Good day, everyone, and welcome to the Cintas Second Quarter Fiscal Year 2023 Earnings Release Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Paul Adler, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Thanks, Russ, and thank you for joining us. With me is Todd Schneider, President and Chief Executive Officer; and Mike Hansen, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2023 second 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, Paul. Second quarter total revenue grew 13.1% to $2.17 billion. Each of our businesses increased revenue at a double-digit rate. The benefits of our strong revenue growth flowed through to our bottom line. Operating income margin increased 70 basis points to 20.5% and diluted EPS grew 13% to $3.12. I thank our employees, whom we call partners, for their continued focus on our customers, our shareholders and each other. Uniform Rental and Facility Services operating segment revenue for the second quarter of fiscal '23 was $1.71 billion compared to $1.54 billion last year. The organic revenue growth rate was 11.3%. Revenue growth was driven mostly from increased volume. Our sales force continues to add new customers and penetrate and cross-sell our existing customer base. Businesses prioritize all we provide, including image, safety, cleanliness, and compliance. Challenged by labor scarcity and rising costs, businesses continue to turn to Cintas to help them get ready for the workday. Additionally, price increases contributed at a higher level than historically. We believe such a mix of revenue drivers, volume and price is healthy and supportive of continued long-term growth. Our First Aid and Safety Services operating segment revenue for the second quarter was $236.0 million compared to $202.2 million last year. The organic revenue growth rate was 15.1%. This rate reflects the continued momentum of our First Aid cabinet business, which continues to grow more than 20%. Whether it is COVID-19 or influenza, the health and safety of employees remains top-of-mind. We provide businesses with access to quick and effective products and services that promote health and well-being in the workplace. Personal Protective Equipment or PPE, while still elevated compared to pre-COVID levels, declined slightly on a sequential basis. The revenue mix-shift benefits our financial results because the cabinet service is a more consistent revenue stream and has higher profit margins than PPE. Our Fire Protection Services and Uniform Direct Sale businesses are reported in the All Other segment. All Other revenue was $228.9 million compared to $184.9 million last year. The Fire business's organic revenue growth rate was 18.0% and the Uniform Direct Sale business's organic growth rate was 33.9%. Before turning the call over to Mike to provide details of our second quarter results, I'll provide our updated financial expectations for the fiscal year. We are increasing our financial guidance. We are raising our annual revenue expectations from a range of $8.58 billion to $8.67 billion to a range of $8.67 billion to $8.75 billion, a total growth rate of 10.4% to 11.4%. Also, we are raising our annual diluted EPS expectations from a range of $12.30 to $12.65 to a range of $12.50 to $12.80, a growth rate of 10.8% to 13.5%. Mike?

Thanks, Todd, and good morning. Our revenue for the second quarter of fiscal 2023 was $2.17 billion, up from $1.92 billion last year. The organic revenue growth rate, adjusted for acquisitions, divestitures, and foreign currency exchange rate fluctuations, was 12.8%. Our gross margin for the second quarter was $1 billion, compared to $885.1 million last year, representing a 15.5% increase. Gross margin as a percentage of revenue was 47% this quarter, slightly higher than 46% last year. Energy expenses, which include gasoline, natural gas, and electricity, increased 10 basis points from last year. We saw strong volume growth from new customers and increased penetration with existing customers, which contributed to improved operating leverage. The gross margin percentage for Uniform Rental and Facility Services was 47%, 50.5% for First Aid and Safety Services, 47.4% for Fire Protection Services, and 37.2% for Uniform Direct Sale. Operating income reached $444.9 million, compared to $381.2 million last year, marking a 16.7% increase. The operating income margin rose by 70 basis points to 20.5%, up from 19.8% last year. Our effective tax rate for this quarter was 22.1%, up from 18% last year. This tax rate can fluctuate based on various discrete events, including stock compensation expenses. Net income for the quarter was $324.3 million, compared to $294.7 million last year, which is a 10.1% increase. The diluted EPS for this year stands at $3.12, compared to $2.76 last year, representing a 13% increase. We successfully navigated higher inflation, interest expenses, and tax rates, making these financial results particularly satisfying. Cash flow remains strong. On September 15, 2022, we declared dividends totaling $117.4 million, which were paid on December 15, 2022. We are adjusting our financial guidance for the year. Fiscal 2022 included a gain from the sale of operating assets in the first quarter and from an equity method investment in the third quarter. After excluding these, fiscal 2022 operating income was $1.55 billion with a margin of 19.7%, and diluted EPS was $11.28. For fiscal 2023, we expect operating income to be between $1.75 billion and $1.79 billion, up from $1.55 billion in fiscal 2022 after excluding the gains. We anticipate interest expenses for fiscal 2023 to be $113 million, up from $88.8 million in fiscal 2022 due to rising interest rates. Our effective tax rate is expected to be 20.7% for fiscal 2023, compared to 17.9% last year after excluding the gains and related tax impacts. Keep in mind the number of workdays in the third and fourth quarters of fiscal 2023 remains the same as last year, with 64 days in the third and 66 days in the fourth. Fewer workdays can lead to reduced revenue for certain fixed and amortizing costs. Last year, First Aid and Safety sold approximately $15 million in COVID test kits in the third quarter, and we do not anticipate that revenue to repeat this year. Despite strong organic revenue growth for Uniform Direct Sale year-to-date, we expect these rates to face pressure in the latter half of the fiscal year due to challenging comparisons. Payroll taxes will reset in our fiscal third quarter, which will sequentially increase our SG&A costs. Our guidance excludes the impact of any future share buybacks and takes into account a stable economy, not accounting for potential pandemic-related setbacks or economic downturns.

That concludes our prepared remarks. Now we are happy to answer questions from the analysts. Please ask just one question and a single follow-up if needed. Thank you.

And our first question comes from Faiza Alwy from Deutsche Bank Securities. Please go ahead, Faiza.

You've had really good results. So congratulations on that. I'm curious how you would characterize your outperformance. Has it been more because of new business? Has pricing come in sort of better than you expected? And maybe as part of that, if you could talk about your SAP program, like how much of a benefit do you think that has had over the course of this year?

Good morning, Faiza. Thank you for your question. Yes, our beat on the revenue side is driven significantly by new business; it continues to be very attractive for us. However, we are selling more items into our customer base. So it's pretty broad. I mentioned in the prepared comments that pricing is above what our historical experience has been, as you can imagine, due to the experience with inflation that we're experiencing across our organization. But the primary driver is volume growth, and we're benefiting from that. We're investing for that and we like the trend there. As far as the margin side, we are committed to not solely growing margins because of pricing. In fact, we are dedicated to finding efficiencies in our business. Some of that is through revenue leverage, just general revenue leverage that we achieve, but we are focused on finding efficiencies. And you mentioned SAP; certainly that technology is helping us significantly. We've had— we've talked about our digital transformation of our business that has been very important to us, and we're seeing benefits, whether it’s in our routing efficiencies, productivity of our sales partners, or getting better reuse of our products, and in-service inventory because of SAP. Those are all benefits that we’re seeing and the marketplace is noticing it, helping us gain a competitive advantage.

Great. And then as we look ahead, some companies have started sounding a little bit more cautious, you know, a lot of economists are forecasting a potential recession. Can you talk about how, you talked previously about how your business might get impacted, but can you elaborate on what's the sales pitch during a recession? I think that would be helpful for us to hear.

Great. First off, we continue to watch our customer base very closely. We're looking at all of our data to see if there's some trends that we might see if customers are consuming less, and so we're watching that. Now as far as a recession, every recession that I've experienced while at Cintas over the last 33 years, we've always sold an attractive amount of new business. The reason being is that we can help businesses position themselves for success. If they're in the business and they have fewer people, someone still has to take care of certain functions, so we're able to sell value there. If they are in an environment where they're looking to save money, in many cases, we're able to save them money. It's not that they are always asking for increased spend; it's just redirecting the spend to us. In many cases, we're able to help customers with that instead of spending it with another vendor or outsourcing. We fully expect our new business will be attractive in any type of economic environment. Certainly, we prefer when the economy is robust, but we will find ways to be successful in whatever the environment.

And our next question comes from Ashish Sabadra from RBC. Please go ahead, Ashish.

Hi, this is John, filling in for Ashish. Congratulations on the strong results. Maybe just following up on Faiza's question; could you talk more about retention, as well as just what the current customer conversations are like today? Thanks.

Yes, thank you, John. I'll speak to it if Mike, you'd like to contribute on this subject. But, first off, our retention levels are quite attractive. We very much like where they are. We're focused on ensuring that our customers are satisfied, which is why we wake up in the morning—to take care of them. That focus and culture is pervasive, and we're making sure that our partners are positioned to exceed customer expectations. So all that is attractive for us. Keep in mind, we have a really broad customer base. We serve over a million customers that we see consistently. Some are doing well; some are challenged in the current economic environment, struggling to find employees or dealing with wage inflation, while others are thriving in this environment. Generally speaking, we still like what we see with our customer base, and that broad customer base is a real benefit for us.

That's great color. Thank you. Maybe quickly to follow-up. Could you just talk about capital allocation and if there's any change there, just what you're seeing today in M&A given some of the more challenging headwinds with inflationary pressures?

Sure, John. This is Mike, and we haven't changed our philosophy in terms of capital allocation. We want to continue to invest in the business. As we've seen accelerated growth over the last three quarters, we are investing in the business, but we love M&A and we continue to have conversations to keep that pipeline active. It always takes time to come to a decision; we're working those conversations hard, and our expectation is that we will be able to continue on the M&A path. I must also mention the dividends; we paid a dividend in September on the 15th and again on December 15th, and we've certainly increased the dividend every year since going public. We appreciate that option as well, and the buyback continues to be an opportunistic alternative for us when we have excess cash, so no philosophy changes. We're still working on all of those in the same manner as we have.

Our next question comes from George Tong from Goldman Sachs. Please go ahead, George.

You mentioned you're continuing to sell more items to your existing customers. Can you describe how overall customer spending behaviors have evolved with the overall economy and if sales cycles have changed at all?

Thank you, George, for the question, and good morning. Again, we have a very broad customer base, and we have a very broad product offering. We're blessed to have both, and as a result, we're organized to ensure that our customers know everything we have to offer; they don't always. We've spoken about how going through the pandemic was challenging. One positive outcome was that our customer base saw the broadness of our offering, and in many cases, didn't realize we had the products and services available. We're focused on that; providing more value helps us because when we stop our truck, and the invoice is larger, that’s good leverage for us. So we're providing more value to the customer and we're gaining leverage in that manner. As far as the sales process being elongated, we're not saying that is occurring at this point. As I mentioned earlier, we're seeing a mix out there. Some customers are struggling, while some are doing quite well, and everything in between. But generally speaking, our customer base continues to head in a positive direction.

Got it. That's helpful. The upside in revenue this quarter was driven, I think, significantly by new business. Approximately how much of the new business growth in the quarter came from the no programmer market or Uniform Rentals?

Yes, good question, George. So, no programmers continues to be a fantastic opportunity for us. The majority of our new accounts that we sell fall within the no programmers section, and we’ve been focused on that. We train our partners on that, and that set of prospects sees value in what we provide. As a result, the total addressable market is massive and very exciting for us, and we see wonderful growth opportunities moving forward.

And our next question comes from Andy Wittmann from R.W. Baird. Please go ahead, Andy.

I guess I wanted to ask on the First Aid segment, Mike. The margins in particular I think really stood out. You made the comment that you're getting some favorable mix shift as the PPE is rolling out. Last quarter's margins were also very good, I think better than most people expected. So it feels like there's something pretty sustainable in the margin rates. Would you agree with that assessment, or is there something in there that we should be aware of as we come to 2Q fiscal '24 as a tough comp, or is there something more about what's really driving these margins that are frankly better than what you've posted in the past?

Yes, Andy, you're right that the margins are better than historical. The mix shift has been great. We're able to gain leverage in several areas. Certainly, the new business is a very nice lever for us. The change in society’s focus on health and wellness is a real tailwind for us, and as a result, cabinet revenue growth is very attractive. This affects the mix, and we are also finding efficiencies throughout our business. First Aid is included in all that, whether it’s routing technology or our supply chain sourcing better to improve our overall operating margins. Mike, is there anything you'd like to add there?

The only thing I might add is to specifically point out, Andy, there’s nothing to call out that there is one-time or short-term in nature. It's just that the business is performing very, very well.

Great. I guess a kind of similar question, but in a different segment on the Uniform Rental and Facility Services segment. Obviously, you're getting good gross margin leverage, which says a lot about everything you've mentioned. You mentioned making investments in the business. It appears that the SG&A line in the Uniform Rental segment in particular has been seeing investments, and I was wondering maybe you could provide detail on the types of investments you're making or if this is just still kind of a recovery from COVID and getting some travel and T&E back in there. Maybe just some details on SG&A in the rental segment.

Yes, Andy, good question. We're excited about the gross margin improvement we're seeing in that business. Despite a 20 basis point headwind from energy, you're right; the SG&A is up. We are making investments in the business, and appropriately so. Also, some G&A medical costs, workers' compensation, and other expenses are higher this quarter. There are always some puts and takes related to that, but we are guiding toward increases for the whole year in that business, from the 20% to 30% range. As I mentioned, the margin expansion will come in various ways including revenue growth leverage, productivity, which is a broad term. There are many areas where we achieve productivity improvements and pricing. But yes, we're focused on improving margins there and will manage through the G&A investments as we move forward.

And our next question comes from Tim Mulrooney from William Blair. Please go ahead, Tim.

Two questions. One on labor. We've heard from other industries and companies that labor availability today still remains somewhat of a governor on growth. I mean has that been the case for you guys? Are you holding back in certain markets due to constraints around qualified labor, and how would you characterize the labor availability situation today versus say last quarter?

Thanks for the question, Tim, good morning. As far as labor is concerned, the labor market in totality is easier, but not easy. It is still certainly challenging out there. We care passionately about how that looks for our customers and how it impacts them. I mentioned some of our customers are struggling to staff, which affects their business, and consequently impacts us. But from Cintas's standpoint, how we're staffed is not affecting our growth rate. It would be more about how our customers are being impacted. If someone said they cannot grow as fast as we'd like due to staffing issues, we figure that out. We provide a solid work environment with opportunities, great wages, benefits, security, and development, which is a real asset for us in the marketplace. Cintas staffing is not slowing us down, but our customers might be slightly affected.

That's good color, Todd. I know there are some companies we've talked to that are dialing back on sales and marketing costs just because they can't find labor to support the growth. So it's good to know you guys aren't in that situation. One more from me on wage rate inflation. I'm curious what that's running at approximately right now for your folks out on the routes and how does that compare to your historical averages?

Yes, wage rates. I don't have an exact number to provide, but we start with the answer and work backwards. The answer is we need to have great people who are very well-trained and prepared to help us be successful and take care of our customers. Yes, wage rates are higher than historical averages, but we are focused on putting the absolute best team in the field so that we can take exceptional care of our customers and prepare us for future demands.

And our next question comes from Manav Patnaik from Barclays. Please go ahead, Manav.

Thank you. I guess just to follow-up a bit, there's a lot of press around C-Suite anxiety. I just wanted to know how long it typically takes before that flows down to your direct customers and how quickly you can react because your current guidance, obviously, is through the Me. So things might be fine till then. Is there a timing element that we should be considering?

Yes, Manav, thanks for the question. We always have anxiety, right? It's part of ensuring we're sharp. Nevertheless, we do worry—do our customers, as a whole, pull back due to economic conditions? We're not seeing it. Our customer base is so broad; some are thriving while others struggle. Overall, we like the direction of our customer base, and we hope they remain focused on their business and invest for the future. We'll see how the Fed handles the situation, and how that might affect the general economy.

Manav, I might add that looking back 2.5 years to the beginning of the pandemic, I think we've demonstrated we can be nimble in adapting our cost structure to changes in the environment.

Yes, that's fair. Mike, could I just ask a follow-up about CapEx and free cash flow expectations for the year? Any changes or insights there?

Well, what you've seen in the first half of this year is when we grow—we've seen three quarters of double-digit organic growth. So, as a result, when we grow and the volumes are healthy, we certainly invest in business, and that investment can come through in the form of working capital. We are seeing a bit more working capital usage in our cash flow statement, which is not unusual for us when we see an acceleration in growth rate. However, we like our cash flow. It remains strong and this year should not be an exception. This strong cash flow will allow us to continue with our capital allocation strategy without being forced to make tough choices.

Our next question comes from Andrew Steinerman from JPMorgan Securities. Please go ahead, Andrew.

Hi, Todd, Mike, and Paul. I wanted to ask a little bit about merchandise amortization. Given the strength of Cintas' new business, which usually entails uniforms going into service, how did merchandise amortization affect gross margins, specifically rental gross margins in the second quarter? Obviously, I'm aware that rental gross margins were up despite any impact from merchandise amortization. Do you expect rental gross margins to be up in the second half of the year, year-over-year?

Andrew, as it relates to amortization, certainly you've seen the growth I've talked about before, which translates into more garments and products being injected into our in-service inventory. And we love that. It’s great when that happens. We’re seeing growth in amortization but able to leverage that nicely so far. Our business requires the amortizing of many rental products, and so we have good foresight into what's coming. This visibility translates to better planning, sourcing, and pricing when necessary. Regarding the second half of the year, look, we don’t typically provide guidance on gross margin specifically, but the guidance provided contemplates improvements in our operating margins for the second half of the year. The growth we're experiencing and all other initiatives we have are performing well, enabling margin improvements even in challenging times.

And our next question comes from Heather Balsky from Bank of America. Please go ahead, Heather.

Hi. Thank you for taking my question. So your guidance for the rest of the year implies growth on the sales side in the 8% to 9% range, which is moderating from what you did in the first half. Could you walk us through where you assume there might be some deceleration? Is that in anticipation of lapping the COVID recovery? Where might there be opportunities for upside based on the strength you've seen year-to-date?

Heather, thanks for the question. Yes, slight but still very attractive growth. We like where that is and we're preparing for it. However, we are certainly up against some tougher comparisons in the back half, specifically with First Aid and Uniform Direct sale, so we will be lapping those. But we still find the growth levels attractive, and that's what we are preparing for.

Thank you. Have you seen any specific areas performing well in your business? You've performed well year-to-date and raised your guidance. Is First Aid and Safety still notably strong? Are there other areas where you're seeing growth beyond your typical expectations?

Yes, good question. Our customer base is very broad. However, our verticals where we are investing, such as healthcare, hospitality, education, and government, are performing well and growing at an accretive rate to our portfolio growth. We believe we've chosen wisely and invested appropriately in that customer base. Within this customer base, again, while there may be a mix among customers, in general, we like those areas, and they are showing attractive growth.

Our next question comes from Kartik Mehta from Northcoast Research. Please go ahead, Kartik.

Thank you. I know you've talked about the economy a few times. I'm wondering, as you look at some of the benchmarks for your business and maybe your customers' businesses. Is anything standing out positively that maybe you were anticipating would decline or anything negative that you were expecting otherwise?

Kartik, that's a good question. I continue to emphasize how broad our customer base is, so we see it all. Scarcity of employees is an issue. Unemployment remains at exceptionally low levels, with roughly 10 million job openings in the U.S. economy. People are careful regarding how they handle their employees, being judicious in hiring and retaining staff.

Just one last question; from an energy standpoint, fuel prices are coming down, as well as natural gas prices. Are the headwinds you're anticipating from energy prices aligned with your initial guidance, or have they changed?

We still see energy as a headwind. It’s certainly lower than it was last quarter; however, about 40% of our spend on energy is in natural gas for our production facilities and electric, which are not heading in the right direction. Natural gas prices are up, and so are electric prices. Most people focus on the pump, though it's affecting households as well.

Our next question comes from Seth Weber from Wells Fargo Securities. Please go ahead, Seth.

Hi, guys, good morning and happy holidays. I wanted to ask another margin question. Mike or Todd, I mean, the guidance for this year, it seems like you're implying a higher than normal incremental margin. I think, Todd, you mentioned the Uniform business could be at 20% to 30% incrementals this year. Are we moving into a scenario where incrementals could be higher than your normal 20% to 25% range? Are you more comfortable discussing increments in a 25% to 30% range going forward?

Well, we haven't really changed the narrative on that regarding the 20% to 30% range. However, there are different ebbs and flows within the business. Sometimes there are periods where we invest a little more than in other quarters, etc. Todd's focused on the full year results and the long-term success. So various factors can cause fluctuations based on earnings guidance and the timing of investments. Nonetheless, guidance does contemplate margin improvement in the second half of the year.

Okay, that's helpful. Thanks. On the Fire business, the organic growth in the Fire business continues to be in the mid to high teens. Is that a sustainable number? What’s driving this unusually strong organic growth?

Yes, Seth, we love the Fire business. It's a very attractive segment for us; it's the only business where every organization is legally required to comply with local laws. The available market is massive. Our sales team is doing remarkably well, selling to new customers while expanding our services to existing clients. We have a great offering, and our positioning in the market is strong. We aim to continue growing that business at double-digit rates. Achieving current growth levels would be outstanding.

Our next question comes from Shlomo Rosenbaum from Stifel Nicolaus. Please go ahead, Shlomo.

Thank you very much. I want to get a little follow-up on some of the questions on client hiring, which could impact Cintas volumes. Do you feel like you sell at a level in the organization where you get an advance look at hiring plans? Or do you monitor it as it happens? I suspect you may need to react more as clients add or subtract people in real-time. I'm just trying to understand your views. Obviously, it's a broad client base but generally speaking.

Shlomo, great question. It really depends on our relationship with the clients. Some clients will share insights about their hiring plans for the future, but others will not, depending on the strength of the relationship and their planning process. In that case, it becomes a more reactive situation for us. We certainly have experience being transparent with clients, allowing us to anticipate future staffing needs. But to generalize, in terms of add stops, our experiences continue along established patterns. I mentioned earlier regarding the GDP growth: Q1, Q2 saw a decline; Q3 was slightly positive. We'll need to assess what GDP holds as we move forward and consider the employment situation, which remains challenging in the U.S.

Thank you. One follow-up regarding pricing—at this point, do clients expect these pricing increases, or are you receiving significant pushback as time goes on?

Shlomo, as I mentioned in our prepared remarks, pricing has always been a component of our growth. We've faced economic turbulence during COVID-19, and pricing remains part of our planning as we navigate the future. That said, our primary focus is growing the business through volume and finding efficiencies rather than solely through price increases. The competitive environment requires us to demonstrate value while addressing customer challenges. We’re focused on finding operational efficiencies and not just passing costs to customers.

Our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead, Scott.

Thanks very much. Good morning. I've got a question regarding Uniform Rental. You highlighted your solid penetration of existing customers, strong volume growth, and new customers. Could you explain the difference between no programmer and competitively won business? Is there a lot of competitive activity happening right now? Additionally, can you differentiate what you see with large customers compared to small and medium-sized ones?

Yes, Scott. I'll start; Mike, if you want to add, please do. In terms of the competitive market, we sell a lot of no programmer. While we certainly take business from competitors, we find that numerous businesses don't realize we serve clients of their size or know the full extent of our product and service offerings. We are very focused on that aspect. Regarding the customer base, larger clients might be struggling while many smaller clients also face challenges, but generally speaking, smaller clients may be under slightly more pressure to compete effectively in the marketplace. This is a generalization and may not apply to all smaller businesses, as we have plenty of examples of thriving small businesses.

Great, thanks. On Uniform Direct sales, I think it was around 33%, 34% organic growth for the quarter. Very strong. Earlier, I heard you mention this segment would face tougher comparisons in the latter half of the fiscal year. Can you elaborate on the business activity, what’s driving strong growth right now, and whether it’s broad-based rather than just reliant on one or two large customers?

Sure, good question. The growth we’re seeing is broad-based, not reliant on one or two customers. Hospitality is a big component, but there are also several national customers. While the hospitality sector is struggling to find qualified staff, there is a strong demand. Therefore, they need help, and in that struggle, we become an attractive option to provide products efficiently to enhance the overall guest experience they aim to deliver.

And our next question comes from Toni Kaplan from Morgan Stanley. Please go ahead, Toni.

Thanks very much. I'm following up on pricing. You've mentioned you've been implementing a higher level of pricing than usual. It sounds like you anticipate volume growth to be a more significant driver moving forward. For calendar '23, will pricing be closer to normal increases compared to previous years, or given the challenging macro environment, will it potentially be lower than what you’d normally expect?

Yes, Toni. Good question. As we look ahead, pricing is certainly above historical today. It's tough to predict the inflation trends, but if they decrease, we could see pricing adjustments move closer to historical norms. However, it relies on what happens with the Fed, the economy, and wage pressures, which are all variables and tough to forecast. We’re closely monitoring these factors.

Great. Would you mind breaking down the margin expansion you mentioned? You noted higher margin expansion in the latter half of the year. How much is attributable to energy costs potentially coming down from prior levels versus scale or initiatives?

Toni, I would say the margin expansion comes from various sources, and it's challenging to quantify exactly how much. Some examples include energy—while we’ve considered energy a headwind moving forward, our revenue growth has been solid, positively affecting margins in the latter half of the year. The current momentum, combined with key initiatives, is crucial to our future performance. We remain focused on sourcing improvements, routing enhancements, and growth opportunities that will enable better margins even in difficult times. Some seasonal timings may also affect our investments and fiscal performance.

And at this time, there are no further questions. I would like to turn the call back to Paul for closing remarks.

All right. Well thank you for joining us this morning. We will issue our third quarter of fiscal '23 financial results in late March, and we look forward to speaking with you again at that time. Take care.

This concludes today's conference call. Thank you for your participation. You may now disconnect.