Unifirst Corporation

Good day, and thank you for standing by. Welcome to the UniFirst Second Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Steven Sentros, President and Chief Executive Officer. Please go ahead.

Thank you and good morning. I'm Steven Sentros, UNIFRS President and Chief Executive Officer. Joining me today is Shane O'Connor, Executive Vice President and Chief Financial Officer. We'd like to welcome you to UNIFRS Corporation's conference call to review our second 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 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. We are pleased with the results from our second quarter, which were largely in line with our expectations. We are excited that our investments in the business are starting to show returns in several areas, including improved profitability, cash flows, and overall operational executions. I want to sincerely thank all of 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 to keep 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 structure the right program, products and services for their businesses and their team, all while providing an enhanced customer service experience. Second quarter consolidated revenues were $602.2 million, an increase of 1.9% from fiscal 24 and 2.3% on an organic basis. Operating income and adjusted EBITDA increased during the quarter by 11.7% and 6.3% respectively compared to the second quarter of fiscal 2024. Our team continues to execute our strategy, investing in our people, technology, and infrastructure to support growth and improve profitability. As I've discussed previously, The execution of our strategy and the value it will create will not be fully unlocked in the next quarter or next year. It will take time, but we continue to have confidence in the significant opportunities we have in front of us and our ability to capture them and drive shareholder value. We are pleased with the progress we continue to make in the 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. The improvement was primarily captured in some of our core laundry operations key operational costs, with benefits recognized in merchandise and plant production expenses. These items were partially offset in the quarter by higher health care costs, as well as ongoing investments we are making to improve top line growth and drive further efficiencies. We also continue to see improvements in our operating cash flow, which year to date was up 20.2% compared to the same period a year ago. From a top line perspective, we saw some positive trends during the quarter with respect to the performance of both our sales and service organizations. We installed more new business than a year ago by a solid margin, and we continue to supplement our local selling efforts by adding and expanding our large national account relationships. As we have discussed for a couple of quarters now, we continue to be encouraged by trends we are seeing in our revenue related leading indicators. Our KPIs around contract renewals and NPS scores, for example, continue to trend favorably. In the second quarter, we also saw notable improvements in customer retention compared to the same quarter a year ago. From an ads versus reductions perspective, net wearer levels for our existing customers declined in the quarter, showing some incremental weakness compared to the same quarter last year. As a company, we will 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. An example of our investment in growth is our recently announced expansion of our distribution center in Owensboro, Kentucky. This over 100,000 square foot expansion will allow for improved speed and efficiency for the direct sale of uniforms to our customers. We continue to see growing opportunities to service our uniform and facility service rental customers with direct sales and e-commerce offerings to supplement their business needs. This is a great example of the investments we are making to ensure we are providing industry-leading service to our customers, as well as taking advantage of all of the revenue and growth opportunities that the market has to offer. In addition to growth-centric investments, we also believe there is ample runway to improve our profitability with ongoing efforts focused on driving productivity and the consistency of our operational execution. We are excited about the progress that our new Chief Operating Officer, Kelly Rooney, is making in aligning our operations around the Unifirst way, which will be critical in achieving our goals. The Unifirst way focuses on creating scalable, executable, repeatable processes to drive a consistent and differentiated customer experience. Additional profit improvement opportunities exist in areas of strategic pricing, procurement, sourcing, inventory management, among others. We have talked in prior calls how our new ERP system and related technology investments will be a foundational component of many of these benefits, allowing them to be enabled more fully. However, ahead of full implementation, we are working to take advantage of the opportunities available to us in the near to mid-term and setting ourselves up for more robust improvements post-deployment. With that, I'll turn the call over to Shane, who will provide more details on our second quarter results, as well as our outlook for the remainder of fiscal 25. Thanks, Steve.

In our second quarter of 2025, consolidated revenues were $602.2 million, up 1.9% from $590.7 million a year ago. and consolidated operating income increased to $31.2 million from $27.9 million or 11.7%. Net income for the quarter increased to $24.5 million or $1.31 per diluted share from $20.5 million or $1.09 per diluted share. Consolidated adjusted EBITDA increased to $68.9 million from $64.8 million in the prior year, or 6.3%. Our financial results in the second quarters of fiscal 2025 and 2024 included approximately $1.9 million and $3.2 million, respectively, of costs directly attributable to our key initiatives. The effect of these items on the second quarter of fiscal 2025 and 2024 decreased operating income and adjusted EBITDA by $1.9 million and $3.2 million, respectively. Net income by $1.6 million and $2.5 million, respectively, and diluted EPS by 9 cents and 13 cents, respectively. Our core laundry operations revenues for the quarter were $530.4 million, an increase of 1.5% from the second quarter of 2024. Organic growth, which adjusts for the estimated effective acquisitions, as well as fluctuations in the Canadian dollar, was 1.9%. Core laundry operating margin increased to 4.6% for the quarter, or $24.3 million, from 3.6% in prior year, or $19 million. And the segments adjusted EBITDA margin increased to 11.2% from 10.3%. The cost 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 second quarter of fiscal 2025 and 2024 by 0.3% and 0.6%, respectively. Segments operating in adjusted EBITDA margin comparisons benefited from lower merchandise and production costs as a percentage of revenues. partially offset by higher healthcare claims expense and selling and administrative costs in the second quarter of 2025 as a percentage of revenues. Energy costs in the second quarter of 2025 were 4.2% of revenues. Revenues from our specialty garment segment, which delivers specialized nuclear decontamination and clean room products and services, increased to $44.4 million from $43.5 million in prior years. or 2.2%, primarily due to a strong top-line performance in our European nuclear operations. Segment's operating margin for the quarter was 16.7%, down from 22.8% in prior year. As we've mentioned in the past, this segment's results can vary significantly from period to period due to seasonality as well as the timing and profitability of nuclear reactor outages and projects. Our first aid segments revenues increased to $27.5 million from $24.8 million in prior year, or 10.6%, driven by strong growth in our van operations. The segment had a nominal operating loss of $.5 million during the quarter as the segment's results continue to reflect the investments we are making in our first aid van business. At the end of our second 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 $201 million. As Steve mentioned, in the first half of fiscal 2025, we continued to see solid improvement in our cash flows from operating activities, which increased 20.2% to $128.3 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 $66.1 million, repurchased $12.5 million worth of common stock, and acquired four small first aid businesses for which we paid a total of $5.4 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 $2.422 billion and $2.432 billion, which reflects the anticipated negative impact of the Canadian dollar exchange rate compared to our original expectations. We further expect diluted earnings per share to be between $7.30 and $7.70, which reflects improvement in our core laundry operations operating income and an assumption that our key initiative costs in fiscal 2025 will approximate $12 million, revised down from prior estimates. Our outlook does not include the impact of any future share buybacks, the uncertain impact of potential increases in tariffs, or other unexpected events affecting the economy generally. And as a reminder, fiscal 2025 includes one last week of operations compared to fiscal 2024. Steve, back to you.