Cintas Corporation (CTAS) Earnings Call Transcript & Summary

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 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 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% and 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, $25.36 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, 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 pensions. 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 managemental 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 processing 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% 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. DUS Control was 20%. Hygiene services were 16% and 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 to 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 of our things sites need the 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 innovation 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% 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 onetime 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 because 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 our 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 our own workwear to meet the company's apparent standard, which ultimately fell short of ownership expectations. We have to learn the breadth and quality that Cintas offering through our marketing efforts, they reached out to learn more. We introduced them to our product line, which delivers high-quality professional workload for virtually every job imaginable. Once the employees have the opportunity to wear to Cintas ComfortFlex Pro garments, they were pleased with the quality, appearance and functionality. The owners are the consistent professional limited 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 in sites. I'll now turn it over to Scott for more detail on our financials, capital allocation and assumptions for our guidance for fiscal 2017.

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, the 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, 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 assemblies. Fiscal 2027 will have 1 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 buyback 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 who will continue to work every day to earn the 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 1 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 you've 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 1 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 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. I 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 diluted -- adjusted diluted EPS guided 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 '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, our 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.

Our next question comes from Tim Mulrooney from William Blair.

I just want to build on that last 1 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 to 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 point level, '27 versus '26. And can you also talk about the headwinds and tailwinds, for example, energy cost? Do you think -- 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 aligns 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 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 to 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 is. 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 online 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 the 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 to move forward.

Our next question comes from Andrew Steinerman from JP Morgan 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 have 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 income margin question. But when you guys are running that comparison for us, are you comparing adjusted to adjusted GAAP to gap? 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 -- and we've dealt with whether it's tariffs or which -- and not only tears 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 attract 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 continue to 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. -- that creates leverage. And leverage goes up in the form of route density, overall size of individual customers certainly shows up in capacity utilization of our plants and 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 been 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 Smart Truck across our service platform. And when you take the revenue and then you put service -- you put Smart Truck 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 relationship with the customer. It can start with any one of our products on 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 all 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 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 in 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 it or a 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 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 money 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 where 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 mines 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.