply accept product costs are increasing and then pass along to our customers. That's not our culture, and that's not how we run our business. But we also have some other built-in advantages there. We've got, as you can imagine, significant purchasing power. We also have great geographic diversity. We also -- 90% plus of our products, I have two or more providers. All of this gives us optionality. When tariffs go across the board, they go up, the geographic diversity can give you some advantage, but not as much. But our -- what doesn't change is our drive for process improvement and our drive for more efficiencies so that we can extract those out of our organization. And I'd just like to remind you that our guide contemplates the current environment for tariffs as well.

Got it. And then curious about sales cycles for no-programmers. Has there been any change there so far this year and what you're seeing in customer behavior?

No real change on the sales cycle for build no-programmers -- frankly in general, I'd say the sales cycle has remained pretty consistent, and we're continuing to invest for the future that we're prepared to be successful ongoing.

And our next question comes from Andrew Wittman from RW Baird.

Maybe, Scott, one for you. On the First Aid segment gross margins, they were down a decent amount year-over-year. And I was wondering if you could help us understand what either happened this quarter that caused them to be down or maybe in the prior year, if there was a comp issue just so we had a better understanding about the gross margins there in first aid.

Yes, Andrew, thanks for the question. I'll go back to some comments that Todd mentioned.

Nothing really to call out here. We continue to invest in all of our route-based businesses, specifically in both our First Aid and Fire business. I think you're seeing the benefits of those investments show up and the double-digit growth rates that we're enjoying in both our First Aid and Fire business.

Jim, I don't know if you want to comment further on that first business.

Andy, appreciate the question. And so our gross margin for data safety is actually flat sequentially. We did have a little bit of a challenging comp from Q1 of last fiscal year to this fiscal year. But we really love what our business is positioned, and we continue to make investments, specifically in areas like route capacity, leadership bench strength, technology, selling resources and managing trainees. So I would just call that more of a timing issue around the businesses and linear and we want to make the investments for the future, we really like the outlook of that business.

Got it. So just to build on that then, Jim, do you think that fiscal '26 is a higher investment year in some of these things like route leadership, management trainees, technology than it was in 2025. Obviously, '25 margins was a big story for the year. They were so impressive, you way above the incrementals. And I know that tell me, this is kind of more like what you've talked about for the long term. But I'm just wondering like as you compare this year to last year in terms of the P&L investments that you're making, is this a higher year than last year? Is that part of the reason why we're seeing the margins be good, but not quite as good as last year in terms of the improvement year-over-year?

Andy, I would more call out a little bit of timing, meaning there's investments that are made periodically. I think you saw us begin to invest a little heavier in the fourth quarter of last fiscal year. continuing to put on those selling resources and adding the rock capacity. So more of a timing issue. But yes, we are continuing to invest in that business, and we really like the outlook on it.

And our next question comes from Jason Haas from Wells Fargo.

This is Jun Yi [indiscernible] on for Jason Haas. Curious, are you seeing any change in the competitive environment? I know historically, most of your wins come from no programmers, but we're seeing a lot of your peers struggle in this environment with one of your peers laying off a big portion of their sales force recently. So curious if you see a growing opportunity to win share from your competitors?

Yes. Thank you, Jun Yi, for the question. The overall market remains very competitive. Our retention rates are still very strong. The new business wins come, as you know, from -- mostly from no-programmers. More so than the competition, and we love that huge TAM of that unserved market that do-it-yourselfers or no-programmers. We will certainly take business from traditional competitors, but that's not really where our focus is, not where we focus our time and our efforts.

We recognize that one of our particular competitors is working on their foundations. But again, it's not where our focus is. We see this huge TAM of opportunity with people that are do-it-yourselfers, the 16 million, 17 million businesses out there in the U.S. and Canada. We're servicing a little over $1 million. There is a massive opportunity. So that's really where we spend our time to focus to help expand that market. And it's worked force quite well, and that's our plan for the future as well.

Great. And for my follow-up, can you talk about what's driving the softness in the operating margins for the -- all other segment.

Well, the all other segment, as you know, is the Fire and the Design Collective business. Our gross margin in the All Other is -- was up 10 bps sequentially, down 30 year-over-year. But we're investing appropriately in all of those businesses. And we like the returns that we're getting in our three route-based businesses specifically. And we're investing for the future because we see the opportunity that's out there. And so we're going to continue to, as Jim mentioned, invest in bench strength capacity. We're going to invest in leadership, management trainees, sales resources, all those. And we're doing that because we see the opportunity ahead Certainly, we do have some additional costs with SAP in the Fire business as we are still going through that process. And -- but those are -- again, are investments for the future. And we think the future is quite bright. So we're going to invest appropriately.

And our next question comes from Ashish Sabadra from RBC.

Maybe just a quick one on the Uniform Direct sales. I know that can be pretty choppy quarter-to-quarter, but I was just wondering if you could talk more about some of the softness that we saw in the quarter, but also any comments on the trend going forward.

Yes. Thank you, Ashish. The Uniform Direct Sale business is a strategic business for us. not so much in the size of it because it's only 2.6% of our revenue but in the nature of those customers. meaning we sell all of our route-based businesses into those customers.

An example would be if you think about a hotel, the front of the house with the front desk, the belt top, the concierge, if you're doing business with them in the front of the house, that can lead to the back of the house opportunities which tend to be in rental, which would be housekeeping, maintenance culinary. So this is a strategic business for us. And it allows us, again, not just sell rental, but to sell first aid into those customers and to sell fire as well. So very important. Certainly, the farm direct cell business can be a bit lumpy with rollouts of large programs. But we like the business, and it's a strategic business for us.

That's very helpful information. Maybe just switching gears on M&A. Wondering if you could talk about the M&A pipeline, not just for more tuck-in deals, but also larger deals. And would you consider diversifying into newer areas? Any color on that front?

Yes. Thanks for the question, Ashish. First off, M&A is important to us. We have I think, demonstrated that we can leverage our balance sheet to buy really good companies. And when we do that, we either get a really good capacity or we get really good synergies, sometimes a combination. So M&A is important to us. We didn't have as much M&A in Q1 as -- so what we have over the last 12 months. But the funnel looks good. We like where we are. and it will be an important component for us. That being said, it's tough to predict those items. And because when a seller wants to sell, it's up to them, and we just want to make sure we're there and have great relationships and do exactly what we say we'll do so that we can make sure that the pipeline looks attractive.

As far as getting outside of our current businesses, we're always looking at those opportunities. But the great news is we don't have to. The opportunity that we have in our current business is immense. So we're primarily focused there. But we're certainly always evaluating opportunities.

And our next question comes from Faiza Alwy from Deutsche Bank.

Yes. I wanted to ask about the First Aid business again. And I'm curious, as you're making these investments sort of how your outlook for top line growth here has maybe changed or evolved? Because you've talked about you're seeing the opportunity? I know historically, we've talked about this business as a maybe low double-digit grower. So curious how you think about top line growth moving forward over the next 3 to 5 years?

Thanks for the question. We are making investments in that business, and we think we're doing so smartly. We do see it as a double digit -- low double-digit growth business, and it's performed really well over the last year. And we would expect that low double-digit number to be a good number for us. We are encouraged by how the business is performing, and we are going to continue to invest there, because the future is quite attractive for us.

So we think about investments in the manner of Well, we want to make sure we're positioned for the long term. And so we're making those investments so that we can provide great customer service and position our employee partners to be highly successful. And doing so while increasing operating margins is, again, we think a real strength of our business. But we're investing in all of them of our route-based businesses in the First Aid is performing very attractively, again, but I would think about it as a low double-digit growth business for us moving forward.

Understood. And then just you talked about timing as it relates to the investments. So -- and it sounded like even in the fourth quarter of last year because you talked about sequential margins being similar give us a bit more color on the timing? Like is this -- are you -- when do you expect to be sort of true with those? And do you -- how should we think about the incremental margins in that business going forward?

Yes. So Faiza, it is -- from a timing standpoint, we certainly have different initiatives in each of our businesses. First Aid is no different. We'll have certain rollouts of product, which might affect the mix. But we're planning to grow that business attractively. And I'll just remind you that, that 56.8% gross margin is really attractive. We're quite happy with it. We've had a significant increase over the last few years in that area. And we're going to continue to get leverage there. But it's a high level. And we think it's really good and the mix of the business has been attractive for us. But we're providing more and more value to those customers. And then we're selling other items into those customers outside the First Aid business.

So it all works quite nicely. And so I wouldn't be thinking of it as ages, the first aid margin is going to pop after certain timing. These are -- we'll get leverage. And we'll grow that business attractively and provide more value to customers, but we like where it is and in the future as well.

And our next question comes from Stephanie Moore from Jefferies.

Hi, good morning. Thank you. I wanted to maybe follow up a question that was asked earlier in regards to M&A and kind of compare that to some commentary you made about growing your maybe other segments, Fire and Safety, for example. Maybe just talk about your appetite as you think about other areas within your total company as you look to expand. What is your appetite to further expand your fire and safety business? And how do you leverage both doing so organically as well as potentially opportunistic M&A?

Yes. Stephanie, thank you for the question. Our fire business, we think the future is quite bright there. And we are very active in M&A in that business and growing it organically. And those, again, can just like any M&A can be a little lumpy, but we're quite active there. And we make I would say, acquisitions almost every quarter in that business. Some of them are smaller, many of them are smaller. Some might give us an additional footprint and many of them are also tuck-ins. And when we -- we love both when we get the additional footprint. That gives us an opportunity to invest in sales organizations and other resources and to self-serve that many more customers. And then when we do tuck-ins in that business, we get synergies from back office and other areas. And then how we go about running a business tends to be -- that we're able to extract out some efficient inefficiencies and run it in a more productive manner. So that's all part of our strategy. We really like that business. And we are acquisitive and will continue to be.

And then just one follow-up question. I think it's pretty well understood that based on your investments over 10-plus years. You have a very strong tech stack and have really invested back into your technology capability. So as you think about what you have in place now and the ability to leverage AI and machine learning and the likes of everything that we're talking about now. What are the conversations like internally as you think about the opportunity? Is it pretty incremental, just given you're already at such a such an advanced state from a technology standpoint to really leverage AI to either improve productivity or drive incremental business?

Good question, Stephanie. As you pointed out, investing in technology has been a key part of our strategy for many, many years and certainly not slowing. Our investment in SAP has created a really valuable foundation for which we can build upon. So we're really focusing our investments to help us in those areas. And I'll just call it technology umbrella. AI is a component, analytics is a component, algorithms, large language models, all that is part of it. But we're focused in really in two areas, making it easier for our customers to do business with us, via managing their account, getting answers to questions faster, making it easier for them to purchase additional products and services, paying their bill would all be components of it.

And then the second area is making our employee partners more successful, putting information in their hands to make them more valuable to the customer. Spending their time in a more productive manner by eliminating administrative time and pointing them in the right direction to where to spend their time with the right products, the right prospects, the right areas of the business. So it's all important to us. Very important. It's part of our investment for the future, and we think it's going to be -- we'll continue to invest and will be attractive for us. But you've seen some of it with SmartTruck, myCintas, the best product, best prospect and there's -- that's all ongoing and not slowing down. And we see a real opportunity for -- to leverage that tech stack and to also leverage our engineering and Black Belt resources our Six Sigma team, all goes into play with that, so it's not just a technology, it's positioning the technology to make it easier for our customers to do business with us and make our people that much more successful.

And our next question comes from Scott Schneeberger from Oppenheimer.

I had two questions. I guess I'll ask them both upfront, though they're quite different. The first one is kind of playing off on some of these M&A questions. in the past and many years ago, you all had considered going international to a much greater degree and kind of doing so via existing customers who may large multinationals, who may have needed service outside of the U.S. Just curious, is that -- it has been quiet on the M&A front. Is that a consideration? And if so, what would be your approach.

And then the second question is just on myCintas. We just love to hear any update on how that's progressing, maybe mix of what percent of sales is running through that now? What percent of payments, any other metrics you may be offered to provide? Because you've been at that for a little while, and I imagine it's providing good productivity leverage.

Yes. Thank you, Scott. First off, on the M&A front, I wouldn't say it's been quiet on the M&A front. We had our very best year last year with the exception of in the last 20 years, with the exception of the year, we bought G&K. So we've been very active and the pipe continues to be attractive.

On the international front, we certainly -- we have relationships, and we evaluate that on an ongoing basis. But the best news is we don't have to. We don't see a need to do that in order to grow our business. If the right opportunity showed up, we would, but we don't need to. We are -- as I mentioned, we're servicing a little over 1 million businesses and in the U.S. and Canada are 16 million, 17 million businesses. The white space of opportunity out there is immense.

So we love the spot we're in, in the geography we're in. But that being said, we have those relationships, and we continue to cultivate those. And if the right opportunity presents itself, we would certainly evaluate it. And we have the ability. We have the bench. We have the culture. We have the balance sheet and the know-how and the ability to do something like that if we want to.

Regarding the myCintas portal, that's really a platform that we use, not just for our customers for paying, but also for them to manage their account. And then we expanded so for other areas for our partners to be able to become that much more successful and productive to -- for handling customer requests. So that's -- I won't go into great detail about any metrics on that area for competitive reasons.

But I'll just say it's an area where we continue to invest, and we see it as a competitive advantage, and our customers really like it. So when your customers like it and your employee partners like it, we think we've got something there and we're going to continue to invest because we see the opportunity to continue to provide additional value there.

And our next question comes from Toni Kaplan from Morgan Stanley.

In light of all the news on Visa requirements, are you expecting any impact from changes to impact your customers' hiring? I know it could be a little bit further out, but just wanted to understand how you're thinking about that.

Yes. Toni, it's a good question. We're certainly paying attention to integration policy, but I can't tell you that we're seeing any material impact at all. Is there some impact? There might be, but we're not really hearing it much from our customers. We're not seeing it in the results. And certainly, the H1B subject is a -- more of a technology that seems as more of a technology subject. So no real impact from the Visas or the immigration that we can really refer to.

Okay. Great. And then just a follow-up on all other. You mentioned continuing to invest. We saw SG&A step up there in the quarter. Should we expect a similar level of investment throughout the year that would be really helpful to understand how SG&A in particular, should continue to progress as we proceed through this fiscal year.

Yes. We think our SG&A investment is appropriate right now where it is. So I don't think you'll see a ramp up or ramp down from there. from that perspective. So we're -- we like the spot that we're in. We like the levels of bench that we're at. And we think in totality that we got a 10 basis point improvement on SG&A for the company going from 27.6% to 27.5% year over prior. So I wouldn't overreact to the all other more of just a timing subject there. But we think we're in a good spot from an SG&A investment and plan to get leverage on that over time.

And our next question comes from Kartik Mehta from Northcoast Research.

I know you've answered the question I'm going to ask in parts, but I thought maybe if I could get you to give a comprehensive answer or just maybe a summary of all the answers you gave will be a good perspective. And the economy, it seems like has changed in the last 6 months. And I'd be curious from your perspective, at least the key metrics you look at for each of the businesses, what you think has improved, what hasn't changed? And maybe what might have gotten a little worse?

Yes, Kartik. Our business is performing really well, and we like the momentum. You've seen that the rental business is continuing to improve. We're really encouraged by that. But each of our three route-based businesses are performing at a high level, Uniform Direct Sale business, the performance there was a 30 basis point headwind for the company on growth. So if you solve for that, then the business would have grown at 9%. So that would be really good.

So we like where we are. And as I mentioned earlier, Kartik we are investing for the future because we think the future is bright because of all the opportunity ahead for us in the position that we're trying to put our partners in -- our employee partners in and the value we're trying to provide for our customers.

And just a follow-up. You talked about M&A and obviously, you are very active in the M&A world. I'm wondering if you're changing any change in prices for M&A in either of the businesses. And if maybe sellers are getting a little bit maybe flooring prices because of what's going on.

Good question, Kartik. No, I wouldn't say there's any real change in prices. It's trying to predict when someone is ready to sell their business is really challenging. There's all kinds of items that come into play, succession planning, health maybe what they look at for how their business is going to perform in the future. There's all kinds of things. So trying to predict that one is challenging. What we can control is making sure that we're in a position to leverage our relationships. And we've invested over the years to make sure that we are in a position to do that. and we'll continue to do that. Jim and I are very involved with those because of what we've known many of those people for decades. So -- and we think that our reputation is such that we're well positioned for when those opportunities come to the table.

And our next question comes from Leo Carrington from Citigroup.

Just one follow-up for me. If you could elaborate, please, on the points you made on tariffs. I think you probably were focusing more on the uniform rental costs, but have you seen any effects on your cost base in terms of CapEx? Any changes to your CapEx expectations?

Yes. Thank you, Leo, for the question. The tariffs are -- as I mentioned, we're not immune from them. But our supply chain organization supports our entire business, not just our rental business, and they're doing a great job. So when I talk about a great job, all those items of the geographic diversity, the having optionality with all the different providers that applies to each of our businesses and as a result, we're finding ways to become more efficient. So that culture is shining through. And when you go through really challenging times, like what tariffs throw at you, it gives our organization opportunity to shine. And our supply chain is doing just that. And they're continuing to fight through what is a challenging environment.

From a CapEx standpoint, we've -- our 4% targeted CapEx, I think you'll see that be consistent we would expect that, that would be where we plan to be moving forward.

And at this time, there are no further questions. I would like to now turn the call back over to Jared for closing remarks.

Thank you, Ross. Thank you for joining us this morning. We will issue our second quarter of fiscal 2026 financial results in December. We look forward to speaking with you again at that time. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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

Thank you, Ross. Thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer; Jim Rozakis, Executive Vice President and Chief Operating Officer; and Scott Garula, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2025 fourth quarter and full year results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission.

I will now turn the call over to Todd.

Thank you, Jared, and thank you all for joining us. I'd like to take a moment and welcome Jim and Scott to our call today. Jim is a seasoned leader that brings 26 years of experience with Cintas. And over the last 2 years, has served as Cintas' Chief Operating Officer. Scott was recently appointed as our Chief Financial Officer and brings with him over 29 years of experience, including leading each of our route-based businesses.

On today's call, I'll start by sharing an overview of the quarter, the year and our outlook for fiscal 2026. Jim will share some more detail on our segment performance and the drivers in the business, and Scott will wrap up with more detail on our financials. We are pleased to have delivered a strong fourth quarter to close out another impressive fiscal year for Cintas. We delivered robust top line growth and maintained healthy margins and cash flow demonstrating the value -- excuse me, demonstrating the strength of our value proposition.

In the fourth quarter, total revenue grew 8% to $2.67 billion. Our organic growth rate, which adjusts for the impacts of acquisitions, foreign currency exchange rate fluctuations and workday differences, was 9%. We continue to execute at a high level across each of our businesses, including organic growth of 7.2% in the Uniform Rental and Facility Services segment and 18.5% in our First Aid and Safety segment. All Other, which includes our Fire Protection Services, Uniform Direct Sales grew organically by 11.1%.

Turning to profitability. Gross margin for the fourth quarter grew 9.1% over the prior year from 49.2% to 49.7%. Operating income as a percentage of revenue increased 9.1% over the prior year, and diluted EPS increased 9% to $1.09. We remain confident that the strategic investments we've made in the business, position us to capitalize on future growth opportunities. Those investments include technology that makes it easier for our employee partners to do their jobs, such as our SAP system and SmartTruck platform, investments in our infrastructure to increase capacity and position our employee partners for success as well as investments in management trainees and selling resources. For the full year, fiscal 2025 revenue was a record $10.34 billion, an increase of 7.7%. Organic growth was 8% for the year. Our top line growth continues to underscore the strength of Cintas' value proposition. Operating margins for the full year were 22.8%, an increase of 14.1% at an all-time high compared to our prior year operating margin of 21.6%. Diluted earnings per share of $4.40 grew 16.1% over the prior year.

Balanced capital allocation remains a key pillar of our strategy. In the fourth quarter and throughout fiscal 2025, we continue to deploy capital across all of our strategic priorities including reinvesting in our products, people and technologies to ensure we are best positioned to deliver value for our customers. Looking ahead to fiscal '26, our financial expectations reflect both the strength of the underlying business and our commitment to disciplined execution. Scott will later touch on the assumptions included in our guidance. We expect our revenue to be in the range of $11 billion to $11.15 billion, a total growth rate of 6.4% to 7.8%. We expect diluted EPS to be in the range of $4.71 to $4.85, a growth rate of 7% to 10.2%. Our fourth quarter and full year 2025 results and 2026 outlook underscore the strength of our business model and our ability to execute in a dynamic environment. Fiscal 2025 now marks 54 years out of the last 56 years that we've grown sales and adjusted EPS. I want to thank all of our employee partners for their hard work and dedication with our culture of continuous improvement, superior products and services and disciplined execution, we are well positioned to sustain growth and value creation.

Lastly, we were named to the prestigious Fortune 500 for the ninth consecutive year. It is an honor to be recognized among the most successful and respected companies. We're proud of these results and the value we continue to deliver for Cintas' shareholders.

With that, I'll turn it over to Jim for additional insights.

Thanks, Todd, and good morning. We continue to grow at attractive rates by helping new customers meet their needs of image, safety, friendliness and compliance. We are seeing success in adding new products and new services to existing customers. Our retention rates are right at our all-time highs and pricing continued to be at our historical levels.

Turning to the fourth quarter organic growth by business. We grew 7.2% for Uniform Rental and Facility Services, 18.5% for First Aid and Safety Services, 12.1% for Fire Protection Services and Uniform Direct Sale was up 9%. As we've done in the past, I will share the 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 was 19%, hygiene was 16%, shop towels were 3%, Linen, which includes microfiber, wipes, towels and aprons was 10% and catalog revenue was 4%. These percentages are consistent with last year and demonstrate we continue to experience strong demand across all our products and services.

Gross margin percentage by business was 49% for Uniform Rental and Facility Services, 56.8% for First Aid and Safety Services, 49.3% for Fire Protection Services and 41% -- 41.6% for Uniform Direct Sale. Gross margin for the Uniform Rental Facility Services segment increased 40 basis points from last year. Our progress year-over-year reflects the positive impacts made by our excellent supply chain team as well as cost savings initiatives such as our garment sharing, technology enhancements like our auto sortation systems and our plants and our proprietary SmartTruck solution that makes our routes more efficient. Gross margin for the First Aid and Safety Services segment increased 140 basis points from last year, with strong revenue growth continuing to create leverage. A healthy revenue mix that includes growth in high-margin recurring revenue products like AED rentals, eye-wash stations and WaterBreak as well as cost savings initiatives such as SmartTruck and improved sourcing.

Before I turn it over to Scott, I'd like to share an example that demonstrates how we're delivering for our customers. Our customer in the southeastern part of the country has been a valued customer for over 10 years. For most of that time, we provided them exclusively with facility services products and services. Their maintenance department uniforms were direct purchase, what we would call a no programmer. Our customer approached us to see if we could help them address 3 key pain points. One, the initial investment ongoing costs associated with replacing uniforms due to turnover and damage made it difficult to forecast spend and manage cash flow. Two, their employees expressed a strong preference for the convenience and professionalism of a laundered uniform program over Washington uniforms at home. Three, their managers found that overseeing uniform logistics in-house took valuable time away from focusing on their core business operations. In response, we successfully introduced our uniform rental program on top of our facility services offering. But the story doesn't end there. We also earned a trust at their culinary department onboarding those employees who had previously been with the traditional uniform competitor. The switch was driven by our premium Chef Works exclusive attire and the opportunity for vendor consolidation. This example underscores several points. First, we don't always have to leave with uniforms. In this case, we had a long successful relationship with a customer built on our facility services offering. Second, we can grow in a variety of different ways. We can convert no program or to a rental program, we can add new customers who are currently with another uniform rental provider, by offering premium products and services, and we can grow by adding new products and services to our existing customers. This example also illustrates how Cintas is more than a service provider. We have true problem solvers committed to helping our customers succeed. And by staying attuned to their feedback, we continue to strengthen our relationships and expand our footprint across industries.

I'll now turn it over to Scott for additional details on our capital allocation strategy and 2026 outlook.

Thank you, Jim, and good morning, everyone. As Todd mentioned, we closed our fiscal year with strong financial performance. Our balance sheet remains healthy and during fiscal 2025, we generated $1.6 billion of free cash flow. In the fourth quarter, we were able to put our capital to work through capital expenditures of $114.6 million, acquisitions of $34.1 million, dividends of $157.8 million and share repurchases of $256.7 million. .

Our effective tax rate for the fourth quarter was 22.1% compared to 21.4% last year. For fiscal 2025, the effective tax rate was 20% compared to 20.4% the prior year. During fiscal year 2025, we deployed significant capital across each of our capital allocation priorities. This capital allocation strategy has been effective for many years and has served us well. We invested $408.9 million in capital expenditures which helps support investments in our technology and infrastructure. Capital expenditures were or 4% of revenue, which is right where we like to be. We invested $232.9 million in acquisitions in fiscal 2025, representing our largest year of M&A activity in almost 20 years, excluding our 2017 acquisition of G&K. These acquisitions spanned across each of our 3 route-based segments, adding new customers, extending capacity and delivering compelling synergies. By optimizing our existing route structure, we've been able to spend more time with customers while reducing time spent on the road. Acquisitions remain an important lever for growth, enabling us to broaden our offerings and deliver greater value to our stakeholders.

Additionally, we returned over $1.5 billion to shareholders through dividends and share buybacks. Almost $612 million in dividend payments marks the 41st consecutive year that we've increased our dividend, which is every year since going public. We also repurchased approximately $935 million of shares during fiscal year 2025. Todd provided our fiscal 2026 outlook at the start of the call, and I'd like to provide some context on a few assumptions underpinning our guidance. Please note that both fiscal 2025 and fiscal 2026 had the same number of workdays for the year and by quarter. Our guidance does not assume any future acquisitions. Our guidance assumes a constant foreign currency exchange rate. The fiscal 2026 interest net is expected to be approximately $98 million. The fiscal 2026 effective tax rate is expected to be 20%, which is the same as fiscal 2025, and our guidance includes no future share buybacks or significant economic disruptions or downturn.

With that, I'll turn it back over to Todd for closing remarks.

Thank you, Scott. As we look ahead to fiscal 2026, our results reflect the strength of our strategy, and the value we provide in helping our customers meet their image, safety, cleanliness and compliance needs. We remain focused on delivering exceptional customer experiences while continuing to make the necessary investments in our business to sustain long-term growth and value creation. Our confidence in our ability to navigate the current environment and capitalize on future opportunities remain strong.

Jared, back to you.

Thanks, Todd, Jim and Scott. That concludes our prepared remarks. Now we are happy to answer questions from the analysts. [Operator Instructions] Thank you.

[Operator Instructions] And our first question comes from George Tong from Goldman Sachs.

Starting at a high level, can you talk a little bit about what the overall selling environment looks like, including how sales cycles are performing and how client sentiment is trending?

George, thanks for the question. I'll start, and then Jim, if you want to add any color. No real change to the customer behavior, sales cycles. New business remains strong. Our retention rates are still at very attractive levels. Add-stops really no significant change there. It is -- there are certain -- or excuse me, clearly there's more uncertainty in the marketplace with tariff trade tax -- or excuse me, tariff/trade taxes, which is a little bit more clarity and interest rates. But nevertheless, our value proposition continues to resonate, and it resonates in virtually every economic cycle, hence, our 54 in the last 56 years, and we expect that to continue. And we like the position we're in. Anything else, Jim, on customer behavior that you'd like to contribute?

Yes. I think maybe Todd, the only color I would add on that is that the customer behavior offers an opportunity for us to add value to our customers. I was recently at an operational visit. And in a routine conversation, one of our employee partners was out at a customer site. And as you can imagine, during traditional report building, the customer expressed concern regarding the overall uncertainty in a macro environment our employee partner turned out an opportunity to discuss further Cintas products and services. And we found out that we were able to go ahead and save this customer significant money on something as simple as disposable clocks. So there certainly is a degree, as you described a little bit of uncertainty. That uncertainty creates opportunity, and the customers are looking for answers and oftentimes for able to buy those answers for them.

Very helpful. And then my follow-up, you're continuing to see and deliver operating margin expansion on a year-over-year basis, but incremental margins stepped down this quarter from what was 40%, 50% before to around 25%. Can you talk a bit about what factors may be causing this narrowing rate of margin expansion?

George, we had another really good profit quarter. We did run 22.4% operating profit for the quarter. That brings us to 35% incrementals for the year, excluding our land sale I will say last year, Q4 was by far our best profit quarter. So the comparables were certainly tougher. And as you know, running a business isn't linear. But we like where we are. We're right in that sweet spot of 25% to 35% incrementals. And we're investing for the future. And we're doing that because we see the opportunities ahead and we like what the opportunities look like for us. So we're investing appropriately.

And our next question comes from Jasper Bibb from Truist Securities.

A little bit more color on the cadence of your '26 outlook as I imagine you're going to have a lot more difficult comps on the incremental margin front in the first half versus the second half.

Jasper, thanks for the question. Yes, on the revenue side, we just finished a very successful year where we grew 7.7%, which is right where we want to be. The '26 revenue guide calls were 6.4% to 7.8%, which again of growth -- which again, is right where we like to be and sets us up for another really good year. we're performing well, and we like the momentum that we have in the business.

On the EPS side, we had a great year in FY '25, and we think we're set up for another really good year in FY '26. The guide calls for EPS growth of 7% to 10.2%, which infers margin expansion throughout the guide. And at the midpoint of revenue EPS guide, it also represents operating margin above 23% and incrementals in the high 20s. So this is all consistent with how we guided last year. And this year, certainly, the macro environment is -- there is a little bit more uncertainty, but we think we're well positioned to navigate the environment. and have another very successful year in '26.

Got it. Hoping maybe you could give some color on what you're seeing in ad stops and how you're thinking about that trend in your fiscal '26 guidance?

Yes. Jasper, good question. We have an incredibly broad customer base. So we have some customers that are absolutely thriving in this environment. Some are dealing with input cost challenges. But the net-net is our customer base is still performing well, and we think that we're in a good position there. Keep in mind, 70% of our customer base are in the services providing sector, 30% in the goods producing. But we -- so from an ad stop standpoint, we think we're in a good spot. We don't give out that specific number, but we like the momentum that we see in our business.

And our next question comes from Manav Patnaik from Barclays Capital.

This is Ronan Kennedy on for Manav. You touched on this in response to Jasper's question, but if I may just look to go a little more granular. The '26 guide is the implied operating income margins of 25%, I think, are at the lower end of the midterm guided 25% to 35% and then 23% and 27% at the low and high end, respectively. There's obviously an element of operating leverage at play and revenues. But any further insights you can shed as to the puts and takes to the drivers of those incrementals, whether it's a positive impact of supply chain tech initiatives or the negative impact, say, of the SAP implementation for fire protection. Any further insights on kind of puts and takes to those incrementals, please?

Yes. Thank you, Ronan. Yes, we like our guide. We think we're -- the incrementals are right where we want to be. Certainly, there is -- we will be continuing to invest in SAP in our fire business does that -- that's not an inexpensive effort there. but that's all contemplated in our guide as is any input cost challenges that are thrown our way as a result of the environment that -- the macro environment that we're dealing with, et cetera. So we feel good about the spot we're in from an incremental margin standpoint, again, 25% to 35%. And and we're investing appropriately. Running a business isn't linear. So we -- but we're focused on the long term and positioning our partners and our customers to be incredibly successful, and we like the spot that we're in.

And then for my follow-up, please, similar question in relation to revenues. The range, the guided revenue range is, I think, 140 basis points, which you understandably indicated is right where you want to be. I also think that range is consistent with the guided range for F '25. Can you give us any further insight as to what that contemplates from organic by department or the expected contributions from, say, price, new bids, et cetera, versus historicals? Any further insight there, please, would be greatly appreciated.

Yes, certainly, Ronan, Yes, again, we like our guide on the revenue as well. We think we're positioned there. The net for us, we want to grow our business in the mid- to high single-digit revenue. We certainly expect that our rental business will be similar. And our fire and First Aid businesses be in the double-digit area. And then in our Uniform Direct Sale business, as we've detailed outwards, we are not trying to grow that as aggressively, low single digits would be a good way to think about it. but it is a very strategic business because those are the large customers we sell our route-based businesses into as well. So that's kind of how we think about it.

And our next question comes from Tim Mulrooney from William Blair.

Just the first one on the quarter. Your fourth quarter result, organic growth was 9%. That was well above consensus. It was also above what was implied by your own guidance range that you provided last quarter. So I'm just curious what business lines or sectors picked up during the quarter relative to your own expectations?

Yes. Thank you, Tim. Yes, we're really proud of our fourth quarter performance. It did exceed our expectations. I think, underscores the momentum we have in our business, but we didn't have for some, I'll call it, more discrete type onetime benefits in the area of our First Aid business. We were propelled by, I mean, a great performance in our training area, which those tend to be a little bit more discrete onetime in nature. Our Uniform Direct Sale business grew 9%, which was a really strong close to what was a bumpy year. So a little bit more onetime in nature there, but we're really proud of the performance in the close to the year. And we think we're well positioned for FY '26.

And our next question comes from Andrew Steinerman from JPMorgan.

The quarter ended 6 weeks ago, and I just wanted to get a sense of how the current quarter started, just what's already kind of behind us in June, in the first couple of weeks of July in terms of revenue growth momentum? Has it sort of been consistent with the way you finished the quarter. And then I'll just ask my second question also. I just saw some discussion. I was just wondering if there's any recent changes to your go-to-market strategy, particularly around national accounts?

Andrew, thanks for the question. First off, yes, you're right. I mean we're -- because of this being our Q4 call, we are further into our quarter than normal. In the start of the year, it's starting exactly the way we expected, and it's reflected in our guide. So kind of -- well, I would say, consistent with what we expected for the start of the year. As for our go-to-market strategy, that really hasn't changed -- websites changed, and we talk about trying to position ourselves appropriately to all of our customers. But we've been in the national account business for 30-plus years, I'd say, virtually my entire career. And the only thing I would call out is our vertical strategy is obviously -- has been different over the last 5 to 10 years, and that has performed well. So no other change -- no real change in our -- our market strategy. We're constantly reinvesting in our products and services to make them of more value to our customers and to position our employee partners to make it easier to take care of our customers. So there's always refreshes going on a product here, product there. That's just part of our culture to try to make sure we're positioned to be successful as possible.

And our next question comes from Josh Chan from UBS.

As you look into your different [indiscernible] buckets kind of going into 2026, material, labor, your fleet, anything to highlight in terms of the trajectory of cost changes and maybe on the material side, could you touch on potential tariff impact and how that could have -- how that could impact kind of the cost?

Josh, yes, why don't I just speak a little bit about that subject. We believe we're in a good position to navigate through what is clearly a very dynamic environment. with challenges like tariffs and what have you. We think it gives us an opportunity to flex our strength, which is our people and our culture, which in all this is reflected in our guidance. We contemplated some additional expense into the guide. But we have some, we think, some real advantages. First off, we -- the nature of how we expense our goods in our largest businesses is because we amortize it, it gives us time. It also -- you probably noticed on our balance sheet, our inventory is up. So we've anticipated and manage this appropriately. And I'd like to also say that we've navigated this very successfully in the past. The past 5 years, whether it's been inflation or supply chain challenges. Our global supply chain has shined and has been a competitive advantage for us in the marketplace. As a reminder, we source products all over the world. So we have geographic diversity. And we also have 90% or so of our products, we have 2 or more sources. You put that together with our buying power, all that gives us options and leverage. So we think that, that positions us well, and you put on top of that our corporate culture trades a positive competitive urgency. It fuels us to look at process improvements and finding ways to extract inefficiencies out of our business so that we can be more efficient. We don't take the approach that, well, if a tariff is going to raise a cost, then we just got -- we got to eat that and pass a loan to our customer. It's not how we run our business. And how we've run it in the past and it's not how we're going to run in the future. We're -- and we think it gives us an opportunity to shine.

Josh, if I might add to that, the Todd did a great job describing the supply chain. We also talked about some of the work we're doing to remove inefficiencies. We have several initiatives ongoing. Some were mentioned in our prepared remarks, that are all in play and again, contemplated in next year's expectations. But garment sharing would be one that I think would be worth highlighting here. We continue to leverage the SAP platform to be able to share goods that we have in inventory across our entire network, and that's been quite effective, and we think we've got some room to go on that one, automating within our plants and deploying auto sortation technology in our plants. We have about 50% of our plants have some degree of auto sortation and we're in the middle of trying to deploy more of that. In the past, it's been challenging due to our plants being all different shapes and sizes. We believe that we develop technology to overcome that and limit the disruption. So those are in motion, and we expect those to continue to deploy this year. To mentioned operational excellence. Operational excellence is us really maximizing the assets, specifically in our rental business. around the plant. That allows us to continue to defer capital expenditure, and it also allows us to run those plants more efficiently, allowing us to wash fewer loads, consume less energy, less chemistry and water within our facilities. And then maybe last that I would be mentioning would be our SmartTruck initiative that's been ongoing now for several years. that allows us to incrementally route our fleets more efficiently, get them more time in front of the customer. But certainly, route growth is significantly less than what our revenue growth is, and we're going to continue that in this next fiscal.

That's great, color. I appreciate the context there. That's really helpful. And then I guess for my follow-up, I think, Scott, you highlighted the M&A spend this past year. Just wonder if you could comment on the prospects of M&A kind of going forward and how the pipeline of the bolt-ons look at the moment.

Why don't I start a little bit on pipeline and then Scott can talk about capital allocation. M&A is tough to predict, but it's very important to us. These relationships that we've had for decades and trying to figure out when a business is going to be interested in selling is I mean it's not random, but it is certainly tough to predict. We had a great year, and we leverage those relationships that we've had for decades. And -- but we're in the business of buying really good businesses. And when you buy really good businesses, you get a lot of things, but you get you get customers and you get employee partners and the most important areas and in certain cases, we get capacity. And if we don't get capacity, we get really good synergies. So we'll continue to work our pipeline. And -- but nevertheless, we -- we can't time it, but we're highly active so that when somebody is interested, we're well positioned for that. Scott, do you want to talk a little bit about capital allocation?

Yes. Thanks, Todd. As I mentioned in our prepared remarks, our approach to balance the capital allocation strategy has served us well for many years. I've been part of that in my prior roles and I really don't see a change in that in the future and continue not only to invest in M&A activity we'll continue to reinvest back in the business via capital expenditures and continue to invest in both dividends and be opportunistic with share buybacks.

And our next question comes from Jason Haas from Wells Fargo.

I'm curious if you expect the industry to pass on higher price increases in fiscal 2026, given the tariff-driven inflation? And if that's something that you've baked into your guidance assuming you could take more price as well and more of that could represent upside.

Thanks for the question, Jason. Our pricing strategy is -- we're back at historical levels on pricing. We certainly don't control how our competitors price things. But we expect to be at historical levels of pricing. What we know of the environment today, we think we're well positioned. It's contemplated in our guide. And as I mentioned earlier, we don't just run our business in a manner where well if a tariff comes through, and there is some cost increase. First off, we don't just accept that. And then secondly, we find ways to run our business more efficiently because we operate in a competitive environment, competitive marketplace. And as a result, we want to make sure that we're being great fiduciaries for not only our shareholders and our partners, but our customers. So -- so our guide contemplates historical pricing, and that's how we would plan to manage the business.

Okay. That's helpful. And then as a follow-up, I was curious in this environment that you're seeing more competitive wins, particularly from some of your larger competitors that are out there, since it seems like your growth rates are quite elevated versus what we've seen from others.

Yes. So again, thanks for the question. No real change in the marketplace, I'd say, from a competitive landscape, it's been competitive my entire career, and I'm sure we'll be into the future as well. That being said, we don't look at it as a as a finite pie, there's -- we have a little over 1 million business customers. There's 16 million to 17 million businesses in the U.S. and Canada. So we look at it as an opportunity to go and sell more to those customers who are not buying from us today. And then we have this incredible opportunity to sell more products and services to our current customers. So how someone else in our direct competitor might be growing is that's not of interest to us. We're more focused on how can we provide more value to our customers, how can we position our employee partners to be more successful. We want to be easier to do business with. It might be easier for our partners to sell and easier for our partners -- our customers for them to do business with us.

And our next question comes from Ashish Sabadra from RBC.

I just wanted to focus on the 4 strategic verticals, health care, government, education and hospitality. I was wondering if you could just provide any update on those fronts and any big initiative as we go into 2026.

Ashish, thanks for the question. I'll start, and then Jim, feel free to chime in. We're -- we like all our verticals. We think we've chosen them really well. As a reminder, we -- we don't just sell into those verticals. We organize around that. And from a business standpoint to make sure that we can service them appropriately and provide better value. But we think we've chosen them quite well and we expect them all to perform above our average growth rates. Jim, anything specific on verticals you like to call out?

I guess I would just add that by organizing around the verticals, allows us to gain intimate knowledge and really understand the industry as well. Therefore, we're able to collaborate and innovate solutions that we bring to the marketplace that not only allow us to have solid growth within those verticals. But oftentimes, these solutions could expand outside of those verticals. And one we've discussed in the past has been our health care journey and our journey with really would initiate to scrub dispensing, that dispensing ServiceNow is out beyond just health care, and we see lots of applications for that. We've gone in a recent journey in health care to really innovate and change how we go to market for privacy curtains. And we believe that those are indicative in the types of solutions that you're able to bring to marketplace when you get that involved and invested in particular verticals, and we want to continue to do that moving forward.

Ashish, we hear from our customers, as Jim mentioned, when you organize around them and and you spend that much time with them. You hear where they need help, and where they're struggling for whether it's cleanliness or compliance or image or safety. And Jim just walked through the privacy currents, and it's a great example where customers really struggle with that with the compliance which affects cleanliness. And we didn't just roll out privacy curtains. We invested in technology around that and also in improving how they function. And as a result of that, we have patents around that. And we've got a lot of customers that are -- have been really excited and happy about what we're doing there.

That's great color. And maybe just on the follow-up, we've seen some material acceleration in the First Aid business. I was just -- it seems like based on the prepared remarks that it was broad-based across products, but I was just curious if there is incremental traction that you're getting for certain products or just improving penetration? Any color there will be helpful.

Yes. Great question. We love the First Aid business, and it's performing at a very exciting clip. And the value that they provide to the customers is it's reflected. Jim talked a little bit about that we've got some good momentum around certain products and services. AEDs have been in great demand. That's been good. Our WaterBreak, our eye-wash stations, those recurring revenue-type products are really good for us. But our cabinet business is attractive. So it's -- we've invested appropriately there, and we're seeing the benefits of that. That being said, we did benefit from a spike in training during the quarter, which we don't expect to continue at those levels. But nevertheless, we think we're well positioned to be successful in the marketplace in the First Aid business.

And our next question comes from Shlomo Rosenbaum from Stifel, Nicolaus.

I want to piggyback a little on Ashish's question. In that First Aid business, how much of that revenue would you say is more kind of recurring? And how much of that business is usually training and other areas that might be more onetime-ish?

Shlomo, yes, we don't give out the exact percentages as far as revenue that's recurring versus more on consumption. But nevertheless, we are constantly reinvesting in that business to try to come up with products and services that are of real value to the customers. And and we're seeing the benefits there. So that's part of our culture is that reinvestment and we'll continue down that path, and we think, again, we're well positioned to be successful in that market, and the demand is showing. And we expect that, that business will grow in the low double digits moving forward, and we like the spot for there.

And just for the follow-up, could you comment a little on the spike up in uniform sales? Is that -- and usually, I know you expect it to grow in the low single digits. And was there something that will carry forward into the next quarter or 2? Or was it really just kind of a 1 quarter kind of fulfillment of something?

Good question, Shlomo. Yes. In the Uniform Direct Sale business, we do expect that to grow in the low single digits. It was a bumpy year for them, and they had a really strong close, but I would not expect that, that would continue into the fiscal year. We plan for that business to grow in the low single digits. And -- and because of the nature of it with rollouts, it can be a little bit of lumpiness to that, and Q4 was a really strong close to the year.

And our next question comes from Stephanie Moore from Jefferies.

I was hoping you could talk a little bit about some of your end market exposure, if you're seeing any kind of weakness or strength in particular end markets, maybe the manufacturing sector, for example, has been kind of weak across the board here in the U.S., but any areas of weakness or areas of strength that you could call out?

Stephanie, in general, again, we have an incredibly broad customer base, whether it's by business type NAICS code and also geographically, and so no real weakness that we're seeing whatsoever in the marketplace. Certainly, the goods producing customers have been under more pressure in the last few years. The service is providing customers are trying to fulfill demand. So the net-net of it is no real weakness that we're seeing there. We would be encouraged to see more production coming back into the U.S. from the goods-producing sector, and we would -- we're hoping for more certainty as far as what the tax -- or excuse me, what the trade looks like, which will allow business people to invest appropriately, and we are hopeful that, that will come here in the near future.

Got it. And then really just any kind of -- I guess, just one follow-up here. As you think about your M&A opportunity, obviously, you've given some color today on kind of your continued focus on M&A. But are there any areas or that you would look at expanding in M&A outside of kind of the core uniform area?

Yes. Thanks for the question, Stephanie. There -- first off, we were acquisitive in each of our route-based businesses. And that's a key component of our strategy. We love when we make an acquisition, I talked about synergies. I talked about capacity. But it does give us an opportunity to go to those customers with a broader breadth of products and services that will -- that we can help them with. So that's an important function. But yes, we're acquisitive in each of our route-based businesses, and we're always -- various people bring us opportunities outside of those we don't need to. We don't need to go outside of those. The opportunity in our business is significant. The -- as I mentioned, a little over 1 million business customers whether 16 million, 17 million businesses in U.S. and Canada. So the opportunity looking forward is very encouraging, and we're staying disciplined while being aware of opportunities that are out there. But all 3 route-based businesses are -- we're trying to make deals.

And our next question comes from Scott Schneeberger from Oppenheimer.

Todd, I believe you mentioned progress relating to SmartTruck and improved sourcing. Could you please elaborate on that? And then my follow-up, I'll ask upfront for Scott. Just curious, it sounds like we should be expecting 4% of revenue CapEx again in fiscal '26. I'm just curious, digging in, from the one big beautiful act, Bill Act, anything to expect there impacting cash flow in '26 or any other aspects of the business?

Well, thank you for the question, Scott. Yes, as I mentioned, and I think Jim expanded upon it. SmartTruck has been a great investment for us. It's technology that allows us to spend more time with the customer and less time driving. And as we like to say around here, we don't generate any revenue when the wheels are turning. We only make -- generate revenue when the wheels stop. So -- and that technology has allowed us to improve upon that. Jim mentioned that we're adding routes at a certainly a slower pace than we're adding revenue. And that speaks to just what I mentioned.

From a sourcing standpoint, we're constantly working on improving sourcing we have seen benefits over the past few years with our centralized purchasing with our First Aid distribution center. But our sourcing organization is they're working overtime right now. And because of the environment with tariffs being uncertain there. And -- but we're encouraged by what they do, how they do it. And again, we think this will give them an opportunity to shine. Scott, if you want to talk a little bit about CapEx and cash flow?

Thanks, Todd. Thanks for the question, Scott. Regarding CapEx, it came in at 4% of revenue in the fiscal year, and we expect to be in that 3.5% to 4% going forward. As we know, I mean, investments can fluctuate from quarter-to-quarter and year-to-year, but we like to be in that 3.5% to 4% range as a percent of sales. I believe your second question was related to the tax bill, and we are not -- based on our -- the strength of our balance sheet and the financials, we're not expecting any material impact from the tax bill on our tax rate, cash flow or the business in general.

And our next question comes from Toni Kaplan from Morgan Stanley.

This is Yehuda Silverman on the line for Toni Kaplan. So just had a quick question about new sales. So typically, what's the main driver for a customer to switch providers? Is there a certain product or area that's more or most attractive to customers?

Yes. Thank you for the question, Yehuda. It's -- there is -- we don't care where the customers start doing business with us. Whether it's uniforms or FS, as Jim spoke about earlier with his example in the prepared remarks, First Aid, Fire, Uniform Direct Sale. We just want to start doing business with them. And then -- and as we do business, we think that, that makes it easier because they're -- they historically have a very good experience. And then it leads to, well, what else can you help us with? And when you have eyes and ears and minds in your customer's place of business on a frequent basis. It breeds confidence and it breeds the opportunity as they look out and say, what else can we help you with? Jim mentioned a little bit about it really varies based upon where we get started, but also the impetus for our customer to switch because of the white space out there where there's so many businesses that are self-serve, that's where we really focus our time and they're all spending money to some degree on items, meaning they're all where their people are wearing clothes, their people are getting they're getting disposables from somewhere. It might be an e-commerce or it might be a brick-and-mortar retail store. So it really doesn't -- it varies based upon where the customer is, what -- where their business is at that point, they may be dealing with an environment where they don't have as many people, but the work still needs to be done, or they're struggling to keep up with demand. And you can help me with this, take this off my plate, be happy for you to do that. Jim, anything else you'd like to add there?

The only thing I would say is the new business wins converting from a traditional competitor over to us, they happen for a variety of different reasons, and we believe we have a lot of differentiators from the product line to the servers, to the technology offerings by the customers. But just as a -- maybe a level setting is that about 2/3 of our new business comes from what we call no programmers or really that, as Todd described, to do it yourself or the folks that are purchasing from some retail or e-commerce type solution. And that's where we focus a lot of our time and that's where we have the most success, that's been a strategy for years and will continue to be a strategy and we know that, that resonates well in the market.

And our next question comes from Kartik Mehta from Northcoast Research.

Todd, maybe on the First Aid business, and I know that you're able to get pricing on the Uniform side just because of the service level you're providing. And I'm wondering, as you look at the First Aid business and that double-digit growth, what component is price? And what's your ability to get price increases?

Great question. The First Aid business is from a pricing strategy is the same as what -- how we run our other businesses, and they're back to historical levels. And so the vast majority of our growth in that business is volume growth. We're not growing our business because of -- or any of our businesses because of pricing being the major strategy. We're growing it because we're providing more value, more products, services to customers. So that volume is growing. That's the same in each of our businesses. And that's an important component of our strategy. So yes, can we get some price? Yes, but it's at historical levels, and we're excited about the value that we're providing to customers in the First Aid, but all of our businesses.

And just a follow-up, a different topic. Just use of AI kind of where you are in Cintas more from, is it today more of a cost? Is it a benefit? Or is it neutral?

Great question, Kartik. I appreciate that. We've been investing in technology for for years. And we will be doing so, I'm sure in perpetuity. And I'll start with our investment and our -- what I call our rock-solid foundation of SAP. And then moving on to -- then we started investing in data analytics once we had that ability of accessing the data. And then the algorithms and now machine learning and artificial intelligence, which is certainly in the early innings for us, but we see opportunity there. So yes, we're making investments, and we're doing so because we think we're excited about where we think we can pick this technology. And for it to be easier for our employee partners to do their job and make it easier for customers to do business with us. An example of that is when we talked about with SmartTruck technology, that's not artificial intelligence, but it is certainly -- that has been important to us. And the learnings that we've had there, we're making it better and better. Garment sharing applications, as Jim mentioned, similar. We're getting efficiencies out of our most critical assets. And all this makes it for our employee partners to be more successful and productive and to take administrative time out of their day. We also see opportunities with technology and machine learning to direct them where to spend their time. So we think that's important. All this will show up, Kartik, in, I'll say, incremental improvements over many years, but important investments for us to make so that we can get those incremental investments and benefits for many years to come. .

Great. And we have run out of time for our question-and-answer session. So I will turn the call back over to Jared for closing remarks.

Thank you, Ross, and thank you for joining us this morning. We will issue our first quarter of fiscal 2026 financial results in September. We look forward to speaking with you again at that time. Thank you.

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