Q1 2025 UniFirst Corp Earnings Call
And our first quarter of 2025 consolidated revenues were $604 9 million up.
Up one 9% from $593 $5 million, a year ago, and consolidated operating income increased to $55 5 million from $53 1 million or four 5%.
Net income for the quarter increased to $43 1 million or $2 31 per diluted share from $42 3 million or $2 26.
Our $2 26 per diluted share.
As discussed in the prior quarter the company migrated to an adjusted EBITDA metric that we believe is more meaningful and is defined as net income before interest income taxes, depreciation and amortization further adjusted for share based compensation expense acquisition costs and other items impacting comparability.
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We believe that this.
More wholesome non-GAAP measure will provide a more refined view of the company's profitability and is a better indication of the company's capacity to generate future cash flows the.
The adjusted EBITDA metric does not adjust for the key initiative costs, we incur but the company will provide visibility to those items separately.
Consolidated adjusted EBITDA increased to $94 million from $88 7 million in the prior year or five 9%.
Our financial results in the first quarters of fiscal 2025, and 2024 included approximately $2 5 million and $2 $9 million, respectively of costs directly attributable to our key initiatives.
The effect of these items on the first quarter of fiscal 2025, and 2024 decreased operating income and adjusted EBITDA by $2 5 million and $2 9 million respectively.
Net income by $1 8 million and $2 $4 million, respectively, and diluted EPS by <unk>, <unk> and <unk> 12, respectively.
Our core laundry operations revenues for the quarter were $532 7 million an increase of one 7% from the first quarter of 2024.
Core laundry organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar was also a one 7%.
The organic growth rate was primarily the result of solid new account sales and pricing efforts over the last year.
Core laundry operating margin increased to eight 1% for the quarter were $43 million from 8% in prior year or <unk> $42 $1 million and the segment adjusted EBITDA margin increased to 14, 8% from 14, 4%.
Cost we incurred related to our key initiatives were recorded to the core laundry operations segment and decreased core laundry operating and adjusted EBITDA margins for the first quarter of fiscal 2025, and 2024 by 5% and 6% respectively.
Segment operating and adjusted EBITDA margin comparisons.
Benefited from lower merchandize and other operating input costs as a percentage of revenues, which were partially offset by higher healthcare legal and environmental and selling costs in the first quarter of 'twenty five as a percentage of revenues.
Energy costs in the first quarter of 2025 or three 9% of revenues.
Revenues from our specialty garments segment, which delivers specialized nuclear decontamination and clean room products and services increased to $45 9 million from $44 7 million in prior year or two 9% and the segment's operating margin was 26, 5%.
Strong operating results from our European nuclear operations were partially offset by a slight decline in our premium business.
As we mentioned in the past this segment's results can vary significantly from period to period due to seasonality as well as timing and the profitability of nuclear reactor outages and projects.
Our first aid segment's revenues increased to $26 2 million from $24 9 million in prior year or five 4% driven by double digit growth in our van operations.
Segment had a nominal nominal operating income of <unk> $3 million during the quarter as the segment's results continued to reflect the investments we are making in the first aid van business.
At the end of our first fiscal quarter, we continue to reflect a solid balance sheet and financial position with no long term debt and cash cash equivalents and short term investments totaling $181 million.
And the first three months of fiscal 2025, we continue to see solid improvement in our cash flows from operating activities, which increased 27, 3% to $58 $1 million, primarily due to improved profitability and lower working capital needs of the business.
We continued to invest in our future with capital expenditures of $33 6 million.
Repurchased six $4 million worth of common stock and acquired three small first aid businesses for which we paid a total of $2 8 million.
I'd like to take this opportunity to provide an update on our outlook.
At this time, we expect our revenues for fiscal 2025 to be between 242, 5 billion and $2 440 or $1 billion. We continue to expect diluted earnings per share to be between $6 79 and $7 19.
This outlook continues to include an estimated $16 million of costs directly attributable to our key initiatives that we anticipate will be expense in fiscal 2025.
Although there has been a recent decline in the value of the Canadian dollar. This outlook assumes a constant Canadian exchange rate of <unk> 74, consistent with our original guidance due to the uncertainty and how the foreign currency will fluctuate over the remainder of the year.
Aside from the tightening of our revenue range now one quarter into the year all other assumptions that we detailed out last quarter remain largely unchanged.
As a reminder, fiscal 2025 includes one less week of operations compared to fiscal 2024 and guidance does not include the impact of any future share buybacks or significant changes in the regulatory or broader economic environment.
This concludes our prepared remarks.
Before we open the call for questions I'd like to remind you all that our focus today is our first quarter financial results and 2025 outlook.
As a result, we won't be commenting further on cintas.
Liz: Liz we can now open the call for questions.
Speaker Change: As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced.
Liz: To withdraw your question. Please press star one again.
Liz: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question will come from the line of Andrew Wittmann with Baird.
Andrew Wittmann: Yes, great good morning, guys.
Speaker Change: Okay.
Speaker Change: I have to ask the question Youre welcome to comment expense that you can but it's important.
And so I wanted to ask it.
Speaker Change: <unk> $275 offer clearly could have some upside as they outlined in their performance.
The cost synergy opportunity.
Speaker Change: Offline at $375 million at least.
Speaker Change: Not to mention the revenue synergies I mean this is all obviously a substantial premium what theyre offering.
Speaker Change: And to what your stock is today and probably would be for some time.
Speaker Change: Youre controlling shareholders, obviously, you have a lower basis in the company Theres other factors.
Speaker Change: Im sure at least from the outside but.
Speaker Change: When you look at we offer thats been on the table in the company's decision to pass on it it seems like there's more than just <unk>.
Speaker Change: The financials that are.
Being considered by your board so if I'm right in saying that would you be comfortable in discussing some of the other reasons.
Speaker Change: That your your board.
Speaker Change: <unk> has decided to pass on those for the benefit of your Noncontrolling shareholders.
Speaker Change: Yes, I appreciate the question Andrew I think we're going to go back to what we commented, which basically says that we considered several factors in making the determination, including the offer price execution business risk feedback from some of our company's largest shareholders and the company's future growth and value opportunities.
Speaker Change: And at the end of the day, we determined unanimously that from the board that it was in.
Speaker Change: Not in the best interest of universe, and our shareholders and our other stakeholders. So it's really really all you have to say about about the opportunity.
Speaker Change: Okay.
Speaker Change: Felt like it was important to try at least I did wanted to just have you drill in a little bit on one of the comments on your script is.
Speaker Change: Well you mentioned that you did say you mentioned this last quarter I just thought we'd go for an update on.
Speaker Change: Some of the reasons to be positive, obviously, you talked about the challenging pricing and.
Speaker Change: And how that's impacted.
Speaker Change: The revenue line, including some of retention.
Speaker Change: If you could drill in a little bit to the reasons that youre seeing some of the positivity reasons to be positive you talked about some of the large accounts, maybe you could drill into that a little bit more some of the other things are leading indicators that are causing to be a little bit more optimistic maybe.
Speaker Change: Sure I talked about some of them a little more specifically last quarter and we continue to see some of our internal metrics that measure contract renewal rates I talked about our NPS program, which continues to emerge and we continue to get larger samples and continue to see positive trends in that area.
Speaker Change: And other internal metrics that we think are leading indicators towards retention and contract renewals have been consistently improving so.
Speaker Change: We feel like we're coming out of the cycle a bit.
Speaker Change: And we should start seeing better results in that in that call it customer and price retention area.
Speaker Change: That we think can start to move the revenue trends in a better direction.
Speaker Change: On the sales side I know you mentioned that as well we continue to have a robust pipeline and feel like we're executing well in that area and seeing a lot of opportunity.
Speaker Change: Okay I'll leave it there thanks guys.
Speaker Change: Our next question comes from Manav Patnaik with Barclays.
Kennedy: Hi, Good morning. This is running Kennedy offer manav. Thank you for taking my questions just as a follow up to Andy's question there balancing.
Speaker Change: The challenging pricing environment, a corresponding impact on retention and the impact on sequential revenue trends, how should we think about those sequential revenue trends, what's contemplated in the guidance for the remainder of the year and how should we think about exit into into 'twenty six.
Speaker Change: Yeah, what I would say is we really don't give quarterly guidance ronen, but.
Speaker Change: We think that's mostly going to be consistent I think the idea would be that by the end of the year. We've created some more momentum headed into into 2006.
Speaker Change: And we will continue to update the.
Speaker Change: The group as we go through upcoming quarters, but still being one quarter in.
Speaker Change: We're not providing quarterly guidance for the remainder of the year.
Speaker Change: And one thing I can add to that is sort of going into the year. We had said that the expectation was that our organic growth in the core laundry, so theres going to be about one 8% when.
Speaker Change: When you take a look at the first quarter the organic growth rate was one 7% relatively in line with the organic growth that we're forecasting for the year. So that probably will give you an indication of whether there is some.
Speaker Change: Some more lumpiness in that.
Speaker Change: Experienced throughout the year.
Speaker Change: Understood. Thank you and then as a follow up.
Speaker Change: Can you. Please help us to understand where you are I guess holistically in your transformation journey as a company in terms of innings I know theres a lot of initiatives to enhance service operational execution you alluded to.
Speaker Change: Youre not currently at the levels of growth that you aspire to also in consideration of the fantastic transaction potential transaction.
You considered your opportunity for future growth and value creation, where are you in this journey holistically and when can we expect to see potential inflection points, both in organic growth and margins.
Speaker Change: Yes, it's a great question wrote and I mean, I think we've been transparent with investors over the last couple of years that we are in a period of significant investment people technology.
And a number of areas that will take multiple years I know, we talked about the ERP is sort of one of the overarching things that has sort of a long tail to it because there are a number of things.
That will be enabled by the ERP, but thats not the only areas of investment that we're making and so I didn't kind of go over all those items in the call today, but if you kind of go back through the last couple of years and we talk about the journey, we're on and first aid and safety and we're talking about additional investments we're making.
Speaker Change: To enable.
Speaker Change: Further capabilities in direct sales and in product development.
Speaker Change: Better up sell to our existing customers. So there's a lot going on right now that we feel very excited about but we will take a little time to sort of accumulate too.
Speaker Change: The ultimate goal, which we've sort of roughly talked about getting back to <unk>.
Speaker Change: Closer to mid single digit growth and EBITDA margins sort of in the high teens rate, we believe thats achievable and but it is going to take a bit of time, which is why we haven't been as upfront about that this is a late fiscal 'twenty five 'twenty six inflection point and I understand the question but.
Speaker Change: We continue to have a lot of confidence in those things that we're investing in.
Speaker Change: Thank you I appreciate it.
Speaker Change: Our next thank you.
Speaker Change: Our next question comes from Kartik Mehta with Northcoast research.
Speaker Change: Yes.
Speaker Change: Hey, good morning, sorry about that.
Speaker Change: I was hoping maybe just to drill down a little bit on pricing in the past you've said maybe.
Speaker Change: New customer pricing has been maybe a little bit more aggressive and I'm wondering are the pricing trends you're seeing.
Speaker Change: Existing customers or new customers, where has that changed at all.
Speaker Change: I would say for new accounts to Arctic we've talked about this before I mean, the industry has always been very competitive for new business and that continues.
Speaker Change: I'm not sure I'd characterize it or more or less aggressive than than a couple of years ago I think for existing accounts. This is where as we went through this heavily heavy inflationary period, we were all trying to recover some additional pricing with the cost increases we were seeing and that leads to.
Speaker Change: Challenges.
Speaker Change: Upon renewal when customers are saying, hey, inflation has kind of moderated a bit and it's really a it's a complex dynamic and it really goes back to a lot of the things I've talked about before if you're partnering with your customers, if you're providing a superior customer experience that theyre going to see the value in what you're providing.
Speaker Change: And that's going to allow you to drive and keep good pricing with your customers. So I think that existing customer dynamic is always a little bit different than the new customer dynamic and I think our ability to execute and provide value to our customers at a very high level will allow us to two.
Obtain that pricing.
Speaker Change: The other thing I'd say is is that on the flip side of that.
Speaker Change: As we experienced a lot of cost increases with our vendors I think we're doing a good job right now working to recover and.
Speaker Change: <unk> worked through from our sourcing and procurement perspective, as our supply chain capabilities continue to.
Two mature and recover some of those cost increases we are taking and youre seeing that in some of our core expenses coming down and were excited and we think theres a lot more opportunity there for the future as well.
Speaker Change: And then just a follow up just on the add stop metric.
Speaker Change: I mean, we've talked to our retention I'm wondering about.
Speaker Change: Number.
Speaker Change: Or.
Speaker Change: Maybe number of lesions in terms of employees at your customers how that's trending.
Speaker Change: Yes, we did make that comment in the script that that was a little weaker this quarter. So just to give you a little perspective, I think a year ago. At this time, we would have said that you know.
Speaker Change: That was very stable and sort of hovering right around even in terms of adds reductions right.
Speaker Change: Last quarter, we said it had gone incrementally negative, but not still characterized as stable I think it's got a little bit more negative this quarter and I think as you've seen in some of the surveying done on our industry.
Speaker Change: Yes, I think thats broadly theres been a little bit of a weakening of the existing customer base.
Speaker Change: One other dynamic we are seeing with our customers is there's less turnover and the employees that are at our customers, which probably creates a little less revenue opportunity from our perspective, but does create a little bit more cost advantages as we are investing less garments to deal with that turnover. So I think there is a bit.
Speaker Change: Bit of a slowdown in the employment environment.
Speaker Change: But not one that we're overly.
Speaker Change: Overreacting to outset.
Perfect. Thank you so much I appreciate it.
Thank you.
Speaker Change: Our next question comes from the line of Josh Chan with UBS.
Josh Chan: Hi, Good morning, Stephen unchanged could you just talk a little bit about what drove the very slight guidance narrowing on the topline and what did you see in the quarter that caused that.
Yeah.
Josh Chan: Yeah, it's kind of a good segue from our last question.
Josh Chan: As Shane had mentioned one quarter into the year.
Josh Chan: Kind of makes sense to tightened the range, a little bit and with some of the weakness in the work that we experienced with <unk>.
Josh Chan: Felt it was prudent to cause tweaked down the top end a bit.
Speaker Change: Okay perfect. Thank you and then I know you said you are not commenting on Cintas, but you did comment kind of on your own kind of growth and value creation opportunities. So I was wondering if you could elaborate on what those may be and what shareholders are universe can can look forward to absent some sort of.
Josh Chan: <unk> transaction and then maybe what the timeline.
Think about thank.
Speaker Change: Thank you.
Josh Chan: Yes, I think thats it.
Josh Chan: The question that was asked a couple of questions ago and.
Josh Chan: Again, there's a number of different areas, we continue to invest in.
Josh Chan: In terms of technology sourcing supply chain tied into the technology procurement strategic pricing first aid and safety I mean, theres a number of areas that we just think there's a lot of opportunity to unlock that we have the ability to do over the next few years and again I'll say, what I've said a couple of questions ago.
Josh Chan: Yes, it is a little bit of a journey that we're on here and this isn't a next quarter next year, 100% realized.
Josh Chan: Plant, but clearly the runways there in these areas. If we can get through these investments and take advantage of them, which we're confident in doing.
Speaker Change: Great. Thanks for the color and thanks for your time.
Josh Chan: Thank you.
Speaker Change: Our next question will come from the line of Tim Mulrooney with William Blair.
Yes.
Steve Good: Sure and Steve Good morning.
Andrew Wittmann: I thought the core laundry margins held in pretty well in the first quarter up a little bit.
Steve Good: From from last year.
Steve Good: But I think your guide for the segment was expecting it to be down year over year for the full year.
Is that the case for your core laundry business is the pressure that you are.
Steve Good: You are expecting more backend loaded.
Steve Good: Yes, I think the expectation for the year is very similar to last year's experience.
Oftentimes when you take a look at the profitability of our quarter. Our first quarter is usually the most profitable quarter in the second quarter again is sort of somewhat the unwind of that as the profitability in that quarter as is.
Steve Good: The lowest what I'll say about the quarter is sometimes our quarterly experience is impacted by some timing some of the benefits that we saw in our first quarter, we have been cautious as to whether some of the benefits were related to the timing of the expense realization.
Steve Good: And we aren't necessarily carrying those forward to subsequent quarters, so some of that profitability.
Steve Good: I guess, our expectations haven't changed.
Steve Good: Largely they're in line.
Steve Good: And the trend from a profitability perspective will sort of mirror last year and just one clarification. There I can't remember if you said at the outset of the question whether you were looking at sort of operating income or EBITDA.
Steve Good: <unk>.
Steve Good: From an EBITDA perspective, that's the guidance at the beginning of the year. We said that the margin is going to be relatively flat from from the year before we probably do have incremental kind of depreciation and amortization compared to last year.
Steve Good: So if youre looking at the operating margin.
Steve Good: Yes, the full year guidance might've been somewhat down, but I think the EBITDA margin was was in line.
Yes, I was talking about Oi.
Steve Good: But it's good to get the clarification on both so thank you.
Steve Good: And.
Steve Good: As my follow up it's been asked a couple of times a couple of different ways I'm going to take a crack at it I know youre not answering questions on <unk>, but I look I respect that but like Andy I, just I wouldn't be doing my job if I at least ask the question, but I think should be asked so I'm going to go at this from a slightly different angle.
Im curious if theres a way to help investors understand the board's perspective, and presumably your perspective as well.
Speaker Change: <unk> the decision to reject the large premium by providing may be a way to do this guys is can you provide some longer term targets on where you expect revenue and earnings to be a few years down the line to help frame what the true value of the company is that way.
Speaker Change: What I'm, saying is like that I think we can all better understand why you consider that offer price that you received to be undervalued the company because that makes sense.
Speaker Change: Certainly understand the question I mean I think.
Speaker Change: It ties into a couple of answers that I've, given so far on the call and again without kind of pegging, a particular year or exact numbers I think I said, a few minutes ago that our goal is to drive our growth to mid single digits, and hopefully beyond and EBITDA margins into the high teens right than I do.
Speaker Change: Think we feel that theres a lot of value to be created with the execution of that.
Speaker Change: And I think hopefully that answers I think partially your question.
Speaker Change: From the Board's perspective, I've kind of deferred back to the comment I made earlier about what we went through and evaluating.
Speaker Change: The opportunity.
Speaker Change: Yes, yes, but multiple different reasons in the mid single digit and high teens that is helpful. Thank you if I wanted to just kind of take one more in.
Speaker Change: Noticed that you called out executive transition cost as a discrete item and that non-GAAP reconciliation table I'm, just not sure I've seen that before because it executives come and go and we typically kind of think about that as a normal course of business can you help us understand what what what that discrete cost us.
Yes that was really around partially around the onboarding of our new CLO as well as the departure.
Speaker Change: One of our senior operating Vice presidents.
Speaker Change: Okay. Thank you very much good luck.
Speaker Change: Thank you.
Speaker Change: That concludes today's question and answer session I would like to turn the call back to Steven syndrome for closing remarks.
Speaker Change: Well I'd like to thank everyone as always for joining today to review our first quarter results. We look forward to speaking with you again in April when we expect to report our second quarter performance. Thank you and happy new year.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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Speaker Change: Good day and thank you for standing by welcome to the first quarter 2025 unit first earnings conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session you will need to press star one one on your telephone.
Speaker Change: We will then hear an automated message advising your hand is raised.
To withdraw your question. Please press star one again.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to your President and Chief Executive Officer Stephens, Inc. Please go ahead.
Speaker Change: Thank you and good morning.
Speaker Change: Steven <unk>, President and Chief Executive Officer, joining me today is Shane Oconnor Executive Vice President and Chief Financial Officer.
Welcome to the unit first Corporation's conference call to review, our first quarter results for fiscal year 2025.
Speaker Change: This call will be on a listen only mode until we complete our prepared remarks, but first a brief disclaimer.
Speaker Change: This conference call may contain forward looking statements that reflect the company's current views with respect to future events and financial performance.
Speaker Change: These forward looking statements are subject to certain risks and uncertainties.
Speaker Change: The words anticipate optimistic believe estimate expect intend and similar expressions that indicate future events and trends identify forward looking statements.
Speaker Change: Actual future results may differ materially from those anticipated depending on a variety of risk factors for more information. Please refer to the discussion of these risk factors in our most recent Form 10-K, and 10-Q filings with the Securities and Exchange Commission.
Speaker Change: To start the call today I'd like to briefly address the news regarding Cintas Corporation.
Speaker Change: As we stated in our press release yesterday, the unit first board in consultation with its independent financial and legal advisors carefully evaluated the unsolicited non binding proposal from Cintas and unanimously unanimously determined that it was not in the best interest of unit first our shareholders and our other stakeholders in.
Speaker Change: In making this determination the board considered the offer price execution and business risk feedback from some of the company's largest shareholders by voting power and the company's future growth and value creation opportunities.
The unit first board and management team remain confident in the strategy of the company is executing and we'll continue to take actions to create shareholder value.
Speaker Change: With that I will turn to our results for the quarter.
Speaker Change: We are pleased with the results from our first quarter, which represent a solid start to our fiscal year and were largely in line with our expectations.
Speaker Change: Honestly fairly thank our team partners to continue to always deliver for each other and our customers as we strive toward our vision of being universally recognized as the best service provider in the industry all while living our mission of serving the people who do the hard work.
We serve the people who do the hard work that they are the <unk>.
Speaker Change: Workforce that keeps our communities up and running.
Speaker Change: Our existing and prospective customers as well as our own unit first team partners. Our mission is to enable those employees and their organizations by providing the right products and services to do their job successfully and safely.
Speaker Change: Whether that means providing uniforms workwear facility services first aid and safety clean room or other products and services. Our goal is to partner with our customers to ensure we have the right structure, the right programs structured products and services for their businesses and their team all while providing an enhanced customer experience.
Speaker Change: First quarter revenues were $604 9 million increase of one 9% from fiscal 'twenty four.
Speaker Change: Operating income and adjusted EBITDA increased by four 5% and five 9%, respectively compared to the first quarter of fiscal 2024.
Speaker Change: As we discussed last quarter as the market is emerge from a period of significantly elevated inflation levels are more challenging pricing environment has developed which has had a corresponding impact on our retention rates.
Speaker Change: It has impacted our overall growth in our core laundry operations.
Although these are certainly not the growth rates, we ultimately aspire to deliver as we discussed last quarter. We do feel like there's reasons to be positive about some of the trends we are experiencing in our leading indicators that should translate into improvements in revenue trends in retention as we move through this cycle.
Speaker Change: During the quarter, our sales organization continued to perform well selling prospects on the value that <unk> can bring to their businesses.
Speaker Change: We also continue to be encouraged by the pipeline of large account opportunities that we are currently working on.
Speaker Change: From an adds versus reductions perspective, net wearer levels for our existing customers declined during the quarter, showing some incremental weakness compared to a year ago at this time.
Speaker Change: We are pleased with the progress we continue to make in areas of operational execution and margin enhancement, which allowed us to show solid improvement in operating income and adjusted EBITDA during the quarter. Despite the modest growth.
Speaker Change: These improvements which were primarily in core expense areas such as merchandising plant production expenses were partially offset in the quarter by higher health care costs legal environmental expenses compared to a year ago.
Speaker Change: We also continue to see strong improvements in operating cash flows, which were up 27, 3% compared to the same quarter a year ago.
Speaker Change: As a company we will continue to focus on investments in the business to enhance our ability to attract new customers sell additional products to existing customers as well as enhance our customers experience and drive improved retention.
Speaker Change: We believe that there is ample runway to improve our profitability with ongoing efforts focused on the consistency of our operational execution and driving productivity in.
Speaker Change: In addition areas such as strategic pricing and account profitability as well as strategic manufacturing and sourcing continue to represent significant opportunities.
Speaker Change: Although some of these benefits going forward will be more significantly enabled through the implementation of our ERP. We continue to focus on these areas and others. We feel can move the needle in the near to mid term.
Speaker Change: Speaking of our ERP project, we are generally on track with our project timelines and continue to be excited about the benefits that the system can bring to our business.
Speaker Change: That said I will turn the call over to Shane who will provide more details on our first quarter results as well as our outlook for the remainder of fiscal 'twenty five.
Shane: Thanks, Dave and good morning.
Shane: And our first quarter of 2025 consolidated revenues were $604 9 million up.
Shane: Up one 9% from $593 5 million a year ago, and consolidated operating income increased to $55 5 million from $53 1 million or four 5%.
Net income for the quarter increased to $43 1 million or $2 31 per diluted share from $42 $3 million or $2 26, or $2 26 per diluted share.
As discussed in the prior quarter the company migrated to an adjusted EBITDA metric that we believe is more meaningful and is defined as net income before interest income taxes, depreciation and amortization further adjusted for share based compensation expense acquisition costs and other items impacting comparability.
Shane: <unk>.
We believe that this is more wholesome non-GAAP measure will provide a more refined view of the company's profitability and is a better indication of the company's capacity to generate future cash flows.
Shane: The adjusted EBITDA metric does not adjust for the key initiative costs, we incur but the company will provide visibility to those items separately.
Shane: Consolidated adjusted EBITDA increased to $94 million from $88 7 million in the prior year or five 9%.
Shane: Our financial results in the first quarters of fiscal 2025, and 2024 included approximately $2 5 million and $2 $9 million, respectively of costs directly attributable to our key initiatives.
Shane: The effect of these items on the first quarter of fiscal 2025, and 2024 decreased operating income and adjusted EBITDA by $2 5 million and $2 9 million respectively.
Shane: Net income by $1 8 million and $2 $4 million, respectively, and diluted EPS by 9% and 12% respectively.
Shane: Our core laundry operations revenues for the quarter were $532 7 million an increase of one 7% from the first quarter of 2024 core laundry organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar was also a one 7%.
Shane: <unk>.
Shane: The organic growth rate was primarily the result of solid new account sales and pricing efforts over the last year.
Shane: Core laundry operating margin increased to eight 1% for the quarter were $43 million from 8% in prior year or $42 $1 million and the segment adjusted EBITDA margin increased to 14, 8% from 14, 4%.
Shane: Cost we incurred related to our key initiatives were recorded to the core laundry operations segment and decreased core laundry operating and adjusted EBITDA margins for the first quarter of fiscal 2025, and 2024 by 5% and 6% respectively.
Shane: Segment operating and adjusted EBITDA margin comparisons.
Shane: <unk> benefited from lower merchandize and other operating input costs as a percentage of revenues, which were partially offset by higher healthcare legal and environmental and selling costs in the first quarter of 'twenty five as a percentage of revenues.
Shane: Energy costs in the first quarter of 2025 or three 9% of revenues.
Shane: Revenues from our specialty garments segment, which delivers specialized nuclear decontamination and clean room products and services increased to $45 9 million from $44 7 million in prior year or two 9% and the segment's operating margin was 26, 5%.
Shane: Strong operating results from our European nuclear operations were partially offset by a slight decline in our clean room business.
Shane: As we mentioned in the past this segment's results can vary significantly from period to period due to seasonality as well as timing and the profitability of nuclear reactor outages and projects.
Shane: Our first aid segment's revenues increased to $26 2 million from $24 9 million in prior year or five 4% driven by double digit growth in our van operations.
Shane: Segment had a nominal nominal operating income of <unk> 3 million during the quarter as the segment's results continued to reflect the investments we are making in the first aid van business.
Shane: At the end of our first fiscal quarter, we continue to reflect a solid balance sheet and financial position with no long term debt and cash cash equivalents and short term investments totaling $181 million.
Shane: And the first three months of fiscal 2025, we continued to see solid improvement in our cash flows from operating activities, which increased 27, 3% to $58 $1 million, primarily due to improved profitability and lower working capital needs of the business.
Shane: We continued to invest in our future with capital expenditures of $33 6 million.
Shane: Repurchased six $4 million worth of common stock and acquired three small first aid businesses for which we paid a total of $2 8 million.
Shane: I'd like to take this opportunity to provide an update on our outlook at this time, we expect our revenues for fiscal 2025 to be between 242, 5 billion and $2 440 or $1 billion.
Shane: We continue to expect diluted earnings per share to be between $6 79, and $7 19.
Shane: This outlook continues to include an estimated $16 million of costs directly attributable to our key initiatives that we anticipate will be expense in fiscal 2025.
Shane: Although there has been a recent decline in the value of the Canadian dollar. This outlook assumes a constant Canadian exchange rate of <unk> 74, consistent with our original guidance due to the uncertainty and how the foreign currency will fluctuate over the remainder of the year.
Aside from the tightening of our revenue range now one quarter into the year all other assumptions that we detailed out last quarter remain largely unchanged.
Shane: As a reminder, fiscal 2025 includes one less week of operations compared to fiscal 2024 and guidance does not include the impact of any future share buybacks or significant changes in the regulatory or broader economic environment.
Shane: This concludes our prepared remarks.
Shane: Before we open the call for questions I'd like to remind you all that our focus today is our first quarter financial results and 2025 outlook.
Shane: As a result, we won't be commenting further on cintas.
Shane: Liz we can now open the call for questions.
Shane: As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced.
Shane: To withdraw your question. Please press star one again.
Shane: Please standby, while we compile the Q&A roster.
Andrew Wittmann: Our first question will come from the line of Andrew Wittmann with Baird.
Andrew Wittmann: Yes, great good morning, guys.
Andrew Wittmann: Okay.
Andrew Wittmann: I have to ask the question Youre welcome to comment to the extent that you can but it is important and so I wanted to ask it.
Andrew Wittmann: <unk> $275 offer clearly could have some upside as they outlined in their performance.
Andrew Wittmann: Cost synergy opportunity.
Andrew Wittmann: Outlined at $375 million at least.
Andrew Wittmann: Not to mention the revenue synergies I mean this is all obviously a substantial premium what theyre offering.
Andrew Wittmann: And to what your stock is today and probably would be for some time.
Andrew Wittmann: Youre controlling shareholders, obviously, you have a lower basis in the company Theres other factors I'm sure.
Andrew Wittmann: Sure.
Andrew Wittmann: From the outside but.
Andrew Wittmann: When you look at we offer thats been on the table on the Companys decision to pass on it it seems like there's more than just.
Andrew Wittmann: The financials that are.
Being considered by your board so if I'm right in saying that would you be comfortable in discussing some of the other reasons.
Andrew Wittmann: That your your board.
Andrew Wittmann: <unk> has decided to pass on those for the benefit of your Noncontrolling shareholders.
Andrew Wittmann: Yes, I appreciate the question Andrew I think we're going to go back to what we commented, which basically says that we considered several factors in making the determination, including the offer price execution business risks feedback from some of our company's largest shareholders and the company's future growth and value opportunities.
Andrew Wittmann: And at the end of the day, we determined unanimously that from the board that it was in.
Andrew Wittmann: Not in the best interest of unit first and our shareholders and our other stakeholders. So it's really really all you have to say about in about the opportunity.
Andrew Wittmann: Okay.
Andrew Wittmann: Felt like it was important to try at least I did wanted to just have you drill in a little bit on one of the comments on your script as.
Andrew Wittmann: As well you mentioned that you did say you mentioned this last quarter I just thought we'd go for an update on.
Some of the reasons to be positive, obviously, you talked about the challenging pricing.
Andrew Wittmann: How that's impacted.
Andrew Wittmann: The revenue line, including some of retention.
Andrew Wittmann: If you could drill in a little bit to the reasons that youre seeing some of the positivity of reasons to be positive you talked about some of the large accounts, maybe you could drill into that a little bit more some of the other things are leading indicators that are causing it to be a little bit more optimistic maybe.
Andrew Wittmann: Sure I'll talk about some of them a little more specifically last quarter and we continue to see some of our internal metrics that measure contract renewal rates I talked about our NPS program, which continues to emerge and we continue to get larger samples and continue to see positive trends in that area.
Andrew Wittmann: And other internal metrics that we think are leading indicators towards retention and contract renewals have been consistently improving so.
Andrew Wittmann: We feel like we're coming out of the cycle a bit.
Andrew Wittmann: And we should start seeing better results in that in that call it customer and price retention area.
Andrew Wittmann: That we think can start to move the revenue trends in a better direction.
Andrew Wittmann: On the sales side I know you mentioned that as well we continue to have a robust pipeline and feel like we're executing well in that area and seeing a lot of opportunity.
Andrew Wittmann: Okay I'll leave it there thanks guys.
Andrew Wittmann: You.
Andrew Wittmann: Our next question comes from Manav Patnaik with Barclays.
Speaker Change: Hi, Good morning. This is roni Kennedy affirm and thank you for taking my questions just as a follow up to Andy's question, there balancing the challenging pricing environment corresponding impact on retention and the impact on sequential revenue trends, how should we think about the sequential revenues around what's contemplated in the guidance for the remainder of the year.
Speaker Change: And how should we think about exit into into 'twenty six.
Speaker Change: Yes, what I would say is we really don't give quarterly guidance ronen, but.
Speaker Change: We think that's mostly going to be consistent I think the idea would be that by the end of the year that we've created some more momentum headed into into 2006.
Speaker Change: And we'll continue to update the group as we go through upcoming quarters, but still being one quarter in.
Speaker Change: We're not providing quarterly guidance for the remainder of the year.
Speaker Change: Your own and one thing I can add to that is sort of going into the year. We had said that the expectation was that our organic growth in the core laundry, so theres going to be about one 8%.
Speaker Change: When you take a look at the first quarter the organic growth rate was one 7% relatively in line with the organic growth that we're forecasting for the year. So that probably will give you an indication of whether there is.
Speaker Change: Some more lumpiness in that.
Speaker Change: Experienced throughout the year.
Speaker Change: Yes.
Speaker Change: Understood. Thank you and then as a follow up.
Speaker Change: Can you. Please help us understand where you are I guess holistically in your transformation journey as a company in terms of earnings I know Theres a lot of initiatives to enhance service operational execution you alluded to.
Youre not currently at the levels of growth that you aspire to also in consideration of the fantastic transaction potential transaction.
Speaker Change: You considered your opportunity for future growth and value creation, where are you in this journey holistically and when can we expect to see potential inflection points, both in organic growth and margins.
Speaker Change: Yes, Great question wrote and I mean, I think we've been transparent with investors over the last couple of years that we are in a period of significant investment people technology.
And a number of areas that will take multiple years I know, we talked about the ERP is sort of one of the overarching things that has sort of a long tail to it because there are a number of things.
That will be enabled by the ERP, but thats not the only areas of investment that we're making and so I didn't kind of go over all those items in the call today, but if you kind of go back through the last couple of years and we talk about the journey, we're on and first aid and safety and we're talking about additional investments we're making.
To enable.
Further capabilities in direct sales and in product development.
Our up sell to our existing customers. There is a lot going on right now that we feel very excited about but we will take a little time to sort of accumulate too.
Speaker Change: The ultimate goal, which we've sort of roughly talked about getting back to.
Closer to mid single digit growth and EBITDA margins sort of in the high teens rate, we believe that's achievable and but it is going to take a bit of time, which is why we haven't been as upfront about that this is a late fiscal 'twenty five 'twenty six inflection point and I understand the question but.
Speaker Change: We continue to have a lot of confidence in those things that we're investing in.
Speaker Change: Thank you I appreciate it.
Speaker Change: Our next thank you.
Speaker Change: Our next question comes from Kartik Mehta with Northcoast research.
Speaker Change: Yes.
Speaker Change: Hey, good morning, sorry about that.
Speaker Change: I was hoping maybe just to drill down a little bit on pricing in the past you've said maybe.
Speaker Change: New customer pricing has been maybe a little bit more growth. So I'm wondering are the pricing trends the same.
Speaker Change: Existing customers or new customers or has that changed at all.
I must say for new accounts to Arctic we've talked about this before I mean, the industry has always been very competitive for new business and that continues.
Speaker Change: I'm not sure I'd characterize it or more or less aggressive than than a couple of years ago I think for existing accounts. This is where as we went through this heavily heavy inflationary period, we were all trying to recover some additional pricing with the cost increases we were seeing and that leads to.
Speaker Change: Challenges.
Speaker Change: Upon renewal when customers are saying, hey, inflation has kind of moderated a bit and it's really a it's a complex dynamic and it really goes back to a lot of the things I've talked about before if youre partnering with your customers, if you're providing a superior customer experience that theyre going to see the value in what you're providing.
Speaker Change: And that's going to allow you to drive and keep good pricing with your customers. So I think that existing customer dynamic is always a little bit different than the new customer dynamic and I think our ability to execute and provide value to our customers at a very high level will allow us to two.
Speaker Change: Obtain that pricing the other thing I'd say is is that the flip side of that.
Speaker Change: As we experienced a lot of cost increases with our vendors I think we're doing a good job right now working to recover and.
Speaker Change: <unk> worked through from our sourcing and procurement perspective, as our supply chain capabilities continue to.
Speaker Change: Two mature and recover some of those cost increases were taking and youre seeing that in some of our core expenses coming down and were excited and we think theres a lot more opportunity there for the future as well.
Speaker Change: And then just a follow up just on the add stop metric.
Speaker Change: I know you've talked to a retention I'm wondering about.
Speaker Change: Number of ads.
Speaker Change: Or.
Speaker Change: Maybe number of lesions in terms of employees.
Speaker Change: At your customers how thats trending.
Speaker Change: Yes, we did make that comment in the script that that was a little weaker this quarter. So just to give you a little perspective, I think a year ago. At this time, we would have said that.
Speaker Change: That was very stable and sort of hovering right around even in terms of adds reductions right.
Speaker Change: Last quarter, we said it had gone incrementally negative, but not still characterized as stable I think it's got a little bit more negative this quarter and I think as you've seen in some of the surveying done on our industry.
Speaker Change: Yes, I think thats broadly there has been a little bit of a weakening of the existing customer base. The one other dynamic we are seeing with our customers as there is less turnover in the employees that are at our customers, which probably creates a little less revenue opportunity from our perspective, but it does create a little bit more cost advantages as we are investing less garments to.
Speaker Change: Deal with that turnover. So I think there is a <unk>.
Speaker Change: Bit of a slowdown in the employment environment.
But not one that we're overly.
Speaker Change: Overreacting to outset.
Speaker Change: Perfect. Thank you so much I appreciate it.
Speaker Change: Thank you.
Josh Chan: Our next question comes from the line of Josh Chan with UBS.
Josh Chan: Hi, Good morning, Stephen unchanged could you talk a little bit about what drove the very slight guidance narrowing on the top line and what did you see in the quarter that caused that.
Yes.
Speaker Change: Good segue from our last question I think as Shane had mentioned one quarter into the year.
Speaker Change: Kind of makes sense to tightened the range, a little bit and with some of the weakness in the work that we experience.
Speaker Change: We felt it was prudent to cause tweaked down the top end a bit.
Speaker Change: Okay perfect. Thank you and then I know you said youre not commenting on syntax, but you did comment kind of on your own kind of growth and value creation opportunities. So I was wondering if you could elaborate on what those may be and what shareholders of unit first Ken can look forward to absent some sort of.
Speaker Change: Transaction.
Speaker Change: Maybe what timeline to think about.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: The question that was asked a couple of questions ago in <unk>.
Speaker Change: Again, there's a number of different areas, we continue to invest in.
Speaker Change: In terms of technology sourcing supply chain tied into the technology procurement strategic pricing first aid and safety I mean, theres a number of areas that we just think there's a lot of opportunity to unlock that we have the ability to do over the next few years and again I'll say, what I've said a couple of questions ago.
Speaker Change: Yes, it is a little bit of a journey that we're on here and this isn't a next quarter next year, 100% realized.
Speaker Change: Plant, but clearly the runways there in these areas. If we can get through these investments and take advantage of them, which we're confident in doing.
Speaker Change: Great. Thanks for the color and thanks for your time.
Speaker Change: Thank you.
Speaker Change: Our next question will come from the line of Tim Mulrooney with William Blair.
Speaker Change: Yes.
Steve Good: Sure and Steve Good morning.
Speaker Change: I thought the core laundry margins held in pretty well in the first quarter up a little bit.
Steve Good: From from last year.
Steve Good: But I think your guide for the segment was expecting it to be down year over year for the full year.
Steve Good: Is that the case for your core laundry business is the pressure that you are.
Steve Good: You are expecting more backend loaded.
Steve Good: Yes, I think the expectation for the year is very similar to last year's experience.
Oftentimes when you take a look at the profitability of our quarter. Our first quarter is usually the most profitable quarter in the second quarter again is sort of somewhat the unwind of that as as the profitability in that quarters.
Steve Good: Is.
Steve Good: The lowest what I'll say about the quarter is sometimes our quarterly experience is impacted by some timing some of the benefits that we saw in our first quarter, we have been cautious as to whether some of the benefits were related to the timing of the expense realization.
Steve Good: And we aren't necessarily carrying those forward to subsequent quarters, so some of that profitability.
Steve Good: I guess, our expectations haven't changed.
Steve Good: Largely they're in line.
Steve Good: And the trend from a profitability perspective will sort of mirror last year and just one clarification. There I can't remember if you said at the outset of the question whether you were looking at sort of operating income or EBITDA.
Steve Good: From an EBITDA perspective, that's the guidance at the beginning of the year. We said that the margin is going to be relatively flat from from the year before we probably do have incremental depreciation and amortization compared to last year.
Steve Good: So if youre looking at the operating margin.
Speaker Change: Yes, the full year guidance might've been somewhat down, but I think the EBITDA margin was was in line.
Steve Good: Yes, I was talking about ROI.
Steve Good: But it's good to get the clarification on both so thank you.
Steve Good: Yes.
Speaker Change: As my follow up it's been asked a couple of times a couple of different ways I'm going to take a crack at it I know youre not answering questions on <unk>, but I.
Speaker Change: Look I respect that but like Andy I, just I wouldn't be doing my job if I at least ask the question, but I think should be asked somebody go at this from a slightly different angle.
Speaker Change: Curious if there's a way to help investors understand the board's perspective, and presumably your perspective as well regarding the decision to reject a large premium by providing maybe a way to do this skies.
Speaker Change: Can you provide some longer term targets on where you expect revenue and earnings to be a few years down the line to help frame what the true value of the company is that way.
Speaker Change: What im saying is that I think we can all better understand why you consider that offer price that you received to be undervaluing. The company does that makes sense.
Speaker Change: Certainly understand the question I mean I think.
Speaker Change: It ties into a couple of answers that I've, given so far on the call and again without kind of pegging, a particular year or exact numbers I think I said, a few minutes ago that our goal is to drive our growth to mid single digits, and hopefully beyond and EBITDA margins into the high teens right than I do.
Speaker Change: We feel that there is a lot of value to be created with the execution of that.
Speaker Change: And I think hopefully that answers I think partially your question.
Speaker Change: From the Board's perspective, I've kind of deferred back to the comment I made earlier about what we went through and evaluating.
Speaker Change: The opportunity.
Yes, yes, but multiple different reasons in the mid single digit and high teens that is helpful. Thank you.
Take one more and I noticed that you called out executive transition cost as a discrete item and that non-GAAP reconciliation table.
Speaker Change: I'm not sure I've seen that before.
Speaker Change: Executives come and go and we typically kind of think about that as a normal course of business can you help us understand what.
Speaker Change: What that discrete cost us.
Speaker Change: Yes that was really around partially around the onboarding of our new COO as well as departure.
Speaker Change: One of our senior operating Vice presidents.
Speaker Change: Okay. Thank you very much good luck.
Speaker Change: Thank you.
Speaker Change: That concludes today's question and answer session I would like to turn the call back to Stephen's entrust for closing remarks.
Speaker Change: Well I'd like to thank everyone as always for joining today to review our first quarter results. We look forward to speaking with you again in April when we expect to report our second quarter performance. Thank you and happy new year.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.