Q1 2022 UniFirst Corp Earnings Call
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Greetings and welcome to the unit first Corporation first quarter earnings call, let's start with the presentation all lines will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.
At any time during the conference you need to reach an operator, Please press star zero.
I would now like to turn the conference over to Steven <unk>, President and Chief Executive Officer. Please go ahead Sir.
Thank you and good morning, I'm, Steven Central's Universe, President and Chief Executive Officer, joining me today is Shane Oconnor Executive Vice President and Chief Financial Officer, I would like to welcome you to unit first Corporation's conference call to review, our first quarter results for fiscal year 2022.
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 events 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.
Overall, we are pleased with our results for the first quarter of fiscal 2022.
Our team continues to focus on providing industry, leading services to our customers as well as selling prospective customers on the value that universe can bring to their businesses.
Want to thank our thousands of team partners, who in the face of a challenging operating environment continue to deliver every day for each other and our customers.
The results for our first quarter were largely as we anticipated with consolidated revenues growing eight 8% and an overall adjusted operating margin for our core laundry operations of approximately 10%.
The team continues to execute execute well producing solid performances in both new account sales as well as customer retention during the quarter.
In addition, wearer additions versus reductions during the quarter were positive, indicating the continued growth and recovery of our customer base.
This is a favorable comparison to a year ago, when many customer where levels remain depressed due to the impact of the pandemic.
The strong year over year growth in the quarter was also impacted by adjustments to customer pricing as we continue to work with our customers through this inflationary environment.
As a reminder, from a profitability perspective, we discussed during our year end earnings call that going forward over the next few years, we're going to be reporting adjusted results, which exclude the impact of cost that we are expanding on three discrete strategic initiatives that are critical in our efforts to transform the company in terms of our overall capabilities and competitive.
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As a reminder, these three initiatives are the rollout of our new CRM system investments and the unit first brand and a corporate wide ERP system with a strong focus on supply chain and procurement automation and technology.
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 our technologies.
All of the investments designed to deliver solid long term returns for unit first stakeholders and are integral components of our primary long term objective to be universally recognized as the best service provider in our industry.
After excluding our costs in our quarter related to these investments our adjusted operating margin is showing an anticipated decline compared to a year ago.
The comparison of adjusted margin is being impacted by increases in cost we've been highlighting for a couple of quarters now.
Some are simply bouncing back from depressed levels during the pandemic and others are being impacted by the inflationary environment and some are being impacted by both.
As a reminder, these costs include merchandise amortization costs related to raw materials, and the overall supply chain disruption cost to hire and retain labor energy and travel.
Our solid balance sheet positions us well to meet these ongoing challenges, while continuing to make investments in growth and strengthen our business.
Along those lines during December we closed on two small acquisitions, which will improve our footprint in key markets.
As we've highlighted before acquisitions continue to be part of our overall growth strategy.
Despite the challenges in the overall operating environment, we continue to be confident in our ability to manage and execute through these obstacles.
We maintain a sharp focus on taking care of our employees, our customers and bringing new customers into the unit first family.
As we've discussed previously the pandemic has clearly highlighted the essential nature of our products and services and we feel the company is positioned well to support the evolving economic landscape.
And with that I'd like to call turn the call over to Shane who will provide the details of our results for the first quarter and our outlook for the remainder of the year.
Thanks, Steve.
And our first quarter of 2022 consolidated revenues were $486 2 million up.
Up eight 8% from $446 9 million a year ago, and consolidated operating income decreased to $44 8 million from $56 million or 21%.
Net income for the quarter decreased to $33 $7 million or $1 77 per diluted share from $41 9 million or $2 20 per diluted share.
Our financial results in the first quarter of fiscal 2022 included $5 $9 million of costs directly attributable to the three key initiatives that Steve discussed.
Excluding these initiative costs adjusted operating income was $50 7 million adjusted net income was $38 $1 million and adjusted diluted earnings per share was $2.
Although our financial results in the prior year May have included direct costs related to these key initiatives, which in our first quarter of 2021.
Primarily been for our CRM initiative the company did not specifically track the amount that we're being expense.
This is because of the amount was less significant in value and a large number of the costs were still being capitalized as a result, we will not be providing adjusted amounts for the prior year comparable period.
Our core laundry operations revenues for the quarter were $428 $8 million of nine 1% from the first quarter of 2021.
Core laundry organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar was eight 6%.
This strong organic growth rate was primarily the result of customer re openings solid sales performance and improved customer retention in fiscal 2021, as well as efforts to share with our customers. The cost increases that we're seeing in our business due to the current inflationary environment.
Core laundry operating margin decreased to eight 5% for the quarter or $36 5 million from 12, 4% in the prior year or $48 9 million cost we incurred during the quarter related to our key initiatives were recorded to our core laundry operations segment and excluding these call.
The segment's adjusted operating margin was nine 9%.
The decrease from prior year's operating margin was primarily due to higher merchandise amortization, which continues to normalize from depressed levels during the pandemic as well as the effect of large national account installations, which are providing additional merchandise amortization headwinds.
Also inflationary pressures and the overall supply chain disruptions continue to impact our other merchandise costs.
During the quarter. The adjusted operating margin was also impacted by higher travel and energy cost as a percentage of revenues as well as wage inflation, we are experiencing responding to the very challenging employment environment.
Energy cost increased to four 3% of revenues in the first quarter of 2022 up from three 6% in prior year.
Revenues from our specialty garments segment, which delivers specialized nuclear decontamination and clean room Prada.
Products and services increased to $39 5 million from $38 1 million in prior year or three 5%.
This increase was primarily due to growth in our clean room and European nuclear operations the.
The segment's operating margin increased to 21, 9% from 18, 8%.
Primarily due to lower merchandise costs as a percentage of revenues as we've mentioned in the past. This segment's results can vary significantly from period to period due to seasonality and the timing of nuclear reactor outages and projects that require our specialized services.
Our first aid segment's revenues increased to $17 8 million from $15 5 million in prior year or 14, 8%.
This increase was due to improved top line performance in both our wholesale distribution as well as our first day band business.
However, the segment had an operating loss of zero point $3 million during the quarter.
Primarily due to continued investment in the company's initiative to expand its first aid van business into new geographies.
We continue to maintain a solid balance sheet and financial position with no long term debt and cash cash equivalents and short term investments totaling $478 1 million at the end of our first quarter of fiscal 2022.
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During the quarter, our net cash provided by operating activities was impacted by a reduced profitability as well as heavier than normal working capital needs of the business.
Contributing to these higher working capital needs were elevated supply inventory balances related to the ongoing supply chain disruption as well as increases to rental merchandise and service as our balance sheet position continues to normalize coming out of the pandemic impacted period.
Capital expenditures for the quarter totaled $31 $1 million as we continued to invest in our future with new facility additions expansions updates and automation systems that will help us meet our long term strategic objectives.
Now that our CRM project has transitioned from a development phase to deployment. The majority of the costs are now being expensed as a result, the capitalization of costs related to our CRM project in the quarter totaled only $1 7 million.
During the first quarter of fiscal 2022, we repurchased 22750 common shares for a total of $4 8 million under our previously announced stock repurchase program.
I'd like to take this opportunity to provide an update on our outlook.
At this time, we now expect our full year revenues for fiscal 2022 will be between $1 94 billion and $1 $95 5 billion.
This revised top line guidance includes the anticipated impact of the two small acquisitions, we closed in December that Steve discussed.
These acquisitions are expected to add approximately $10 million to our fiscal 2022 revenues.
We further expect that our diluted earnings per share for fiscal 2022, we will now be between $5 50 and $5 80.
This earnings per share guidance assumes an effective tax rate of 24% and continues to include an estimate of $38 million worth of cost directly attributable to our key initiatives that will be expense during the year.
Please also note the following assumptions regarding our guidance.
Core laundry operations adjusted operating margin at the midpoint of the range is now nine 2%, which reflects continued pressure from costs have trended lower during the pandemic and the current inflationary environment.
Our assumed adjusted attacks are assumed adjusted tax rate for fiscal 2022 is $24 two 5%.
Adjusted diluted earnings per share is expected to be between $7 $7 30.
Guidance does not include the impact of any future share buybacks or potential tax reform and guidance assumes a stable economic environment with no pandemic related headwinds, including potential expenses related to government COVID-19 mandates.
This concludes our prepared remarks, and we would now be happy to answer any questions that you might have.
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When will it please for the first question.
Our first question comes from the line of Andrew <unk> with Jpmorgan. Please go ahead.
Hi, Stephen Shane So I heard your positive comments about.
Add stops in the quarter I wanted you to talk a little bit more about December and into January and if you think there'll be any effect question of <unk> key is around omnicom.
Yes, it's a good question Andrew I do think it will have some disruption I mean really.
The situation is changing very rapidly over the last week and a half obviously, we've seen even in our employee base a lot more impact.
So I do think.
That could cause some pause in some of the momentum in terms of.
Hiring bye bye bye our customers. So it's a little early to say I wouldn't say, we've seen much impact of it in December as really the acceleration of the omni Kron is really really hit over the last almost 10 days.
Okay. Thank you very much.
Thank you.
Our next question comes from the line of Tim Mulrooney with William Blair. Please go ahead.
Steve Good morning.
Morning.
Couple of questions for you so first on the numbers.
Shane on the EPS Guide I, just want to make sure I've got everything right. So it looks like you lowered GAAP EPS guide by a quarter.
And I haven't had enough time to work through everything but it looks like your adjustment figure of $38 million didn't change. So does that mean in effect that you've also lowered your adjusted EPS guide by 'twenty five.
That's correct.
The adjustment to the GAAP EPS would flow down to the non-GAAP as well I know, we didn't provide that non-GAAP range at the end of or coming into the year, but we thought it made sense to do that going forward as well just for clarity purposes.
But that would have also been felt through the non-GAAP.
Okay. Yeah, no. That's helpful. So could you didn't talk about the primary factors leading to that decrease in guide because.
Frankly organic revenue growth.
Good.
And you're only lowered your core laundry margin.
Slightly for the year are the small acquisitions slightly.
Dilutive this year, what else might account for that decrease.
Yes, I think it's a variety of factors I think broadly.
It continues to be in the same categories of cost that we've been referencing.
Obviously, we continue to work with our customers on inflation and do what we can from a pricing perspective, but when you look at.
Whether it's labor costs, whether it's the cost of outside products and merchandise and raw materials Theres just been a number of things that continue to be challenging that as we forecast out we see it as being incremental incremental headwind headwinds to our original forecast you mentioned the acquisitions, that's probably a little.
Bit of it as well.
Usually in the first six to nine months youre not going to get a tremendous pull as you integrate those acquisitions and there is some purchase price accounting and so on.
So thats part of it but it really I think broadly the message, we'd probably give is that incrementally from a few months ago. Some of those cost challenges are a little bit tougher.
Yes, yes makes sense. Thank you and maybe lastly, just on those acquisitions.
Steve I know they were small, but I was kind of hoping you could talk a little bit more about them because it can help provide.
Some insight for investors and how youre thinking about positioning the company I mean can you talk about maybe either how big each of these companies were what general regions. They were in or what kind of returns do you expect to see just just for these types of bolt ons any color is always helpful.
Sure so from a sizing perspective.
There are acquisitions that.
The little bit larger one was doing about $10 million to $11 million a year. The smaller one was doing say $6 million a year or something like that one was in the.
Cleveland, Ohio area.
No high yield the other one was in Los Angeles. So both are in markets that we're already in.
In the Ohio area, it's one where as we expand our service area South out of Cleveland, you start to get into an area that we had a little less density and so this acquisition sort of gave us.
Logical expansion opportunities sort of south of where we were in Cleveland.
And added some density down in that area and then in the La market I would say that L. A is obviously, a large and growing market for us we put a new plant second plant in La <unk> a few years ago. So this will continue to add to that to that density in.
And presence.
And like I said I mean, we've always said with these acquisitions.
They take time, we want to make sure we keep the customers we want to make sure. We keep the employees so really for the first year or so.
They don't produce tremendous returns but.
Over time, we expect them to be.
<unk> average in terms of sort of EBITDA levels incrementally and.
That's sort of how we look at it and obviously, we have a strong balance sheet.
And I wouldn't say these acquisitions are cheap by any means but over time, we feel good about the return, particularly compared to the cash sitting around so I think I think that hopefully that gives you an idea of how we're looking at them.
Yes very helpful. Thanks, so much guys.
Thank you.
Once again to queue up for a question. Please press one four on your telephone Keypad next question comes from the line of Andrew Wittmann.
With Baird. Please go ahead.
Hi, Thanks, Good morning, guys I guess I just wanted to say hold on Andrew I just wanted to build on Andrew's question, a little bit with the <unk>. Like you said you expect it's going to have probably some sort of negative effect. So.
Would your revenue guidance have been higher if not for a crime is that factored in to the no change.
You beat the consensus it looks like the organic growth rate was pretty attractive.
And so I guess, that's the Genesis of the question.
There have been a guidance range if not for this new development here in the last couple of weeks.
Yes.
Wouldn't say that it would have Andrew.
Yeah.
When looking at kind of how the year plays out we really werent factoring in I think Shane mentioned that we really werent factoring in our guidance any further.
Headwind, it's difficult because obviously.
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Covid is still with us and the environment and provides day to day challenges, but no we were not sort of projecting a pullback of activity.
From omni chron.
I think when you look at the trajectory of our organic growth I think the first quarter as we look through the year, we'll be we'll always be sort of the best comparison quarter I shouldn't say always but for this year. It will be the best comparison quarter to the prior year because things started to recover through the course of 2000 and.
In 'twenty, one and so I think that's one of the reasons why the.
The organic growth was so strong in the first quarters as well as some of the price adjustments in.
I think that omnicom really didn't impact the way, we prepared our guidance Shane I don't know if you want to add anything to that now the only thing I would say is as Steve had mentioned earlier.
Significantly elevated case counts that were seeing has been only over the last couple of weeks and at this point in time, we haven't seen impact on our financial results I think more what Steve was talking about was the uncertainty as to how our customers as well as governments and municipalities react to.
These elevated case counts.
But no like I had mentioned in my comments that one of the reasons why we included it was it assumes a stable environment with no pandemic related headwinds. So we did not adjust our guidance to take into account future potential headwinds from these elevated counts.
Okay.
Helpful answer and then Shane.
Past.
Florida, So it's a little bit of detail on the margin impact from some of these other things you gave the energy year over year impact, but labor travel and merchandise for I guess the three other things that you called out specifically are you able to tell us what those impacts were specifically on a year over year basis as well.
Yes, I can I can give you some context there.
The largest items were the energy and our merchandise costs merchandise being heavily influenced by the amortization.
My merchandise costs were elevated over last year by about 70 basis points 70 to 80 basis points.
Again, and that's that's the factors that we discussed the normalizing of our balance sheet as well as some of the supply chain disruption impacting those costs.
Travel, we mentioned coming into the year that we were expecting that to be a headwind as well.
Our travel starts to come back not with the expectation that it will come back to where it was pre pandemic, but we were expecting to be doing some additional travel and that provided about 30 basis points of headwind.
And then and then labor.
Again, when you take a look at labor.
I guess the wage inflation that we discussed were seeing that in all of our different.
Different roles.
Maybe we're not seeing it as a percentage of revenue because of our strong revenue growth I guess the area that we're seeing it the most elevated is within our production group.
And as a percentage of revenue.
The headwind that we're seeing there is probably 50 to 60 basis points in and of itself again, maybe the reason that we're not necessarily seeing more operating leverage in those other payroll areas with our strong revenue growth is because again, it's challenging across all of the different roles.
But as a percentage of revenue the headwinds that we're seeing is primarily in those lower wage.
Rolls and affecting our production later, thank you for that contract last quarter I think Steve you said that the labor environment. I mean, this is obviously not new this quarter or even last quarter I think last quarter. You said that you felt like maybe it was stabilizing some.
Improves I think over the prior quarter.
Is that what is the trend on that labor line as it stands here today.
Yes, it's a challenging challenging question, Andrew I think we have some ups and downs market to market I think wage adjustments that we made are helping and I think providing a little bit more stability, but in general turnover is higher than historical just because I think it is it is a challenge out there even.
Two.
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Keep keep the force is stable for a lot of different reasons.
So I would say that we're probably a little bit better staff today than we were we are better staffed today than we were three four months ago, but if you asked any of our operators. They would say, it's still very challenging compared to sort of a historical environment.
Great. Thank you for your answers have a great day. Thanks. Thank you. Thank you.
We have no further questions on the phone lines.
Okay I'd like to thank everyone for joining us to review our first quarter results. We look forward to speaking with you again in March when we expect to be reporting our second quarter performance as well as our outlook for the remainder of fiscal 2022 happy new year and have a great day.
That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.
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