Unifirst Corporation

be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to President and Chief Executive Officer Steven Cintros. Please go ahead.

Thank you and good morning. I'm Steven Cintros, Unifirst's President and Chief Executive Officer. Joining me today is Shane O'Connor, Executive Vice President and Chief Financial Officer. I'd like to welcome you to Unifirst Corporation's conference call to review our first quarter results for fiscal year 2025. This call will be on a listen-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 to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties. The words anticipate, optimistic, believe, estimate, expect, intend, and 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 10-K and 10-Q filings with the Securities and Exchange Commission. To start the call today, I'd like to briefly address the news regarding Centos Corporation. As we stated in our press release yesterday, the UNIFIRST Board, in consultation with its independent financial and legal advisors, carefully evaluated the unsolicited non-binding proposal from Centos and unanimously determined that it was not in the best interest of UNIFIRST, our shareholders, and our other stakeholders. In making its determination, the Board considered the offer price, execution, and business risk feedback from some of the company's largest shareholders by voting power, and the company's future growth and value creation opportunities. The universe board and management team remain confident in the strategy the company is executing and will continue to take actions to create shareholder value. With that, I will turn to our results for the quarter. We are pleased with the results from our first quarter, which represent a solid start to our fiscal year, and we're largely in line with our expectations. I want to sincerely thank our team partners who continue to always deliver for each other and our customers as we strive toward our vision of being universally recognized as the best service provider in the industry, all while living our mission of serving the people who do the hard work. We serve the people who do the hard work as they are the workforce that keeps our communities up and running. They are our existing and prospective customers, as well as our own universe team partners. Our mission is to enable those employees and their organizations by providing the right products and services to do their job successfully and safely. Whether that means providing uniforms, workwear, facility services, first aid and safety, clean room or other products and services, our goal is to partner with our customers to ensure we have the right structure, the right program structure, products and services for their businesses and their team, all while providing an enhanced customer experience. First quarter revenues were $604.9 million, increase of 1.9% from fiscal 24. Operating income and adjusted EBITDA increased by 4.5% and 5.9% respectively compared to the first quarter of fiscal 2024. As we discussed last quarter, as the market has emerged from a period of significantly elevated inflation levels, a more challenging pricing environment has developed, which has had a corresponding impact on our retention rates. This has impacted our overall growth and our core laundry operations. Although these are certainly not the growth rates we ultimately aspire to deliver, as we discussed last quarter, we do feel like there's reasons to be positive about some of the trends we are experiencing and our leading indicators that should translate into improvements in revenue trends and retention as we move through this cycle. During the quarter, our sales organization continued to perform well, selling prospects on the value that Uniforce can bring to their businesses. We also continue to be encouraged by the pipeline of large account opportunities that we are currently working on. From an ads versus reductions perspective, net wearer levels for our existing customers declined during the quarter, showing some incremental weakness compared to a year ago at this time. We are pleased with the progress we continue to make in areas of operational execution and margin enhancement, which allowed us to show solid improvements in operating income and adjusted EBITDA during the quarter, despite the modest growth. These improvements, which were primarily in core expense areas, such as merchandise and plant production expenses, were partially offset in the quarter by higher healthcare costs and legal environmental expenses compared to a year ago. We also continue to see strong improvements in operating cash flows, which were up 27.3% compared to the same quarter a year ago. As a company, we'll continue to focus on investments in the business to enhance our ability to attract new customers, sell additional products to existing customers, as well as enhance our customers' experience and drive improved retention. We believe that there is ample runway to improve our profitability with ongoing efforts focused on the consistency of our operational execution and driving productivity. In addition, areas such as strategic pricing and account profitability, as well as strategic manufacturing and sourcing, continue to represent significant opportunities. Although some of these benefits going forward will be more significantly enabled through the implementation of our ERP, we continue to focus on these areas and others we feel can move the needle in the near to mid-term. Speaking of our ERP project, we are generally on track with our project timelines and continue to be excited about the benefits that the system can bring to our business. With that said, I'll turn the call over to Shane, who will provide more details on our first quarter results as well as our outlook for the remainder of fiscal 25.

Thanks, Steve, and good morning. In our first quarter of 2025, consolidated revenues were $604.9 million, up 1.9% from $593.5 million a year ago, and consolidated operating income increased to $55.5 million from $53.1 million, or 4.5%. Net income for the quarter increased to $43.1 million, or $2.31 per diluted share, from $42.3 million, or $2.26 per diluted share. As discussed in the prior quarter, the company migrated to an adjusted EBITDA metric that we believe is more meaningful and is defined as net income before interest, income taxes, depreciation and amortization. further adjusted for share-based compensation expense, acquisition costs, and other items impacting comparability. We believe that this more wholesome non-GAAP measure will provide a more refined view of the company's profitability and is a better indication of the company's capacity to generate future cash flows. The adjusted EBITDA metric does not adjust for the key initiative costs we incur, but the company will provide visibility to those items separately. Consolidated adjusted EBITDA increased to $94 million from $88.7 million in the prior year, or 5.9%. Our financial results in the first quarters of fiscal 2025 and 2024 included approximately $2.5 million and $2.9 million, respectively, of costs directly attributable to our key initiatives. The effect of these items on the first quarter of fiscal 2025 and 2024 decreased operating income and adjusted EBITDA by $2.5 million and $2.9 million, respectively. Net income by $1.8 million and $2.4 million, respectively, and diluted EPS by 9 cents and 12 cents, respectively. Our core laundry operations revenues for the quarter were $532.7 million, an increase of 1.7% from the first quarter of 2024. Core Laundry organic growth, which adjusts for the estimated effect of acquisitions, as well as fluctuations in the Canadian dollar, was also 1.7%. The organic growth rate was primarily the result of solid new account sales and pricing efforts over the last year. Core Laundry operating margin increased to 8.1% for the quarter, or $43 million, from 8% in prior year. or $42.1 million, and the segment's adjusted EBITDA margin increased 14.8% from 14.4%. Costs we incurred related to our key initiatives were recorded to the core laundry operations segment and decreased core laundry operating and adjusted EBITDA margins for the first quarter of fiscal 2025 and 2024 by 0.5% and 0.6% respectively. segments operating in adjusted EBITDA margin comparisons benefited from lower merchandise and other operating input costs as a percentage of revenues, which were partially offset by higher healthcare, legal and environmental, and selling costs in the first quarter of 25 as a percentage of revenues. Energy costs in the first quarter of 2025 were 3.9% of revenues. Revenues from our specialty garment segment, which delivers specialized nuclear decontamination and cleanroom products and services, increased to $45.9 million from $44.7 million in prior year, or 2.9%. And the segment's operating margin was 26.5%. Strong operating results from our European nuclear operations were partially offset by a slight decline in our cleanroom business. As we mentioned in the past, this segment's results can vary significantly from period to period due to seasonality, as well as timing and the profitability of nuclear reactor outages and projects. Our first aid segment's revenues increased to $26.2 million from $24.9 million in prior year, or 5.4%, driven by double-digit growth in our van operations. Segment had a nominal operating income of $0.3 million during the quarter, as the segment's results continue to reflect the investments we are making in the first aid van business. At the end of our first fiscal quarter, we continue to reflect a solid balance sheet and financial position with no long-term debt and cash, cash equivalents, and short-term investments totaling $181 million. In the first three months of fiscal 2025, we continued to see solid improvement in our cash flows from operating activities, which increased 27.3% to $58.1 million, primarily due to improved profitability and lower working capital needs of the business. We continue to invest in our future with capital expenditures of $33.6 million, repurchased $6.4 million worth of common stock, and acquired three small first aid businesses for which we paid a total of $2.8 million. I'd like to take this opportunity to provide an update on our outlook. At this time, we expect our revenues for fiscal 2025 to be between 2.425 billion and 2.440 billion. We continue to expect diluted earnings per share to be between $6.79 and $7.19. This outlook continues to include an estimated $16 million of costs directly attributable to our key initiatives that we anticipate will be expensed in fiscal 2025. Although there's been a recent decline in the value of the Canadian dollar, this outlook assumes a constant Canadian exchange rate of $0.74, consistent with our original guidance, due to the uncertainty in how the foreign currency will fluctuate over the remainder of the year. Aside from the tightening of our revenue range, now one quarter into the year, all other assumptions that we detailed out last quarter remain largely unchanged. As a reminder, fiscal 2025 includes one less week of operations compared to fiscal 2024, and guidance does not include the impact of any future share buybacks or significant changes in the regulatory or broader economic environment. This concludes our prepared remarks. Before we open the call for questions, I'd like to remind you all that our focus today is our first quarter financial results and 2025 outlook. As a result, we won't be commenting further on CINTOF. Liz, we can now open the call for questions.