Yahoo Finance Vestis Corp (VSTS) Q2 2024 Earnings Call Transcript Highlights: Navigating Challenges and ...
Revenue Growth: 0.9% increase year-over-year, 2.8% normalized for last year's temporary energy fee.
Adjusted EBITDA Margin: 12.4%, down 90 basis points from the previous year.
Free Cash Flow: $63 million in the second quarter, with cash conversion exceeding 100% of net income.
Net Debt-to-EBITDA Ratio: Ended the quarter at 3.82x.
Customer Retention: Trending upward, returning to historical norms with improved customer satisfaction scores.
New Business Wins: Contributed 700 basis points to revenue growth, but below expected levels.
Pricing Impact: Contributed 4% to top line growth, with moderated actions affecting revenue and EBITDA in the second half.
Operational Efficiencies: 22 optimization events completed in the first half of the year, driving improvements in logistics and fuel consumption.
Full Year Outlook: Revenue expected to be down 1% to flat, with adjusted EBITDA margin between 12% and 12.4%.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Vestis Corp reported a 0.9% year-over-year increase in revenue, with underlying revenue growth of 2.8% when normalized for last year's temporary energy fee.
The company achieved a strong free cash flow, demonstrating effective cost management and working capital improvements.
Vestis Corp delivered 700 basis points of revenue growth from new business wins in FY '24 year-to-date, despite not meeting planned levels.
Customer retention trends are improving, with the company reporting a return to historical norms and a 12-month high in customer satisfaction scores.
Operational efficiencies are being realized, particularly in logistics, with 22 optimization events completed in the first half of the year versus 23 for the full year in FY '23.
Negative Points
Adjusted EBITDA margin decreased by 90 basis points year-over-year to 12.4%, including the absorption of incremental public company costs.
Lower than expected revenue growth impacted performance, with the company revising its full-year outlook to between negative 1% to flat year-over-year growth.
Challenges in sales productivity and moderated pricing actions are expected to negatively impact revenue and EBITDA in the second half of the year.
The company is experiencing service gaps that have led to customer dissatisfaction and cancellations, prompting a need to enhance service processes.
Vestis Corp is facing a need to improve sales team performance, with current revenue per sales teammate not ramping up as required.
Q & A Highlights
Q: Kim, could you explain to us what the service gaps are just from a practical perspective that are resulting in the decision to moderate the pricing? A: Kimberly T. Scott - Vestis Corporation - President, CEO & Director: The service gaps primarily relate to on-time delivery and shortages on loads. We've implemented telematics across our fleet to improve delivery accuracy and timing. These improvements are expected to enhance service by FY '25.
Q: What does it mean that you're not executing as expected on new wins? A: Kimberly T. Scott - Vestis Corporation - President, CEO & Director: It relates to the volume of new business, which has not ramped up as expected. We are focusing on improving the close rate and the revenue per deal closed to address this issue.
Q: Can you discuss the price elasticity of your client base and the recent pivot from a planned price increase to a price decrease? A: Ricky T. Dillon - Vestis Corporation - Executive VP & CFO: The decision to moderate pricing was made to focus on retention and service efficacy. Improving service can reduce price sensitivity, allowing us to return to normal pricing environments in the future.
Q: Could you provide more detail on the factors contributing to the flat to down revenue outlook for the second half of the year? A: Ricky T. Dillon - Vestis Corporation - Executive VP & CFO: The revenue outlook is influenced by the full impact of known customer losses from FY '23, the seasonality of direct sales, and a strategic decision to moderate pricing to improve service and customer retention.
Q: Regarding the service quality issues like the perfect load, are these operational issues new or longstanding? A: Kimberly T. Scott - Vestis Corporation - President, CEO & Director: These service issues have been longstanding and are not related to recent operational changes. We are implementing new processes and tools, like telematics, to address these issues effectively.
Q: Given the significant changes in tone and strategy over the last 90 days, how can we be confident in the revised guidance and operational control? A: Kimberly T. Scott - Vestis Corporation - President, CEO & Director: We are confident in our strategy and the long-term value creation at Vestis. The focus is on improving service processes to enhance customer retention, which is central to our business model.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
