Earnings Call Transcript - CTAS Q4 2024

Operator, Operator

Good day, everyone, and welcome to the Cintas Corporation Announces Fiscal 2024 Fourth Quarter and Full Year Results. Today's call is being recorded. At this time, I would like to turn the meeting over to Mr. Jared Mattingley, Vice President and Treasurer, Investor Relations. Please go ahead, sir.

Jared Mattingley, Vice President and Treasurer, Investor Relations

Thank you, Ross. 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'll discuss our fiscal '24 fourth quarter and full year 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 will now turn the call over to Todd.

Todd Schneider, President and Chief Executive Officer

Thank you, Jared. Our fourth quarter performance marked a strong finish to another successful year for Cintas. Fourth quarter total revenue grew 8.2% to $2.47 billion, an all-time high for revenue in a quarter. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 7.5%. And importantly, each of our businesses continues to perform well and execute at a high level. Fourth quarter gross margin was $1.22 billion, an increase of 11.6% over the prior year. Gross margin increased 150 basis points from 47.7% to 49.2%. Operating income for the fourth quarter of $547.6 million increased 16.3% over the prior year. Operating margin increased 160 basis points to 22.2% from 20.6% in the prior year. Fourth quarter net income was $414.3 million, an increase of 19.7%. Earnings per diluted share for the fourth quarter were $3.99, an increase of 19.8% over the prior year fourth quarter. These results conclude a strong fiscal year marked by significant accomplishments, including robust revenue growth and margin expansion and excellent cash generation, which continue to fuel our balanced capital allocation strategy. The following are specific highlights of fiscal '24. I'd like to begin with revenue. Fiscal year revenue was a record $9.6 billion, an increase of 8.9%. Organic growth was 8% for the year. Our First Aid and Safety Services operating segment exceeded $1 billion in annual revenue for the first time. Our top line growth is a function of the total value proposition we offer customers of all sizes and across industries and unique Cintas culture that drives our partners to deliver an outstanding customer experience. Business across our focused verticals of health care, hospitality, education, and state and local government continue to perform well. We experienced strong demand for our services not only from existing customers but across our new business pipeline. About two-thirds of our new customers continue to come from no-programmers, underscoring our ability to capitalize on the vast growth opportunity that remains ahead. In addition, our retention rates remain strong. Our strong revenue performance also translated into continued growth in profits and earnings, including the following highlights. Fiscal '24 operating income grew 14.8% for the year, and our operating margin of 21.6% was an all-time high. EPS grew 16.6% for the year. Our enhanced profitability and earnings growth is a reflection of our relentless focus on operational excellence in every aspect of our business, spanning strategic sourcing and supply chain initiatives, route and energy optimization opportunities with SmartTruck, and leveraging the SAP system to support greater stockroom visibility and efficient garment sharing. Our cash flow from operating activities exceeded $2 billion for the first time. Strong cash generation provides us even greater flexibility to deploy capital across each of our capital allocation priorities throughout the year. Our number one capital allocation priority is investing back in the business. We prioritize investments in technology, infrastructure, and people to support our sustained growth and value creation over the long term. As we continue to grow and create value, capital is required to add capacity in a number of ways, including new facilities, new equipment, new vehicles, as well as technologies to make our partners more successful. We spent $186.8 million in fiscal '24 on acquisitions. This is the most we've spent on acquisitions since fiscal '17. We love acquisitions as they provide us with new customers where we can offer a broader range of products and services. Sometimes they can bring needed capacity that can also bring attractive synergies that involve leveraging our existing route structures, providing more time with customers and less time driving. Another of our priorities is returning capital to our shareholders through dividends and share buybacks. In fiscal '24, we increased our quarterly per share dividend by 17.4%, marking the 40th consecutive year that we've increased our dividend, including every year since going public. We also bought back $1 billion of shares during fiscal '24 and up through yesterday. Lastly, we were named to the prestigious Fortune 500 for the eighth consecutive year. It is an honor to be recognized among the most successful and respected companies. We're proud of these results and the value we continue to deliver for the Cintas shareholders. That performance reflects the focus and great execution by our employees whom we call partners. I'll now turn the call over to Mike to provide details of our fourth quarter results.

Mike Hansen, Executive Vice President and Chief Financial Officer

Thanks, Todd, and good morning. Our fiscal '24 fourth quarter revenue was $2.47 billion compared to $2.28 billion last year. The organic revenue growth rate adjusted for acquisitions and foreign currency exchange rate fluctuations was 7.5%. Gross margin for the fourth quarter of fiscal '24 was $1.22 billion compared to $1.09 billion last year, an increase of 11.6%. Gross margin as a percent of revenue was 49.2% for the fourth quarter of fiscal '24 compared to 47.7% last year, an increase of 150 basis points. Strong growth from new customers and the penetration of existing customers with more products and services helped generate great operating leverage, aided by the performance of our global supply chain and focused efforts to extract inefficiencies from the business via our Six Sigma engineering teams as well as technologies like SmartTruck. The Uniform Rental and Facility Services operating segment revenue for the fourth quarter of fiscal '24 was $1.91 billion compared to $1.77 billion last year. The organic revenue growth rate was 7.1%. As we have done in the past, I will share revenue mix of the Uniform Rental and Facility Services operating segment for the fourth quarter. Keep in mind, there can be small fluctuations in mix between quarters. Uniform rental was 48%; dust was 19%; hygiene was 16%; shop towels were 4%; linen, which includes microfiber, wipes, towels, and aprons, was 10%; and catalog revenue was 3%. These percentages are consistent with last year and demonstrate we are experiencing strong demand across all our products and services. Gross margin for the Uniform Rental and Facility Services operating segment was 48.6% compared to 47.7% last year. This 90 basis point improvement was the result of good top line growth that continues to generate great operating leverage and excellent sourcing and process improvements, which continue to create additional efficiencies such as garment sharing and SmartTruck. Our First Aid and Safety Services operating segment revenue for the fourth quarter was $277.6 million compared to $249.8 million last year. The organic revenue growth rate was 11.1%, capping off another year of double-digit organic growth. Gross margin for the First Aid and Safety Services operating segment was 55.4% compared to 51% last year. This 440 basis point improvement was a result of our double-digit revenue growth that created solid operating leverage, an improved sales mix, a dedicated first aid distribution center that has lowered costs as well as efficiencies from our SmartTruck technology. Our Fire Protection Services and Uniform Direct Sale businesses are reported in the All Other segment. All Other revenue was $282.1 million compared to $261.5 million last year. The Fire Protection revenue was $197.9 million, and the organic revenue growth rate was 12.9%, resulting in another year of double-digit organic growth. The Uniform Direct Sale revenue was $84.2 million, and organic revenue decreased 4.4%. The organic growth rate in Uniform Direct Sales can vary from quarter to quarter. Gross margin for Fire Protection Services was an all-time high of 50% compared to 47.9% last year. This 210 basis point improvement was primarily the result of robust revenue growth that generated strong operating leverage along with route productivity improvements. Gross margin for Uniform Direct Sales was 40.9% compared to 36% last year. This 490 basis point improvement was the result of higher margin accounts from a disciplined approach to the market. Fourth quarter selling and administrative expenses as a percent of revenue was 27%, which was a 10 basis point improvement from last year. We were able to create leverage with these costs while continuing to invest in technology and selling resources. Fourth quarter operating income was $547.6 million compared to $470.8 million last year. Operating income as a percentage of revenue was 22.2% in the fourth quarter of fiscal '24 compared to 20.6% in last year's fourth quarter. The fourth quarter marks the first time that all three operating segments, Uniform Rental and Facility Services, First Aid and Safety Services, and Fire Protection Services exceeded 22% in operating income in the same quarter. Our effective tax rate for the fourth quarter was 21.4% compared to 22.4% last year. Net income for the fourth quarter was $414.3 million compared to $346.2 million last year. This year's fourth quarter diluted EPS was $3.99 compared to $3.33 last year, an increase of 19.8%. I'll now turn the call back over to Todd to provide his thoughts on next year and our financial expectations for fiscal '25.

Todd Schneider, President and Chief Executive Officer

Thank you, Mike. As we move into fiscal '25, we expect to exceed $10 billion in annual revenue for the first time. This outlook, coupled with our strong fiscal '24 results, demonstrates that our value proposition continues to resonate. Every business in North America, goods-producing or services-providing, has a need for image, safety, cleanliness, and compliance. We help our customers meet those needs so they can focus on running their businesses. As we deliver on our customers' needs, our culture remains our greatest competitive advantage, and it drives our focus on continuous improvement and evolving for the future. We will continue to prioritize investments in technology, infrastructure, and people. Our technology investments include our continued investment in SAP with our Fire division currently going through the implementation process. In addition to SAP, we have partnered with Verizon and Google to deploy technology solutions that make it easier for our partners to run their business and easier for our customers to do business with us. In addition, technology initiatives such as SmartTruck and garment sharing are helping to drive customer satisfaction as well as efficiencies throughout the organization. Our working partners really are the key to our success. We know that when we take care of our partners, they will, in turn, take great care of our customers. We are investing in training our partners and giving them the best and latest tools to make their jobs easier while also investing in talent acquisition in order to ensure we are properly staffed to support our growth initiatives. The future of Cintas remains bright, and our fiscal '25 guidance reflects that outlook. For fiscal '25, we expect our revenue to be in the range of $10.16 billion to $10.31 billion, a total growth rate of 5.9% to 7.4%. Please note the following: fiscal '25 will have two fewer workdays compared to fiscal '24. Each quarter of fiscal '25 will have 65 workdays. The two fewer workdays will impact the first and fourth quarters by one day each. The revenue growth rate in each of those two quarters will be negatively affected by about 160 basis points. Please keep that in mind when modeling. Adjusting for the impact of two fewer workdays, acquisitions already completed, and at constant currency, our total organic growth rate for next year is expected to be 6.4% to 8%. We expect diluted EPS to be in the range of $16.25 to $16.75, a growth rate of 7.3% to 10.6%. Fiscal '25 net interest expense is expected to be approximately $106 million compared to $95 million in fiscal '24, predominantly as a result of higher variable rate debt used to complete a portion of the previously mentioned share buybacks. Our fiscal '25 effective tax rate is expected to be 20.4%, the same compared to our fiscal '24. Guidance does not include any future share buybacks or significant economic disruptions or downturns. I want to end by thanking our partners for their tremendous efforts to achieve a successful fiscal '24. As we look ahead to fiscal '25, our outlook reflects our continued confidence in our strategy. We remain focused on delivering outstanding customer experiences, reinforcing the unique Cintas culture that drives our success while making the necessary investments in the business to sustain our growth through fiscal '25 and long beyond. I'll now turn the call back over to Jared.

Jared Mattingley, Vice President and Treasurer, Investor Relations

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.

Joshua Chan, Analyst

Congrats on a strong quarter. I was wondering if you guys could comment on your retention rates. I know that you've said it's generally stable. Have you seen any slight uptick in industry churn or downtick in retention, I guess? How are you seeing your customers behave in this environment?

Todd Schneider, President and Chief Executive Officer

Thank you for your comments. We have not observed any changes in our customer behavior. Our retention rates remain very strong. With our extensive customer base, some segments are performing well while others are facing challenges. This varies by industry and geography. Overall, I would say there has not been much change in our customer base so far.

Joshua Chan, Analyst

That's great to hear. And then for my follow-up, could you just kind of talk about your reasoning behind choosing the 6.4% to 8.0% organic growth for next year? I guess in the context of just doing 7.5% in Q4, what are the scenarios that would lead you to the bottom and the top end of the growth range?

Todd Schneider, President and Chief Executive Officer

We are satisfied with our guidance and the position of our business. This is where we aim for growth. We are aware of the macroeconomic data that's available, but we don't anticipate any significant changes at this time. Therefore, we expect to stay aligned with our guidance. While we would welcome an even stronger economy, we are committed to finding ways to succeed. Our value proposition is effective, and we serve over 1 million customers, or 16 million businesses in our market, providing multiple avenues for growth. We have demonstrated that we can outperform GDP growth and employment growth. We hope our customers will thrive and expand, but regardless, we will find a path to success and remain confident in our guidance.

Heather Balsky, Analyst

Can you just kind of update us on how you're thinking about incremental margins and how you're thinking about the margin story for 2025? What are the bigger tailwinds? What are you most excited about? And anything going on in the cost environment as well?

Todd Schneider, President and Chief Executive Officer

Well, I'll start, Heather. As we think about margin expansion, our guide reflects margin expansion with the first item we think about as it comes to that is leverage, leverage on revenue growth. And we've demonstrated that we have the ability to do that, and we'll continue to do that. And that's easy to say, hard to do, but the team has done an incredible job in so many areas, starting with our global supply chain, which is a competitive advantage in the marketplace. How they go about their jobs, the fact that they have dual source or many sources for 90% or more of the products that we source, so how they go about that. The great work that's been done on material costs, again, starting with sourcing. But also, we leverage our SAP system to help us to improve our garment sharing. And we've been working on this for years and it's bearing fruit not only in our cost structure but also in turnaround time for our customers. So, it helps us to get product to our customers faster when it's in our stockrooms versus having to order new out of our distribution centers. Better for our customers, better for our financials, and that's paying off for us.

Andy Wittmann, Analyst

I just thought I would start with the competitive environment. Both of your largest competitors have noted increased competition out there. And I know that your product and service offering is a little bit broader. But I thought just given those competitor comments, I would take your temperature and have you comment, if you could, please, on what you're seeing out there in the competitive environment.

Todd Schneider, President and Chief Executive Officer

Andy, here's what I'll tell you is that we operate in a highly competitive market. Always have, always will. I'm sure. I've been with the Company for 35 years. It's been competitive every day since I've been here. Now that being said, our revenue retention rates, as I mentioned, are attractive. And part of it is because our new business wins tend to come from the no-program market and less from the competition. So, as I mentioned earlier, there's 16 million businesses out there. We service about 1 million. So, the white space out there is incredible. And we're focused on converting those folks from, I'll call it, a do-it-yourself type to a customer of ours. And that value proposition is resonating because we help them focus on taking care of their customers or their patients or their guests or whatever, however you want to describe it, and we take that for them. And we're able to do it better, faster, smarter, and, in many cases, cheaper than what they were doing it. So yes, is it competitive? Heck yes. It's always been competitive and we're focused on growing the market and that's been a good model for us.

Andy Wittmann, Analyst

I appreciate that. And then I guess, maybe Mike, I guess I wanted to kind of ask some of the margin questions in a little bit different way. First, as I was just kind of doing the math between the EPS and the revenue, I was getting somewhere around 20 or 30 basis points of implied operating margin expansion for the year. So maybe you could just clarify that. But that's a pretty decent deceleration from the amount of margin expansion certainly you saw in the quarter or even over the course of the past fiscal year. So, I was just wondering if you could comment on if there's anything, any categories inside the P&L that we should be aware of that are inflating more materially, or if there's other areas, maybe energy costs, I don't know, that we should be aware of that could be weighing on continued margin expansion like we've seen here in recent quarters.

Mike Hansen, Executive Vice President and Chief Financial Officer

Andy, the short answer to whether there are any new headwinds is no, except for possibly the two fewer workdays. For instance, in the first quarter, we mentioned a top-line impact of 160 basis points of growth headwind. We also talked about margins, noting that a lost workday typically results in a 50 basis point impact. Next year, we expect to lose two workdays, but we've improved our infrastructure management so that losing a workday now affects us more like 30 to 40 basis points. Therefore, losing two workdays will create a slight headwind, which is just a calendar issue rather than a business one. That said, our business continues to perform well. We generally see our guidance range in the 25% to 35% incremental margin range. At the lower end of that range, there is still margin expansion, and at the upper end, it can exceed 30 basis points, potentially approaching 70 basis points. We believe this is a typical guidance range for us. In the fourth quarter, the initiatives and operational excellence we've focused on have persisted, and based on this guidance, we expect them to carry on into fiscal '25.

George Tong, Analyst

Can you talk a bit about the progress you're making with penetrating your high-growth focused verticals, including health care, hospitality, education, and government? Where are you seeing particularly good traction?

Todd Schneider, President and Chief Executive Officer

Yes, we really like the verticals that we've chosen. And as a reminder, it's not just a sales strategy. It is also how we organize around those customers, those industries, those verticals to make sure that we're meeting, exceeding their needs because they're a little different. And as we do that, the products, the services that we provide, the support that we provide all comes along with that. And so yes, they're all operating at attractive levels. And I wouldn't call anyone out specifically where I'd say, oh my gosh, that one's exceeding. They're all doing quite well. I thought it might be helpful to talk a little bit about a recent health care win that we had. We recently sold a large hospital network with scrub dispensing technology for the scrubs in the various departments throughout an acute care hospital. But we're also having really good success with surgery centers and those types that are attached to the large acute care hospital networks. And you're probably seeing some of that acute care hospital networks having investments in other areas. So, in fact, I'd say three large health care systems came to us for help with their non-acute facilities. When I say non-acute facilities, I'm talking about really surgery centers, clinics, physician offices, those types. And they came to us and said, "You're doing a great job for acute care. Can you help us with the non-acute?" And what does that do for them? It allows them to have a consistent supply but also allows them to consolidate vendors. So, we're seeing good success certainly in health care. But the other verticals are all performing well. And we like the decisions, the investments that we've made in those areas, and we think they're going to continue to pay dividends for us.

Tim Mulrooney, Analyst

Just one from me, and I hopped on late so apologies if this has been addressed, but a few of your competitors have recently cited more pricing pushback and an increasing number of customers putting their contracts out to bid. I'm wondering on this pricing idea if you're seeing a similar dynamic where customers are becoming more price sensitive in this environment. Or do you think that this is less of an issue for the industry overall and could perhaps be more specific to these individual companies or markets?

Todd Schneider, President and Chief Executive Officer

I wouldn't highlight anything specific in that regard. The operating environment remains quite normal. As I noted earlier, we function in a very competitive market, so we must ensure our value proposition is appealing to our customers while delivering excellent customer service. Our strategy is to reduce pricing to align more with historical levels, and we are currently seeing that happen. Additionally, I want to emphasize that even while we have adjusted pricing in fiscal '24, we successfully expanded our operating margins by 120 basis points. We're discovering effective ways to deliver substantial value to our customers, manage pricing adjustments, and simultaneously eliminate inefficiencies within our operations to enhance our margins.

Tim Mulrooney, Analyst

I'm not really observing any resistance to pricing. Todd, do you think it's clear that you achieved strong increments this quarter as pricing started to ease? Would you say pricing has completely stabilized now? Are there no more challenges related to moderating pricing as we approach 2025, or are you still navigating that?

Todd Schneider, President and Chief Executive Officer

Tim, as I noted, it's a highly competitive market. We have been moderating our pricing. Pricing is influenced by local factors, including the customers' operating environments and their customer bases. Therefore, we continuously monitor and adjust it based on our local businesses, ensuring that we meet our customers' needs. We prioritize the long-term value of a customer rather than focusing solely on the short term. We will keep managing pricing with this long-term perspective in mind.

Mike Hansen, Executive Vice President and Chief Financial Officer

And I might just add, Tim, to your question, probably not a lot of fiscal '25 to fiscal '24 year-over-year pricing change.

Andrew Steinerman, Analyst

If you could believe it, I'm just going to ask you to clarify something you just said. So, you talked about moderating pricing. When I hear the words moderating pricing, I hear price decreases. I assume what you mean is you're moderating to a more normal type of modest price increase. And then when talking about fiscal '25, are you talking about modest price increases or really flat pricing year-over-year for existing customers?

Todd Schneider, President and Chief Executive Officer

Just to clarify, moderating pricing is the way you characterized it, which is we are passing through modest price increases based upon our agreement and relationship with that customer. And that varies based upon customers, geographies, industries, et cetera. But yes, the way you described it is appropriate. It's a modest price increase with customers in general.

Andrew Steinerman, Analyst

That's true for the fiscal '25, too, right?

Todd Schneider, President and Chief Executive Officer

That would be correct.

Jasper Bibb, Analyst

Was hoping you could give a bit more color on what you're seeing as far as net headcount at customers or their hiring posture and any expectations there embedded in your fiscal '25 organic growth guidance.

Todd Schneider, President and Chief Executive Officer

Yes, it really varies. As I mentioned, we have a broad customer base across different regions, but there hasn't been much change in customer behavior regarding hiring. The environment is stable and hasn't really changed much in the past few quarters.

Jasper Bibb, Analyst

Got it. Last one for me. Maybe asking an earlier question a little bit differently. With this whole dynamic of peers talking about increased churn, including at some of the larger national accounts, if you're not seeing a pricing or retention hit, are you potentially taking away some of this competitor business at a higher rate, given these market dynamics?

Todd Schneider, President and Chief Executive Officer

Well, here's the way I'd describe it is we operate in a really competitive environment. And so, we're out there trying to do the best to take care of our customers fighting for business every day. And I wouldn't characterize it as really much of a change in the environment. It's always really competitive. And we're continuing to try to position our organization with the best products, the best services, the best technology so that they can be successful in the marketplace.

Manav Patnaik, Analyst

I just had one question. Earlier, you talked about how you've been the most active in M&A for many years now. So just curious if you could just talk a little bit more about why now and perhaps what the pipeline in each of your segments looks like for future M&A?

Todd Schneider, President and Chief Executive Officer

As you know, mergers and acquisitions are difficult to forecast. We focus on the long term and ensure we have relationships in place so that when someone is ready to transact, we are well positioned. Predicting deal flow is challenging. However, we find mergers and acquisitions very appealing, primarily because they introduce us to new customers, allowing us to offer a broader range of products and services. Additionally, they often present attractive synergies, provide valuable infrastructure, and allow us to work with great people from whom we can learn. Therefore, we are very interested in mergers and acquisitions of all types and are active in those markets. The timing is hard to gauge, as it requires mutual interest, but we want to ensure we are prepared and ready for the opportunity.

Scott Schneeberger, Analyst

The first one is just you've been speaking over the course of the year about investing in your selling capabilities, technology, management training. Just an update there. And also, you've been alluding a lot to myCintas portal. Any quantification you can put on that about penetration or anything else about how that's progressing?

Todd Schneider, President and Chief Executive Officer

It's difficult to assign a specific number to that. It's similar to valuing the culture at Cintas. We're consistently reinvesting in technologies and training to help our employees succeed. Our efforts are focused on making it easier for them to perform their tasks and for our customers to engage with us. These are long-term investments that enable our workforce to thrive in the market. While some of these investments yield quicker returns, the commitment to ongoing investment remains. We have a fantastic team dedicated to caring for our customers daily, and we aim to simplify their experience. Additionally, we want to provide them with data that enhances the value they offer to customers, making their jobs less burdensome and allowing customers to self-serve and have multiple channels for interacting with us. All these investments are ongoing and will likely continue indefinitely, as technology is integral to modern business strategy. We're fortunate to have a strong balance sheet that allows us to invest wisely and empower our team for success.

Scott Schneeberger, Analyst

And the follow-up is, I just figured fiscal year-end and all-time high in the fourth quarter on the operating margin. So, kind of a conceptual longer-term question. You guys have done great since implementing the ERP and reaping benefits from it. What can you get to for peak margins? I mean, you've talked about incremental margins, 25%, 35% range. Can you get to 25% promptly? Can you get to 30% longer term? Just some consideration on what aspirational targets would be reasonable.

Mike Hansen, Executive Vice President and Chief Financial Officer

We don't want to limit our ambitions, but we definitely believe we can continue improving our margins. Currently, some of our locations are achieving over 30% incremental operating margins across all of our businesses. We are actively working towards this goal, whether it's through better scale and density, adjusting our product mix, or leveraging the novelty of new locations. We have several examples and are striving to bring all our locations closer to these top-performing standards. The range of 25% to 35% incremental operating margins is something we are committed to pursuing. Regarding technology, we're still at the beginning stages. We've noticeably improved our operations on the SAP system over the past four years since our rental business fully transitioned, and Fire is still not on it. While we are getting more proficient with the system, there is much more potential with our partnerships with Google, Verizon, and SAP that we are just beginning to explore. We believe this could significantly contribute to margin growth in the future. While I can't provide a specific timeline for reaching 25% or 30%, those targets are very much within our vision, and we will keep working diligently toward achieving them.

Adam Parrington, Analyst

This is Adam on for Shlomo. Could you just maybe provide a little bit of outlook for Uniform Direct Sales and Fire Protection businesses for '25? And how much of a margin impact should there be in the Fire business from the SAP implementation you alluded to last quarter?

Mike Hansen, Executive Vice President and Chief Financial Officer

From a Fire Protection business perspective, we're still in the implementation phase of that. And there's going to be a little bit of pressure on there. I'm not going to give a specific guidance in terms of their margin. But there'll be some pressure as we go through, keeping in mind when we go through an implementation, there is the work of the implementation, the work of training all of our people to use it, the inefficiencies that come along with that, and we will then get better and better. And fiscal '25 is going to be a little bit of a year of that training and implementation period. And so, I would say that's going to be a little bit of pressure on the margins there. Certainly, that's incorporated within our overall guide of margin improvement. From a Uniform Direct Sale perspective, our margins have been really good. We've been working on selling the right types of programs, and our Uniform Direct Sale partners are doing a great job in that area. But having said all of that, a little bit hard to tell based on that SAP implementation in Fire, but keeping in mind that's included with our overall guide.

Ashish Sabadra, Analyst

I have a question regarding the guidance philosophy. When we look at the organic growth for the quarter, it's still quite strong compared to the industry growth rate of 7.5%, although it has slowed down over the past eight quarters. The upper end of the guidance suggests that 8% organic growth could indicate a shift in growth trends. Historically, you've set guidance levels that you have managed to exceed and adjust upwards throughout the year. As we consider where we might see this change, could you explain if the guidance philosophy remains as conservative as it has been in previous years?

Mike Hansen, Executive Vice President and Chief Financial Officer

We achieved an 8% organic growth rate this year, which is strong considering we were at 12.2% last year and 10% the year before, during a time of significant inflation. Our pricing was higher than usual, but we managed to bring it back closer to historical levels, leading to the 8% growth this year. Looking at our guidance, we haven’t seen much change in customer behavior, and our performance in the full fiscal '24 year has been good. In the third quarter, adjusting for workdays, our total growth was 8.2%, and we saw the same in the fourth quarter. Our guidance range of 6.7% to 8.3% reflects that the business is continuing in a manner similar to the second half of the fiscal year. The organic growth numbers in the third quarter, fourth quarter, and next year tell the same story. We recognize the need to build a range to account for various factors, but the top line guidance for fiscal '25 aligns with what we observed, particularly in the latter half of fiscal '24, indicating solid growth across all our segments, especially in Uniform Rental, First Aid and Safety, and Fire Protection. I hope that clarifies things for you.

Faiza Alwy, Analyst

So, you mentioned earlier in the call about the white space opportunity and just the traction you're getting with no-programmers. I think relative to historical levels, the contribution from no-programmers to growth has been higher. So, I'm curious if you can talk about what you're doing differently. Are you maybe using technology? Has the pitch changed a little bit? Is there something about the underlying environment? So just curious on what's driving sort of incremental contribution from no-programmers.

Todd Schneider, President and Chief Executive Officer

I’ll begin, and Mike, feel free to add your thoughts. Faiza, good morning. For several decades, we have focused on expanding our business, and there is significant opportunity available. We educate our organization on attracting those who are not programmers, which involves a different approach. It requires more of a conceptual selling method rather than just showing them how to perform tasks. This conceptual sale is something we actively teach our team, and we are fortunate to be in a position where there is substantial opportunity. While it can be a challenging concept to convey to others, it has become ingrained in our operations over time, and we find it exciting. There hasn't been any noticeable change; it is simply part of our culture and how we instruct and prepare our partners for this approach. It resonates with people since they understand the idea of outsourcing and acknowledge their difficulties in keeping up. They realize that we can accomplish tasks more efficiently. This fundamental understanding has been essential to our growth and will continue to drive our future success.

Mike Hansen, Executive Vice President and Chief Financial Officer

Faiza, maybe I'll offer this a bit. If you think about the health care vertical that we've been in for maybe a decade or so now. When we got into that, we needed to create a sales team because it's just a different kind of sale, different kind of relationships. And so, we had to create a different kind of sales team. When we did that, we started with sort of maintenance uniforms, uniform rental and maintenance because we didn't have a broad product offering. As we continued in that business, we started to learn through dialogue with the customers how else we can help them, and we started things like microfiber and we started rental programs in microfiber. And that started to take off and has become a nice product for us. As we continued to have dialogue with them, that sort of evolved into then scrub rental programs. These came out of, again, dialogue with how can we help our customers. And so, this health care has grown from almost nothing to, call it, 8% of our revenue now. And it's largely because of the adaptation of our people to this new type of vertical, along with our dialogue with our customers and creating a real nice partnership, that then creates some innovation, that gets innovation flowing for us in new products and services. And then if we couple that with technology of having more information at our fingertips, of being able to find better prospecting. As we can better able to tell what customers have, which products and where might the warmest leads and so on be, over time, we have been able to grow the business and through that, grow the productivity. And so, all of these things that we do that Todd talks about, they don't happen overnight. They are the evolution and continued dialogue and collaboration with our customers to become more and more ingrained in what we do with them. We were about 4.3% in fiscal '24 as a percent of revenue. You might remember, we had a little bit of a catch-up in truck purchasing through the year. We had some of the SAP investment for Fire Protection. We largely believe that CapEx in the future is the 3.5% to 4% of revenue range. I think that's where we'll likely end up in fiscal '25.

Jared Mattingley, Vice President and Treasurer, Investor Relations

Thank you for joining us this morning. We will issue our first quarter of fiscal '25 financial results in September. We look forward to speaking with you again at that time.

Operator, Operator

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