Good day, and thank you for standing by. Welcome to the Fourth Quarter 2024 UniFirst Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steven Sintros, President and Chief Executive Officer. Please go ahead.

Thank you, and good morning. I'm Steve Sintros, UniFirst President and Chief Executive Officer. Joining me today is Shane O'Connor, Executive Vice President and Chief Financial Officer. We'd like to welcome you to UniFirst Corporation conference call to review our fourth quarter results for fiscal year 2024. This call will be on a listen-only mode until we complete our prepared remarks, but first, a brief disclaimer. This conference call may contain forward-looking statements that reflect the company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties. The words anticipate, optimistic, believe, estimate, expect, intend and similar expressions that indicate future events and trends identify forward-looking statements. Actual future results may differ materially from those anticipated depending on a variety of risk factors. For more information, please refer to the discussion of these risk factors in our most recent Form 10-K and 10-Q filings with the Securities and Exchange Commission. I'm pleased to report that we closed the year with a strong fourth quarter that modestly exceeded our expectations in both top- and bottom-line performance. We accomplished a lot as a team in fiscal '24 that will help strengthen our company as we move forward, continuing to grow our company as well as advancing our technology and other organizational initiatives. 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. We serve the people who do the hard work as they are the workforce that keeps our communities up and running. They are our existing and prospective…

Thanks, Steve. Consolidated revenues in our fourth quarter of 2024 were $639.9 million, an increase of 11.9% from $571.9 million a year ago. As a reminder, the fourth quarter as well as the full fiscal year included an extra week of operations due to the timing of our fiscal calendar. This extra week accounted for revenue growth in the fourth quarter and full fiscal year of fiscal 2024 of approximately 8% and 2%, respectively. Consolidated operating income for the quarter increased to $54 million from $36.1 million or 49.8%. Net income for the quarter increased to $44.6 million or $2.39 per diluted share from $27.6 million or $1.47 per diluted share. Over the last six quarters, due to the increase in non-cash amortization expense that we started to incur as a result of the acquisition of Clean Uniform in March of 2023, the company started to disclose EBITDA as a more prominent metric in its commentary. Starting this quarter, the company will migrate 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. 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 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 for the quarter increased to $95 million compared to $71.7 million in the prior year or 32.5%. Our financial results in the fourth quarters of fiscal 2024 and 2023 included $1.8 million and $6.1 million, respectively, of costs directly attributable to…

Thank you. [Operator Instructions] And our first question is going to come from the line of Manav Patnaik with Barclays. Your line is open. Please go ahead.

Hi, good morning. This is Ronan Kennedy on for Manav. Thank you for taking my questions. Can I just ask for your thoughts on recent industry activity? And if there's any insights from the discussions with Elis on their potential entry into the US market? If you're uninclined to comment further on that, could I just ask for a current assessment of the uniform services industry and competitive dynamics, et cetera?

Sure. Thanks, Ronan. I mean, in general, I don't have much to add other than I think what was said publicly by both companies. I think they expressed interest in the US market. You saw our release. We continue to think it's not surprising that companies would be interested in UniFirst given the quality of our company. But as we've said publicly and I think in the release, we feel we have a lot of untapped potential, and that's what we're executing towards. As far as the general industry dynamics, it continues to be a competitive industry. And I think we continue to position ourselves well for the future and our place in that industry and that's what we're focused on.

Got it. Thank you. That's helpful. And then, can I just -- could you further unpack, so you said there was a more challenging price environment, and there is a corresponding impact on retention rates, but you also highlighted renewing contracts and improving rates, NPS scores improving. So, can you just further -- give some further insight into the challenges and pricing impact retention versus sustaining high-quality service levels and renewing contracts, so kind of the dynamics there?

Yeah, absolutely. I think we've been talking over the last year about the impact of the last couple of years in the inflationary environment. And obviously, after going through a period of such historic inflation, all of the companies in the industry were no exception. We're trying to work through that with our customers, trying to get more price where we could to offset higher labor input and other costs. And I think as that period has sort of transitioned now, companies are looking to try to recoup costs wherever they can. Companies in our industry, we're no different. We've talked about some of the things we've been able to do on the sourcing side to recoup from our vendors. And I think our customers are trying to manage their cost the same way after going through such heavy inflation. More contracts are being put out to bid, and that's having some impact. My comments around recent trends on contract rates, obviously, we track percentage of contracts that are being renewed and so on, as well as NPS and these other things. And my commentary there is saying, I think we've worked through a tough year of transition coming off to heavy inflationary periods, but that we feel good about how things are trending and how we're positioned to improve those outcomes. So, I think some of what we're experiencing is cyclical to a very unusual couple year period, but we feel poised to show better performance in those areas in the next year.

Thank you. Appreciate it.

Thank you.

Thank you. And one moment for our next question. Our next question is going to come from the line of Kartik Mehta with Northcoast Research. Your line is open. Please go ahead.

Hey, good morning, Steve and Shane. Steve, just -- I know you talked a little bit about kind of ad stops, and I'm wondering, as you look at the business today, are you at a point where ad stops are neutral, or are they starting to go negative considering where we are kind of in the economic cycle.

Yeah. I think my comments were meant to say that they're a little bit incrementally -- they are negative at this point, but not to an extent that we would say is an overly concerning trend, which is why I categorize them as mostly stable. But if you kind of look at it sequentially over the course of fiscal '24 and to where we are now, yeah, you have seen sort of a consistent sequential decline in that activity to where a year ago, we were getting some decent boost from wearer levels. Now, it is sort of negative to a small extent.

And then, just on the pricing clarification, I think in the past, you've said new contract wins are always competitive, and they've gotten a little bit incrementally competitive, but on your existing customers, are you still able to get some price increases, or has that environment changed as well?

I think in general, the answer is yes, there, Kartik, but I think the level you can get from existing customers today is certainly different than it was two years ago. And more customers, I think, upon renewals are challenging pricing just in the normal course. And I view that as somewhat cyclical based on, like I said, the challenges over the last couple of years that all companies have been experiencing, and we're working through that. But in general, as I've also said before, your ability to drive and retain pricing is multifaceted and ultimately lands on, am I doing a good job, is the customer seeing the value in our service, do we have the right relationships and so on. So, those are things we continue to enhance to make sure we have the best outcomes, but I think some of the recent trends are cyclical.

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

Thank you.

Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of Luke McFadden with William Blair. Your line is open. Please go ahead.

Hi. Thanks so much for taking our questions today. Just kind of sticking the theme around ad stops, I was just curious, are there any particular end markets where you're seeing a slowdown and sort of this net wearer metrics most acutely or does it seem to be a bit more broad-based.

Yeah, I would say it's a bit -- it's just more broad-based at this point. We look at things kind of regionally, and I think it's sprinkled throughout the country. I mean in the past years, we've talked about things like the energy sector, but that continues to kind of tick along pretty steadily. So, at this point, I would say it's pretty broad-based.

Understood. And just for my follow-up, you indicated that net wearer metrics have continued to slow into this quarter just due to softer employment environment. But we're curious if that softer environment has also impacted new account growth, or if you could just talk a little bit about how that has trended during this quarter and heading into the new year?

Our new account growth in the quarter was solid. We finished the year with record levels of new sales, and I talked about this last quarter, but somewhat bolstered by some large accounts we were able to win earlier in the year. But overall, I think the ability to sell new business is pretty steady. And I wouldn't categorize that as like the ad stops as fading.

Understood. Thanks so much.

Thank you.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Josh Chan with UBS. Your line is open. Please go ahead.

Hi, good morning, Steve and Shane. Thanks for taking my questions. I think...

Good morning.

Hi, good morning. Would you classify the slower growth in 2025 as the result of the retention challenges in 2024? Is that the right way to think about it? I'm just curious based on the way that you responded to some of the prior questions.

Yeah, absolutely. I mean I think when you look at our business, as I think most of you understand, when you look forward to growth in a subsequent year, a lot of your ability to provide growth in that year is based on the activity of the year before. Because really, when you look at what we bill and obviously, we're very steady recurring weekly billing model, the activity of the year before influences that next year very heavily. And so, it's really that pricing environment and the impact on retention that we experienced in '24 that mostly impacts '25. I think my comments about where we stand today and our ability to drive better sequential results through '25 is more of a harbinger of what we think is achievable in '26, just kind of understanding the way that the business sort of builds on itself.

Thank you for that color. And maybe can I ask a margin question. It seems like in your guidance, you're expecting margins to be down in the Core Laundry business. Maybe D&A has something to do with that, but could you talk about what's pressing margins in the coming year? Thank you.

Yeah. Certainly, from an operating income perspective, and Shane can talk about this a little bit more in a minute, there is some marginal decline. Now, there's two things when you look at operating margin the way we've disclosed, the biggest impact here is that DNA, and it's the impact of significant investments we continue to make in the infrastructure technology, some of it is the impact of amortization related to our acquisitions, which is why we continue to disclose EBITDA as well. And EBITDA, in general, when you look at our margins from an EBITDA perspective, we expect them to be very stable over the course of next year. And I think that's a testament to some of the things we've been doing and trends we've been seeing recently from a merchandise perspective, where we expect actually merchandise trends to be a little bit lower next year. So, Shane can add any color to that.

Yeah. No, I think that pretty much sums it up. If you take a look at the operating margin, yeah, some of the things that are impacting that are slightly elevated, expected costs were going to incur related to our key initiatives. And then, the other two non-cash items that are contributing to that would be elevated depreciation as well as some headwind from stock-based comp. Now, one of the reasons why we do provide that adjusted EBITDA metric is we think that that's a better indication of the profitability. And you can see that, that's relatively flat. If you take into account the additional expense that we expect to incur related to our key initiatives, yeah, the profitability of the business is expected to be relatively consistent from a margin perspective with '24.

That makes sense. Thank you both for your time, and good luck in '25.

Thank you.

Thank you.

Thank you. And one moment for our next question. Our next question is going to come from the line of Andrew Steinerman with JPMorgan. Your line is open. Please go ahead.

Hi. This is Andrew. I just wanted to ask about your NPS score. I know you said it's a new program. I definitely commend you for having an NPS program. Are you willing to tell us what level of NPS score you currently have and any ambitions you have there? And then, also, when you have your long-term ambition to have the highest quality service in the industry or amongst the highest quality service, are you seeing that reflected in your current NPS score?

Yeah. At this point, I think the program is a little newer, Andrew, in terms of starting to disclose the baseline for that. So that's something we can consider going forward. But we've had the program in for about a year now. Obviously, we're building trends of sample in terms of how we're looking at it, but yeah, that is why we put the program in. When you look at retention, there's a lot of things that can impact retention, customers going out of business and other reasons. And we think that NPS score is the best way sort of unfiltered. We can get that feedback from our customers to say how we're doing. I would say, again, that I think we've opened that program and the samples we're getting and looking at it compared to other companies in and out of our industry. I think we're starting from a solid place, but like I said in our prepared remarks, our vision is to be great and really create a differentiator, and we're starting to establish those goals internally by location and by region.

Great. Thank you for all that context.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Andrew Wittmann with Baird. Your line is open. Please go ahead.

Yeah, great. Thanks for taking my question, guys. Steve, I guess you mentioned here earlier on the call and on previous calls that early in fiscal '24, there were some larger accounts that you picked up and that helped this year's growth rate as those annualize. That's part of the reason why your expected organic growth rate in Core Laundry is going to decelerate. I'm just kind of curious as to the market for large accounts. Are you seeing the same number of large accounts on the street today out for bid as you were seeing back then, or has the large contract environment changed where it's slowing down, you're not seeing quite as much opportunity there, and it's more back to normal times? I guess, it seemed like last year was a little maybe unusual in its uptick, but I just thought maybe you could comment on these national accounts and the prospect list and how it compares today versus a year ago.

Yeah. I think it's in a similar place, Andrew. I think when you look at a year ago, we talked about adding a top three account. Now by nature, there's only so many accounts of that size. When we talk about national accounts, they can be anywhere from $10,000 a week to $200,000 a week. So, there's a big range. And I think overall, we still see the environment is reasonably healthy for those, what we consider national accounts. But the challenge of getting one of that size to match what we did last year, yeah, is challenging. But at the same time, we feel good about some of the prospects we're out there talking to and the opportunities.

Okay. That's all my questions for today. Thank you for your time. Have a good day.

Thank you.

Thanks.

Thank you. And I would now like to hand the conference back over to Steven Sintros for closing remarks.

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

This concludes today's conference call. Thank you for participating. You may now disconnect.