Cintas Corporation (CTAS) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the Cintas COVID-19 Update Conference Call. Today's call is being recorded. And at this time, I'd like to turn the call over to Mr. Mike Hansen, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Good evening, and thanks for joining us. With me is Scott Farmer, Cintas' Chairman and Chief Executive Officer. On March 19, we conducted our third quarter earnings release conference call. At that time, the impact of COVID-19 were just beginning to be felt. In the following 55 days, much has changed. Tonight, we'd like to share with you an update on how Cintas' business has been affected and how we've managed the business during this time. After our commentary, we'll be happy to answer questions. 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 SEC. I'll now turn the call over to Scott Farmer.

Thanks, Mike, and good evening, everyone. Yes, we certainly have seen some changes in the last 55 days. I'd like to start by saying that our thoughts go out to all of those affected by COVID-19. This has been a difficult time for so many people. Economically, our landscape has been turned upside down and the disruption has been significant. With 46 states issuing stay-in-place orders in the last 2 months, almost every business in the U.S. has been negatively impacted. While we'd like to think of every business as vital and essential to the economic fabric of the United States and Canada, we've gotten into this discussion of essential versus nonessential businesses. We have many customers that fall into both of these categories. Fortunately, Cintas has been designated as essential in all jurisdictions, so we've continued to operate all of our facilities. Our priorities during this disruption have been to keep our employees, who we call partners, healthy and safe and remain committed to serving our customers in any way we can. Our partners' dedication has been tremendous during this time, and I want to say thanks to all of them. They have adapted to the changes required during this period and have persevered through the anxieties and uncertainties along the way. They've been consistent and diligent in their care of our customers, providing essential products and services to health care facilities, pharmaceutical companies, grocery stores, food processing plants and many others. I'd like to read a quote received from a hospital customer in Boston that says it perfectly. They wrote, "Please pass this thank you on to all the staff that work at the Cintas site here in Boston. Each of you are my hero. The media is always talking about the medical and nursing staff, which I am one of. However, the truth to heroes to this are the people that are supplying us with the items that we need to do our job." Thanks, partners. Your Cintas spirit is shining brightly. As I mentioned, we remain committed to exceeding our customers' expectations. Many of our customers have remained open, like the hospital customer in Boston that I mentioned a minute ago. We have adapted to their needs and our value proposition of keeping our customers' places of business safe and clean has resonated greatly. We've provided health care customers with clean scrubs and microfiber towels and mops that have been more essential than ever. We've provided many customers with hand sanitizers and with disinfectants and sanitizer spray services, allowing them their employees to work with peace of mind. And we've provided tremendous amounts of personal protective equipment, including base masks and shields to customers to keep their employees safe. We've also had many customers, though, that have not been able to operate due to the stay-in-place orders. For these customers, our goal has been to communicate as regularly as possible to understand their situations and to be available and ready to help them reopen their doors with confidence. All in all, this period has been highly disruptive, and it has impacted our business in a negative manner. Mike will speak to that more in a minute. However, we remain steadfast and committed to our principal objective of exceeding our customers' expectations to maximize the long-term value of Cintas for our shareholders and our working partners. Our value proposition of getting customers ready for the Workday by providing the essential, unparalleled image, cleanliness, safety and compliance services, resonates very well today and will continue to resonate very well into the future. We remain very excited about the future of Cintas. And now I'd like to turn it back to Mike for some additional comments.

Thanks. So as Scott said, our business has been impacted by COVID-19. Let's talk a bit more about our customers, which represent a very diverse collection of businesses. We operate out of 332 cities in North America. Our revenue geographically speaking is generally where the population centers are and not concentrated in any particular market. Our top 5 states from a revenue perspective are California, Ohio, Florida, Texas and Illinois. By the way, you might have noted that New York and Pennsylvania, for example, are not in that top 5, which gives an indication of how much growth opportunities are still ahead of us. From an industry perspective, our customers are also quite diverse, with 30% of our revenue coming from the goods-producing sector of the economy and 70% of revenue coming from customers in the services providing sector. Important verticals for us are manufacturing, motor vehicles and parts dealers, health care, durable goods wholesalers, food service and drinking places, education and accommodations. No one vertical makes up a significant amount of our revenue. Let's talk about the size of our customers. We have generally said that roughly 20% to 25% of our revenue comes from national accounts. National accounts to us simply means that these are large businesses with locations across the country. Some of these businesses have large sites, like a large food processing business or pharmaceutical company. Others have many small locations like a tire dealer or a retail chain. This does not mean that 75% to 80% of our business comes from small local businesses. Our customers come in all types and sizes, from large 1 site customers to multi-location regional businesses, from health care networks to franchise businesses with numerous locations. We don't track how big they are. We track how big we are with them and think about future penetration opportunities at all of our customers. We've now completed 2 months of our fourth quarter of fiscal 2020, which ends on May 31. We expect our fourth quarter revenue to be in the range of $1,540 million to $1,560 million. Keeping in mind that we have 1 less workday in this year's fourth quarter compared to last year, this implies that fourth quarter revenue will be down between 12% to 13% compared to last year's fourth quarter. Let's talk about each of our businesses. Our rental business performance for the quarter from a percentage perspective aligns closely with the total revenue percentages that I just gave. Keep in mind that the month of March was not affected much by COVID-19. Our run rate suggests the decrease in the high teens. As we've discussed, we've been impacted by closure of many customers. However, for those customers that have remained open, we've provided essential services to help them remain operational. We've also encouraged -- we are also encouraged that numerous states are now relaxing the stay-in-place orders and beginning to reopen the economy. Our First Aid and Safety business performance has been very good given the environment, and we expect growth to continue in the fourth quarter. Our ability, particularly in this quarter, to offer customers' personal protective equipment and other safety options has proven invaluable. Our Fire Protection Services business has been negatively impacted because so many customers are temporarily closed or working remotely, such that customers have no personnel at their facilities to provide entry for our services. We expect this business to be down in the mid-teens compared to last year's fourth quarter, with a run rate down in the high teens, though we should see a nice rebound as customers reopen and require this valuable service. Lastly, our Uniform Direct Sale business has been hit the hardest by COVID-19. Our gaming, hospitality and cruise and airline customers have been essentially closed, and we expect this business to be down about 50% for the quarter. Hopefully, that gives you some perspective about our performance so far. The greatest uncertainty remaining in the process is the process and pace of reopening the economy across the country. In fact, we're reaching out to all of our customers as they begin the reopening process, to remind them of all the ways we can help them during this time. Let me turn to how we've managed the business during this time. Keeping in mind that our eyes are always set towards maximizing Cintas' long-term value. Given the environment, we've certainly had to adjust. In March, we eliminated discretionary spending and instituted a hiring freeze. Subsequently, we significantly reduced executive officer compensation, implemented a wage freeze and have adjusted our workforce with a combination of reductions and furloughs. Much uncertainty remains, though, especially concerning the pace of the reopening. For this reason, we are not providing any expectations regarding fourth quarter margins or earnings per share. Our financial position remains strong. As of our most recent quarter end, our leverage was 1.7x debt-to-EBITDA. We have significant availability on our credit facility and no debt maturities in the next 12 months. So in summary, the last 55 days have been a very challenging period, and we're not through it yet. However, there are encouraging signs with the discussions of reopening the economy, and we remain excited about the future of Cintas and our opportunities to help businesses get ready for the Workday. That concludes our prepared remarks. And we'll now open the call for questions.

[Operator Instructions] We'll now take our first question from Andrew Wittmann.

Thanks for taking some time to update us in the quarter during these tough times. I guess, Mike, you gave us some detail about your customer base, and I wanted to drill in a little bit more. I know the 80-20 on national account versus nonnational account. But you had a comment on small business about really helping us there. I know it's harder to find a small business, but what can you tell us in terms of the company's overall exposure to small businesses, in particular? And what was your experience with those customers in terms of, I guess, the viability of them through prolonged and steep downturn in terms of their ability to come out and be good customers on the other side of it?

That's a great question, Andy. I would say this, we are reaching out to as many of them as we can. Keep in mind that there is a fair amount of stimulus money, and we're not exactly sure how that's going to affect them in the long-term or even in the short-term. We are encouraged by the signs of reopening in different states. And I think it's a little early to tell what the exact exposure is. And as we mentioned in the prepared remarks, the biggest uncertainty that remains is the process and the pace for reopening. And really, I'll add to that, then how stimulus will affect these businesses. But we're reaching out to all of them and seeing how we can help them through this period of time.

Okay. Maybe just to putting an agenda on that. I want to take a shot at just -- again, if you could give us a sense on that 2009 outcome and what you saw there? Did you express or see any challenges on free cash flow? I guess one of the things that we're kind of hearing out of the industry is that people are seeing their receivable balances kind of creep up, and they're a little bit concerned that maybe they don't ultimately get paid. I'd be curious to learn a little bit more about that and the impact on your cash flow as well.

Andy, this is Scott. First off, cash flow. As the -- this is a good cash flow business, as you know. I think we got a good track record of cash generation even in the downturns. But our cash flow, even through this process, is still positive. I think that part of the receivables issue is going to be that there have been customers that may have owed us money when they were forced to shut down 2 months ago. And so it's aged a couple of months. There's been nobody there to answer the phone in some cases. And so that's going to be complicated. It's going to take some extra effort, I think, for us to be able to successfully collect it. But so far, our receivables and our collection efforts have been pretty good for us. So I'm happy to say that.

We'll now take our next question from Andrew Steinerman, JPMorgan.

I wanted to get a sense of the monthly cadence. I know we're talking about down 12% to 13% for revenues year-over-year on a same-day basis for a month -- I mean for the quarter, March, April and May. Could you give us a sense of kind of how much March was up and how much April was down? And are you assuming narrowing declines in May to get to the revenue range that you discussed?

Well, the revenue range for the fourth quarter that we discussed, down 12% to 13%. I'm not going to provide specific March, April and May, but I will say certainly, March wasn't affected all that much by the COVID environment. I did, in the prepared remarks, give you a little bit of run rate detail, and that is effectively what we have seen at this point in time through the end of April and the first week of May. And so that -- those numbers that I mentioned, rental down high teens, First Aid continuing to grow, Fire Protection down in the high teens, Uniform Direct Sale down. That all gets you to a run rate of down in the mid-to-high teens. As we talked about just a minute ago, Andrew, that's where we have seen it today. And the question is, what does reopening look like? We don't know that answer. And that's a big piece of uncertainty that remains.

Maybe can I just try just a little bit more. I would still be interested to know if we're waiting for declines to narrow. Or have we already seen in the most recent weeks that decline year-over-year have narrowed?

We've seen -- I'll say this, we've seen a leveling, and we'd love to think that, that is bottom. We have seen steady over the course of that period that I mentioned, the back half of April, the first week of May. And the encouraging thing is we are starting to see states give the relaxing of stay-in-place orders. And so we'd like to think that we hit bottom, and we're leveling. And there's room to move up, but we approach that with a little bit of caution because we just don't know what that's going to provide and look like.

We'll now take our next question from Seth Weber at RBC Capital Markets.

Sorry if I missed it, but is there any dollar number that we could put around the cost measures that you guys have taken? And should we think about all of those reductions as being just variable costs? Or do you think there are any permanent cost cuts that would come out of this current environment?

Well, so we've done an awful lot at this point in a hurry to get to where we are right now. I would say that most of the things that we have been working on are variable costs. We are considering some other areas of the business as we would in any downturn. But I would tell you that from my perspective, my point of view, we did not -- I don't think overreact. We did not cut as far on -- particularly in certain areas of labor as we could have because we were hearing of reopening dates starting in May in certain states. And some of the jobs that we have related to -- particularly to route sales job, the people that we have, making the deliveries and providing the service to the customer, take a while to get somebody up to speed, to train and so forth. And from our perspective, if a governor said on May 15, we're opening for business, we're going to have a whole lot of customers that want us to be there on May 15. And we have to have the capacity to do that. So if we're right about this, we'll have -- we'll be able to fill that capacity as this -- these businesses reopen. But a lot of what we've worked on so far are the variable costs, eliminating nonessential expenses and travel and training and things like that, that makes sense to postpone for periods of time and that's worth thing. So that's where we are right now.

We'll now take our next question from George Tong.

Your customer base is diverse. You noted 30% from goods producing and then 70% from services verticals. What percentage of your customer base would you say is nonessential in nature and currently closed the business?

I don't know that we would have an accurate number to give you. It is -- it's been such a moving target on a state-by-state basis of dates and times and customers and when they had to shut down and so forth. So that's a difficult thing for us to determine on an accurate basis right now. I will tell you that all of those customers that have not been open, have local people from our operations, contacting them, talking to them now about what they need to successfully reopen their business. We have a number of products and services that perhaps they have not used up until now. There are a great opportunity for us to help them keep their facilities clean and sanitize and their people safe. And our customers that are open today are in many ways, taking advantage of those products and services. And so we're talking to them about a plan to help them reopen. The best thing that could happen to us is that all of those customers open. Successfully, and if we can help them do that, that we play a big role in that, but it helps our business quite a bit. So that's what we're focused on right now, not so much what that percentage of customers that are closed are but how we get them back to opening back up successfully so that we can continue that customer relationship with them.

And for those that were in open or those that have remained open, we've really been able to provide them some great value. If you think about some examples that we've talked about in the past, health care facilities need us more now than ever. Scrub rental has been, for example, a great product for us. And we've seen some positive changes even in that kind of product line throughout this period.

Yes. In fact, we've had some hospital customers, health care customers that have contacted us, where we've been providing that service, but due to the nature of the what's happening in certain hospitals as they need that cleaned much more often, the turnaround time, much quicker, more inventory, putting additional health care workers that work at those hospitals who have traditionally purchased those scrubs on their own and take them home and watch them themselves, they now want us to take care of those for them. And so it's -- I think this is going to be a change in this part of the business, maybe in a lot of different areas of our business that we'll see as long-term change. I'm sure you've seen in the media reports of health care workers going to the grocery store after work and chased around by other shoppers with their cell phones, yelling at them that they're going to infect people because they're -- they were at a scrub. And so all of that stuff has become hypersensitive. But the way we talk about it here is that there is an opportunity, we think, that this COVID crisis could change the way businesses look at providing a clean and safe work environment for their employees and their customers from now on, but different than they did in the past. When you go back to 9/11, what 9/11 did to security in public buildings, the COVID crisis could do for cleanliness and sanitation in a facility moving forward. And if that is the case, we really like our positioning right now because we have so many customers turning to us during this asking us for help.

Got it. That's very helpful. And then on the cost/margin side, you noted that the pace of business reopenings is uncertain, so somewhat difficult to guide the margin for the quarter. If you assume businesses don't reopen through the end of May, what could be a potential downside case for margins?

George, I think that's really hard to answer and way too hypothetical right now. What we are -- this is such a complex environment that we're dealing in right now with different markets, different states having different levels of impact. And that affects the way we manage in each of those different markets. And one answer doesn't fit all in this case. You could have the same verticals that are being hit very, very hard in the New York aren't being hit nearly as hard in the middle of the country. And we have to react differently to that. And so to try to put our -- a hypothetical on exactly what does all of this mean. A lot of this depends market by market. And Scott talked a little bit about how he's thinking about the managing of it, and it's complex. And it not only depends on the market and the impact of COVID in the market, but it also depends on what does our capacity look like in a particular marketplace. And how might we adjust one way or the other. This is complicated. And as Scott said, what we want to make sure of is that we understand how the reopening process works before we make every single decision on capacity, for example. The last thing we want to do is really move quickly on capacity more than more than we need to and find ourselves short because so many customers have opened up in the middle of May. This is a complicated process. And Scott and I both talked about this in our prepared remarks that our -- we have a goal of long-term value creation. And this is a disruptive period of time. And what we don't want to do is harm the growth prospects and the long-term value of the business.

We'll now take our next question from Hamzah Mazari, Jefferies.

The first question is, could you maybe talk about whether post-COVID or during COVID, do you see any opportunities for new service lines, whether it be cleaning? I know you're in hygiene already. And just as part of that, if you could just touch on what your level of penetration in the health care vertical is? Is it early innings, middle innings?

Okay. Well, first of all, I would tell you that we're in the early innings from a health care standpoint. And I think we've got some opportunities to continue to grow in the health care segment. And in a lot of ways, part of it is scrub rental. But hospitals right now really are concerned about the cleanliness of their facilities as well. So the microfiber mops and wipes, the cleaning chemicals, the surface sanitizer, the spray sanitizer service that we are now providing, and by the way, that's a new business line for us. I'll give a little detail on that here in a second. But the health care area is a great opportunity for us across all of our different business lines. So we're excited about that. Relative to the new service, we have a service where we are providing our customers with a spray sanitation service. It is a device that will spray a sanitizer on work surfaces, floors, door knobs and other instruments throughout a facility to sanitize them. It's typically done before or after work hours, although many of our customers are now asking us to do it between shifts and after breaks and things like that as well in break rooms, in cafeterias. And so it's something that has taken off very well. It fits well with our Cintas' ultra clean restaurant creating service as well. So those have become very positive. And our hand sanitizer line has really exploded in this process. It is something that we have offered to customers for some time. We have a hand sanitizer station, which basically is a stand with an automated dispenser unit, touchless dispenser unit on it. And we had -- just to give you an example, one of our university customers had just called us, and we are now going to put over 1,000 units on-campus in their buildings at the doorways. And again, that's the kind of thing that we think is going to have a long life cycle. I think it's going to be quite some time before any of us are going to go into any building, anywhere where we're going to reach out and grab a door knob or a handle to pull it to open it up to walk inside. When the first thing we do is going to be to look around and try to find a hand sanitizer. I think that behavior is going to change for some time to come. And so we're excited about that as well.

That's great color. And just a follow-up question, I'll turn it over. Has there been any disruption to SAP getting turned on? I know you alluded to customer penetration being a focus for you. Maybe if you could just update us on as SAP turned on now? Or is that pushed out? And then how does that help you in higher customer penetration?

I'm happy to announce that the SAP integration has now been completed in the rental division. All of the operations are now up and running on SAP. The benefits of that will be significant as we move forward and our ability to analyze data and information and make decisions based on that. And we're really excited to be able to say that. It's the largest capital expense we've ever made as a company. And it's taken some time to get to this point. And -- but we're very happy to say that it is now up and running, and our operations are fully integrated and handling it very, very well.

We'll now take our next question from Manav Patnaik at Barclays.

Could you just talk a little bit about your supply chain and sourcing, if you've seen any disruptions or foresee any issues there?

Yes. Again, this is Scott. I would tell you that I have said many times that our supply chain capabilities is a competitive advantage. We source from around the world. There early on were some disruptions relative to trying to get things out of certain countries and across certain borders. They did a great job of handling that to the point that it really didn't cause us much disruption at all. And I would tell you that when I say competitive advantage, I'll give you a couple of examples of what I mean by that. As you can imagine, during this time, we had customers coming to us asking us for, can you do this for us? Can you do that for us? Can your supply chain help us? Particularly in the health care field, we had health care customers saying that they had -- they're putting out as many requests as they can get to find surgical masks and N95 masks for hospital use. And our supply chain people were able to source millions of those masks for our health care customers, get them set up in many ways with a vendor and then step out of the process of the day, they could deal directly with it. They also did the same thing for our customers that were open across all verticals with hand sanitizers and sourced millions of gallons of hand sanitizers during this period of time for our customers. And what that does from a customer relationship when they can't find it anywhere else, then they come to us and they say, can you get it for us, and we can deliver for them, has lasting effect with these customers. And I'm happy to say that as our customers that have been on temporary closed, open back up. We have these products and services for them, too, because they're going to need the same kind of things as the customers that are -- have been opened need. And I really am proud of where our supply chain folks have been able to do for them.

Got it. And maybe if I can just take another shot at the cost profile. I understand as the guidance is in line, but then maybe, Mike, you could just remind us of the fixed versus variable cost profile at Cintas? And maybe that will help us think about it as well.

So let's talk about the cost of rentals, for example. The cost of rentals is made up of 3 buckets, and I'll talk about each of those 3. And they're not exactly, but they're about 1/3 each of the cost of rentals. And so if you think about the first bucket is material cost. So the cost of garments, of the sanitizer, of dispensing machines, cost of entrance mats, some of those items are purely variable. The sanitizer that we sell, the soaps that we sell, some of them are amortizing. And while are variable over some period of time, it's a little bit longer. So for example, the cost of amortizing garments, it is going to continue. And as we get in this a period like this where we are injecting less because we're just not growing as much, we're going to see though the cost of amortizing garments trend downward over this period of time. It's a little hard to tell what that might look like going into our fiscal '21 because of the -- we don't know the nature of the recovery yet. But there's a part of that, that is highly variable, and there's a part that's variable over a period of time, as we get into the second bucket of production expense, that is the cost of running our laundry facility. We have large facilities all around the country. We own almost all of our processing plants. And so there is depreciation related to the plant and the equipment within the plant. But labor is a fairly large component within that bucket, and that can be variable, mostly variable, I'll call it. And so we have the ability -- as volumes change, we have the ability to flex that labor a little bit. It might be moving from 2 shifts to 1 or 1 to 2. It might be reducing within a shift to fit the labor volume -- or I'm sorry, fit the volumes of being processed. That is a piece that, as Scott talked a little bit about. We want to make sure that we have enough capacity to take care of our customers when they do come back. And so while we will move on some of that, there may be some of that, that we want to make sure we've got the right answer on the trajectory before we make a lot of decisions. The third bucket is the service bucket. That is the cost of the trucks. We own almost all of the trucks. And then the cost of the drivers and gas, the fuel. So certainly, there are some variable costs in this bucket as well. The labor is variable. But again, these are very important partners for Cintas, their employees -- their customer-facing. And we want to make sure that we've got the right amount of capacity to serve the customer. And so again, while some of these costs, like our service labor are variable in nature, the question is, how do we want to act on them and how do we want to manage them. And Scott talked about wanting to make sure that we are managing them for the longer-term and managing them to make sure that we've got the capacity for when our customers reopen. That is very, very important to us. And so it's amount of -- and it's more complex than simply giving you a fixed percentage and a variable percentage. We've got to make sure that we are managing the business based on market-by-market complexities, and we're going to make sure that we have a longer-term in mind rather than a short-term this quarter.

We'll now take our next question from Gary Bisbee at Bank of America Securities.

So I wanted to ask about just thinking through your business coming out of the financial crisis, I know this is obviously a very different environment. But when I think back to that or study that period, you know the recovery in your business took time longer actually than many businesses with revenues continuing to decline year-over-year through much of your fiscal 2010. I think a very weak jobs recovery and maybe a few end markets that were somewhat challenged, played into that. But I wondered if you could just give us any perspective on how the business has changed in the last 12 years and understanding, we don't know the reopening pattern. What may be different today that could impact the phasing or pace of recovery from this episode?

Gary, I would -- I just start by talking a little bit about the difference between that great recession and what we're going through here. In that period of time, I'll give you a hypothetical rental division, uniform wearing customer example. When that began, that customer began to feel some impact on their business. And when they began, let's say, they had 20 employees wearing uniform. Over the course of the first couple, few months, they might have reduced their headcount from 20 to 18. Over the course of the next couple of months, it went from 18 to 15. And 6 months beyond that, they were down to 13. And a few months after that, they were down to 10. So the shrinkage within our existing customer base took some period of time to get to the point where it had bottomed out. And that took several quarters for that to happen. Once it did, we were able to grow off of that. And I remember back in those days, saying that when we hit sort of a ground floor here, a base, we're going to begin to grow the business because we're still adding new customers just like we have been before. The difference between that period of time and today is that this happened suddenly. In the last 55 days, if you think about what has happened, you saw that governors closed nonessential businesses all at once. So all of that revenue is stopped. Other businesses that were open went through a series of headcount reduction and furloughs and those people left the payroll in a matter of weeks. So in some ways, we went from the peak to the trough in, at least, a matter of a couple of months, and I'm hoping we're at the trough, but we have seen some leveling off at this point. And so I think the big difference is that. The other things that I would tell you is we are significantly different today than we were then. We have a lot broader product line. We are focused on a lot more verticals than we were, and we have products and services designed for those verticals, like the health care business. I think our whole hygiene and sanitation, the clean message that we have been providing to our customers has resonated with them because we were one of the first people that they turned to when this happened, and they needed those type of products and services. And so I think that's a big difference between where we were then and where we are today. So it's those 2 things. The speed with which it took us to get from the peak to sort of the leveling off happened in a matter of a couple of -- a number of weeks, if not a couple of months versus several quarters. And the fact that I think we're better positioned at this point to work through the recovery.

That's great perspective, Scott. You should join us more often on these calls. I think we'd all appreciate your perspective. One quick one on the financial side of it. A lot of companies have been calling out is that there some benefits they're looking to take advantage of from the CARES Act. Do you guys have any view whether it's payroll tax, ability to defer that or some of the other components? Is there anything you think will benefit your business or you'll take advantage of in the next year?

We likely will take advantage of some of the opportunities to delay some tax payments. That's kind of out there for all businesses, and we'll take advantage of those as they make sense. And that's a pretty nice opportunity. I think when we think about the CARES Act, we think much more about how it impacts our customers. And we talked a little bit earlier about small business customers and how this may impact it. And we really are looking forward to the signals that the CARES Act is really helping some of these business customers. That's the -- that's what we really are looking forward to as it relates to the CARES Act, how can it help so many of our business customers, whether small, medium or large, stay on their feet and get back to reopening sooner rather than later.

We'll now take our next question from Toni Kaplan at Morgan Stanley.

I was hoping you talk about your appetite for M&A in this environment, particularly your willingness to lever up to do a transformational deal?

Well, I guess I'd say it this way. If any M&A opportunity presented itself, we would certainly want to take a good look at it. I think that if it was compelling and we could do it at the right price, I think that we would certainly evaluate whether now is the time to do it. I think we could lever up and do it. But the only question that I would have is what's the next 6 to 9 months going to look like in the economy, and that sort of thing. So -- but a large M&A would take some period of time to do the dance, if you will. And I think we have a pretty good look at what might -- what the opportunities might be and what the pitfalls might be as we went through that process. But bottom line is, if anything is out there, we certainly would be interested in looking at it.

That's great. And can you talk about any changes that COVID has had on your sales process at all, if any?

Yes. We -- I would tell you that there are and have been certain businesses that have said we were not accepting visitors at this point, but they do need things that we have. And so there have been calls FaceTime, Zoom, a variety of different ways for our salespeople to talk face-to-face with prospects, and we have sold accounts that way. And so that has had, at least, that type of impact. I don't know that that is going to be a significant change moving forward and that I think that the buyer is going to eventually want to have an opportunity to see samples and have a full review of what we have to offer and compare one product to another product. Many times prospects want come to through one of our operations on a tour before they make their decision and so forth. So I do think that there will always be the place for our salespeople to be out in front of our prospects. But for those prospects out there that want to do it a different way, we're capable of doing it. And I think that this process has proved to us and to our sales leadership that it is possible to do that.

It's been an interesting period of time for our drivers. We call them SSRs, and they certainly have had to adapt to that environment as well.

Yes. In fact, some of the new things that we have seen though is that there are signs on doors of customers' businesses that absolutely no visitors allowed except UPS, FedEx and Cintas, and we've seen a number of those things as we've gone through this. And it's been kind of a fun thing for us to share with each other here at Cintas. But our customers, as we've gone through this -- and it's been good for us to see it as well, look at the things that we provide them as essential to the point that they don't -- that they need us so bad that they're willing to put us into a separate category. So it's been a -- one of the brighter spots in this whole process.

We'll now take our next question from Kevin McVeigh at Crédit Suisse.

Can you give us a sense amongst the clients, like any sense of what furloughs look like relative to layoffs, just as you think about the progression of the stabilization of their headcount and what that could potentially look like on a recovery? Is there any way to frame that out similar to what you did kind of relative to the GSC?

Kevin, you were coming through a little bit muscle, but I think your question was some form of information related to reductions versus furloughs. And we have -- and this goes back to the complex environment that we're in and market-by-market decision-making. We have made reductions in some cases where the impact has been just much greater than in other markets. And so we've made some reductions. We've also made some furloughs, recognizing that for a period of time, we've had a lot of businesses that have closed. There is a lot of decision-making yet to come on what the recovery, the reopening looks like and we're evaluating that. That's going to be certainly an important point that we'll be evaluating as we move forward over the course of the next months.

That's helpful. And then just you called out a very helpful kind of your 5 largest states. Have they kind of revenue declines across kind of California, the 5 largest states, have they all been in that 12% to 14% range? Or would you call out one state versus the other, just, I guess, within the band of that 12% to 14%?

I don't know that we could say on a state-by-state basis because it is -- some states have many more operations in them than other states and so forth. So if you look at it on a maybe by city-by-city basis, I think that the cities that you see the news reports on that are the hotspots, the New York, New Orleans, Detroit, are cities where we've seen a more severe drop off. And then there's other cities that had a some drop off, but not as bad and have recovered pretty nicely for other reasons. But at Tampa, Indianapolis, Cincinnati, Dallas. So it's a little mixed bag. And I would say that in some ways, the severity of the number of cases in a market and therefore, the level of restrictions that the governor and maybe mayors have put in place in those cities have driven the level drop off. Does that help?

Super helpful.

We'll now take our next question from Andrew Steinerman.

Just a quick follow-up, Scott. You talked a lot about the ancillary services that are -- increased demand that are kind of hygiene and first aid related. My question is, do you think as a paradigm shift also on the interest in uniform rentals? So from purchase companies like maybe a hospital, I believe a lot of scrubs are still purchased and laundered by the hospital or the employees. Like do you feel like there'll be a paradigm shift where uniform purchase customers will switch to uniform rentals? And do you think that's something that could happen quickly like nurses just aren't willing to do that anymore? Or do you think it's going to be kind of a long process? And if it is a very big positive, it's more like a year away.

Well, Andrew, it's tough to determine. My gut tells me that there are going to be in certain areas a shift towards having garments professionally laundered as opposed to allowing people to take them home. Health care is a great example of that. But there are a lot of places. I think that, for example, the no program or market might see some big opportunity there as employers are looking around and saying, these people are working here in this environment and then they're leaving and they're going to the store and they're going to the barbershop, and maybe we shouldn't have them doing that anymore. Maybe we ought to be providing a rental service for this. So I do think there's opportunity here. I think that we'll know at some point, as time goes by, how big this is going to be. But there are definitely -- we have seen examples in the last couple of months of both health care customers and nonhealth care customers and prospects coming to us to put additional people or new people into a uniform rental program because of this environment. And so that does show signs that, that could have a opportunity for our business.

We'll now take our next question from Tim Mulrooney. We'll now take our next question from Shlomo Rosenbaum.

Scott, can you talk a little bit about the fire, first aid, on particularly on safety actually growing in the current environment. Why aren't they having the same issue in terms of accessibility of clients just sequences for restocking and things like that. Is there -- is the business more on a kind of monthly payments besides some of the selected stocking? Can you just give us a little bit more detail why that one is not having the same impact maybe operationally?

Shlomo, a part of it is the makeup of their product line versus what the fire service business has the offer. And they're -- they have traditionally sold personal protective equipment in their product line. And so while they may not be able to get in front of all of their customers, they've had enough demand from existing customers to sort of fill the gap at this point. There have been some pretty good large and onetime sales of certain products, it could be face masks, it could be face shields and even in their business hand sanitizers for customers. And I think it's more that than it is access to the building.

And this -- Shlomo, this is kind of a strange time in a -- that fire protection business, for example, in a normal recession. We may see employee headcounts come down, we may see shrinking of customer businesses, but they still need this Fire Protection Service in a recession. This is so different. In this pandemic, businesses are just closed. And that's so different from what we might see in a normal down cycle where you can't even get access to them. They're still going to be operational, but you just can't get access yet. And so we think that there's -- this is a valuable service, and we think there's an opportunity to really see it come back as the reopening starts.

Just on the fire safety, is there a certain amount of like kind of maintenance for safety that -- there's just such a huge backlog that builds up with the stuff that it's really more a matter of catching up afterwards. Like I know fire extinguishers have certain times that you have to go through and check them and sort of sprinkler systems and -- can you talk a little bit about that?

Yes. You're right about that. They're -- if we can't get in to see a particular building, and they are due for inspection of those things. They're going to have to do that very quickly after they open back up. So in some ways, that maintenance part of it, if you will, of the service, there will be a bit of a backlog. And that's why we think there will be a reasonable rebound there compared to perhaps some of the other businesses because, as Mike said, if they had 20 people working there before, and there's only 10 now. They still have to have those fire extinguishers and their sprinkler systems inspected and certified that they're ready to go or they're in violation of the fire code and the fire marshal can shut them now.

We'll now take our next question from Tim Mulrooney at William Blair.

Can you guys hear me, okay?

We can now, Tim

Okay. Sorry, I don't know what happened before. Can you just talk about what's happening with pricing in this environment? I think you typically get 1 to 2 points per year. And if you're unable to kind of characterize exactly what price is today, can you talk about how pricing typically moves during a recessionary period?

Well, I'd say it this way. It is really difficult to give you any clear look at what's going on out there in the marketplace right now. It certainly is not a good time for anybody to be going out and trying to raise prices to customers that are going through this because I think every business in some way or another has been affected by this or are so busy like a health care provider, perhaps, that's the last thing they're going -- want to deal with. In prior downturns, I would say that, that would be a point in which we have seen competitors get more aggressive with pricing. They have lost some business. They've lost some volume in their operations. So they're trying to be aggressive to fill it back up. And that's pretty typical. We've grown through all past recessions. And I would say that while maybe it's a little more difficult to get the type of price increases, we are able to get price increases typically. I don't know when that's going to be able to start based on where we are right now. Maybe as we get room the next couple of months of restart and there gets to be some sort of new normal, we can give you a little bit more color on that in July when we report again.

Sounds great. And I'd just like to echo Gary's comment. It's great to have you join us on the call today, get your perspective. I've got one more for Mike. Mike, could you talk about your capital allocation priorities? And if those have changed since your last update call, how you think about CapEx right now? And what are your thoughts around capital deployment beyond CapEx?

Sure. As Scott talked about earlier, cash flow is positive even in this kind of difficult environment. From a CapEx, we talked about CapEx being very, very important to us. In this period of time, it's a little bit different, certainly. We will absolutely continue to do our maintenance CapEx. We do not want to get behind, and we are -- we continue to think about the longer term. And so maintenance CapEx, we'll continue to do. We won't see as much growth CapEx certainly, in this kind of environment. And so we will see CapEx come down. We will be prioritizing projects and reprioritizing a little bit based on the different growth parameters today versus a couple of months ago, and that may have some impact on CapEx too. I would expect that it will be a -- it will be reduced a quite bit though from what we're used to seeing each quarter. As it relates then to other capital allocation, Scott talked a little bit about M&A earlier. We certainly are interested in M&A, particularly in our current businesses. It's important to us, and we'll continue to look for those opportunities and be aggressive when it makes sense. That is an important part of our capital allocation. From a dividend perspective, we've raised it every year for -- since 1983. That's a Board-level decision. Scott will lead that conversation. And I think that's something that certainly will be part of our conversation over the course of the next 6 months. And buyback has been a great opportunity for us as well. And I would expect, as we move into fiscal '21, we'll start to see our capital allocation, including possible buyback opportunities, start to get back to our typical capital allocation like we've seen in the past. But this is a pretty disruptive period of time. So right now, in this quarter, this is about getting through the disruption, thinking about how it's going to affect our business and then more than likely, returning to the capital allocations that we've had in the past as soon as we believe it's prudent to do so.

That's all the time we have for questions. Mr. Hansen, I'd like to turn the conference back to you for any additional or closing remarks. Please go ahead.

Well, thank you very much for joining us tonight. Our best wishes go out to all of you and your families in this difficult time. We will issue our fourth quarter financial results in mid-July, and we look forward to speaking with you again at that time. Thanks very much.

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