Q1 2023 UniFirst Corp Earnings Call

January 4, 2023

Speaker 1: and welcome to the first quarter earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0.

Speaker 2: I would now like to turn the conference over to Steven Centrose, UNIFIR's President and Chief Executive Officer. Please go ahead. Thank you and good morning. I'm Steven Centrose, UNIFIR'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 UNIFIR's Corporations Conference Call to review our first quarter results for Fiscal Year 2023. 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.

Speaker 3: These forward-looking statements are subject to certain risks and uncertainties.

Speaker 4: The words anticipate, optimistic, believe, estimate, expect, intend, and similar expressions that indicate future events and trends identify forward-looking statements.

Speaker 5: 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.

Speaker 6: Overall, our results for the first quarter came in largely as anticipated and I continue to be pleased with the steady progress of our key technology and infrastructure initiatives.

Speaker 7: We continue to be focused on making long-term investments in our business, designed to accelerate growth and profitability, as well as ensure we are providing industry-leading services for years to come. I want to thank our thousands of dedicated team partners that continue to always deliver for each other and our customers.

Speaker 8: Consolidated revenues in the first quarter grew 11.4% and adjusted earnings per share grew 10.5%.

Speaker 9: Shane will provide the details of our first quarter results shortly, as well as comment on our outlook for the full fiscal year, which remains unchanged from our year-end earnings call.

Speaker 10: We are pleased with the execution of our team which continue to deliver solid performances in both new account sales as well as customer retention.

Speaker 11: Continuing the trend from prior quarters, the strong revenue growth in the quarter also reflects the impact of price adjustments from throughout 2022, as we have worked with our customers to share in cost increases we have experienced related to the inflationary environment.

Speaker 12: As we have discussed in prior calls, we will continue to be focused on three large initiatives designed to transform the company in terms of our overall capabilities and competitive positioning.

Speaker 13: These initiatives are the roll out of our CRM system, a corporate wide ERP system, and investments in the universe brand.

Speaker 14: With respect to our CRM systems project, we are making good progress deploying our new system in line with our internal schedule. As we communicated during the last earnings call, we have deployed over 50% of our U.S. core laundry locations, and we expect the remaining U.S. locations to be deployed by the end of fiscal 2023.

Speaker 15: The deployment of our smaller Canadian and clean room operations will carry over into fiscal 2024.

Speaker 16: During fiscal 2023, we will also be focused on the global design phase of our ERP project.

Speaker 17: The implementation of our new Oracle Cloud ERP system will be a multi-year initiative designed to transform our supply chain and procurement capabilities as well as provide an overall technology foundation for growth and efficiency.

Speaker 18: And finally, as we also discussed on prior earnings calls, during Fiscal 22 we officially launched our new brand through a series of national TV ads.

Speaker 19: Our message focuses on serving people who always deliver for their companies, their customers, and their families.

Speaker 20: At Unifirst, our ongoing focus will be to always deliver for them.

Speaker 21: Although some costs related to this brand transformation will be expended in fiscal 2023, the larger one-time expenditures are mostly behind us.

Speaker 22: All of our investments are designed to deliver solid long-term returns for Unifor stakeholders and are integral components of our primary long-term objective to be universally recognized as the best service provider in our industry.

Speaker 23: We continue to report results adjusted for the impact of direct costs related to these investments.

Speaker 24: As we continue through fiscal 2023, we will be watching the dynamic market conditions closely.

Speaker 25: During the quarter, we did not see a significant change to the operating environment and where levels at our customers have been stable.

Speaker 26: When and what impact higher interest rates will have on our customer base and the overall market remain to be seen.

Speaker 27: Over the years, our business has proved resilient in many different economic cycles, and regardless of what the next cycle brings, we are confident in our ability to execute against our plan.

Speaker 28: We will continue to manage costs in areas we can control while assuring we don't impact our ability to execute on our transformational initiatives or adversely affect our customer service levels.

Speaker 29: And as always, we'll maintain a sharp focus on taking care of our employees, our customers, and bringing new customers into the Uniforist family.

Speaker 30: And with that, I'd like to turn the call over to Shane who will provide more details on our first quarter results.

Speaker 31: Thank you.

Speaker 32: In our first quarter of 2023, consolidated revenues were $541.8 million, of 11.4% from $486.2 million a year ago. And consolidated operating income decreased to $43.4 million from $44.8 million.

or 3.1%.

Net income for the quarter increased to $34 million, or $1.81 per diluted share.

for 33.7 million dollars or a dollar seventy-seven per diluted share.

Our financial results in the 1st quarters of fiscal 2023 and 2022 included approximately 10Million dollars and 5.9Million dollars respectively of cost directly attributable to the 3 key initiatives that Steve discussed.

Excluding these initiative costs, adjusted operating income increased to $53.5 million compared to $50.7 million in prior year, or 5.4%.

Adjusted net income increased to $41.5 million from $38.1 million. And adjusted diluted earnings per share increased to $2.21 from $2, or 10.5%.

Our core laundry operations revenues for the quarter were 477.4M dollars. Up 11.3% from the 1st quarter of 2022.

Core Laundry Organic Growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar, was 10.7%.

This strong organic growth rate was primarily the result of solid sales performance and customer retention, as well as efforts over the last year to share with our customers cost increases that we have incurred in our business due to the ongoing inflationary environment.

Core laundry operating margin decreased to 7.1% for the quarter, or $33.8 million from 8.5% in prior year, or $36.5 million.

The cost we incurred related to our key initiatives were recorded to the core laundry operations segment and excluding these costs, the segment's adjusted operating margin decreased to 9.2% from 9.9% in prior year.

The largest item impacting our adjusted operating margin compared to prior year continues to be merchandise amortization, resulting from the inflationary effect on the cost of our products as well as higher levels of merchandise put in service with our customers. In 2022.

to support solid new account sales, increased activity in our energy dependent markets, elevated wearer additions at our customers, as well as certain national account investments.

Energy costs also increased to 4.7% of revenues in the 1st quarter of 2023, up from 4.3% in 2022.

Partially offsetting these headwinds with lower healthcare claims expense in the corridor compared to prior year.

Revenues from our specialty garment segment, which delivers specialized nuclear decontamination and clean room products and services, increased to $44.1 million from $39.5 million in prior year, or 11.6%.

This increase was primarily due to strong growth in our clean room operations as well as increased project work in our North American nuclear operations.

The segment's operating margin increased to 23.1 percent from 21.9 percent, primarily the result of its strong top-line performance.

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 $20.3 million from $17.8 million in prior year, or 13.9%. However, the segment had an operating loss of $0.6 million during the quarter.

These results reflect our continued investment in expanding our first aid van business and building out the infrastructure necessary to eventually support a much larger business.

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 351.2M dollars at the end of our first quarter of fiscal 2023.

We did not repurchase any additional common stock under our current stock repurchase program during the quarter.

Cash provided by operating activities for the quarter increased to $27.7 million compared to $7.8 million in prior year, primarily due to lower working capital needs of the business.

We continue to invest in our future with capital expenditures in the quarter totaling 39M dollars and the acquisition of 2 businesses for which we paid 6.6M dollars.

I'd like to take this opportunity to provide an update on our outlook. At this time, we continue to expect our full year revenues for fiscal 2023 will be between $2.145 billion and $2.160 billion.

We further continue to expect diluted earnings per share will be between $5.50 and $5.90.

This outlook also continues to assume an estimate of 40M dollars of costs directly attributable to our key initiatives that will be expensed in fiscal 2023.

Core laundry operations adjusted operating margin at the midpoint of the range of 8.1%. A gap and adjusted tax rate of 25%. Adjusted diluted earnings per share between $7.10 and $7.50.

as well as no impact from any future share buybacks or unexpected significantly adverse economic developments.

This concludes our prepared remarks, and we would now be happy to answer any questions that you might have.

Operator, we can open the line for questions.

Thank you. Ladies and gentlemen on the phone lines, if you wish to ask for a question please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt technology request. If your question has been answered and you would like to withdraw your registration please press the 1 followed by the 3. Once again ladies and gentlemen that is 1-4 to ask a question.

Our first phone question is from the line of Andy Whitman with Baird. Baird, please go ahead, your line is open.

Great. Good morning guys. I just thought I would start with a question on your outlook. Now the organic growth in the course segment was 10.7%. Good. I'd say pretty good result there. But the implied revenue guidance for the rest of the year suggests total growth of like 5.8%.

the thought process behind that.

We were obviously working with our customers, as we've been talking about, to try to offset some of the inflationary impact of all the things we've been talking about that have impacted the business. We don't expect that to be as significant as we annualized some of that activity.

that happened in the latter half of 2022. And so therefore, when you look at the result of our first quarter, we made the comment that it was mostly as expected. That was really the case from a top line perspective as well. So I think that deceleration is something that we anticipate.

and is largely the result of some of those pricing activities.

including some specifically related to the energy prices.

Got it so.

So energy prices, maybe there's fuel surcharges or other things that might go away with prices coming down. Are there other things? There's a lot of other things that might go away with prices coming down.

the cost structure. I mean obviously you talked a lot about merchandise not just this quarter for the last several quarters. Talked about labor. Are there are you seeing moderating trends in those other key categories that would I guess support lower price adjustments?

for the balance of 23 than you've had over the last year or so? Yeah, I think when you look at the inflationary environment, you've hit on a couple of the larger areas, sort of labor and energy. You know, I would say the environment is still challenging from a cost perspective, but we are seeing some moderation.

You can see it in the cost of say gasoline. Some other aspects of energy are still dynamic like natural gas was still pretty high during the quarter, electricity has remained high. We're probably not seeing things accelerate the way they were during 2022, but there are many things we're also not seeing.

profits are challenging and labor is still one of the larger ones. Although we're seeing some, I'd say, minor improvements in that area in terms of labor availability, the cost of labor remains high.

Okay.

I think I'll leave it there. Thanks guys.

Thank you.

Thank you. And our next question is from the line of Andrew Steinerman with JP Morgan. Please go ahead, your line is open. Hi there. Would you be willing to share with us how much kind of in basis points in percentage terms, merchandise amortization was a drag to the core margins in the first quarter? How much?

you're suggesting merchandise amization will affect the full you.

Yeah, absolutely. Sort of at the end of last year, I had indicated that the merchandise headwind for the year was going to approximate about a point. Still believe that that's the case. And in the first quarter, the headwind that we saw from merchandise amortization was about a point.

So we expect that that headwind is going to continue throughout the year.

Great. And could you also tell us what your pencil again for energy as a percentage of revenues for the year?

Yes, so for the year, my energy expectation is...

4.5 percent. Thank you so much. Much appreciated.

Thank you.

Ladies and gentlemen, once again, as a reminder, that is 1-4 to ask a question.

And at this moment, I'm showing no further question.

Okay, I'd like to thank everyone for joining us to review our first quarter, fiscal 2023. We look forward to speaking with everyone again in March when we expect to report our second quarter performance as well as the outlook for the remainder of fiscal 2023.

to thank everyone for joining us to review our first quarter, fiscal 2023. We look forward to speaking with everyone again in March when we expect to report our second quarter performance as well as the outlook for the remainder of fiscal 2023. Thank you and have a great day.

Thank you, ladies and gentlemen. That is conclude today's call. We thank you for your participation and ask that you please disconnect your lines and have a good day.

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Greetings and welcome to the University first quarter earnings call. During the presentation all participants will be in a listen-only mode. Afterwards we'll conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone.

If 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 Centrose, UNIFRS President and Chief Executive Officer. Please go ahead. Steven Centrose, UNIFRS President and Chief Executive Officer

Thank you and good morning. I'm Stephen Centros, Unifor's President and Chief Executive Officer.

Joining me today is Shane O'Connor, Executive Vice President and Chief Financial Officer.

Like the Welk Media Universe Corporation's conference call to review our first quarter results for fiscal year 2023.

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.

Overall, our results for the first quarter came in largely as anticipated and I continue to be pleased with the steady progress of our key technology and infrastructure initiatives.

We continue to be focused on making long-term investments in our business, designed to accelerate growth and profitability, as well as ensure we are providing industry-leading services for years to come. I want to thank our thousands of dedicated team partners that continue to always deliver for each other and our customers.

Consolidated revenues in the first quarter grew 11.4% and adjusted earnings per share grew 10.5%.

Shane will provide the details of our first quarter results shortly, as well as comment on our outlook for the full fiscal year, which remains unchanged from our year-end earnings call.

We are pleased with the execution of our team, which continue to deliver solid performances in both new account sales as well as customer retention.

Continuing the trend from prior quarters, the strong revenue growth in the quarter also reflects the impact of price adjustments from throughout 2022 as we have worked with our customers to share in cost increases we have experienced related to the inflationary environment.

As we have discussed in prior calls, we will continue to be focused on three large initiatives designed to transform the company in terms of our overall capabilities and competitive positioning.

These initiatives are the roll out of our CRM system, a corporate wide ERP system, and investments in the universe brand.

With respect to our CRM systems project, we are making good progress deploying our new system in line with our internal schedule. As we communicated during the last earnings call, we have deployed over 50% of our U.S. core laundry locations, and we expect the remaining U.S. locations to be deployed by the end of fiscal 2023.

The deployment of our smaller Canadian and clean room operations will carry over into fiscal 2024.

During fiscal 2023, we will also be focused on the global design phase of our ERP project.

The implementation of our new Oracle Cloud ERP system will be a multi-year initiative designed to transform our supply chain and procurement capabilities as well as provide an overall technology foundation for growth and efficiency. And finally, as we also discussed on prior earnings calls, we will be discussing the experience share.

During fiscal 22, we officially launched our new brand through a series of national TV ads. Our message focuses on serving people who always deliver for their companies, their customers, and their families.

At Unifirst, our ongoing focus will be to always deliver for them.

Although some costs related to this brand transformation will be expended in fiscal 23, the larger one-time expenditures are mostly behind us.

All of our investments are designed to deliver solid long-term returns for Unifor stakeholders and are integral components of our primary long-term objective to be universally recognized as the best service provider in our industry.

We continue to report results adjusted for the impact of direct costs related to these investments.

As we continue through fiscal 2023, we will be watching the dynamic market conditions closely.

During the quarter, we did not see a significant change to the operating environment and where levels at our customers have been stable.

When and what impact higher interest rates will have on our customer base and the overall market remain to be seen.

Over the years, our business has proved resilient in many different economic cycles, and regardless of what the next cycle brings, we are confident in our ability to execute against our plan.

We will continue to manage costs in areas we can control while assuring we don't impact our ability to execute on our transformational initiatives or adversely affect our customer service levels.

And as always, we'll maintain a sharp focus on taking care of our employees, our customers, and bringing new customers into the Uniforist family.

And with that, I'd like to turn the call over to Shane who will provide more details on our first quarter results.

Thank you.

In our first quarter of 2023, consolidated revenues were $541.8 million, up 11.4% from $486.2 million a year ago. And consolidated operating income decreased to $43.4 million from $44.8 million.

or 3.1%. Debt income for the quarter increased to $34 million, or $1.81 per diluted share.

for $33.7 million or $1.77 per diluted share.

Our financial results in the first quarters of fiscal 2023 and 2022 included approximately 10M dollars and 5.9M dollars respectively of cost directly attributable to the 3 key initiatives that Steve discussed.

Excluding these initiative costs, adjusted operating income increased to $53.5 million compared to $50.7 million in prior year, or 5.4%.

Adjusted net income increased to $41.5 million from $38.1 million. And adjusted diluted earnings per share increased to $2.21 from $2, or 10.5%.

Our core laundry operations revenues for the quarter were 477.4M dollars. Up 11.3% from the 1st quarter of 2022.

Core Laundry Organic Growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar, was 10.7%.

This strong organic growth rate was primarily the result of solid sales performance and customer retention as well as efforts over the last year to share with our customers cost increases that we have incurred in our business due to the ongoing inflationary environment.

Core laundry operating margin decreased to 7.1% for the quarter, or $33.8 million from 8.5% in prior year, or $36.5 million.

increased activity in our energy dependent markets, elevated wearer additions at our customers, as well as certain national account investments.

Energy costs also increased to 4.7% of revenues in the 1st quarter of 2023, up from 4.3% in 2022.

Partially offsetting these headwinds was lower healthcare claims expense in the corridor compared to prior year.

This increase was primarily due to strong growth in our clean room operations as well as increased project work in our North American nuclear operations.

The segment's operating margin increased to 23.1% from 21.9%, primarily the result of its strong top-line performance.

Our first aid segment's revenues increased to $20.3 million from $17.8 million in prior year, or 13.9%. However, the segment had an operating loss of $0.6 million during the quarter.

These results reflect our continued investment in expanding our first aid van business and building out the infrastructure necessary to eventually support a much larger business.

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 $351.2 million at the end of our first quarter of fiscal 2023.