Unifirst Corporation

Good day and thank you for standing by. Welcome to the Q4 2025 Unifirst Earnings Conference Call. At this time, all participants are in a 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, Stephen Sintros, President and Chief Executive Officer. Please go ahead.

Stephen Sintros Thank you and good morning. I'm Stephen Sintros, Unifirst 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 fourth 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 column 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 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 closed our fiscal 2025 with a solid fourth quarter that modestly exceeded our expectations in top-line performance and was in line with our expectations on the profit side. We accomplished a lot as a team in fiscal 25, that will help strengthen and grow our company as we move forward while advancing our investments in technology and other organizational initiatives. I want to sincerely thank all our team partners who continue to always deliver for each other and our customers as we strive towards 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 them the right products and services to do their jobs successfully. 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, products, and services for their business and their team. all while providing an enhanced customer experience. Shane will soon share further details regarding our quarterly performance. However, I would like to provide a brief overview of the fiscal year. Full-year revenues reached $2.432 billion, representing an increase of 2.1% compared to fiscal 24 after adjusting for last year's additional week of operations. While this level of top-line growth does not yet reflect our long-term ambitions, we are confident that we are establishing a strong foundation for elevated performance in the years to come. From the adjusted EBITDA perspective, our performance reflects solid progress in operational execution and gross margin enhancement. In fiscal 25, both the sales and service organizations saw improvements in key performance metrics. We installed more new business than we did in fiscal 24, even though fiscal 24 included an additional week of operations and the installation of a top three account. Although fiscal 25 started slowly, the year concluded with its highest quarter of new account installations, providing momentum into fiscal 26. We also saw notable improvements in retention in fiscal 25 after two years of elevated lost business. We remain confident in our ability to drive continued improvement in customer retention as key leading indicators such as NPS scores and customers under contract continue to trend positively. Recent enhancements to our growth strategy are delivering progress, though the pace of improvement has been moderated by a softer employment environment impacting parts of our customer base. As noted over the past few quarters, reductions in wearer numbers have become more pronounced and continue to affect overall growth rates. Nonetheless, fluctuations in employment cycles are a familiar challenge to our company, and we remain committed to concentrating on factors within our control to drive improved performance. During fiscal 25, we made some important organizational changes that generated positive momentum in our overall execution during the year, and more importantly, positions us well going forward for greater improvements in overall performance. Earlier this year, excuse me, the organization welcomed Chief Operating Officer Kelly Rooney, a strategic addition to our leadership team. Kelly has unified our operational approach and accelerated the company's transition toward a process-oriented and results-driven operating model. She introduced the UniFirst Way, a growing collection of service-focused procedures designed to enhance the customer experience and promote operational excellence. The positive impact of her contributions is already evident as we anticipate further advancements in retention, customer growth, efficiency, and overall performance as these initiatives progress. Equally important, Kelly has successfully preserved and strengthened the core aspects of Uniferous culture, which remain a competitive advantage and essential to our long-term success. Her extensive operational expertise combined with her commitment to empowering employees align seamlessly with our dedication to always deliver for both our customers and our team partners. Aligning operations under Kelly has enabled a change in ownership and structure of our sales organization as well. Direct oversight over local sales resources is now moving from our operations team to the sales organization led by our Executive Vice President of Sales and Marketing, David Kass. This adjustment is intended to clarify responsibility for performance within both sales and operations with ongoing collaboration between both functions. The sales team will continue advancing toward a tiered selling model to align each sales representative's skills and experience with the most appropriate prospects. This model has already delivered measurable improvements in sales effectiveness and conversion rates. Building on this momentum, further investment, including strategic headcount growth, is planned for fiscal 26, positioning the organization for stronger customer acquisition and overall revenue growth in the future. In addition to sales, we are making other investments impacting fiscal 26 to ensure we can support our primary near-term goal of accelerating organic growth. For example, during the second half of fiscal 25, We invested in strengthening our service teams, expanding both capacity and stability. These enhancements position us to drive improved performance across all key aspects of our growth model, expansion of products and services for existing customers, customer retention, and strategic pricing approaches. We will accomplish this through key initiatives targeting each of these areas of opportunity. Together, these initiatives are designed to continue improving our promise to provide a differentiated level of service and business partnering with our customers to ensure we provide all the value we can to their businesses. We further expect to enhance overall operating performance and create a stronger foundation for continued growth in the years ahead. Near-term profitability will also be impacted by the ongoing investments in costs related to complete the remaining phases of our technological transformation. Over the next couple years, we expect these investments will reach their peak as we complete the implementation of our ERP system and other related initiatives. These efforts are essential to building a more efficient, data-driven foundation that will enhance performance and scalability over the long term. Looking ahead, we also expect the influence of tariffs will impact our short- to medium-term profitability. Through the end of fiscal 25, newly imposed tariffs have not had a significant impact on our results, primarily because goods procured at higher costs require time to move through our supply chain and then usually amortized over an estimated useful life. We believe we are better positioned to navigate the evolving trade situation with our efforts over the last several years to improve the diversification within our supply chain. However, the situation remains dynamic with continued developments. Depending on how the situations evolve, the impact of tariffs on fiscal 26 could escalate from our current estimates. We continue to take patient and prudent steps to minimize the impact of any cost increases through leveraging the most advantageous sources for our products, as well as by working with our customers where appropriate to share the cost increases we're seeing. As we move through fiscal 26, we will continue to provide updates on the impact that these factors are having on our results. Beyond the near-term impact of the items I discussed, we remain highly optimistic about our ability to drive meaningful improvements in overall profitability. As we look ahead, several key areas have been identified that are expected to strengthen margins and enhance returns in the coming years. Notable examples include robust incremental profitability resulted from accelerated growth, particularly through improved customer retention and increased adoption of products and services by existing customers, which delivers higher returns compared to new account installations. focused operational leadership committed to promoting execution, consistency, and continuous improvement in line with the universe way, optimized procurement, inventory management, and sourcing facilitated by our Oracle ERP platform, strategic rationalization of resources and infrastructure that was built to support our multi-year digital transformation, and advancing our commitment to safety and operational efficiency through the ongoing implementation of our telematics program which will soon cover our entire vehicle fleet. This initiative features both inward and outward-facing cameras in every vehicle, representing a strategic investment that delivers multiple long-term benefits. Most importantly, it enhances the safety of our team partners, while also contributing to improved profitability by reducing claims and insurance costs and boosting fuel efficiency. This is also a good example of where we are incurring costs today which will provide measurable returns for the organization in the years ahead. To summarize, we are laser-focused on our goal of driving organic growth to mid-single digits and driving meaningful EBITDA margin improvements into the high teens. We are confident over the next couple of years we can make steady progress, particularly toward those top-line goals. While fiscal 26 is expected to reflect a temporary step back in profitability, we are resolute in our belief that investments and growth are essential to achieve our longer-term objectives and unlock a new set of opportunities in the years to come. We also believe that working through the current sourcing and cost environment will require time, patience, and thoughtful execution to ensure we are taking care of both our customers and our shareholders as we work through these changes. Although most of my comments thus far have focused on our largest segment, uniform and facility service solutions, We also continue to be excited about our first aid and safety solution segment, which offers significant potential for sustained growth and enhanced profitability. Adjusted for the additional week in the previous year, we achieved close to 10% growth in fiscal 25 and anticipate double-digit expansion again in fiscal 26. Investments in sales and service infrastructure, along with the completion of several small acquisitions, continue to strengthen our market presence enabling us to better serve both existing universe customers and prospective customers seeking these solutions. Our first aid and safety products and services play an integral role in addressing customer challenges through comprehensive integrated services. By improving route density and increasing customer adoption of our full range of services, we expect continued improvement in this segment's profitability. Notably, we saw incremental advancement in first aid's adjusted EBITDA during fiscal 25, and while further growth investments will mute significant profitability improvements in fiscal 26, we do expect the inflection point to sustain higher profits are within reach. Our balance sheet and overall financial position remain robust, supported by a strong year of operating cash flow. We intend to continue deploying cash flows and making strategic investments that enhance our company's strength and increase shareholder value. We continue to identify several promising opportunities for investment, including infrastructure enhancements and automation initiatives to promote growth, efficiency, and profitability, strategic acquisitions aiming at expanding scale and improving efficiency, and increased activity in our share buyback program, reflecting our confidence that investing in Uniferous stock will deliver significant long-term returns as we execute on our strategy focus on accelerated growth and sustainable profitability. In conclusion, we are confident in the company's strategic direction to deliver enhanced performance in fiscal 26 and beyond. Our initiatives are designed to accelerate growth, strengthen profitability, and deliver a differentiated experience for our customers. By embracing our Always Deliver philosophy, We remain committed to creating value for all stakeholders, including our employees, customers, the communities we serve, and our shareholders. With that, I'll turn the call over to Shane, who will provide more details on our outlook, as well as our fourth quarter results.

Thanks, Steve. Consolidated revenues in our fourth quarter of 2025 were $614.4 million, compared to $639.9 million a year ago. The fourth quarter of 2025 had one less week of operations compared to the prior year due to the timing of our fiscal calendar. Excluding the extra week in fiscal 2024, revenue growth in the fourth quarter of fiscal 2025 was approximately 3.4%. Consolidated operating income for the quarter was $49.6 million compared to $54 million in the prior year. and net income for the quarter decreased to $41 million or $2.23 per diluted share from $44.6 million or $2.39 per diluted share. Consolidated adjusted EBITDA for the quarter was $88.1 million compared to $95 million in the prior year. Our fourth quarter results Our financial results in the fourth quarters of fiscal 2025 and fiscal 2024 included $1.4 million and $1.8 million, respectively, of costs directly attributable to our key initiatives. The effect of these items on the fourth quarter of fiscal 2025 and 2024 decreased operating income and adjusted EBITDA by $1.4 million and $1.8 million, respectively. net income by $1.1 million and $1.3 million, respectively, and diluted EPS by $0.05 and $0.07, respectively. As announced in last week's press release, starting in the fourth quarter of 2025, we are reporting our results under three segments entitled Uniform and Facility Service Solutions, First Aid and Safety Solutions, and Others. Our primary segment, uniform and facility service solutions, now includes our cleanroom operations along with our industrial operating locations due to it having a similar business model as well as having shared customers, resources, and technologies. This new structure aligns with our management approach and resource allocation. This change will also allow investors more visibility to our nuclear services division which is now broken out in the other segment and experiences more volatility on an annual and quarterly basis. For further details on this change and our segment methodology, please see the form 8K filed with the SEC on October 17th, 2025. Uniform and facility service solutions revenues for the quarter were $560.1 million. a decrease of 4.4% from the fourth quarter of 2024. Organic growth, which excludes acquisition-related revenues, the impact of any fluctuations in the Canadian dollar, and the impact of the extra week was approximately 2.9%. Uniform and facility service solutions organic growth rate benefited from solid new account sales and improved customer retention. In addition, We discussed last quarter that our growth was impacted by the timing of direct sales, which trended lower in the third quarter compared to the same period in fiscal 2024. As expected, the timing of those direct sales contributed to our fourth quarter growth, as did a large customer buyout. Uniform and facility service solutions operating margin decreased 8.3% for the quarter from 8.7% in prior year. and the segment's adjusted EBITDA margin decreased to 14.8 percent from 15.3 percent. The costs we incurred related to our key initiatives were recorded to the Uniform and Facility Service Solutions segment, which decreased its operating and adjusted EBITDA margins for the fourth quarters of fiscal 2025 and 2024 by 0.2 percent and 0.3 percent, respectively. The segments operating in adjusted EBITDA margins in the fourth quarter of fiscal 2025 were down from the fourth quarter of fiscal 2024, which benefited from the extra week of operations. Furthermore, the quarterly results reflect some of the additional investments that Steve discussed that are intended to accelerate growth, improve customer retention through operational excellence, and support our digital transformation. Energy costs for the quarter were 4% of revenues, down from 4.1% a year ago. Our first aid and safety segment's revenues in the fourth quarter of 2025 increased to $31.1 million, with organic growth of 12.4%, driven by the segment's van business. Operating income and adjusted EBITDA during the quarter was $0.5 million and $1.5 million, respectively, as the results continue to reflect the investments we are making in the business. Revenues from our other segment, which consists of our nuclear services business, were $23.3 million, a decrease of 5.3% from the fourth quarter of 2024, due to lower activity out of the North American nuclear operations. 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 profitability of nuclear reactor outages and projects. At the end of our fiscal year, we continued to reflect the solid balance sheet and financial position with no long-term debt and cash, cash equivalents, and short-term investments totaling $209.2 million. In 2025, we generated solid cash flows from operating activities totaling $296.9 million. Capital expenditures totaled $154.3 million as we continue to invest in our future with new facility additions, expansions, updates, and systems. During the year, we capitalized $26.4 million related to our ongoing ERP. which consisted primarily of third-party consulting costs and capitalized internal labor costs. During fiscal 2025, we also purchased approximately 402,000 shares of common stock worth $70.9 million. At this time, we expect our full year revenues for fiscal 2026 will be between $2.475 billion and $2.495 and fully diluted earnings per share will be between $6.58 and $6.98. This guidance includes $7 million in costs that we expect to incur directly attributable to our key initiatives, which at this point relate primarily to our ERP project. Our guidance further assumes at the midpoint of the range that net income is $124.1 million, Consolidated operating income and adjusted EBITDA are $158.8 million and $319.7 million, respectively. Uniform and facility service solutions organic revenue growth is 2.6%. Uniform and facility service solutions operating and adjusted EBITDA margins are 6.6% and 13.3%, respectively. Energy costs will be 4% of revenues in fiscal 2026 in line with 2025. And fiscal 2026's effective tax rate is expected to be 26%, an increase from 2025 primarily due to lower expected tax credits benefiting the upcoming year. As Steve discussed, additional investments we are making in our uniform and facility service solutions segment to accelerate growth, improve customer retention, and support our digital transformation are contributing to a margin headwind in 2026. In addition, our operating results also reflect our current expectations of the impact of tariffs. Share-based compensation increased in fiscal 2025, and a larger increase is anticipated in fiscal 2026. These increases are primarily due to a change the company made last year in our share-based grants vesting line. As a result of the change over the next couple of years, share-based compensation expense will be elevated prior to returning to a more normalized level. As a reminder, increases in stock-based compensation impact operating income but are excluded from adjusted EBITDA. Our first aid and safety segments revenues are expected to be up approximately 10% compared to 2025. as the ongoing investments in our van business are expected to drive continued double-digit growth. Segment's profitability is expected to once again be nominally positive, as the results continue to reflect the investments we are making in the business. The other segment's revenues are forecast to be down from 2025 by 16.3%. This assumes that our nuclear service business will take a step back in fiscal 2026, primarily due to the expected wind down of a large reactor refurbishment project during the year, as well as a cyclically lower number of reactor outages in 2026. Topline headwind will have a more meaningful impact on the profitability of the segment due to the high fixed cost nature of the nuclear services business. Although 2026 is expected to be a down year, we feel we are well positioned to capitalize on this segment's unique capabilities as future projects become available, as well as with the recent resurgence in nuclear investments in the market. We expect that our capital expenditures in 2026 will again approximate $150 million, which remains elevated as a percentage of revenue primarily due to higher application development investments we are making, most significantly related to the ERP implementation. For an update on our ERP initiative, our project continues to progress largely in line with our intended schedule that has the implementation continuing through 2027. As of August 30th, 2025, we had capitalized $45.3 million related to this initiative. Midway through fiscal 2026, we expect to go live with our current release, which is focused on moving our general ledger and finance capabilities into the new Oracle Cloud solution. Upon deployment of the system, we will start to amortize the amount capitalized. As a result, the outlook includes an additional $4 million in fiscal 2026 related to the amortization of the system. Our guidance assumes our current level of outstanding common shares and no unexpected changes generally affecting the economy. This concludes our prepared remarks, and we would now be happy to answer any questions that you might have.