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Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help you. Welcome to the Vestis Corporation Fiscal First Quarter 2026 Earnings Conference Call. At this time, all participants have been placed, and the floor will be open for your questions following the presentation. I would now like to turn the call over to Stefan Neely with Fellum Advisors. Please go ahead. Thank you, Operator. Thank you all for joining us on the call this morning.

Leading the call with me today is James Jay 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. James and Adam will offer prepared remarks, and then we will open the line for questions. Before I turn the call over to James, I want to remind everyone that today's discussion includes forward-looking statements about future business and financial expectations. The Private Securities Litigation Reform Act of 1995 provides the 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 James.

Thank you, Stefan, and good morning, everyone. Thanks for joining us. We started fiscal 2026 with disciplined execution and a clear focus on our business transformation framework. I want to walk you through what we have accomplished in the first quarter across our three pillars: operational excellence, commercial excellence, and network and asset optimization. Before that, I want to briefly touch on the financial performance for the quarter. Adjusted EBITDA was $70,000,000, improving sequentially from fiscal Q4 2025, which represented a low point in our profitability. This improvement is exactly what we set out to achieve with our transformation, reflecting early tangible progress from actions to bend the cost curve and drive better utilization of our people and our network. Now turning to the first pillar of our business transformation, operational excellence. In a route-based, asset-intensive business like ours, operational excellence starts with the basics: consistent service and a network that runs reliably every day. When we execute well in our plants, we improve productivity, enhance service quality, and unlock operating leverage across our network. In the first quarter, we made progress in the leading indicators that matter most to our customers. On-time delivery improved 300 basis points versus 2025. Plant productivity improved 7%, and customer complaints declined 12% year over year, and our average weekly lost business in Q1 declined 15% from the fourth quarter. These are not just statistics; they are leading indicators of operational efficiency and profitability. We expect the benefits to show up in customer retention, lower cost per pound, and stronger operating leverage. This is the kind of progress that builds momentum because when the network runs better, we can serve customers more reliably and create capacity for the right growth. Going forward, operating leverage is going to be our primary scorecard for value creation. In the first quarter, we saw a $0.02 improvement in cost per pound over fiscal Q1 2025, which translates to roughly $10,000,000 in adjusted EBITDA at our current volume and mix levels. We expect to see continued improvement in this trend throughout the year. And let me be clear, this is not a one-quarter effort. This is about building repeatable processes and a culture of accountability that produces better performance quarter after quarter. Given our operational priorities, I have asked Bill Seward, our Chief Operating Officer, to join us today, and he is prepared to provide additional context on our operational execution and key priorities in response to your questions after the conclusion of our prepared remarks. Moving on to the second pillar, which is commercial excellence. In the first quarter, we advanced the decision support tools we need to execute our strategy and improve revenue quality. This work lays the foundation for stronger commercial engagement, a more favorable product mix, a strategic pricing model, and better customer penetration. We have also begun strengthening local customer engagement, including the introduction of market development representatives to help deepen relationships and expand penetration over time. This approach brings more discipline to how we grow and how we create value, helping our team make informed decisions on mix, pricing, and how we serve customers, shifting the organization to growing value for Vestis. The third pillar is network and asset optimization. During the first quarter, we undertook market studies and analyzed where we see the best opportunities to grow profitably and serve customers reliably over time. In addition, we are actively marketing several non-core properties for sale as part of optimizing our asset footprint, and we intend to use the proceeds from any non-core property sales to repay debt. Stepping back, the key takeaway from the first quarter is that we are improving operating consistency while building the analytical foundation required to make better commercial and network decisions. That is how we expect to unlock the operating leverage that is embedded in this business. We have also taken steps to connect deeper with the decision makers driving actions across our business. For the first time since going public, we have assembled a comprehensive training program delivered in person here in our corporate office to educate our key leaders on operating leverage. As we look to the second quarter, we are beginning to advance pricing and product mix strategies, building directly on the operational progress already underway. We will continue to manage the business through the lens of cost per pound because that is where the operating leverage will show up most clearly, with every penny of improvement in cost per pound being worth approximately $5,000,000 of adjusted EBITDA on our current total volume and mix levels. And while we are encouraged, I will emphasize this: we are still early in the transformation. We are laying the foundation now so we can drive more consistent value creation over time. To wrap up, I am pleased with the progress we have made in the first quarter. Going forward, we are managing Vestis as a pennies business. The compounding effect of small, disciplined decisions on mix, pricing, delivery, plant, and SG&A is how we build sustainable, profitable growth and shareholder value. When we get that right, it allows us to not only improve financial performance, but to grow the business and create jobs in a way that is durable and supported by the economics. That is the standard and that is the focus of our entire team. With that, I will turn it over to Adam to walk through the financials.

Thank you, James, and good morning, everyone. Revenue for the first quarter was $663,400,000, a decline of $20,400,000, or 3%, versus 2025. Rental revenue declined $17,900,000 and direct sales declined $2,700,000, offset by a $200,000 benefit from the positive impact of foreign exchange on currency related to our Canadian business. Importantly, while revenue was down, total volume was flat when measured by pounds processed through our market centers. However, the product mix of those pounds has shifted meaningfully year over year. To measure volume, we calculate the weight in pounds of uniforms and workplace supplies processed by our plants at a category and subcategory level. Approximately 95% of our total revenue is related to products that are reflected in the volume of pounds processed. And we saw meaningful shifts in other workplace supply subcategories towards more linen-adjacent products such as towels and aprons, which are significantly more costly for us to process than a uniform. While our revenue dollar mix has only shifted 1% to workplace supplies from uniforms year over year, our volume product mix has shifted more dramatically, representing a lowering of revenue quality and a limiting of top-line operating leverage despite stable overall throughput. The shift in our product mix has negatively impacted revenue per pound by $0.04, or 3%, which equates to roughly $20,000,000, or the total amount of our year-over-year decline in revenue. Quite simply, Vestis has not experienced a diminishment in sales volumes, but the pounds we processed in 2026 carried lower revenue quality and thus lower revenue per pound than the prior year, which, when combined with other commercial practices that were in place prior to the beginning of our strategic business transformation, has negatively impacted total revenue. Improving our revenue quality and revenue per pound is directly in line with the commercial excellence priorities James discussed earlier. Our revenue focus is to drive a more favorable product mix, supported by stronger decision support tools and a more strategic approach to price and customer penetration over time. As we continue to execute these initiatives throughout the year, we expect the year-over-year quarterly changes in revenue to narrow in line with our full-year revenue guidance. Our cost of service was down $3,000,000 year over year on a combination of lower merchandise and delivery costs. Even though plant costs were up year over year related to shifts in product volume mix that I discussed previously, we saw a 3.7% improvement in our average weekly plant cost in December when compared to November, a financial improvement tied to the plant productivity gains James mentioned in his remarks. SG&A was down approximately $900,000 over the same period on a reported or gross basis. However, in 2026, SG&A expenses were impacted by approximately $7,800,000 in third-party support costs and $5,500,000 in severance related to our strategic business transformation. When adjusted for these items, SG&A was down approximately $11,000,000, or 12%, year over year, as we have taken aggressive action to improve our total operating expenses. Our cost per pound improved by $0.02 compared to the prior year, with cost measured as those operating expenses directly impacting adjusted EBITDA. At our current volume and product mix levels, $0.02 per pound equates to roughly $10,000,000 in adjusted EBITDA, the amount of cost offset we saw against our revenue decline of $20,000,000 year over year. First quarter adjusted EBITDA was $70,400,000, representing an adjusted EBITDA margin of 10.6%, compared to $81,200,000, or 11.9%, in the prior year. First quarter adjusted EBITDA margin is higher by 150 basis points than our fiscal fourth quarter 2025, driven by lower cost per pound of approximately $0.01 on consistent overall volume and revenue per pound when comparing the two quarters. Our first quarter stand-alone effective tax rate was 25.3%. We expect our full-year 2026 effective tax rate to be in the range of 25% to 30%. Now moving on to cash flow and our balance sheet. During the quarter, we generated $38,000,000 in operating cash flow and $28,000,000 in free cash flow, including a $12,700,000 benefit from working capital improvement, largely driven by more disciplined steps taken within our procurement and supply chain functions, positively impacting our inventory. As a reminder, our fiscal 2026 free cash flow guidance was neutral to the impacts of working capital. When excluding working capital improvements, our first quarter 2026 free cash flow would have been $15,600,000, in line with our full-year guidance of $50,000,000 to $60,000,000 spread evenly throughout the year. Our first quarter capital investments were $9,400,000, below our baseline target of $15,000,000 per quarter due to longer lead times for industrial laundry equipment investments we are making in our plants, which we expect will come in future quarters throughout fiscal 2026. Our strong operating cash flow of $38,000,000 in 2026 represents a $33,900,000 increase in operating cash flow year over year and a $39,000,000 increase in free cash flow over the same period. Improvements in working capital management are attributable to $27,000,000 in cash flow improvements year over year. Looking at our strategic business transformation impacted free cash flow, during 2026 we spent $9,000,000 in cash for third-party expenses and $5,600,000 in cash for severance. Excluding those transformation-related cash expenditures, adjusted free cash flow was $43,000,000, which reflects the strong cash-generative capabilities of our business. On the balance sheet, at the end of the first quarter, net debt was $1,290,000,000, and our principal bank debt outstanding was $1,160,000,000, including $19,000,000 on our revolving credit facility, which declined $7,000,000 from 2025. Our liquidity position is strong, with no debt maturities until 2028, and $317,000,000 of available liquidity, including $275,000,000 of undrawn revolver capacity and $42,000,000 of cash on hand. Our capital allocation strategy is to maintain a strong balance sheet and allocate capital towards high-return opportunities, with a firm focus on delevering. Our prudent balance sheet management and working capital actions are providing a stronger foundation from which to support our business. As James discussed, we are actively marketing several non-core properties for sale, all in various stages of the real estate disposition process. We intend to use the proceeds from any non-core property sales to repay debt. We anticipate delevering actions taking place in the fiscal second quarter, our current operating quarter. Today, we are reaffirming our outlook for fiscal 2026. We continue to expect that revenue for the year will be between flat to down 2% as compared to fiscal 2025 revenue on a 52-week basis. We also continue to expect that adjusted EBITDA for the full year 2026 will be in a range of $285,000,000 to $315,000,000, with 5% successive quarterly improvements beginning with the second quarter. Additionally, we continue to expect fiscal 2026 free cash flow to be in the range of $50,000,000 to $60,000,000, assuming capital expenditures are generally consistent with 2025. As it relates to our free cash flow guidance for the year, we continue to expect working capital to be generally flat on a full-year basis. With that, Operator, please open the line for questions.

Thank you. The floor is now open for questions. Our first question is coming from John Ronan Kennedy with Barclays. Please go ahead. Your line is open.

Hi, good morning. Thank you for taking our questions. For the revenue per pound, declined at 2.8%. I think it was due to an element of mix in legacy commercial practices. Can I confirm how we should expect that to trend for the year? And then I understand there may be a lot, but what would be the most important drivers from a pricing mix action or the commercial initiatives to improve that? And when should we think about how that could potentially inflect and show in results?

Yes. Ronan, it is Adam. Thanks for your question. With respect to the remainder of the year, you can expect this on a full-year basis to be flat to down 2% comparing to FY 2025. We are reaffirming that guidance this morning. So generally, expect to see kind of consistent trends in revenue per pound throughout the year as we work towards the midpoint of that guidance. And some of the most important levers, which I would let James talk to in more detail here, are going to be focusing on shifting that mix, strategic pricing, and a couple of other initiatives that he will dial in, in more detail.

Thanks, Adam. So look, the plan is to improve revenue per pound throughout this year. A lot of that is going to be timing based. We have already started in the first quarter. We will continue each quarter to add to that, to turn revenue per pound up that supports the plan. I would also, though, tell you really quickly, I would not do revenue per pound in isolation. I would do it in concert with cost per pound. It is super important because that is going to reset the basis of what good revenue per pound looks like in this business. So, we will continue to adapt going forward.

Thank you. Appreciate it. And then on the sequential EBITDA growth assumptions, I believe it was guided to 5% sequential adjusted EBITDA growth for each remaining quarter, and I know you touched on some of these key metrics. How should we expect those to play out sequentially? And what are, again, the most important operational and commercial assumptions underpinning that sequential progression? And any upside or downside risk to that, please?

Yes. Ronan, I can talk a little bit to how that is going to flow off through the year as far as our guidance goes on adjusted EBITDA. Remember, for FY 2026, we are guiding to $285,000,000 to $315,000,000 adjusted EBITDA on a full-year basis. So if you plan that out sequentially across the quarters, looking at that 5% sequential improvement, you will be able to see kind of the differences that are coming through in adjusted EBITDA through Q2, Q3, Q4 successively. And if you work back to that cost per pound calculation that James mentioned, you will be able to get there. Of course, use Q4 2025 exit rate as your benchmark when you do those differences to be able to get the incremental uplift that we are going to see throughout the year. And just to be clear, from Q4 to Q1, that is about $5,000,000, and remember, there was $40,000,000 in-year benefit from our transformation, and we saw $5,000,000 of that in Q1 from an improvement in $0.01 per pound between the two quarters.

Our next question comes from Stephanie Moore with Jefferies. Please go ahead. Your line is open.

Hi, good morning. Thank you for the question. Maybe just start, could you comment on what you are seeing from a general macro standpoint or customer demand standpoint? Any slowing or maybe reduction in overall demand that can be pointed to just more of a macro standpoint? Be helpful. Thank you.

Stephanie, it is Adam. I can comment a little bit there. We are still concentrated in the same key verticals that we have been concentrated in year over year. So we have seen no shifting in our macro vertical concentration. We are seeing really no waning in demand. And as I mentioned in our remarks, our volume is consistent on a pound basis year over year. So we are putting the same amount of work through the network that we put through last year on a per-pound basis. The difference is that mix shifting, which is a part of our commercial excellence aspect of our transformation.

I would add, Stephanie, it is James, that I think that as we start out this transformation, the concept of the macro is really secondary in our business right now. It is getting the foundation of this right so we can grow as we need to grow for all the stakeholders. That will outweigh anything macro in this business in the near term. But that is how I kind of think about it.

Absolutely. No. And I think well understood, and that is a good segue into just my follow-up question there. So maybe James, as you think about your time the last, I guess it is not a year, let us just say nine months roughly, now if you look at the transformation underway, how would you calibrate your progress thus far? Are you ahead of schedule, aligned with schedule, and as we think about the next, let us just say, twelve months, where do you think we should see the biggest change from an operation standpoint? Thanks.

So a couple, I need to bifurcate it because second half I am going to get to Bill Seward to talk a little bit about the operations as well. So depending on what sport you think about, if I am in baseball, I would say we are in the first inning right now. That is where we are. And this is a continual move quarter over quarter over quarter, and it will be a blend of cost per pound improvement and revenue per pound improvement. There are multiple layers behind it of opportunity in this business, which is why in the opening comments we made it is embedded in this business. The value is there. We just have to unlock it going forward to plan to do so. It will be both of those levers. That is why we are going to bring operating leverage in the business, so we can keep score on that. And I will have Bill talk for a second about one of the service metrics in the operations that we have put in on plant production, kind of where we are.

Yes. Thanks, James. I think the way I think about your question is that the service comes along with the cost and the revenue per piece as well. So what we are seeing is, sequentially, month over month since we have kind of leaned into the transformation, that we are getting better outcomes on cost and, really importantly for our customers and for our shareholders, our service levels are tracking with that. So I agree with James, early innings for sure.

Thank you. Our next question comes from Tim Mulvaney with William Blair. Please go ahead. Your line is open.

James, Adam, Bill, good morning. Just digging into some cost KPIs here. So I wanted to ask about that plant productivity metrics, which showed a 7% increase. Looks like you measure it in terms of pounds processed, pounds processed per what? Per hour? Per day? You just help me understand that—

I am sorry to interrupt you. Per operating hour. And the idea there is that we have had some tools and some pathology in place in the past that was kind of underutilized, I would say. We are leaning in on it with really good visibility, daily visibility to what our productivity levels are, as I mentioned a moment ago, also daily visibility to what our service levels are to make sure that we do not just get the cost, but we maintain service and improve outcomes for our customers at the same time.

Got it. So that 7% improvement in plant productivity, is that directly related then to that $0.02 we see in cost per pound? Can you connect those ideas for me? And can you also talk a little bit about, you know, the things that you are doing that drove those efficiency gains? And I guess where you think you are along this journey to get that wash alley efficiency up to stop?

So, this is James. Let me put a couple of things together for you. And I like the line of questioning too because that is kind of where we are going with the whole thing. The first question you asked was, is it related to the $0.02? And the answer to that is no. No, not in the first quarter. But we also made the point that December is where it started to move forward, and so that is where it started to move and more impactful going forward so far. It will show up. And so even in the second quarter, it has picked up pace in the cost per pound going forward. There is no question about that. I think the other piece is that coming from a long-time UPS background that we had an army of engineers behind us doing time measurements and working on all these things. Vestis already had some really good technology, in my opinion, in it to actually take each building in the network and define what good looks like, what a 100% effective of a building should be. They just had not quite pulled it together yet to move it into this transformation mode and convert it to cost per pound, and that is what is going on. And so you will get that in each step of the way, we will continue to optimize the buildings, and that opens up more capacity and opens up more ability to grow as upon the way they can flow those pounds through the network.

And let me add one thing there to what James mentioned. The way we are doing cost per pound, you look in our materials, you will see that it is those costs directly impacting adjusted EBITDA, which is essentially operating expenses adjusted for the add-backs for adjusted EBITDA. If you take a look at that calculation, you will be able to see kind of what is driving that cost per pound.

Yes. Anna, hey, that is a great question. Thank you. We are still roughly on our new business side, 40% of them being non-programmers, 60% of them being programmers, and have not seen a dramatic shift there.

I would add to Adam's response, it is James, that we mentioned in the prepared remarks that we are introducing market development representatives into our growth model. And very clearly, they will have more feet closer to the frontline where the customers are, and they will be focused on continuing to grow both sides of that growth equation, both non-programmers and those that are already in the industry.

And this concludes the Q&A portion of today's call. I will now turn the call back to Stefan Neely for closing remarks.

Thank you, Nikki, and thank you everyone for joining us today. We appreciate your time and your interest in Vestis. If you have any questions, please do not hesitate to contact us at ir.vestis.com. We look forward to speaking with you again next quarter. Have a great day.