管理層發言
Good day, everyone, and welcome to the Cintas Corporation Announces Fiscal 2026 Third Quarter Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jared Mattingley, Vice President, Treasurer and Investor Relations. Please go ahead, sir.
Thank you, Ross, and thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer; Jim Rozakis, Executive Vice President and Chief Operating Officer; and Scott Garula, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2026 third quarter results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission. I'll now turn the call over to Todd.
Thank you, Jared. We are pleased to have delivered another successful quarter, showcasing the resilience and strength of our value proposition. Cintas achieved record revenues and strong operating margins while continuing to invest for future growth. Third quarter total revenue grew a strong 8.9% to $2.84 billion. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 8.2%. Each of our three route-based businesses continues to grow at attractive rates. Turning to profitability. We achieved all-time high gross margins in each of our three route-based businesses. Strong top line growth along with benefits from our strategic investments and cost-saving initiatives continue to help drive margin expansion. Gross margin as a percent of revenue was 51%, a 40 basis point increase over the prior year. Operating income grew to $659.9 million, an increase of 8.2% over the prior year. When you adjust for the one-time gain we recognized in the third quarter of last year, operating income would have grown 11%. Diluted EPS of $1.24 grew 9.7% over the prior year. When you adjust for the one-time gain we recognized in the third quarter of last year, diluted EPS would have grown 12.7%. Turning to guidance. We are raising our fiscal 2026 financial guidance. We expect our revenue to be in the range of $11.21 billion to $11.24 billion, a total growth rate of 8.4% to 8.7%. We expect adjusted diluted EPS to be in the range of $4.86 to $4.90, a growth rate of 10.5% to 11.4%. The adjusted EPS guide does not include the impact of nonrecurring transaction expenses related to UniFirst. Before I turn the call over to Jim, I'd like to provide some comments on the recently announced merger, our agreement to acquire UniFirst. We remain excited about this opportunity and the long-term value creation for Cintas and its shareholders, our employee partners, and the team partners of UniFirst and the benefits to our collective customers. When we announced the transaction two weeks ago, we indicated that the merger was subject to approval by UniFirst shareholders, regulatory clearance in both the U.S. and Canada, and other customary closing conditions. We and UniFirst have begun the process for satisfying these closing conditions. In order to avoid creating speculation, we will not be providing any additional commentary on the process. We will, however, update the market as appropriate. With that, I'll turn it over to Jim to discuss the details of our third quarter results.
Thank you, Todd. Our business continues to perform exceptionally well. We're adding new customers who rely on us for image, safety, cleanliness, and compliance needs while successfully cross-selling additional solutions to our existing customer base. Retention remains at record levels, while pricing is consistent with historical levels. Turning to our business segments. As Todd mentioned, we delivered attractive growth rates across all of our business segments. Organic growth by business was 7.3% for Uniform Rental and Facility Services, 14.6% for First Aid and Safety Services, 10% for Fire Protection Services, and 3.1% for Uniform Direct Sale. Gross margin percentage by business was 50.3% for Uniform Rental and Facility Services, 58.1% for First Aid and Safety Services, 50.5% for Fire Protection Services, and 41.4% for Uniform Direct Sale. Gross margin for the Uniform Rental and Facility Services segment increased 30 basis points from last year. The 50.3% gross margin is the highest gross margin ever for this segment. We executed at a high level in the third quarter and our continued strong top line growth helped drive results. We've been laser-focused on managing the many inputs we control effectively. We've invested in technologies like SAP to improve our capabilities and the strong performance of our supply chain continues to be a significant strategic advantage for us. Gross margin for the First Aid and Safety Services segment was 58.1%. This is also an all-time high. We are investing in route capacity to serve more customers, leadership, and management trainees to build our talent pipeline, advanced technologies to drive efficiency, and we're adding selling resources, all of which are fueling the attractive double-digit growth we are seeing. It's important to remember that margins of all our businesses can fluctuate from quarter to quarter based on several factors, including things like revenue mix and the timing of our investments. Incremental margins were effectively 28% for the quarter after adjusting for the one-time gain on the asset sale last year, right in line with where we like to be. The current macro environment is certainly complex. We help businesses navigate this environment by letting them focus on running their business. Delivering consistent excellence in a complex environment is never easy, but customers want reliable partners with proven solutions. Our diversified customer base and strong value proposition continues to resonate, particularly in our four verticals: health care, hospitality, education, and state and local government. In addition to being aligned with resilient sectors of the economy, our addressable market is very large, and our solutions remain essential for businesses of all sizes regardless of how complex the economic environment. We have consistently shown the ability to convert businesses over to a managed rental solution, typically around two-thirds of all of our new customers. In addition, we've shown the ability to grow multiples of job creation and GDP. Lastly, we're very enthusiastic about integrating UniFirst and its team partners into our organization, which we believe will strengthen our ability to better serve our customers. As a reminder, we anticipate that transaction will close in the second half of calendar 2026. With that, I'll turn the call over to Scott to discuss our operating income, capital allocation performance, and 2026 guidance assumptions.
Thanks, Jim, and good morning, everyone. The exceptional results we delivered in terms of revenue growth and gross margin expansion translated into continued strength in operating margins and cash flow. Selling and administrative expenses as a percentage of revenue was 27.8%, which was a 60 basis point increase from last year. When you adjust for the one-time gain on the asset sale last year, SG&A would have been flat year-over-year. Third quarter operating income was $659.9 million compared to $609.9 million last year. Operating income as a percentage of revenue was 23.2% in the third quarter of fiscal 2026 compared to 23.4% in last year's third quarter. Adjusting for the one-time gain last year, operating income as a percentage of revenue would have increased 40 basis points year-over-year. Our effective tax rate for the third quarter was 20.6% compared to 21% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the third quarter was $502.5 million compared to $463.5 million last year. This year's third quarter diluted earnings per share was $1.24 compared to $1.13 last year, an increase of 9.7%. Earnings per share increased 12.7% after you adjust for the one-time gain last year. Our disciplined approach to capital allocation has positioned us well to finance the recently announced agreement with UniFirst. With leverage expected to be about 1.5x debt-to-EBITDA at closing, we maintain flexibility for deploying capital across each of our priorities. During the first nine months of fiscal 2026, we have returned $1.45 billion in capital to our shareholders in the form of dividends and share buybacks. Earlier, Todd provided our updated guidance for the remainder of the fiscal year. In addition, please note the following in the guidance. Both fiscal 2025 and fiscal 2026 have the same number of workdays for the year and by quarter. Our guidance does not assume any future acquisitions. Our guidance assumes a constant foreign currency exchange rate, the fiscal 2026 net interest expense of approximately $101 million, a fiscal 2026 effective tax rate of 20%, which is the same compared to our fiscal 2025, and the guide does not include the impact of any future share buybacks or significant economic disruptions or downturns. As both Todd and Jim have mentioned, we are excited about the recently announced UniFirst acquisition. While the deal is expected to close in the second half of calendar 2026, we expect to incur nonrecurring transaction costs related to the acquisition. The adjusted diluted earnings per share guide excludes the estimated impact of these transaction costs. Transaction costs expected to be incurred during fiscal 2026 are estimated to have an impact on diluted earnings per share in the range of $0.03 to $0.04. In addition, beginning with the fourth quarter, we will break these costs out on our income statement as a separate line item to provide visibility to these transaction-related costs. With that, I'll turn it back to Todd for some closing remarks.
Thank you, Scott. In closing, our strategic investments in technology, capacity, talent, and sales capabilities are driving solid growth and margin progression. These commitments position us to sustain long-term performance while helping customers achieve and surpass their image, safety, cleanliness, and compliance goals. We're maximizing returns on every dollar invested to maintain our momentum and deliver superior service to our customers. I'd like to thank our employee partners for their exceptional dedication to our customers and the outstanding work they do for Cintas every day. I'll now turn it back over to Jared.
Thank you, Todd. That concludes our prepared remarks. Before we begin the question and answer session, I would like to restate Todd's earlier comments regarding the UniFirst acquisition. To prevent any speculation, we will refrain from providing further details on that process. We will, however, keep the market updated as necessary. Now we are ready to take questions from the analysts. Thank you.
分析師問答
And our first question comes from Tim Mulrooney from William Blair.
Just two procedural ones. Scott, I just wanted to follow up on the guidance thing that you were mentioning at the end. How much of that $0.03 to $0.04 of EPS related to the UniFirst transaction was incurred in the third quarter versus expected in the fourth quarter? I didn't see a reconciliation table for the third quarter. I just wanted to make sure everyone is aligned on their models. And I also noticed SG&A was a little bit higher in the third quarter than what folks were expecting. So I thought maybe there was a little bit of deal-related expense there in the third quarter, I'm not sure.
Yes, Tim, good question. The estimate that we provided of that $0.03 to $0.04 is related to the fourth quarter and the fiscal year guide. Any costs that were incurred in Q3 were immaterial. As far as the comment on SG&A being a little higher, just to remind everyone of that one-time gain last year, that represented about 60 bps. So when you take that into consideration, SG&A was effectively flat year-over-year. And if you go back really over the last three fiscal years, Q3 is typically elevated due to the timing of certain expenses like the reset of payroll taxes. In fact, when you go back to last fiscal year and you back out the adjustment for the one-time gain, we were up 100 basis points sequentially last year and actually 70 basis points sequentially if you go back to fiscal year '24. So we feel really good where we are with the SG&A expenses. And when you back out the one-time gain, it's flat year-over-year.
Yes. Good point, Scott. I think maybe consensus didn't fully factor in everything because of the one-time gain last year. So that's a good reminder. And then just as my follow-up, apologies if I missed it, but how much were energy costs as a percentage of revenue in the quarter? And what's your expectation for next quarter? Given the increase we've seen in oil prices over the last few weeks, I think this is an important question for investors.
Yes, Tim, good question. Energy for the quarter was 1.7%, which was flat year-over-year and up 10 basis points over the previous quarter. Certainly, the increase in gas prices will have an impact. But just I want to remind everyone that only 60% of our energy costs are related to fuel for our vehicles, which when you do the math on that, that equates to about 100 basis points. So if you just look at fuel has been continuing to increase, but if you assume a 30% increase in fuel cost that would be sustained over an entire quarter, that would add 30 basis points of cost to our results. So yes, it has an impact, but not something that we feel that we can overcome and we have contemplated this in our guide.
And our next question comes from George Tong from Goldman Sachs.
Can you provide an update on higher-level customer purchasing behaviors in the current macro environment, if you're seeing any changes, any increases or reductions?
George, this is Todd. I'll address that question. As Scott and Jim mentioned, the situation is indeed complex. However, our customer base has shown considerable resilience. This is closely linked to our value proposition, which continues to resonate. In complex environments like this, opportunities can arise, and we assist our customers in improving their operations. By outsourcing certain tasks to us, they can focus on managing their business and serving their guests, patients, or customers, depending on how you want to describe it. There hasn’t been any significant change in our customer base; it remains quite resilient, and I believe our value proposition still holds strong.
Got it. That's helpful. And then going back to an earlier point on fuel, you mentioned that fuel expectations are contemplated in your full-year guide. Can you elaborate on what exactly you're assuming for the remaining quarters of the year in terms of how fuel will trend? And how you plan to pass along any changes in fuel costs to customers in the form of pricing?
Yes. Thank you, George. As Todd mentioned, I mean, clearly, this is a dynamic environment. And our guide includes our best estimate of the increase in energy cost. As far as our approach to mitigating this or I think you've said passed along, I'll let Todd answer that.
Yes, George, it is definitely a dynamic environment. If you observe the changes in oil prices from last night to this morning, they fluctuate frequently. That said, we have factored an increase in gas prices at the pump into our guidance. Regarding how we manage these costs, we do not implement a fuel surcharge, which has not been our historical approach. As Scott noted, fuel at the pump represents about 100 basis points of our total sales percentage, so it is not our biggest expense. We also take a long-term perspective and look for alternative ways to eliminate inefficiencies rather than simply passing the costs on to customers. Our goal is to maintain consistency for our customers while finding efficiencies elsewhere in our business, all while still achieving our financial objectives.
And our next question comes from Justin Hauke from R.W. Baird.
I have a question regarding the expectations for capital expenditures. Historically, your capital expenditures as a percentage of revenue have been much lower than those of UniFirst. I understand that you are significantly larger, which contributes to that difference. However, I’m curious about whether you anticipate that capital expenditures will trend slightly higher as a percentage of revenue during the initial years of integration.
Yes, Justin, good question. And I would just say we just announced the agreement a couple of weeks ago. We'll know a lot more as we close the deal. But when we closed this merger, we still expect not only will we continue to generate strong cash flow, UniFirst generates strong cash flow. We'll have a strong balance sheet. We talked on our UniFirst call about at closing, we would expect debt-to-EBITDA being at 1.5. So we're in a great position. And I don't see our capital allocation priorities really changing. Our first priority has always been reinvesting back into the business through CapEx, followed by strategic M&A. And then I will continue to look at returning capital back to our shareholders in the form of dividends and buybacks. So more to come on what we would look at in the future with CapEx as a percent of revenue as we close the deal. But I would really not anticipate any material changes in our capital allocation priorities.
Justin, I'd like to mention that UniFirst's capital expenditures were higher as they were working to improve their technology and other areas. We are in a strong position regarding technology, and we will keep investing there to ensure we remain competitive in the market. It's worth noting that unlike most companies involved in similar transactions, UniFirst wasn't for sale. This allowed them to run their business with a long-term perspective, making significant long-term investments. Therefore, we are not acquiring an asset that requires substantial capital investment to enhance facilities and meet standards. They operate a solid business and have a management approach similar to ours. Their culture aligns with long-term thinking and investing for their employees and customers, which we believe positions us very well for the future.
And our next question comes from Manav Patnaik from Barclays.
This is Ronan Kennedy on for Manav. You commented on retention at record levels, pricing at historic levels. Could you please provide some further color as to how we should think about what those levels are as a reminder, and then the trends and drivers versus your expectations for new business and cross-sell? And then anything to call out from specifically strong organic drivers at a respective segment level, please?
Ronan, this is Jim. I'll take that question. I'll start with it. And if we start to think about our growth formula and what we're attempting to achieve every quarter, we do like to target that mid- to high single-digit total growth rate as an organization. The major contributors to that growth as you correctly pointed out is our new business acquisition. And a reminder, two-thirds of that new business acquisition comes from that no-programmer or do-it-yourself space, and that continues to perform very well for us, and we really like the trend line there. Retention levels for us have stayed around that steady, that 95% rate, and we are really comfortable with where that is at this point. Pricing is at our historical levels, which we've consistently said is in that 2% to 3% range. And then the remainder of the growth, if you kind of put all those together, you start with a negative 5%, you add in 2% for pricing, and you want to get up to 8%, the majority of that is new business, but then the remainder is that cross-selling opportunity selling into the current customer base, which has been highly effective for us this year. And we think that there's a long runway of opportunity within our current customer base as we continue to provide great value. We think about it in the long term. We've made nice investments in the product line and the technology and try to make it easier to do business with us, and the customers in this type of an environment is complex, are looking for steady answers and they know they can rely on us. So we've had a lot of success this past year. So I would say new business and cross-sell slightly continuing to improve and the others right where we expected them to be.
Jim, I appreciate it. And then for my follow-up, kind of a follow-up to Tim and George's questions. But beyond gas prices, I guess, focusing on the all-time high gross margins in each of the segments. Can you just further unpack the drivers there? I know it's strategic investments, cost initiatives, and assess the sustainability of them? I know there may be a potential immediate impact if there is inflation, but also unpack the other components of your key cost buckets from a gross margin standpoint beyond gas, whether that's materials or the production expense, the labor, et cetera. So drivers of gross margins and sustainability in the near term and longer term, given the current dynamics.
Ronan, I'll start on that and see if anybody wants to add color. And I'll start at the consolidated level and say that the gross margin at 51% for the quarter, obviously, a great quarter for us. The team did an excellent job at execution for the quarter. And I think a little bit of that is a demonstration of our culture and the belief that nothing is ever as good as it can be and that there's always an opportunity to improve processes and work out inefficiencies. But if we look at and we think about the quarter in and of itself, first of all, there was no one-timers, nothing significant from a one-timer perspective that helped the quarter. The key drivers of that is our primary focus, which is revenue growth, and we like strong revenue growth to continue to create leverage. And that certainly contributed in all three of our route-based businesses. We are always looking for initiatives to remove inefficiencies and expenses out of the business. And you can see that across all of our businesses, certainly in our rental business is a big focus for them. Maybe the other one to call out is revenue mix in both our First Aid and Fire Protection businesses. That's important for us and revenue mix can fluctuate a little bit quarter to quarter. So this was a good quarter for us on that revenue mix. And then, of course, timing of investments and what those investments look like. So all around a strong quarter of execution. So the team did a fantastic job, and those were the key inputs. But then just a quick reminder that it can fluctuate quarter to quarter. Running a business isn't linear and that we're going to continue to make investments in the business for the short-term delivery of results, and then long term to be able to set ourselves up for long-term continued success.
And then anything to be mindful of from the other cost buckets and potential inflation there on, whether it's materials, labor or otherwise?
Ronan, thanks for the question. This is Todd. Certainly, it's a dynamic environment on tariffs as well. But our supply chain team has done a magnificent job of navigating that. We've said in the past, we're not immune to tariffs. But any increase in tariff or decrease in that is going to take time to run through our system, whether we have to get into our supply chain and then amortize that. So I would say nothing material there to factor in.
And our next question comes from Josh Chan from UBS.
I guess in terms of your investments, how do you feel about your level of investments kind of exiting 2026 and into '27? Just thinking about how well-funded do you think your growth initiatives are at this point?
One of the things about our culture here at Cintas is that we are continually investing. As a result, you might notice fluctuations in certain years, but we believe we are in a strong position regarding our investments and our future plans to invest. There won't be any significant changes in that regard. You should anticipate that we will keep investing because we are optimistic about the future, which appears very promising. We see a significant opportunity in converting non-programmers and are eager to pursue that. We operate in a landscape with 16 to 20 million businesses in the U.S. and Canada, and approximately 180 million people who go to work each day in these regions. The potential is tremendous. We are investing for the future because we believe it looks bright, and we need to prepare ourselves to compete effectively in these areas.
Sure. That makes a lot of sense. And then I guess in terms of your comment about the good balance sheet position. Does that imply that you can continue to perhaps repurchase stock as you desire even through this process? Or how should we think about sort of the pace of buybacks?
Josh, thanks for the question. As I mentioned, we continue to generate strong cash flow, strong balance sheet. And certainly, we're not going to be limited due to our capital allocation. However, there are restrictions from the time that we signed the agreement with UniFirst through the expected UniFirst shareholder votes. You might also guess that we were limited during Q3 with share buybacks, just to being in a quiet period as we negotiated the UniFirst agreement and completed confirmatory due diligence. But once those restrictions are lifted, we'll continue to be opportunistic with our buyback strategy.
And our next question comes from Jasper Bibb from Truist Securities.
Just wanted to ask what you're seeing in wearer levels at existing customers in uniform?
Jasper, I'll start. Our customer base is quite resilient, and our growth from current customers has slightly improved. We see the job reports, which indicate that they're not as strong as we would like, but our customers are still holding on to their employees. We see a great opportunity to introduce and cross-sell additional products to that customer base, and overall, things are pretty steady.
Nice, that makes sense. And then I know we just got UniFirst. But after that closes, I imagine you're going to be looking for more acquisitions outside the uniform business. So just any thoughts on what might be next for you after that point? And maybe how you're thinking about the consolidation opportunity in the Fire business would be interesting.
Sure, Jasper. We're acquisitive in each of our route-based businesses. We'll certainly be busy in our rental business here shortly. But the strength of our balance sheet, the strength of our infrastructure, and our other businesses allow us to be acquisitive in all those. So we will continue to go down that path. And those are tough to pace and tough to predict on deal flow, but it won't change how we think about it. That being said, in the Fire business you asked specifically, the mix of business really matters to us. So we try to think long term about that. We prefer service business much more so than installation type business. So it just has to be the right deal. But we have been very acquisitive in that business over the past months and years, and we'll continue with that approach.
And our next question comes from Andrew Steinerman from JPMorgan Securities.
This is Alex Hess on for Andrew Steinerman. I want to touch on a couple of recent initiatives you have. First is the recently announced 3-way contract with you guys, Ford, and Carhartt, and the second being the launch of what I think is a new personalized Apparel+ program on your website. Both of those seem to be targeting the trades and manufacturing a bit more. Just wanted to maybe start, is there something you're seeing in those goods providing industries that maybe you're leaning into those a little more for sales growth near term?
Thank you for the question. I'll start. Our relationship with Carhartt and Ford has been strong for many years, and we have great partnerships with both companies. This initiative focuses on providing products that people are eager to wear. Specifically, Jim Farley has shown great enthusiasm for offering products that his team wants to wear and can take pride in. Partnering with Carhartt felt completely natural for us, and we're genuinely excited about it. We believe the trades sector is growing in demand and presents a significant opportunity for us. Currently, we don't have nearly enough participants in our uniform program from the trades, despite their clear need for garments. These roles align perfectly with our offerings, so we're looking forward to a promising future in that segment. Jim?
I appreciate the question, Alex. Apparel+ ties back to our company culture and values, emphasizing innovation and being adaptive to new opportunities. This initiative aims to provide outfits for any job in North America, ensuring that we offer the right apparel that people want to wear in various industries. Our approach has proven to be very successful. Regarding specialty trades, as Todd mentioned, this market consists of a significant number of employees who align well with our value proposition, presenting substantial opportunities. I have a specific example related to property maintenance. One company was purchasing uniforms for their staff through retail and e-commerce, aiming to present a professional and cohesive image to their customers. However, over time, they struggled to maintain this standard due to fluctuating styles, leading to inconsistency in their uniforms. Employees had different interpretations of what clean and representative attire should look like, and management found it time-consuming to handle ordering and size adjustments, leading to budget management challenges. Once they were introduced to our fully managed rental program, they received the quality uniforms they desired, specifically branded with the Carhartt name, which employees appreciated. This consistency enhanced their corporate image, and our professional laundry service ensured the uniforms remained presentable. They regained valuable time to focus on customer care instead of uniform management, which also simplified budgeting. This example illustrates why we aim to expand our product line and share the benefits of our rental program with other industries, as we believe there is a significant market opportunity ahead.
Got it. That's awesome, guys. And then maybe as a follow-up. Obviously, you guys are in the midst of implementing SAP into the Fire segment, and you guys have implemented SAP into a host of acquisitions over the years. Maybe you can just highlight one on Fire, the progress and prospective benefits, but also just sort of learnings from running that ERP implementation successfully over the years and what you might be able to do with that going forward?
Yes, we are preparing to implement our technology into the Fire business, and we're excited about it. We believe it will bring standardization, leading to a better customer experience and an improved experience for our employee partners. Our focus on these technologies aims to simplify doing business with us while making it easier for our employee partners to perform their jobs. We expect this will manifest in various ways, such as customer retention, employee partner retention, and productivity. However, it does take time, and implementing technology is never straightforward. Fortunately, we have solid experience in this area and are well-prepared for the rollout. Once we finalize our deal with UniFirst, we’ll be similarly equipped to proceed. I believe the team at UniFirst will be encouraged by the enhancements, which will streamline their work and provide more value to customers, making it easier for them to engage with us. We maintain a long-term perspective on these matters as we navigate the challenges of technology integration, but the long-term effects are significant for our business.
And our next question comes from Jason Haas from Wells Fargo.
This is Jun-Yi on for Jason Haas. Can you walk us through some of the key puts and takes to consider for 4Q organic revenue growth by segment? I believe you guys had some one-time benefits in 4Q last year in Uniform Direct and First Aid and Safety. Could you remind us how big those impacts were? And any other factors to consider across the board?
Thank you for the question. I'll begin by noting that the comparison for Q4 in terms of revenue growth is quite significant since it was our strongest revenue growth quarter last year, with organic growth at 9%. We experienced some one-time benefits, particularly in our First Aid business, which saw an organic growth of 18.5%. We do not expect to see that level of growth again. Additionally, we had improvements in our training business related to AED training that contributed to the spike in First Aid. While the Uniform Direct Sale business can be somewhat inconsistent, it performed well during the quarter. I hope this provides some insight into the challenging comparison for Q4.
Todd, I might just add, like, first off, I'd just say we had an outstanding quarter this quarter. Jim mentioned that we continue to execute at a high level. We feel that the guide for Q4 is not only a good guide, but it's also consistent with the guide that we gave at the end of the second quarter. I guess let me kind of walk through a little bit of math there that last quarter, the organic growth at the high end of the range was 8%. And if you look at the guide for this quarter, this quarter is also at 8%. And then if you even take it a step further and look at it another way, last quarter, we issued a guide for the second half of the year to grow organically 7.8%. In Q3, we just delivered a growth rate of 8.2% organically. And when you combine that with the Q4 implied of 7.6%, you get an average of 7.9%. So really effectively right in line with the guide that we gave last quarter.
Great. That's really helpful. And as my follow-up, I understand that most of your new business comes from no-programmers. But I want to see if you've seen any change in the competitive environment recently following your acquisition and also given changes in the macro and geopolitical environment?
Thank you for the question. The geopolitical environment certainly has a dynamic impact on things. However, there hasn’t been any real change in our competitive landscape. As mentioned, two-thirds of our new customers come from the no-program market. When competing with e-commerce, retail, and other managed programs, we also face traditional competitors. Overall, the competition remains incredibly high, as it always has been. Despite this, we are dedicated to delivering value to our potential customers. We work with over 1 million businesses, and with approximately 16 million to 20 million businesses in the U.S. and Canada, the opportunity is significant. We are focused on improving our messaging and positioning our team to better serve this market and to raise awareness about our offerings. Many businesses are unaware of how we can assist them and believe they aren’t large enough for our programs, which contradicts our business model that focuses on servicing Main Street USA. Our average customer spends about $10,000 a year with us, making it crucial for us to communicate this message effectively to our prospects.
And our next question comes from Ashish Sabadra from RBC.
This is Will Qi on for Ashish Sabadra. I just wanted to ask on route density and the incremental opportunities there around footprint, especially with the UNF acquisition in mind. Retention is still at high, will any retention dips result in kind of reorganization there? Or do you still see a lot of opportunity kind of increasing the sell-through on those routes and just further fleet optimization?
Why don't I start on that one, and then I'll see if anybody else wants to add color. I think, Ashish, you all are probably aware of our SmartTruck technology and how we approach routing and routing efficiency. And the first thing that we try to do with routing and routing efficiency is be as little disruption as possible, whether that's within our own facilities or when we make an acquisition. And especially when we make acquisitions, we recognize that the most important component of the acquisition are the customers and the new employees that we brought on board, and we try to be as little disruption as possible to those two constituents. And we spend a lot of time trying to win over hearts and minds and build trust. And then we implement our SmartTruck technology. And SmartTruck allows us to make incremental moves and to gain efficiency over time rather than a wholesale route consolidation all at one point. We don't like doing that. We don't like big route reorganizations within a facility at one point because it could be highly disruptive. So we love the SmartTruck technology. It's been effective for us over the last several years. It's been one of the contributors to continuing to elevate our gross margin, and that would be our approach with any future acquisitions.
And our next question comes from Faiza Alwy from Deutsche Bank.
I wanted to know if you've received any feedback from your larger customers regarding the announced acquisition of UniFirst. Additionally, should we anticipate any dissynergies when the acquisition is completed?
Faiza, regarding our customers, we maintain a close relationship with them and are receiving positive feedback. They are aware of the various options available to them, which gives them leverage. This applies to both national and local accounts. Most of our national customers are simply seeking hunting licenses. They typically negotiate centralized terms and conditions, allowing their locations the freedom to choose their business partners, whether or not they are under contract. This means they have the same choices as any local business. They express that improved technology, better infrastructure, and faster delivery will benefit them, allowing us to focus more on their business rather than logistics. Overall, the response has been encouraging. As for dissynergies, I wouldn't frame it that way. We will incur some one-time costs, but we believe that merging our two companies will be beneficial for all stakeholders, including our customers, employees, partners, and shareholders.
Great. And then just a follow-up on that. I'm curious if you're doing anything differently kind of in terms of managing the business or in the timing of investments, things like that up until the acquisition? And is that going to be a factor in terms of how we should think about incremental margins in the near term? I see the implied kind of 4Q guide, but just curious if you're just managing things a little bit differently?
Yes. Thank you for the question, Faiza. Yes, our incrementals that we're guiding towards in Q4 are very attractive. But that is not because of a change in approach. That's simply what we've been predicting and timing around for the year. And I wouldn't see a change in our approach in general as you speak to that. We're investing for the long term and we'll take our normal prudent approach as we think about investing for our business.
And our next question comes from Connor Cerniglia from AllianceBernstein.
I wanted to follow up on employment trends you've been seeing and get an update versus last quarter. Are you seeing any changes in the conversion cycle or win rate for first-time buyers? And within that specific verticals, call it, health care or education, are they proving more resilient? And which areas are you seeing more weakness?
Good question, Connor. Yes, I wouldn't say we see any change in the conversion rate as it speaks to converting over that prospect base. As it relates to our verticals, we think we've chosen our verticals really, really well. And I think the employment data would defend that statement, meaning that if you look at health care, hospitality, education, state, and local government have all fared reasonably well as it relates to employment. And we think the future there looks bright as well.
And our next question comes from Seth Weber from BNP Paribas.
Just a quick one for me. Just on the Fire ERP implementation. I think we had previously talked about like 100 basis points margin headwind next year for '27? I just wanted to sort of mark-to-market and see where we're at from an expense perspective, if that's still the right way to think about it? Just 100 bps for this segment.
Yes, this is Scott. Thank you for the question. As Todd mentioned, some of the impact on next year's segment will depend on the rollout in the Fire business. We are pleased with our progress so far. However, it is still uncertain when exactly next fiscal year it will be fully implemented, but the progress is encouraging. If you consider the entire year, it would be the 100 basis points you mentioned. Depending on when we actually launch the entire business, it will be something less than that because we do not expect it to be fully rolled out by June 1.
And with that, we need to end our Q&A session for today. I'd like to turn the call back over to Jared for closing remarks.
Thank you, Ross, and thank you for joining us this morning. We will issue our fourth quarter of fiscal 2026 financial results in July. We look forward to speaking with you again at that time.
This concludes today's conference call. Thank you for your participation. You may now disconnect.