vsts-20240628

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2024

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-41783

Vestis Corporation

(Exact name of registrant as specified in its charter)


Delaware			92-2573927
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

500 Colonial Center Parkway, Suite 140, Roswell, Georgia			30076
(Address of Principal Executive Offices)			(Zip Code)

(470) 226-3655

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	VSTS	New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of July 26, 2024, the registrant had 131,481,967 shares of common stock outstanding.

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TABLE OF CONTENTS


		Page
PART I - Financial Information
Item 1.	Financial Statements (Unaudited)	5
	Consolidated and Combined Balance Sheets	5
	Consolidated and Combined Statements of Income	6
	Consolidated and Combined Statements of Comprehensive Income	7
	Consolidated and Combined Statements of Cash Flows	8
	Consolidated and Combined Statements of Changes in Equity	9
	Notes to Consolidated and Combined Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38

PART II - Other Information		39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the securities laws. All statements that reflect our expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, statements relating to future operations and financial performance (including volume growth, pricing, sales and cash flows) and statements regarding our strategy for growth, future product development, regulatory approvals, competitive position and expenditures. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our operations, our liquidity and capital resources, the conditions in our industry and our growth strategy. In some cases, forward-looking statements can be identified by words such as “believe,” “aim,” “anticipate,” “estimate,” “expect,” “future,” “goal,” “have confidence,” “intend,” “likely,” “look to,” “may,” “outlook,” “project,” “plan,” “seek,” “see,” “should,” “will,” “will be,” “will continue,” “will likely,” and other words and terms of similar meaning or the negative versions of such words. These forward-looking statements are subject to risks and uncertainties that may change at any time, and actual results or outcomes may differ materially from those that we expected. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Although we believe that the expectations reflected in any forward-looking statements we make are based on reasonable assumptions, we can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.

Such risks and uncertainties include, but are not limited to:

• unfavorable economic conditions including government shutdowns;

• increases in fuel and energy costs;

• the failure to retain current customers, renew existing customer contracts and obtain new customer contracts;

• natural disasters, global calamities, climate change, pandemics, strikes and other adverse incidents;

• competition in our industry;

• increased operating costs and obstacles to cost recovery due to the pricing and cancellation terms of our support services contracts;

• our leverage and ability to meet debt obligations;

• a determination by our customers to reduce their outsourcing or use of preferred vendors;

• the outcome of legal proceedings to which we are or may become subject;

• risks associated with suppliers from whom our products are sourced;

• challenge of contracts by our customers;

• our expansion strategy and our ability to successfully integrate the businesses we acquire and costs and timing related thereto;

• currency risks and other risks associated with international operations, including compliance with a broad range of laws and regulations, including the United States Foreign Corrupt Practices Act;

• our inability to hire and retain key or sufficient qualified personnel;

• continued or further unionization of our workforce;

• liability resulting from our participation in multiemployer-defined benefit pension plans;

• liability associated with noncompliance with applicable law or other governmental regulations;

• laws and governmental regulations including those relating to the environment, wage and hour and government contracting;

• unanticipated changes in tax law;

• new interpretations of or changes in the enforcement of the government regulatory framework;

• a cybersecurity incident or other disruptions in the availability of our computer systems or privacy breaches;

• stakeholder expectations relating to environmental, social and governance (“ESG”) considerations which may

expose us to liabilities and other adverse effects on our business;

• the expected benefits of the Separation (as defined) from Aramark;

• the risk of increased costs from lost synergies due to the Separation;

• retention of existing management team members as a result of the Separation;

• any failure by Aramark to perform its obligations under the various separation agreements entered into in connection with the Separation;

• a determination by the IRS that the Separation or certain related transactions are taxable.

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The above list of factors is not exhaustive or necessarily in order of importance. For additional information on identifying factors that may cause actual results to vary materially from those stated in forward-looking statements, see the discussions under Item 1A "Risk Factors," Item 3 "Legal Proceedings" and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC") on December 21, 2023 and any updates or amendments we make in future filings. There may be other factors not presently known to us or which we currently consider to be immaterial that could cause our actual results to differ materially from those projected in any forward-looking statements we make. Any forward-looking statement speaks only as of the date on which it is made, and we assume no obligation to update or revise such statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

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PART I - Financial Information

Item 1. Financial Statements (Unaudited)

VESTIS CORPORATION

CONSOLIDATED AND COMBINED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)


	June 28, 2024		September 29, 2023
ASSETS
Current Assets:
Cash and cash equivalents	$	29,098	$	36,051
Receivables (net of allowances: $19,540 and $25,066)	409,926		392,916
Inventories, net	153,539		174,719
Rental merchandise in service, net	398,616		399,035
Other current assets	28,778		17,244
Total current assets	1,019,957		1,019,965
Property and Equipment, at cost:
Land, buildings and improvements	582,758		585,797
Equipment	1,154,184		1,110,812
	1,736,942		1,696,609
Less - Accumulated depreciation	(1,081,039)		(1,032,078)
Total property and equipment, net	655,903		664,531
Goodwill	963,036		963,543
Other Intangible Assets, net	219,010		238,608
Operating Lease Right-of-use Assets	70,241		57,890
Other Assets	217,483		212,587
Total Assets	$	3,145,630	$	3,157,124
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of long-term borrowings	$	8,000	$	26,250
Current maturities of financing lease obligations	29,701		27,659
Current operating lease liabilities	19,857		19,935
Accounts payable	150,542		134,498
Accrued payroll and related expenses	104,569		113,771
Accrued expenses and other current liabilities	117,123		73,412
Total current liabilities	429,792		395,525
Long-Term Borrowings	1,394,528		1,462,693
Noncurrent Financing Lease Obligations	111,930		105,217
Noncurrent Operating Lease Liabilities	57,707		46,084
Deferred Income Taxes	200,379		217,647
Other Noncurrent Liabilities	50,117		52,598
Total Liabilities	2,244,453		2,279,764
Commitments and Contingencies (see Note 9)
Equity:
Common stock, par value $0.01 per share, 350,000,000 shares authorized, 131,477,853 shares issued and outstanding as of June 28, 2024	1,315		—
Additional paid-in capital	925,077		—
Retained earnings	9,466		—
Net parent investment	—		908,533
Accumulated other comprehensive loss	(34,681)		(31,173)
Total Equity	901,177		877,360
Total Liabilities and Equity	$	3,145,630	$	3,157,124

The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.

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VESTIS CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)


	Three months ended				Nine months ended
	June 28, 2024		June 30, 2023		June 28, 2024		June 30, 2023
Revenue	$	698,248	$	709,384	$	2,121,539	$	2,109,385
Operating Expenses:
Cost of services provided (exclusive of depreciation and amortization)	495,759		484,568		1,502,557		1,480,143
Depreciation and amortization	34,925		34,204		105,500		101,712
Selling, general and administrative expenses	130,041		124,245		385,307		367,396
Total Operating Expenses	660,725		643,017		1,993,364		1,949,251
Operating Income	37,523		66,367		128,175		160,134
Interest Expense and Other, net	(29,386)		(83)		(94,874)		268
Income Before Income Taxes	8,137		66,284		33,301		160,402
Provision for Income Taxes	3,100		17,421		10,033		41,216
Net Income	$	5,037	$	48,863	$	23,268	$	119,186

Earnings per share:
Basic	$	0.04	$	0.37	$	0.18	$	0.91
Diluted	$	0.04	$	0.37	$	0.18	$	0.91
Weighted Average Shares Outstanding:
Basic	131,543		130,725		131,486		130,725
Diluted	131,833		130,725		131,785		130,725

The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.

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VESTIS CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three months ended
	June 28, 2024		June 30, 2023
Net Income	$	5,037	$	48,863
Other Comprehensive Income, net of tax:

Foreign currency translation adjustments	(3,699)		1,223
Other Comprehensive (Loss) Income, net of tax	(3,699)		1,223
Comprehensive Income	$	1,338	$	50,086


	Nine months ended
	June 28, 2024		June 30, 2023
Net Income	$	23,268	$	119,186
Other Comprehensive Income, net of tax:

Foreign currency translation adjustments	(3,508)		7,011
Other Comprehensive (Loss) Income, net of tax	(3,508)		7,011
Comprehensive Income	$	19,760	$	126,197

The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.

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VESTIS CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine months ended
	June 28, 2024		June 30, 2023
Cash flows from operating activities:
Net Income	$	23,268	$	119,186
Adjustments to reconcile Net Income to Net cash provided by operating activities:
Depreciation and amortization	105,500		101,712
Deferred income taxes	(10,166)		1,551
Share-based compensation expense	13,303		11,580
Asset write-down	980		7,698
Loss on disposals of property and equipment	618		—
Amortization of debt issuance costs	1,478		—
Loss on extinguishment of debt	3,883		—
Changes in operating assets and liabilities:
Receivables, net	(17,230)		(18,317)
Inventories, net	21,136		(25,183)
Rental merchandise in service, net	178		(1,207)
Other current assets	(6,230)		2,335
Accounts payable	14,471		(22,146)
Accrued expenses	54,511		(17,560)
Changes in other noncurrent liabilities	(16,900)		(1,440)
Changes in other assets	(10,932)		(6,845)
Other operating activities	(1,668)		(7,427)
Net cash provided by operating activities	176,200		143,937
Cash flows from investing activities:
Purchases of property and equipment and other	(50,787)		(52,641)
Disposals of property and equipment	—		10,968
Other investing activities	—		75
Net cash used in investing activities	(50,787)		(41,598)
Cash flows from financing activities:
Proceeds from long-term borrowings	798,000		—
Payments of long-term borrowings	(879,500)		—
Payments of financing lease obligations	(22,572)		(20,803)
Net cash distributions to Parent	(6,051)		(91,706)
Dividend payments	(9,199)		—
Debt issuance costs	(11,134)		—
Other financing activities	(1,853)		—
Net cash used in financing activities	(132,309)		(112,509)
Effect of foreign exchange rates on cash and cash equivalents	(57)		682
(Decrease) increase in cash and cash equivalents	(6,953)		(9,488)
Cash and cash equivalents, beginning of period	36,051		23,736
Cash and cash equivalents, end of period	$	29,098	$	14,248

The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.

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VESTIS CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(in thousands)


	Common Stock
	Shares Outstanding	Par Value		Additional Paid-In Capital		Retained Earnings		Net Parent Investment		Accumulated Other Comprehensive Loss		Total Parent’s Equity
Balance, September 29, 2023	—	$	—	$	—	$	—	$	908,533	$	(31,173)	$	877,360
Separation-related adjustments	—	—		—		—		9,485		—		9,485
Issuance of common stock in connection with the Separation and reclassification of net parent investment(1)	131,225	1,312

SEC Form 10-Q filed by Vestis Corporation