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 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.

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 nine months ended June 28, 2024 and June 30, 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

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.

Current wording

The Combined Financial Statements for the three and nine months ended and as of June 30, 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

Consolidated revenue of $705.4 million increased $6.1 million, or 0.9%, for the three months ended March 29, 2024 compared to the three months ended March 31, 2023. This increase was muted by 1.9% due to the non-recurrence of prior year temporary energy fees of $13.4 million enacted to offset the effect of inflationary pressure on energy costs. Revenue increased $55.3 million, or approximately 7.9%, from new customer sales and cross-selling activities to current customers and $29.3 million, or approximately 4.2%, from pricing actions. These increases were partially offset by $2.1 million of lower year-over-year direct sales and $63.0 million of prior year sales associated with lost customers, of which roughly 65% were from customers who ceased doing business with us during fiscal 2023. In fiscal 2023, customer retention was 90.4%. Retention is equal to lost annualized recurring revenue for the period reported divided by total company annualized recurring revenue for the trailing 52 weeks. This metric takes the full annualized impact of a lost customer in the period it is reported. Retention is a leading indicator, in that the financial impact from the lost business will be realized over the 12 months after the billings cease for the lost customer. Following actions to mitigate lost business, retention rate trends are improving. Retention in the three month period ended March 29, 2024, was 93.2%. There was a negligible impact to revenue growth from the change in foreign currency rates year-over-year.

Current wording

Consolidated revenue of $698.2 million decreased $11.1 million, or 1.6%, for the three months ended June 28, 2024 compared to the three months ended June 30, 2023. Revenue decreased $2.9 million from lower year-over-year direct sales and $65.5 million from prior year sales associated with lost customers, of which roughly 56.5% were from customers who ceased doing business with us during fiscal 2023. In fiscal 2023, customer retention 1 was 90.4%. Customer retention for the three month period ended June 28, 2024, was 91.7%. The decreases were partially offset by $54.6 million of new customer sales and cross-selling activities to current customers and by $3.9 million from pricing actions. There was a negligible impact to revenue from the change in foreign currency rates year-over-year.

Previous wording

Cost of services provided increased $11.2 million, or 1.1%, for the six months ended March 29, 2024 compared to the six months ended March 31, 2023 primarily due to an increase in labor costs of $11.4 million partially offset by lower energy costs linked primarily to lower energy rates, as well as productivity savings from route optimization efforts.

Current wording

Cost of services provided increased $11.2 million, or 2.3%, for the three months ended June 28, 2024 compared to the three months ended June 30, 2023 primarily due to an increase in labor costs of $9.2 million and merchandise in service costs of $1.0 million.

Previous 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.

Current wording

Selling, general and administrative expenses ("SG&A")increased $5.8 million, or 4.7%, for the three months ended June 28, 2024 compared to the three months ended June 30, 2023. The increase in SG&A was primarily due to approximately $6.5 million of incremental public company costs. The increases were partially offset by savings from organization optimization efforts executed during the last twelve months.

Previous wording

Operating income of $43.1 million decreased 12.8% for the three months ended March 29, 2024 compared to the three months ended March 31, 2023 from the impact of changes in revenue and costs noted above.

Current wording

Operating income of $37.5 million decreased 43.5% for the three months ended June 28, 2024 compared to the three months ended June 30, 2023 from the impact of changes in revenue and costs noted above.

Previous wording

Interest expense and other, net, increased $65.8 million for the six months ended March 29, 2024 compared to the six 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 six months ended March 31, 2023. Interest expense for the six 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.

Current wording

Interest expense and other, net, increased $29.3 million for the three months ended June 28, 2024 compared to the three months ended June 30, 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 June 30, 2023.

Previous 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.

Current wording

The provision for income taxes for the three months ended June 28, 2024 was recorded at an effective rate of 38.1% compared to an effective rate of 26.3% for the three months ended June 30, 2023. The higher effective tax rate was primarily due to non-deductible executive compensation and the impact of tax adjustments on the lower year-over-year earnings.

Previous 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.

Current wording

Net income of $5.0 million for the three months ended June 28, 2024 represented adecrease of $43.8 million or 89.7% compared to the three months ended June 30, 2023 from the impact of changes to revenue, operating costs and net interest expense noted above.

Previous wording

The following table presents an overview of our results with the amount of and percentage change between periods for the six months ended March 29, 2024 and March 31, 2023 (dollars in thousands).

Current wording

The following table presents an overview of our results with the amount of and percentage change between periods for the nine months ended June 28, 2024 and June 30, 2023 (dollars in thousands).

Previous wording

Consolidated revenue of $1,423.3 million increased $23.3 million, or 1.7%, for the six months ended March 29, 2024 compared to the six months ended March 31, 2023. This increase was muted by 1.9% due to the non-recurrence of prior year temporary energy fees of $26.7 million enacted to offset the effect of inflationary pressure on energy costs. Revenue increased $114 million, or approximately 8.1%, from new customer sales and cross-selling activities to current customers and $67.6 million, or approximately 4.8%, from pricing actions. These increases were partially offset by $4 million of lower year-over-year direct sales and $128 million of prior year sales associated with lost customers, of which roughly 77.0% were customers who ceased doing business with us during fiscal 2023. There was a negligible impact to revenue growth from the change in foreign currency rates year-over-year.

Current wording

Consolidated revenue of $2,121.5 million increased $12.2 million, or 0.6%, for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023. This increase was muted by 1.2% due to the non-recurrence of prior year temporary energy fees of $26.2 million enacted to offset the effect of inflationary pressure on energy costs. Revenue increased $168.5 million, or approximately 8.0%, from new customer sales and cross-selling activities to current customers and $71.5 million, or approximately 3.4%, from pricing actions. These increases were partially offset by $6.9 million of lower year-over-year direct sales and $193.5 million of prior year sales associated with lost customers, of which roughly 70.3% were from customers who ceased doing business with us during fiscal 2023. There was a negligible impact to revenue growth from the change in foreign currency rates year-over-year.

Previous 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.

Current wording

Cost of services provided increased $22.4 million, or 1.5%, for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023 primarily due to anincrease in labor costs of $20.6 millionand merchandise in service costs of $4.8 million partially offset by lower energy costs linked primarily to lower energy rates, as well as productivity savings from route optimization efforts.

Previous wording

Operating income of $90.7 million decreased 3.3% for the six months ended March 29, 2024 compared to the six months ended March 31, 2023 from the impact of changes in revenue and costs noted above.

Current wording

Operating income of $128.2 million decreased 20.0% for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023 from the impact of changes in revenue and costs noted above.

Previous 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.

Current wording

Interest expense and other, net, increased $95.1 million for the nine months ended June 28, 2024 compared to the nine months ended June 30, 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 nine months ended June 30, 2023. Interest expense for the nine months ended June 28, 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 six months ended March 29, 2024 was recorded at an effective rate of 27.5% compared to an effective rate of 25.3% for the six 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.

Current wording

The provision for income taxes for the nine months ended June 28, 2024 was recorded at an effective rate of 30.1% compared to an effective rate of 25.7% for the nine months ended June 30, 2023. The higher effective tax rate was primarily due to non-deductible executive compensation and the impact of tax adjustments on the lower year-over-year earnings.

Previous wording

Net income of $18.2 million for the six months ended March 29, 2024 represented a decrease of $52.1 million, or 74.1% compared to the six months ended March 31, 2023 from the impact of changes to revenue, operating costs and net interest expense noted above.

Current wording

Net income of $23.3 million for the nine months ended June 28, 2024 represented adecrease of $95.9 million, or 80.5% compared to the nine months ended June 30, 2023 from the impact of changes to revenue, operating costs and net interest expense noted above.

Previous wording

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

Current wording

Results of Operations—United States Results Nine Months Ended June 28, 2024 compared with June 30, 2023

Previous wording

The following table presents an overview of our United States reportable segment results with the amount of and percentage change between periods for the six months ended March 29, 2024 and March 31, 2023 (dollars in thousands).

Current wording

The following table presents an overview of our United States reportable segment results with the amount of and percentage change between periods for thenine months ended June 28, 2024 and June 30, 2023 (dollars in thousands).

Previous wording

United States revenue of $642.1 million increased $5.1 million, or 0.8%, for the three months ended March 29, 2024 compared to the three months ended March 31, 2023. This increase was muted by 2.2% due to the non-recurrence of prior year temporary energy fees of $13.4 million enacted to offset the effect of inflationary pressure on energy costs. Revenue increased approximately $51.2 million, or 8.0%, from new customer sales and cross-selling activities to current customers and approximately $27.7 million, or 4.3%, from pricing actions. These increases were partially offset by approximately $2.1 million of lower year-over-year direct sales and approximately $57.9 million of prior year sales associated with lost customers.

Current wording

United States revenue of $1,932.1 million increased $11.1 million, or 0.6%, for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023. This increase was muted by 1.2% due to the non-recurrence of prior year temporary energy fees of $26.2 million enacted to offset the effect of inflationary pressure on energy costs. Revenue increased approximately $157.2 million from new customer sales and cross-selling activities to current customers and approximately $66.5 million from pricing actions. These increases were partially offset by approximately $6.9 million of lower year-over-year direct sales and approximately $179.5 million of prior year sales associated with lost customers.

Previous wording

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

Current wording

•the growth in revenue during the nine months ended June 28, 2024 as described above;

Previous wording

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

Current wording

•higher cost reductions of $4.0 million within salaries and wages from efficiency actions taken during the previous twelve months; and

Previous wording

•year-over-year energy savings of $5.5 million primarily driven by lower rates, as well as our route optimization efforts;

Current wording

•year-over-year energy savings of $9.7 million primarily driven by lower rates, as well as our route optimization efforts.

Previous wording

Results of Operations—Canada Results Six Months Ended March 29, 2024 compared with March 31, 2023

Current wording

Results of Operations—Canada Results Nine Months Ended June 28, 2024 compared with June 30, 2023

Previous wording

The following table presents an overview of our Canada reportable segment results with the amount of and percentage change between periods for the six months ended March 29, 2024 and March 31, 2023 (dollars in thousands).

Current wording

The following table presents an overview of our Canada reportable segment results with the amount of and percentage change between periods for thenine months ended June 28, 2024 and June 30, 2023 (dollars in thousands).

Previous wording

Canada revenue of $128.0 million increased $2.7 million, or 2.1%, for the six months ended March 29, 2024 compared to the six months ended March 31, 2023. Revenue increased $9.8 million, or approximately 7.8%, from new customer sales and cross-selling activities to current customers and $3.1 million, or approximately 2.5%, from pricing actions. These increases were partially offset by the loss of $10.3 million of prior year sales associated with lost customers. The change in sales resulting from the year-over-year fluctuation in foreign exchange rates was immaterial.

Current wording

Canada revenue of $189.4 million increased $1.1 million, or 0.6%, for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023. Revenue increased $11.3 million from new customer sales and cross-selling activities to current customers and $5.0 million from pricing actions. These increases were partially offset by the loss of $14.0 million of prior year sales associated with lost customers. The change in sales resulting from the year-over-year fluctuation in foreign exchange rates was immaterial.

Previous wording

•year-over-year energy savings of $7.8 million primarily driven by lower rates, as well as our route optimization efforts;

Current wording

•year-over-year energy savings of $0.4 million primarily driven by lower rates, as well as our route optimization efforts.

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 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.

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 nine months ended and as of June 30, 2023. After the Separation, our cash and cash equivalents are held and used solely for our own operations and commitments.

Previous 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.

Current wording

As of June 28, 2024, we had approximately $29.1 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 June 28, 2024, we had $1,420.5 million of total principal debt compared to $1,500.0 million as of September 29, 2023.

Previous 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:

Current wording

Net cash provided by operating activities was $176.2 million for the nine months ended June 28, 2024 and $143.9 million for the nine months ended June 30, 2023, respectively. The change was driven by cash inflows from operating assets and liabilities of $37.3 million for the nine months ended June 28, 2024 compared to cash outflows of $97.8 million for the nine months ended June 30, 2023, partially offset by net income for the nine months ended June 28, 2024 of $23.3 million compared to net income for the nine months ended June 30, 2023 of $119.2 million, as discussed in "Results of Operations" above. The change in cash from operating assets and liabilities of $135.1 million, which was primarily due to:

Previous 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

Current wording

•Increase in operating cash flows for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023 due to a greater source of cash from accrued expenses of $72.1 million primarily due to the timing of other payments;

Previous 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;

Current wording

•Increase in operating cash flows for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023 due to the lower use of cash for inventories of $46.3 million; and

Previous 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:

Current wording

•Increase in operating cash flows for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023 due to a greater source of cash from accounts payable of $36.6 million primarily due to the lower use of cash for inventory purchases; partially offset by:

Previous 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 non-current liabilities of $11.5 million primarily due to the timing of disbursements;

Current wording

•decrease in operating cash flows for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023 due to a lower source of cash from non-current liabilities of $15.5 million primarily due to the timing of disbursements;

Previous 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;

Current wording

•decrease in operating cash flows for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023 due to a lower source of cash from other current assets of $8.6 million primarily due to increased cash outflows for prepaid assets;

Previous 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 the higher use of cash for other assets of $4.4 million.

Current wording

•decrease in operating cash flows for the nine months ended June 28, 2024 compared to the nine months ended June 30, 2023 due to the higher use of cash for other assets of $4.1 million.

Previous 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.

Current wording

Net cash used in investing activities of $50.8 million for the nine months ended June 28, 2024 was $9.2 million higher relative to the nine months ended June 30, 2023 primarily due to lower proceeds from disposals of property and equipment for the nine months ended June 28, 2024.

Previous wording

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

Current wording

During the nine months ended June 28, 2024, cash used in financing activities was impacted by the following:

Previous wording

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

Current wording

•payments of long-term borrowings ($879.5 million);

Previous wording

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

Current wording

•payments related to finance leases ($22.6 million);

Previous wording

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

Current wording

During the nine months ended June 30, 2023, cash used in financing activities was impacted by the following: