Vestis Corp (VSTS)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 underperformed vs expectations: revenue $665.2M, down 6% YoY and 3% QoQ; adjusted EBITDA $48M (9.4% margin), or $63M excluding a one-time $15M bad debt adjustment; adjusted EPS was $(0.05) and $(+0.05) ex bad debt .
• Significant consensus misses: revenue missed by ~$25.6M, EPS missed by ~$0.20, and EBITDA missed (see Estimates Context) due to weaker existing-customer volume, seasonal softness, lower L&R billing, and elevated customer credits .
• Guidance pivot: FY25 outlook withdrawn; company shifted to quarterly guidance with Q3 revenue $674–$682M and adjusted EBITDA ≥$63M; dividend eliminated via credit amendment to prioritize deleveraging .
• Near-term catalysts: credit amendment raises covenant flexibility (5.25x through Q2-26), dividend suspension to accelerate debt reduction, and new CEO (Jim Barber) to drive operational improvements .

What Went Well and What Went Wrong

What Went Well

• New business momentum: $16.7M revenue contribution in Q2; installed recurring revenue up 10% QoQ and 35% YoY; field sales fully staffed with ~10% productivity gain per rep .
• Revenue run-rate improvement: average weekly revenue recovered each month since January; April back to December levels (e.g., Dec $52.1M, Apr $52.2M) .
• Liquidity and covenant flexibility: $293M available liquidity (incl. $264M undrawn revolver) and amended leverage covenant to 5.25x through Q2-26 to support turnaround actions .

Management quotes:

• “Our field sales and national account teams installed 35% more recurring revenue year-over-year and 10% more than in the first quarter.”
• “Average weekly revenue has improved for 3 consecutive months... current run rate is 3.4% higher than it was in January.”
• “We successfully executed an amendment to our credit agreement that gives us additional flexibility through the end of fiscal 2026.”

What Went Wrong

• Existing-customer volume softness: net volume (adds over stops) declined $6.5M QoQ; seasonal demand reduction in workplace supplies; credits issued to address service concerns .
• Lower L&R billing: ~$4M less loss & ruin revenue vs Q1, pressuring margins in a largely fixed-cost structure .
• Direct sales decline: down $7.3M QoQ (seasonal) and YoY impact from exiting a ~$26M national account in mid-FY24 .

Analyst concerns reflected in Q&A:

• Confidence in bottoming and durability of service improvements questioned; management cited seasonal normalization and April acceleration, but acknowledged cultural/operational fixes take time .
• Cost actions vs service investments: management balancing efficiency (plant consolidation, logistics optimization) with investments to stabilize service and retention .

Financial Results

Additional Q2 2025 items:

• SG&A: $148M (incl. $15M bad debt and $10M executive transition costs) .
• Net loss: $(28)M; diluted loss per share $(0.21) .
• Operating cash flow: $7M; free cash flow: $(7)M; capex: ~$14M .

Segment revenue breakdown:

KPIs and operational drivers:

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We have recovered the majority of the January decline in rental revenue… improvements supported our April average weekly revenue returning back to December levels.”
• “Adjusted EBITDA is sensitive to revenue changes given the relatively fixed cost structure.”
• “Given the recent events… we are shifting to quarterly guidance… Q3 revenue $674–$682M, and adjusted EBITDA at least $63M.”
• “As part of the amendment, we have agreed to restrict all dividends and share repurchases through the end of Q1 2027.”

Q&A Highlights

• Bottoming and confidence: Management expressed confidence in Q3 guidance and highlighted seasonal normalization and April acceleration vs last year’s pattern .
• Cost vs investment balance: Continuing plant/logistics optimization while prioritizing service investments to stabilize retention and credits .
• Free cash flow lens: No formal guidance; normalized annualized FCF context ~$80M after inventory normalization and seasonality, per CFO .
• Peer comparison/service mix: Softer volumes tied to heavier exposure to linen/hospitality; credits reduction underway .
• Leverage target: Committed to delevering; indicative target “not above 3x,” potentially higher than prior 1.5–2x discussion .

Estimates Context

Q2 2025 actual vs S&P Global consensus:

• Q3 2025 context: Consensus revenue $674.3M*, actual $673.8M — essentially in line; consensus EPS $0.069*, actual not provided in documents above (focus quarter is Q2) .
• Values retrieved from S&P Global.*

Key Takeaways for Investors

• Results missed consensus materially due to weaker existing-customer volumes, seasonal softness, and lower L&R billing; margin compression reflected fixed-cost leverage .
• Quarterly guidance introduced; Q3 targets imply stabilization with April run-rate; watch weekly revenue trajectory and credits reduction .
• Balance sheet strategy turned more defensive: covenant flexibility raised (5.25x), dividend suspended to accelerate deleveraging; liquidity remains solid at $293M .
• Sales engine is improving (install growth +35% YoY; net new business narrowing vs lost); closing the gap is a key inflection to monitor .
• Trading lens near term: sensitivity to sequential revenue changes is high given fixed costs; beats/misses will hinge on retention, service quality, and credits trajectory .
• Medium-term thesis: new leadership plus operational/commercial initiatives may unlock operating leverage; execution on service and route operations is pivotal .
• Risk watch: seasonality in workplace supplies, tariff impacts, and lingering service/retention challenges vs peers; management cites no macro-driven demand cutbacks so far .