Unifirst Corporation

Q3 2021 Earnings Conference Call

6/30/2021

spk_0: the morning everyone and greetings welcome to the universe corporation third quarter earnings call during a presentation or participants are in listen only mode afterwards we will have a question and answer session at that time the have a question please press the one for when you tell phone keypad and if you need to reach an operator piece for stars zero now i wouldn't like to turn a call over to stephen central's president and chief executive officer please go ahead
spk_1: thank you and good morning i'm stevenson trails universe president chief executive officer joining me today is shane o'connor executive vice president and chief financial officer we like to welcome you to the universe corporation conference call review our third quarter results for fiscal year two thousand and twenty one his call be on a little only mode until we complete our prepared remarks but first a brief disclaimer this conference call may contain forward looking statements that reflect the company's current views with respect the future events and financial performance he's forward looking statements are subject to certain risks and uncertainties the words anticipate optimistic believe estimate expect in tandem similar expressions that indicate future events and trends identify forward looking statements actual future results may differ materially from those anticipated depending on a variety of risk factors for more information please refer to the discussion of these risk factors in our most recent form ten k intend to violence with the securities and exchange commission as i have the last several quarters i want to start by saying the first and foremost i thought to for the safety and wellbeing for all those dealing with the impact of the coven nineteen pandemic good news is the during the quarter we have seen real improvement from a health and safety standpoint balkan our company and in our communities related to kill the nineteen i also want to again highlight that for over a year now our team partners have continued to put forth tremendous efforts in the face of many obstacles created by the pandemic they have worked extremely hard to take care of each other and our customers during these challenging times and i want to personally thank them for their extraordinary performance consolidated revenues for a third quarter were four hundred sixty four point three million a four point two percent from the prior year and fully deluded earnings per share were two dollars and twenty one sense up from a dollar twelve and a third quarter a year ago our core laundry operations revenues were positively impacted by a modest level of customary openings as well as increases in the sale of pp our specialty garments segment also contributed to our overall performance with a very with very strong results during the quarter that exceeded our expectations shane will provide with the details of our quarterly results shortly clearly are comparisons to the prior year third quarter or being positively impacted by the significant effect the killed with the coven nineteen pandemic had on earth fiscal two thousand and twenty third quarter as a reminder that quarter a year ago was the corner most impacted by customer closures during the pandemic overall we are pleased with the result of our quarter which exceeded our expectations from a top and bottom line perspective increase business activity from a recovering economy is a welcome sight for sure after a challenging year in addition we have started to see early signs of improved activity in the energy dependent market that we service our new account sales and account retention experience was solid during the quarter and we continue to position our sales resources to take advantage of current opportunities as well as capitalize on future opportunities as the economy recovers as i'm sure many of you are where we are operating in an increasingly inflationary environment the cost of labor as well as other business inputs are clearly on the rise in addition we expect and having begun to experience a rebound of several cost the trended significantly lower during the pandemic such as merchandise healthcare energy travel and others for example merchandise amortization for the full year fiscal two thousand and twenty one is running at least one hundred basis points lower than more historical levels as we look ahead beyond our fourth quarter into fiscal two thousand and twenty two we expect that the increases in these costs as well as the inflationary impact on labor and other business inputs will pressure are margins we'll provide you with further insight into our outlook for fiscal twenty two during our fourth quarter earnings call are solid balance sheet positions as well the or on different challenges continue to invest in growth and strengthen our business as we've talked about over the last year or two we continue to be focused on making good investments in our people our infrastructure and are technologies all of our investments designed to deliver solid long term returns to universe stakeholders and are internal components to our primary long term objective to universally recognized as the their service provider in the industry we continue to make good progress in these core initiatives such as our crm systems project our crm deployment is certainly a foundational change to our infrastructure that will allow for service improvements in efficiency moving for we will continue to invest in our infrastructure and future over the next several years including key investments in supply chain other technology infrastructure route efficiency as well as our brand will provide additional details as we progress with some of these key key initiatives in the court ahead as always we will continue to focus on providing are valuable products and services to existing customers and selling new customers on the value that universe can bring to their business as we've discussed the pandemic is clearly highlighted the essential nature of our products and services we believe the need and demand for identically queen garments and work environments conditions are company well to support the evolving economic landscape and with adults around the call of shane who provided details of our results for the third quarter
spk_2: thanks did
spk_3: as he mentioned consolidated revenues and our third quarter of twenty twenty one were four hundred and sixty four point three million dollars an increase of four point two percent from four hundred and forty five point five million a year ago and consolidated operating income increased to fifty four point two million dollars from twenty seven point seven million or ninety five point five percent the net income for the quarter increased to forty two million dollars or two dollars and twenty one cents per diluted share from twenty one point three million or a dollar twelve per diluted share affected tax rate in the quarter was twenty two point nine percent compared to twenty one point eight percent in the prior year as a reminder er tax rate can move from period to period based on discreet events including access tax benefits and deficiencies associated with employee share these payments or core laundry revenues for the quarter were four hundred and nine million an increase of five point three percent from the third quarter of twenty twenty gore laundry organic growth which adjusts for the estimated effect of acquisitions as well as fluctuations in the canadian dollar was four point three percent as increase is primarily driven by the coven nineteen pandemic significantly impacting our customers operations and were levels and prior year which was partially offset by a large twenty point one million dollar direct sale also and prior year as the discussed or quarterly topline performance exceeding exceeded our expectations as the impact of the pandemic on our customer base continues to subside as well as from increased sales of pp poor laundry operating margin increase to eleven point two percent for the quarter from forty five point six million dollars from five point one percent in prior year or nineteen point seven million dollars the increases primarily driven by a number of items affecting our prior year period including the impact of the decline in rental revenues on our cost structure higher costs of revenues related to the large twenty point one million dollar diary sale i are bad debt expanse and additional costs which the company incurred responding to the coven ninety panda the current quarter operating margin continued to benefit from certain costs that have trended favorably during the pandemic including lower merchandise and travel related costs in addition the segments operating results benefited from lower payroll cost due to understaffing caused by the challenging employment environment company also have some of it's bad that reserves in the quarter that he had provided for during the pandemic as our expectations around future uncollectible accounts have moderated these benefits were partially offset by higher health care claims costs which trended unfavorably due to what we believe eve was pent up demand from our team partners different elected activities during the pandemic energy costs were four point two percent of revenues in the third quarter of twenty twenty one compared to three point four percent the prior year our specialty garments segment which deliver specialized nuclear decontamination and clean room products and services had a very strong quarter and exceeded our expectations in both revenues and operating income revenues increased to thirty eight point two million dollars from thirty six point two million prior year or five point seven percent and were primarily driven by growth and are clean room and european nuclear operations segment are operating margin increase to twenty one point seven percent from seventeen point six percent primarily due to lower merchandise costs and that get expanse as a percentage of revenues as well as costs incurred in the prior year responding to the coven nineteen pandemic as we've mentioned in the past the segments results can vary significantly from period period due to seasonality and the timing of nuclear reactor outages and projects that require are specialized services our first date segments revenues were seventeen point one million dollars compared to twenty point nine million in the prior year however the segments operating profit was nominal compared to one point six million dollars in the comparable period of twenty twenty the decreases were primarily due to elevated pp he sales and prior year in addition the current quarter operating results reflect continued investment in the company's initiative to expand it's first aid van business into new geography we continue to maintain a solid balance sheet and financial position with no long term debt and cash cash equivalents in short term investments totaling five hundred and thirty five million dollars at the end of our third quarter of fiscal twenty twenty one but the first three quarters of fiscal twenty twenty one capital expenditures total nine six point six million dollars as we continue to invest in our future with new facility additions expansions updates and automation systems that will help us meet our long term strategic objectives during the quarter recapitalize four point two million dollars related to our ongoing crm project which consisted of licensees their party consulting costs and capitalized internal labor costs as of the end of our quarter we had capitalized a total of thirty two million dollars related to the sierra project in the third fiscal quarter of twenty twenty one we began to depreciate part of the system over a ten year life and are poorly depreciation approximated point seven million dollars as a reminder that appreciation of the bowl system combined with additional hardware we will install to support our new capabilities like mobile handheld devices for a route drivers will eventually ramp to an estimated sixty seven million dollars of additional depreciation expense per year company did not repurchase any shares during the quarter under it's a previously announced stock repurchase program as a may twenty nine twenty twenty one the company had repurchased approximately see three hundred and sixty eight thousand shares of common stock for sixty one point eight million dollars under the program based on our results today as well as our outlook for the remainder of the year we now expect that our fiscal twenty twenty one revenues will be between one point eight one billion dollars and one point eight one seven billion dollars we further expected full year diluted earnings per share will be bit queen seven dollars and eighty cents and eight dollars this outlook assumes that are poor laundry operating margin in the fourth quarter will approximate ten point six percent at the midpoint of the range there's outlook also reflects continued benefits and areas that have trended lower during the pandemic including merchandise and travel costs although we have also assumed that those benefits will continue to moderate we birther assume that our payroll costs will increase as a percentage of revenues as we worked at the a lump in positions and began to adjust compensation levels in certain high demand roles in response to the current employment landscape this concludes are prepared remarks and we would now be happy to answer any questions the you might have
spk_0: thank you very much gentlemen electorate sorry question please press one for on your cell phone keypad you will hear a three time prom to acknowledge your request once again for questions please press one for one moment for the first and our first question is from tim tim mulroney was william blair be fine
spk_4: good morning
spk_5: mourning mourning
spk_6: i'm so based on the midpoint a your revenue guide it it looks like you're expecting an acceleration and revenue growth from the from the third quarter to the fourth quarter little bit i was wondering if you had comment on how weekly revenue trended through the quarter and how weekly revenues trying to do june so far
spk_1: sure we give you a little insight their tim you're one of the things we talked about in the prepared remarks with some increase in pp that we add during the quarter we were able to sell some products that we are good inventories for you know during the quarter that helped out like we mentioned before during this time a year were usually going into a little bit of a seasonal slowdown in the summer we haven't really seen that because we're still seeing some ah some recovery of customers and reopening said would offset a normal seasonal slowdown so i think it's been you know i would characterize it is modest and steady through the quarter in terms of recovery is far as what we're seeing it you know during june yeah i'd say steady you're not not necessarily an acceleration ah i'm so i would i don't want to paint the picture and i don't think we should be paid in the picture that you know there's gonna be a significant step up from que three to queue for in terms of a further reopening for the most part most of our customers the still some stragglers are are are back in business had some level we're still seeing shortfalls from the pre pandemic time frame particularly in the energy sector but also others because not everyone back at the full levels that they they were before so good that helps provide a little context
spk_6: now that that's really helpful in yemen characterizing it as study to the corner study june or during a period where you normally see little seasonal weakness i'm not saying that not for that said that's really helpful palm or what one was for me before i pass that along and just wanted to ask about your your account sales you mention and you new account files and in your palm and up opening remarks their stephen i'm he said that they were solid palm so that's great to hear i think last quarter you'd mention that they will kind of our flattish with last year how to do the first half of the fiscal year which was obviously a good result given the on the pandemic out i'm you know have you seen a pick up here at all or still kind of flattish on a year over year basis
spk_1: well i think when you when you compare it to the third quarter of two thousand and twenty which was the know the really the hardest hit pandemic quarter of what what we're selling more new business with so many businesses score that we did that cordery show so i would say that it's somewhat improved over the second quarter ah but that's why sort of the solid vs that you know spectacular think it's it's it's it's solid and in a when you look at the mix is changing a little bit is a need for a lot more ancillary products and i think we've taken advantage of that you this cycle the uniform sales are starting to pick up again ah i'm so again stronger than last year's third quarter i draw the comparison to our fiscal nineteen which was a very strong sales here they were still lives there short of added in a shame mentioned understaffing we're we're a little lower on the number of sales reps would really like to be carrying right now to be honest we're trying to ramp up a little further as we as we move into the fourth quarter and into next year
spk_6: got it thanks very much guess
spk_0: thank you
spk_7: or next question is from he woodman buried with going thanks getting us a good morning i just wanted to get a better sense of the guidance here you are pretty clear saying that quarter came in above revenue ah above on profit as well the guy says i was the race but it looks like it's entirely attributable at least my mission for the in a question that the really came from the third quarter not change in the fourth quarter so i just want to cut a check on that steve and fee for understanding correctly and just it it looks like
spk_1: i mean gave us the margin levels you get us and and takes but can you just talk a little bit more about i'm out the a dagger the margin alex that's that's implied york is it looks like the read the revenue guidance kind of brackets what we are already think with the margins probably maybe a little bit softer than maybe our thoughts i just to understand own more detail and i'll start of the chain can provide some details i mean in general for the third quarter he added you're right in the way you're you're kind of a analyzing the beat and how it how it filters to the fourth quarter the third quarter was obviously strong from a specialty garments standpoint and from a a core standpoint the quarter benefited from some things as she mention some bad debt reserve relieve relieve ah as as we've felt like we don't need some of those reserves coming out a pandemic things turned out a little bit better in that area than we than we anticipated he mentioned some of the understaffing l e d answer your question you really should have to go back to the comments i made about you know some of the the cost that will start to rise here pretty soon as with gonna talk about this the in the past sometimes these costs take time to rise like merchandise is coming back strong we put a lot more and service it was very unusually depressed for six months or so at the beginning of a pandemic and even into our second quarter this year but the last few months we really start seeing a surge back and merchandise additions not just from new sales but replacements almost like the health care where during the pandemic things were just activity overall was unusually depressed and now we're seeing come back strong so some of that is built into the fourth quarter guidance and that is certainly some of the caution that were that were speaking to as we think forward to two thousand and twenty two and you you heard my comment about merchandise being sort of historically low during fiscal twenty one shane also mentioned understaffing i continues to be challenging
spk_3: we continue to modify wages as necessary for production workers and other positions to attract more workers were expecting that to to improve over the next few months whether that of fully rectify itself over the next few months remains to be seen but we do expect that to be a a challenge and a headwind kind of going into two thousand twenty two don't of that fully answer your question i can have shane add to some of the some of the feedback on the third quarter to give you a sense of that be and and wide may or may not repeat in the fourth quarter yeah no i'm steve i think i think you covered the majority of it
spk_8: when we take a look at the the change in our top line guidance
spk_3: right are guidance went out by about the midpoint of our range went up by about fifteen million dollars the meal oh good portion of that was specialty garments performance in the courtroom we've talked ah at length about how you know their core or their quarterly performance is a little bit more unpredictable i and and can fluctuate from quarter to quarter but some of that did come from the benefit that we saw on in our core laundry operations clearly doubt wasn't all award i guess the increase in our revenues was anti completely attributable to our third quarter performance because we are expecting any anticipating that and some of the benefit that we're seeing in the core will carry over to the fourth go portion of that ah
spk_9: now is is related to in the core and as permeating into the fourth or specialty garments in a performance expectations for the fourth really haven't changed
spk_3: and then steve spoke about the majority of the benefits that we saw during the quarter non you know when we talk about the understaffing when we talk about the adjustments that we made to the reserves that sort of benefited the quarter in all those broadly on translated into you know our our marge and performance things like the beneficial tax rate that we had in the corridor related to some of the discreet events yeah again were captured in that third quarter and aren't necessarily anticipated are included in our assumptions that they're gonna mom continue into the for nom but some of the things that sleeves talked about ah you know have influenced our expectations for the fourth i like he his mention the fact that you know our yard third quarter we started to see the of the our merchandise and return to a level that sort of were similar to pre pandemic and eventually the expectation is that that merchandise over time
spk_7: given the way that we account for will eventually start to normalize back to have a normal percentage of revenues nom our healthcare claims cost during the quarter or higher we had mentioned that we believe that there's some pent up demand for that and that sort of influenced our expectations for the fourth quarter as well
spk_10: i'm so some of those dynamics are sort of informing i guess which are see and on the margins side some of those benefits that guy or third quarter benefited from i'm really were sort of captured in that quarter and aren't necessarily benefits we're expecting on for a period of to can you just give us a sense of the bad baghdad
spk_3: release our benefit of a quarter or how much the understaffing or healthcare were just trying to get an order of magnitude so we understand the impact on in the quarter yup the out about that path yeah absolutely i'm are bad day or i get the benefit that are quarter had related to our bad debt reserves probably forty to fifty basis points
spk_7: as far as the understaffing is a little bit more challenging to quantify the impact on the quarter because obviously you're benefitting from the lower pay payrolls but those barrels are providing you benefits and you're also incurring some costs related to overtime and temp labor etc but on the been up related to the in the understaffing was probably a million and a half to two million dollars again as not ideal for us that novel way that's without a ouija a hope to have gone forward but financially at least we saw that that short term benefit in the third how for an are just one last question in he had some comments on on the a pp eve it in some of the i put in with like the hand sanitizers thing that i would think would start to be rolling offer least be starting to face of compares and a maybe it wasn't because you're yet i'm a quarter and supply chain wasn't fully there in that in at the beginning days of hum of covert last year but
spk_1: on it was essentially near us senate that you know a benefit your year to that it is we moved to the for que you are person personally pp benefits that you have to the become headwinds a what is the current run rate on that saying we're already think that it's it's the flat up on your your basis i just try to understand that the never be helpful yeah eg good question the me that ear your comment about the supply chain i think this is correct from the third quarter last year here we weren't quite you know ramped up to where we wanted to be the biggest benefit to be honest in the current quarter was in the area of gloves as opposed to so been sanitizer there's been a shortage in that area prices are quite a bit higher for those products and and in a we were in a pretty good position from an inventory perspective to go out and take take some advantage of that and i think with the reopening you know you seeing some people yell neat need some of that product so ah is far as the fourth quarter goes ah that that's the man you question i think how long will will some of this blip last ah i'm you know i think we have some of the going through the fourth quarter and then moderating a little bit from the third quarter run rate that's probably impact in our fourth quarter a little bit is well i think the bigger question is you go into next year in a what is that look like kim can we sustain you know i think we've invested in sales resources to sell into our existing accounts over the last couple years and we're hopeful that you know the experience of the pandemic will help us you know
spk_0: you know i have some ongoing benefit in that area in terms of penetration with our customers but i think as you look into the fourth quarter and next year more next year than the fourth quarter
spk_11: they might be some tougher cops but in the fourth quarter you're probably still little bit getting a little bit of a benefit year over year to be honest from from some of those if what we saw in the third quarter continues and it has so far thank you and no next questions from andrew steiner in jp morgan with ahead hi i wanted to am ask you about your ear preliminary cautious karma jump out margins vote for next year you're i just assume now that organic revenue growth is not positive and getting more positive id and to the fullest that there are some somewhat and off getting element of your operating on our lever
spk_1: rage and so my question is how human the economy continues to to move forward on do you feel like did who going be a couple of quarters of margin drag that yo yo yo yo you're saying i go to your feel like you know from what you already know about you i'll have the coolest our men and ah that you know it's going to be a whole year of margin drag and then my second question is do you think your might be the what you said it conflating inflation our kids yeah obviously input costs inflation ah with get back pulitzer just coming back more travel more yeah my uniforms and it's not a kick we inflation it's it's discretionary course coming back yeah it's it's an important question andrew and you know when when you when you start to look it look at next year and and we're not here to provide guidance for next year but we made the comments for a reason when we when we think about the different areas of costs were going to be dealing with looking into two thousand and twenty two he really is and what i'd call three he different areas you have the area that you mention would call it the inflationary and line clearly the cost and availability of labor is a challenge now you know how long will it be a challenge is it as is it a surge that moderates is it an ongoing challenge i think it's something we're going to be after to deal with we are dealing with it now and it is gonna cause cost arise and you know as as costs rise whether it's with labour energy you know fabric costs or any other inputs that are are currently being impacted by call it the inflationary environment and we will will work with our customers to to pass along costs where we can so that's one category you're right about the second category as being sort of his bounce back of costs and that's why we made the comment particularly on merchandise which is the largest piece first to eight months starting at the beginning of the pandemic call it know march two thousand and twenty we started seeing a significant of lower needs from merchandise ads are not just from new accounts but but from replacement garments which is the bulk of our merchandise requirements those as as you understand how we advertise or merchandise those caused our overall merchandise expense for two thousand and twenty one to be quite a bit lower than our historical norm were starting to see that bounce back now you know it as you as you could understand as it bounces back for example this is probably one of the in almost a low point because i you start to put in more right that i'm innovation starts to build again so over the course of two thousand and twenty one we i am confident in saying we will be experiencing higher merchandise the immunizations percentage rams hopefully in october what what really give you a better sense with three four months more information as to what we think that looks like but the caution here to say that the merchandise amortization we're experiencing today is over the hundred basis points lower than sort of historical levels when do we get back to those historic levels how as the energy sector intersect with that how to sales intersect with that does a lot of factors that we just wanted to highlight that that cost is running historically low and we we fully expected to to normalize similarly would travel which we obviously can control a little bit more we are benefiting still from less travel ah quite a bit less travel than sort of the pre pandemic time and like lot of companies were looking at travel to say where can we be more efficient what have we learned during the pandemic that can help was manage travel costs more effectively and there are ways but we need to be out in front of our customers there's there's travel that will come back and then the third category cause which is sort of inherent and some of our comments as well he is our initiatives like the the abs deployment and some other things that will have going on in two thousand and twenty two we will probably be more proactive about speaking about those costs and probably even you're giving you sort of an indication of adjusted operating margin as we go into two thousand and twenty two and these costs continue to be more significant self it is three discreet areas i tried to mention all of them and are prepared remarks because we do want to caution a little against i think what you're talking about which is it
spk_11: on him he has recovered you know everything's back to normal wealth in our business has always benefited during slow times from a cause perspective enduring growth times there can be margin challenges from things like energy merchandise and others this is even probably accentuate
spk_12: it even more than that because i'd say during the pandemic things like merchandise and energy and healthcare and travel were all things that were you know abnormally benefiting compared to say the last recessionary cycle where you didn't see that dynamic with healthcare didn't see that dynamic would travel
spk_11: so it is a unique cycle that were working towards and that's why we're trying to provide that that coffin for two thousand twenty two and you know depending on how the economy recovers in the top line and all those other things we'll we'll see where it shakes out but we we did want to provide that clarity
spk_1: yeah can i just destroy him one last fall up on the same logic when you look at those three bucket for twenty two which one seems the most sizable have three buckets you just described this is though the most what i missed the last word side site about the biggest the big it i doubled the big head when the margins you well it's it's it's a good question and mean merchandise is probably the biggest singular factor that will normalize but it won't do or normalize overnight so you're gonna look at the first quarter of two thousand and twenty two and you're going to say merchandise isn't so bad but it's going to quickly ramp as we continue to put in higher levels of my
spk_13: merchandise over time i would say to be honest andrew the bounce back of cost is probably the one to kind of most be cognizant of the inflationary environment something we're going to have to deal with but you know as we as we tried a look at pricing opportunities and work through that that's that's more
spk_0: it's a it's a it's a sizable challenge but it's it's more businesses normal i would say ah and then the investments are the investments i don't think you know that something that overly really concerns me because it's investments were making it's it's it's capital we have to invest in will will let you know what those numbers are so it's really
spk_1: that middle one that you'll have some bounce back that that we wanna make sure people are aware of got it thanks for the time i got it
spk_0: thank you
spk_14: gentlemen those are all the questions we have a turn back to you for possibly more
spk_0: i'd like to thank everyone for joining us today to review or third quarter results we look forward to speaking with you again in october when we expect to be reporting our fourth quarter performance as well as our full outlook for fiscal two thousand and twenty two thank you and great day and ladies and gentlemen that concludes our call for today we thank you all for my suspicion how good recipe they might have can i can lie and
spk_1: no it's good morning everyone and greetings welcome to the universe corporation third quarter earnings call during a presentation or participants are and listen only mode afterwards we will have a question and answer session at that time the have a question please press that one for when you tell phone keypad and if you need to reach an operator please press stars zero elemental or i would now like return a call over to stay even central's president and chief executive officer please go ahead thank you and good morning i'm stevenson trails universe president chief executive officer joining me today is shane o'connor executive vice president and chief financial officer we like to welcome you to the universe corporation conference call the review our third quarter results for fiscal year two thousand and twenty one this call be on a little only mode until we complete our prepared remarks but first a brief disclaimer this conference call may contain forward looking statements that reflect the company's current views with respect the future events and financial performance he's forward looking statements are subject to certain risks and uncertainties the words anticipate optimistic believe estimate expect intend in similar expressions that indicate future events and trends identify forward looking statements actual future results may differ materially from those anticipated depending on a variety of risk factors for more information please refer to the discussion of these risk factors in our most recent form ten k intend to violence with the securities and exchange commission as i have the last several quarters i want to start by saying the first and foremost i thought for the safety and wellbeing for all those dealing with the impacted the coven nineteen pandemic good news is the during the quarter we have seen real improvement from a health and safety standpoint balkan our company and in our communities related to the nineteen i also want to again highlight that for over a year now our team partners have continued to put forth tremendous efforts in the face of many obstacles created by the pandemic they have worked extremely hard to take care of each other and our customers during these challenging times and i want to personally thank them for their extraordinary performance consolidated revenues for a third quarter were four hundred sixty four point three million a four point two percent from the prior year and fully deluded earnings per share were two dollars and twenty one sense up from a dollar twelve and a third quarter a year ago our core laundry operations revenues were positively impacted by a modest level of customary openings as well as increases in the sale of pp our specialty garments segment also contributed to our overall performance with a varies with very strong results during the quarter that exceeded our expectations shane will provide with the details of our quarterly results shortly clearly are comparisons to the prior year third quarter or being positively impacted by the significant effect the go with the covert nineteen pandemic hat on earth fiscal two thousand and twenty third quarter as a reminder that quarter a year ago was the corner most impacted by customer closures during the pandemic overall we are pleased with the result of our quarter which exceeded our expectations from a top and bottom line perspective increase business activity from a recovering economy is a welcome sight for sure after a challenging year in addition we have started to see early signs of improved activity in the energy dependent markets that we service our new account sales and account retention experience was solid during the quarter and we continue to position our sales resources to take advantage of current opportunities as well as capitalize on future opportunities as the economy recovers as i'm sure many of you are where we are operating in an increasingly inflationary environment the cost of labor as well as other business inputs are clearly on the rise in addition we expect and have begun to experience a rebound of several cost the trended significantly lower during the pandemic such as merchandise healthcare energy travel and others for example merchandise amortization for the full year fiscal two thousand and twenty one is running at least a hundred basis points lower than more historical levels as we look ahead beyond our fourth quarter into fiscal two thousand and twenty two we expected the increases in these costs as well as the inflationary impact on labor and other business inputs will pressure are margins we'll provide you with further insight into our outlook for fiscal twenty two during our fourth quarter earnings call are solid balance sheet positions as well the meat or on different challenges will continue to invest in growth and strengthen our business as he talked about over the last year or two we continue to be focused on making good investments in our people our infrastructure and are technologies all of our investments designed to deliver solid long term returns to universe stakeholders in our internal components to our primary long term objective to universally recognized for their service provider in the industry we continue to make good progress in these core initiatives such as our crm systems project our crm deployment is certainly a foundational change to our infrastructure that will allow for service improvements and efficiency moving forward we will continue to invest in our infrastructure and future over the next several years including key investment in supply chain other technology infrastructure route efficiency as well as our brand
spk_2: will provide additional details as we progress with some of these key key initiatives in the corners ahead
spk_3: as always will continue to focus on providing are valuable products and services to existing customers and selling new customers on the value that universe can bring to their business as we have discussed the pandemic is clearly highlighted the essential nature of our products and services we believe the need and demand for identically queen garments and work environments additions or company well to support the evolving economic landscape and with i'll turn the color what a shame who provided details of our results for the third quarter thanks did as you've mentioned consolidated revenues and our third quarter of twenty twenty one were four hundred and sixty four point three million dollars an increase in four point two percent from four hundred and forty five point five million a year ago and consolidated operating income increased to fifty four point two million dollars from twenty seven point seven million or ninety five point five percent the net income for the quarter increase to forty two million dollars or two dollars and twenty one cents per diluted share from twenty one point three million or a dollar twelve per diluted share i think of tax rate in the quarter was twenty two point nine percent compared to twenty one point eight percent in the prior year as a reminder er tax rate can move from period to period based on discreet events including access tax benefits and deficiencies associated with employees share base payments our core laundry revenues for the quarter were four hundred and nine million an increase of five point three percent from the third quarter of twenty twenty gore laundry organic growth which adjusts for the estimated of acquisitions as well as fluctuations in the canadian dollar was four point three percent his increase is primarily driven by the coven nineteen pandemic significant significantly impacting our customers operations and were levels and prior year which was partially offset by a large twenty point one million dollar direct sale also and prior year as the discussed or quarterly topline performance exceeding exceeded our expectations as the impact of the pandemic on our customer base continues to subside as well as from increased sales of pp poor laundry operating margin increase to eleven point two percent for the quarter from forty five point six million dollars from five point one percent in prior year or nineteen point seven million dollars the increase was primarily driven by a number of items affecting or prior year period including the impact of the decline in rental revenues on our cost structure higher costs of revenues related to the large twenty point one million dollar diary exhale i are bad debt expanse and additional costs which the company incurred responding to the code ninety panda the current quarter operating margin continue to benefit from certain costs that have trended favorably during the pandemic including lower merchandise and travel related costs in addition the segments operating results benefited from lower payroll cost due to understaffing caused by the challenging employment environment company also relieved some of it's bad that reserves in the quarter that he had provided for during the pandemic as our expectations around future uncollectible accounts have moderated these benefits were partially offset by higher health care claims costs which trended unfavorably due to what we believe eve was pent up demand from our team partners different elected activities during the pandemic energy costs were four point two percent of revenues in the third quarter of twenty twenty one compared to three point four percent the prior year our specialty garmin segment which deliver specialized nuclear decontamination and clean room products and services had a very strong quarter and exceeded our expectations in both revenues and operating income revenues increased to thirty eight point two million dollars from thirty six point two million prior year or five point seven percent and were primarily driven by growth and are clean room and european nuclear operations segments operating margin increase to twenty one point seven percent from seventeen point six percent primarily due to lower merchandise costs and bad get expanse as percentage of revenues as well as costs incurred in the prior year responding to the coven nineteen pandemic as we've mentioned in the past the segments results can vary significantly from period period due to seasonality and the timing of nuclear reactor outages and projects that require are specialized services our first aid segments revenues were seventeen point one million dollars compared to twenty point nine million in the prior year however the segments operating profit was nominal compared to one point six million dollars in the comparable period of twenty twenty decreases were primarily due to elevated pp he sales and prior year in addition the current quarter operating results reflect continued investment in the company's initiative to expand it's first aid van business into new geography we continue to maintain a solid balance sheet and financial position with no long term debt and cash cash equivalents in short term investments totaling five hundred and thirty five million dollars at the end of our third quarter of fiscal twenty twenty one for the first three quarters of fiscal twenty twenty one capital expenditures total nine six point six million dollars as we continue to invest in our future with new facility additions expansions updates and automation systems that will help us meet our long term strategic objectives during the quarter recapitalize four point two million dollars related to our ongoing our and project which consisted of license fees their party consulting car and capitalized internal labor costs as of the end of our quarter we had capitalize a total of thirty two million dollars related to the sierra project in the third fiscal quarter of twenty twenty one we began to depreciate part of the system over a tenure life and are poorly depreciation approximated point seven million dollars as a reminder that appreciation of the both system combined with additional hardware we will install to support our new capabilities like mobile handheld devices for our route drivers will eventually ramp to an estimated six to seven million dollars of additional depreciation expense per year company did not repurchase any shares during the quarter under of previously announced stuff repurchased program as a may twenty nine twenty twenty one the company had repurchased approximately see three hundred and sixty eight thousand shares of common stuff for sixty one point eight million dollars under the program based on our results to today as well as our outlook for the remainder of the year we now expect that our fiscal twenty twenty one revenues will be between one point eight one billion dollars and one point eight one seven billion dollars we further expected full year diluted earnings per share will be bit
spk_0: queen seven dollars and eighty cents and eight dollars this outlook assumes that are poor laundry operating margin in the fourth quarter will approximate ten point six percent at the midpoint of the range this outlook also reflects continued benefits and areas that have trended lower during the pandemic including merchandise and travel costs although we have also assumed that those benefits will continue to moderate
spk_4: we further assume that our payroll costs will increase as a percentage of revenues as we worked at the a lump in positions and began to adjust compensation levels in certain high demand roles in response to the current employment landscape
spk_5: this concludes our prepared remarks and we would now be happy to answer any questions the you might have
spk_6: thank you very much
spk_1: gentlemen electorate sorry question please press one for on your cell phone keypad you will hear a three can't prom to acknowledge your request once again for questions please press one for one moment for the first and our first question is from to mock him mulroney was william blair is fine good morning mourning mourning i'm so based on the midpoint to your revenue guide it it can it looks like you're expecting an acceleration in revenue growth from the from the third quarter to the fourth quarter little bit i was wondering if you could comment on how weekly revenue trended through the quarter and how weekly revenues trying to to june so far sure we give you a little insight their tim you're one of the things we talked about in the prepared remarks with some increase in pp that we add during the quarter we were able to sell some products that we add good inventories for
spk_6: you know during the quarter that helped out like we mentioned before during this time a year were usually going into a little bit of a seasonal slowdown in the summer we haven't really seen that because we're still seeing some on some recovery of customers and reopening said would offset a normal seasonal slow down so i think it's been in i would characterize it is modest and steady through the quarter in terms of recovery is far as what we're seeing you know during june yeah i'd say steady you're not not necessarily an acceleration ah i'm so in i would i don't want to paint the picture and i don't think we should be the picture that you know there's gonna be a significant step up from cute three to queue for in terms of a further reopening ah for the most part most of our customers there's still some stragglers are are are back in business had some level we're still seeing shortfalls from the pre pandemic time frame particularly in the energy sector but also others because not everyone back at the full levels that they they were before
spk_1: tell that helps provide a little context now that that's really helpful in yemen characterizing it as study to the corner and june or during a period where you'd normally see little seasonal weakness i'm i'm not saying more not said that said that's really helpful calm or what one was for me before i pass it along i just wanted to ask about your your account sales you mentioned your new account cells and in your palm initial opening remarks their stephen i'm he said that they were solid palm so that's great to hear i think last quarter you'd mention that they will kind of of flattish with last year to do the first half of the fiscal year which was obviously a good result given the the pandemic out on you know have you seen a pick up here at all or still kind of flattish on a year over year basis
spk_6: well i think when you when you compare it to the third quarter of two thousand and twenty which was the that you know the really the hardest hit pandemic quarter
spk_0: what what were selling more new business with so many business discord that we did that cordery show so i would say that it's somewhat improved over the second quarter
spk_7: but that's why sort of the solid vs you know spectacular i think it's it's it's it's solid and in a when you look at the mix is changing a little bit there's a need for a lot more ancillary products and i think we've taken advantage of that you this cycle ah the uniform sales are starting to pick up again ah so again stronger than last year's third quarter i draw the comparison to our fiscal nineteen which was a very strong sales here we were still lives the short of that and in a shame mentioned understaffing were we're a little lower on the number of sales reps would really like to be carrying right now to be honest we're trying to ramp up a little further as we as we move into the fourth quarter and into next year got it thanks very much as thank you my next question is from andy whitman buried with going
spk_1: thanks it's getting us a good morning i just wanted to get a better sense of the guidance here
spk_15: you are pretty clear saying that quarter came in above revenue ah above on profit as well
spk_1: the guy says of the raise but it looks like it's entirely attributable at least my estimations on us in a question that i really came from the third quarter not the change in the fourth quarter so i just want to cut a check on that steve and fee for understanding that correctly and just it it looks like i mean gave us the margin levels you get with inputs and takes but can you just talk a little bit more about i'm the a i guess the margin outlook that's that's implied york as it looks like the ret the revenue guidance kind of brackets what we are already think with the margins probably maybe a little bit softer than maybe our thoughts i just wanna understand own that more detail and i'll start of the chain can provide some details and mean in general for the third quarter he added you're right in the way you're you're kind of a analyzing the beat and our our filters to the fourth quarter the third quarter was obviously strong from a specialty garments standpoint and from a a core standpoint the quarter benefited from some things as a mentioned some bad debt reserve relieve relieve ah
spk_3: as as we felt like we don't need some of those reserves coming out a pandemic things turned out a little bit better in that area than we than we anticipated he mentioned some of the understaffing ill he answer your question you really so to have to go back to the comments i made about you know some of the the cost that will start to rise here pretty soon we're gonna talk about this in the past sometimes these costs take time the rise like merchandise is coming back strong we put a lot more and service it was very unusually depressed for six months or so at the beginning of the pandemic and even into our second quarter this year but the last few months we really start seeing a surge back and merchandise additions notches from new sales but replacements almost like the health care where during the pandemic things were just activity overall was unusually depressed and now we're so seeing come back strong so some of that is built into the fourth quarter guidance and that is certainly some of the caution that were that were speaking to as we think forward to two thousand and twenty two and yeah you heard my comment about merchandise being sort of historically low during fiscal twenty one shane also mentioned understaffing i continues to be challenging ah we continue to modify wages as necessary for production workers and other positions to attract more workers were expecting that to to improve over the next few months while either that or fully rectified self over the next few months remains to be seen but we do expect that to be a challenge in a headwind kind of going into two thousand twenty two set of that fully answer your question i can have shane add to some of the some of the feedback on the third quarter to give you a sense of that be and and why it may or may not repeat of the fourth quarter yeah no and the steve i think i think you covered the majority of it
spk_9: when we take a look at the the change in our top line guidance
spk_3: right are guidance went out by about the midpoint of our range went up by about fifteen million dollars male a good portion of that was specialty garments performance in the courtroom we've talked ah at length about how you know their core or their quarterly performances a little bit more unpredictable ah and and can fluctuate from quarter to quarter i'm but some of that did come from the benefit that we saw on the in our core laundry operations clearly that wasn't all award i guess the increase in our revenues was anti completely attributable to our third quarter performance because we are expecting and anticipating that and some of the benefit that we're seeing in the core will carry over to the fourth go portion of that ah now is is related to the core and as permeating into the fourth or specialty garments in our performance expectations for the fourth really haven't changed
spk_7: and then steve spoke about the majority of the benefits that we saw during the quarter non you know when we talk about the understaffing when we talk about the adjustments that we made to the reserves that sort of benefited the quarter in our those broadly on translated into you know our or margin
spk_16: performance
spk_3: things like the beneficial tax rate that we had in the corridor related to some of the discreet events yeah again were captured in that third quarter and aren't necessarily anticipated are included in our assumptions that they're gonna mom continue into the fourth nom but some of the things that sleeves talked about ah you know have influenced our expectations for the fourth i like
spk_7: he is mention the fact that you know our the our third quarter we started to see the of the our merchandise and return to a level that sort of were similar to pre pandemic and eventually the expectation is that that merchandise over time given the way that we account for will eventually start to normalize back to have a normal percentage of revenues non our healthcare claims cost during the quarter or higher we had mentioned that we believe that there's some pent up demand for that and that sort of influenced our expectations for the fourth quarter as well so some of those dynamics are sort of informing i guess which are see and on the margins side some of those benefits that or third quarter benefited from ah i'm really were sort of captured in that quarter and aren't necessarily benefits will get back on foreign a kid are you able to can you just give us a sense of the bad debt really leaf our side benefit of the quarter or how much the understaffing or healthcare we're just trying to get an order of magnitude so we understand the impact on in the quarter yup as was the out about the last
spk_1: yeah absolutely are bad day or i get the benefit that are quarter had related to our bad debt reserves probably forty to fifty basis points as far as the understaffing is a little bit more challenging to quantify the impact on the quarter because obviously you're benefitting from the lower payrolls but those barrels are providing you benefits and you're also encourage some costs related to overtime and temp labor et cetera but on the benefit relate today the understaffing was probably a million and a half to two million dollars again as not ideal for us that novel way that's without a ouija a hope to have gone forward but financially at least we saw that that short term benefit in the third how for an ex are just one last question it he had some comments on on the color t p that in a similar i put in with like the hand sanitizers things that i would think would start to be rolling offer these be starting to face of compares and a maybe it wasn't because you're yet i'm a quarter and know the supply chain wasn't fully there in the the beginning days of them have covered last year but ah it was essentially near us say that that was a benefit your ear to that it is a moved to the for que vive or or these pp benefits that you have to they become headwinds a what is the current run rate on that saying we're already think that it's it's the flat up on your your basis i just try to understand that the never be helpful
spk_0: yeah eg good question the me that your your comment about the supply chain i think this is correct from the third quarter last year we weren't quite you know ramped up to where we wanted to be the biggest benefit to be honest in the current quarter was in the area of gloves as opposed to sold than sanitizer
spk_11: there's been a shortage in that area prices are quite a bit higher for those products and and in a we were in a pretty good position from an inventory perspective to go out and take take some advantage of that and i think with the reopening you know you're seeing some people yell neat need some of that product so ah is far as the fourth quarter goes that that's the magic question i think her how long will will some of this blip last ah you know i think we have some of the going through the fourth quarter and then moderating a little bit from the third quarter run rate that's probably impact in our fourth quarter a little bit is well i think the bigger question is you go into next year in a what is that look like can can we sustain you know i think we've invested in sales resources to sell into our existing and
spk_1: counts over the last couple years and we're hopeful that you know the experience with the pandemic will help us you know you know i have some ongoing benefit in that area in terms of penetration with our customers but i think as you looked into the fourth quarter and next year more next year than the fourth quarter they might be some tougher comps but in the fourth quarter you're probably still little bit getting a little bit of a benefit year over year to be honest from from some of those if what we saw in the third quarter continues and it has so far thank you and no next questions from andrew steiner in jp morgan with ahead hi i wanted to ask you about your ear preliminary questions comments about margins for for next year you're i just assume now that organic revenue growth is not positive and getting more positive and into the full i sat there are some lot and off getting element of your operating on our leverage age and so my question is how human the economy continues to to move forward on do you feel like did who can be a couple of quarters of margin drag that yo yo yo yo yo your signal i do you feel like you know from what you already know about you now have the coolest our man ah that you know it's going to be a whole year of margin drag and then my second question is do you think your might be the way you said it conflating inflation our kids yeah obviously input costs inflation ah with get back pulitzer just coming back more travel more yeah more uniforms and it's now not particularly inflation it's it's discretionary course coming back yeah it's it's an important question andrew and you know when when you when you start to look it look at next year and and we're not here to provide guidance for next year but we made the comments for reason when we when we think about the different areas of costs were going to be dealing with looking into two thousand and twenty two he really is and what i'd call three different areas you have the area that you mention would call it the inflationary environment clearly the cost and availability of labor is a challenge now you know how long will it be a challenge is it as is it a surge that moderates is it an ongoing challenge i think it's something we're going to be asked him to deal with we are are dealing with it now and it is gonna cause cost to rise and you know as as costs rise whether it's with labour energy you know fabric costs or any other inputs that are are currently being impacted by call it the inflationary environment yet we will will work with our customers to to pass along costs where we can so that's one category you're right about the second category as being sort of his bounce back of costs and that's why we made the comment particularly on merchandise which is the largest piece first six to eight months feel starting at the beginning of the pandemic call it know march two thousand and twenty we started seeing a significant amount of lower needs from merchandise ads not just from new accounts but but from replacement garments which is the both of our merchandise requirements those as as you understand ali advertiser merchandise those cars our overall merchandise expense for two thousand and twenty one to be quite a bit lower in our historical norm were starting to see that bounce back now you know it as you as you could understand as it bounces back for example this is probably one of the you know almost a low point because i you start to put in more right that i'm innovation starts to build again so over the course of two thousand and twenty
spk_11: one we i am confident in saying we will be experiencing higher merchandise the immunizations percentage around hopefully in october one or really give you a better sense with three four months more information as to what we think that looks like but the caution here to say that the merchandise amortization we're experiencing today is over a hundred basis points lower than sort of historical levels when do we get back to those historic levels how does the energy sector intersect with that how to sales intersect with that does a lot of factors but we just wanted to highlight that that cost is running historically low and we we fully expected to to normalize similarly would travel which we obviously can control a little bit more we are benefiting still from less trout
spk_1: well ah play bit less travel than sort of the pre pandemic time and like a lot of companies were looking at travel to say where can we be more fish what have we learned during the pandemic that can help was manage travel costs more effectively and there are ways but we need to be out in front of our customers there's there's travel that will come back and then the third category cause which is sort of inherent and some of our comments as well he is our initiatives like the the abs deployment and some other things that will have going on in two thousand twenty two we will probably be more proactive about speaking about those costs and probably even ah you're giving you sort of an indication of adjusted operating margin as we go into two thousand and twenty two and these costs continue to be more significant self it is three discreet areas i tried to mention all of them and are prepared remarks because we do want to caution a little against i think what you're talking about which is he economy has recovered you know everything's back to normal wealth in our business has always benefited during slow times from a cause perspective enduring road times there can be margin challenges from things like energy merchandise and others this is even probably extension
spk_17: weighted even more than that because i'd say during the pandemic things like merchandise and energy and healthcare and travel were all things that were you know abnormally benefiting compared to say the last recessionary cycle where you didn't see that dynamic with healthcare didn't see that dynamic would travel
spk_0: so it is a unique cycle that were working towards and that's why we're trying to provide that that coffin for two thousand and twenty two and you know depending on how the economy recovers in the top line and all those other things we'll we'll see where it shakes out but we we did want to provide that clarity
spk_1: yeah correct or destroy him one last fall up on the same subject when you look at those three bucket for twenty two which one seems the most sizable have three buckets you just described
spk_0: this is though the most what i missed the last word sides night above the biggest the big it i doubled
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