Cintas Stock

Good day, everyone, and welcome to the Cintas Corporation Announces Fiscal 2027 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, and thank you for joining us. With me are Todd Schneider, Chief Executive Officer; James Rozakis, President and Chief Operating Officer; and Scott Garula, Executive Vice President and Chief Financial Officer.

We will discuss our fiscal 2027 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, 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 2027. Our first quarter results reflect the strength of our business model, the execution of our employee partners and the value proposition we provide by helping customers meet their image, safety, cleanliness and compliance needs. First quarter total revenue grew 10.9% to $3.01 billion. This marks the first time we have reached $3 billion of revenue in a quarter. The organic growth rate, which adjusts for the impacts of acquisitions, foreign currency exchange rate fluctuations and Workday differences was 8.9%. We remain encouraged by the consistency of demand we are seeing as businesses continue to see the value of outsourcing to a service provider like Cintas.

Our first quarter performance demonstrates that Cintas is well positioned to help businesses of all sizes improve productivity, reduce complexity and operate more efficiently, whether through our Uniform Rental and Facility Services business, First Aid and Safety Solutions, Fire Protection Services or our Uniform Direct Sale business, our value proposition continues to resonate.

Diluted EPS for the quarter was $1.36, an increase of 13.3% from the prior year. Adjusting for the UniFirst transaction-related expenses, adjusted diluted EPS was $1.39, an increase of 15.8% from the prior year. Drawing on the strength of our performance, we continue to allocate capital in a balanced manner in the first quarter. Our capital expenditures were within our targeted range at 3.6% of sales. We were active in M&A and increased our dividend 15.6% for the shareholders of record as of August 14, 2026. We are pleased to have increased our dividend every year since going public 43 years ago.

In addition, we were opportunistic with our share buybacks, purchasing $545 million through today's date. Our culture remains our greatest competitive advantage. The combination of our strong culture, operational excellence, effective supply chain management, technology investments and focus on customer experience continues to differentiate Cintas in a highly competitive market. Reflecting our strong first quarter performance and confidence in the remainder of the year, we are updating our fiscal 2027 guidance. We are raising fiscal 2027 revenue guidance from a range of $12.10 billion to $12.25 billion to a range of $12.15 billion to $12.27 billion, a total growth rate of 7.9% to 8.9%.

We are also raising our fiscal 2027 adjusted diluted EPS from a range of $5.36 to $5.50 to a range of $5.45 to $5.54, a growth rate of 10.3% to 12.1%.

Before I turn the call over to Jim, I'd like to provide a brief update on our acquisition of UniFirst. First, we remain confident of the substantial long-term value creation for our combined customers, partners and shareholders. We mentioned on our last call that the merger was subject to regulatory clearances in both the U.S. and Canada. That process is ongoing as we continue to work toward obtaining regulatory clearance and completing other closing conditions. We remain optimistic that the deal will close by the end of calendar 2026. In order to avoid creating speculation, we will not be providing any additional commentary on this process. We will update the market going forward as appropriate.

With that, I'll turn it over to Jim to discuss our operating performance in greater detail.

Thank you, Todd. Our employee partners continue to execute at a high level and demonstrate how well our value proposition resonates with customers of all sizes. Our strong top line growth is due to a number of factors, largely contrate around our ability to deliver more value for customers. We are succeeding and tapping into the massive total addressable market as we convert no programmers to a managed solution. In addition, we continue to expand our relationships with existing customers by adding new products and services. And we are maintaining strong customer retention while pricing remains consistent with prior years.

I'm going to provide an example in our rental business of converting a no programmer to a managed rental solution, an owner of a small fitness studio on Florida recently shared on social media, why she chose to partner with Cintas. Her story highlights why our value proposition resonates so strongly with small businesses. As our company expanded, she found ourselves spending more and more time managing restaurant supplies, formats, air fresheners and other facility needs that were essential to maintaining the experience our members expected. She recognized those responsibilities were taking time away from serving our customers, supporting our employees and growing our business. By outsourcing the Cintas, she gained a convenience of a trusted partner. The breadth of our product line addressed our facility needs while enhancing the image, cleanliness and consistency of our studios. Most importantly, it gave for a valuable time back to focus on the core aspects of our operation and what matters most. That's why our value proposition continues to resonate with small businesses, and why they represent such an important part of our addressable market.

Business owners like her are already managing these responsibilities on our own and recognize that partner with Cintas helps them operate more efficiently, elevate the customer experience and focus on growing their business. That value proposition continues to drive strong customer demand across our businesses and was reflected in our performance this quarter.

As Todd mentioned, we had strong organic revenue growth for the company. Organic growth by business was 8% for Uniform Rental and Facility Services, 14.2% for First Aid Safety Services, 9.2% for Fire Protection Services and 9.6% for Uniform Direct sale. Gross margin as a percentage of revenue was 51.5%, an all-time high. Gross margin percentage by business was 50.8% for Uniform Rental Facility Services, 57.6% for First Aid and Safety Services, 52.8% of our Protection Services and 38.9% for Uniform Direct sales.

Gross margin for the Uniform Rental and Facility Services segment increased 110 basis points from last year to achieve an all-time high gross margin of 50.8%. This business continues to benefit from strong revenue growth, which creates leverage. In addition, we continue to see margin expansion as a result of the investments we are making in technology. These technology investments also serve to make it easier for our employee partners to do their job while creating a better customer experience. Our First Day in Safety Services segment gross margin increased 80 basis points from last year. We continue to grow at attractive rates, which is also creating leverage. Businesses throughout the United States and Canada continue to place an imposition of workplace safety, training, compliance and health and wellness solutions. Our Fire Protection Services segment had really strong margins for the quarter. Keep in mind that margins can fluctuate from quarter-to-quarter based on the timing of certain investments and sales mix. Some of those investments include increasing growth capacity by hiring technicians need to perform specialized tasks as well as building out a national footprint. Selling and administrative expenses as a percent of revenue was 27.4%, which was a 10 basis point improvement from last year.

With that, I'll turn it over to Scott.

Thanks, Jim, and good morning, everyone. First quarter operating income was $711.9 million compared to $617.9 million last year, an increase of 15.2%. Excluding the UniFirst transaction-related expenses, operating income increased 17.6% over the prior year. Operating income as a percentage of revenue was at an all-time high at 23.6% in the first quarter of fiscal 2027 compared to 22.7% in last year's first quarter. Keep in mind that there was an extra work day in the first quarter. The impact of the extra Workday on operating margin was a benefit of 50 basis points, which was offset by 50 basis points of UniFirst transaction-related expenses.

Comparing to the prior year operating margin of 22.7%, the adjusted operating margin for the first quarter was 23.6%, a 90 basis point improvement. Our effective tax rate for the first quarter was 20.0% compared to 17.6% 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 $551.7 million compared to $491.1 million last year. This year's first quarter diluted earnings per share was $1.36 compared to $1.20 last year, an increase of 13.3%. Excluding the UniFirst transaction-related expenses, adjusted diluted earnings per share was $1.39 compared to $1.20 last year, an increase of 15.8%.

Cash flow generation was stronger in the quarter and continues to support a balanced approach to capital allocation. We invested $107.5 million in capital expenditures during the quarter, primarily focused on technology, automation, capacity expansion and infrastructure investments that support future growth. We also continue to evaluate strategic acquisition opportunities across our route-based businesses. Returning capital to shareholders remains an important priority. During the quarter, we increased our regular quarterly dividend by 15.6% and up through today made $545 million in share repurchases.

Earlier, Tom provided our updated fiscal 2027 outlook. That outlook assumes the following: Fiscal 2027 has one more workday than fiscal 2026. Keep in mind the first quarter had one extra work day compared to the prior year first quarter. The second quarter will have the same number of workdays year-over-year. The third quarter will have one less workday and the fourth quarter will have one more work day than fiscal 2026. Our guidance does not assume any future acquisitions. Our guidance assumes a constant foreign currency exchange rate. The fiscal 2027 net interest expense is expected to be approximately $103 million, a fiscal 2027 effective tax rate of 20.4% compared to 20.2% in fiscal 2026. The guide does not include the impact of any future share buybacks or significant economic disruptions or downturns and the guide excludes nonrecurring transaction costs related to the UniFirst acquisition.

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

Thank you, Scott. Looking ahead, we remain confident in our strategy and the long-term opportunities available to Cintas. We continue to see significant opportunity in a massive addressable market. The market remains highly competitive, and we believe our value proposition positions us well to help our customers meet their needs of image, safety, cleanliness and compliance. The future of Cintas remains bright, and our employee partners continue to demonstrate by our culture is our greatest competitive advantage. As always, I want to thank our employee partners for their dedication to our customers and Cintas.

I'll now turn it back over to Jared.

Thank you, Todd. That concludes our prepared remarks. Now we are happy to answer questions from the analysts. Please ask just one question and a single follow-up if needed. Thank you. .

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

This is Rene Gagliardo on for Tim Mulrooney. It looks like you raised your revenue guidance a little bit here for the full year. Would you mind walking us through what the primary drivers are behind that?

Rene, this is Todd. I'll start, but we're -- we have many ways to grow. And the most important driver for us is new business. Converting over no programmers has been part of our history and part of our future. This is a key component for us and over 2/3 of our new business comes from no programmers. So that has been significant for us. We certainly have other ways to grow. And when we think about our current customer growth, that has been important to us. and has been steady if nothing else is positive. But our opportunities there, we see as continuing to grow our volume is our #1 focus. And the key inputs that we're seeing have been creating good momentum for us. I think you saw that in our opening guide but you also see that in our updated guidance as well. So Jim, anything you'd like to contribute on that subject?

Yes. Not really, Todd. I think that you summarized it well. We're off to a nice start for the year. We really like how we're positioned it speaks to, again, the size of the market and that there is -- today, we have 1 million customers and 16 million to 20 million businesses. It also speaks to the value proposition that we have and our ability to continue to convert new programmers over to a managed solution like the commentary or like the example that I provided in our prepared remarks, our cross-sell efforts continue to go very well. And I think it's important to note that the vast majority of our growth and the momentum we have is in volume growth, which is more new customers, better retention rates, increasing our cross-sell. So a little bit of improvement on all those, and that's really what's impacting the guide. So we are really pleased with the start of the fiscal year.

And one follow-up on that, specifically around the Uniform Rental space, looks like organic growth stepped up quite a bit in the first quarter versus the fourth. Was there anything notable behind that improvement specifically, be it new account sales or retention? Or is that result more or less in line with your internal forecast for the quarter?

Yes. Thank you, Rene, this is Jim. I'll start on that one. I think that if you unpack the rental division growth. We really have four key inputs that we speak about for organic growth of rental pricing being one of those, being probably the least important of the four and pricing was consistent with prior year. So really no change there. The other three being new business, which, once again, 2/3 of that new business comes from that new program or space, new business being the most substantial growth driver that we have. That performed well once again in the quarter. Retention continues to perform really well, slight improvement in retention and then a little bit of improvement there in cross-sell. So a little bit of improvement, I think, in all three of those volume-based buckets that we would know. Now I would keep in mind that rental, in particular, had the most favorable comp in the first quarter. Last year, our rental growth rate in Q1 was 7.3%, so it gave us a little bit more favorable comp. And I would also keep in mind that we are comfortable with that moving a little bit in our stated range of mid- to high single digits. So for example, last fiscal year, we opened Q1 with an organic growth rate of 7.3%, that growth rate went to 7.8% in Q2, it turned back to 7.3% in Q3 and then up to 7.9% in Q4. So it just shows that running a business isn't linear, and we expect a little bit of variability quarter-to-quarter, but we're certainly pleased with the start of the fiscal year, and we're appreciative of how well our employee partners are executing.

And our next question comes from Manav Patnaik from Barclays.

Just on that last part, Jim, maybe if you could elaborate a little bit more on the customer conversations you're having today in the context of all the macro uncertainty rates, even maybe your pending UniFirst deal. Just to get some more color on other than, I guess, some quarterly fluctuations like you talked about the underlying trends still seems much better than last year.

Good morning, Manav. This is Todd, I'll start. From a macro standpoint, it is certainly a dynamic environment, but we're pleased with where the demand is coming from with our customer base. As you know, we have a pretty broad customer base. So we've got some that are absolutely thriving and others that are struggling. But in general, we're quite pleased. If you look at GDP and the jobs report, they've been positive, a little -- the jobs have been a little bit choppy. But as we've stated in the past, we don't need that. We prefer an absolutely thriving economy, just like any American wood, but we don't need it. And we've demonstrated in the past that we can grow multiples to GDP and multiples of employment. Now we care passionately about how our customer base is performing, meaning how healthy their businesses are, but even in choppy environment, we have the ability to help them. And in certain cases, we're even more valuable than. But as far as any specifics on -- in our customer base, I'll pass it over to Jim.

Yes. Manav, appreciate the question. And I would say that, as Todd started the ended there was that our customers right now and any time it's a dynamic environment, they are looking for solutions. They're looking for consistency. They're looking for help in running their business. And outsourcing provides exactly that. It gives them an opportunity to focus back on their business and their core elements of their business. So our value proposition certainly resonates in all different types of economic cycles, but it may resonate even more in a dynamic environment. And we see that in our ability to convert new business and our ability to go ahead and cross-sell. And the majority of our customers today are solving for image, safety, cleanliness and compliance in some way, and they see that outsourcing to Cintas is another way to solve for that, oftentimes, more efficient, more reliable way and certainly a time saver for them. So we really like where we are. We like the value proposition and think it's resonating well even in today's environment.

Got it. Okay. That helps frame the second half or the remainder of the year kind of revenue guidance. Maybe any thoughts on the cadence of margins for the rest of the year, any comps or noise to call out there?

Yes, Manav, we feel really good about our guide. If you look at -- on the margin side, the guide infers a really attractive year along with operating margin improvement and incrementals right where we like them throughout the guide. So the incrementals that we're guiding for would be now at 32% to 34%. That's an increase from 30% to 32%. and operating margin expansion at double-digit rates throughout. So we feel really good about the guidance.

Yes. And Manav, just maybe if I can just provide a little additional color. So certainly, a great start to the year on incremental margins. And as Todd pointed out, expecting to have a good year relative to incrementals mid- to high point of the guide 32% to 34%. I think some things that maybe for -- making sure we frame up the year correctly. Just keep in mind that Q1 and the first half is largely a little bit of a tailwind. So Q1, we get one extra workday and the comps in the first half prior year we're coming off our most favorable comparisons. Prior year incrementals in Q1 were 26%, Q2 were 27%. That dynamic reverses in the second half of the year. And in Q3, we have one less workday. And in Q4, we have our most difficult comp, effectively 38% for the Q4 last year incrementals. So overall, shaping up to be a really nice year in our stated range, but in the upper half of our stated range, but you may see some variability quarter-to-quarter.

Manav, just a couple other points. This is Scott good morning. Todd talked about our guide. The only thing that I might add on the EPS guide is that at all points of the guide, we're demonstrating double-digit earnings growth, EPS growth throughout the range. Jim's alluded to the additional workday. And certainly, the extra Workday provided a little bit of a tailwind for us. You heard in my opening comments that had an impact on operating margin of 50 basis points. If you think about the Workday impact on incrementals in the first quarter, it was 400 basis points. And then I think it's important that, as I talked about in the opening remarks on the number of workdays by quarter. We had the benefit of an additional workday in Q1, in Q2, the same number of workdays year-over-year. And then in Q3, we actually have one less workday. And in Q4, we have one more. So when you think about the tailwind that we had in the first quarter on operating margin and incrementals, it's going to be a headwind in Q3. And just think about for the year, the one extra workday on an annual basis, revenue, think about the extra workday on an annual basis of 40 to 50 basis points on operating margin, think about it in the range of 10 to 15 basis points. And then on incrementals for the year, think about the extra workday in the range of 100 to 125 basis points. So this will be a year that we're going to be talking about workday differential kind a bit. We definitely had a tailwind on that in Q1, and it will create a headwind for us in Q3. So make sure as you're thinking about the year, you think about the workday differential and the impact on growth and margin.

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

All the singing into the guidance and those assumptions is really helpful. I know this is a smaller point, but one I think that is worth understanding is on the interest expense. I just noticed that for the quarter here, you weren't quite $25 million of interest expense little bit of interest income on that. You're guiding your net interest expense increasing for the year, and you've got a comment in your release about how amortization costs are a factor in that related to the UniFirst deal. So I just was hoping to understand maybe, Scott, the mechanism by which that happens. Like the deal hasn't closed yet, but you've lined up some financing in advance of that, that you're paying noncash interest on. Can you just help me understand this so that we can get our model correct, and we don't have to -- so we can just understand how this is going to play out for the year, please?

Yes. Good morning, and thanks for the question. I guess as far as -- I'll answer the question in really two parts. So when you think about our guide on our net interest expense of $103 million, we're really not changing the guide for Q2 through 4. We had some favorable results in the first quarter just based on a positive cash flow. And the fact that we were not in CP, commercial paper, at the end of the first quarter, so that had a positive impact in Q1. But if you look at what it implies for Q2 through Q4, it lines up with the original guide that we had. As far as the financing related to the UniFirst transaction, those fees are related to the bridge loan that we secured. And we've got fees associated with that bridge loan of approximately $6 million over the term of the agreement, to think about it, $6 million over 18 months. And that gets expensed to net interest expense, and that's what you're seeing there. So for fiscal year '27, that will account for about $4 million of interest expense.

Got it. That's helpful. And I just wanted to ask my follow-up on the fire segment and the implementation of the SAP system there. We saw obviously the impact to the SG&A in that segment from that initiative. I was hoping you could maybe comment on if this is the right kind of SG&A level to think of for the balance of the year, where is the status of that program today in terms of its rollout? And do you have any better clarity on when the go live of that system will happen. So that we can just start thinking about the profit margin benefits that, that can result with as well as the falloff of the onetime cost for its implementation.

Andy, this is Jim. I'll start on Fire Protection. And then if Scott wants to add any more color relative to the SG&A line. But I would tell you that the SAP, we have not started and we have not gone live with SAP in our Fire Protection business yet. SAP is still in pilot, and we are working diligently on that program, and we expect it to start rolling out at some point during this fiscal year. And as you know, rolling out a conversion like this is typically difficult and certainly complicated. But we like our playbook. We like our track record of ERP implementations like this, but it will take time, but it's not impacting our guidance, or it's not impacting our results at this point.

Yes. And just, I guess, to add some color on SG&A. When you look at our overall SG&A expense, it's really flat when you look at the Q1 over Q1 as well as sequentially, the UniFirst transaction expenses are pulled out of that. So we are comparing apples-to-apples. And this is the area of the P&L that you're seeing some of our investments to continue to grow at the attractive rates. Some of those investments would include technology, some of those investments, selling resources, management bench strength. So those are some of the key inputs that help drive the top line revenue momentum that you're seeing. But overall, SG&A is flat sequentially and year-over-year.

Yes. And maybe the last point I might just add, Andy, is that when you look at the All Other segment, it does include our Uniform Direct Sale business, and we know that the results in that business tend to have a little bit more variability quarter-to-quarter. So keep in mind, it's a blended result.

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

Can you talk a bit about how performance in the quarter varied across your verticals where you're seeing the most strength and where you're seeing any pockets of weakness?

Hi, George. This is Jim. I'll start on that. And I would tell you, again, we really like the verticals that we've selected and all of them are performing quite well for us, and they continue to outperform the business as a whole. And so we're pleased with where we are. As a reminder, we're organized around health care and not only just in selling resources, but also our product line and delivery methodology there. Our hospitality, state and local government and education. All of those have performed really well for us and continue to perform well for us, and we continue to make investments and really like the verticals that we've selected and really like the way we've organized around those. So nothing specific to call out as one outperforming the others that are all performing above the company average.

Got it. That's helpful. And then can you talk a bit about how higher fuel and energy costs are impacting margins? And what actions, including pricing and operational changes you're taking to offset the impact?

George, I'll start with that one. As you know, it's a volatile situation with the price at the pump. As a reminder, we do not pass through any fuel surcharges. We manage it operationally, and we expect to get -- extract out inefficiencies in our business. And I think you're seeing it show up the price at the pump is certainly up. We had a good success from going from Q4 to Q1, down 10 bps, were up year over prior 10 bps on energy. But we're -- from a modeling standpoint, we expect it to be at, I'll call it, Q4 type levels, so a little bit above where we were in Q1 for the rest of the year. But we're going to manage through this. And as a reminder, price at the pump is about 60% of our energy costs, which is about 100 bps for the year. So there's other input costs, whether it's electric or natural gas, and we feel good about how the team is managing it, volatile area of the economy, but we're prepared to manage it and manage it efficiently, and it's certainly contemplated in our guide as well.

And our next question comes from Josh Chan from UBS.

Maybe sticking on the inflation side for a bit. Could you talk about kind of other areas of the cost structure, cotton what you're seeing in terms of inflation and kind of how you're managing those areas?

Yes, Josh. Good morning. We're certainly not immune from inflation. It is something that when we think about it, we think immediately about corporate culture because corporate cultures are our ultimate competitive advantage. And when you're dealing with these types of environments, it gives us an opportunity to really shine. And our supply chain has done a remarkable job in managing through the input costs that are important. And we've -- we're committed to managing this efficiently. And as inflation is up, we don't take the approach that well prices, our costs are up. So we're just going to pass along to the customers. We don't pick that approach because we operate in an incredibly competitive market. Our customers have choices. And as a result, we've got to be better than that. And the organization knows that. The leadership team has digested that and leads through it. And so we find ways to extract out inefficiencies in our business. And we're doing that by investing appropriately and seeing around the corner and technology being an important area for that. So we're -- you're seeing that show up in our results. And we think we're well positioned to manage it moving forward. So yes, we'll monitor it. We'll manage it. But as a result of that, as Jim stated earlier, our growth that you're seeing is not because of pricing. I mean, it's -- pricing always plays some component in it, but it is consistent with past years. Our growth is from volume, and our margin expansion is because of our corporate culture, and our team seeing around the corner and implementing projects that help us extract out those inefficiencies. I'm really proud of what they've accomplished.

Josh, this is Scott. I might just add one other point that when you think about inflation and certain parts of the P&L that might impact. We also have the advantage of time, meaning that any inflationary pressure that we receive on material cost that gets amortized. For instance -- on the garment side, the average amortization period is 18 months. If you think about another part of the P&L, like plant equipment or trucks, we also have the advantage of time here where we depreciate those -- that equipment over, call it, an average of 10 years. And then there's certainly other areas of the P&L. Todd talked about energy, supplies. Those are impacted, but they're just not material to our overall results. And as Todd alluded to, we've been able to overcome any inflationary pressure on fuel and have demonstrated that really over the last two fiscal quarters.

Yes. That's great to hear. And maybe on the growth side of things, just stepping back from the quarter and the days. I guess, two years ago, you were growing around 8% organic. Now you have a couple of quarters in a row of above 8% organic and kind of almost 9% this quarter. So as compared to then, what's better now because I know that you have always had good retention. Your new business is always strong, but what's different now versus maybe like a year or two ago?

Josh, this is Jim. I'll start on that one. And again, I think we unpack our main drivers of growth, and we look at the big inputs. I think Todd pointed out, we said a couple of times, pricing is consistent with prior year. So that's neutral in our growth algorithm there. And then if you look at the other three, when I say the other three new business being the biggest contributor of our growth, you look at our strong retention and then cross-sell, each 1 of the 3 have had improvements over the last year. So we continue to see improved productivity from our sales organization. Our sales organization is doing a great job, capitalizing on the TAM and the unserved marketplace. So we're really proud of the work that they're doing there. Retention has been really attractive, but continues to show incremental improvements, and we like the trend line what we have going on with our retention. And then cross-sell, this is one that we've been working really hard on continuing to penetrate our current customer base. And we recognize in our current customers that there is so much opportunity of products and services that we supply that they are already spending money on in other ways and trying to solve for that issue. And our teams have continued to focus on that. We're working really diligently on that when we continue to see incremental improvements in our cross-sell efforts. So if you look at that across the board, new business retention and cross-sell kind of evenly distributed on the improvement. Now I did mention earlier in the commentary, that we do expect that this growth will move from quarter-to-quarter and running a businesses in linear. So it doesn't just continue to go up in perpetuity. You will see some changes quarter-to-quarter. Like the example I gave of our rental business going through last year. But we're pleased with the start of the year. We're pleased with how well our value proposition resonates, and we like where we're at.

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

I wanted to follow up on the earlier question on energy costs as a percentage of revenue in the guide, if you don't mind. I think the initial guide assumed about a 20 basis point year-on-year headwind. If I extrapolate your comments about being similar to the fiscal fourth quarter '26, I think it's still maybe 20 basis points, maybe 30 basis points headwind in your '27 guidance. Is that the right way to think about it?

Yes. Jasper, this is Scott. Yes, just to kind of walk through energy, we finished the quarter at 1.8% in energy, which as Todd alluded to, was up over last Q1 by 10 bps, but down versus Q4 by 10 bps. We feel really comfortable with how we've got energy contemplated in our guide, which is slightly above where we actually experienced Q4, and we're not expecting energy to be a headwind relative to our guide. And as Todd alluded to, when you think about our energy expense, only 60% of our energy expense is fuel for our trucks, so call it 100 bps. So we're seeing a 30% increase at the pump that for an extended period of time, that could be 30 bps impact on the P&L from our historical levels of 1.7. And we've got a variety of ways that we can offset that. And I would chalk the first one up to what Todd talked about inflation, that's just our culture. But no matter what our performance is, no matter what environment that we're operating, we're always looking at ways to extract cost or inefficiencies from the business to offset any cost headwinds.

Makes sense. And then another really nice quarter for First Aid. Can you talk about what's driving the success there and where you are as far as the cross-selling penetration between your first aid customers and our uniform customers?

Yes, Jasper, this is Jim. I'll start on First Aid and Safety and start with. We really love the First Aid and Safety business and the value proposition that it represents and certainly an easy one for our employee partners to rally behind is taking care of the health and wellness of employees and customers of our customers. So they've done a fantastic job in that business. So we really like the outlook of it certainly, as I mentioned in my commentary, more and more people continue to focus on providing those wellness solutions. I would just say that, that business, certainly cross-sell is a key component, but their growth algorithm is pretty similar to what I just described in the rental business, which is you've got kind of four major inputs. You got pricing. And once again, pricing is consistent with prior years. New business, and we continue to see increased productivity levels on our new business team in our first at safety business, and we like the way that's performing. Retention is up and cross-sell continues to perform very well. And we've got nice momentum behind cross-sell between our rental customers and our First Aid Safety customer. So I would say, again, that's one that's pretty evenly distributed across the board, and we're really pleased with the way that business is performing, and our employee partners are executing at an extremely high level.

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

I wanted to follow up on an earlier response to your question around incremental margins. I thought you said that the guidance implies incremental margins this year of 32% to 34%. Can you just clarify like what exact math you're doing to get there? Is that like the high end of guidance? Are you taking like -- can you just explain that math because I'm having a little trouble getting there.

Jason, good morning. This is Scott. When you're looking at the implied incremental margin that 32% to 34%, that's based on the mid and the high end of the revenue range. So that's where you should focus on doing the math there to arrive at that 32% to 34% incremental.

Okay. Great. All right. Cool. I'll double check that. And then I just wanted to follow up on the Fire Protection segment. The growth -- I know you guys are a little bit of a victory around [indiscernible], but the growth moderated a little bit, but then there was a really nice improvement in the gross margin. So I wasn't sure if maybe you're like shedding some lower-margin business? Or if there's any dynamics to discuss within Fire there?

Yes, Jason, this is Jim. Let me unpack that one a little bit. I'll start on the top line with the revenue. And I would say that the revenue is really nothing specific to call out. Again, growth is going to move a little bit quarter-to-quarter. And our growth expectations in this business remain unchanged. We expect this to be a double-digit growth business. Our trailing 12 months is above 10%. It's around 10.5, and we expect to finish this year over 10%, and we love the fundamentals of this business. But you will see some variation quarter-to-quarter. So the first quarter was a little bit lower. We'll expect it to move around a little bit in future quarters. Now regarding margin, I do think it's probably worth spending a minute on the margin. We had a really strong quarter. In the first quarter on gross margin in Fire Protection. Certainly, that benefited from 1x workday, but it also benefited from some mix of business. And you will see that margin move in future quarters and will move for really two primary reasons in this business. One will be continued investments. And as we mentioned, we love the outlook of this business, and we love the growth structure of this business. So we want to continue to make investments in this business. Part of that is investing in capacity. And in this business, capacity comes in the form of technicians that can get out there and perform specialized work. And as you bring those technicians are not quite as productive day 1. So that could impact the margins go backwards there a little bit. It's certainly another investment we want to make is in bench, and we know that we have a bright outlook of this future. So we need to invest in our leadership bench strength. And then last and probably most significant would be new flags as we continue to build out a national footprint in this business as we still don't have operations in cities like Charlotte, Nashville and Minneapolis. So we will plant new flags. We will continue to invest in this business and that will cause a little bit of that gross margin to move from quarter-to-quarter. The second item that really moves gross margin in this business is revenue mix. And it's the business has a lot of revenue streams from the portable fire extinguishers to the alarms to the sprinklers and lots of ways that those streams generate revenue, things like test and inspection, repair work, project work and/or equipment. And how that revenue moves, the mix of that revenue from quarter-to-quarter will impact gross margin. The first quarter of this year, we certainly benefited from the extra day, but also a very, very favorable revenue mix. So you may see that move a little bit in future quarters.

And then -- Jason, this is Scott, again. Just going back to your question on the math on incrementals, One thing just to remind you to keep in mind is the Workday differential impact that I walked through earlier. For the quarter, incrementals benefited from the extra Workday by 400 basis points. For the year as you're doing the math on that incremental margin, just take into consideration that, that extra workday in the year will have 100 to 125 basis point impact on incrementals.

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

There have been a few questions and answers about cross-selling this morning. I was wondering if -- is it possible to frame that for us what your wallet share is today or kind of penetration rate? Or just give us some metrics around where that is today versus where you think what that -- what you think that could add to the business going forward?

Seth, this is Todd. I'll call it, we're in the early innings of cross-sell. We think it can be an important driver for our business. And Jim mentioned that one of the keys around this is -- this isn't new money. Whenever we go to cross-sell, our customer base is solving for whatever the items that we're talking about in some manner. And so that's important for us as we move forward. Certainly, we think the more products and services we provide, the more value that the customer sees in us, and that's obviously a great indicator of our relationship with them. But it's a -- there's -- we're very much in the early innings as far as cross-sell, and we're encouraged by the moves we made and the outlook there.

Okay. And then maybe just another one on the macro. Have you seen any kind of extension in the sales cycles are contracts taking longer to execute? Or any kind of just pause from customers as they contemplate making these changes?

Yes, Seth, we have not seen any changes to sales cycle. And as I mentioned earlier, we've got such a broad customer base that you'll see puts and takes within those. But in general, I would say the customer base is quite stable, and I haven't seen any real changes in the base of the customers.

And our next question comes from Curtis Nagle from Bank of America.

Just a quick clarification point. I just want to make sure I understand, how energy is factored in the guide. Scott, I think you said for the year, slightly above the range in 4Q. So does that imply, I think, somewhere around 1.8% of sales? And then if I were to compare that for the total year in terms of rate of change, what would that be? So from fiscal '27 to '26, 20 basis points difference?

Yes. Thank you for the question. When we think about energy, I'll just kind of go back and compare Q1 results to prior Q1. We were up 10 basis points over first quarter last fiscal year, down versus Q4 of last fiscal year. And the guide contemplates being slightly higher than where we were in Q4. So we're not expecting to experience any headwind relative to our guide. And just to reemphasize a point that Todd made earlier. When you think about energy, 60% of our energy costs are related to fuel for our trucks. That breaks down to about 100 basis points. So even if we experienced really elevated the fuel at the pump, let's say, 40% increase for an extended period of time, that's 40 basis points of incremental cost that we would be facing, which in the whole grand scheme of things is immaterial. And we've demonstrated over time that we can overcome that. Todd mentioned their culture of extracting costs from the business. Our global supply chain continues to operate at a high level and is a strategic advantage for us. And we just don't -- we don't feel that is going to have an impact on the business. So I would take a look at where our energy expenses are in Q1, maybe take a look at it from Q4. And if you're looking at modeling, that's where I would place it.

Curtis, I'll just say that trying to predict exactly what's going to happen with the price of oil and the price of the pump, I mean that's challenging. The vast majority of our fleet is gas. Diesel has been is a very small percentage. So not as much of exposure there, by any stretch. And -- but to Scott's point, we've got to contemplate we're contemplating an increased level for the balance of the year, and we've got other levers that we're going to extract now. So if energy is up some, we're even above where we're expecting, then we'll manage it. And I think we've demonstrated the ability to manage input costs in the past, and we're confident in our ability to meet our guide.

Okay. Great. And then maybe just one last follow-up relative to cross-sell. So obviously, we've seen some strong wins with -- sorry, within the existing base. Is that overall or specific product lines you'd point out in terms of where you're seeing success. Anything you can comment there?

Hi, Curtis, this is Jim. I'll start with that one. And yes, I would say no, no one specific product line to call out. Every customer has different needs. One of the unique parts about our model is that we're a high-touch model, meaning we have representatives within their facilities on a regular cadence, and they're often able to really get to know those customers understand their needs, understand their pain points, understand the things that they are working diligently to solve for, and we have such a broad product offering that is really a one-off on exactly what products may resonate for a particular customer or a particular time. But we like the fact that we're in there. We're building relationships we're demonstrating our professionalism, our reliability, our consistency, how that creates convenience for the customer. And then just trying to set the stage that every time they have a need, they think about us first, and we're able to go ahead and capture a little bit more of that wallet share and have them read the [indiscernible] spend over to us. So really broad success across all of our product lines continuing to move. And now maybe one other thing I might just say is that we talked about this as incremental success, right? This is an area we've been working on for quite some time, and we continue to see incremental success and would imagine that this will be one that we can continue to work on. But it is not an overnight change in the businesses. This is not a new strategy to us.

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

I wanted to ask about the labor environment. I think you talked about improving retention, but I've seen more recently, obviously, it's in the transportation market and maybe some homebuilders talking about a tighter labor market. And I'm curious if, one, you're seeing any signs of tightness from where you sit and just based on what you're seeing in some of the other sectors, sort of if you're planning for a tighter labor market and kind of what that entails?

Good morning, Faiza. It's Todd. Yes. Our retention levels of our employee partners is really attractive at record levels. We recognize just like customers, our partners have the ability to go work to other places, and we work really hard to provide attractive wages and benefits, but more so just the environment that they operate in and the culture. So we're quite proud of where we are with retention levels and we try to see around the corner and anticipate those needs, and we think we're well positioned. As far as in construction or in transportation, I think, in particular, they're dealing with some unique circumstances there that I think are not affecting us in any broad manner whatsoever. So we feel quite good about where we are, and where we're heading there.

Great. And then just a follow-up and apologies if I'm breaking any rules, but I just want to ask about the UniFirst transaction. And whether you're going to respond to the FTC with information that they might have asked, given that you're so optimistic about at the end of your time lines?

Yes, Faiza, I appreciate your question, but we're not going to comment any further on UniFirst transaction just to avoid any speculation. But as I stated in my prepared remarks, we remain confident that we'll close the deal in the back half of calendar 2026.

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

You talked earlier in the call about some of the higher cost dynamics. I was wondering if you would expect the industry to sort of command higher prices next year if these dynamics persist like how you think about the outlook for pricing of the industry?

Yes. Toni, this is Todd. I certainly cannot speak for the marketplace in general. We compete with all kinds of different companies. So all I can speak of is how we run our business, and we respect the fact that our customers have choices, and we operate in an incredibly competitive market. So as a result, we're going to do -- we're going to leverage our corporate culture and leverage our competitive urgency and our focus on making sure that we don't accept just input costs going up, and where we do have input costs, we're not going to just simply pass it along. So we've got to be better than that. And we expect that to be better of the leadership team, and they're performing. And we would expect that we'll continue to manage it in that manner. And as I mentioned, I'm incredibly proud of what the leadership team has accomplished, and I think we're well positioned for the future.

That's great. And you talked about productivity initiatives to try to offset maybe some higher cost. And so can you give an example maybe -- of maybe an impactful productivity initiatives that you've been able to achieve recently or just areas where you think the most you would be able to get the most bang for your buck in terms of productivity initiatives.

Hi, Toni. This is Jim. I'll start on that one. And as we look at trying to expand our margin and deliver strong financials, it always starts for us with strong top line growth. And we know that, that top line growth creates great leverage for us. And that improves things like routing efficiency when you have more and more customers in the marketplace. When we're effective at cross-sell, the average size of each customer becomes larger, and that's a more efficient piece of revenue than a new piece of revenue. Every time we have great work on top line, it increases our capacity utilization in all of our businesses, depending on whatever the capacity is. So it always starts with a continued focus on strong top line growth and creating that leverage. And then I think it's been mentioned a number of times, we really do focus on technology and using technology to attract out things that are inefficient in our business. And we've spoken about Smart Truck, and Smart Truck being available to us to continue to incrementally route more efficiently, and we've been able to grow in excess of job creation for -- in excess of route creation for some time now by making those routes more efficient. [ Garment ] sharing in our Rental business has been enabled through technology. That's in the early innings, and we have great opportunity with [ garment ] share. Things like automation, we talked about sortation, but automation shows up in a lot of different ways, and those can incrementally make you more efficient. We also love the work by our supply chain. And when we have continued revenue growth that gives them advantage to get some volume discounts out there and do what they do. So really, all of those, I think, are major inputs towards what I'll call, making the business more efficient or extracting out the efficiencies that Todd talked about, and that's our preferred methodology for margin expansion.

Toni, this is Todd. You heard a number of things from Jim there. And it all goes back to culture. And it goes back to, there is no home run where -- well, on my goodness, we are getting massive productivity increase because of this, there's a tremendous amount of singles and doubles. And that is our culture. And that's what we leverage. And we would love home runs, right? But it's a lot of singles and doubles, and we're seeing around the corner and we know we're going to need more in the future. And so we're expecting that. Jim mentioned technology. That's obviously a big one. Most companies are going to have to leverage technology to improve productivity. And as we think about technology, we think about it in two manners: Number one, making it easier for our customers to do business with us. And number two, making our -- helping our employee partners to do their jobs more effectively, making it easier to do their jobs. So both show up in a very positive way, ultimately in our results.

And with that, the question-and-answer session has concluded. I will now turn the call back over to Jared Mattingley to close out the call.

Thank you for joining us this morning. We will issue our second quarter of fiscal 2027 financial results in December, and 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 2026 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, 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 fourth quarter results. After our commentary, we will open the call to questions from the 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. And thank you all for joining us. On today's call, I will start with an overview of our fourth quarter and full year performance and thoughts on the year ahead. Jim will provide further detail on segment performance and Scott will walk through additional financial details and assumptions for our fiscal 2027 outlook. We are very pleased with our fourth quarter results to close out fiscal 2026.

We delivered robust top line growth and strong profitability underscoring the strength of our value proposition across each of our businesses. In the fourth quarter, total revenue increased 8.9% to $2.91 billion. Our organic revenue growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 8.4%.

We continue to execute at a high level across each of our business segments. Turning to profitability. Gross margin for the fourth quarter was 51%, the same as the third quarter, which was an all-time high and up approximately 130 basis points from the prior year. Operating income as a percent of revenue was 23.2% and grew to $673 million, an increase of 12.7% over the prior year. Adjusting for UniFirst-related transaction expenses, adjusted operating income as a percent of revenue was 23.6%, representing a year-over-year increase of roughly 120 basis points.

Diluted earnings per share of $1.26 grew 15.6% over the prior year. Adjusted diluted earnings per share for the quarter were $1.29, an increase of 18.3% compared to $1.09 in last year's fourth quarter. These results conclude an outstanding fiscal year for Cintas. For the full year 2026, revenue was approximately $11.26 billion, an 8.9% increase over fiscal 2025.

Organic revenue growth was 8.3% for the year. This marks the 55th year of the last 57 years that we have grown both our top and bottom lines. Our strong top line performance highlights the durability of our business model in all macro environments. This shows how our culture continues to be our biggest differentiator and shows how we are capitalizing on the opportunity of a total addressable market that is massive and it shows that we have a long runway for future growth of customers of all sizes across all industries.

Gross margin for the year was 50.7%, up 70 basis points from the prior year. Over the last 4 years, we have expanded our gross margin by 450 basis points, demonstrating our culture of positive discontent, challenging ourselves to continuously improve the business while continuing to provide better products and services to our customers. Fiscal 2026 operating margin reached 23.1%. When you adjust for the UniFirst-related transaction expenses, adjusted operating margin was 23.3% expanding by 50 basis points compared to fiscal 2025. This represents an all-time high for our company, achieved while we continue to make strategic investments in the business. Adjusted diluted earnings per share for the year were $4.94, up 12.3% versus $4.40 last year.

In March, we gave full year EPS guidance in the range of $4.86 to $4.90. That guidance excluded UniFirst transaction expenses. Against this guidance, full year EPS, excluding transaction expenses, was $4.94. This excellent performance reflects consistent execution by our team, regardless of the macro environment. Our balanced approach to capital allocation remains a key pillar of our value creation strategy.

In the fourth quarter and throughout fiscal 2026, we deployed capital across each of our priorities. First, we prioritize investments back into the business in many forms, including our products, technology and people. Second, we love M&A, and we continue to pursue strategic acquisitions and our route-based businesses. Lastly, we look to return capital to shareholders via dividends and share buybacks.

We will continue to prioritize these areas moving forward. Looking ahead to fiscal 2027, our outlook reflects confidence in our business model. As we will discuss in more detail, we expect fiscal 2027 revenue in the range of $12.1 billion to $12.25 billion, implying total growth of 7.4% to 8.7%. We expect fiscal 2027 adjusted diluted EPS between $5.36 and $5.50 which represents 8.5% to 11.3% growth.

Scott will provide more context on our assumptions for the guidance later in the call. Once again, we were named to the prestigious Fortune 500 for the tenth consecutive year. It is an honor to be recognized among the most successful and respected companies. As I've said before, our culture is our greatest competitive advantage. Our employee partners pride themselves on delivering the highest quality products and services to help our customers manage their businesses better.

Our drive for continuous improvement is a key component of our culture. We remain positioned to achieve long-term growth and value creation. Before I turn the call over to Jim, I'd like to provide a brief update on our acquisition of UniFirst. Based on the limited due diligence we've been able to complete, we remain confident for the substantial long-term value creation for our combined customers, partners and shareholders. When we announced the transaction in March, we indicated the merger was subject to approval by UniFirst shareholders, regulatory clearances in both the U.S. and Canada and other customary closing conditions.

The merger was approved by UniFirst shareholders in June. The regulatory process is ongoing. As expected, we did receive a second request from the FTC, similar to what we experienced with the G&K acquisition. We continue to work toward obtaining regulatory clearance and completing the other closing conditions. We remain optimistic that the deal will close during the second half of calendar 2026. In order to avoid creating speculation, we will not be providing any additional commentary on this process. We will update the market going forward as appropriate.

With that, I'll turn the call over to Jim for additional insights on our operational performance.

Thank you, Todd, and good morning, everyone. Our business continued to perform at a high level in the fourth quarter. We're adding many new customers, 2/3 of which transitioned to a managed rental program after initially handling it on their own. Each of these new customers rely on Cintas for their image, safety, cleanliness and compliance needs. We also continue to sell additional products and services to our existing customer base.

Retention rates remain very attractive, and pricing was close to our historical levels. Turning to our segment performance. In the fourth quarter, we saw strong results across all of our business segments. Organic growth by business was 7.9% for Uniform Rental Facility Services, 13.2% for First Aid and Safety Services, 10.7% for Fire Protection Services and Uniform Direct Sales decreased by 4%.

As we've done in the past, I'll provide the revenue mix of our Uniform Rental Facility Services segment for the quarter. Keep in mind that mix can fluctuate slightly between quarters. In the fourth quarter, Uniform Rental represented 47% of Uniform Rental Facility Services segment revenue. Dust control was 20%. Hygiene services were 16%, Shop towels were 3%; linen, including wipes, towels, aprons was 11% and catalog sales were 3%.

Gross margin percentage by business in the fourth quarter was 50.2% for Uniform Rental and Facility Services, 57.9% for First Aid and Safety Services, 50.8% for Fire Protection Services, and 42% for Uniform Direct sales. Gross margin for the Uniform Rental Facility Services segment increased 120 basis points from last year. Strong top line growth continues to generate leverage, which is helping to expand margins.

We also benefited from technology investments, a high-performing supply chain team that's effectively navigating a dynamic macro environment as well as ongoing process improvement initiatives. Gross margin for the First Aid and Safety Services segment increased 110 basis points from last year. Our investments continue to generate strong top line growth that has helped expand margin. These long-term investments are in things such as needed route capacity, leadership development, management trainees, technology and selling resources in this business.

Gross margin for the Fire Protection Services segment was 50.8%, an all-time high. As we've noted in prior quarters, this segment can see some variability due to revenue mix and ongoing integration of acquisitions. Margins may go up and down from quarter-to-quarter as we grow our national footprint, we like the long-term fundamentals of the fire business and remain committed to investing appropriately for future growth.

Our adjusted incremental profit margins in the fourth quarter were effectively 38%, the highest over the last 5 quarters. For the year, we finished right at 30% when you adjust for the transaction-related expenses in the current year and $15 million gain on a one-time sale in the prior year. This is in the heart of our stated range of 25% to 35%, which allows us to invest for long-term growth while still expanding margins.

Our value proposition continues to resonate in a dynamic macro environment. All types of customers, regardless of the industry they operate in, seek reliable business partners to help manage their operations. Reduce the administrative burden and ensure consistent service that allows them to focus on running their core business. That demand is creating ongoing opportunities for Cintas.

We serve a diversified customer base and our solutions are widely utilized across our 4 strategic vertical markets: health care, hospitality, education and state and local government, which continue to be solid contributors to our growth. Our addressable market remains very large, and our track record shows we can drive growth across various economic cycles.

Before I hand it over to Scott, I want to share a brief customer example that shows how Cintas helps businesses elevate their brand and strengthen their image in the marketplace. We recently added a customer on the East Coast, that is in what we refer to as a specialty trade sector. The employees were required to purchase their own workwear to meet the company's appearance standard, which ultimately fell short of ownership's expectations. After learning about the breadth and quality of the Cintas offering through our marketing efforts, they reached out to learn more.

We introduced them to our product line, which delivers high-quality professional workwear for virtually every job imaginable. Once the employees have the opportunity to wear the Cintas ComfortFlex Pro garments, they were pleased with the quality, appearance and functionality. The owners value the consistent professional image they created and management now leverages the uniform program as part of its recruiting strategy. This is another example of how the breadth and quality of our products and services helps our value proposition resonate with businesses of all types and sizes.

I'll now turn it over to Scott for more detail on our financials, capital allocation and assumptions for our guidance for fiscal 2027.

Thanks, Jim, and good morning, everyone. As Todd highlighted, fiscal 2026 was a year of outstanding financial performance for Cintas. Our balance sheet remains healthy, and we continue to generate significant cash flow. We generated $709.1 million in operating cash flow, our strongest cash flow generation of the year. We invested in the business by making capital expenditures of $96 million during the quarter and making acquisitions totaling $61.9 million.

We also returned capital to our shareholders in the form of dividends totaling $180.6 million. Our effective tax rate for the fourth quarter was 21.2% compared to 22.1% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. For the full year, the effective tax rate was 20.2%. Throughout fiscal 2026, our capital allocation was in line with our long-term priorities and was supported by robust cash generation.

We invested $395.1 million in capital expenditures representing 3.5% of revenue, which is in line with our historical CapEx intensity. We deployed $164.5 million towards acquisitions in our route-based businesses, adding new customers and expanding our capabilities. In addition, we returned $1.7 billion to shareholders via dividends and share repurchases. This was the second largest return of capital we have made for a fiscal year.

Our annual dividend remains an important component of shareholder return and our share buyback program continues to be executed opportunistically. Todd has already provided our fiscal 2027 guidance ranges for revenue and adjusted EPS. Let me add a bit more context on our assumptions. Fiscal 2027 will have one more workday than 2026. This will positively impact total growth by about 40 basis points. We are not assuming additional acquisitions in our guidance. Our guide assumes a constant foreign currency exchange rate, and we anticipate interest expense net, to be around $105 million in fiscal 2027. Our effective tax rate for fiscal 2027 is expected to be similar to the fiscal 2026 rate of 20.2%. The guide does not include the impact of any future share buybacks or significant economic disruptions or downturns, and our guidance excludes nonrecurring transaction costs related to the UniFirst acquisition. With that, I'll turn it back to Todd for some closing remarks.

Thank you, Scott. As we enter fiscal 2027, we remain encouraged by the momentum in our business. Our results demonstrate the power of our strategy and the critical value we provide in addressing customers' image, safety, cleanliness and compliance needs. We are focused on delivering exceptional service to our customers while continuing to invest in our company and our people to support sustainable growth and profitability.

We appreciate the trust our customers place in Cintas. We will continue to work every day to earn that trust. I want to thank our almost 50,000 employee partners for their dedication. It's your hard work that drives our success. I'll now turn it back over to Jared.

Thanks, Todd, Jim and Scott. That concludes our prepared remarks. Now we are happy to answer questions from the analysts. Please ask just one question and a single follow-up if needed. Thank you.

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

I guess, Todd, first question, obviously, 55 out of 57 years always an impressive stat to talk about. When you look forward, given the uncertainty of the macro environment, can you just talk about some of the things you're looking out for that perhaps would make you pivot one way or the other from the way you're already operating today?

It seems like we've been operating in an uncertain macro environment for so many years now. We stay focused on what we can control. There are certain things that are out of our control, geopolitics and other items that affect inflows and outflows, but nevertheless, we stay focused on investing in our business, controlling what we can control, investing in our people, trying to position our people so that they can be sustainably successful and provide more value to the customers.

It's an incredibly competitive environment out there for partners, working partners for customers, and for shareholders. And we take that very seriously and we invest appropriately so that we can be sustainably successful. And I think our track record of 55 out of 57 paints a pretty darn good picture. That being said, we're always on edge, and we're trying to see around the corner and invest appropriately. So we think that the future looks bright. Can't control everything, but we are focused on what we can control.

And the last thing I would add is that when we look at the future, that total addressable market is so massive that it allows for opportunities for us in various economic cycles. So we're not strictly dependent upon that. We certainly love when GDP is thriving and employment all that, we love all that. But because of the opportunity out there and because of how we help customers run a better business, the opportunities are virtually endless for us. And that paints a pretty good picture for the opportunity ahead.

All right. Great. That's good to hear. And just on the guidance. I know it's kind of typically the way you start with a little bit of conservatism. But just specific to the implied incremental margins. Are there any moving pieces or comps or anything for the rest of the year that we should keep in mind when considering that?

Manav, this is Scott. I appreciate the question. We really like the guide. We believe the guide is strong. When you look at the midpoint of our EPS -- adjusted diluted EPS guide implies EPS growth of 10%. And to your question about incrementals, this has been a question that we've received really throughout the year. We finished the year really strong with our incremental margins of effectively 38% and for the year, when you take into consideration the onetime sale, the year finished right at 30% incrementals.

And our guide for fiscal year of '27 has incremental margins in that range of 30% to 32%, which is right in the heart of our stated range of 25% to 35%. And as Todd alluded to, first and foremost, the momentum that we have in the business on top line revenue is -- provides a tailwind when it comes to incremental margins. Our supply chain continues to be a strategic difference maker for us. And some of the operational initiatives that you've heard us talk about, continue to have an impact on margin expansion and incremental margins.

Manav, this is Todd. I would just add to what Scott said, first off, we feel really good about our guide. It's a very strong guide. Our objectives are to grow our top line in the high single digits and grow our bottom line, our EPS in double digits, and you're guiding right towards that. You'll see -- running a business isn't linear so you'll see items, results bounce between quarter-to-quarter. But throughout the year, we're hitting right where we -- our objectives are. Those incrementals might bounce from quarter-to-quarter. But we ran 30% last year and we expect to run right around 30% again this coming year. So we feel really good about our guide and our approach and understand that it will bounce back and forth a little bit, but we like where we're positioned.

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

I just want to build on that last one while we're talking about it because I just did some back-of-the-envelope math so I could be wrong, but I was getting the incrementals for 2027, a little bit below that 30% to 32% range. There's a lot of moving pieces here. So I could be just not doing the math right, but maybe asking it a different way is what do you expect for operating margin expansion on a basis points level, '27 versus '26. And can you also talk about the headwinds and tailwinds, for example, energy costs? Do you -- is that -- what's your assumption for basis points impact there. I think there's an ERP implementation and anything else I might be missing that you would consider material to that?

Tim, good question. I guess to answer the first part of your question. When we're looking at the implied incrementals in the guide being in that 30% to 32% range, you need to take a look at the midpoint and the high point of our revenue guide. And that's how you arrive at that 30% to 32% incremental margin. In terms of your question about the implied margin expansion, when you look at the guide, it implies margin expansion really throughout the range.

On the low end, it's a 10 basis point increase. And on the high point of the range, it's 60 basis points. So again, just to reiterate, we really feel good about the guide. We feel that the guides align with the stated ranges that we've talked about. And some of the headwinds you brought up energy. And this was something that we talked about on the third quarter call that certainly, higher gas prices had an impact in Q4. Energy costs were up about 20 basis points year-over-year and sequentially.

And if you think about that, Q4 represented one of the most volatile periods of prices at the pump in recent memory, and the impact was minimal. It was 20 basis points. And we talked about that on the third quarter call. And if you think about that and just go through the math, only about 60% of our energy costs are related to fuel for our vehicles, which translates to about 100 basis points. So if you see, on average, a 20% increase in fuel prices at the pump, that's going to translate to 20 bps. If it's 30, it will be 30 bps. And those are things that we have confidence that we can offset with our operational initiatives. What we've got implied in the guide is we do have -- we're assuming an uptick in energy expenses for next year and think about that in terms of being on par with what we experienced in Q4.

Okay. So 10 to 60 bps, that does help clarify things. Energy headwind maybe in that 20 bps range for next year, all very clear, no follow-up needed.

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

Could you provide some additional color on customer budgets and purchasing behaviors, how they have been trending over the past quarter? And what's assumed for fiscal 2027?

George, this is Jim. I'll take that question. And coming off the year, we were quite pleased with the growth rates on the year, and we certainly saw our customers quite responsive to our value proposition across the board, and we're expecting similar based upon the guide moving into the next fiscal year. Maybe if I kind of pack that a little bit more and you think about where some of those growth levers are coming from and what are the key contributors to it.

Number one, a lot of credit is to our employee partners who do a fantastic job and executed at an extraordinarily high level. We often speak about our culture being a key differentiator for us. And of course, our frontline employee partners are the ones that are creating that culture and that passion for customer satisfaction and growth out in the field. It also speaks a little bit to the size of the opportunity that's out there and the fact that there is 16 million to 20 million businesses in North America and even after all the years of success that we've had, we only have a little bit over 1 million business customers.

So it's just a vast opportunity for us to continue to get our value proposition out and understood. And really, the third component is how much our value proposition resonates in all economic cycles. And especially today, as we began the call and Q&A, looking at macro uncertainty. That uncertainty creates a tremendous amount of opportunity for us as people are looking to really focus on their core business, and outsourcing becomes a really attractive lever for them to go to.

So when I think about the growth inputs that are part of our algorithm, we always start with new business and new business continues to be strong. We are able to convert customers over and about 2/3 of that new business continues to be from no-programmers, certainly nice contributions from our verticals. So new business continued well last year, and we'd expect that moving forward. Retention rates are at all-time highs. So we really like the -- again, how customers are receiving our services and how much we're satisfied with it.

Pricing is really right at historical levels and maybe slightly above historical, but immaterial in nature. And then penetration of our current customers and cross-sell continues to be performing quite well. So you think about the backdrop of growth really attractive opportunity for us and how that manifests as all 4 of our growth levers are performing well, and we expect that moving forward.

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

Can you hear me? This is Alex Hess on for Andrew Steinerman. Just wanted to maybe touch briefly on the gross margin expansion. Obviously, there's a lot in the news about supply chain pressures and fuel costs. And you guys just had a pretty significant step-up basically across the business on the gross margin front. Could you maybe outline, you guys speak to supply chain excellence a lot, but what that sort of looks like in practice for you guys, what we should expect on that line for next year?

And then just -- I know people keep hammering on the incremental margin question. But when you guys are running that comparison for us, are you comparing adjusted to adjusted GAAP to GAAP? Are there any sort of add-backs we need to be thinking of when we're building our models out.

Alex, this is Todd. I'll start. And just to answer the back half of your question. It's adjusted to adjusted is the way you should be thinking about it. Going back to the gross margin, you're right, there's plenty of uncertainty out in the marketplace. And we've dealt with whether it's tariffs or which -- and not only tariffs how they impact us, but how they affect our customer base. Fuel prices have been, as Scott mentioned, bouncing around all over and -- but we stay focused on extracting out inefficiencies in our business, and our team has done a great job.

Our supply chain team is a strategic advantage. They've done an outstanding job, they have the advantage of being able to source through multiple vendors across very diverse geographic opportunities. So it's been a real advantage for us so that we can have the products available for our customers and do so at rates that are very competitive. So we feel really good about that. I think Jim will speak a little bit about some of our operational efforts there with operational excellence, that has helped us to extract that inefficiency in our business and improve that gross margin. Jim?

Yes. Alex, I'll start on what are our key inputs towards driving gross margin expansion. Maybe worth noting that we do expect that gross margin can move a little bit quarter-to-quarter. We don't expect that it's going to just continuously rise, as you know, running a business isn't linear, and you'll have different investments from time to time. But with that said, we are very focused on revenue growth as a key contributor to our gross margin expansion and that creates leverage.

And leverage shows up in the form of route density, overall size of individual customers certainly shows up in capacity utilization of our plants and our routes in our other business units. So that would be a really important key contributor for us on margin expansion. Todd mentioned a little bit on material costs and the great work that our supply chain team continues to do in managing that. And we've talked about our strategy and how well diversified we are in our global supply chain team, not only from different vendors, but different sources and geographically diverse across the globe. That continues to be a strategic advantage for us.

Our garment sharing program that we've deployed in the rental business in particular, that's a piece of technology that has been really important to us in managing our material cost, specifically while we're growing as we are growing today, that has led to great customer satisfaction, recognition of revenue and cost control and we have runway on our process there. Operational excellence in our production facilities has been one that's been really valuable to us and will continue to be valuable to us that is both labor and overall energy control within the plants. And then, of course, we round out with SmartTruck across our service platform. And when you take the revenue and then you put service -- you put SmartTruck in, we really get some nice leverage on service and we'd expect to be able to continue that moving forward.

Maybe worth noting also is that we always have other initiatives that we are working on, and those initiatives are to support our overall financial goals. Todd talked about that as being part of our culture, that's part of our standard operation procedures that we're working towards those, finding other ways to become more efficient, extracted those inefficiencies. So we expect to continue that movement forward.

And our next question comes from Joshua Chan from UBS.

Jim, Scott, Jared. I guess my first question is on the TAM penetration that you guys are talking about. Within the rental business, where do you see kind of the biggest movement in terms of shift towards rental program? And what verticals are you having more of the success in this penetration?

Josh, it's Jim. Thanks for the question. And again, we continue to see high demand in all of our product lines. So we're experiencing growth across all of our product lines, and we're really indifferent as to how we start the relationship with the customer. They can start with any one of our products and/or services, including inside and outside of the rental business in any way that we can begin to establish a relationship and trust and get to know that customer.

We're okay with that. And we've got multiple examples of how that would continue to work. The verticals are all performing quite well for us. I did bring an example of one customer to just illustrate a little bit of what this may look like in practicality, what is this penetration and cross-selling, how does that play out in real life. So we had a long-standing uniform customer, well over 20-year uniform customer in the retail automotive industry with multiple sites.

And in a business review, we had a conversation with them about what challenges they were seeing in the marketplace, obviously, a dynamic macro environment. And one of the core principles that they were working towards is getting their local management team to focus more on their customers and focus more on their core business. And we look for ways that we could help them with that scenario. We identified that they were spending a lot of time managing things like hygiene supplies for their restrooms, cleaning chemicals and PPE, and that it was a local general manager who was responsible to order all of that through their distribution center, maintain stock inventories, I think you get the picture.

They ultimately decided to give us a chance to leverage our route infrastructure and the fact that we're on site with them on a regular basis. After trialing it at a few of their stores, they recognize right away that this was a cost savings, a time savings, and a much more efficient way for them to go meet that need. So they took that spend that they had with someone else. They redirected over to us, and we were able to go ahead and penetrate those products, further penetration in our rental business and cross-selling with our First Aid and Safety business as well. So it shows up in a lot of different ways, but the opportunity is quite large.

Great. That makes a lot of sense. And then on First Aid, I think there was some understanding that in the prior year, we were lapping some kind of onetime type of revenue, but yet the First Aid growth was pretty strong this quarter. So I guess -- was there anything onetime this quarter as well? And maybe you can talk about any new products that you're launching within First Aid that's driving growth also.

Josh, you're right. Last year, the First Aid business grew 18.5% in Q4 and this year it was 13.2% organic to organic. So just outstanding performance. That was a heck of a comp that they had to overcome, and the team is executing at a high level. As far as items and products in the pipe, we don't give away too much. We like having a competitive advantage in the marketplace and launching our products. But I'll say this, part of our culture is we're constantly working on improving our products, existing products and identifying additional products and services that we can bring to the marketplace and the First Aid business is really good at that. All of our businesses are.

But the opportunity out there for the First Aid business is so large because there's so many businesses that we don't do business with. And Jim talked about in his example earlier that we'll have people that will redirect monies to us, but they're all solving for these objectives somehow, they're spending monies on these subjects. We just wanted to redirect them to us because we think we can do it better for them. And that's working quite well in each of our businesses and First Aid's been a shining star for many years now.

Our next question comes from Jasper Bibb from Truist Securities.

I was just hoping you could maybe unpack the contribution to organic growth this quarter from net wearers. And then I guess if you could outline how you're thinking about the wearer levels in your fiscal '27 guidance, too, that would be great.

Jass, thanks for the question. This is Todd. We don't give a specific KPI on wearers. But I'll say this, our -- each of our areas of our business are performing well. Jim spoke about our growth from current customers, is doing quite well. And some of that shows up in wearers and it shows up in other areas of our business. But when we have people in our customers' place a business on a regular basis, those employee partners have eyes, ears and minds and they see opportunities.

Whether that opportunity is additional wearers, or products and services that we can help solve for the customer better than what they're currently doing it. That's where our focus is in addition to taking great care of the customer, it all goes together and obviously driving new business. So it all goes into the formula and it's working for us quite well.

We haven't really touched on the Fire yet. It's been a really nice growth story for you guys. I was hoping you could maybe just talk about broad expectations for that business next year? And obviously, you're doing some pretty significant investments in the tech platform, too. Just hoping maybe you could refresh us on how you're thinking about the long-term margin opportunity for that business.

Sure. I'll start on the Fire business, and we're really pleased with the fourth quarter of the Fire business. And obviously, they performed well, highest gross margin that we've seen within that business. And so we're pleased with the execution and great work by the team. I would expect that you'll see some variability to gross margin in that business moving forward. That business, as you know, a little bit can be impacted by revenue mix in a particular quarter.

But also, we're still building on our national footprint in the Fire Protection business. And as we do that, we will make strategic acquisitions, and some of those acquisitions will run at productivity numbers and profitability that are far below Cintas, and it takes some time for us to go in and implement our playbook and get the overall productivity up to Cintas performance standards. That takes a little bit of time. But as we've demonstrated this past year, certainly something that we're comfortable being able to go and do.

We will have an SAP implementation in Fire that was scheduled for this upcoming fiscal year that will have about a 100 basis point annual headwind for the Fire Protection business. So we're expecting a little bit of volatility in that gross margin. But overall, we do love the fundamentals of the Fire business. We'll continue to invest in the Fire business for long-term growth and believe that it can be a good contributor to Cintas in the future.

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

I'm curious if you could talk about the impact that automation and manufacturing has had on your business historically? And do you like foresee any, like, I guess, potential headwinds there's maybe some more manufacturing processes get automated.

Jason, thanks for the question. This is Todd. First of all, our customers have been automating for years. So that is certainly in our run rate of what we've experienced in the past. We are automating and throughout our facilities as well. We're not in the technology business, but every business is in the technology business. So automation plays a role with for us internally and for our customers.

And just to think about it from that standpoint, automation plays a -- probably a larger role in manufacturing goods producing than it does in services providing. And our business 25 years ago was 70% of our customers were goods producing and 30% were service providing. And today, it's exact opposite. It's 30% goods producing and 70% services providing.

So certainly, automation plays roles in our business and our customers' business in different ways depending upon the business. But it's absolutely plays a component. And as that occurs, it doesn't change our outlook whatsoever from our perspective because the opportunity out there is so massive for us. We do business with a little over 1 million customers. There's 16 million to 20 million businesses out there. And they're all solving these needs that we can provide in some manner.

So we just want to redirect those monies to us and -- because we think we can do it better. And it's our job to position our people to make that clear to our customers and the prospects, and we're working diligently to do just that.

That's great. Certainly makes sense. And then as a follow-up, just wanted to circle back on pricing. And just to understand, given that there's maybe some more inflationary you talked about fuel costs -- are you taking a little bit more price to offset some of that? And what's the customer reception been to those price increases?

Yes. Thank you very much for the question. And yes, I would say our pricing is generally in line with our historical levels. As we mentioned earlier, may be slightly elevated, but immaterial in nature. And our philosophy is really to take a long-term approach when it comes to pricing. We know customers have choices of ways that they can go satisfy the needs here, and we want to continue to ensure we're providing the most valuable program possible.

So as Todd mentioned earlier, our objective is that we want to remove inefficiencies out of our business as our primary way of expanding margins. It's expedient to just pass pricing along to the customers, but not great for the long time. So we want to make sure we continue keeping that long-term approach. Now we believe it's strategic and the environment calls for some price increases as we saw back in '22, '23 with persistent and historical levels of elevation and wage increases. We certainly have demonstrated we can take pricing, but it's not our preferred method and not a large component of our growth algorithm.

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

I wanted to ask about your comments about growing the Fire business into a national platform. Can you just talk about the competitive environment when you're out bidding for deal, bidding for other assets? Just sort of how you're positioning that business relative to some of the other growing competitors that are out there?

Seth, we really like the Fire business. It's the only business that we're in, where you legally have to have it for our customers. And so as a result, the TAM is some word beyond massive. So it is -- the opportunity out there is incredible. It's a service business. And because everybody is served in some manner, unless you're talking about new construction, which really isn't a focus for us. So it's a service business. We're investing appropriately to have a footprint.

As Jim mentioned, as you plant new flags in markets, short term, there are some headwinds on margin, but we see the opportunity is so large that we want to make sure that we're investing appropriately to provide those levels of service to customers across the country. That being said, technology plays a role in that as we roll out SAP. We think that will provide some real value to not only our people but to our customers to help them with the levels of service that we can provide them. So we're big fans of the business. See an incredible runway, and we're investing appropriately to attack that opportunity.

Appreciate that. And then just maybe on CapEx, it was I think, 3.5% this year, had been maybe closer to 4% in the last couple of years. Do you think while you're waiting for the UniFirst deal to close, does CapEx kind of come down a little bit while you're waiting to see what happens with the acquisition? And then as you sort of figure out what assets are where and where you can utilize the UniFirst assets? Or do you think CapEx kind of stays in the 3.5% to 4% range for this year?

Yes, Seth, this is Scott. I appreciate the question. Yes. CapEx for the year came in at that 3.5% of revenue right within the range that we've stated, 3.5% to 4%. And like other things, CapEx can vary from quarter-to-quarter and year-to-year based on the timing of different initiatives. Jim mentioned one of the initiatives operational excellence, and that really is centered on increasing the capacity of our production facilities on the uniform space without investing in capital really through process improvement and engineering. And that would be an example of an initiative that would have a positive impact on our CapEx spend. So I'm not expecting any variation in fiscal year '27 or really beyond relative to CapEx and still believe that we'll be in that 3.5% to 4% range.

Seth, I'll just add that, first off, the deal has not closed. We're running 2 separate businesses. And I wouldn't read into the 3.5% saying, well, they're getting ready for UniFirst so they're not investing appropriately. We're running our business in the normal course when we close, then we'll be able to make a really good assessment and give you a better view of what that will mean for us moving forward. But we're running separate businesses and running at the normal course.

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

Earlier, you were asked about automation. And I was hoping you could give some examples of what you're doing in the automation and robotics side within your own business to try to maximize efficiencies.

Toni, thanks for the question. We don't want to give away too much of what -- where we're investing, but I'll just give you a little color. Now there are certain areas like supply chain distribution, manufacturing, where automation is a little bit more clear. We've been investing in automation in our rental facilities to help us with things like automatic sortation that is really bearing fruit for us.

And then there's other areas of automation that we consider automation that you may not -- may not be a robot or it might not be -- might be another nature of automation, such as the garment sharing that Jim spoke of and such as SmartTruck. So all that plays into the role of automation. It's throughout our business and has been and will continue to be.

Terrific. And then I wanted to ask about the different verticals that you're in. Have you noticed any really accelerating or any more on sort of a hold? Which markets have been good and bad for you at this point?

Toni, this is Jim. I'll take that question. And overall, we really like the verticals that we've organized around. Those are verticals that are performing quite well for us and we're seeing strong performance really across the board there. Certainly, I may note earlier or spoke about health care. Health care continues to be a tremendous avenue for us for revenue. Our customers really appreciate the value proposition we bring in the health care space.

So we continue to plant new flags in health care and then certainly cross-sell and upsell with our current customer base, really like the state and local government business, and that continues to perform well. Education continues to perform well, hospitality. So they all performed above the overall company growth, and that certainly speaks to why we organize around those spaces. And it's not just a sales strategy we organize around them. We organize our product line around them, we organize our service model around them. And we think that we've picked a lot of the right verticals, and they are performing quite well for us.

And our next question comes from Connor Cerniglia from AllianceBernstein.

Maybe just building off the prior question. Can you talk a little bit more about the health care vertical, given health care employment has been really one of the only sectors that has been adding jobs at a healthy clip. How has your progress been? Is it well outperforming other verticals? Or is it pretty balanced within health care as growth coming from new account wins? Or is it more same account growth from existing customers who add more headcount?

Thank you for the question, Connor. Yes, our health care business is going quite well. And you're right, the -- you look at how health care as a component of GDP, how it's growing, the jobs -- so we chose well in picking that vertical and it's not -- don't just think about it as, hey, they sell customers in that area. We organize around that vertical. So we think of products, we think of services. We think of technology. We think of dedicated routing structures.

So that way, we can solve those needs for those customers better and better and uniforms play a role in that, but we have plenty of products and services that are -- that we service into the health care sector. And you asked about is it growing faster. Any time we have a focused vertical, we expect it to grow faster than the average because there's that much focus and efforts and resources put on that. And the health care business is growing better than average for us, and we expect it to, just like we do all of our verticals.

Great. And then maybe just a follow-up. Given margin expansion has been pretty healthy this past quarter. My math might be wrong, but I thought it was 120 basis points if you account for the UniFirst transaction costs. It seems like the investments you've been making over the past year are starting to pay off. Looking ahead, can you talk about the incremental investments you plan on making if any, it seems -- my sense is it would be smaller than the ones we saw in the past year. But any color on that front would be helpful.

Well, Connor, we're always investing because we see the opportunity ahead. We had a great Q4, great margin expansion, incrementals. But you're going to see it from quarter-to-quarter. Certainly, incrementals will bounce a little bit. And we're thinking long term. We're thinking long term as we approach customers and investments in our business -- but over a year, we would expect that those -- that will hit our guide. And I think if history is any indication of the future that will occur. But we're pleased with our Q4 and our year, and we're pleased with our guide ahead. But we will -- we're not slowing up. We're running separate business from UniFirst, we're investing as appropriate, running it just as we always would.

And maybe I'll just add one little bit of color on that. Just regarding the incrementals in the fourth quarter, coming at 37.7%, adjusted 37.7% effectively 38% that didn't represent a step change in our strategy. We are continuing to invest in our business. We continue to look at the opportunity in front of us with the unserved marketplace, the robust amount of wearers that are available out there, I mean, there's 180 million people that go to work in North America, they're all wearing something. We only have 5 million wearers. There's over 100 million of those are in NAICS codes that we're organized around. So just a tremendous amount of runway. So we're going to continue to invest. And a little bit of what you saw this past year was some comps from the prior year had a little bit more of an influence on that incremental margin as we had really outsized performance in the first half of fiscal '25 relative to incrementals.

And then we got a little bit more favorable comp in the fourth quarter. So we still have to say that we're going to continue to invest in the business, and we're comfortable anywhere in the range of our incrementals, and we're less focused on one quarter versus the next quarter. But holistically over the year, we expect to deliver strong mid- to high single-digit growth rates, expand margin and deliver 10-plus percent EPS growth.

And our next question comes from Curtis Nagle from Bank of America.

Great. So maybe just first, a very quick one, just which quarter the extra workday going to hit in? Just that would be helpful for the model -- and then secondarily, just going back on the supply chain efficiencies, maybe just in terms of kind of rank ordering or maybe putting in innings, some of the larger opportunities that you called out, like the plant efficiency, SmartTruck. Kind of where does that stand? Where do you see the biggest, I guess, opps for this year? And kind of anything new coming into the mix for this year that you're excited about.

Curtis, this is Scott. I'll answer the question on the Workday differential. As I mentioned, there is one more workday in fiscal year '27 compared to fiscal year '26, which represents about 40 basis points on revenue growth. When you look at it quarter by quarter, the first quarter of fiscal year '27 has one extra day than fiscal year '26. The second quarter has the same number of workdays. The third quarter has one less work day, and then the fourth quarter has one more workday than fiscal year '26. So really, when you look at each of the quarters, there's a workday differential in each quarter with the exception of Q2 for one extra day for the entire year.

Curtis, regarding supply chain and business efficiencies, extracting out those inefficiencies. I would -- they all contribute. They're all important to us. We have a culture here of positive discontent. We always have initiatives because we want to extract out those inefficiencies to run a better business. Jim talked about that we were operating in a very competitive environment as costs go up and people want to be paid more, we don't just pass that along to the customer because we recognize customers have choices.

So as a result, we have to find other ways to improve our business. And we always have a long list of initiatives, and that's part of our culture, and we will continue to execute upon that. And those opportunities continue to be in front of us. So we feel quite good about where we're positioned there. And that culture is what drives us to be constantly seeing ahead around the corner and leveraging our positive discontent to get better.

And our last question comes from Ashish Sabadra from RBC Capital Markets.

This is Will Qi on for Ashish Sabadra. I appreciate you guys squeezing us in. Maybe just a bit on the macro side. I wonder if you could give us a little bit more color, I guess, on visibility for hiring trends across the verticals. Health care has been strong, but just any other kind of vertical commentary you might be able to provide.

I'm happy to start. Jim, you can speak to anything we're seeing in the customer base. But Will, we are -- we read the same prints that you do. We understand where the employment picture is -- as I mentioned, we're not dependent upon employment. We love it when employment is strong. That usually bodes well for the economy and GDP. But we're not employment dependent. And I think we've demonstrated that over the years that we grow in multiples of employment.

We grow in multiples of GDP. And there are certain sectors that are doing better than others. Jim mentioned, I think we've chosen very well our verticals. They seem to be some of the shining stars on the employment side. But we can help customers in so many different ways. And as mentioned earlier, they were spending money on solving for these image, safety, cleanliness and compliance needs already. Just we're trying to redirect it to us because we think we can do better. Jim, anything you're seeing in the customer base on those types of trends.

Yes. Yes. I mean I think the only thing maybe I would add to that is we have an extraordinarily broad customer base. So we see puts and takes across all the customers, and that is pretty typical that we would see on a normal basis. But if you go into digging beneath the headlines on the jobs reports, it certainly supports a narrative that Todd just gave. You continue to see nice growth in health care, education, hospitality, you see some in state and local government. Specialty trades is an area that continues to perform fairly well. And the biggest headlines as far as the weaker areas tend to be around white collar jobs, which is not as important an end market for us for our uniform rental business. So I'd say puts and takes across the board. We like where we are, but we do not need that robust revenue growth to continue to grow the organization.

And the question-and-answer period has concluded. I will turn the call back over to Jared to close out the call.

Thank you, Ross, and thank you for joining us this morning. We will issue our first quarter of fiscal 2027 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.

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.