Unifirst Corporation

Officer. Joining me today is Shane O'Connor, Executive Vice President and Chief Financial Officer. We would like to welcome you to Uniforce Corporation's conference call to review our third 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 discussion of these risk factors in our most recent Form 10-K and 10-Q filings with the Securities and Exchange Commission. Our third quarter results were largely in line with our expectations. It is rewarding to see our recent investments beginning to yield measurable returns, evidenced by gross margin improvement and more effective execution across the business. 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 surface 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 that we structure the right program with the right products and services for their business and team, all while providing an enhanced customer service experience. Third quarter consolidated revenues were $610.8 million, an increase of 1.2% from fiscal 24. Earnings in the quarter reflect improvements in our gross margin, as well as several unusual items that impacted our profitability, which Shane will discuss in more detail shortly. Our team continues to focus on investing in our people, technology, and infrastructure to further enable growth and profitability. The benefits of the strategy will take time to be fully realized, but we are confident in our ability to seize the significant opportunities ahead and drive significant shareholder value. As mentioned, we are pleased with the progress we continue to make in the areas of operational execution and gross margin enhancement. Core laundry operations' key operational costs continue to trend favorably, with benefits being recognized in both merchandise and plant production expenses. To date, we have not experienced significant headwinds from the newly imposed tariffs. However, we have started to see some of our vendors increasing prices related to their additional sourcing costs, and we foresee potential for future increases. The tariff situation remains fluid, and we will continue to provide updates in the coming quarters. Overall, we believe we have positioned ourselves well to navigate the disruption with our efforts over the last few years to improve the diversification within our supply chain. From a top-line perspective, there were positive performance trends from both our sales and service organizations in the quarter. We installed more new business than a year ago by a solid margin, and consistent with our expectations, customer retention improved compared to the third quarter of 2024. Excuse me. However, a pricing environment that continues to be challenging, as well as some incremental softness in our customer wearer levels, has limited our ability to build more top line momentum. Additionally, growth in the quarter was impacted by lower direct sales revenues compared to the same quarter for the previous year. Direct sales trends can vary with respect to timing. However, our full year direct sale assumption remains the same and continues to reflect growth over fiscal 24. As a company, we will continue to focus on investments in the business that will enhance our ability to attract new customers, sell additional products to our existing customers, and improve our customers' experience and drive improved retention. From a profitability perspective, we continue to believe there is ample opportunity with ongoing efforts focused on driving continued improvement and consistency in our operational execution. We are excited about the progress the team is making in aligning our operations around the universe way which focuses on creating and executing scalable, repeatable processes to drive a consistent and differentiated customer experience and is critical for us to achieve our goals. Opportunities also exist in the areas of strategic pricing, procurement sourcing, inventory management, among others. And as we have talked about, our new ERP system and related technology investments will be fully enabling these benefits. However, ahead of a full implementation, we are working to take advantage of the opportunities available to us in the midterm and setting ourselves up for more robust improvements post-deployment. With that, I will turn the call over to Shane, who will provide more details on our third quarter results as well as our outlook for the remainder of fiscal 25. Thanks, Steve.

In our third quarter of fiscal 2025, consolidated revenues were $610.8 million. of 1.2% from $603.3 million a year ago and consolidated operating income decreased to $48.2 million from $48.5 million or 0.6%. Net income for the quarter increased to $39.7 million or $2.13 per diluted share from $38.1 million or $2.03 per diluted share. Consolidated adjusted EBITDA increased to $85.8 million from $84.8 million in the prior year, or 1.2%. Our effective tax rate increased to 25.7% compared to 22.9% in the prior year. As a reminder, our tax rate can move from period to period based on discrete events, including adjustments to our tax reserves, the timing of tax credits, and excess tax benefits and deficiencies associated with employee share-based payments. Our financial results for the third quarters of fiscal 2025 and 2024 included approximately $1 million and $3.9 million respectively in costs directly attributable to our key initiatives, which are currently focused on our ongoing ERP project. The effect of these items on the third quarter of fiscal 2025 and 2024 combined to decrease operating income and adjusted EBITDA by $1 million and $3.9 million, respectively, net income by $0.7 million and $2.9 million, respectively, and diluted EPS by 4 cents and 16 cents, respectively. Net income and diluted earnings per share also benefited from a $2.8 million gain on the sale of a non-operating property during the quarter. This gain was recorded to other income expense net, but did not impact operating income or adjusted EBITDA. Our core laundry operations revenues for the quarter were $533.2 million, an increase of 0.9% from the third quarter of 2024. Core laundry organic growth, which adjusts for the estimated effects of acquisitions, as well as fluctuations in the Canadian dollar, was 1.1%. Core Laundry segments operating margin declined to 6.9% for the quarter, or $36.7 million, compared to 7% in the previous year, or $36.9 million. Segments adjusted EBITDA margin, however, remained unchanged at 13.5%. 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 third quarter of fiscal 2025 and 2024 by 0.2% and 0.7% respectively. During the quarter, we also incurred approximately $5.7 million in expense related to advisory costs for a strategic matter and legal costs related to an employee matter. Excluding the benefit of reduced key initiative costs and the $5.7 million in advisory and legal expense, core laundry adjusted EBITDA margin showed solid improvement over prior year. As Steve discussed, this improvement was driven by lower merchandise and production costs as a percentage of revenues and was partially offset by higher healthcare claims expense. Selling and administrative costs also ran slightly higher as a percentage of revenue compared to prior year. Energy costs in the third quarter of 2025 were 4.1% of revenues compared to 4.3% in prior year. Revenues from our specialty garment segment, which delivers specialized nuclear decontamination and clean room products and services, increased to $47.8 million from $47.6 million in prior year, or 0.5%. Growth in the European nuclear operations and cleanroom operations were largely offset by a decrease in North American nuclear revenues. The segment's operating margin for the quarter was 22.8%, down from 23.9% in prior year. As we 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 segment's revenues increased to $29.8 million from $27.3 million in prior year, or 9%, driven by growth in our van operations. Segment had a nominal operating income of $0.5 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 third 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 $211.9 million. The first nine months of fiscal 2025, Cash flows from operating activities were $196.5 million, and free cash flow increased 22% to $86.7 million. We continued to invest in our future with capital expenditures of $109.8 million, repurchased $25.6 million worth of common stock, and acquired four small first aid businesses for which we paid a total of $5.4 million. We would like to provide an update regarding our financial outlook. At this time, we are maintaining our annual revenue guidance within the range of $2.422 billion to $2.432 billion. However, we are increasing our diluted earnings per share guidance to a range of $7.60 to $8. This adjustment reflects an updated assumption that our key initiative costs in fiscal 2025 will be approximately $7.5 million, revised down from our previous estimate of $12 million. As a reminder, fiscal 2025 includes one last week of operations compared to fiscal 2024, which included an additional week in its fourth fiscal quarter. Also, guidance does not assume future shared buybacks, or unforeseen economic events. This concludes our prepared remarks, and we would now be happy to answer any questions that you may have.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question. And our first question is going to come from the line of Manav Patnik with Barclays. Your line is open. Please go ahead.