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    VSTS
    Earnings call· Jun 2026(Q3 FY26)

    Vestis Q3 FY26 earnings call VSTS

    Aug 11, 2026 Source

    Executive summary

    Vestis Q3 FY26 — Adjusted EBITDA up 23%, Free Cash Flow Guidance Raised

    Vestis Corporation delivered strong Q3 FY26 results, driven by consistent execution of its transformation plan, leading to significant adjusted EBITDA and free cash flow growth. The company successfully improved revenue quality through disciplined pricing and exiting low-quality volume, while focusing on operational excellence and network optimization. Management is preparing for FY27 with a bottom-up strategy to address market center variability and drive future profitable growth.

    Highlights

    5

    • Adjusted EBITDA increased by $15 million or 23% year-over-year to $81 million.

    • Adjusted EBITDA margin expanded to 12.2% from 9.8% a year ago.

    • Free cash flow guidance for FY26 raised to $160 million-$170 million, up $30 million at the midpoint.

    • Revenue per pound grew $0.04 or 3% year-over-year, the first increase since becoming a public company.

    • Operating cash flow improved $42 million year-over-year to $65 million.

    Concerns

    3

    • Pounds processed declined by 4.5% year-over-year due to intentional exit of unprofitable business.

    • Revenue decreased by 1.8% year-over-year to $662 million, primarily due to volume decline.

    • Field sales segment is not growing, requiring strategic correction.

    Guidance & targets

    12
    CategoryTargetConfidence
    Free cash flow
    $160M-$170M
    high materiality
    High
    Revenue
    flat to down 2%
    high materiality
    Medium
    Adjusted EBITDA
    $310M-$315M
    high materiality
    High
    Implied Adjusted EBITDA
    $84M-$89M
    medium materiality
    High
    Effective tax rate
    approximately 25%
    low materiality
    High
    Annualized cost savings from outsourcing
    approximately $10M
    medium materiality
    High
    Annualized transformation benefits
    roughly $75M
    high materiality
    Medium
    Annualized EBITDA
    roughly $346M - $350M
    high materiality
    Medium
    Volume growth
    grow volume
    high materiality
    High
    Plant investments in lower-performing market centers
    about 70%
    medium materiality
    High
    Market Development Representatives (MDRs)
    triple to go 4x
    medium materiality
    High
    Exit EBITDA margin
    around 13%
    medium materiality
    High

    Segment performance

    1
    SegmentRevenueYoYQoQMargin
    Canada
    Revenue increasing year-over-year by about 70 bps in Q3, performing above expectations.
    		—70 bps——

    Operational metrics

    39
    Adjusted EBITDA
    $81Mup 23% year-over-year
    Q3 FY26

    Covenant adjusted basis, increased by approximately $15 million year-over-year.

    Adjusted EBITDA margin
    12.2%vs 9.8% prior year
    Q3 FY26

    Expanded from 9.8% in Q3 FY25 on a comparable/covenant adjusted basis.

    Revenue
    $662Mdown 1.8% year-over-year
    Q3 FY26

    Includes neutral foreign currency impact from Canadian business. Primarily driven by 4.5% reduction in volume, partially offset by strategic pricing.

    Pounds processed
    4.5%declined year-over-year
    Q3 FY26

    Decline due to intentional exit of unprofitable business, improving revenue quality.

    Revenue per pound
    $1.42up $0.04 year-over-year
    Q3 FY26

    First year-over-year increase since Vestis became a public company, driven by disciplined pricing and product mix.

    Cost of services
    $15Mdecreased year-over-year
    Q3 FY26

    Driven by lower merchandise, plant, and delivery costs, reflecting increased plant productivity.

    SG&A
    $7Mdeclined year-over-year
    Q3 FY26

    Reflecting continued focus on streamlining the organization and managing operating expenses.

    Net income
    $11Mincreased by $11.7M
    Q3 FY26

    Compared to a net loss of $0.7 million in the prior year.

    Adjusted operating expenses reduction
    $27M
    Q3 FY26

    Expenses that directly impact adjusted EBITDA, driven by reduction in cost of service and SG&A.

    Cost per pound
    $1.24flat year-over-year
    Q3 FY26

    Remained flat year-over-year despite volume decline from exiting lower quality revenue.

    Operating leverage per pound
    $0.04increased
    Q3 FY26

    Marks a return to levels not seen since Q3 FY24, directly contributing to net income and adjusted EBITDA growth.

    Transformation benefits
    $30M
    YTD FY26

    In-year cost savings towards an estimated total of approximately $50 million for FY26.

    Transformation benefits
    $5M
    Q1 FY26

    Realized in fiscal first quarter of 2026.

    Transformation benefits
    $10M
    Q2 FY26

    Realized in fiscal second quarter of 2026.

    Transformation benefits
    $15M
    Q3 FY26

    Realized in fiscal third quarter of 2026.

    Transformation-related cash expenditures
    $8.5M
    Q3 FY26

    Consisting of third-party costs and severance payments.

    Net debt
    $1.2B
    Q3 FY26 end

    At the end of the quarter.

    Principal bank debt outstanding
    $1.1B
    Q3 FY26 end

    At the end of the quarter.

    Term loan debt repaid
    $30M
    Q3 FY26

    Used cash generated from operations to repay debt.

    Capital assets investment
    $23M
    Q3 FY26

    Includes cash investments and new finance leases for delivery fleet.

    Capital assets investment
    $62M
    YTD FY26

    Includes cash investments and new finance leases for delivery fleet.

    Available liquidity
    $352M
    Q3 FY26 end

    Strong liquidity position with no debt maturities until 2028.

    Undrawn revolver capacity
    $294M
    Q3 FY26 end

    Part of total available liquidity.

    Cash on hand
    $58M
    Q3 FY26 end

    Part of total available liquidity.

    Properties marketed for disposition
    11
    Q3 FY26

    In various stages of disposition process; proceeds will be used to reduce debt.

    Free cash flow conversion
    54%
    YTD Q3 FY26

    In line with historical company expectations of around 50%.

    Free cash flow conversion
    53%
    FY26 midpoint

    Implied by updated midpoint guidance of $165M FCF over $312.5M adjusted EBITDA.

    Management incentive bonus (MIB) accrual
    $15M-$20M
    FY26

    Accrued expenses for the MIB program, first time at this level since Vestis became public. Payments subject to final FY26 results.

    Adjusted EBITDA
    $64M
    Q3 FY25

    Adjusted EBITDA in the prior year.

    Adjusted EBITDA margin
    9.5%
    Q3 FY25

    Adjusted EBITDA margin in the prior year.

    Adjusted EBITDA (comparable)
    $65.8M
    Q3 FY25

    Excluding a $1.8 million adjustment for pre-spin-related inventory.

    Merchandise and service improvement
    $4.3M
    Q3 FY26

    Improvement contributing to operating cash flow increase.

    Revenue per pound of exited volume
    $0.55
    Q3 FY26

    Average revenue per pound for the volume intentionally exited.

    Volume kept (of low-quality volume)
    75%
    Q3 FY26

    Percentage of low-quality volume that was retained.

    Volume exited (of low-quality volume)
    25%
    Q3 FY26

    Percentage of low-quality volume that exited the business.

    MDR average weekly revenue
    2xvs new sales rep
    Q3 FY26

    Average weekly revenue produced by Market Development Representatives compared to a new sales representative.

    MDRs in model
    30%
    Q3 FY26

    Percentage of target Market Development Representatives currently in the model.

    DSOs
    lowestsince IPO
    Q3 FY26

    Days Sales Outstanding are at their lowest level since the company went public, reflecting strong collections.

    Net income
    positive
    YTD FY26

    Net income has turned positive for the year.

    Industry KPIs

    4
    MetricValueDetails
    Volume4.5%%
    Core price3-5%%
    EBITDA margin12.2%%
    Churn retention—

    Deals & partnerships

    1
    leading third-party providerOutsourced service agreement to streamline corporate support functions (back-office finance, IT, customer service support).

    Arrangement designed to create a more efficient and agile corporate support organization.

    Capital programs

    1
    Industrial washers and dryers installationunderway
    Period spend: $18M cash, $5M finance leases
    Spent to date: $40M cash, $22M finance leases
    Funding: Cash investments and new finance leases

    Benefit: 30 new industrial washers and dryers installed YTD, target ~60 by year-end

    Investment in new capital assets to provide clear financial returns and support growth, without a step-up in overall capital intensity.

    Risks & headwinds

    4
    Decline in pounds processedQ3 FY26

    4.5% year-over-year

    Mitigation: Intentional exit of unprofitable business to improve revenue quality.

    Underperforming market centersOngoing, focus for FY27

    Lowest performers weigh on overall results; margin gap between strongest and lowest markets is meaningful.

    Mitigation: Targeted investment (70% of plant CapEx in quadrants 3 & 4), leadership, and customized playbooks to move them up.

    Field sales segment not growingCurrent

    One of six growth drivers not growing.

    Mitigation: New leadership (Steve, Karla Perez), expansion of Market Development Representative (MDR) program.

    Potential industry consolidationOngoing

    Merger in second request

    Mitigation: Evaluating market positioning and network configuration to be ready to act on shifts in competitive dynamics; considering exiting market centers not returning shareholder value.

    What to watch in Q4 FY26

    5

    Volume growth in FY27

    FY27
    CurrentPounds processed declined 4.5% YoY in Q3 FY26.
    TargetVolume growth in FY27.

    Why it matters

    Volume growth is a key component of top-line expansion and overall business health, especially after strategic exits of low-quality volume.

    I will tell you, we plan to grow in '27. How will be a function of the next couple of months of work.

    Q&A highlights

    8

    Asked for color on top-line revenue for Q4 FY26 and outlook for FY27, specifically on volume growth.

    Jim Barber stated that revenue per pound is encouraging and expects growth in Q4. He identified 6 growth drivers, with 5 currently growing, and plans to address the field sales segment. He emphasized that FY27 will see volume growth, with details to be provided next quarter. He also highlighted the focus on improving lower-performing market centers (quadrants 3 and 4) through targeted investment and leadership.

    “I think lastly, the other thing I'd bring into this because I'm not going to give guidance for '27 yet on growth, but I will tell you, we plan to grow in '27. How will be a function of the next couple of months of work.”

    asked by Stephanie Benjamin Moore · answered by James Barber

    2 min read6 chapters

    Detailed Narrative

    01

    Transformation Plan Execution & Operational Excellence

    Vestis' Q3 results demonstrate consistent execution of its transformation plan, leading to improved adjusted EBITDA and operating leverage. Key operational metrics like plant productivity (up 9%), on-time delivery (up 80 bps), and customer complaints (down 74 bps) showed consistent gains. The company also streamlined corporate support functions through an outsourcing agreement, expected to generate $10 million in annualized cost savings from FY27, with some benefits realized as early as Q4 FY26.

    02

    Commercial Excellence & Revenue Quality

    Disciplined pricing execution was the primary driver of year-over-year revenue performance, resulting in the first year-over-year increase in revenue per pound (up $0.04 or 3%) since Vestis became public. This was achieved by intentionally exiting unprofitable business, leading to a 4.5% decline in pounds processed but improving overall revenue quality, with linen concentration decreasing by 6% year-over-year. The average revenue per pound for exited volume was $0.55, significantly below the $1.24 cost per pound.

    03

    Network Optimization & Market Center Variability

    A significant focus for future growth is addressing the variability across Vestis' market centers. While many operate at industry-leading margins, lower performers weigh on overall results. The company plans to invest approximately 70% of its plant investments in the bottom two quadrants (3 and 4) of its 120-125 market centers in FY27, aiming to move them up one quadrant each through targeted capital and leadership. This initiative is considered as significant for FY27 as the transformation was for FY26.

    04

    Free Cash Flow & Balance Sheet Strength

    Vestis generated strong operating cash flow of $65 million and adjusted free cash flow of $56 million in Q3, driven by improved net income and disciplined working capital management. The company repaid $30 million of term loan debt and ended the quarter with $352 million of available liquidity, including $294 million of undrawn revolver capacity and $58 million cash on hand. Full-year free cash flow guidance was raised to $160 million-$170 million, reflecting a year-to-date conversion rate of approximately 54%.

    05

    Management Incentive Bonus (MIB) Program

    For the first time since becoming a public company, Vestis has accrued expenses for its MIB program at a significant level, estimated between $15 million and $20 million for FY26. This reflects a commitment to building a performance-based, rewards-driven culture and aligning compensation with strategic execution. These accrued expenses, while normal for businesses, have not been normal for Vestis until now, and represent a banked amount that will not degrade year-over-year margins in the same way.

    06

    Market Development Representatives (MDRs) & Growth Strategy

    The company plans to triple to quadruple its MDR force, which is currently showing high productivity, generating twice the average weekly revenue of a new sales rep. MDRs focus on patch-based growth, securing fair pricing (3-5% API) in non-national accounts, and driving deeper customer penetration. This program, currently with only about 30% of target MDRs in the model, is expected to be in full flight by FY27 and is a key component of future volume growth.

    AI-generated summary of the company’s earnings call. Not investment advice.