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Vestis Corp (VSTS)·Q3 2025 Earnings Summary

Executive Summary

  • Revenue of $673.8M, down 3.5% YoY; gross margin fell ~200 bps to 27.0%; Adjusted EBITDA was $64.0M; diluted EPS was $(0.01) . Versus consensus, revenue was essentially in-line, but EPS was a material miss (consensus $0.069*) .
  • Q2’s Q3 guidance implied revenue of $674–$682M and Adjusted EBITDA ≥$63M; Vestis delivered Adjusted EBITDA above the floor but revenue came in just below the low end by ~$0.2M .
  • Management’s near-term tone is cautious: churn continues to outpace conversion; pricing, product mix, and cost-of-service optimization are the core levers, with a broader 2026 plan expected on the Q4 call .
  • Liquidity stood at $290M (incl. $24M cash), net leverage increased to 4.50x; the amended covenant allows up to 5.25x through F2Q26, and management expects to remain compliant .
  • Potential stock narrative catalysts: execution on value-based pricing and Q4 initiatives, visible churn improvement/retention stabilization, and clarity on the 2026 operating roadmap .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EBITDA of $64.0M (9.5% margin) beat the ≥$63M guidance floor; gross profit increased q/q and gross margin improved by 70 bps sequentially (26.3% → 27.0%) .
  • Cost actions reduced delivery cost pressure; operating working capital improvements—especially a $12.7M inventory reduction—supported positive FCF of $8M and return on working capital of 133% TTM .
  • CEO message: focus on unlocking operating leverage via “value-based pricing, favorable product mix and efficient cost of service,” with modernized technology infrastructure to enable data-driven execution .

Key quotes:

  • “I’m pleased that our third quarter results were in line with our expectations and that we generated positive cash flow during the period.” — Jim Barber, CEO .
  • “We will focus on… value based pricing, favorable product mix and efficient cost of service.” — Jim Barber, CEO .

What Went Wrong

  • Rental revenue declined 2.7% YoY and direct sales declined 14.2% YoY; net customer losses impacted revenue by $14.6M, and lower-price product mix pressured margins .
  • EPS of $(0.01) missed consensus ($0.069*) and declined vs $0.04 in Q3 2024, reflecting continued churn, unfavorable pricing mix vs offboarded customers, and still-elevated interest expense ($22.5M) .
  • SG&A fell YoY but selling expense rose by $4.5M to support field sales; despite improved cost-to-serve, new installs carried lower pricing than churned accounts, driving net rental revenue decline .

Financial Results

Consolidated Performance vs Prior Periods

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Millions)698.2 665.2 673.8
Gross Profit ($USD Millions)202.5 175.3 182.1
Gross Margin (%)29.0% 26.3% 27.0%
Adjusted EBITDA ($USD Millions)86.9 47.6 64.0
Adjusted EBITDA Margin (%)12.4% 7.2% 9.5%
Free Cash Flow ($USD Millions)27.7 (6.9) 8.0

EPS and Revenue vs Consensus (S&P Global)

MetricQ3 2024Q3 2025 ActualQ3 2025 Consensus
Diluted EPS ($)$0.04 $(0.01) $0.069*
Revenue ($USD Millions)698.2 673.8 674.3*
Adjusted EBITDA ($USD Millions)86.9 64.0 63.3*

Values retrieved from S&P Global.*

Segment/KPI Details

ItemQ3 2025
Rental Revenue YoY Change (%)(2.7%)
Direct Sales YoY Change (%)(14.2%)
Net Customer Loss Impact ($USD Millions)(14.6)
Decreased Customer Penetration ($USD Millions)(3.4)
Direct Sales—National Account Loss ($USD Millions)(4.3)
FX Impact ($USD Millions)(0.8)
KPIQ3 2024Q2 2025Q3 2025
Rolling 12-Month Business Retention (%)92.9% 92.4% 91.9%
Net Leverage Ratio (x)3.98x 4.16x 4.50x
Total Liquidity ($USD Millions)324 293 290

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ3 2025$674–$682M Actual: $673.8M Slightly below low end
Adjusted EBITDAQ3 2025≥$63M Actual: $64.0M Met/Above
RevenueFY 2025$2.80–$2.83B Not updated in Q3 release Not reiterated
Adjusted EBITDAFY 2025$345–$360M Not updated in Q3 release Not reiterated
DividendFY 2025$0.035 declared in Q1 “No additional dividend payments going forward” (timing effect noted) Eliminated
Net Leverage CovenantThrough F2Q264.50x pre-amendment 5.25x allowed via amendment Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q1 2025)Previous Mentions (Q-1: Q2 2025)Current Period (Q3 2025)Trend
Value-based pricingExpected to aid bottom line; sequential improvements targeted Guidance framed; cost actions ongoing Core lever to unlock operating leverage; model being built Intensifying focus
Product mix disciplineNot highlightedMix noted as a driver Emphasis on margin-accretive growth vs volume Sharper selectivity
Cost of service/logisticsCost savings expected Network & logistics optimization roadmap Plant reliability, capacity utilization, variable/fixed mix Execution phase
Churn vs conversionNew volume to outpace losses next quarter Lost business down q/q but still > new Churn outpacing conversion; retention 91.9% Still a headwind
Working capital/FCFTemporary AR timing issue; focus on cash FCF negative; inventory built ahead of tariffs Inventory reduction; positive FCF; continued tight management Improving
Macro/hiring—Tariff anticipation drove inventory Hiring levels viewed as neutral; focus on execution Neutral
Capital allocation/leverageVoluntary debt prepayment; dividend declared Covenant amended; deleveraging priority; dividend ceased Maintain strong liquidity; expect covenant compliance Delever focus sustained

Management Commentary

  • Strategy: “We will focus on the key inputs that drive operating leverage… value based pricing, favorable product mix and efficient cost of service,” with tech modernization for data-driven decisions .
  • Near term outlook: “Our expectation is that the near term performance will be similar to what we saw over this last quarter… committed to seeing Vestis improve in 2026” .
  • CFO detail on revenue/margin drivers: churn carried higher pricing than new installations; lower product mix pricing offset volume throughput; delivery cost reductions helped margins .
  • Liquidity/covenants: $290M available liquidity (incl. $24M cash), net leverage 4.5x; covenant at 5.25x through F2Q26; expect compliance .

Q&A Highlights

  • Operating model and execution: CEO emphasized plant reliability, customer service, pricing integrity, and frontline empowerment; 2026 roadmap to be shared on Q4 call .
  • Macro demand/commentary: Hiring levels perceived as neutral; focus on modeling and operating leverage irrespective of headwinds .
  • Industry health/competitive landscape: TAM expanding; ability to run 120 “closed loop” networks enables parallel experimentation and GM-level profit focus .
  • Strategic alternatives: Management using external advisors to accelerate operational tools (pricing, cost models, technology), not pursuing transactions currently .
  • Working capital/FCF: Continued tight management; inventory actions contributing to positive cash generation .

Estimates Context

  • Revenue was effectively in-line versus consensus ($673.8M actual vs $674.3M consensus*) .
  • EPS was a material miss (actual $(0.01) vs $0.069 consensus*), reflecting churn/mix and interest expense headwinds .
  • Adjusted EBITDA was broadly in-line/slightly above consensus ($64.0M actual vs $63.3M consensus*), and above the guidance floor .

Values retrieved from S&P Global.*

Where estimates may need to adjust:

  • EPS trajectories likely need downward revisions absent near-term churn improvement or faster pricing/mix uplift; margin gains from cost-to-serve could partially offset .
  • Revenue run-rate appears stable; guidance achievement (except a minor shortfall vs the low end) supports modest adjustments rather than wholesale changes .

Key Takeaways for Investors

  • Execution rather than macro is the near-term driver: watch pricing integrity roll-out, product mix discipline, and plant/network reliability initiatives .
  • Churn remains the central headwind; monitor retention and the conversion–churn gap for signs of sustainable inflection .
  • Balance sheet/liquidity provide runway (liquidity $290M, covenant at 5.25x); deleveraging remains a priority, with dividend eliminated post-Q2 .
  • EPS miss vs consensus and revenue just below guidance low end could weigh on sentiment until Q4 roadmap adds clarity; near-term performance guided to remain similar .
  • Positive FCF and working capital improvements are encouraging; continued inventory and credit control execution can support cash generation .
  • For trading: the next catalyst is Q4 commentary/2026 plan specificity; evidence of churn stabilization or pricing/mix uplift could re-rate margin expectations .
  • Risk watchlist: customer retention, pricing vs offboarded accounts, interest expense drag, and ongoing legal/ESG/regulatory disclosures embedded in forward-looking risk statements .