Shlomo Rosenbaum: Okay, thank you.
Operator: The next question comes from Andy Wittmann with Baird. Please go ahead.
Andy Wittmann: Great. Thanks for taking my question. I — you had a comment in your prepared remarks about optimization events, and I just was hoping that you could talk about what those are. I think you mentioned there were 13 of them. Just trying to understand the significance of what one optimization event could be and how we should think about these types of things unfolding throughout the course of the year and what they can mean to the profit margin profile?
Kim Scott: Absolutely. Good morning, Andy. So, when we are referencing the optimization events related to logistics and routing and scheduling, I take you back to our strategy. When we spoke a great deal about optimizing our routes and building our logistics muscle, and we spoke about the very intensive study that we did with Chainalytics around all of our flows between our plants and our customer locations, and the opportunity to optimize those flows. And you may remember, in Analyst Day, we gave some case studies around some specific markets, and going in and rerouting customers to the proper plant location, but also looking at our cross-docks and depots and where those are located, and identifying opportunities to drive less miles to serve our customers essentially.
And if you just kind of summarize it, that’s really what we’re doing is, we’re reducing empty miles across the system, either through mapping customers to the right locations, making sure drivers make all right turns on the routes, and that they’re being efficient with how they drive, or also just looking at cross-docks and shuttles that we’re doing to drive wasted miles to serve customers through cross-docks versus directly from plants. And so, when we talk about these events, these could be markets or groupings of routes in really large markets where we’re going in and actually running optimization, re-planning routes, and putting customers in the right plants on the right routes, and resetting that process. And so, when we say that we’ve already done 13, picture last year we did a total of 26.
And so, what we’re trying to emphasize here is that, in the first quarter, we’ve already done half as many as did last year. And so, we’re building momentum around that and when we first started, we had to build the muscle and teach the organization how to do this. I spoke a little bit about ensuring that we got the change management right, that we were engaging with customers, that we were doing the handoff and the change effectively, and creating no disruption for our teammates or for our customers. So we were kind of going slow in the beginning. Not slow, but in a moderated way to make sure we did this thoughtfully. Now we’re starting to ramp this thing up and we’re gaining more traction. We modeled doing kind of a right-sizing over the five-year period, but at the same time, we’re also institutionalizing these tools.
So when I talk about adding the telematics across all of our fleet so we can ensure that we’re running routes in compliance with how we’d like to do that. And also when we talk about dispatch track being implemented as our routing and scheduling tool, now, it’s a dynamic tool. Every time we win a new customer, we’re properly adding it to the right route through the lens of logistics. And so, I would think about it as there’s a great one-time resetting that’s taking place, that drops out dollars in terms of reduced fuel and lowering empty miles. And then there’s also this building of this muscle that makes us smarter and better every time we add a customer and run a route in perpetuity. So that’s what we’re speaking about, Andy, when we talk about these events.
Andy Wittmann: That’s really good color. Thank you. I guess, my follow-up question I wanted to ask just kind of about the macro that you’re seeing out there. If you could just talk maybe about the level of a benefit that you might getting from added wares or at your existing accounts, or the, I guess, the amount of wins that you’re getting from customers that have not been a user of a rental program in the past?
Kim Scott: So we are seeing conversion of non-programmers. So when we talk about our account executives outselling, we really enjoy that particular prospect. And so, a lot of our focus while we’re out selling new business and prospecting potential new customers are around non-programmers. And so, we are seeing good growth with our account executives, with new business, new customers around non-programmers, certainly. And that is a key focus for us, quite frankly. As far as trends around [indiscernible], quite frankly, it varies by end market. We’re quite diversified, as you know, in a lot of different end markets. And so, we are seeing some, like, I’ll give healthcare as an example, where we’re seeing good growth in healthcare.
There are others where restaurants, as an example, where we’re actually seeing more closures and more customers that are closing business or going out of business. So it really varies by vertical, Andy. And we’re kind of managing that tactically by end market.
Andy Wittmann: Thank you.
Kim Scott: You bet. Thank you. And we’re kind of managing that tactically by end market.
Andy Wittmann: Thank you.
Kim Scott: You bet. Thank you.
Operator: The next question comes from Stephanie Moore with Jefferies.
Stephanie Moore: Hi, good morning. Thank you.
Kim Scott: Hi, Stephanie. Good morning.
Stephanie Moore: I wanted to maybe touch more — a little bit more so on the margin expansion opportunity. I think very nice progress in the quarter. You called out an improvement in fill rates that you’re seeing and just your inventory reuse program getting traction. Can you talk a little bit about — maybe frame it from an inning perspective, where you are in this inventory reuse program. If you can provide any kind of specific KPIs of the — maybe benefit you’re seeing at the facility level from some of the early initiatives that you’ve made? Any update there would be great? Thank you.
Kim Scott: Yeah. We’re very pleased with the progress we’re making around the reuse of merchandise, and we think about this as a very long-term strategic initiative. So as you all know, as we launch new customers, we inject new products in the system, and the amortization clock starts ticking. So every time we issue a new product, we start the clock on amortization and that amortization stays with us for a period depending on what the product is and what the MR timeline is that’s been set. And so, this initiative around improving the use of existing garments that are already either advertising in our system, but not being used currently or perhaps they’ve rolled off and there’s no amortization tied to them. We essentially already paid for them and they’re sitting in our stockroom.
So we have launched a series of initiatives across our stockroom around teaching our teammates how to better reuse these existing assets that are either partially amortized or fully amortized. We are seeing a tremendous response from our field team, and we are already, I would say, starting to see a step change kind of embracing the idea of pulling these fast-moving SKUs to the front of your stockroom and injecting those to customers rather than injecting new. So you would have heard me mention in my script that we saw — across more than 100 facilities we’re already seeing a really strong improvement around the used fill rate. It takes time for that to actually flow through the financials because you still have the other products in the system being amortized.
So you should think about this in about a year. We will be coming back and talking with you about the improvements that we’re seeing around not only amortization, but also inventory and the management of cash related to inventory because this is a play, as it relates to cash management, and also a play relating to pushing down OpEx costs by kind of pushing down that amortization curve by injecting reuse garments. Just as a reminder, on Analyst — in Analyst Day, we talked a little bit a rule of thumb, a percentage point of moving our used fill right, UFR metric, we’re really using a metric called used fill rate. So for every issue that we do to a customer on how many are used garments versus new garments. And you get about $1.4 million in savings for every percentage point that you improve.
And I’ll tell you, we have a lot of percentage points of improvement opportunity. So more to come on this one, but I would not think about this in the year. I would think about this very strategically. This is a long game, and it’s going to be extremely beneficial once we see some of that old MR roll off, and then we start to continue to inject these new to offset the need for new garments.
Stephanie Moore: Great. No, that’s very insightful. And then maybe just a follow-up to the first question, in the Q&A, on the pricing side. Maybe it was kind of — I think my understanding that the guidance at first didn’t really account for a ton of pricing this year for, I think, obvious — for obvious reasons, just given what we’re seeing inflation and really the opportunity that you have on your side. Now it sounds like you do have some opportunistic areas to take price, which I think you explained is very clear and exciting. So does this more so give us more — so we think about it is driving incremental comfort in achieving the guidance for the year? Could it drive potential upside? How should we think about maybe this change on the pricing front?
Kim Scott: Yeah. I would think about it as additional comfort to give you confidence, the same confidence we have that we’re going to ramp up the growth rates in the back half of the year and deliver against the 4% to 4.5%. So — and certainly, we’re going to be opportunistic and take price whenever we can. But we do expect to also see our volumes ramping around our route sales average when we look at our route drivers and around our AE sales. We have initiatives in place to continue to ramp. But yes, you should think about pricing as a — providing a level of comfort, but we have that lever as well, and we’re being very thoughtful about how to use that lever.
Rick Dillon: Yeah. And the surgical pricing was in our guidance. And so, if you remember, we talked at Analyst Day the disciplined pricing that Kim led with, but that there were opportunities for surgical pricing. And so, we’re really just capitalizing on that. We knew it was out there. And we’re giving you the flavor of the timing, so that you can help understand the progression of revenue.
Stephanie Moore: Okay. That’s clear. Thank you, guys.
Kim Scott: Thank you, Stephanie.
Operator: The next question comes from Andrew Steinerman with JPMorgan.
Andrew Steinerman: Hi. Kim, I thought maybe we could spend a little more time on Chris’ leaving. He was COO for really kind of a brief stint. It was great spending time with him in September. You’ve labeled it as a leaving for personal reasons. So I just wanted to make sure, when we say personal reasons, that means it’s totally unrelated to Vestis Management business, etc? And then also, are you going to hire somebody in that COO position now that Chris has left?
