Cintas |

Manav Shiv Patnaik, Barclays Bank PLC, Research Division – Director & Lead Research Analyst

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Just maybe in light of all the stuff going on, perhaps you could help us with a little bit more detail in terms of where your exposures lie, whether that’s restaurants, lodging and so forth, just so we at least know magnitude of what percentage of revenues are really at risk versus those that could go like 50-50 or whatever it is. I was hoping you could help us with a little bit more color there.

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J. Michael Hansen, Cintas Corporation – CFO & Executive VP

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Sure, Manav. We’re — as I mentioned a bit earlier, we’re really at the peak of uncertainty. We’re — as of a week ago, we didn’t really see much impact to our revenue. And so we’re going about trying to get a better understanding of that as we go through this week and into the future. But let me remind you, we have a very diverse customer base, about 30% of our revenues from industrials, 70% from service-providing businesses. That includes health care, retail, distribution centers, foodservice, hospitality, and all of these are being affected in different ways. If you think about health care, for example, they really need us now. They need our scrubs, they need our microfiber wipes. They need our cleaning chemicals. They need our fire protection. If you think about restaurants, while some are closed, some are opened only carryout. And we’re learning, as we visit them this week, what are their needs. They may still need some chef works, some hygiene products, first aid and safety, but we’re going to — it’s going to take a little bit of time to understand what those needs are.

Office environments, they’re looking to stay clean more than ever. And so we’re seeing some nice movement there in terms of our First Aid and Safety, our personal protective equipment like gloves. And then you think about hotels, casinos, arenas, they aren’t doing very much business right now. And so we are in the midst of better understanding the collective impact to the business, Manav. And gosh, we’re so early in that process that it’s really hard to break it down because in addition to the details that I just provided and keeping in mind, if you think about 3-digit NAICS codes, we don’t have revenue of greater than 10% in any of those 3-digit NAICS codes. But also keep in mind, as I talked about revenue per vertical, it’s quite different from geography to geography today. So if you think about some of those different businesses that are on the coasts, they may be impacted more severely than those same kind of businesses in the same verticals in the middle of the country. And so this is — it’s going to take a little bit of time for us to really get clarity on the collective impact to the business, and we’re just not there yet.

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Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division – Senior Research

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A question that we’ve gotten a lot this week is how customer closures work and how they affect you and what the contract says when such things happen. I know there’s probably different ways to treat different categories of customers, small customers, large customers, maybe even by end market. But for those customers that are shutting down, that we know are shutting down, how does that get treated by Cintas? And what is the impact to your financials?

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J. Michael Hansen, Cintas Corporation – CFO & Executive VP [6]

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Yes, that’s a — it’s a great question, Andy. And we’re — as I said, we’re still working on gaining clarity there. But as — it’s going to be all over the board, right? This is not a normal environment. In a normal environment, we may have a business shutdown for a week, and we still may be charging the rental of garments and other products. That’s a — holiday manufacturing shutdowns are a good example of that. Semester breaks at school is a good example of that. What we’re talking about right now is quite different. And so we have to understand from our customers how long do they think they will be closed, and many of them right now don’t know, but for how long do we think they’re going to be closed and what are the needs of the business today versus maybe where they were a couple of weeks ago. And so it’s going to be all over the board, Andy, from small businesses to large businesses and different kinds of verticals in different geographies and, as I said, we’re working through that to gain clarity.

Our next question will come from Andrew Steinerman with JPMorgan Securities.

Cintas Stock Is Down by a Third Due to Coronavirus -- Is It a Buy ...

Andrew Charles Steinerman, JP Morgan Chase & Co, Research Division – MD

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Mike, let me give it a try. So my sense, I’ve been in this for over a decade looking at Cintas and the group, and my sense is that the Uniform Rental business really is kind of cyclical on a delay. Like when you look at your fiscal 2008, it was actually up. It wasn’t until 2009 and 2010 fiscals did you have kind of moderate declines about 5% organic per year for those 2 years. So my question really is, do you think that the impact that you’ve experienced now will be more immediate? Or do you think it’s going to be a delay like I described last recession?

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J. Michael Hansen, Cintas Corporation – CFO & Executive VP [9]

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Yes, Andrew, this is not a normal recession or even like the Great Recession. And so I think there’s going to be a more immediate impact, simply because we have so many businesses that have been ordered to close, right? We’ve got — 40 states have closed their schools. I think another — over 20 states have closed their restaurants. That’s — I mean that’s unprecedented. And it’s not like our customers are going out of business over time or even had the chance to reduce their workforce. They’re kind of closing, many of them, on the orders of municipalities. And so there’s going to be a little — there’s going to be certainly a more immediate impact. What is that impact? Look, one of the reasons that we did not provide guidance is it’s really hard to tell. We’ve never been through a pandemic. And in this pandemic, we’re seeing things that we really haven’t seen in the 90 years of Cintas — of running the business. And so we’re — we need a little bit of time for clarity. As I said, we haven’t seen much of an impact as of a week ago, but there’s going to be an impact coming. And that’s why we did not provide guidance because it’s just too hard to tell right now.

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