Andrew Wittmann: Great, that’s helpful. I guess just for my follow-up, I wanted to ask about, I guess, the balance sheet, Mike. I mean by — in the next quarter or two, you’ll be at about one times leverage, which is on the lower end of where you’ve historically run the company. And with the company doing effectively $2.2 billion of EBITDA and growing, there’s a cash flow being very strong, you’re going to have not only the ability to leverage the balance sheet plus the cash coming in, that’s a lot of capital to deploy. How do you deploy that capital in a world where we haven’t seen that amount of capital being — having been deployed really since you guys did G&K, like you said six years ago, how do you keep the balance sheet geared appropriately and what are the opportunities that are out there for you?
J. Michael Hansen: Well, the first thing that I’ll say is the most important thing for us is to make sure that we’re investing in the right way for a long-term success of the business. And so we want to make sure that we are growing capacity as needed with our growth, that we’re training our partners, that we’re doing the things that we need to do to continue to grow long term. We are still — we still want to be very acquisitive. It’s hard to pinpoint when those may or may not happen, but we want to continue to be acquisitive. We talked about the dividend a little bit and that we’ve raised it almost 20% this past year. And certainly, while we didn’t do any buybacks in the last quarter, that remains an opportunity for us as we look forward.
Andy, we want to make sure that we are prudent in the way that we invest our cash. And so sometimes that means we may take a little bit longer to deploy cash but we want to make sure more than anything. Job number one is, long-term growth of the business, both on the top line and on the bottom line and are we doing the right things in order to make that happen and then prudently look for ways to enhance that.
Operator: And our next question comes from Tim Mulrooney from William Blair. Please go ahead Tim.
Samuel Kusswurm: Hey, this is Sam Kusswurm on for Tim. Thanks for taking my questions here. I guess to start on the margin side, lower energy costs were 15 basis point benefit during the quarter. I’d imagine this dynamic is going to continue for the next few quarters. I was wondering if you could help frame for us the pacing and size of any benefit you’re expecting, if you have any color to provide there?
Todd M. Schneider: Well, certainly Sam, we watch the energy prices very closely. Fuel, as in diesel and gasoline, hasn’t changed that much year over prior. Natural gas, we’re watching, and we expect that, that will be a benefit in the near future and the electricity it doesn’t change a whole lot. So I wouldn’t say that you can count on significant tailwind there. We are certainly not when you think about energy as a percent of sales, I think we came in at 2.15% energy as a percent of sales. So we like when they’re coming down, and we manage it as they’re going up, but I wouldn’t expect a real change there.
J. Michael Hansen: Yes, just to frame it a little bit, Sam. Last year in the fourth quarter, our total energy was 2.5% of revenue. In the first quarter, it was 2.4%. This time, it was 2.15%. So we may see a little bit of a benefit in Q4 and Q1. But boy, we’ve worked so hard to get this to be such a small part of our cost structure that I’m not sure the benefit is going to be that significant one way or the other.
Samuel Kusswurm: Got you. I appreciate the color there. I guess for a follow-up, you’ve spoken before about Smart Truck and I think you just mentioned the question previously for the riding software. Now it’s been over a year since kind of for filling it out. I guess I’d be curious if you could help quantify a benefit to your margins and if you still think there is a sizable benefit remaining there from further durations or adoption?
Todd M. Schneider: Yes. Good question, Sam. Yes, we absolutely see opportunities still to come with Smart Truck. It’s — one of the things that we are very careful about is it’s — when you route a new customer, that’s one thing. But when you are rerouting your existing customer base, we’re very judicious about that because changing the face of the service provider can sometimes bring issues, meaning they love their service provider and now you change it. So you got to be really careful with that. So you’re going to see — I would expect benefits in that area for years to come. And that shows up in energy, in emissions, but it shows up also in productivity because our partners have more time to spend with the customers and they can provide more value to the customers.
And as one of the things we talk often about here is, we don’t generate any revenue when the wheels are moving. It’s only when the wheels stop. So we’re very focused on that, but you’re going to see it, I think, for years to come.
Operator: And our next question comes from Seth Weber from Wells Fargo. Please go ahead Seth.
Seth Weber: Hey guys, good morning. Hey Mike, I just wanted to ask about free cash flow. It was a little bit below what we were looking for in the quarter. Is that — do you feel like just a transitory function of revenue growth ramping a little bit better, and you’re just kind of getting a little bit behind on working capital or can you just talk us through how you’re thinking about working capital going forward? Thanks.
J. Michael Hansen: Well, I’ll say free cash flow, I think your point is a good one from the perspective of — it’s a little bit transitory, but in the way of, look, we’re coming off of a fiscal 2021 year where there wasn’t a lot of growth and then really getting some nice acceleration into fiscal 2022 and 2023. And so there is a little bit of — as we have used capacity through the pandemic, we’ve gotten back into a time period where we need some capacity here and there. And we’ve been really good at managing the capacity in many different ways, whether it is, for example, better efficiency in our existing wash alleys to adding a washer to adding a dryer to maybe then adding a new facility. But we’ve gotten to the point where it’s time to add capacity again, and that’s healthy.
But I would call that there is a little bit of a mismatch there that we’re catching up a bit from that. Having said that, look, we still expect free cash flow to be very, very strong. And whenever we’re growing nicely, we’re going to use some working capital. That’s just the nature of our business. And that’s a good thing. But you’re right, there’s a little bit of a catch-up in our capital expenditures, and we’ll start to I’ll say, those will get more in sync as we go into the next year and following years, assuming there’s no other economic disruption.
Seth Weber: Okay, that’s helpful. And so do you think CAPEX could go back to that 4% of revenue range where you kind of work towards the end of the last decade or — and then it went to like 2% a couple of years ago, I’m just trying to understand where…?
J. Michael Hansen: Yes, it’s going to be close — we certainly don’t expect it to be down at that 2% level. It’s going to be closer to that 4% level as we think about moving forward.
Operator: And our next question comes from Heather Balsky from Bank of America. Please go ahead Heather.
Heather Balsky: Hi, thank you. You talked a fair amount during the call about your success with new customers and that a lot of them are what you call non-programmers. And I think a key theme that’s been discussed on multiple calls is the shift to outsourcing and an acceleration kind of in that trend. I’m just curious, as you kind of look to what happened in the third quarter and as you’re looking out, kind of your thoughts on how that trend continues, do you see it normalizing, or do you think there’s further momentum into the next few years? Thanks.
Todd M. Schneider: Yes, good morning Heather. I’d say that trend continues. There’s still people, our customers still are — there’s still 10 million job openings, folks trying to attract talent and trying to run their business and provide the levels of service that their customers expect. And when we have the ability to outsource items for them at very competitive rates, and again, in many cases, because we’re already there, then that makes it quite attractive. And it’s one of these like, oh my gosh, you can take this off my plate, then please, take it off my plate. And we leverage that and we’ll continue to leverage that. So economic cycle aside, customers still need to take care of their customers and we can help them do exactly that. So we’ll be focused on providing that value and managing our cost structure so that we can do it at very competitive rates.
Heather Balsky: Great, thank you. And I guess as my follow-up, you discussed earlier that you are looking for M&A opportunities, although you don’t know kind of when those might occur. I’m curious, can you talk about your priorities with regards to M&A, are there white space areas you want to fill in, is it geographic opportunities, just what are your priorities? Thanks.
Todd M. Schneider: Yes, good question, Heather. So we’re interested in M&A, certainly in our rental business, in our First Aid business and our Fire business. And we make acquisitions every year, every quarter, it seems in each of those businesses. But they’re usually reasonably small. Some of them are geographic expansion, some of them are tuck-in. So it’s a real mixture. And M&A tends to ebb and flow a bit. It’s tough to predict timing, but we’re interested in M&A in all those businesses. They have to be the right businesses, meaning well-run businesses, but large, medium, small, we are interested in all and each of those businesses.
