Q4 2023 UniFirst Corp Earnings Call

October 18, 2023

Greetings and welcome to the unit first Corporation fourth quarter earnings call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question answer session at that time. If you have a question. Please press the one followed by the foreign there tell.

The phone.

If at any time during the conference you need to reach an operator, Please press star zero.

Now I'd like to turn the conference over to Steven Central's, President and Chief Executive Officer. Please go ahead.

Thank you and good morning, I'm, Steven Central's unit first President and Chief Executive Officer. Joining me today is Shane Oconnor Executive Vice President and Chief Financial Officer, We'd like to welcome you to unit first Corporation's conference call to review, our fourth quarter results for the fiscal year 2023.

This call will be on a listen only mode until we complete our brief remarks, but first 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.

I am pleased to report that we closed the year with the fourth quarter that models, we exceeded our expectations in both top and bottom line performance.

I want to sincerely. Thank all of 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.

I wanted to take a couple of minutes to expand on fiscal year 'twenty three what we accomplished as a company and what we have in store moving forward.

It comes as no surprise that as we report our final 2023 results that we have continued the company's long standing record of always growing our top line our full year fiscal 2023 fiscal revenues increased 11, 6% to two to three 3 billion.

Our core laundry operations showed strong organic growth during the year driven by solid new account sales as well as the impact of the effort to work with our customers to share and the impact of the inflation there inflationary environment.

Overall growth was also bolstered by our mid year acquisition of clean uniforms we.

We couldnt be more pleased with what we were able to bring clean into the unit first family.

We continue to feel they are a tremendous fit within our organization in terms of their focus on service excellence as well as overall culture.

The early days of bringing our companies together have been very constructive with initial efforts being focused primarily on retaining cleans most important assets its people and its customers.

We're also very excited about leveraging some of the experience and knowledge that the clean team has with respect to unit first CRM technology as well as some of the proprietary applications that clean is built to further enhance the usability and efficiency of our CRM.

As we discussed last quarter due to the strong leadership and service reputation Mclean brings with it as well as the complexities of where we are in our technology transformation, we will be strategic and patient and the full integration of the two businesses that being said in the six months since the closing date clean has produced very solid operating results.

Our specialty garment segment contributed very strongly on the top and bottom line in fiscal 2023 with record revenues and profits during the year.

As a reminder, our specialty garment segment is made up of both our nuclear and clean room operations.

Our clean room Division continues to show steady growth and profitability, which we expect to continue as we move forward.

As we've mentioned over the years, our nuclear divisions results can be more volatile based on the impact of certain projects as well as swings in activity with some very large customers.

Operator: Greetings and welcome to the UniFirst Corporation for a quarter earnings call. During the presentation all participants will be in a listen only mode. Afterwards we will conduct a question and so session. At that time if you have a question please press the one followed by the foreigner telephone. If at any time during the conference you need to reach an operator please press star zero.

In fiscal 'twenty four we do expect a nuclear division of this segment to take a step back from its record setting 2023 results due to decreased revenue from its Canadian customers.

We believe very strongly in the bright future of our first aid and safety Division, which grew 22, 5% in fiscal 'twenty three.

Steven Sintros: I would now like to turn the conference over to Steven Sintros, President and Chief Executive Officer. Please go ahead. Thank you and good morning. I'm Steven Sintros, UniFirst President and Chief Executive Officer. Joining me today is Shane OConnor, Executive Vice President and Chief Financial Officer.

We continue to make investments in the sales and service infrastructure of this segment to expand our footprint and ensure that we can reach existing unit first customers as well as new prospects in the market that have a strong need for these products and services.

As expected the investments to expand our reach and route structure have certainly limited our ability to expand the profitability of this segment, but we are happy with the progress towards the longer term goal of building a much larger more profitable business that meets our customers needs.

Steven Sintros: We'd like to welcome you to UniFirst Corporation's conference call to review our fourth quarter results for the fiscal year 2023. This call will be on a listen only mode until we complete our brief 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.

As we have discussed throughout the year. We have progressed, we've continued to progress on two large technology initiatives designed to transform the company in terms of our overall capabilities and competitive positioning.

Steven Sintros: 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 10K and 10Q filings with the Securities and Exchange Commission.

These initiatives are the rollout of our new CRM and our corporate wide Oracle ERP system.

With respect to our CRM systems project as of today, we have effectively deployed 100% of our U S core laundry operations onto the new system.

Going forward there is still work to be done to optimize the new system, including further enhancements to our CRM full conversion to our new barcode technology, aligning with clean technology footprint as well as integrating with our ERP over.

Steven Sintros: I'm pleased to report that we closed the year with a fourth quarter that modelsfully exceeded our expectations in both top and bottom line performance. We accomplished a lot as a team in fiscal 2023 that will help strengthen our company as we move forward, growing our business, making strong progress in our technology transformation, and closing on our mid-year acquisition of clean uniform. I want to sincerely thank all of 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.

Over the next two or three years, we will continue to expand costs through our operating results and capital expenditures related to these key initiatives.

Shane will provide additional commentary and estimates of these costs in his comments shortly as we think it is important to understand the impact that these initiatives are having on our results.

Overall, we continue to be excited about how these investments will continue to position the company for future success.

I am proud of the fact that the company continues to make solid progress in contributions in the area of environmental social governance governance ESG.

The nature of our industry and rental model has always allowed us as a company to do our part of enhancing the economy's environmental footprint, given our role as a natural recycler as well as the better utilization of resources, an operation like ours enables.

Steven Sintros: I want to take a couple minutes to expand on fiscal year 23 what we accomplished as a company and what we have in store moving forward. It comes as no surprise as we report our final 2023 results that we have continued the company's long-standing record of always growing our top line. Our full-year fiscal 2023 fiscal revenues increased 11.6 percent to 2.233 billion. Our core laundry operations showed strong organic growth during the year driven by solid new account sales as well as the impact of the effort to work with our customers to share in the impact of the inflationary environment.

We continue to make investments and progress in the areas of reduction of water consumption growing our fleet of electric delivery vehicles renewable sources of energy like solar upgrading facilities with led lighting environmentally efficient laundry detergent creative textile recycling and more.

While many of these efforts have been ongoing we are preparing ourselves to increase the level of measurement and reporting to ensure we are focused on making the right investments to meaningfully impact the environment support our customers and have a positive impact on our business.

Steven Sintros: Overall growth was also bolstered by our mid-year acquisition of clean uniform. We couldn't be more pleased with what we were able to bring clean into the universe family. We continue to feel they are a tremendous fit within our organization in terms of their focus on service excellence as well as overall culture. The early days of bringing our companies together have been very constructive with initial efforts being focused primarily on retaining clean's most important assets.

As we've discussed throughout the year, our profits in our core laundry compared to prior years have continued to be pressured by higher operational cost being impacted by the inflationary environment.

As we look forward to fiscal 'twenty, four and beyond margin improvement will certainly be a key focus of the organization.

Executing on our growth model, while also managing costs in areas. We can control will be critical all while assuring we don't impact our ability to execute on our transformational initiatives are adversely affect our customer service levels.

Steven Sintros: It's people and it's customers. We are also very excited about leveraging some of the experience and knowledge that the clean team has with respect to UniFirst CRM technology, as well as some of the proprietary applications that clean has built to further enhance the usability and efficiency of our CRM. As we discussed last quarter, do the strong leadership and service reputation that clean brings with it, as well as the complexities of where we are in our technology transformation, we will be strategic in patient and the full integration of the two businesses.

In addition to day to day execution, we are focused on margin opportunities in many areas as.

As I mentioned, there is work being done optimizing the use of our new CRM, including leveraging some of cleans proprietary technology across all of universe.

Areas, such as strategic pricing and account profitability and strategic manufacturing and sourcing represents strategic significant opportunities.

Although some of these benefits going forward will be more significantly enabled through the implementation of our ERP, which Shane will discuss more about shortly we continue to focus on these areas and others. We feel can move the needle in the near to mid term.

Steven Sintros: That being said in the six months since the closing date, clean has produced very solid operating results. Our specialty garment segment contributed very strongly on the top end bottom line in fiscal 2023 with record revenues and profits during the year. As a reminder, our specialty garment segment is made up of both our nuclear and clean room operations. Our clean room division continues to show steady growth and profitability, which we expect to continue as we move forward.

Overall overall, we expect fiscal 'twenty four to be another solid year for unit one.

As our outlook includes we expect our topline to surpassed two 4 billion and at the midpoint consolidated EBITDA to improve by approximately 20%.

Steven Sintros: As we have mentioned over the years, our nuclear division's results can be more volatile based on the impact of certain projects, as well as swings and activity with some very large customers. In fiscal 24, we do expect a nuclear division of this segment to take a step back from its record setting 2023 results due to decreased revenue from its Canadian customers.

Although some of that growth is attributable to lower key initiative costs, even excluding this benefit EBITDA is projected to show double digit growth.

Overall, we expect to accomplish these goals all while continuing to always deliver for our customers and continue our journey to transform the company in terms of technology and overall capabilities I'd.

Steven Sintros: We believe very strongly in the bright future of our first aid and safety division, which grew 22.5% in fiscal 23. We continue to make investments in the sales and service infrastructure of this segment to expand our footprint and ensure that we can reach existing, universe customers, as well as new prospects in the market that have a strong need for these products and services. As expected, the investments to expand our reach and route structure have certainly limited our ability to expand the profitability of this segment, but we are happy with the progress toward the longer term goal of building a much larger and more profitable business that meets our customers' needs.

I'd like to once again, thank our thousands of dedicated team partners, who make everything we accomplished as a company possible.

With that I'd like to turn the call over to Shane who will provide more details on our fourth quarter results as well as our outlook for fiscal 'twenty four.

Thanks, Steve.

Consolidated revenues in our fourth quarter of 2023 were $571 9 million.

An increase of 10, 7% from $516 4 million a year ago and consolidated operating income increased to $36 1 million.

Steven Sintros: As we have discussed throughout the year, we have continued to progress on two large technology initiatives designed to transform the company in terms of our overall capabilities and competitive positioning. These initiatives are the rollout of our new CRM and our corporate wide Oracle ERP system. With respect to our CRM systems project, as of today, we have effectively deployed 100% of our U.S. Corn Laundry operations onto the new system. Going forward, there is still work to be done to optimize the new system, including further enhancements to our CRM, full conversion to our new Barcode technology, aligning with Queen's technology footprint, as well as integrating with our ERP.

From $33 3 million or eight 5%.

Net income for the quarter increased to $27 6 million or $1 47 per diluted share from $26 2 million or $1 39 per diluted share.

As we mentioned last quarter due to the increase in noncash acquisition related intangibles amortization that we will be incurring as a result of the clean acquisition. We believe that EBITDA will become a valuable metric for us to include in our commentary going forward.

Consolidated EBITDA increased to $69 $2 million compared to $62 million in the prior year or 15%.

Steven Sintros: Over the next two or three years, we will continue to expend costs through our operating results and capital expenditures related to these key initiatives. Shade will provide additional commentary and estimates of these costs in his comments shortly, as we think it is important to understand the impact that these initiatives are having on our results.

Our financial results in the fourth quarters of fiscal 2023 in fiscal 2022 included $6 1 million and $9 1 million respectively of costs directly attributable to our key initiatives. In addition, we incurred costs related to the acquisition of clean uniform during the <unk>.

Steven Sintros: Overall, we continue to be excited about how these investments will continue to position the company for future success. I am proud of the fact that the company continues to make solid progress in contributions in the area of environmental social governance, ESG. The nature of our industry and rental model has always allowed us as a company to do our part of enhancing the economy's environmental footprint, given our role as a natural recycler, as well as the better utilization of resources and operations like ours enables us.

Fourth quarter of fiscal 2023 of approximately $3 million the.

The effect of these items on the fourth quarter of fiscal 2023, and 2022 combined to decrease both operating income and EBITDA by $6 4 million and $9 $1 million, respectively, net income by $5 $3 million and $7 $6 million, respectively and diluted.

EPS by 28 and 40, respectively.

Steven Sintros: Hills. We continue to make investments in progress in the areas of reduction of water consumption, growing our fleet of electric delivery vehicles, renewable sources of energy like solar, upgrading facilities with LED lighting, environmentally efficient laundry detergent, creative textile recycling and more. While many of these efforts have been ongoing, we are preparing ourselves to increase the level of measurement and reporting to ensure we are focused on making the right investments to meaningfully impact the environment, support our customers and have a positive impact on our business.

Our core laundry operations revenues for the quarter were $505 million, an increase of 10, 1% from the fourth quarter of 2022.

Core laundry organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar was five 3%.

This organic growth rate was impacted by pricing efforts over the last year to share with our customers. The cost increases that we have incurred in our business as well as solid sales performance.

Steven Sintros: As we've discussed throughout the year, our profits in our core laundry compared to prior years have continued to be pressured by higher operational costs being impacted by the inflationary environment. As we look forward to fiscal 24 and beyond, margin improvement will certainly be a key focus of the organization, executing on our growth model while also managing costs in areas we can control will be critical, all while assuring we don't impact our ability to execute on our transformational initiatives or adversely affect our customer service levels.

Core laundry operating margin decreased to 6% for the quarter from six 3% in prior year.

However, the segment's EBITDA margin increased to 12, 2% from 11, 8%.

The cost we incurred related to our key key initiatives and the clean acquisition were recorded to the core laundry operations segment and combined to decrease both the core laundry operating and EBITDA margins for the fourth quarter of fiscal 2023, and 2022 by one 3% in two <unk>.

Steven Sintros: In addition to day-to-day execution, we are focused on margin opportunities in many areas. As I mentioned, there is work being done, optimizing the use of our new CRM, including leveraging some of Clean's proprietary technology across all of Unifers. Areas such as strategic pricing and account profitability and strategic manufacturing and sourcing represents strategic significant opportunities. Although some of these benefits going forward will be more significantly enabled through the implementation of our ERP, which Shane will discuss more about shortly, we continue to focus on these areas and others we feel can move the needle in the near-to-bit term.

<unk> respectively.

The segment's operating and EBITDA margins were further impacted by higher merchandize payroll and payroll related costs, which were partially offset by lower energy and legal costs as a percentage of revenues.

The purchase accounting for the most for the recent clean uniform acquisition. Additionally, impacted the segment's operating margin most notably in the form of elevated noncash purchase related intangibles amortization.

Energy costs for the quarter were four 3% of revenues down from five 3% a year ago.

Steven Sintros: Overall, we expect fiscal 24 to be another solid year for Unifers. As our outlook includes, we expect our top line to surpass 2.4 billion, and at the midpoint, consolidated EBITDA to improve by approximately 20%. Although some of that growth is attributable to lower key initiative costs, even excluding this benefit EBITDA has projected to show double-digit growth. Overall, we expect to accomplish these goals all while continuing to always deliver for our customers and continue our journey to transform the company in terms of technology and overall capabilities.

Revenues from our specialty garments segment, which delivers specialized nuclear decontamination and clean room products and services were $41 $4 million for the fourth quarter of fiscal 2023, an increase of 13% over 2022.

The segment's top line growth was primarily driven by its clean room and North American nuclear operations.

Segment operating income during the quarter was $6 8 million.

An increase of 69, 4% over 2022.

Steven Sintros: I'd like to once again thank our thousands of dedicated team partners who make everything we accomplish as a company possible.

Our first aid segment's revenues in the fourth quarter of 2023 increased to $25 4 million from $21 $2 million.

Shane Oconnor: With that, I'd like to turn the call over to Shane who will provide more details on our fourth quarter results as well as our outlook for fiscal 24. Thanks, Steve. Consolidated revenues in our fourth quarter of 2023 were $571.9 million in increase of 10.7% from $516.4 million a year ago, and consolidated operating income increased to $36.1 million from $33.3 million or 8.5%. Net income for the quarter increased to $27.6 million or $1.47 per diluted share, from $26.2 million or $1.39 per diluted share.

With both the wholesale and van operations contributing to this growth.

However, the segment had an operating loss of <unk> $9 million during the quarter.

These results continue to reflect our investment in expanding our first aid van business and building the foundation for what we expect to eventually be a much larger business.

At the end of fiscal 2023, we continued to reflect a solid balance sheet and financial position with no long term debt and cash cash equivalents and short term investments totaling $89 6 million.

Shane Oconnor: As we mentioned last quarter, due to the increase in non-cash acquisition related intangibles amortization, that we will be incurring as a result of the clean acquisition. We believe that EBITDA will become a valuable metric for us to include in our commentary going forward. Consolidated EBITDA increased to $69.2 million compared to $60.2 million in the prior year or 15%. Our financial results in the fourth quarters of fiscal 2023 and fiscal 2022 included $6.1 million and $9.1 million respectively of cost directly attributable to our key initiatives.

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

Cash provided by operating activities for the year increased to $215 8 million.

Compared to a $122 6 million in prior year, primarily due to lower working capital needs of the business.

In fiscal 2023, we continue to invest in our future with capital expenditures of $172 million and the acquisition of five businesses for which we paid $306 2 million.

The most significant being the clean uniform acquisition for a purchase price of approximately $300 million.

Shane Oconnor: In addition, we incurred costs related to the acquisition of clean uniform during the fourth quarter of fiscal 2023 of approximately $0.3 million. The effect of these items on the fourth quarter of fiscal 2023 and 2022 combined to decrease both operating income and EBITDA by $6.4 million and $9.1 million respectively. Net income by $5.3 million and $7.6 million respectively and diluted EPS by $0.28 and $0.40 respectively. Our core laundry operations revenues for the quarter were $505 million in increase of 10.1% from the fourth quarter of 2022.

I'd like to take this opportunity to provide our outlook for fiscal 2024, which will include one extra week of operations compared to fiscal 2023 due to the timing of our fiscal calendar at.

At this time, we expect our full year revenues for fiscal 2024 will be between $2 for $1 5 billion and two for $3 5 billion.

We further expect that our fully diluted earnings per share will be between $6 52.

$7 16.

This guidance includes $16 million of costs that we expect to incur attributable to our key initiatives, which at this point relate only to the CRM and ERP projects.

Shane Oconnor: Core laundry organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar, was 5.3%. This organic growth rate was impacted by pricing efforts over the last year to share with our customers the cost increases that we have incurred in our business as well as solid sales performance. Core laundry operating margin decreased to 6% for the quarter from 6.3% in prior year. However, costs we incurred related to our key initiatives and the clean acquisition were recorded to the core laundry operation segment and combined to decrease both the core laundry operating in EBITDA margins for the fourth quarter of fiscal 2023 and 2022 by 1.3% and 2% respectively.

These key initiative costs decreased our EPS assumption by 64.

Consolidated EBITDA is expected to be $307 8 million, an increase of 21, 5%.

This outlook assumes core laundry revenue growth at the midpoint of the range is nine 4% and its organic growth, which also excludes the effect of the extra week to be four 8%.

Core laundry operations operating and EBITDA margins are assumed to be six 4% and 12, 5% respectively.

Which were decreased by our key initiatives cost assumptions by <unk>, 7%.

Our core laundry operations operating and EBITDA margin improvement compared to 2023 reflects lower direct costs, we expect to incur related to our key initiatives, primarily due to the conclusion of the domestic rollout of our CRM system and our ERP initiative entering.

Shane Oconnor: The segments operating in EBITDA margins were further impacted by higher merchandise, payroll, and payroll related costs which were partially offset by lower energy and legal costs as a percentage of revenues. The purchase accounting for the most for the recent clean uniform acquisition additionally impacted the segments operating margin most notably in the form of elevated non-cash purchase related intangible tamerization. Energy costs for the quarter were 4.3% of revenues down from 5.3% to year ago.

And implementation phases that are largely capitalized level as.

As well as moderating merchandise costs and other input costs as the inflationary headwinds that have been impacting our operating environment and have continued to ease.

Energy costs are expected to be four 3% of revenues in fiscal 2024, and next year's effective tax rate is assumed to be 25%.

Shane Oconnor: Revenues from our specialty garments segment which deliver specialized nuclear decontamination and cleanroom products and services were $41.4 million for the fourth quarter of fiscal 2023 in increase of 13% over 2022. The segments top line growth was primarily driven by its cleanroom and north American nuclear operations. Segment's operating income during the quarter was $6.8 million in increase of 69.4% over 2022. Our first aid segments revenues in the fourth quarter of 2023 increased to $25.4 million from $21.2 million with both the wholesale and van operations contributing to this growth.

Our specialty garments revenues are forecast to be down from 2023 by approximately 2% due to projected declines in the Canadian nuclear business, partially offset by continued growth in the clean room business the change in.

Business mix will have a larger impact on the profitability of this segment and we expect operating income will be down approximately 17%.

As we have commented 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 are expected to be up approximately 13% compared to 2023 and this segment's profitability is expected to be marginally positive.

Shane Oconnor: However, the segment had an operating loss of $0.9 million during the quarter. These results continue to reflect our investment in expanding our first-aid van business and building the foundation for what we expect to eventually be a much larger business. At the end of fiscal 2023, we continued to reflect a solid balance sheet and financial position with no long-term debt and cash equivalents and short-term investments totaling $89.6 million. We did not repurchase any additional common stock under our current stock repurchase program during the quarter.

We expect that our capital expenditures in 2024 will approximate $150 million, which reflects lower new facility investments that have strategically run high over the last few years, partially offset by higher application development investments most significantly really.

Added to our ERP implementation.

Throughout 2023, we have focused our efforts on the global design phase of our ERP initiative, which was not capitalized level starting in the first quarter of 2024, we will be entering implementation phases of our initiatives, where the majority of the costs will now be capitalized.

Shane Oconnor: Cash provided by operating activities for the year increased to $215.8 million compared to $122.6 million in prior year, primarily due to lower working capital needs of the business. In fiscal 2023, we continued to invest in our future with capital expenditures of $172 in the acquisition of five businesses for which we paid $306.2 million. The most significant being the Clean Uniform Acquisition for a purchase price of approximately $300 million.

We expect our ERP implementation will be a multiyear initiatives that will continue through 2027 with early phases focused on master data management and finance capabilities, followed by subsequent phases with the procurement and the supply chain focus.

We expect the total amount of this project to be approximately $85 million and have partnered with one of the world's largest strategy through execution professional services firms to assist us in our implementation effort.

And we expect this initiative and the capabilities that will enable will provide the following benefits to our organization.

Shane Oconnor: I'd like to take this opportunity to provide our outlook for fiscal 2024, which will include one extra week of operations compared to fiscal 2023 due to the timing of our fiscal calendar. At this time, we expect our full-year revenues for fiscal 2024 will be between $2.415 billion and $2.435 billion. We further expect that our fully diluted earnings per share will be between $6.52 and $7.16. This guidance includes $16 million of costs that we expect to incur attributable to our key initiatives, which at this point relate only to the CRM and ERP projects.

Improved inventory planning and forecasting will allow us to manage our inventory levels more effectively improve the time to install new accounts and fulfill the daily needs of our existing customers as well as improved direct sourcing costs improved visibility and centralized management of local stock room inventory.

We will enable us to more effectively utilize our used car inventory.

Enhanced procurement capabilities will enable us to centralized sourcing with enhanced strategies around vendor management and negotiation as well as improve visibility oversight and analytics into organizational spend.

Automation of manual processes will enhance the efficiency of our back end office functions and simplification of our it architecture and improvement in our data quality will reduce operational complexity and cost to deliver.

Shane Oconnor: These key initiative costs decreased our EPS assumption by $0.64. Consolidated EBITDA is expected to be $307.8 million in increase of 21.5%. This outlook assumes core laundry revenue growth at the midpoint of the range is 9.4% and its organic growth, which also excludes the effect of the extra weeks to be 4.8%. Core laundry operations operating and EBITDA margins are assumed to be 6.4% and 12.5% respectively, which were decreased by our key initiative cost assumptions by 0.7%.

We believe that these benefits will provide 150 to 200 basis points of improvement to our EBITDA margins. However, we caution that the larger value will be derived from the later phases of the project and will take time to realize.

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.

Shane Oconnor: Our core laundry operations operating in EBITDA margin improvement compared to 2023 reflects lower direct costs we expect to incur related to our key initiatives primarily due to the conclusion of the domestic rollout of our CRM system and our ERP initiative entering implementation phases that are largely capitalizable as well as moderating merchandise costs and other input costs as the inflationary headwinds that have been impacting our operating environment and have continued to eat. Deities.

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One moment please for our first question.

Our first question comes from the line of Manav Patnaik with.

Barclays. Please proceed with your question.

Hi, Good morning. This is rune Kennedy on for Manav. Thank you for taking my question can I just please confirm the overall contribution to the extent you disclose them from pricing versus new business and then the.

Shane Oconnor: Energy costs are expected to be 4.3% of revenues in fiscal 2024, and next year's effective tax rate is assumed to be 25%. Our specialty garments revenues are forecast to be down from 2023 by approximately 2%, due to projected declines in the Canadian nuclear business, partially offset by continued growth in the cleanroom business. The change in business mix will have a larger impact on the profitability of this segment, and we expect operating income will be down approximately 17%.

Cross sell penetration and how those compare to historic levels and what the outlook for each of those components is contemplated.

Contemplated in the guidance for 'twenty four.

So we have not historically broken out those components, but I can give you directionally what we're seeing.

With respect to I guess, the broader 2023, and what we expect going forward.

Particularly pricing being a large item that we've talked about given the inflationary condition, we expect that impact to decrease we have seen some of that over the back half of 'twenty three and we expect that in in 'twenty four as well.

Shane Oconnor: As we have commented 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 are expected to be up approximately 13%, compared to 2023, and the segment's profitability is expected to be marginally positive. We expected our capital expenditures in 2024 will approximate $150 million, which reflects lower new facility investments that have strategically run high over the last few years, partially offset by higher application development investments, most significantly related to our ERP implementation.

We expect contribution from new account sales and retention to be similar.

In 2024.

As well as cross sell I think the other components of our growth.

<unk> stable.

Trajectory.

In terms of.

Often one of the other components, we talked about as wearer levels and I would say, we're a levels have continued to be stable through the back half of this year and thats at this point, what we've assumed going through 'twenty four.

That's helpful. Thank you and as a follow up if I may just confirm the assumptions for the broader macro and and more specifically for the merchandise.

Shane Oconnor: Throughout 2023, we have focused our efforts on the global design phase of our ERP initiative, which was not capitalizable. Starting in the first quarter of 2024, we will be entering implementation phases of our initiative, where the majority of the costs will now be capitalized. We expect our ERP implementation will be a multi-year initiative that will continue through 2027, with early phases focused on master data management and finance capabilities, followed by subsequent phases with a procurement and the supply chain focus. We expect the total amount of this project to be approximately $85 million, and have partnered with one of the world's largest strategy through execution professional services firms to assist us in our implementation effort.

Amortization.

Materials commodity and labor inflation and.

And how pricing, where you'll be pricing with regards to capturing.

The impact of those.

Yes in terms of a couple of different things you mentioned there in terms of our overall merchandise cost we've talked a lot in the last couple of years, how we've seen escalating merchandise cost both from a quantity perspective coming off some of the lows of the pandemic when less merchandise was infused given the labor environment the strong growth.

And heads in labor coming out of the pandemic has obviously caused our merchandize to escalate exam.

Exacerbated by higher cost of merchandise and a number of different areas, including freight raw materials and so on a number of things are happening at this point that are causing our merchandise cost and trajectory to start to flatten and it's really exist in all areas.

Shane Oconnor: We expect this initiative and the capabilities it will enable will provide the following benefits to our organization. Improved inventory planning and forecasting will allow us to manage our inventory levels more effectively, improve the time to install new accounts, and fulfill the daily needs of our existing customers, as well as improve direct sourcing costs. Improved visibility and centralized management of local stock room inventory will enable us to more effectively utilize our used garments inventory.

We're getting a little bit more to a mature population coming off the lows of the pandemic and also as you can imagine we are experiencing lower freight cost bringing in product.

Raw material costs, if you follow things like cotton and in some cases on a smaller extent things like rubber for mats and so on have also moderated from a year ago. So those things are starting to work our way through the supply chain and contribute to the fact that our merchandise cost overall is starting to flatten a bit.

Shane Oconnor: Enhance procurement capabilities will enable us to centralize sourcing with enhanced strategies around vendor management and negotiation, as well as improve visibility, oversight, and analytics into organizational spend. Automation of manual processes will enhance the efficiency of our back-end office functions, and simplification of our IT architecture and improvement in our data quality will reduce operational complexity and cost to deliver. We believe that these benefits will provide 150 to 200 basis points of improvement to our EBITDA margins, however we caution that the larger value will be derived from the later phases of the project and will take time to realize. Our guidance assumes our current level of outstanding common shares and no unexpected changes generally affecting the economy.

Our next question comes from the line of Tim Mill Rooney with William Blair. Please proceed with your question.

Yes. Thanks for taking my question I, just wanted to follow up on the.

The retention.

Aspects of the business.

I know last quarter, you mentioned that you'd seen a slight pickup in customer attrition over the last few months, but.

I know youre attention rates historically been pretty darn high so.

We're just curious how your current rate compares to historical standards and if you've seen any change in customer attrition relative to when you were talking about this last quarter.

Operator: This concludes our prepared remarks, and we would now be happy to answer any questions that you might have. Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment please, for our first question.

Yes, I would say not much of a change since last quarter.

In a few months I think overall for the year. The comment stands that we were a bit higher.

When you say historical I would say that our retention has improved for a couple of years.

And then we kind of took a little bit of a step back this year.

A lot of feedback during the pandemic and so on maybe a lot of decisions.

Ronan Kennedy: Our first question comes to the line of Manav Patnik with Barclays, please proceed with your question. Hi, good morning, this is Ronan Kennedy from Manav, thank you for taking my question. Can I just please confirm the overall contribution to the extent you disclose them from pricing versus new business and then the process of penetration and how those compare to historic levels and what the outlook for each of those components is, contemplated in the guidance for 24.

From customers, whether it's changing vendors bolt on the sales and retention side were sort of delayed and maybe a little more energy around that this year as people.

Looking to control their own cost maybe put more things out to bid lets just anecdotally maybe some of the things that could have impacted it.

So.

Certainly our ongoing growth model assumes continued high retention rates and a lot of the things that we're focused on as a company with our technology transformation and process transformation is to continue to improve that retention. So.

Ronan Kennedy: So we have not historically broken out those components, but I can give you directionally what we're seeing with respect to, I guess, the broader 2023 and what we expect going forward. Particularly, pricing being a large item that we've talked about given the inflationary condition, we expect that impact to decrease, we've seen some of that over the back half of 23 and we expect that in 24 as well. We expect contribution from new account sales and retention to be similar in 2024 as well as Crossell.

I would say not much of a change from a few a few months ago.

Okay.

Thanks for that Steve.

One other.

Actually I have two more quick ones. So following up on the ERP comments Shayne that you made at the end.

Just want to make sure I've got this right.

The year initiative, that's going to continue through 2027 benefits should be 150 to 200 basis points to EBITDA margins, but most of that's going to be realized towards the end of the project.

And maybe take some time after that so as that.

Just want to make sure I'm thinking about this correctly the benefits.

Ronan Kennedy: I think the other components of our growth reasonably stable trajectory, in terms of often one of the other components we talk about is wearer levels and I would say wearer levels have continued to be stable through the back half of this year and that's at this point what we've assumed going through 24. That's helpful, thank you, and as a file, if I may just confirm the assumptions for the broader macro and more specifically for the merchandise monetization, materials, commodity and labor inflation and how pricing, where you'll be pricing with regards to capturing the impact of those.

From this we likely won't see a lot of us until fiscal 2027 years later.

Is that correct, yes, yes, I think that thats sort of what I was communicating there now in some of the earlier in some of the earlier phases. There will be benefits that will be realized right as we go through some of those.

FICO centric refinance centric activities.

But the more meaningful value that is being sort of communicated here is really around the supply chain capabilities.

As well as the procurement capabilities that are some of the later phases.

So yes, the more meaningful value is expected to be realized in those later phases, when we get to.

I guess the capabilities that I had mentioned one thing I want to add to that and I sort of alluded to it in my comments is we certainly think supply chain is a big area of opportunity and during the pandemic as many companies experienced disruption in their supply chain in many cases, it was more about getting product than being.

Ronan Kennedy: Yeah, in terms of a couple of different things you mentioned there, in terms of our overall merchandise cost, we've talked a lot in the last couple of years how we've seen escalating merchandise costs, both from a quantity perspective coming off some of the lows of the pandemic when less merchandise was infused, given the labor environment, the strong growth and heads in labor coming out of the pandemic has obviously caused our merchandise to escalate, exacerbated by higher costs of merchandise in a number of different areas including freight raw materials and so on. A number of things are happening at this point that are causing our merchandise costs and trajectory to start to flatten and it's really existing all areas.

To optimize maybe where you've got product and how you got product and so we are making efforts and initiatives to improve in those areas that we think can help our cost and profitability over the next few years, even leading into the benefits that the supply chain.

ERP benefit will ultimately accelerate and enable so I just wanted to make that comment in the context as we're not waiting to the end of the ERP to make improvements in these areas, but the ERP will eventually enable those fully.

Ronan Kennedy: We're getting a little bit more to a mature population coming off the lows of the pandemic and also as you can imagine, we are experiencing lower freight costs, bringing in products, raw material costs, if you follow things like cotton and in some cases on a smaller extent, things like rubber for mass and so on have also moderated from a year ago. So those things are starting to work our way through the supply chain and contribute to the fact that our merchandise cost overall is starting to flatten.

Understood understood. It's a longer term project I wanted to make sure I just said the timing right on that stuff, but I appreciate the extra color there.

My apologies to leave their animals, so I'll try to sneak one more in really quick which is just wanted to on a housekeeping question.

I wanted to understand how much the clean uniform acquisition contributed to revenue in the quarter and what quarter do you expect to see that impact from that extra work week in fiscal 2020 for thanks for taking my questions guys.

Okay.

Yes, so again, when we acquired clean it was about $90 million.

Speaker: David.

Their run rate for the quarter is largely in line with that.

Timothy Mulrooney: Our next question comes from Line of Tim Mulrooney with William Blair, please proceed with your question. Yeah, thanks for taking my question. I just wanted to follow up on the retention aspect of the business. You know, I know last quarter you mentioned that you'd seen it, but it's like pickup and customer attrition over the last few months, but I know your attention rates historically been pretty darn high. So we're just curious how your current rate compares to historical standards.

And actually I'm, sorry, I missed the second part of the question.

Oh no worries I was just curious is that extra work, we've always in the fourth quarter or does it sometimes.

In different quarters, just just curious.

When we should be adjusting for that out of organic.

Yes, that's a good question, yes, the extra week is going to be in our fourth quarter.

And we usually we usually lead time in the fourth quarter historically have over the last number of instances, where we've had a 53 week year.

Timothy Mulrooney: And if you've seen any change in customer attrition relative to when you were talking about this last quarter. Yeah, I would say not much of a change since last quarter, you know, just been a few months. I think overall for the year, the comment stands that we were a bit higher. You know, when you say historical, I would say that our attention had improved for a couple of years. And then we kind of took a little bit of a step back this year.

Got it thank you.

Our next question comes from the line of Kartik Mehta with Northcoast Research. Please proceed with your question.

Hey, good morning, Steve.

Steve maybe just your thoughts on where how your customers are feeling about the economy and obviously based on the guidance. It seems as though you are.

Not anticipating much of a pullback on the economy and I'm assuming that.

Timothy Mulrooney: You know, a lot of feedback during the pandemic and so on, maybe a lot of decisions and from customers, whether it's changing vendors, both on the sales and retention side, we're sort of delayed and maybe a little more energy around that this year as people looking to control their own costs, maybe put more things out to bid. Let's just anecdotally, maybe some of the things that could have impacted it. So certainly our ongoing growth model assumes continued high retention rates and a lot of the things that we're focused on as a company with our technology transformation and process transformations is to continue to improve that retention. So I would say not much of a change from a few months ago.

Our customers are giving you pretty positive feedback on.

How they're feeling about their business.

Yes, I would say pretty stable environment, I think you see it with.

Some of the job creation numbers coming out recently.

We're obviously always cautious given the environment with interest rates, whether there's another shoe to drop but right now I would say companies are still making investments hiring.

We see it a little bit on our own hiring side it may be a little bit easier to bring in employees, but it's still a competitive labor environment out there which to us.

Tells us that.

Timothy Mulrooney: Okay, thank you for that Steve. One other, actually, two more quick ones. So following up on the ERP comments, Shane, that you made at the end, just want to make sure I've got this right. It's a 50 to 200 basis point, Steve with our margins, but most of us going to be realized towards the end of the project. So I end up maybe take some time after that. So that is just want to make sure I'm thinking about this correctly.

People are pulling back and that's really what we're seeing from our customers right. Now. So we think it's a pretty healthy environment right. Now obviously, we continue to look out for any indicators of that turning but we have not built any of that into our assumptions.

And then Steve I think you had said or maybe Shane on pricing that youre expecting a little bit of a pull back from where you were last year, just because of what's happened with inflation and I'm wondering.

Is any of that pullback related to a change in the environment, where youre seeing extra competition or is this all related to.

Timothy Mulrooney: Like the benefits from this, we likely won't see a lot of us until fiscal 2027 or later. Is that correct? Yeah, yeah, I think that's sort of what I was communicating there. Now in some of the earlier phases, there will be benefits that will be realized as we go through some of those FICO centric or finance centric activities. But the more meaningful value that is being sort of communicated here is really around the supply chain capabilities as well as the procurement capabilities that are some of the later phases.

Just lower inflation or inflation so customers are.

Asking.

Arent willing to pay that extra like they did a year or two ago.

Yes, I think everyone's trying to be as cautious as they can with cost ourselves included in our customers included I think as far as the competitive environment goes I think it remains it remains stable.

From from prior quarters prior years.

It's aggressive it's competitive but I wouldn't say there's been any.

Near term change in that.

We continue to work with our customers. So I don't want to give the impression that we can't.

Timothy Mulrooney: So yeah, the more meaningful value is expected to be realized in those later phases when we get to I guess the capabilities that I had mentioned. You know, one thing I want to add to that and I sort of alluded to it in my comments is we certainly think supply chain is a big area of opportunity and during the pandemic as many companies experience disruption in their supply chain. In many cases, it was more about getting product than being able to optimize maybe where you got product and how you got product.

Obtain price as necessary given the environment, but it's a little bit pulled back from a year ago I would say.

Alright, and just one last question I think youre, saying you talked about on the specialty carbon side that you are expecting new clear that part of the business to be down but.

Clean energy should continue to grow what's the breakout of that business within <unk> within that segment.

At this at this point in time that segment is about 50 50.

Timothy Mulrooney: And so we are making efforts and initiatives to improve in those areas that we think can help our costs and profitability over the next few years even leading into the benefits that the supply chain ERP benefit will ultimately accelerate and enable. So I just wanted to make that common in the context is we're not waiting to the end of the ERP to make improvements in these areas but the ERP will eventually enable those fully.

Nuclear versus clean room.

Sure.

Perfect. Thank you very much I really appreciate it.

Thank you.

Our next question comes from the line of Andy Wittmann with Baird. Please proceed with your question.

Great. Good morning, I guess I just wanted to make sure I understood. The 24 guidance a little bit better so Shane I guess, maybe this one's coming your way.

If I looked at it on a clean basis, excluding your key initiatives cost it looks like the EBITDA margins implied about 13%.

Timothy Mulrooney: I understand and understood it's a longer term project I wanted to make sure I just had the timing right on that stuff, but I appreciate the extra color there. My apologies to be there, I'll try to sneak one more in really quick, which is just wanting to, on a housekeeping question, just wanted to understand how much the clean uniform acquisition contributed to revenue in the quarter and what quarter do you expect to see that impact from that extra work week in fiscal 2024?

Compares to about 13% if you adjust out the factors in 'twenty three by my calculations.

So first wanted to confirm that but also it feels like with the clean room.

North Dakota the nuclear.

The nuclear business being down.

Timothy Mulrooney: Thanks for taking my questions, guys. Yeah, so again, when we acquired clean, it was about $90 million. Their run rate for the quarter is largely in line with that. And actually, I'm sorry, I missed the second part of the question. Oh, no worries, I was just curious. Is that extra work week always in the fourth quarter? Does it sometimes hit in different quarters? Just curious when we should be adjusting for that out of organ.

And penalize the margin, though you're picking up a little bit of margin.

On the core segments cousin merchandise because of labor some of the things you called about but it's really just.

Pretty modest increase on those factors, Mike am I thinking about that the way youre thinking about the 24 guidance correctly just to start out with.

No that's exactly right if I take a look at my core I'm expecting a little bit of margin improvement about 2030 basis points of improvement.

Sort of excluding the impact of the lower key initiative costs.

Timothy Mulrooney: Yeah, that's a good question. Yeah, the extra week is going to be in our fourth quarter. And we usually, we usually time it in the fourth quarter historically have over the last number of instances where we've had a 53-week year. Got it.

Speaker: Thank you.

Really what that is just to break that down for you. We had mentioned the fact that merchandise.

Is moderating still seeing a little bit of a headwind, it's probably 10 to 20 basis points on the merchandise side, but obviously the headwind that we're seeing there is significantly reduced from what we've experienced over the last couple of years, which is positive trend.

Kartik Mehta: Our next question comes in line of Cartacleta with Dorst Coast. Research please receive your question.

The <unk> acquisition and the non tangible amortization.

Steven Sintros: Hey, good morning. Steve, maybe just your thoughts on where how your customers are feeling about the economy and obviously based on the guidance it seems as though you're not anticipating much of a pullback on the economy and I'm assuming that your customers are giving you pretty positive feedback on how they're feeling about their business. Yeah, I would say a pretty stable environment. I think you see it with some of the job creation numbers coming out recently.

Which actually is impacting my operating income, but not my EBITDA, but on the operating income side, Thats, probably about 30 basis points of headwind as well.

Energy is about 20 points or 20 basis points of benefit and then Theres a number of other input costs that have trended lower as Steve it's sort of articulated Knight articulated in my comments.

As the inflationary pressures are continuing to ease we're seeing some favorable trends there as a percentage of revenues that are sort of offsetting those other items.

Steven Sintros: You know, we're obviously always cautious given the environment with interest rates, whether there's another shoe to drop. But right now, I would say companies are still making investments, hiring. We see it a little bit on our own hiring side. It may be a little bit easier to bring in employees but it's still a competitive labor environment out there which to us tells us that people aren't pulling back and that's really what we're seeing from our customers right now.

Okay that makes sense I guess, maybe my question is.

With the CRM being effectively fully implemented here the items that you talked about really are not I don't think.

Affected by the implementation of the CRM. So the question I guess.

Where can there'll be benefits to the CRM in 2000 22024.

Steven Sintros: So we think it's a pretty healthy environment right now. Obviously we continue to look out for any indicators of that turning but we have not built any of that into our assumptions. And then Steve, I think you had said or maybe chain on pricing that you're expecting a little bit of a pullback from where you were last year just because of what's happened with inflation and I'm wondering is any of that pullback related to a change in the environment where you're seeing extra competition or is this all related to just lower inflation or customers are being asking aren't willing to pay that extra like they did a year or two ago.

That may arise.

As positives or maybe why isn't there more contributions from some of the efficiencies.

I know you've talked about this as kind of a.

Customer retention tool, but it's not all about efficiencies, but I would think there'd be maybe a little bit more so maybe Steve could you address address that.

Sure I think some of it you mentioned some of it right and we talked about some of the modernization of of the work that our that our route drivers have to do.

Was critical in us kind of getting in place from an employee retention perspective, and a customer service perspective.

Steven Sintros: Yeah, I think everyone's trying to be as cautious as they can with cost. Our selves included and our customers included. I think as far as the competitive environment goes, I think it remains right. It remains stable from prior quarters, prior years. It's aggressive, it's competitive but I wouldn't say there's been any near-term change in that. And we continue to work with our customers so I don't want to give the impression that we can't. Uptane Price has necessary given the environment, but it's a little bit pulled back from a year ago, I would say.

Overall, I've talked about merchandise control as being one of the areas that the CRM helps.

Hans and I think we are starting to see some of that so when we talk about the moderate moderation of our.

All of our merchandise and our ability to collect on charges if theres loss merchandise in the overall tracking of merchandise I think we are seeing improvements in that area I think as we've deployed the CRM. Some of that has been muddied by the inflationary condition and so hopefully as we move forward, we will continue to see more of that come through.

Shane Oconnor: Right, and just one last question. I think, Shane, you talked about on the special decarmit side that you're expecting new clear that part of the business to be down, but the clean energy you should continue to grow. What's the breakout of that business within that segment? At this point in time, that segment is about 50-50, new clear versus clean room.

And in the in the area of lower merchandise as a percent of revenue and start really seeing some of that some of that benefit I will say and I made comments in my prepared remarks about this we continue to enhance.

CRM clean.

Clean had some good experience with the CRM and some applications that they had built to enhance the usability of the CRM some of that in the area.

Account profitability.

Speaker: Perfect. Thank you very much. I really appreciate it. Thank you.

Tracking and maintenance and so we think that getting some of that benefit as well. We think we can improve around the edges in the areas of price management and so on so it's really customer retention merchandise management, and I'd say management of revenue and pricing that are the areas and so it's it's in.

Eddie Whitman: Our next question comes to light of Eddie Whitman with Brad, please proceed with your question. Oh, great.

Speaker: Good morning. I guess I just wanted to make sure I understood the 24 guidance a little bit better. So, Shane, I guess maybe this one's coming your way. If I looked at it on a clean basis, excluding your key initiatives cost, looks like the EBITDA margins implied about 13 percent, compared to about 13 percent if you just out the factors in 23 by my calculations. So, first one to confirm that, but also, it feels like with the clean room, not the clean room, the nuclear business being down and penalizing the margin there, you're picking up a little bit of margin on the core segments, because of merchandise, because of labor, some of the things you called about, but it's really just a pretty modest increase on those factors.

<unk> in our results and we will continue to drive efficiency of the CRM to try to to try to pull as much out of it as possible.

Okay. Good I think I'm going to leave it there thanks guys.

Thank you.

Our next question comes from the line of Andrew <unk> with Jpmorgan. Please proceed with your question.

Hi, Shane did you mention the intangible amortization from clean into fourth quarter and could you. Just also give us a sense of what that amortization will be in 'twenty four.

Yes.

Let me get that in front of me.

Speaker: Mike, am I thinking about that the way you're thinking about the 24 guidance correctly just to start out with? Uh, don't that's exactly right. If I take a look at my core, I'm expecting a little bit of margin improvement, about 20, 30 basis points of improvement, sort of excluding the impact of the lower key initiative cost. Really, what that is, just to break that down for you, we had mentioned the fact that merchandise is moderating, still seeing a little bit of a headwind, it's probably 10 to 20 basis points on the merchandise side, but obviously the headwind that we're seeing there is significantly reduced from what we've experienced over the last couple years, which is positive trend.

So so one of the things that we did do to provide that visibility and in our press release, we've included a footnote underneath our cash flow.

What the noncash intangible amortization.

Amortization is so that you can see that component of that.

Just just to call that out.

Of that amount in the fourth quarter was $19 3 million versus $15 1 million in last year's comparable quarter and the majority of that difference.

Ah equates to.

The clean uniform acquisition.

Alright.

That difference being about $3 $5 million in the quarter is sort of what the run rate would project for next year as well.

Speaker: The clean acquisition and the non-tangibles amortization, which actually is impacting my operating income, but not my EBITDA, but on the operating income side, that's probably about 30 basis points of headwind as well. Energy is about 20 points, or 20 basis points of benefit, and then there's a number of other input costs that have trended lower as, you know, Steve, the sort of articulated night articulated in my comments as the inflationary pressures are continuing to ease, we're seeing some favorable trends there as a percentage of revenues that are sort of offsetting those other items.

Okay. Thank you.

As a reminder to register for a question press the one followed by the floor.

Our next question comes from the line of Josh Chan with UBS. Please proceed with your question.

Hi, good morning, Thanks for taking my questions.

I guess for your core margin improvement of 20 to 30 basis points next year could you give us a sense of how that would flow through through the year are you expecting margins to be down in the first part of the year and then you recover.

Some of it in the back half just kind of could you help us with kind of shape.

Speaker: Okay, that makes sense. I guess maybe my question is, with the CRM being effectively fully implemented here, the items that you talked about really are not, I don't think, affected by the implementation of the CRM. So the question I guess is... Where can there be benefits to the CRM in 2024 that may arise as positives or maybe why isn't there more contributions from some of the efficiencies that I know you've talked about this as kind of a customer attention tool and it's not all about efficiencies and I would think there'd be maybe a little bit more.

Yes, yes.

That margin realization.

Really I mean aside from some of the seasonality that we see in our quarters, where often times, we have slightly higher profitability in our first quarter.

And obviously, our second quarter is down from a margin perspective, because of the timing of some costs that we incur as well as the impact of the holidays right. There is a slight or theres, a slight margin improvement as we go throughout the year.

Again, primarily driven by the impact of the merchandise continuing to moderate as we go throughout the year as a percentage of revenues.

Speaker: So maybe Steve, could you address that? Sure, I think some of it, you mentioned some of it, right? We talked about some of the modernization of the work that our route drivers have to do, which was critical enough to kind of getting in place from an employee retention perspective and a customer service perspective. Overall, I've talked about merchandise control as being one of the areas that the CRM helps enhance and I think we are starting to see some of that.

But it's relatively or it's relatively nominal again, our profitability will trend mainly towards the seasonal.

Experienced it historically had.

Okay perfect. Thanks for that color and I guess for my follow up you did mentioned that capex would be tapered off a little bit from at least from the facility side of things and so could you just talk about the rationale behind that.

Feel like facilities are in good shape heading into next year.

Speaker: So we talk about the moderation of our merchandise and our ability to collect on charges if there's loss merchandise and the overall tracking of merchandise. I think we are seeing improvements in that area. I think as we've deployed the CRM, some of that has been muddied by the inflationary condition and so hopefully as we move forward, we'll continue to see more of that come through in the area of lower merchandise as a percent of revenue and start really seeing some of that benefit.

Yeah in general when you look at the elevated Capex that elevated Capex really comes from new facility New plant processing plant builds that's the biggest plant runs $20 million or so these days and so if you have two or three of those going on Thats, where you sort of get that elevated capex.

And we had more projects took sort of centralizing around the last couple of years overall, we continue to invest in our existing facilities make sure we're replacing.

Speaker: I will say and I make comments in my prepared remarks about this. We continue to enhance the CRM. Clean had some good experience with the CRM and some applications that they had built to enhance the usability of the CRM. Some of that in the area of account profitability tracking and maintenance. We think that getting some of that benefit as well, we think we can improve around the edges in the areas of price management and so on.

Replacing equipment, increasing automation, where we can.

Commentary around lowering the Capex really is around when you look at the outlook for this year and into next year.

Less large project builds going on in a couple of the ones. We had going on we're replacing facilities older facilities that we obtained through acquisitions. So we're a little further along in that roadmap, but we will continue to invest in the facilities you said a little bit of a lower rate on the new plant builds.

Speaker: It's really customer retention, merchandise management and I'd say management of revenue and pricing that are the areas and so it's implicit in our results and we'll continue to drive efficiency of the CRM to try to pull as much out of it as possible. Okay, good.

Okay, great. Thank you, it's Steven thank Shane for the color.

Thank you.

As a reminder to register for a question press the one four.

There are no further questions at this time I will turn the call back over to you.

Speaker: I think I'm going to leave it there. Thanks, guys. Thank you.

Great I'd like to thank everyone for joining us today to review our fourth quarter results.

Shane Oconnor: Our next question comes in line of Andrew Steinerman with Gap Morgan. Please proceed with your question. Hi, Shane. Did you mention the intangible amnesty from clean in the fourth quarter and could you just also give us a sense of what that amnesty will be in 24? Yeah. Let me get that in front of me. So one of the things that we did do to provide that visibility in our press release, we've included in a footnote underneath our cash flow, what the non-cash intangibles amortization is so that you can see that component of that. Just to call that out, that amount in the fourth quarter was 19.3 million versus 15.1 million in last year's comparable quarter and the majority of that difference equates to the clean uniform acquisition.

We look forward to speaking everyone again in January our January when we expect to report our first quarter performance. Thank you and have a great day.

That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.

Okay.

Sure.

Yes.

Yeah.

Yes.

Okay.

Yes.

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Yes.

Okay.

So.

Thanks.

So.

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Yes.

Okay.

Yes.

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Sure.

Operator: As a reminder to register for a question, press the one followed by the four.

Okay.

Yes.

Third.

Okay.

Yes.

Joshua Chan: Our next question comes the line of Josh Chan with UBS, please proceed with your question. Good morning and thanks for taking my questions. I guess for your core margin improvement of 28 to 30 basis points next year, could you give us a sense of how that would flow through through the year? Are you expecting margins to be down in the first part of the year and then you recover some of it in the back half just kind of could you help us with kind of shape?

Okay.

Joshua Chan: Yeah, I mean, is that margin realization really, I mean, aside from some of the seasonality that we see in our quarters where oftentimes we have slightly higher profitability in our first quarter and obviously our second quarter is down from a margin perspective because of the timing of some costs that we incur as well as the impact of the holidays. There's slight or there's a slight margin improvement as we go through out the year.

Joshua Chan: Again, primarily driven by the impact of the merchandise continuing to moderate as we go throughout the year as a percentage of revenues, but it's relatively or it's relatively nominal. Again, our profitability will trend mainly towards the seasonal experience it historically had.

Shane Oconnor: Okay, perfect. Yeah, thanks for that color. And I guess from my follow up, you didn't mention that CapEx would be tapered off a little bit from at least from the facility side of things. And so could you just talk about the rationale behind that? Do you feel like your facilities are in good shape heading into next year? Yeah, in general, when you look at the elevated CapEx, that elevated CapEx really comes from new facility, new plant processing plant bills.

Shane Oconnor: That's the biggest, you know, a plant runs $20 million or so these days. And so if you have two or three of those going on, that's where you sort of get that elevated CapEx. And we had more projects to sort of centralizing around the last couple of years. Overall, we continue to invest in our existing facilities, make sure we're replacing, replacing equipment, increasing automation where we can. The commentary around lowering the CapEx really is around, you know, when you look at the outlook for this year and into next year, less large project bills going on.

Shane Oconnor: And a couple of the ones we had going on were replacing facilities, older facilities that we had obtained through acquisition. So we're a little further along in that roadmap, but we will continue to invest in the facilities just at a little bit of a lower rate on the new plant bills.

Speaker: Pretty great. Thank you Steve and thanks Shane for the color. Thank you.

Operator: As a reminder to register for a question, press the one four. There are no further questions at this time, and I will turn the call back over to you.

Steven Sintros: Great, I'd like to thank everyone for joining us today to review our fourth quarter results. We look forward to speaking everyone again in January when we expect to report our first quarter performance. Thank you and have a great day. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Thank you.

[music].

Please press Star Zero I would now like to turn the conference over to Steven Central's, President and Chief Executive Officer. Please go ahead.

Thank you and good morning, I'm, Steven Central's unit first President and Chief Executive Officer. Joining me today is Shane Oconnor Executive Vice President and Chief Financial Officer.

We'd like to welcome you to unit first Corporation's conference call to review, our fourth quarter results for the fiscal year 2023.

This call will be on a listen only mode until we complete our brief remarks, but first but first a brief disclaimer.

Forward looking statements.

I am pleased to report that we closed the year with the fourth quarter that models, we exceeded our expectations in both top and bottom line performance.

We accomplished a lot as a team in fiscal 2023 that will help strengthen our company as we move forward growing our business, making strong progress in our technology transformation and closing on our mid year acquisition of clean uniform I want to sincerely. Thank all of 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.

I wanted to take a couple of minutes to expand on fiscal year 'twenty three what we accomplished as a company and what we have in store moving forward.

It comes as no surprise that as we report our final 2023 results that we have continued the company's longstanding record of always growing our top line our full year fiscal 2023 fiscal revenues increased 11, 6% to two to three 3 billion.

Overall growth was also bolstered by our mid year acquisition of clean uniforms we.

We couldnt be more pleased with what we were able to bring clean into the unit first family.

We continue to feel they are a tremendous fit within our organization in terms of their focus on service excellence as well as overall culture.

Operator: [inaudible] Greetings and welcome to the UniFirst Corporation Forth Quarter Earnings call. During the presentation all participants 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. If at any time during the conference you need to reach an operator please press star zero.

The early days of bringing our companies together have been very constructive with initial efforts being focused primarily on retaining cleans most important assets its people and its customers.

We're also very excited about leveraging some of the experience and knowledge that the green team has with respect to unit first CRM technology as well as some of the proprietary applications that clean is built to further enhance the usability and efficiency of our CRM.

Our specialty garment segment contributed very strongly on the top and bottom line in fiscal 2023 with record revenues and profits during the year.

As a reminder, our specialty garment segment is made up of both our nuclear and clean room operations.

Our clean room Division continues to show steady growth and profitability, which we expect to continue as we move forward.

As we've mentioned over the years, our nuclear divisions results can be more volatile based on the impact of certain projects as well as swings in activity with some very large customers.

In fiscal 'twenty four we do expect a nuclear division of this segment to take a step back from its record setting 2023 results due to decreased revenue from its Canadian customers.

We believe very strongly in the bright future of our first aid and safety Division, which grew 22, 5% in fiscal 'twenty three.

Steven Sintros: I would now like to turn the conference over to Steven Sintros, President and Chief Executive Officer. Please go ahead. Thank you and good morning. I'm Steven Sintros, Uni First President and Chief Executive Officer. Joining me today is Shane OConnor, Executive Vice President and Chief Financial Officer.

Steven Sintros: We would like to welcome you to Uni First Corporation's conference call to review our fourth quarter results for the fiscal year 2023. This call will be on a listen only mode until we complete our brief 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 identified forward-looking statements.

Steven Sintros: 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 10K and 10Q filings with the Securities and Exchange Commission.

These initiatives are the rollout of our new CRM and our corporate wide Oracle ERP system.

With respect to our CRM systems project as of today, we have effectively deployed 100% of our U S core laundry operations onto the new system.

Going forward there is still work to be done to optimize the new system, including further enhancements to our CRM full conversion to our new barcode technology, aligning with green technology footprint as well as integrating with our ERP over.

Steven Sintros: I'm pleased to report that we closed the year with a fourth quarter that models fully exceeded our expectations in both top and bottom line performance. We accomplished a lot as a team in fiscal 2023 that will help strengthen our company as we move forward, growing our business, making strong progress in our technology transformation, and closing on our mid-year acquisition of clean uniform. I want to sincerely thank all of 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.

Over the next two or three years, we will continue to expand costs through our operating results and capital expenditures related to these key initiatives.

Shane will provide additional commentary and estimates of these costs in his comments shortly as we think it is important to understand the impact that these initiatives are having on our results.

Overall, we continue to be excited about how these investments will continue to position the company for future success.

I am proud of the fact that the company continues to make solid progress in contributions in the area of environmental social governance governance ESG.

Steven Sintros: I want to take a couple minutes to expand on fiscal year 23 what we accomplished as a company and what we have in store moving forward. It comes as no surprise that as we report our final 2023 results that we have continued the company's longstanding record of always growing our top line. Our full year fiscal 2023 fiscal revenues increase 11.6% to 2.233 billion. Our core laundry operations showed strong organic growth during the year driven by solid new accounts sales as well as the impact of the effort to work with our customers to share in the impact of the inflationary environment.

Steven Sintros: Overall growth was also bolstered by our mid-year acquisition of clean uniform. We couldn't be more pleased with what we were able to bring clean into the UniFirst family. We continue to feel they are a tremendous fit within our organization in terms of their focus on service excellence as well as overall culture. The early days of bringing our companies together have been very constructive with initial efforts being focused primarily on retaining clean's most important assets its people and its customers.

As we look forward to fiscal 'twenty, four and beyond margin improvement will certainly be a key focus of the organization.

Steven Sintros: We were also very excited about leveraging some of the experience and knowledge that the clean team has with respect to UniFirst CRM technology as well as some of the proprietary applications that clean has built to further enhance the usability and efficiency of our CRM. As we discuss last quarter do the strong leadership and service reputation the clean brings with it as well as the complexities of where we are in our technology transformation we will be strategic in patient in the full integration of the two businesses. That being said in the six months since the closing date clean has produced very solid operating results.

In addition to day to day execution, we are focused on margin opportunities in many areas as.

As I mentioned, there is work being done optimizing the use of our new CRM, including leveraging some of cleans proprietary technology across all of universe.

Areas, such as strategic pricing and account profitability and strategic manufacturing and sourcing represents strategic significant opportunities.

Steven Sintros: Our specialty garment segment contributed very strongly on the top end bottom line in fiscal 2023 with record revenues and profits during the year. As a reminder our specialty garment segment is made up of both our nuclear and clean room operations. Our clean room division continues to show steady growth and profitability which we expect to continue as we move forward. As we have mentioned over the years our nuclear division's results can be more volatile based on the impact of certain projects as well as swing and activity with some very large customers. In fiscal 24 we do expect the nuclear division of this segment to take a step back from its record setting 2023 results due to decreased revenue from its Canadian customers.

Overall overall, we expect fiscal 'twenty four to be another solid year for unit one.

As our outlook includes we expect our topline to surpassed two 4 billion and at the midpoint consolidated EBITDA to improve by approximately 20%.

Although some of that growth is attributable to lower key initiative costs, even excluding this benefit EBITDA is projected to show double digit growth.

Steven Sintros: We believe very strongly in the bright future of our first aid in safety division which grew 22.5% in fiscal 23. We continue to make investments in the sales and service infrastructure of this segment to expand our footprint and ensure that we can reach existing universe customers as well as new prospects in the market that have a strong need for these products and services. As expected the investments to expand our reach and route structure have certainly limited our ability to expand the profitability of this segment but we are happy with the progress toward the longer term goal of building a much larger more profitable business that meets our customer's needs.

I'd like to once again, thank our thousands of dedicated team partners, who make everything we accomplished as a company possible.

With that I'd like to turn the call over to Shane who will provide more details on our fourth quarter results as well as our outlook for fiscal 2014.

Thanks, Steve.

Consolidated revenues in our fourth quarter of 2023 were $571 9 million.

An increase of 10, 7% from $516 4 million a year ago and consolidated operating income increased to $36 1 million from $33 3 million or eight 5%.

Steven Sintros: As we have discussed throughout the year we have progressed we have continued to progress on two large technology initiatives design a transform the company in terms of our overall capabilities and competitive position Engineering. These initiatives are the rollout of our new CRM and our corporate-wide Oracle ERP system. With respect to our CRM systems project, as of today, we've effectively deployed 100% of our U.S. Corn Laundry operations onto the new system. Going forward, there is still work to be done to optimize the new system, including further enhancements to our CRM, full conversion to our new barcode technology, aligning with Gleens Technology footprint, as well as integrating with our ERP.

Net income for the quarter increased to $27 6 million or $1 47 per diluted share from $26 2 million or $1 39 per diluted share.

As we mentioned last quarter due to the increase in noncash acquisition related intangibles amortization and we will be incurring as a result of the clean acquisition. We believe that EBITDA will become a valuable metric for us to include in our commentary going forward.

Consolidated EBITDA increased to $69 $2 million compared to $62 million in the prior year or 15%.

Steven Sintros: Over the next two or three years, we will continue to expend costs through our operating results and capital expenditures related to these key initiatives. Shade will provide additional commentary and estimates of these cost in his comments shortly, as we think it is important to understand the impact that these initiatives are having on our results. Overall, we continue to be excited about how these investments will continue to position the company for future success.

Our financial results in the fourth quarters of fiscal 2023 in fiscal 2022 included $6 $1 million and $9 1 million respectively of costs directly attributable to our key initiatives. In addition, we incurred costs related to the acquisition of clean uniform during the <unk>.

Fourth quarter of fiscal 2023 of approximately $3 million the.

Steven Sintros: I am proud of the fact that the company continues to make solid progress in contributions in the area of environmental social governments, governance, ESG. The nature of our industry and rental model has always allowed us as a company to do our part of enhancing the economy's environmental footprint, given our role as a natural recycler, as well as the better utilization of resources and operation like ours enables. We continue to make investments in progress in the areas of reduction of water consumption, growing our fleet of electric delivery vehicles, renewable sources of energy like solar, upgrading facilities with LED lighting, environmentally efficient laundry detergent, creative textile recycling and more.

The effect of these items on the fourth quarter of fiscal 2023, and 2022 combined to decrease both operating income and EBITDA by $6 4 million and $9 $1 million, respectively, net income by $5 3 million and $7 $6 million, respectively and diluted.

Steven Sintros: While many of these efforts have been ongoing, we are preparing ourselves to increase the level of measurement and reporting to ensure we are focused on making the right investments to meaningfully impact the environment, support our customers, and have a positive impact on our business.

EPS by 28 and 40, respectively.

Our core laundry operations revenues for the quarter were $505 million, an increase of 10, 1% from the fourth quarter of 2022.

Core laundry organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar was five 3%.

This organic growth rate was impacted by pricing efforts over the last year to share with our customers. The cost increases that we have incurred in our business as well as solid sales performance.

Steven Sintros: As we have discussed throughout the year, our profits in our core laundry compared to prior years have continued to be pressured by higher operational costs being impacted by the inflationary environment. As we look forward to fiscal 24 and beyond, margin improvement will certainly be a key focus of the organization. Executing on our growth model, while also managing costs in areas we can control will be critical, all law assuring we don't impact our ability to execute on our transformational initiatives or adversely affect our customer service levels.

Core laundry operating margin decreased to 6% for the quarter from six 3% in prior year.

However, the segment's EBITDA margin increased to 12, 2% from 11, 8%.

Steven Sintros: In addition to day-to-day execution, we are focused on margin opportunities in many areas. As I mentioned, there is work being done optimizing the use of our new CRM, including leveraging some of Queen's proprietary technology across all of Unifers. Areas such as strategic pricing and account profitability and strategic manufacturing and sourcing represent significant opportunities. Although some of these benefits going forward will be more significantly enabled through the implementation of our ERP, which Shane will discuss more about shortly, we continue to focus on these areas and others we feel can move the needle in the near-to-mid term.

<unk> respectively.

Energy costs for the quarter were four 3% of revenues down from five 3% a year ago.

Steven Sintros: Overall, we expect fiscal 24 to be another solid year for Unifers. As our outlook includes, we expect our top line to surpass 2.4 billion. And at the midpoint, consolidated EBITDA to improve by approximately 20%. Although some of that growth is attributable to lower key initiative costs, even excluding this benefit, EBITDA has projected to show double-digit growth. Overall, we expect to accomplish these goals all while continuing to always deliver for our customers and continue our journey to transform the company in terms of technology and overall capabilities.

The segment's top line growth was primarily driven by its clean room and North American nuclear operations.

Segment operating income during the quarter was $6 8 million.

An increase of 69, 4% over 2022.

Steven Sintros: I'd like to once again thank our thousands of dedicated team partners who make everything we accomplish as a company possible.

Our first aid segment's revenues in the fourth quarter of 2023 increased to $25 4 million from $21 $2 million.

Shane Oconnor: With that, I'd like to turn the call over to Shane who will provide more details on our fourth quarter results, as well as our outlook for fiscal 24. Thanks, Steve. Consolidated revenues in our fourth quarter of 2023 were $571.9 million. An increase of 10.7% from $516.4 million a year ago. Consolidated operating income increased to $36.1 million from $33.3 million or 8.5%. Net income for the quarter increased to $27.6 million or $1.47 per diluted share from $26.2 million or $1.39 per diluted share.

With both the wholesale and van operations contributing to this growth.

However, the segment had an operating loss of <unk> $9 million during the quarter.

These results continue to reflect our investment in expanding our first aid van business and building the foundation for what we expect to eventually be a much larger business.

At the end of fiscal 2023, 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 $89 6 million.

Shane Oconnor: As we mentioned last quarter, due to the increase in non-cash acquisition-related intangibles amortization that we will be incurring as a result of the clean acquisition, we believe that EBITDA will become a valuable metric for us to include in our commentary going forward. Consolidated EBITDA increased to $69.2 million compared to $60.2 million in the prior year or 15%. Our financial results in the fourth quarter of fiscal 2023 and fiscal 2022 included $6.1 million and $9.1 million respectively of cost directly attributable to our key initiatives.

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

Cash provided by operating activities for the year increased to $215 8 million.

Compared to a $122 6 million in prior year, primarily due to lower working capital needs of the business.

In fiscal 2023, we continue to invest in our future with capital expenditures of $172 million and the acquisition of five businesses for which we paid $306 $2 million. The most significant being the clean uniform acquisition for a purchase price of approximately $300 million.

I'd like to take this opportunity to provide our outlook for fiscal 2024, which will include one extra week of operations compared to fiscal 2023 due to the timing of our fiscal calendar.

At this time, we expect our full year revenues for fiscal 2024 will be between $2 for $1 5 billion and two for $3 5 billion.

We further expect that our fully diluted earnings per share will be between $6 52 and.

$7 16.

This guidance includes $16 million of costs that we expect to incur attributable to our key initiatives, which at this point relate only to the CRM and ERP projects.

Shane Oconnor: An increase of 10.1% from the fourth quarter of 2022. Core laundry organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar was 5.3%. This organic growth rate was impacted by pricing efforts over the last year to share with our customers the cost increases that we have incurred in our business as well as solid sales performance. Core laundry operating margin decreased to 6% for the quarter from 6.3% in prior year.

These key initiative costs decreased our EPS assumption by 64.

Consolidated EBITDA is expected to be $307 8 million, an increase of 21, 5%.

This outlook assumes core laundry revenue growth at the midpoint of the range is nine 4% and its organic growth, which also excludes the effect of the extra week to be four 8%.

Shane Oconnor: However, the segments EBITDA margin increased to 12.2% from 11.8%. The costs we incurred related to our key initiatives and the clean acquisition were recorded to the core laundry operation segment and combined to decrease both the core laundry operating in EBITDA margins for the fourth quarter of fiscal 2023 and 2022 by 1.3% and 2% respectively. The segments operating in EBITDA margins were further impacted by higher merchandise, payroll and payroll-related costs which were partially offset by lower energy and legal costs as a percentage of revenues.

Core laundry operations operating and EBITDA margins are assumed to be six 4% and 12, 5%, respectively, which were decreased by our key initiatives cost assumptions by <unk>, 7%.

Our core laundry operations' operating and EBITDA margin improvement compared to 2023 reflects lower direct costs, we expect to incur related to our key initiatives, primarily due to the conclusion of the domestic rollout of our CRM system and our ERP initiative entering.

Implementation phases that are largely capitalized level.

Shane Oconnor: The purchase accounting for the most for the recent clean uniform acquisition additionally impacted the segments operating margin most notably in the form of elevated non-cash purchase-related intangible tamerization. Energy costs for the quarter were 4.3% of revenues down from 5.3% a year ago. Revenues from our specialty garment segment which delivers specialized nuclear decontamination in clean room products and services were $41.4 million for the fourth quarter of fiscal 2023 in increase of 13% over 2022.

As well as moderating merchandise costs and other input costs as the inflationary headwinds that have been impacting our operating environment and have continued to ease.

Energy costs are expected to be four 3% of revenues in fiscal 2024, and next year's effective tax rate is assumed to be 25%.

Okay.

Shane Oconnor: The segments top line growth was primarily driven by its clean room and North American nuclear operations. Segments operating income during the quarter was $6.8 million in increase of 69.4% over 2022. Our first aid segments revenues in the fourth quarter of 2023 increased to $25.4 million from $21.2 million with both the wholesale and van operations contributing to this growth. However the segment had an operating loss of $0.9 million during the quarter. These results continued to reflect our investment in expanding our first aid van business and building the foundation for what we expect to eventually be a much larger business.

And we expect operating income will be down approximately 17%.

Our first aid segment's revenues are expected to be up approximately 13% compared to 2023 and the segment's profitability is expected to be marginally positive.

Shane Oconnor: At the end of fiscal 2023 we continued to reflect a solid balance sheet and financial position with no long-term debt and cash equivalents and short-term investments totaling $89.6 million. We did not repurchase any additional common stock under our current stock repurchase program during the quarter. Cash provided by operating activities for the year increased to $215.8 million compared to $122.6 million in prior year, primarily due to lower working capital needs of the business.

To our ERP implementation.

Our ERP implementation will be a multiyear initiatives that will continue through 2027 with early phases focused on master data management and finance capabilities, followed by subsequent phases with our procurement in the supply chain focus we.

Shane Oconnor: In fiscal 2023 we continued to invest in our future with capital expenditures of $172 million in the acquisition of five businesses for which we paid $306.2 million. The most significant being the clean uniform acquisition for a purchase price of approximately $300 million.

And we expect this initiative and the capabilities that will enable will provide the following benefits to our organization.

Shane Oconnor: I'd like to take this opportunity to provide our outlook for fiscal 2024 which will include one extra week of operations compared to fiscal 2023 due to the timing of our fiscal calendar, at this time we expect our full-year revenues for fiscal 2024 will be between 2.415 billion and 2.435 billion dollars. We further expect that our fully diluted earnings per share will be between $6.52 and $7.16. This guidance includes $16 million of cost that we expect to incur attributable to our key initiatives, which at this point relate only to the CRM and ERP projects.

It will enable us to more effectively utilize our used car inventory.

Shane Oconnor: These key initiative costs decreased our EPS assumption by $0.64. Consolidated EBITDA is expected to be $307.8 million in increase of 21.5%. This outlook assumes core laundry revenue growth at the midpoint of the range is 9.4%, and its organic growth, which also excludes the effect of the extra weeks to be 4.8%. Core laundry operations operating and EBITDA margins are assumed to be 6.4% and 12.5% respectively, which were decreased by our key initiative cost assumptions by 0.7%.

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.

Shane Oconnor: Our core laundry operations operating in EBITDA margin improvement compared to 2023 reflects lower direct costs we expect to incur related to our key initiatives primarily due to the conclusion of the domestic rollout of our CRM system and our ERP initiative entering implementation phases that are largely capitalizable, as well as moderating merchandise costs and other input costs as the inflationary headwinds that have been impacting our operating environment and have continued to ease. Energy costs are expected to be 4.3% of revenues in fiscal 2024, and next year's effective tax rate is assumed to be 25%.

Thank you if you would like to register a question. Please press the one followed by the flaw in your telephone you'll hear at retail from technology I request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three one moment. Please for our first question.

Our first question comes from the line of Manav Patnaik with.

Barclays. Please proceed with your question.

Hi, Good morning. This is roni Kennedy on for Manav. Thank you for taking my question can I just please confirm the overall contribution to the extent you disclose them from pricing versus new business and then the.

Cross sell penetration and how those compare to historic levels and what the outlook for each of those components is contemplated.

Shane Oconnor: Our specialty garments revenues are forecast to be down from 2023 by approximately 2%, due to projected declines in the Canadian nuclear business partially offset by continued growth in the cleanroom business. The change in business mix will have a larger impact on the profitability of this segment and we expect operating income will be down approximately 17%. As we have commented 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.

Contemplated in the guidance for 'twenty four.

So we have not historically broken out those components, but I can give you directionally what we're seeing.

With respect to I guess, the broader 2023, and what we expect going forward.

We expect contribution from new account sales and retention to be similar.

Shane Oconnor: Our first aid segments revenues are expected to be up approximately 13%, compared to 2023, and the segment's profitability is expected to be marginally positive. We expected our capital expenditures in 2024 will approximate $150 million, which reflects lower new facility investments that have strategically run high over the last few years, partially offset by higher application development investments, most significantly related to RERP implementation. Through out 2023, we have focused our efforts on the global design phase of our ERP initiative, which was not capitalizable.

In 2024.

As well as cross sell I think the other components of our growth.

<unk> stable.

Trajectory.

In terms of.

That's helpful. Thank you and as a follow up if I may just confirm the assumptions for the broader macro and and more specifically for the merchandise.

Amortization.

Shane Oconnor: Starting in the first quarter of 2024, we will be entering implementation phases of our initiative, where the majority of the costs will now be capitalized. We expect our ERP implementation will be a multi-year initiative that will continue through 2027, with early phases focused on master data management and finance capabilities, followed by subsequent phases with a procurement and the supply chain focus. We expect the total amount of this project to be approximately $85 million, and have partnered with one of the world's largest strategy through execution, professional services firms to assist us in our implementation effort.

Materials commodity and labor inflation and.

And how pricing, where you'll be pricing with regards to capturing.

The impact of those.

And heads in labor coming out of the pandemic has obviously caused our merchandize to escalate exam.

Shane Oconnor: We expect this initiative, and the capabilities it will enable will provide the following benefits to our organization. Improved inventory planning and forecasting will allow us to manage our inventory levels more effectively, improve the time to install new accounts, and fulfill the daily needs of our existing customers, as well as improve direct sourcing costs. Improved visibility and centralized management of local stockroom inventory will enable us to more effectively utilize our used garments inventory.

We're getting a little bit more to a mature population coming off the lows of the pandemic and also as you can imagine we are experiencing lower freight cost bringing in product.

Shane Oconnor: Enhance procurement capabilities will enable us to centralize sourcing, with enhanced strategies around vendor management and negotiation, as well as improve visibility, oversight, and analytics into organizational spend. Automation of manual processes will enhance the efficiency of our back-end office functions, and simplification of our IT architecture and improvement in our data quality will reduce operational complexity and cost to deliver. We believe that these benefits will provide 150 to 200 basis points of improvement to our EBITDA margins.

Our next question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Yes. Thanks for taking my question I, just wanted to follow up on the.

The retention.

Shane Oconnor: However, we caution that the larger value will be derived from the later phases of the project and will take time to realize. Our guidance assumes our current level of outstanding common shares, and no unexpected changes generally affecting the economy.

Aspects of the business.

I know last quarter, you mentioned that you'd seen a slight pickup in customer attrition over the last few months, but.

I know youre attention rates historically been pretty darn high so.

We're just curious how your current rate compares to historical standards and if you've seen any change in customer attrition relative to when you were talking about this last quarter.

Operator: This concludes our prepared remarks, and we would now be happy to answer any questions that you might have. Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered, and you would like to withdraw your registration, please press the one followed by the three. One moment, please, for our first question.

Yes, I would say not much of a change since last quarter.

In a few months I think overall for the year. The comments stands that we were a bit higher.

When you say historical I would say that our retention has improved for a couple of years.

And then we kind of took a little bit of a step back this year.

A lot of feedback during the pandemic and so on maybe a lot of decisions.

Ronan Kennedy: Our first question comes to the line of Manav Patnik with Barclays. Please proceed with your question. Hi, good morning. This is Ronan Kennedy from Manav. Thank you for taking my question.

From customers, whether it's changing vendors both on the sales and retention side were sort of delayed and maybe a little more energy around that this year as people.

Looking to control their own cost maybe put more things out to bid lets just anecdotally maybe some of the things that could have impacted it.

Shane Oconnor: Can I just please confirm the overall contribution to the extent you disclose them from pricing versus new business, and then the process of penetration, and how those compare to historic levels and what the outlook for each of those components is, contemplated in the guidance for 24. So we have not historically broken out those components, but I can give you directionally what we're seeing with respect to, I guess, the broader 2023 and what we expect going forward.

So.

I would say not much of a change from a few a few months ago.

Okay.

Thanks for that Steve.

One other.

Actually I have two more quick ones following up on the ERP comments Shayne that you made at the end.

Shane Oconnor: Particularly pricing being a large item that we've talked about given the inflationary condition, we expect that impact to decrease, we've seen some of that over the back half of 23 and we expect that in 24 as well. We expect contribution from new account sales and retention to be similar in 2024, as well as Crossell. I think we, the other components of our growth reasonably stable trajectory in terms of, you know, often one of the other components we talk about is wearer levels, and I would say wearer levels have continued to be stable through the back half of this year, and that's at this point what we've assumed going through 24.

I just want to make sure I've got this right.

Three year initiative, that's going to continue through 2027 benefits should be 150 to 200 basis points EBITDA margins, but most of that's going to be realized towards the end of the project.

And maybe take some time after that so as that.

Just want to make sure I'm thinking about this correctly the benefits.

From this we likely won't see a lot of us until fiscal 2027 years later.

Psycho centric refinance centric activities.

But the more meaningful value that is being sort of communicated here is really around the supply chain capabilities.

Shane Oconnor: That's up, thank you and as a file, if I may just confirm the assumptions for the broader macro, and then more specifically for the merchandise monetization, like material, commodity and labor inflation, and how, you know, pricing, where you'll be pricing with regards to capturing the impact of this. Yeah, in terms of a couple of different things you mentioned there, in terms of our overall merchandise cost, you know, we've talked a lot in the last couple of years how we've seen escalating merchandise costs, both from a quantity perspective coming off some of the lows of the pandemic when less merchandise was infused, given the labor environment, the strong growth in heads and labor coming out of the pandemic has obviously caused our merchandise to escalate exacerbated by higher costs of merchandise in a number of different areas, including freight raw materials and so on.

As well as the procurement capabilities that are some of the later phases.

So yes, the more meaningful value is expected to be realized in those later phases, when we get to.

Shane Oconnor: A number of things are happening at this point that are causing our merchandise costs and trajectory to start to flatten, and it really exists in all areas. We're getting a little bit more to a mature population coming off the lows of the pandemic, and also as you can imagine, you know, we are experiencing lower freight costs, bringing in products, raw material costs, if you follow things like cotton, and in some cases on a smaller extent, things like rubber for mass and so on have also moderated from a year ago. So, those things are starting to work our way through the supply chain and contribute to the fact that our merchandise cost overall is starting to flatten a bit.

Understood understood. It's a longer term project I wanted to make sure I just said the timing right on that stuff, but I appreciate the extra color there.

I apologize for that and also we will try to sneak one more in really quick which is just wanted to on a housekeeping question just wanted to understand how much the clean uniform acquisition contributed to revenue in the quarter and what quarter do you expect to see that impact from that extra work week in fiscal 2020 for thanks for taking my questions guys.

Okay.

Yes, so again, when we acquired clean it was about $90 million.

Their run rate for the quarter is largely in line with that.

Timothy Mulrooney: Our next question comes online of Tim Mulroney with William Blair, please proceed with your question. Yeah, thanks for taking my question. I just wanted to follow up on the retention aspect of the business. You know, I know last quarter you mentioned that you'd seen it, the flight took up and customer attrition over the last few months, but... I know your attention rates historically, but I'm pretty darn high, so we're just curious how your current rate compares to historical standards, and if you've seen any change in customer attrition relative to when you were talking about this last quarter.

And actually I'm, sorry, I missed the second part of the question.

Oh no worries I was just curious is that extra work, we've always in the fourth quarter or does it sometimes in different quarters, just just curious.

When we should be adjusting for that out of organic.

Yes, that's a good question, yes, the extra week is going to be in our fourth quarter.

And we usually we usually lead time in the fourth quarter historically have over the last number of instances, where we've had a 53 week year.

Got it thank you.

Our next question comes from the line of Kartik Mehta with Northcoast Research. Please proceed with your question.

Timothy Mulrooney: Yeah, I would say not much of a change since last quarter, you know, just been a few months, I think overall for the year the comment stands that we were a bit higher, you know, when you say historical, I would say that our attention had improved for a couple of years, and then we kind of took a little bit of a step back this year. You know, a lot of feedback during the pandemic and so on, maybe a lot of decisions and from customers, whether it's changing vendors, both on the sales and retention side, we're sort of delayed and maybe a little more energy around that this year as people looking to control their own costs, maybe put more things out to bid, let's just anecdotally maybe some of the things that could have impacted it.

Hey, good morning, Steve.

Steve maybe just your thoughts on where how your customers are feeling about the economy and obviously based on the guidance. It seems as though you are not anticipating much of a pullback on the economy and I'm assuming that.

Your customers are giving you pretty positive feedback on.

How they're feeling about their business.

Yes, I would say pretty stable environment, I think you see it with.

The job creation numbers coming out recently.

We're obviously always cautious given the environment with interest rates, whether there's another shoe to drop but right now I would say companies are still making investments hiring.

Timothy Mulrooney: So certainly our ongoing growth model assumes continued high retention rates, and a lot of the things that we're focused on as a company, with our technology transformation and process transformations is to continue to improve that retention. So I would say not much of a change a few months ago.

We see it a little bit on our own hiring side it may be a little bit easier to bring in employees, but it's still a competitive labor environment out there which to us.

Tells us that.

Steven Sintros: Okay, thank you for that Steve. One other, actually, I have two more quick ones, so following up on the ERP comments, Shane, that you made at the end, just want to make sure I've got this right, it's a multi-year initiative that's going to continue through 2027. Benefits should be 150 to 200 basis points, leave without margins, but most of that's going to be realized towards the end of the project. So I end up maybe take some time after that.

Is any of that pullback related to a change in the environment, where youre seeing extra competition or is this all related to.

Steven Sintros: So I just want to make sure I'm thinking about this correctly, like the benefits from this, we likely won't see a lot of this until fiscal 2027 or later. Is that correct? Yeah, yeah, I think that's sort of what I was communicating there. Now, in some of the earlier phases, there will be benefits that will be realized as we go through some of those FICO-centric or finance-centric activities. But the more meaningful value that is being sort of communicated here is really around the supply chain capabilities, as well as the procurement capabilities that are some of the later phases.

Just lower inflation lower inflation, so customers are.

Asking.

Arent willing to pay that extra like they did a year or two ago.

From from prior quarters prior years.

It's aggressive it's competitive but I wouldn't say there's been any.

Near term change in that.

We continue to work with our customers. So I don't want to give the impression that we can't.

Steven Sintros: So yeah, the more meaningful value is expected to be realized in those later phases when we get to the capabilities that I had mentioned. You know, one thing I want to add to that and I sort of alluded to it in my comments is we certainly think supply chain is a big area of opportunity and during the pandemic, as many companies experience, disruption in their supply chain. In many cases, it was more about getting products than being able to optimize maybe where you've got product and how you've got product.

Obtain price as necessary given the environment, but it's a little bit pulled back from a year ago I would say.

Alright, and just one last question I think youre, saying you talked about on the specialty carbon side that you are expecting new clear that part of the business to be down but.

Clean energy should continue to grow what's the breakout of that business within <unk> within that segment.

At this at this point in time that segment is about 50 50.

Steven Sintros: And so we are making efforts and initiatives to improve in those areas that we think can help our costs and profitability over the next few years, even leading into the benefits that the supply chain ERP benefits will ultimately accelerate and enable. So I just wanted to make that common in the context is we're not waiting to the end of the ERP to make improvements in these areas, but the ERP will eventually enable those fully.

Nuclear versus clean room.

Sure.

Perfect. Thank you very much I really appreciate it.

Thank you.

Our next question comes from the line of Andy Wittmann with Baird. Please proceed with your question.

Great. Good morning, I guess I just wanted to make sure I understood. The 24 guidance a little bit better so Shane I guess, maybe this one's coming your way.

If I looked at it on a clean basis, excluding your key initiatives cost it looks like the EBITDA margins implied about 13%.

Shane Oconnor: I understood and understood it's a longer term project I wanted to make sure I just had the timing right on that stuff, but I appreciate the extra color there. My apologies to the other analyst, I'm going to try to sneak one more and really quick, which is just wanting to, on a housekeeping question, just wanted to understand how much the clean uniform acquisition contributed to revenue in the quarter and what quarter do you expect to see that impact from that extra work week in fiscal 2024?

Compares to about 13% if you adjust out the factors in 'twenty three by my calculations.

So first wanted to confirm that but also it feels like with the clean room.

Not the clean room the nuclear.

The nuclear business being down.

Shane Oconnor: Thanks for taking my questions, guys. Yeah, so again, when we acquired clean, it was about $90 million. Their run rate for the quarter is largely in line with that. And actually, I'm sorry, I missed the second part of the question. Oh, no worries, I was just curious. Is that extra work week always in the fourth quarter? Does it sometimes hit in different quarters, just curious when we should be adjusting for that out of organ?

And penalize the margin, though you're picking up a little bit of margin.

On the core segments cousin merchandise because of labor some of the things you called about but it's really just.

Pretty modest increase on those factors, Mike am I thinking about that the way youre thinking about the 24 guidance correctly just to start out with.

No that's exactly right if I take a look at my core I'm expecting a little bit of margin improvement about 2030 basis points of improvement.

Sort of excluding the impact of the lower key initiative costs.

Shane Oconnor: Yeah, that's a good question. Yeah, the extra week is going to be in our fourth quarter. And we usually, we usually time it in the fourth quarter historically have over the last number of instances where we've had a 53-week year.

Speaker: Got it, thank you.

Really what that is just to break that.

Down for you we had mentioned the fact that merchandise.

He is moderating still seeing a little bit of a headwind, it's probably 10 to 20 basis points on the merchandise side, but obviously the headwind that we're seeing there is significantly reduced from what we've experienced over the last couple of years, which is positive trend.

Kartik Mehta: Our next question comes in line of Cartic Netta with Dorst Coast Research. Please receive your question. Yeah, good morning.

The <unk> acquisition and the non tangible amortization.

Steven Sintros: Steve, maybe just your thoughts on where, how your customers are feeling about the economy and obviously based on the guidance it seems as though you're not anticipating much of a pullback on the economy and I'm assuming that your customers are giving you pretty positive feedback on how they're feeling about their business. Yeah, I would say a pretty stable environment. I think you see it with some of the job creation numbers coming out recently.

Which actually is impacting my operating income, but now my EBITDA, but on the operating income side, Thats, probably about 30 basis points of headwind as well.

Energy is about 20 points or 20 basis points of benefit and then there is a number of other input costs that have trended lower as Steve it's sort of articulated Knight articulated in my comments.

As the inflationary pressures are continuing to ease we're seeing some favorable trends there is as a percentage of revenues that are sort of offsetting those other items.

Steven Sintros: You know, we're all obviously always cautious given the environment with interest rates, whether there's another shoe to drop. But right now, I would say companies are still making investments, hiring. We see it a little bit on our own hiring side. It may be a little bit easier to bring in employees, but it's still a competitive labor environment out there, which to us, you know, tells us that, you know, people aren't pulling back and that's really what we're seeing from our customers right now. So we think it's a pretty healthy environment right now. Obviously, we continue to look out for any indicators of that turning, but we have not built any of that into our assumptions.

Okay that makes sense I guess, maybe my question is.

With the CRM being effectively fully implemented here.

Items that you talked about.

We are not I don't think.

Affected by the implementation of the CRM. The question I guess is.

Where can there'll be benefits to the CRM in 2000 22024.

That may arise.

As positives or maybe why isn't there more contributions from some of the efficiencies.

Steven Sintros: Steve, I think you had said, or maybe Shane, on pricing that you're expecting a little bit of a pullback from where you were last year, just because of what's happened with inflation and I'm wondering, is any of that pullback related to a change in the environment where you're seeing extra competition, or is this all related to just lower inflation, lower inflation, so customers are asking aren't willing to pay that extra, like they did a year or two ago? Yeah, I think everyone's trying to be as cautious as they can with cost.

I know you've talked about this as kind of a.

Our customer retention tool and it's not all about efficiencies, but I would think there'd be maybe a little bit more so maybe Steve could you address address that.

Sure I think some of it you mentioned some of it right and we talked about some of the modernization of of the work that our that our route drivers have to do.

It was critical in us kind of getting in place from an employee retention perspective, and a customer service perspective.

Steven Sintros: Our sales included and our customers included. I think as far as the competitive environment goes, I think it remains, right? It remains stable from prior quarters, prior years. It's aggressive, it's competitive, but I wouldn't say there's been any near-term change in that. And, you know, we continue to work with our customers, so I don't want to give the impression that we can't Paying price as necessary given the environment, but it's a little bit pulled back from a year ago, I would say.

Overall, I've talked about merchandise control as being one of the areas that the CRM helps.

Hans and I think we are starting to see some of that so when we talk about the modest moderation of our.

Of our merchandise and our ability to collect on charges if theres loss merchandise in the overall tracking of merchandise I think we are seeing improvements in that area I think as we've deployed the CRM. Some of that has been muddied by the inflationary condition and so hopefully as we move forward, we will continue to see more of that come through.

Shane Oconnor: In just one last question, I think you're saying you talked about on the special decarbon side that you're expecting new clear. That part of the business to be down but the clean energy should continue to grow. What's the breakout of that business within that segment? At this point in time, that segment is about 50-50 new clear versus clean room. Perfect.

And in in the in the area of lower merchandise as a percent of revenue and start really seeing some of that some of that benefit I will say and I made comments in my prepared remarks about this we continue to enhance.

The CRM clean.

Clean had some good experience with the CRM and some applications that they had built to enhance the usability of the CRM some of that in the area.

Account profitability.

Speaker: Thank you very much. I really appreciate it. Thank you.

Tracking and maintenance, so we think that getting some of that benefit as well. We think we can improve around the edges in the areas of price management and so on so it's really customer retention merchandise management, and I'd say management of revenue and pricing that are the areas and so it's it's in.

Eddie Whitman: Our next question comes to light of Eddie Whitman with Brad, please proceed with your question. Oh, great.

Shane Oconnor: Good morning. I guess I just wanted to make sure I understood the 24 guidance a little bit better. So Shane, I guess maybe this one's coming your way. If I looked at it on a clean basis, excluding your key initiatives cost, looks like the EBITDA margins implied about 13%. Compared to about 13% if you adjust out the factors in 23 by my calculations. So first one to confirm that, but also it feels like with the clean room, not the clean room, the nuclear business being down and penalizing the margin there, you're picking up a little bit of margin on the core segments because of merchandise, because of labor, some of the things you've called about.

<unk> in our results and we will continue to drive efficiency of the CRM to try to to try to pull as much out of it as possible.

Okay. Good I think I'm going to leave it there thanks guys.

Thank you.

Our next question comes from the line of Andrew <unk> with Jpmorgan. Please proceed with your question.

Hi, Shane did you mention the intangible asset amortization from clean into fourth quarter and could you. Just also give us a sense of what that amortization will be in 'twenty four.

Yes.

Shane Oconnor: But it's really just a pretty modest increase on those factors. Mike, am I thinking about that the way you're thinking about the 24 guidance correctly, just to start out with? No, that's exactly right. If I take a look at my core, I'm expecting a little bit of margin improvement. Now, 2030 basis points of improvement, sort of excluding the impact of the lower key initiative cost. Really, what that is, just to break that down for you.

Let me get that in front of me.

So one of the things that we did do to provide that visibility and in our press release, we've included a footnote underneath our cash flow.

What the noncash intangibles ameren.

Amortization is so that you can see that component of that.

Just just to call that out.

Of that amount in the fourth quarter was $19 3 million versus $15 1 million in last year's comparable quarter and the majority of that difference.

Shane Oconnor: We had mentioned the fact that merchandise is moderating. Still seeing a little bit of a headwind. It's probably 10 to 20 basis points on the merchandise side, but obviously the headwind that we're seeing there is significantly reduced from what we've experienced over the last couple of years, which is positive trend. The clean acquisition and the non-tangibles amortization, which actually is impacting my operating income, but not my EBITDA, but on the operating income side, that's probably about 30 basis points of headwind as well.

Equates to.

The clean uniform acquisition.

Alright that did add different being about $3 $5 million in the quarter is sort of what the run rate would project for next year as well.

Okay. Thank you.

As a reminder to register for a question press the one followed by the floor.

Our next question comes from the line of Josh Chan with UBS. Please proceed with your question.

Shane Oconnor: Energy is about 20 basis points of benefit, and then there's a number of other input costs that have trended lower as Steve sort of articulated in my comments as the inflationary pressures are continuing to ease. We're seeing some favorable trends there as a percentage of revenues that are sort of offsetting those other items. Okay, that makes sense. I guess maybe my question is, with the CRM being effectively fully implemented here, the items that you talked about really are not affected by the implementation of the CRM.

Hi, good morning, Thanks for taking my questions.

Some of it in the back half just kind of could you help us with kind of shape.

Yes, yes.

Is that margin realization.

Really I mean aside from some of the seasonality that we see in our quarters, where oftentimes we have slightly higher profitability in our first quarter.

Shane Oconnor: Where can there be benefits to the CRM in 2024 that may arise as positive or maybe why isn't there more contributions from some of the efficiencies that I know you've talked about this as kind of a customer attention tool and it's not all about efficiencies and I would think there'd be maybe a little bit more so maybe Steve could you address address that? Sure, I think some of it you mentioned some of it right and we talked about some of the modernization of the work that our route drivers have to do which was critical enough kind of getting in place from an employee retention perspective in a customer service perspective.

Again, primarily driven.

By the impact of the merchandise continuing to moderate as we go throughout the year as a percentage of revenues.

But it's relatively or it's relatively nominal again, our profitability will trend mainly towards the seasonal experience. It's historically had.

Okay perfect. Thanks for that color and I guess for my follow up.

Didn't mentioned that Capex would be tapered off a little bit from at least from the facility side of things and so could you just talk about the rationale behind that.

Shane Oconnor: Overall I've talked about merchandise control as being one of the areas that the CRM helps enhance and I think we are starting to see some of that so we talk about the modernization of our merchandise and our ability to collect on charges if there's loss merchandise and the overall tracking of merchandise I think we are seeing improvements in that area I think as we've deployed the CRM some of that has been moneyed by you know the inflationary condition and so hopefully as we move forward we'll continue to see more of that come through in the area of lower merchandise as a percent of revenue and start really seeing some of that some of that benefit. I will say and I make comments in my prepared remarks about this we continue to enhance the CRM clean had some good experience with the CRM and some applications that they had to enhance the usability of the CRM some of that in the area of account profitability tracking and maintenance and so we think that you know getting some of that benefit as well we think we can improve around the edges in the areas of price management and so on so it's really you know customer retention merchandise management and I'd say management of revenue and pricing there are the areas and so it's implicit in our results and we'll continue to drive efficiency of the CRM to try to to try to pull as much out of it as possible.

It feels like your facilities are in good shape heading into next year.

Yeah in general when you look at the elevated Capex that elevated Capex really comes from new facility New plant processing plant builds that's the biggest.

Plant runs $20 million or so these days and so if you have two or three of those going on Thats, where you sort of get that elevated capex and.

And we had more projects to have sort of centralizing around the last couple of years overall, we continue to invest in our existing facilities make sure we're replacing.

Replacing equipment, increasing automation, where we can.

Commentary around lowering the Capex really is around when you look at the outlook for this year and into next year.

Less large project builds going on in a couple of the ones. We had going on we're replacing facilities older facilities that we obtained through acquisitions. So we're a little further along on that roadmap, but we will continue to invest in the facilities you said a little bit of a lower rate on the new plant builds.

Okay, great. Thank you, it's Steven thank Shane for the color.

Thank you.

As a reminder to register for a question press the one four.

Speaker: Okay good I think I'm going to leave it there thanks guys thank you.

There are no further questions at this time I will turn the call back over to you.

Great I'd like to thank everyone for joining us today to review our fourth quarter results.

Andrew Steinerman: Our next question comes in line of Andrew Steinerman with JP Morgan please proceed with your question. Hi Shane did you mention the intangible amnesty from clean in the fourth quarter and could you just also give us a sense of what that amnesty will be in 24. Yeah let me get that in front of me. So so one of the things that we did do to provide that visibility in in our press release we've included in a footnote underneath our cash flow what the non-cash intangibles amortization is so that you can see that component of that just just to call that out the that amount in the fourth quarter was 19.3 million versus 15.1 million in last year's comparable quarter and the majority of that difference equates to the clean uniform acquisition As a reminder to register for a question, press the one followed by the four.

Look forward to speaking everyone again in January our January when we expect to report our first quarter performance. Thank you and have a great day.

That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.

Shane Oconnor: Our next question comes the line of Josh Chan with UBS, please proceed with your question. Good morning and thanks for taking my questions. I guess for your core margin improvement of 28 to 30 basis points next year, could you give us a sense of how that would flow through through the year, are you expecting margins to be down in the first part of the year and then you recover some of it in the back half just kind of could you help us with kind of shape.

Shane Oconnor: Yeah, I mean, that margin realization, really, I mean, aside from some of the seasonality that we see in our quarters where oftentimes we have slightly higher profitability in our first quarter, and obviously our second quarter is down from a margin perspective because of the timing of some costs that we incur as well as the impact of the holidays. There's slight or there's a slight margin improvement as we go through out the year again, primarily driven by the impact of the merchandise continuing to moderate as we go throughout the year as a percentage of revenues, but it's relatively or it's relatively nominal again, our profitability will trend mainly towards the seasonal experience it historically had.

Shane Oconnor: Okay, perfect, yeah, thanks for that color, and I guess for my follow up, you didn't mention that CapEx would be tapered off a little bit from at least from the facility side of things, and so could you just talk about the rationale behind that, do you feel like your facilities are in good shape heading into next year. Yeah, in general, when you look at the elevated CapEx, that elevated CapEx really comes from new facility, new plant processing plant bills, that's the biggest, you know, a plant runs $20 million or so these days, and so if you have two or three of those going on, that's where you sort of get that elevated CapEx.

Shane Oconnor: And we had more projects to sort of centralizing around the last couple of years. Overall, we continue to invest in our existing facilities, make sure we're replacing, replacing equipment, increasing automation, where we can. The commentary around lowering the CapEx really is around, you know, when you look at the outlook for this year and into next year, less large project bills going on. And a couple of the ones we had going on, replacing facilities, older facilities that we had obtained through acquisition, so we're a little further along in that road map, but we will continue to invest in the facilities, just at a little bit of a lower rate on the new plant bills. Pretty great. Thank you Steve and thanks Shane for the color. Thank you. As a reminder to register for a question, press the one four.

Operator: There are no further questions at this time. I will turn the call back over to you. Great.

Steven Sintros: I'd like to thank everyone for joining us today to review our fourth quarter results. We look forward to speaking everyone again in January when we expect to report our first quarter performance. Thank you and have a great day.

Operator: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.

Q4 2023 UniFirst Corp Earnings Call

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