Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter Earnings Call. During the presentation, all participates will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] Now I'd like to turn the conference over to Mr. Steven Sintros, Chief Financial Officer. Please go ahead, sir.

Thank you, and welcome to the UniFirst Corporation conference call to review our first quarter results for fiscal 2016 and to discuss our expectations going forward. I'm Steven Sintros, UniFirst's Chief Financial Officer. Joining me today is Ronald Croatti, UniFirst's President and Chief Executive Officer. This call will be on a listen-only mode until we complete our prepared remarks. Now before I turn the call over to Ron, I would like to give 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. I refer you to the discussion of these risk factors in our most recent 10-K filing with the Securities and Exchange Commission. Now, I'll turn the call over to Ronald Croatti for his comments.

Thanks, Steve. I would like to welcome everyone joining us today to review UniFirst's first quarter financial results for fiscal year 2016. Steve will cover all the details in a moment, but first I will provide you with a brief summary. UniFirst revenues for the first quarter fiscal 2016 came in at $373.4 million, an increase of 0.8% from the $370.4 million reported for the first quarter in 2015. However, when we remove the negative impact of foreign currency fluctuation, primarily those related to a weaker Canadian dollar, revenue grew 2.2%. Net income for the quarter was 35.9 million, a 4.1% decline from the net income from the same period a year ago. These first quarter results for both revenue and income were in line with our expectations. Our core laundry operations, which account for approximately 90% of UniFirst total business reported a 0.2% drop off in revenue and a 6.9% decrease in operating income when compared to last year's first quarter. While this segments experienced solid results related to new account sales and customer pricing, as expected, the significant weekly uniform wearer losses we experienced in our oil and energy markets in the latter half of fiscal 2015 continue throughout the first quarter of 2016, although at a slightly reduced level. Those losses, which have a cumulative effect of our reoccurring [ph] weekly business had a considerable impact on our adds over reductions metrics for the quarter, negatively affecting both revenue and margins. Historically, this important metric has been a positive for us in the first quarter, but was down for this quarter due to the ongoing struggles in the energy sector, as well as those industries that directly support them. While our first quarter core laundry results met our expectations, it should be reiterated that the continued weakening…

Thanks, Ron. Revenues for the quarter were 373.4 million, up 0.8% from 370.4 million a year ago. Net income was 35.9 million or $1.78 per diluted share, down 4.1% from 37.4 million or a $1.85 per diluted share in the first quarter of fiscal 2015. Revenues in the first quarter for our core laundry operations were 335 million, down 0.2% from those reported in the prior year's first quarter. Adjusting for the effect of acquisitions and a weaker Canadian dollar, revenues grew 0.4%. The Canadian exchange rate fluctuations negatively affected our core laundry operations' growth rate by 1.2% compared to the first quarter of fiscal 2015. As anticipated, our growth during the first quarter was impacted by the loss of uniform wearers and customers in energy-dependent markets in the United States and Canada during the last year. New sales in the first quarter finished slightly behind the first quarter of fiscal 2015, and our lost accounts during the quarter were higher than the same quarter a year ago. Additions versus reductions were negative during the quarter compared to slightly positive in the first quarter of last year. However, sequentially additions versus reductions were improved from the fourth quarter of fiscal 2015. We continue to experience reductions in our energy-dependent markets at higher than normal levels, although they have moderated compared to the second half of fiscal 2015. This segment's income from operations decreased 6.9% compared to the first quarter of 2015, while the operating margin decreased to 15.8%, from 16.9% a year ago. The margin decline primarily reflects the higher merchandise costs, selling and administrative expenses, and depreciation as a percentage of revenues. These items were partially offset by lower energy and legal expenses during the quarter compared to a year ago. Merchandise and many of our expenses were in…

Thank you very much. [Operator Instructions] And we'll get to our first question from the line of Andy Wittmann with Robert W. Baird. Go right ahead.

Hi, great. So I guess, one, the first to get your sense on that energy-related employment weakness that you're seeing, you mentioned that it was a little bit more stable. It is probably too early to call the all clear on this one, but I would like to get your view on that from here as well as -- well, let's just start with that.

Hi, Andy, this is Ron. We have not seen the bottom in that market, particularly in West Texas. It's still shrinking down.

Yes, it certainly has moderated during the quarter, but as you know, we track the wearers every week. And in those markets we are seeing weekly reductions or negative net adds reductions in those markets continuing to this date really, and they are albeit at a lower level on a weekly basis than they were during our third and fourth quarters of last year, but they have not sort of flattened out.

And what about in those markets that are not direct energy-related jobs? You made a comment that there were some ancillary or effective revenue that's happening with customers of those customers maybe. Is that process –- how mature is that process? Is that fairly well-developed or is that maybe the next challenge that you will be facing here in '16? Comments on that I think would be helpful.

Yes, I think sometimes it's difficult to separate the two in what's direct energy and what's the downstream impact, but we are seeing if you sort of strip out those energy market, some weakness in the markets that might be supporting energy, or really just in the country in general, you know, you look at manufacturing and some of the weakness in other verticals. We are not seeing great adds reductions activity in what would be traditionally non-energy markets either. I don't want to paint the picture that it's significantly worse than prior year's, but it is a little bit more negative than in past years.

Okay. And then maybe just a little bit of detail on the margin side and specifically around merchandize costs, obviously, margins were down year-over-year and you have the benefit of energy, can you -- Steve, can you help us quantify what merchandize was year-over-year? And then, really as we go from here, how many of those garments which are amortizing presumably without revenue, how much more of that tail can we expect, or how far along are we in that process? Any comments on that would be helpful.

Sure, I guess just to give you a sense overall on the margin decline, particularly in the core laundry business, merchandise was a headwind of about six or seven-tenths, which was largely offset by energy. The remaining delta on the cost-to-revenue line primarily comes from just some of our other costs, payroll, and other production-related costs, as well as healthcare and some payroll-related costs being somewhat higher on a gross dollar basis, which with the flat revenue is causing some margin pressure. On the SG&A side you have the same phenomenon with the flattish revenue. Some of that though was offset by lower legal costs related to that litigation we had going on a year ago being resolved last year. As far as your question on the merchandise, because our flame-resisting garments have a little bit of a longer life, we still have a little bit ways to go before we fully, I guess, remove the tail as you're describing it on the merchandise amortization. But we're probably sort of halfway through that process; probably have another few quarters to go. Although we are putting in, as you'd expect, far less garments for these energy customers and in these markets, and as the year goes along and we annualize some of the revenue decline and start showing some growth that we're projecting later in the year, that merchandise issue will be less of an issue from a margin perspective, because the merchandise cost itself on a sequential basis isn't really growing right now.

Got you. Maybe just a final question before I jump back into queue. It's for Ron, and just kind of thinking strategically here, some of your thoughts on other ancillary services that UniFirst can be offering that maybe isn't today or maybe new initiatives that you have to grow the available wallet share of your customers, where are you on some of those initiatives? And maybe even more specifically with the long-term trend of the U.S. and North American economy getting more service-oriented and cleaner jobs away from the dirtier jobs, what initiatives do you have in place to go and attack those markets today? I think your thoughts would be helpful on that as well.

Well, I think the manufacturing industry has basically gone away. I mean yesterday's Wall Street Journal gave you a good indication of the dropdown in manufacturing. We always have been chasing and work the service sector image and identity is a major factor. And we continue to add on the garment side. On the ancillary products side we certainly have room to grow on the restroom side, plus we introduced chemicals about six months ago, another opportunity for our customers to get chemicals from us. So we're kind of pushing those two products.

And are you having success six months in with the chemical offering and how has the adoption been there?

I think there's four products of the chemical side, and two of the products have taken off very well.

Okay, thank you. I'll just back in queue for later.

Thank you very much. We'll get to our next question in the queue from the line of Joe Box with KeyBanc Capital Markets. Go right ahead.

Hi, good morning guys. Just based on your commentary that the energy customer reductions were obviously a big headwind, but it does seem like the cuts may be actually slowing a bit. How should we think about the trajectory of organic growth as the energy comps start to get a little bit easier into the back half of your fiscal year?

Yes, Joe, our organic growth for the full year is still projecting out for our core laundry business at just around 1%. The second quarter will still have some pretty difficult comps because really the reductions didn't start last year until later in our second quarter, sort of late-January, into February, combined with the fact that we still had some reductions in this year's first quarter. So I think the second quarter will still be a difficult comp, and probably similar organic growth maybe to this quarter, but the third and fourth quarter should start showing growth back in that 1% to 2% range to get to our 1% for the full year. Now again all that is predicated on the fact that we do sort of get to a bottom at some point here on the reductions and that they don't accelerate again or even continue to significantly throughout the year.

And then, I just want to follow up on an earlier question. Steve, you said that manufacturing had been a little bit softer. Is this really the first quarter that it actually softened? Is it a one-off? Is it a start of a trend? And then maybe what do you think the overall impact could theoretically be if you do see it continue to trend lower in line with what we've seen with the ISM and industrial production?

Yes, I think, it's a difficult question. I mean we made comments to the second half of last year that our adds reduction in non-energy related markets were a little bit worse than prior year's, and I think some of that was likely manufacturing. Manufacturing even though it's a declining portion of our business, still is about 67% [ph] of our business. And we don't get our adds reductions metric really by industry, but certainly some of that weakness has been seen I think over the last couple of quarters and we continue to see it. I think it's just not to quantify what impact it could have, but that marginally worse adds reductions again energy aside will just continue to sort of have some drag on that organic growth. I don't think we are talking about a point or anything, but it will have some marginal drag.

Got you. Thanks for that. And then just a clarification, can you actually tell us how much the legal expense was last year, or what the margin tailwind was this year from legal?

The tailwind was about seven tenths on the margin.

Okay, great. Thank you, guys.

Just over a $2 million benefit between the year-over-year.

Great, thanks.

Thank you very much. We will get to our next question from the line of Kevin Steinke from Barrington Research. Go right ahead.

Good morning. On your outlook for the full year -- revenue outlook, what's your assumed impact now from the Canadian dollar? I believe last quarter you had talked about a 50 basis point headwind for the full year, any change in that outlook?

Right now -- and I am trying to remember that number from last quarter, but right now for the full year, it's about a nine tenths headwind. So when I talk about organic growth being 1.1%, 1% or so for the year, that puts us back closer to flat when you take out the Canadian exchange rate, but then we are getting a few tenths pull from acquisitions that we've done over the last year as well.

Okay, perfect. That's what I was looking for. And then, specialty garments had a nice quarter. Any change in the full year outlook that you discussed last quarter in that business?

We had projected that business to be up somewhat in fiscal '16, and that continues to be the assumption. They had a very nice quarter. As you probably know from following us over the years, their good quarters or their better quarters are first and third quarters when energy demand is not at its peak and the reactor shutdown for refueling and outages. Year-to-year, typically the first or third quarter tend to be the stronger of the two seasons just based on the way the outages fall, and this year they were projected for the first quarter to be the stronger of those two quarters. So, some of the year-over-year benefit that you are seeing compared to last year's first quarter is somewhat just cyclical timing of the outages for that segment. So I think we still expect the year to be solid. Maybe we are a little more bullish on it than we were coming in based on the first quarter results, but they are just a little ahead of where we projected them at this point, not dramatically.

Okay. And any change in the acquisition environment that you are seeing as you continue to be out there assessing opportunities?

I wouldn't say there is a much of a change. We continue to have some good dialogs like we always do. And we'll continue to do that. I mean I think we're actively in discussions all the time. It's just a matter of -- and we have talked about this before since most of the companies were looking to purchase our family-owned businesses -- small to midsized family owned business. The family dynamics take time to work their way through. And some of these conversations can last year before the family really decides to pull the trigger. So, I would say it's sort of status quo, and we continue to look for opportunities.

Okay. Thanks for taking my questions.

You're welcome.

Thank you very much. We'll go to our next question from the line of Chris McGinnis from Sidoti & Company. Go right ahead.

Hi, good morning -- for taking my questions.

Good morning.

Just a follow-up I guess on a lot of the questions being asked this morning. But, I guess at the current run rate outside of energy-related markets, do you need to see an improvement to meet the estimate -- or the forecast you have out there for the top line growth or just kind of in the same ballpark that it's trending now?

I think in the same ballpark. I think that we obviously have a range of revenue guidance out there. I think energy is sort of the key piece if we continue to see reductions even at the current levels through the remainder of the year that will provide further drag on our guidance. And honestly, some of that's probably built into the lower end. But as far as the non-energy related wearer levels, I think our guidance is sort of predicated on what's going on right now and sort of at the current rate.

Great. I appreciate that. And then maybe just give us an update on the software implementation.

Yes. Nothing major to report, we have made some good progress over the last quarter in our testing. So, I think things are starting to move along nicely, may be a little better than compared to when we talked to your three months ago, but nothing major new to report.

Great. Thanks for taking my questions.

Thank you very much. And we will go to our next question from the line of Andrew Steinerman with JPMorgan. Go right ahead.

Hey, Steve, could you just remind us how UniFirst calculates the add/stop number? Is it year-over-year, is it sequential? To give us the right context when you said in our prepared remarks that in the first quarter it improved sequentially. Is that just a seasonal thing like better winter wear or something like that? So, just first just tell us how you calculate the add/stop number. And then, tell us just really kind of square that into your prepared comments.

Sure. I mean when we talk about -- and I know it can be a little confusing when we mention adds versus reductions, you can talk about it two different ways. You can talk about how were our actual adds reductions during the quarter. Or, you can talk about how adds reductions impacted the quarter which would encompass adds reductions for the prior three or four quarters. Obviously, adds reduction for the current quarter when you talk about the impact on the growth rate for the quarter, we are impacted by negative reductions for the last several quarters from the oil as we've been talking about. When I made the comment that said adds reductions during the quarter were worse than a year ago, they were negative in the current quarter, they were positive last year's first quarter, that really is just a reflection of the activity during the actual current quarter. So, your question about seasonality is a good one. When I say it was sequentially better than the fourth quarter, there is some seasonality to that. First quarter adds reductions are typically better than fourth quarter. I was more referring to in that comment the energy piece of it which did show some sequential improvement in activity.

Right, but when you say energy piece improved, you mean it was less negative? So, my question is if you take out the seasonality of normal winter wear, do you think add/stops activity inside the first quarter did improve from the fourth quarter or is it all explained by seasonality?

I think if we take out the energy impact, the improvement from the fourth to the first is probably more than normal seasonal improvement.

Okay, sounds good. Thank you.

Thank you.

Thank you very much. [Operator Instructions] And our next question is a follow-up from the line of Andy Wittmann with Robert W. Baird. Go right ahead.

Hi, thanks for taking my follow-up. Ron, the annual or the quarterly tradition just to give us an update on your thoughts on the cash balance that's building up, your thoughts about the play. We talked about the M&A, but is there any change in the way you are looking at that cash balance? Any new motivation given that the stock has come in a little bit to return some of that in dividend or buyback form? And do you have a preference in how that might happen or when that might happen?

Andy, it's we always look and it's in strong consideration that we would do a buyback of some shares. We are talking about it all the time. We are also talking to a lot of people every day. So, like Steve basically said a lot of this is family motivated on the acquisition side. And the valuations are still an issue, but I would suspect that moving forward you will see us do something.

Is there a -- is a there a leverage level that you would like to be at to optimize the business, Ron? Do you have a view on that that you are willing to share? Do you look at it as a debt to EBITDA, do you look at it as a debt to cap? Is there something that you would like to be at in a deal scenario?

I think what we are trying to do is we're accumulating the cash and we will do a combination of things. We will strongly consider some share buyback. We may invest in some businesses, not in our industry. And we are always looking at businesses in our industry.

But I think, Andy, I think where you're going with that, I think if the right acquisitions came along, we felt it was the right time to do buybacks, I mean I think getting to one to two times leverage would be a very comfortable place to be.

Thanks for the update.

Thank you.

Thank you very much. We don't have any questions in queues, and a follow-up question from the line of Joe Box with KeyBanc Capital Markets. Go right ahead.

Hey, Ron. I am just curious with your cash, how far outside of your core competency are you really willing to go to that prior point you just made?

Well, I think we would consider any business that has a route-based business.

Anything that is more attractive that kind of fits that criteria?

That's correct.

Okay, I didn't know if there was something that you were looking at in particular that kind of fit the criteria?

No, no.

Okay.

No, not at this point.

All right, well, and then Steve just a quick clarification. It sounded like earlier you said ex the energy headwinds on an add/quit basis, it was seasonally better in FY 1Q or the seasonal uptick in FY 1Q was better than you would normally get. Is that an accurate statement?

No, I apologize for the confusion. I think the sequential improvements from Q4 to Q1 was really a comment on the energy-related adds reductions which have moderated or improved albeit still negative. Outside of that, I would say that the year-over-year adds reductions compared to the last first quarter were probably a little bit worse as we've been saying the last couple of quarters, ex energy.

Okay, yes. Thanks for the clarification, I just want to reconcile that. Thanks you guys. That's it from me.

Thank you very much. And we have no further questions on the line. Please continue with your closing remarks.

Very good. We would like to thank everyone for joining us to review UniFirst first quarter results for fiscal year 2016. We look forward to speaking with you again in the spring we will be reporting our second quarter and our six month numbers. Have a great day. Have a great New Year, and we wish you a happy and healthy New Year.