Yehuda Silverman

Yehuda Silverman (Morgan Stanley), on behalf of Toni Kaplan, inquired about the snow business's shift towards more fixed-fee contracts and how this change is expected to impact the business heading into and through fiscal 2026.

Answer

CEO Dale Asplund explained that the strategy focuses on providing full-year service to existing land customers and moving away from riskier time-and-material contracts. This shift has led to an increase in fixed contracts, providing confidence in the 2026 guidance. He acknowledged that some markets will remain variable but emphasized that the strategy is making the snow business more predictable, with a commitment to delivering the bottom line regardless of snow levels.

Yehuda Silverman asked about customer conversations regarding pricing for next year, their willingness to accept increases, and any segment-specific differences. He also inquired about lead conversion, strategies for targeting younger demographics, and whether new staff are converting leads faster than typical seasonal expectations.

Answer

Ken Krause (EVP and CFO) stated that Rollins' pricing strategy is working, targeting CPI-plus (3-4% this year) and evaluating similar levels for 2026, expecting it to contribute to margins. Jerry Gahlhoff (President and CEO) reported that lead closure rates are up due to improved sales processes, training, and new teammate ramp-up. He highlighted Orkin's marketing efforts on platforms like TikTok and Facebook, specifically targeting 30-45 year-old homebuyers who prefer professional services.

Yehuda Silverman of Morgan Stanley asked if the transaction declines in April represented recoverable bookings or permanent cancellations. He also requested more specifics on the drivers behind the reductions in G&A and cost of revenue during challenging periods.

Answer

CEO Paul Abbott clarified that the April softness was a temporary dip driven by heightened macroeconomic uncertainty at the time, rather than recoverable transactions. CFO Karen Williams attributed the expense reductions to the company's ongoing $110 million cost savings program, which is driving productivity and efficiency gains in traveler care operations and across the enterprise.

Yehuda Silverman, on for Toni Kaplan at Morgan Stanley, asked if the number of customers implementing new budget restrictions is expected to rise, what scenarios would lead to the high or low end of guidance, and for clarification on the reduction in incremental investment spend.

Answer

CEO Paul Abbott explained that future budget restrictions depend on macro conditions, with the guidance midpoint assuming the current 'weaker but stable' environment persists. The high end of guidance could be reached if confidence returns. CFO Karen Williams clarified that the planned investment spend was reduced from $65M to $50M due to productivity gains and spend phasing, which is distinct from the company's cost-saving actions that were actually increased.

Yehuda Silverman of Morgan Stanley inquired about the slight decrease in new business wins, asking for reasons why some companies delayed decisions into 2025. He also asked if recent economic trends have altered sentiment or travel budgets for small and midsized businesses (SMEs).

Answer

CEO Paul Abbott explained that the new wins figure can be lumpy due to the timing of large deals and that SME wins actually increased. Regarding SME sentiment, he noted that growth has been stable but muted due to higher prices and macroeconomic pressures, a trend consistent with broader spending data. He anticipates moderate improvement in the second half of 2025.

Yehuda Silverman from Morgan Stanley asked about subscriber growth strategies beyond bulk purchases to gain market share. He also inquired about any shifts in target demographics or key product themes shaping the security industry.

Answer

CEO Jim DeVries expressed confidence in the core 'do-it-for-me' business, a retooled DIY strategy launching by early 2026, and a renewed focus on the small business channel. CFO Jeff Likosar added that the proprietary ADT+ platform is a key enabler for feature-led growth, allowing for new offerings like Trusted Neighbor and biometric locks to attract customers with specific needs.

Yehuda Silverman of Morgan Stanley asked about the record-low attrition rate, questioning how much further it could improve and what an ideal target would be. He also followed up on whether the company's guidance assumes moderating inflation.

Answer

CEO Jim DeVries attributed the record 12.6% attrition to improvements in relocation and voluntary losses, supported by rising NPS scores and new retention initiatives. While his long-term goal is an attrition rate starting with '11', the immediate focus is on continued incremental progress. CFO Jeff Likosar added that the rate is reported on a gross basis. Regarding inflation, he stated that beyond the potential impact of tariffs, the company's guidance already considers factors like price escalations.

Yehuda Silverman from Morgan Stanley, on for Toni Kaplan, asked about the primary reasons customers switch providers and which products or services are most effective in attracting new business.

Answer

President & CEO Todd Schneider explained that the initial product is less important than simply starting a relationship, which can then be expanded through cross-selling. EVP & COO James Rozakis clarified that the main focus is on converting businesses that currently self-serve their needs, stating that about two-thirds of new business comes from these 'no-programmers,' a strategy that has proven highly successful.

Yehuda Silverman of Morgan Stanley asked about the primary drivers that cause a customer to switch service providers and which Cintas products or services are typically the most attractive entry points.

Answer

President & CEO Todd Schneider explained that the initial entry point is less important than simply starting a relationship, which often leads to cross-selling. EVP & COO James Rozakis elaborated that approximately two-thirds of new business comes from converting 'no programmers'—businesses that currently handle their needs in-house or through retail—which is a core part of Cintas's long-term strategy.