We’re tracking that metric. Auto dealers, as an example, sales activity is up 19%. Then we’re looking at, okay, the sales activity is up, are we actually winning any more business. So then we’re also measuring total won opportunities before we aggressively focused on this vertical. And now, as example, auto dealers is up 2%. So our won opportunities, how many new business opportunities are we winning is up 2%. Then we’re also looking at how much weekly revenue are we getting from this vertical and are we seeing improvements in the vertical. In auto dealers in Q1, we have a 47% increase in weekly revenue. So again, another great piece of data that tells us that we are gaining traction in this micro vertical. So these are the kinds of things that we’re measuring by vertical.
And the life cycle is different depending on the vertical. There are some that are more complex than the go-to-market strategy and the build-out is taking longer. And we’ll eventually see the same results in that vertical, as we do in auto dealers, as an example. And over time, when our mix really shifts, you’ll probably see us evolve the actual end market that we talk about, and we’ll be segment our revenue, but this is very early days. You’re not going to see enough shift in the mix yet for us to kind of change the end markets that we’re talking about. But over time, you will learn about these other micro verticals, these more specific targets, and we’ll talk about them. But for now, we’ll stick with auto dealers just as the example. So I hope that was helpful, George.
George Tong: Yeah. It’s very helpful. Thank you.
Operator: The next question comes from Michael O’Brien with Wolfe Research. Please go ahead.
Michael O’Brien: Hi, good morning, guys. Thanks for taking my questions. Two quick ones here. Regarding contract renewal, are you guys seeing any disruptions regarding the separation? Sometimes when you see these new spin-cos come out, you see some issues going on with contract renewals with their existing clients? And then the second question is regarding the margin expansion opportunities, is stranded cost reductions for — factored into your 2024 guidance? Thank you.
Kim Scott: Michael, good morning. Thank you for your question. We’ll start with contract renewals. We have had, I would say, a seamless transition, as it relates to our customer agreements and our relationship with our customers, as we’ve spun out. So the agreements are transferable. They directly move over to Vestis. And so, we have not had to go out to customers and repaper or renew contracts, as part of the spin. So the spin activity itself did not trigger the need to reengage the customer around the contract. We’ve been very clear with customers, and we used talking points at the beginning when we spun out the — how your contracts just eventually going to save Vestis on it instead of Aramark Uniform Services. And we have had no friction, as it relates to that at all and customers have continued in their current relationship with us with no drama, if I can use that phrase.
So no concerns there at all. We feel very good about that. As it relates to stranded costs, we actually have done an amazing job pre-spin of making sure that we rightsize this business, and you guys might remember that we talked about stripping out about $28 million of back office and billed cost pre-spin, so that we could prepare for the ingestion of pubco cost. So we feel really good that we’re running a tight operation that we’re not sitting on waste other than — and I won’t call this waste, it’s just the necessary cost of spinning. There is duplication of cost in our system, as it relates to paying Aramark or TSA for certain services, while we are ramping up, in particular, our IT team to be prepared to standalone and support us, as it relates to IT infrastructure and cybersecurity.
So there’s some duplication of costs that will take place kind of in the first year, and we’ve been pretty transparent about that as well. But otherwise, we were operating quite independently from Aramark. Our business models are completely different. We’re running on separate systems, separate teammates, separate functional structure. So we feel like we’re in a really great place, and we’re operating quite efficiently.
Michael O’Brien: Okay. Great. Thank you for the color.
Kim Scott: Thank you.
Operator: We have time for one more question, which comes from Scott Schneeberger with Oppenheimer. Please go ahead.
Scott Schneeberger: Thanks. Good morning. One for each. Rick, real quick. Just curious, you mentioned the DSO tick up, but you mentioned you kind of spoke it all the way as it would be a tough year-over-year comp from the one-time event prior. Just curious because we’ve heard over the course of the call, some small business issues in Canada, just if you could just clarify that it was uniquely the comparison and nothing else is a miss there that we might see in upcoming quarters. And then just one separate one, I’ll ask. Kim, you mentioned incentives that you use with the field on the cross-sell. I’m curious, how fluid have you been in the use of those incentives? Is that something new? Is that something that’s been ongoing? And are there any new initiatives with regard to these field enhancement, sales enhancements that you’re initiating? Thanks for taking both.
Rick Dillon: Sure. So from a DSO perspective, so my comment spoke to the bad debt expense year-over-year and the majority of what we’re seeing in terms of a negative comp is we trued up the bad debt reserve that was on our book last year, and that was a result of carrying higher reserves coming out of COVID to acknowledge the exposure, and we finally trued up the last portion of that in the 2023 first quarter. And so, you’re seeing — last year we had some strong favorability in bad debts because we effectively reversed a reserve. This year, to your comment on DSO, we’re not seeing a meaningful movement year-over-year in DSO that’s driving negative activity. And so that’s why we really called out that this is — although as Kim noted, we do see some of the SMEs going out of business, year-over-year, the big driver for us relative to bad debt is that reserve reversal that actually is a headwind, and we’re still delivering margin expansion despite not having that in the current year.
Kim Scott: Yeah. And I would just add to that, we have a very concerted team focus on bad debt down to the market center level. So our teams in coordination with our accounting team and our collections team work very diligently around identifying customers of concern. We had a weekly process, where teammates between market centers and collections are on the phone, working through, which customers do we need to be engaging with. So I don’t like we have a very good handle on managing DSO and bad debt, and we are in a much better place than we were a couple of years ago. I think we’ve really matured as an organization to collaboratively drive down bad debt with our customers. And to Rick’s point, you’re really looking at kind of a one-time step change that took place last year.
I’m very proud of our team that we’re — that is really — it is a headwind for us, and we’re overcoming that and still driving margin expansion in the quarter, among the pubco cost and many other things that are entering our system. So I think it really demonstrates to the market the underlying performance here is very, very strong. As it relates to your question around incentives for frontline sales teammates particularly our out-service representatives, who are doing such a great job selling. We are very pleased with the incentives that we have in place for them. And what we’ve been doing now is helping them understand what this means to them financially. And so, I’ve mentioned before that we have always had provisions inside our collective bargaining agreements that allows us to pay our teammates commission, our frontline RSRs commission for selling.
What we haven’t done well in the past, and we’re doing well now is actually calculating for them. What that means? So on your route, you have a certain number of customers that have the ability to buy more products and services. And here’s what it means to you financially, to you personally, as you cross-sell these customers and get the commission and also make your route more valuable. So we have worked very diligently now to start putting that information in front of our frontline teammates, so that we can motivate and inspire them to sell more, so that they can provide more and better for their families. So we think that we’re making a real connection now between what the opportunity is for the company and what the opportunity is for the frontline teammates.
So we’re not actually changing the incentives in the agreement. We’re just helping them understand how valuable they can be to them. We do have also sales contest, which are a ton of fun and very important to this process as well because they inspire and excite and engage our teammates across the field around competing against one another to sell. And there are all kinds of things from prices and dollars to just plain old bragging rights that allow people to get also excited about winning and building that muscle around selling. The other thing that I had mentioned on incentives, which is not related to sales, and it might have been what triggered your question is we actually changed our field incentives this year around retention. So as we’re getting our teammates focused on the single best way to grow, which is keep the customers you already have, we actually modified some of our management team out in the field, our frontline management team incentives to link their bonus incentives to include retention metrics.
