Thank you, Sergei, and thank you for joining us. With me is Todd Schneider, President and Chief Executive Officer; and Mike Hansen, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2022 third quarter results. After our commentary, we will open the call to questions from analysts.

The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission.

I'll now turn the call over to Todd.

Todd M. Schneider - President & Chief Executive Officer

Thank you, Paul. Our third quarter financial results are led by a strong revenue increase of 10.3%. The benefits of our strong top-line growth flowed through to our bottom line. Excluding a one-time gain recorded in this year's third quarter selling and administrative expenses, operating income margin increased 90 basis points from 18.4% to 19.3% and EPS grew 13.5% from $2.37 to $2.69. Our financial results are indicative of our compelling value proposition. Businesses prioritize all we provide, including image, cleanliness, safety and compliance and challenge with labor scarcity and rising costs. Businesses increasingly turn to Cintas to help them get ready for the workday.

I'm especially pleased with our financial results because they were achieved in a period in which U.S. inflation hit a 40-year high. Inflation is high and broad and one need not look any further than the corner gas station to see it. We have been able to navigate this challenging time and delivered increased operating margins and the EPS by productively selling new business, penetrating existing customers with more products and services, providing excellent service, while driving operational efficiencies and obtaining incremental price increases from our customer base.

As we grow via new business, we achieve operating leverage, better negotiating leverage with suppliers, denser routes and more volume in our plants. As we penetrate existing customers, we realize even stronger incremental operating margins. I thank our employees, whom we call partners, for their continued focus on our customers, our shareholders and each other.

Turning now to our business units. The Uniform Rental and Facility Services operating segment revenue for the third quarter of fiscal '22 was $1.55 billion compared to $1.42 billion last year. Organic revenue growth was 8.9%. Our newest vertical strategies of healthcare, education and state and local government continue to post leading revenue growth rates. However, there are opportunities for us in all verticals. Businesses in all sectors are struggling to fill open positions. There are about 11 million job openings in the U.S. alone. Businesses remain concerned with their ability to properly sanitize even as COVID infections decrease. Additionally, businesses are shedding non-core competencies to reduce cost and minimize the impacts of inflation. For these reasons and others, businesses are increasingly outsourcing to Cintas.

Our First Aid and Safety Services operating segment revenue for the third quarter was $213.0 million compared to $198.5 million last year. Organic revenue growth was 6.2%, which is a nice improvement from last quarter's 3.2%. This improvement reflects the growing momentum of our First Aid Cabinet business, which grew 22% in the third quarter. We welcome this mix shift because it is a more consistent revenue stream and has higher profit margins.

Third quarter revenue growth improved despite a difficult comparison. In last year's third quarter, in response to the COVID-19 pandemic, sales of personal protective equipment or PPE were very high and the business grew organic revenue 17.7%. At that time, PPE comprised an outsized percentage of First Aid and Safety Services revenue mix. The amount of PPE has declined year-over-year as expected. However, COVID infections are still prevalent. In fact, we sold about $15 million in a new product, which is COVID test kits in this year's third quarter. PPE remains a larger percentage of the revenue mix than it was pre-COVID.

Our Fire Protection Services and Uniform Direct Sale businesses are reported in the All Other segment. All Other revenue was $194.3 million compared to $160.7 million last year. The Fire business organic revenue growth rate was 15.3% and Uniform Direct Sale business organic growth rate was 48.7%. Both businesses had bounced back as expected.

I'd like to comment on another one of our strengths, namely, cash flow. Third quarter operating cash flow increased 18.5% from last year. In this year's third quarter, $105 million was used for acquisitions. On March 15, we paid shareholders $99 million in quarterly dividends. And during the quarter and through March 22, 2022, Cintas purchased 584.2 million of Cintas common stock under our buyback program. We continue to allocate capital in many ways to improve shareholder return. Our strong balance sheet and cash flow enable us to do so consistently.

Finally, I want to share some great news on our technology front. Our ERP provider, SAP, extended membership in their strategic customer program to Cintas. This is an exclusive program. Only 1% of SAP's customers have membership in it. Inclusion in the program enables us to engage directly with top management of SAP and gain access to its developers and new technologies to realize valuable outcomes for our customers, suppliers and employees. This program will speed the pace of our transformation into a more data dynamic and process efficient business.

I'll now turn the call over to Mike.

J. Michael Hansen - Executive Vice President and Chief Financial Officer

Thanks, Todd. Our fiscal 2022 third quarter revenue was $1.96 billion compared to $1.78 billion last year. The organic revenue growth rate adjusted for acquisitions, divestitures and foreign currency exchange rate fluctuations was 10%. Gross margin for the third quarter of fiscal '22 was $898.2 million compared to $809.5 million last year.

Gross margin as a percent of revenue was 45.8% for the third quarter of fiscal '22 compared to 45.6% last year, an increase of 20 basis points. Energy expenses comprised of gasoline, natural gas and electricity were a headwind, increasing 45 basis points from last year. Gross margin percentage by business was 46.3% for Uniform Rental and Facility Services, 44.2% for First Aid and Safety Services, 46.6% for Fire Protection Services and 37.7% for Uniform Direct Sale.

Operating income of $407.6 million compared to $326.5 million last year. Operating income margin was 20.8% compared to 18.4% reported last year. Fiscal '22 third quarter operating income included a $30.2 million gain on the acquisition of an entity - of an equity method investment. The gain was recorded in the Uniform Rental and Facility Services segment's selling and administrative expenses. Excluding this gain, fiscal '22 third quarter operating income as a percentage of revenue was 19.3%, an increase of 90 basis points from last year's third quarter.

Our effective tax rate for the third quarter was 18.2% compared to 14.4% last year. The tax rate can move from period-to-period based on discrete events, including the amount of stock compensation expense. This year's third quarter equity method investment transaction included a significant tax benefit. Excluding the transaction, the effective tax rate for the third quarter of fiscal '22 was 19.6%.

Net income for the third quarter was $315.4 million compared to $258.4 million last year. Diluted EPS was $2.97 compared to $2.37 last year. Fiscal '22 third quarter diluted EPS contains $0.28 from the gain on the equity method investment transaction, which included our related $0.07 tax rate benefit. Excluding this gain and the related tax impact, fiscal '22 third quarter diluted EPS was $2.69 compared to $2.37 in last year's third quarter, a 13.5% increase.

We are increasing our financial guidance. We expect our fourth quarter revenue to be in the range of $1.96 billion to $2.02 billion and diluted EPS to be in the range of $2.54 to $2.74. Our fourth quarter fiscal '22 effective tax rate is expected to be approximately 23.2% compared to a rate of 19.4% for last year's fourth quarter. We expected higher effective tax rate is anticipated to negatively impact fiscal '22 fourth quarter diluted EPS guidance by approximately $0.14 and diluted EPS growth by approximately 560 basis points. Our financial guidance includes share buybacks through March 22, but does not include the impact of any future share buybacks.

Finally, I wanted to provide an update on our debt and liquidity. We have $650 million of senior notes maturing April 1, 2022 and $300 million of senior notes maturing June 1, 2022. We expect to refinance these amounts with funds received via the issuance of new senior debt. Also, we closed today on a new credit facility, increasing it to $2 billion and extending it to 2027. We have a strong balance sheet and ample liquidity.

I'll turn it over to Paul now.

Paul F. Adler - Vice President, Treasurer & Investor Relations

That concludes our prepared remarks. Now we are happy to answer questions from the analysts. Please ask just one question and a single follow-up if needed. Thank you.

Question & Answers

Operator

Thank you. [Operator Instructions] Our first question comes from Andrew Steinerman from J.P. Morgan. Please go ahead.

Alexander Hess - J.P. Morgan - Analyst

Hi. This is Alex Hess on for Andrew Steinerman today. Wanted to touch briefly on what you guys are seeing at the vertical level, maybe with respect to a rebound - potential rebound in hospitality or is that - was that still being dragged in your last quarter from Omicron? And then maybe also a progress maybe in driving adoption in healthcare? Any comments on those two fronts? Thanks guys.

Todd M. Schneider - President & Chief Executive Officer

Sure, Alex. Thanks for the question. Yeah, our vertical strategy is working quite well. You mentioned the hospitality sector, it is certainly bouncing back what you read in the news. Bookings are up in the airlines and the hospitality sector. So yes, so that's bouncing back. And I think the results in our Direct Sale business, which is in large part tied to - certainly to a percentage tied to the hospitality area, there the results are outstanding. But in our other verticals, we're having very good success in each of those. In the healthcare, specifically, we see a - we're very much in the early innings, but we have products and services that are compelling to that customer base. And we're continuing to evolve and create new products and new technologies that we're integrating there. So as a result, we're very bullish on our strategy in that area, with our focus in that area and I think the results are reflective.

Alexander Hess - J.P. Morgan - Analyst

Thank you.

Operator

Hamzah Mazari from Jefferies. Please go ahead.

Hamzah Mazari - Jefferies - Analyst

Hey, good morning. You had referenced better trading more customers as part of strong incrementals. Specifically as it relates to that, do you have a sense of how many customers today are buying more than one service from you? Has that changed at all due to having SAP? What was that same number pre-pandemic, just so we can get a sense of that initiative?

Todd M. Schneider - President & Chief Executive Officer

Yes. Hamzah, certainly being virtually on one system now, it is certainly helping our transparency into cross-selling. What I'll tell you is, again, we are in the early innings of cross-sell. There is a - our ability to add product. We have a really long runway in that area. Just to get to even a reasonable level of penetration where we feel excited about it, there is a long, long runway to penetrating our customers with our existing products separate from what we're going to bring into the marketplace in the future, which is we're always working on new products and services. So we feel good about that. So it's certainly improving, but very much in the early innings of that on that subject.

Hamzah Mazari - Jefferies - Analyst

Got it. Got it. And just my follow-up question, I'll turn it over is just around M&A. Any updated thoughts as to the pipeline there? Have valuations come in at all? I know you've talked about historically that M&A doesn't necessarily mean it has to be route-based. Just walk us through that as well, the rationale there? Thank you.

Todd M. Schneider - President & Chief Executive Officer

Sure, Hamzah. As we noted, M&A was good in the third quarter. The investment we've made in acquiring businesses were highly acquisitive. The pipeline looks attractive. It takes different reasons for different companies to transact. You can't always predict that timing, but we are very much a willing buyer of all shapes and sizes. We're very, very acquisitive and interested in making deals. So we're ready, willing and able to continue to move forward in that area.

J. Michael Hansen - Executive Vice President and Chief Financial Officer

Yeah. Hamzah, as you heard Todd mention, our third quarter included an overall acquisition number of $105 million, which is certainly a step-up from where we've been. Now included in that is the purchase of the remaining shares of the equity method investment, which was about $48 million within that number, but the rest of the M&A of $57 million is still an up - a step-up from where we've been. So there has been some good movement this entire fiscal year. And we like the messaging that we're getting. We like the pipeline. And as you can see so far this year, we've acted on many of those.

Hamzah Mazari - Jefferies - Analyst

Got it. Very helpful. Thank you.

Todd M. Schneider - President & Chief Executive Officer

Thank you.

Operator

George Tong, Goldman Sachs. Please go ahead.

George Tong - Goldman Sachs - Analyst

Hi, thanks. Good morning. Can you discuss how the business is being impacted by rising input costs, including wage inflation and higher energy costs? And how effectively pricing trends are offsetting this?

Todd M. Schneider - President & Chief Executive Officer

Good morning, George. Thanks for the question. Certainly, I expected that inflation in input cost would be something that we would want to be talking about. So we have - so I have a few examples I'd like to talk about regarding the items that we are - steps that we're taking to mitigate input cost. But inflation is certainly challenging. It's very much there. As I mentioned in my prepared remarks, whether it's fuel or other areas, input costs are real. But we are taking - we are being very active in taking steps to make sure that we are mitigating that type of exposure.

You mentioned pricing, so certainly, pricing is a component of our strategy, but it is - by no means, is it the only strategy to combat pricing - or excuse me to combat inflation. So we're taking other steps in almost all involved technology. And these were all initiatives that we have been working on. However, due to the inflation subject, we decided to pull forward and go faster with them. And individually, they are not massive movers, but collectively, they certainly add up.

So I'll go through a few of those I think might help provide a little color. First off, I mentioned in I think our last call that we have invested in routing technology that is proprietary and really fits our business well. And as long as I've been with the company, it seems like we have tried about every routing software out there, and we finally said, we're going to build it ourselves. We're going to do it, it's going to fit with SAP and it will be - because we have a unique routing structure.

So we did that. And I'm very thankful that over the past couple of years, we've invested in that technology, we've rolled out across the organization and we're executing on it. Now very important, we recognize that we only generate revenue when the truck stops. When it stops at our customers' place of business, that's when we can generate revenue. So we've got to be more efficient. I'm really pleased with that investment. Certainly, it takes time. There is - we are very conscious of any customer disruption, but we're trying to go faster with that subject. And again, we're blessed that we made the investment. And if we didn't have it, then it would put much more pressure on the organization with the inflation subject. So again, very pleased that we have that.

We've also, from a technology standpoint, we invested in some - in automation. We now have three different processes for how to implement automation into our uniform processing facilities. And this provides us flexibility we didn't have in the past. That flexibility is, meaning we can deploy one of those based upon a number of factors, really gets into the footprint of the facility in the number of pieces going through, but we've pivoted on this subject as well to go faster because of what's going on with labor costs certainly. So we're able to automate our facilities in a better fashion.

And then I've got a couple of others that I'll talk about. We now - we've invested in technology through SAP that allows us to have a centralized dashboard and look at all of our rental processing facilities and understand how they're operating on a daily basis, a real-time basis from an efficiency and effectiveness standpoint. So in the past, we had to go physically see these facilities to understand if they're operating in the manner that we expect, but now we have this real-time dashboard and it allows us to know how we're doing. As a result, there is more accountability and we're getting better. That allows us to improve the efficiencies within our business.

And I've got a few others, but one other I'll give you is we are - because of the technology we have with SAP now, we're seeing a real nice impact in our ability to share our used inventory of garments across all of our locations. This is due to our stock rooms, which is where we house our used inventory at each of our locations, having real-time inventory tracking and all being on that same system of SAP.

So what it allows us to do is to gain better use of the inventory that was in the past dedicated solely to the individual locations customer base. Now we can spread it out across a much larger customer base. And it also allows us with non-stock sizes to look at where the product is and get it faster to our customers. So I could go on, but I hope hopefully that gives you a few examples of items that proactive steps that we are taking to mitigate the inflation, because again, as I mentioned, it's real. It's challenging, but I'm highly confident the organization we'll be able to manage through this as we have in the past.

George Tong - Goldman Sachs - Analyst

That's very helpful. Thank you. And then just as a follow-up, could you provide a brief update on how your customer base is being affected by supply chain disruptions and the flow through impact on demand for Cintas' services?

Todd M. Schneider - President & Chief Executive Officer

Yeah. Certainly, George, our customers are being impacted by supply chain, that's slowing them a bit, but - and we care passionately about how our customers are - how their business is are doing because it obviously has a dynamic impact on us. But as I mentioned earlier, the challenges that our customers are facing with staffing and labor costs, they're looking for ways to outsource and we are beneficiaries of that. We are certainly excited about supply chain issues abating and our customers being able to go even faster. But it's - but today, that's a bit of a headwind, but we have the tailwind of the outsourcing and the benefits we're seeing there.

George Tong - Goldman Sachs - Analyst

Got it. Very helpful. Thank you.

Todd M. Schneider - President & Chief Executive Officer

Great. Thank you.

Operator

Ashish Sabadra, RBC. Please go ahead.

Ashish Sabadra - RBC Capital Markets - Analyst

Thanks for taking my question, and thanks for providing that detailed color on the technology front. I was wondering if you could also talk about how technology is helping you more on the dynamic pricing and more like local pricing? Can you just hone on further just on the pricing trend? What the normalized pricing has been historically? And how are we thinking about pricing here, particularly in the inflationary environment and the response by your customer to maybe potentially higher price? Thanks.

Todd M. Schneider - President & Chief Executive Officer

Thanks, Ashish for the question. I'll start and Mike wants to contribute as well. We certainly - again, being on one technology platform gives us the ability to view large amounts of data to analyze and - but pricing is a local subject, it's a customer-by-customer subject, industry-by-industry, but it does give us - the technology does give us the ability to look at more strategically at our customer base to make sure we're making really good long-term decisions. So we feel good about that, we've had that in place and we've taken that approach over the past couple of years and we'll continue that approach and make sure that we're not just making sweeping decisions, but the more targeted decisions that are more strategic.

J. Michael Hansen - Executive Vice President and Chief Financial Officer

Maybe I'll simply add. Certainly, with all of the inflation in the news, the customers are - it's a little bit of an easier conversation today than it might be otherwise. And so our customers have generally been receptive to that. And that results in a little bit of a higher pricing impact than in the past. And so we've talked a lot about 0% to 2% in the past, and we're a little bit above that today. And so that certainly is one way for us to fight inflation.

Todd M. Schneider - President & Chief Executive Officer

Agreed, Mike. Thank you. But just to point out, clearly, the majority of our growth is coming from more volume growth not pricing. And it is due to the value that we're adding to customers and new business that we're selling, ads and penetrating our customer base. That's where the majority of our growth is coming from, clearly.

J. Michael Hansen - Executive Vice President and Chief Financial Officer

I just want to conclude the thought with going back, Ashish, to the technology. I think sometimes it's hard for people to understand the magnitude of the transactions in this business. One of our general managers of our operations, just one operation, I mean, they can have 5,000 customers. And so the ability to have the technology, as Todd spoke to, and seize upon that to be able to supplement the GM's ability to analyze 5,000 customers to ensure that the pricing is where it needs to be or to see trends and the data to understand if there are customers that are kind of paring back, reducing services over time. That's a jeopardy account by the general manager to be in front of that particular customer. Those are the types of advantages that the technology provides because it is just such a voluminous business. And that technology and the additional eyes and that intelligence is certainly a huge competitive advantage.

Ashish Sabadra - RBC Capital Markets - Analyst

That's very helpful color. And maybe if I can just ask, I'm not sure if you've quantified how big energy is as a percentage of overall expenses, but also my question is more longer term. How are you thinking about improving the energy efficiency of the business, both on the truck side, but also on the laundry facilities front? Thank you.

J. Michael Hansen - Executive Vice President and Chief Financial Officer

Sure, Ashish. The third quarter total energy for the business was 2.3% of sales in our guidance. Certainly, the gas price has escalated as we got into February, and we're thinking more in terms of 2.6% to 2.8% in our fourth quarter. So certainly, we're going to see a little bit of - or our expectation is we'll see a little bit of an increase.

Just to give you a little bit of maybe an impact of what we have already done to be more energy efficient. If you go back to - the last time we saw prices at the pump at this kind of level was back in calendar '14. And if you think about the third quarter of our calendar '14, we were certainly a smaller company, but our total energy at that time was 3% of revenues. So at the same price in the pump, we've been able to reduce our energy by almost a third and from 3% to 2.3%. So we've made some really good progress, and we've talked about some of those things. Some of it is certainly scale and growth. But as Todd has talked about, some of it is also the routing efficiency, the penetration that allows us to park the truck a little bit longer. So we've made some really nice progress over the last several number of years.

And how do we think about it going forward, we certainly are going to continue to work at routing efficiency, penetration, but also, certainly, we've talked a little bit about getting electric vehicles on to the road, and that has started. And our expectation is, we'll put many, many more of those as we move towards our goal of net-zero in 2050. So there is a lot more to come in this type of space and we're in the early, early part of exploring that alternative fuel vehicles, but we certainly think that's a big part of our future.

Todd M. Schneider - President & Chief Executive Officer

Ashish, in addition, I mentioned earlier about the centralized dashboard that allows us to understand how our locations are functioning at what level of efficiency. That speaks directly to energy usage in our production facilities. So the more efficient we are, the lower the consumption of the energy certainly per pound specifically. And then I didn't mention, but we have also over the past couple of years, we've invested in converting all of our locations to LED lighting, which helps in our ESG journey, but helps with the consumption of energy and helps reduce some costs. So it's also a cost mitigation subject. And we're looking at other items in that area to reduce energy consumption in our production facilities.

Ashish Sabadra - RBC Capital Markets - Analyst

That's very helpful color, and congrats on the solid results.

Todd M. Schneider - President & Chief Executive Officer

Thank you.

Operator

Andy Wittmann, R.W. Baird. Please go ahead.

Andy Wittmann - Robert W. Baird - Analyst

Hey, thanks. Let's just keep going on this path. I guess, Mike, just when kind of using your EPS and your revenue guidance, I'm backing into fourth quarter margin guidance, which is at the midpoint about flat year-over-year. I think that's probably right. You can comment on that, I suppose. But you just mentioned that energy prices on a sequential basis maybe like 40 basis points. I was wondering if the third quarter was plus 90 basis points adjusted on the margin improvements, you got 40 in the energy, what's the other 50? And can you talk about some of the other puts and takes that drive you to that margin - implied margin guidance?

J. Michael Hansen - Executive Vice President and Chief Financial Officer

Yeah. I would - let's start with the implied margin guidance. The range that we see is something like 18.5% at the bottom to 20% at the top. So last year's fourth quarter was 19.4%. So you're right, at the midpoint, it's somewhat flattish against, let's call it, 60 to 80 point energy headwind from a year ago. And at the top of that range, it's margin expansion even in this period of time. So our goal will be to continue to drive towards margin expansion even in a pretty difficult environment.

So getting back to I think your question of why maybe not more margin expansion. First of all, I would say, look, Andy, I don't know how many companies are expanding margins in this kind of environment, but we intend to, but we also are growing quite nicely. And you've seen our growth move from organically 8.6 in total in the first quarter to 9.3 to 10. And growth means for us, when we are growing that volumes, we are investing in things like capacity in our wash alleys and other places. We are investing in - even when we talk about the route efficiency that doesn't mean we're necessarily not adding routes. And so we're going to continue to invest in our routes. We're going to continue to invest in other customer-facing positions.

And so we're going to continue to invest even in this kind of environment because the growth is very, very good and strong. So that comes with a little bit of a cost too. But gosh, Andy, in this kind of environment, we're looking at a 60 to 80 point - basis point energy headwind to guide towards margin expansion, we feel pretty good about.

Andy Wittmann - Robert W. Baird - Analyst

Yeah. I wasn't trying to imply otherwise. Could you comment specifically on the labor market? Are your positions filled today? Do you - are you having enough people to do what you need them to do? And can you talk about the overall pricing trends on that category specifically?

Todd M. Schneider - President & Chief Executive Officer

Andy, we always have job postings, openings. We're growing. And as I mentioned earlier, we're growing our volume very attractively. So there is more work, and we're really pleased about that. So - and the labor market is challenging, trying to get the levels that we're at. We're running at higher RPMs to get there. Not speaking of when I say higher RPMs, our management team is working harder to get there. But we like our staffing levels, and we will continue to plan to invest in that area. We like our productivity that we're seeing from our partners in all areas of our business, and I think that speaks in large part to our culture.

We are - our folks are they get up earlier, they work harder, they work later, and as a result, we have a strategic competitive advantage in the marketplace as a result of that. But yeah, we're conscious of - we're trying to add roles and we're doing it quite successfully. It's never good enough, as you know, from a leadership standpoint, but we're focused on it.

Andy Wittmann - Robert W. Baird - Analyst

Thanks.

Operator

Tim Mulrooney, William Blair. Please go ahead.

Tim Mulrooney - William Blair - Analyst

Yeah, good morning. I wanted to go back to pricing for a second. If your uniform contracts are typically several years in length, can you talk about the actual mechanics around how you adjust for pricing? Are there annual pricing conversation stipulated within the contract and you just kind of reach out to customers as needed when you hit certain inflationary thresholds? And are there inflation pass through provisions in these contracts? Thank you.

Todd M. Schneider - President & Chief Executive Officer

Tim, thanks for the question. We have a million customers or more. So the answer is, you name it, we've got it. But generally, what I'll speak to is, our agreements allow us to raise price and raise price as appropriate. And when we do so, our approach is we do that once a year. Doesn't mean that they all happen on the same day, they may be spread out throughout the year. But the conversation is once a year with the customer. And we have found that that is - our commitment to our customers is to handle it in that manner. They like that. Our partners like that. And it's in these inflationary times, as Mike mentioned earlier, those conversations are going better than they normally have. And they are just because inflation is front and center of everything, every newspaper that I look at. So - but our approach is once a year with the customer. And we've been sticking by that and we plan to continue to stick by that commitment to them.

Tim Mulrooney - William Blair - Analyst

Okay. That's great. Thank you.

Todd M. Schneider - President & Chief Executive Officer

Thank you.

Operator

Manav Patnaik, Barclays. Please go ahead.

Manav Patnaik - Barclays - Analyst

Thank you. I just wanted to follow-up on the labor environment broadly. It sounds like you're managing your own labor pretty well. But just curious, what you can share in terms of the challenges, struggles, openings, turnover, etc. that your customers are facing and how that's looking today?

Todd M. Schneider - President & Chief Executive Officer

Manav, certainly, we are seeing a higher level of churn through our customer base. Meaning, we see people that quit at one customer and they end up at the other customer, and that is at a higher level than it has been in the past. So - but nevertheless, we like the trend that we're seeing with our customer base and the add-stops trends that we're seeing, that's positive. And just as I mentioned, it seems like it's harder for businesses right now. Everybody is having to work a little bit more at it and the productivity has to be a little bit better. But we are certainly seeing more churn of our - within our customer base than we did historically.

Manav Patnaik - Barclays - Analyst

Got it. And Mike, maybe just for the fourth quarter, there's some tough comps on the rental side and then the fire side as well, I believe. If you could just help us with maybe the sequential organic growth trends we should be thinking about, what the M&A contribution is maybe?

J. Michael Hansen - Executive Vice President and Chief Financial Officer

Sure. When we think about organic growth for the rental division, we were at 8.9%. Our expectation - and so first of all, Manav, let me maybe step back. The guidance for us implies 6.8% to 10% growth, slightly over 10% growth. So we love the momentum of the rental business and we think that's going to continue to perform very, very well in those upper single-digit type ranges.

First Aid and Safety is going to rebound quite a bit in the fourth quarter due to great momentum, but also a little bit of an easier comp, and we expect that to be in the mid-teens. Our fire business, which grew organically 15.3% this quarter, we continue to expect a very good growth in that area. And then our Uniform Direct Sale business is going to face a tougher comp. And likely, that's going to come back to something more normalized low-to-mid single-digits.

Did I get - I'm not sure if I heard the second part of your question, if there was one, Manav.

Manav Patnaik - Barclays - Analyst

Yeah, it was just around given all the M&A. I guess, you picked up on what that quality contribution would look like.

J. Michael Hansen - Executive Vice President and Chief Financial Officer

Got it. Yeah. So I think I covered that. Maybe I'll touch on - we talked about - I talked about the M&A and a big component of that M&A was this equity investment transaction. That is - we got into a joint venture years ago for primarily the purposes of product innovation, and particularly, within our Facility Services business, but that's a component. That entity which we decided made sense to wholly own now is going to tuck into our global supply chain. So it's relatively non-revenue producing. And so we won't see much of an impact on that. It tucks in the global supply chain.

Manav Patnaik - Barclays - Analyst

Got it. Thank you.

Operator

Heather Balsky, Bank of America. Please go ahead.

Heather Balsky - Bank of America Merrill Lynch - Analyst

Hi, good morning. Thank you for taking my question. I wanted to just touch on and clarify some stuff on the PP&E side. Just curious where you guys are relative to 2019 levels at this point? Are you still above or are you - have you gotten back to kind of a more normalized trend? And then you mentioned sales of COVID tests during the quarter. How you're thinking about that business going forward? And is there an inventory investment around that as well? Thank you.

J. Michael Hansen - Executive Vice President and Chief Financial Officer

Yes. Our personal protective equipment sales have still been above pre-pandemic levels. We like - we've talked a little bit throughout here about the value that our customers are seeing in it. And we are certainly recognizing that they still value safety, cleanliness and sanitizing. And so those revenue streams are still above pre-pandemic levels. It's hard to predict what those are going to look like into the future, but they're certainly above pre-pandemic. And the value proposition is being - is resonating certainly more today than it did pre-pandemic. So we like the movement in that business, and so far, the staying power of that.

From a test kit perspective, as we've done throughout this pandemic, our goal has been to do our best to take care of our customers. And in this particular quarter with Omicron really rising, our customers were asking us for the test kit opportunities, and we were able to fulfill those. It did not come with an inventory requirement. Our expectation is that's not going to be a big mover into the future. We called out about $15 million worth, that's something that we wouldn't typically expect to repeat at anything close to that level.

Heather Balsky - Bank of America Merrill Lynch - Analyst

Thank you. And just a follow-up on the PP&E side, just because, I recall, it's a lower margin business. Is that - even though it's still elevated, is it declining? Do you see it as a tailwind to your margins going as it sort of levels off going into the next quarter and into next year as well?

J. Michael Hansen - Executive Vice President and Chief Financial Officer

The short answer is yes, Heather, and I'll maybe talk about it this way. The First Aid and Safety business where a lot of that PP&E has been, we've seen some really nice momentum in the First Aid side of the business, and that generally comes with those better margins. And we saw a nice uptick from our second quarter to our third quarter in our First Aid and Safety gross margins. And our expectation is that momentum is going to continue even though we still certainly hope that there is more PPE going forward than pre-pandemic. But you're right, Heather. As the mix tilts back to a greater amount of First Aid business, we expect those gross margins to start to get closer and closer towards those pre-pandemic levels. But the one thing I will say in the First Aid and Safety businesses are, we made a nice jump in our operating margin too.

And if you think about the SG&A part of that business, our sales people are producing at very, very high levels and our SG&A in that business is well below pre-pandemic levels. And so as we continue this mix moving in the right direction, our expectation is that those overall operating margins will certainly get back to pre-pandemic levels and can improve from there. We were at, call it, in the mid-14% range pre-pandemic, and we're on our way back towards those. And our goal certainly would be more expansion after that.

Heather Balsky - Bank of America Merrill Lynch - Analyst

Okay. Thank you for that color.

Operator

Scott Schneeberger, Oppenheimer. Please go ahead.

Scott Schneeberger - Oppenheimer - Analyst

Thanks very much. Good morning. And guys, I have one more following up on inflation and price. You had stated that the majority of the growth is coming from volume. And I'm just curious, I guess, the essence of the question is, what percent of the - you're doing on a customer-by-customer base, but what percent of your base would you say you have affected with price increases at this juncture? And will we see a greater percentage of the growth going forward coming from the pricing side as opposed to the volume side as that kicks in on who you've already priced and who you maybe have yet to a price? Just a little bit better feel on the time as how much more contribution we may see from price offsetting cost pressure going forward? Thanks.

Todd M. Schneider - President & Chief Executive Officer

Thanks for the question, Scott. How we approach it, as I mentioned, it's once a year, but it's a relatively smoothed out throughout the year. And as we've talked about in the past, some of it depends upon the condition of that customer, how their business is, that industry, that geography. And as time goes on, hopefully that will become a lot more consistent.

But no, I think what you're seeing as far as our volume growth and the pricing wins that we're getting, I think you'll see that be pretty consistent in the future. I don't think you'll see an outsized percentage coming from pricing next year and the coming weeks, months or something like that, because of how we approach it. And again, we're very, very happy with the level of demand that we're seeing from our customer base. It's very attractive for us. We're investing appropriately for it, and we're very pleased.

Scott Schneeberger - Oppenheimer - Analyst

Great, thanks. Appreciate that response. For my follow-up, I'm just curious, going back to this 1% of SAP extended membership in which you're participating. Could you elaborate on how that came to be? And you covered some of the benefits about what it offers, but just if you could take us a little bit deeper on, was that something you pursued? Was that something that they granted? How it came to be? And just where you expect to go with that? Thanks.

Todd M. Schneider - President & Chief Executive Officer

Great, great. Yeah, we're very proud of the relationship we have with SAP and it goes back a number of years now, and it is something that they bestowed upon us. Our relationship has been flourishing over the past few years because of the degree to which we deploy their technology and the usefulness that we get out of it. So I think they really like seeing how we leverage their technology. And as a result, it gets us, as I mentioned, we're in a different stratosphere. And you think about SAP's customer base and then you think about that we're being in the top 1%, it's unique air.

And so as I mentioned, it does get us relationships at very high levels. There's an SAP board member that is assigned to us as a customer. We have relationships, again obviously, at really, really high levels. But it gives us access to their developers and to their technologies on the front end instead of it being rolled out. And then we got to figure out, we can have input and instead of just having something roll out and then we got to figure out how to manage through the change.

So when you're in that 1%, you have the ear of those folks and allows you to impact where those items go. So as a result, we think that's an advantage for us. And we're very pleased with it and very pleased with our investment with SAP, and we're seeing real dividends from that as we - I think we've laid out over the past few quarters.

Scott Schneeberger - Oppenheimer - Analyst

That sounds great. Thanks. I will turn it over.

Todd M. Schneider - President & Chief Executive Officer

Thank you.

Operator

Shlomo Rosenbaum, Stifel. Please go ahead.

Shlomo Rosenbaum - Stifel - Analyst

Hi, good morning. Thank you for taking my questions. Hey Todd, where are you now in terms of opening up and getting back to normal, like kind of an apples-to-apples basis in terms of volumes with your customers? So pre-COVID versus where you are today, how much more is - juice is left in that kind of recovery play for things just kind of opening up more and getting back to your historical basis of, let's say, 2019 volume levels?

Todd M. Schneider - President & Chief Executive Officer

Shlomo, great question. Our customers are, for the most part, they're all open. Certainly, there are some that are unfortunately that did not survive through the pandemic and the challenges that threw at folks. But our customers are all, I'll say, they're open. They're not all at the same levels of consumption that they once were. Some are higher, some are lower. But we think there's still similar opportunity there as the economy opens up and to a larger degree, as people are back more to work to a larger degree. So we think that's positive.

And we think there's also some hidden benefits that we can get from the fact that during the - throughout the pandemic, as we've talked about, the customers see us in a different light. How we handled their accounts, how we handled their invoices, the lack of increase in the flexibility that we provided, but also the access to product that they didn't even know that we provided in the past.

So Shlomo, that is an advantage for us. The fact that they look at it and they say, wow, we didn't realize Cintas provided these items. They can get them. They're great to work with. They're consistent and they're reasonable. So as a result, that I think sets a different level of different pool level. But we still think there's even more opportunities within that customer base where folks - where they will get back to a spend level where they once were. So we think the future looks quite attractive from that standpoint.

Shlomo Rosenbaum - Stifel - Analyst

Okay. Thank you. And then just to clarify, and maybe this is for you, Mike. The equity method investment was the supply chain technology business, early stage that you brought in and then you decided that you wanted to own all of it, but it's not the product sale, it's a capability to manage your business internally, is that what we're talking about?

J. Michael Hansen - Executive Vice President and Chief Financial Officer

It has been an entity where we've done product innovation that has created products for the rental division, particularly in Facility Services. So it's - while it isn't a direct producer of revenue, it has created products over the years that have created revenue streams for the rental division.

Shlomo Rosenbaum - Stifel - Analyst

Okay, all right. Thank you very much.

Operator

Toni Kaplan, Morgan Stanley. Please go ahead.

Toni Kaplan - Morgan Stanley - Analyst

Thank you. I wanted to ask one more follow-up on inflation and whether you have inflationary escalators built into the contracts? And if you do, what percent of contracts do you have that built in?

Todd M. Schneider - President & Chief Executive Officer

Toni, I appreciate the question. As I mentioned earlier, we have such a broad customer base that you name it, we have it from a contractual standpoint. Generally speaking, we have the ability to raise price and no limits and do so as we deem appropriate.

We fundamentally and practically, how we've handled it is we go in and we talk to the customer once a year and explain what the adjustment - the price adjustment is and we managed through that. But no, we're not limited. Certainly, do we have certain customers that we have limits on? Absolutely. But generally speaking, no, we're not limited from that standpoint. It's more about making good long-term practical decisions that help us retain those customers for life.

And while we're at it, I'll just - I will say, our customer retention rates are really attractive right now. They have been since for the past couple of years and they have certainly not degraded. So we're excited about that. I think in large part, it's our approach, Toni, that we take on this subject about the flexibility, the pricing, the reasonableness and we have good conversations that I think people understand and we can manage through it.

Toni Kaplan - Morgan Stanley - Analyst

Great. And there are a couple of - there's a question about different verticals earlier and you mentioned a couple of them in specific. But I wanted to understand if there were certain verticals outside of, I think it was healthcare and hospitality that we mentioned earlier, that have seen higher or lower growth than normal, just if there's any others that would makes sense to call out? And then related, just wanted to hear any color on the new business pipeline. Thanks.

Todd M. Schneider - President & Chief Executive Officer

Sure. So hospitality is obviously, as you're reading in the journal and other periodicals, it's - bookings are way up for those folks there. So that's bounced back nicely. Healthcare has been some stops and starts, but the demand for our products have been very consistent. And through the pandemic, us being - having product available was a big deal. And the movement towards getting away from, in many cases, as folks looking at and saying, hey, we don't want a one-time disposable. They're hard to access, not great for the environment and going to reusable has been great in healthcare, which we've kind of detailed out in the past.

Education sector has been, I'd say, a little bit of stops and starts as well in the fact that they literally stopped and started in their schools in many cases. But generally speaking, the education sector is doing quite well. And then lastly, with the government sector, that's obviously been really consistent, and we like our verticals. We like our approach in those areas and they're all growing attractively and we expect them to continue to grow attractively based upon our strategy there.

Toni Kaplan - Morgan Stanley - Analyst

Thank you.

Todd M. Schneider - President & Chief Executive Officer

Thank you.

Operator

Thank you. It appears there are no further questions in the queue, I would like to hand the call back over to Mr. Paul Adler for any additional or closing remarks. Over to you, sir.

Paul F. Adler - Vice President, Treasurer & Investor Relations

All right. Thanks, Sergei, and thank you all for joining us this morning. We will issue our fourth quarter fiscal 2022 financial results in July. We look forward to speaking with you again at that time. Thank you.

Operator

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CINTAS CORP

Q3 2022

Earnings Transcript

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