Vestis Corp

Previous wording

The following discussion and analysis of Vestis Corporation’s (“Vestis”, the “Company”, “our”, “we” or “us”) financial condition and results of operations for the three months ended December 29, 2023 and December 30, 2022 should be read in conjunction with our audited Combined Financial Statements and the notes to those statements for the fiscal year ended September 29, 2023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC") on December 21, 2023.

Current wording

The following discussion and analysis of Vestis Corporation’s (“Vestis”, the “Company”, “our”, “we” or “us”) financial condition and results of operations for the three and six months ended March 29, 2024 and March 31, 2023 should be read in conjunction with our audited Combined Financial Statements and the notes to those statements for the fiscal year ended September 29, 2023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC") on December 21, 2023.

Previous wording

We are a leading provider of uniforms and workplace supplies across the United States and Canada. We provide a full range of uniform programs, managed restroom supply services, first aid supplies and safety products, as well as ancillary items such as floor mats, towels, and linens across the United States and Canada. We compete with national, regional, and local providers who vary in size, scale, capabilities and product and service offering. Primary methods of competition include product quality, service quality and price. Notable competitors of size include Cintas Corporation and UniFirst Corporation, as well as numerous regional and local competitors. Additionally, many businesses perform certain aspects of our product and service offerings in-house rather than outsourcing them and leveraging the benefits of full-service programs.

Current wording

We are a leading provider of uniforms and workplace supplies across the United States and Canada. We provide a full range of uniform programs, managed restroom supply services, first aid supplies and safety products, as well as ancillary items such as floor mats, towels, and linens across the United States and Canada. We compete with national, regional, and local providers who vary in size, scale, capabilities and product and service offering. Primary methods of competition include product quality, service quality and price. Notable competitors of size include Cintas Corporation and UniFirst Corporation, as well as numerous regional and local competitors. Additionally, many businesses perform certain aspects of our product and service offerings in-house rather than outsourcing them to a third party and leveraging the benefits of full-service programs.

Previous wording

The Combined Financial Statements for the three months ending and as of December 30, 2022 have been derived from Aramark’s historical accounting records and were prepared on a standalone basis in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC. The assets, liabilities, revenue, and expenses of Vestis have been reflected in these Combined Financial Statements on a historical cost basis, as included in the consolidated financial statements of Aramark, using the historical accounting policies applied by Aramark. Historically, separate financial statements have not been prepared for Vestis as it previously did not operate as a standalone business from Aramark prior to the Separation. The historical results of operations, financial position and cash flows of Vestis presented in the Combined Financial Statements may not be indicative of what they would have been had we been an independent standalone public company, nor are they necessarily indicative of our future results of operations, financial position, and cash flows.

Current wording

The Combined Financial Statements for the three and six months ended and as of March 31, 2023 have been derived from Aramark’s historical accounting records and were prepared on a standalone basis in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC. The assets, liabilities, revenue, and expenses of Vestis have been reflected in these Combined Financial Statements on a historical cost basis, as included in the consolidated financial statements of Aramark, using the historical accounting policies applied by Aramark. Historically, separate financial statements have not been prepared for Vestis as it previously did not operate as a standalone business from Aramark prior to the Separation. The historical results of operations, financial position and cash flows of Vestis presented in the Combined Financial Statements may not be indicative of what they would have been had we been an independent standalone public company, nor are they necessarily indicative of our future results of operations, financial position, and cash flows.

Previous wording

Recent global events, including ongoing geopolitical events, have adversely affected global economies, disrupted global supply chains and labor force participation, and created significant volatility and disruption of financial markets. While we do not have direct operations in Russia and Ukraine or in Israel, conflicts in those regions further disrupted global supply chains and heightened volatility and disruption of global financial markets. The ongoing volatility and disruption of financial markets caused by these global events, as well as other current global economic factors, triggered inflation in labor and energy costs and has driven significant changes in foreign currencies. The impact on our longer-term operational and financial performance will depend on future developments, including our response and governmental response to inflation, the duration and severity of the ongoing volatility and disruption of global financial markets and our ability to effectively hire and retain personnel. Some of these future developments are outside of our control and are highly uncertain.

Current wording

Global events, including ongoing geopolitical events, have adversely affected global economies, disrupted global supply chains and labor force participation, and created significant volatility and disruption of financial markets. While we do not have direct operations in Russia and Ukraine or in Israel, conflicts in those regions further disrupted global supply chains and heightened volatility and disruption of global financial markets. The ongoing volatility and disruption of financial markets caused by these global events, as well as other current global economic factors, triggered inflation in labor and energy costs and has driven significant changes in foreign currencies. The impact on our longer-term operational and financial performance will depend on future developments, including our response and governmental response to inflation, the duration and severity of the ongoing volatility and disruption of global financial markets and our ability to effectively hire and retain personnel. Some of these future developments are outside of our control and are highly uncertain.

Previous wording

Cost of services provided increased 1.3% for the three months ended December 29, 2023 compared to the three months ended December 30, 2022 primarily due to an increase in labor costs of $4.9 million and higher merchandise costs, partially offset by lower energy costs.

Current wording

Cost of services provided increased $5.0 million, or 1.0%, for the three months ended March 29, 2024 compared to the three months ended March 31, 2023 primarily due to an increase in labor costs of $6.5 million partially offset by lower energy costs linked primarily to lower energy rates, as well as productivity savings from route optimization efforts.

Previous wording

Selling, general and administrative expenses ("SG&A") increased 5.0% for the three months ended December 29, 2023 compared to the three months ended December 30, 2022. The increase in SG&A was primarily due to approximately $3 million of incremental public company costs, $5.5 million of incremental one-time separation costs, and a favorable adjustment to bad debt expense of $5.2 million in the prior year quarter that did not reoccur during the current quarter, partially offset by $6.6 million of cost reductions within salaries and wages from prior year actions.

Current wording

Selling, general and administrative expenses ("SG&A") increased $5.9 million, or 5.0%, for the three months ended March 29, 2024 compared to the three months ended March 31, 2023. The increase in SG&A was primarily due to approximately $4.0 million of incremental public company and one-time separation costs. The unfavorable year-over-year impact from merit based salary increases was offset by savings from organization optimization efforts executed during the last twelve months.

Previous wording

Interest Expense and Other, net, increased $31.0 million for the three months ended December 29, 2023 compared to the three months ended December 30, 2022 primarily driven by interest expense related to our term loan debt issued on September 29, 2023 that was not outstanding during the three months ended December 30, 2022.

Current wording

Interest expense and other, net, increased $34.9 million for the three months ended March 29, 2024 compared to the three months ended March 31, 2023 primarily driven by interest expense related to our term loan debt issued on September 29, 2023, and subsequently partially refinanced on February 22, 2024, that was not outstanding during the three months ended March 31, 2023. Interest expense for the three months ended March 29, 2024 includeda$3.9 million non-cash loss for the write-off of unamortized debt issuance costs associated with the extinguishment of our $800 million Term Loan A-1.

Previous wording

The provision for income taxes for the three months ended December 29, 2023 was recorded at an effective rate of 27.1% compared to an effective rate of 24.9% for the three months ended December 30, 2022. The higher effective tax rate was primarily due to non-deductible executive compensation and the income tax rate on international operations.

Current wording

The provision for income taxes for the three months ended March 29, 2024 was recorded at an effective rate of 28.5% compared to an effective rate of 25.6% for the three months ended March 31, 2023. The higher effective tax rate was primarily due to non-deductible executive compensation and the income tax rate on international operations.

Previous wording

Net income of $12.3 million for the three months ended December 29, 2023 represented a decrease of $21.2 million, or 63.4% compared to the three months ended December 30, 2022.

Current wording

Net income of $6.0 million for the three months ended March 29, 2024 represented a decrease of $30.9 million or 83.8% compared to the three months ended March 31, 2023 from the impact of changes to revenue, operating costs and net interest expense noted above.

Previous wording

Results of Operations—United States Results

Current wording

Results of Operations—United States Results Three Months Ended March 29, 2024 compared with March 31, 2023

Previous wording

Operating income of $47.6 million increased 7.3% for the three months ended December 29, 2023 compared to the three months ended December 30, 2022 driven by the growth in revenue offset by higher costs of services provided and selling, general and administrative expenses as noted above.

Current wording

•the growth in revenue during the three months ended March 29, 2024 as described above;

Previous wording

•an approximate $5.5 million of cost reductions within salaries and wages from prior year actions;

Current wording

•cost reductions of $5.5 million within salaries and wages from efficiency actions taken during the previous twelve months; and

Previous wording

Segment operating income margin improved approximately 130 basis points from 10.0% for the three months ended December 30, 2022 to approximately 11.3% for the three months ended December 29, 2023.

Current wording

Segment operating income margin improved approximately 40 basis points from 10.7% for the three months ended March 31, 2023 to approximately 11.1% for the three months ended March 29, 2024.

Previous wording

Segment operating income margin decreased approximately 150 basis points from 8.5% for the three months ended December 30, 2022 to 7.0% for the three months ended December 29, 2023.

Current wording

Segment operating income margin decreased approximately 100 basis points from 2.5% for the three months ended March 31, 2023, to approximately 1.5% for the three months ended March 29, 2024.

Previous wording

Historically, our business generated positive cash flows from operations. Prior to the Separation, cash flows within our United States operations were transferred to Aramark regularly as part of Aramark’s centralized cash management program. This arrangement was used to manage liquidity of Aramark and fund the operations of our business as needed. This arrangement is not indicative of how we would have funded our operations had we been a standalone company separate from Aramark prior to the Separation. Cash transferred to and from Aramark’s cash management accounts are reflected within net parent investment as a component of Aramark’s equity for the three months ended and as of December 30, 2022. After the Separation, our cash and cash equivalents are held and used solely for our own operations and commitments.

Current wording

Historically, our business generated positive cash flows from operations. Prior to the Separation, cash flows within our United States operations were transferred to Aramark regularly as part of Aramark’s centralized cash management program. This arrangement was used to manage liquidity of Aramark and fund the operations of our business as needed. This arrangement is not indicative of how we would have funded our operations had we been a standalone company separate from Aramark prior to the Separation. Cash transferred to and from Aramark’s cash management accounts are reflected within net parent investment as a component of Aramark’s equity for the three and six months ended and as of March 31, 2023. After the Separation, our cash and cash equivalents are held and used solely for our own operations and commitments.

Previous wording

As of December 29, 2023, we had approximately $48.9 million of cash and cash equivalents and$294.7 million of availability for borrowing under our Revolving Credit Facility. As part of our capital structure, we have incurred debt. The servicing of this debt will be supported by cash flows from our operations. As of December 29, 2023, we had $1,491.3 million of total principal debt compared to $1,500.0 million as of September 29, 2023.

Current wording

As of March 29, 2024, we had approximately $30.7 million of cash and cash equivalents and$294.7 million of availability for borrowing under our Revolving Credit Facility. The servicing of this debt will be supported by cash flows from our operations. As of March 29, 2024, we had $1,437.5 million of total principal debt compared to $1,500.0 million as of September 29, 2023.

Previous wording

On November 29, 2023 the Company announced that its Board of Directors declared a quarterly cash dividend of $0.035 per common share payable on January 4, 2024 to shareholders of record at the close of business on

Current wording

On February 20, 2024, we announced that our Board of Directors declared a quarterly cash dividend of $0.035 per common share payable on April 4, 2024 to shareholders of record at the close of business on March 15, 2024. The total dividend payable amount was $4.6 million. The amount and timing of any future dividend payment is subject to the approval of our Board of Directors.

Previous wording

Net cash provided by operating activities was $51.5 million for the three months ended December 29, 2023 and $8.0 million for the three months ended December 30, 2022, respectively. The change was driven by net income for the three months ended December 29, 2023 of $12.3 million compared to net income for the three months ended December 30, 2022 of $33.5 million, as discussed in "Results of Operations" above, and non-cash adjustments of $37.5 million to net income for the three months ended December 29, 2023 compared to $43.7 million for the three months ended December 30, 2022. The change in net income inclusive of non-cash adjustments was offset by the change in cash from operating assets and liabilities of $70.9 million, which was primarily due to:

Current wording

Net cash provided by operating activities was $127.5 million for the six months ended March 29, 2024 and $68.8 million for the six months ended March 31, 2023, respectively. The change was driven by cash inflows from operating assets and liabilities of $29.3 million for the six months ended March 29, 2024 compared to cash outflows of $85.5 million for the six months ended March 31, 2023, partially offset by net income for the six months ended March 29, 2024 of $18.2 million compared to net income for the six months ended March 31, 2023 of $70.3 million, as discussed in "Results of Operations" above. The change in cash from operating assets and liabilities of $114.8 million, which was primarily due to:

Previous wording

•Increase in operating cash flows for the three months ended December 29, 2023 compared to the three months ended December 30, 2022 due to the lower use of cash for inventories of $43.4 million and of rental merchandise in service of $3.7 million;

Current wording

•Increase in operating cash flows for the six months ended March 29, 2024 compared to the six months ended March 31, 2023 due to the lower use of cash for inventories of $63.8 million;

Previous wording

•Increase in operating cash flows for the three months ended December 29, 2023 compared to the three months ended December 30, 2022 due to a greater source of cash from accrued expenses of $44.7 million primarily due to the timing of other payments; partially offset by:

Current wording

•Increase in operating cash flows for the six months ended March 29, 2024 compared to the six months ended March 31, 2023 due to a greater source of cash from accrued expenses of $51.7 million primarily due to the timing of other payments; and

Previous wording

•Decrease in operating cash flows for the three months ended December 29, 2023 compared to the three months ended December 30, 2022 due to a lower source of cash from noncurrent liabilities of $7.4 million and from accounts payable of $6.8 million primarily due to the timing of disbursements.

Current wording

•Increase in operating cash flows for the six months ended March 29, 2024 compared to the six months ended March 31, 2023 due to a greater source of cash from accounts payable of $25.8 million primarily due to the lower use of cash for inventory purchases; partially offset by:

Previous wording

•Decrease in operating cash flows for the three months ended December 29, 2023 compared to the three months ended December 30, 2022 due to a lower source of cash from other current assets of $12.4 million primarily due to increased cash outflows for prepaid assets;

Current wording

•Decrease in operating cash flows for the six months ended March 29, 2024 compared to the six months ended March 31, 2023 due to a lower source of cash from other current assets of $12.6 million primarily due to increased cash outflows for prepaid assets;

Previous wording

•Increase in operating cash flows for the three months ended December 29, 2023 compared to the three months ended December 30, 2022 due to a greater source of cash from accounts receivable of $5.5 million primarily due to the strong business recovery from COVID-19 for the three months ended December 30, 2022 which led to a higher increase in accounts receivable; partially offset by:

Current wording

•Decrease in operating cash flows for the six months ended March 29, 2024 compared to the six months ended March 31, 2023 due to a lower source of cash from accounts receivable of $2.7 million primarily due to the timing of cash receipts; and

Previous wording

Net cash used in investing activities of $16.9 million for the three months ended December 29, 2023 was $4.0 million higher relative to the three months ended December 30, 2022 primarily due to higher purchases of property and equipment for the three months ended December 29, 2023.

Current wording

Net cash used in investing activities of $29.8 million for the six months ended March 29, 2024 was $8.1 million higher relative to the six months ended March 31, 2023 primarily due to lower proceeds from disposals of property and equipment for the six months ended March 29, 2024.

Previous wording

During the three months ended December 29, 2023, cash used in financing activities was impacted by the following:

Current wording

During the six months ended March 29, 2024, cash used in financing activities was impacted by the following:

Previous wording

•payments of long-term borrowings ($8.8 million);

Current wording

•payments of long-term borrowings ($862.5 million);

Previous wording

•payments related to finance leases ($7.6 million);

Current wording

•payments related to finance leases ($15.1 million);

Previous wording

During the three months ended December 30, 2022, cash used in financing activities was impacted by the following:

Current wording

During the six months ended March 31, 2023, cash used in financing activities was impacted by the following:

Previous wording

•payments related to finance leases ($6.9 million); and

Current wording

•payments related to finance leases ($13.9 million).

Previous wording

The Company and certain of its subsidiaries entered into a credit agreement on September 29, 2023 (the "Credit Agreement") that contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to: incur additional indebtedness; issue preferred stock or provide guarantees; create liens on assets; engage in mergers or consolidations; sell or dispose of assets; pay dividends, make distributions or repurchase our capital stock; engage in certain transactions with affiliates; make investments, loans or advances; create restrictions on the payment of dividends or other amounts to the Company from its restricted subsidiaries; amend material agreements governing our subordinated debt; repay or repurchase any subordinated debt, except as scheduled or at maturity; make certain acquisitions; change our fiscal year; and fundamentally change our business. The Credit Agreement contains certain customary affirmative covenants. The Credit Agreement also includes customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, at the option of the lenders, if we fail to comply with the terms of the Credit Agreement or if other customary events occur.

Current wording

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to: incur additional indebtedness; issue preferred stock or provide guarantees; create liens on assets; engage in mergers or consolidations; sell or dispose of assets; pay dividends, make distributions or repurchase our capital stock; engage in certain transactions with affiliates; make investments, loans or advances; create restrictions on the payment of dividends or other amounts to the Company from its restricted subsidiaries; amend material agreements governing our subordinated debt; repay or repurchase any subordinated debt, except as scheduled or at maturity; make certain acquisitions; change our fiscal year; and fundamentally change our business. The Credit Agreement contains certain customary affirmative covenants. The Credit Agreement also includes customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, at the option of the lenders, if we fail to comply with the terms of the Credit Agreement or if other customary events occur.

Previous wording

Our significant accounting policies are described in the notes to the audited Combined Financial Statements included in our Annual Report on form 10-K, filed with the SEC on December 21, 2023. For a more complete discussion of the critical accounting policies and estimates that we have identified in the preparation of our Consolidated and Combined Financial Statements, please refer to our Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, filed with the SEC on December 21, 2023. Management believes that there have been no significant changes during the three months ended December 29, 2023 to the items that we disclosed as our critical accounting policies and estimates in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023.

Current wording

Our significant accounting policies are described in the notes to the audited Combined Financial Statements included in our Annual Report on form 10-K, filed with the SEC on December 21, 2023. For a more complete discussion of the critical accounting policies and estimates that we have identified in the preparation of our Consolidated and Combined Financial Statements, please refer to our Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, filed with the SEC on December 21, 2023. Management believes that there have been no significant changes during the six months ended March 29, 2024 to the items that we disclosed as our critical accounting policies and estimates in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023.