Vestis Corporation 2026 Q3 Earnings Call
Review the key takeaways and the transcript of this earnings call.
- Vestis Corporation reported third quarter fiscal 2026 adjusted EBITDA of approximately $81 million, a 23% increase year over year on a covenant adjusted basis.
- Adjusted EBITDA margin expanded to 12.2% from 9.8% a year ago.
- Revenue for the third quarter was approximately $662 million, down 1.8% year over year, driven by a 4.5% reduction in volume but partially offset by a $0.04 increase in revenue per pound.
- Volume declined by approximately 4.5%, primarily due to exiting lower quality business with an average revenue per pound of $0.55.
- Cost of services decreased by approximately $15 million year over year, and SG&A declined by approximately $7 million or 6%.
- Net income increased by $11.7 million to $11 million compared to a net loss of $0.7 million in the prior year.
- Year to date transformation initiatives contributed roughly $30 million in cost savings towards an estimated $50 million for the year.
- Operating cash flow was $65 million and free cash flow was $47 million in the quarter, with adjusted free cash flow of $56 million excluding transformation-related cash expenditures.
- Net debt was $1.2 billion at quarter end, with $1.1 billion in principal bank debt outstanding and $352 million in available liquidity.
- The company invested $23 million in new capital assets during the quarter, including delivery fleet finance leases and industrial washers and dryers.
- Linen concentration decreased by 6% year over year, reflecting a shift to higher value product mix.
- The company entered an agreement to outsource corporate support functions, expected to generate approximately $10 million in annualized cost savings starting in fiscal 2027.
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Transcript
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Welcome to the Vestis Corporation Fiscal Third Quarter 2026 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. To enable others to hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Stefan Neely with Vallum Advisors.
Thank you, operator, and thank you all for joining us on the call this morning. Leading the call with me today is Jim Barber, President and Chief Executive Officer, and Adam Bowen, Interim Chief Financial Officer. Also with us on the call today is Bill Seward, Chief Operating Officer. Jim and Adam will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Jim, I want to remind everyone that today's discussion contains forward-looking statements about future business and financial expectations. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for such forward-looking statements. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission.
Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release and corresponding supplemental materials, which are available at ir.vestis.com. With that, I would like to turn the call over to Jim.
Thank you, Stefan, and good morning, everyone. We appreciate you joining us. Our third quarter results highlight consistent execution of our transformation plan. For the second quarter in a row, we grew adjusted EBITDA year-over-year and improved operating leverage, and we did it by running the same disciplined playbook across the business. Third quarter adjusted EBITDA was approximately $81 million, an increase of roughly $15 million or 23% year-over-year on a covenant adjusted basis. Adjusted EBITDA margin expanded to 12.2% from 9.8% a year ago. We again reduced our operating expenses, holding cost per pound flat year-over-year as we continued to exit low-quality volume, and for the first time as a public company, we grew revenue per pound year-over-year, up $0.04 or approximately 3%, driving a $0.04 improvement in operating leverage per pound year-over-year.
With that context, let me walk you through the progress we've made against each of our three strategic priorities. Beginning with operational excellence, our key metrics are improving consistently, and those gains are holding. Compared with the fiscal third quarter of 2025, plant productivity increased by 9%, on-time delivery improved by 80 basis points, and customer complaints declined by 74 basis points. These results come from executing the same discipline practices well, consistently, and with the customer at the center of everything we do. When we run our operations consistently, service improves and cost comes out of the business. Those are the leading indicators of durable financial performance. We also made meaningful progress in exiting low-quality revenue volume, reducing our linen concentration by 6% on a year-over-year basis.
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