Cintas Corporation (CTAS) Earnings Call Transcript & Summary

Good morning, and welcome to Cintas Corporation's 2020 Annual Shareholders Meeting. At this time, I would like to turn the meeting over to Scott Farmer, Cintas Chairman and CEO.

Thank you, and good morning, everyone. On behalf of the entire Board, our officers and employee partners. I'd like to thank you for attending our 37th Annual Shareholders' Meeting. We continue to conduct these meetings virtually to allow our shareholders across the globe to participate regardless of their geographic location. A playback of this meeting will be available on our virtual shareholder meeting site within 24 hours, and it will remain available until our next shareholders meeting. As a reminder, the conduct and rules for today's meeting are posted on this meeting website as well. Following the conclusion of my remarks, there will be a brief opportunity for questions about the proxy items voted upon during the meeting. These questions from shareholders may be submitted in the text box field provided in the web portal during this meeting. We are asking shareholders who submit a question to include their name and e-mail address as well. All other questions can be addressed by calling our Investor Relations department at any time. I'd now like to introduce the members of our Board of Directors. After the introduction of our Board members, we'll move into the formal portion of our meeting. Our Cintas directors are: Gerald Adolph; John Barrett; Melanie Barstad; Karen Carnahan; Bob Coletti; Scott Farmer; Jim Johnson; Joe Scaminace; and Ron Tysoe. I want to thank my fellow board members for their leadership, guidance and service to our company, especially during the last year as we've negotiated through the challenges associated with the COVID-19 pandemic. I also want to extend the company and the Board's congratulations and best wishes to Jim Johnson on his retirement from the Board. Jim has served 11 years as a Cintas director and has provided excellent guidance and oversight during his tenure. We thank Jim for his service on the Audit committee and then nominating in Corporate Governance Committee during his term as a director. We'd now like to begin the formal portion of the meeting where we take care of all of the business matters. Tom Frooman, General Counsel and Secretary of Cintas certify that on September 15, 2020, proper notice of the date, time and meeting purpose, along with the web address for today's virtual meeting was given to all shareholders of record on September 2, 2020. I hereby appoint Amy Pavich from Broadridge as the inspector of the election. I'm pleased to announce that there are present by proxy a sufficient number of voting shares of the company to constitute a quorum. At this time, any shareholders who are logged in, but who have not already submitted a vote of their shares may do so now by clicking the Vote Here button on your screen. May I have a motion to dispense with the reading of the minutes of the previous shareholders meeting held on October 29, 2019.

So moved.

Thank you. The next order of business is the election of directors. The following persons have been nominated for election by the nominating committee of the Board of Directors to serve as directors until the next annual meeting of shareholders or until their successors are elected: Gerald Adolph; John Barrett; Melanie Barstad; Karen Carnahan; Bob Coletti; Scott Farmer; Joe Scaminace; and Ron Tysoe. May I have a motion?

So moved.

Amy, what are the results of the election?

While a final tabulation will be made, all directors have been elected.

Thank you, Amy. The nominees are duly elected. Next, we'll announce the results of voting on item 2 on the proxy card, which is an advisory vote to approve named executive officer compensation, which is commonly known as say-on-pay. We're currently conducting say-on-pay votes every year. May I have a motion?

So moved.

Amy, what are the results of the election?

While a final tabulation will be made, the executive compensation has been approved.

Thank you, Amy. The next item on the proxy card is for the ratification of the appointment of Ernst & Young as Cintas' independent auditors for fiscal year 2021. May I have a motion?

So moved.

Amy, what are the results of the election?

The resolution ratifying the appointment of Ernst & Young has passed.

Thank you, Amy. The final item on the proxy card is a vote on a shareholder proposal requesting that the company provide an annual report on political contributions. As detailed in the proxy statement, the Board recommends a vote against this proposal. Today, Louis Malizia, from the International Brotherhood of Teamsters will read the proposal. Louis, are you there?

Yes, I am, sir.

Okay. You may go ahead.

Thank you, Mr. Chairman, members of the Board of Directors and fellow shareholders, I'm proud to present the international broad of Teamsters General fund shareholder proposal to the Cintas 2020 Annual Meeting. As long-term shareholders of Cintas, we support transparency and accountability in corporate electoral spending. Disclosure is in the best interest of the company and its shareholders. Supreme Court recognized this in its 2010 Citizens United decision, when it said, disclosure permits citizens and shareholders through the speech of corporate entities in a proper way. This transparency enables the electric to make informed decisions and give proper weight to different speakers and messages. The court. And we've -- and now we believe most mainstream investors agree that only through disclosure, can we evaluate the gaps in our company's handling of its political activity and the risks associated with such spending. Companies face much greater risk today because of the rise of social media and millennial activism. Criticism can go viral, customers can walk if they see company spending they don't like. Brand reputation can be hurt and employee morale can be affected. News media pays much closer attention to company spending and what it associates a company with. This poses greater problems in today's hyperpolarized political environment. The recent released conflicted consequence as a report from the center for political accountability details this. Cintas and our Board of Directors must do better. Our Board does not have a publicly viewable policy regarding oversight of corporate political spending. Our Board does not have a specified committee to review corporate funds used for political expenditures. Company nor does it -- disclose company payments to trade associations and other tax-exempt organizations that can be used for political purpose, nor does our Board approve the political expenditures. This corresponds with no disclosure of the payments that are considered dark money, which is payments to trade associations and 501(c)4 organizations, nor does the company disclose direct contributions to candidates, parties political action committee's, 527 groups, independent expenditures and ballot initiatives. Our company's lack of disclosure is making it anachronistic among the corporate community. I urge fellow shareholders to vote for Item 4 on the proxy and send our Board a strong message to move into the light. Thank you, Mr. Chairman.

Thank you, Louis. Amy, what are the results of the election?

While a final tabulation will be made, the shareholder request for an annual report on political contributions failed.

Thank you, Amy. This concludes the business portion of the meeting. May I have a motion to adjourn?

So moved.

Thank you. The business portion of the meeting is adjourned, and soon, we'll take some questions. But before we do, I'd like to remind our shareholders that the COVID-19 coronavirus pandemic remains a significant disruption to the economy and to our business. Our objectives include keeping our employees, whom we call partners, healthy and safe and serving our customers in any way possible. I'm pleased with our performance on both priorities, and I thank our employee partners for their unwavering passion, strong work ethics and commitment. Despite the short term uncertainty, I'm confident in our ability to continue to manage volatility while maintaining focus on our compelling long-term objectives. Our value proposition of getting businesses ready for the workday by providing essential, unparalleled image, safety, cleanliness and compliance resonates loudly today in a society focused on health, readiness and outsourcing of noncore activities. In addition to these priorities of taking care of our employee partners and our customers, we remain committed to delivering shareholder value. In fact, I'm pleased to announce that just this morning, our Board of Directors approved a dividend to our shareholders payable on December 4 of $2.81 per share, which is a 10.2% increase over last year's regular dividend. We've now increased the annual dividend paid to our shareholders for the 37th consecutive year. In addition, our Board announced a change in dividend policy from an annual dividend to quarterly dividends. This morning, the Board declared a quarterly dividend of $0.70 per share, which will be paid on December 4. As shown by these dividends, we remain committed to delivering shareholder value even in this challenging period. We now have a few minutes to answer questions. We'll pause briefly to see if we proceed then.

Okay. We have a couple of questions. I will read the first one. Cintas does not currently have a formal policy regarding diversity and determining director nominees. Shareholders are increasingly looking for a diverse board due to the strong positive correlation between board diversity and maximized shareholder returns. Shareholders want to see the best candidates chosen for Board seats. Will Cintas evaluate adopting the Rooney Rule to include women and candidates of color in every candidate pool? Thank you for the question. Actually, we do have a formal policy regarding diversity and determining board nominees. It's located on our website at www.cintas.com under Investor Relations and the corporate governance guidelines. That policy was revised in July 2020 and it includes what is commonly known as the Rooney Rule. So I think the answer to your question is yes. The second question is, when will the final tabulations and roll call be available? We filed this with the SEC in our 10-Q. That filing actually will happen sometime around early January. So that's when the results will be known. At this point, it doesn't look like there are any other questions, give it just a second here. Okay. With no other questions, I just want to thank everybody again. And let you know that if you have questions at this point, you're free to contact our Investor Relations department at area code (513 ) 972-4195. Thank you and have a good day.