UniFirst Corporation (UNF) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of UniFirst Corporation. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Mr. Steven Sintros, President and Chief Executive Officer of UniFirst Corporation. Mr. Sintros, the floor is yours.

Good morning, everyone. My name is Steve Sintros, President and Chief Executive Officer of UniFirst Corporation. It's a pleasure to welcome you to our annual meeting of shareholders. Due to the public health impact of the COVID-19 pandemic and to protect the health of our shareholders and employees, we are pleased to provide shareholders with the opportunity to participate in the annual meeting online. All of the members of our Board of Directors are participating in this meeting. Our Board consists of myself and the following other directors: Kathleen Camilli, Phil Cohen, Cynthia Croatti, Mike Iandoli, Tom Postek, and Ray Zemlin, the Chairman of our Board. Our Executive Vice President and Chief Financial Officer, Shane O'Connor, is also participating. Our external legal counsel, Goodwin Procter, is represented at our meeting today by Scott Chase. Ernst & Young, our independent accounting firm, is represented at our meeting today by Kevin Casey. At today's meeting, we will first handle the formal business described in the proxy statement. Following that, I will make a brief presentation of a general overview of our business as well as a financial update. I will then respond to any questions you may have regarding the corporation. You can submit questions at any time by clicking on the message icon. Now let's proceed to the formal business of the meeting, notice of which was sent to all shareholders of record as of the close of business on November 13, 2020. Shareholders of record as of the close of business on that date are entitled to vote at this meeting. Scott Chase will act as the Inspector of Elections for the meeting. We will assume that those who have signed a proxy even if participating at this meeting intend to vote by proxy. You may, of course, vote at this meeting if you wish to do so. Mr. Chase, do we have a quorum present?

Mr. President, I have confirmed that a quorum is present.

I declare that a quorum is present. There are 3 items of business to be voted on at this meeting. The first is the election of directors. We will be voting on 2 nominees for the election as Class I directors as set forth in more detail in the proxy statement. In accordance with the bylaws, the Board of Directors has nominated Kathleen Camilli and Michael Iandoli for election as Class I directors. The holders of shares of common stock, voting as a separate class, will vote on the election of Ms. Camilli. The holder of shares of common stock and Class B common stock, voting together as a single class, will vote on the election of Mr. Iandoli. At this time, I declare the polls open for a vote of the shareholders on the election of the nominees. Anyone who is voting at the meeting, please vote now. [Voting]

I now declare the polls closed and ask the Inspector of Elections to report on the results.

Mr. President, I have reviewed the voting results and report that each nominee has received the required vote for election to the Board of Directors.

I declare that the 2 nominees are duly elected as directors of the corporation. The next item of business is a proposal to approve on a nonbinding advisory basis, the compensation of the company's named executive officers as more fully described in the proxy statement. At this time, I declare the polls open for a vote of the shareholders of -- on their proposal. Anyone who is voting at the meeting, please vote now. [Voting]

I now declare the polls closed and ask the inspector of elections to report on the results.

Mr. President, I have reviewed the voting results and report that the proposal has been approved.

Thank you. I declare the proposal has been approved. The next item is a proposal to ratify the appointment of Ernst & Young as the company's independent registered public accounting firm for the fiscal year ending August 28, 2021. At this time, I declare the polls are open for a vote of the shareholders on the proposal. Anyone who is voting at the meeting, please vote now. [Voting]

I now declare the polls are closed and ask the inspector of elections to report on the results.

Mr. President, I have reviewed the voting results and report that the proposal has been approved.

Thank you. I declare the proposal has been approved. That concludes the formal business of the meeting. I will now make a presentation providing a general overview of our business as well as a financial update following that presentation. I will allot time to address any questions we may receive. As a reminder, you may submit questions using the message icon. Okay. Well, with the formal portion of the shareholders' meeting behind us, I will proceed to a general overview and update on the company, and a quick update on our financial status and most recent quarter. You should be able to observe the slides that I'm presenting now online. UniFirst was founded in 1936 and is now one of the largest providers in North America of workplace uniforms, protective clothing and facility service products. Our primary business is the rental of uniforms and facility service products. For uniforms, this means we take care of it all. We supply the workflows; handle all the pickup and deliveries; hygienically launder, maintain, repair, replace and more, all for a low weekly charge per wear. One thing that the pandemic has clearly highlighted is the critical nature of our products and services as we were deemed an essential business early on, and we didn't miss a beat servicing our customers, most of which were also deemed essential to keeping our communities up and running. We are proud of our long-term track record of success, which includes a strong history of growth as well as recognition by a number of prestigious organizations in the areas of service quality, sustainability and career opportunities for our team partners. This slide gives you a sense of the scale of our business, which services over 300,000 customer sites each week. Outfitting 2 million workers daily and laundering well over 700 million pounds of textiles annually. We have 260 company facilities, servicing 369 of the top 382 MSAs in the United States and most major Canadian markets. Each market position -- our market position is particularly strong in the Northeast, down the East Coast of Florida and across to Texas. Our nationwide footprint and presence in most major markets allows us to service large national customers, no matter how many sites, from coast to coast. What we call our core laundry operations makes up approximately 90% of our overall business. Our Specialty Garments division includes garment decontamination services for the nuclear industry as well as clean room protective apparel services. And our First Aid and Safety division rounds out our portfolio. We operate in a large industry with opportunities for growth outside our core business, which is represented in the uniform rental piece of the pie. We already participate in the other 3 slices that make up the broader industry with further penetration opportunities available. With the consolidation that has occurred in our industry in the last 5 years in particular, the top 3 players in the industry currently make up about 26% share in the overall market. This goes up to about 65% when just focusing on the subset of the market, which includes uniform rental and dust control. Despite the growing concentration at the top of the industry, opportunities for growth remain available for the -- for UniFirst and the industry. Regulatory pressures driving demand for protective garments as well as hygienically clean uniforms and facility service programs will continue to increase demand for our products and services, allowing for opportunities to convert buyers of uniforms and other facility service products into users of managed programs. A significant strength of our company is our long-standing relationships that we develop with our large customer base. Our customers range from small shops to the largest national companies, and we serve virtually all industries. Along those lines and demonstrated on this slide, we have a very diverse overall customer base. Although we do service the restaurant and hospitality industries, our lack of significant exposure in these sectors has benefited us during the pandemic as they understandably have been hit hard. On the flip side, our geographic exposure to energy-dependent markets like Texas and neighboring states as well as Western Canada has certainly caused some up and down volatility over the last decade. We continually work to strengthen our position as an industry leader through our people, products and service. As we've talked about the last year or two, we continue to be focused on making good investments in our people, our infrastructure and our technologies, all designed to deliver solid long-term returns to our UniFirst stakeholders and our integral components to our primary long-term objective to be universally recognized as the best service provider in our industry. As a -- like so many companies, we've been impacted by the COVID-19 pandemic as many customers have been closed, forced to operate at limited capacity or simply have the demand for their products or services impacted. The effect of this reduced demand trickles down to lower overall uniform levels for our garments, wearer levels for our garments. As a result, we are adapting to the current environment. As always, we continue to ensure that our service levels are strong to drive customer retention. We are focused on selling into market areas less impacted by the pandemic and in areas that have seen an increase in need for our products and services, including PPE like masks as well as hand soaps and sanitizers. Although we will maintain the right balance of cost controls and frugality through this cycle, our strong financial position and balance sheet allows us to forge ahead on important investments in our technology and infrastructure to position us for the future. Now I would like to give a brief update on our overall financial profile. As you can see, the company has a long history of growth and profitability, as this slide demonstrates, going back to 1970. It's difficult to see during this time when the company has ever had revenues that have gone backwards because in most cases, and actually all cases during this time, we have showed overall growth. Our profits have gone up and down a little bit during that time, but generally trended positively over the long term. And some of these ups and downs represent investments we continue to make in the company for the long term. This next slide shows our results over the last 4 fiscal years. You can see the impact that the pandemic has had on our growth in 2020. 2020 was also a 52-week fiscal year coming off of a 53-week fiscal year in 2019. Organically, despite the pandemic, our revenues still grew slightly during 2020. You can see during that time, our margin profile has been pretty consistent, somewhat impacted by the pandemic in 2020. And our overall EBITDA margin has been fairly consistent as well. You see the trend of strong cash flow generation and as we've mentioned, we have no current debt on our balance sheet. More recently, just a quick look at our Q1 results, due to the impact of customer closures from the pandemic, our revenues are down about 4% compared to the first quarter of 2020. We were able to keep our margins fairly stable during Q1 as the pandemic has allowed us to benefit from certain things from a cost perspective, such as lower energy cost, lower travel cost, lower merchandise cost and lower health care cost. Some of those costs we expect to moderate and return to more normal levels as the year goes on, which will pressure our margins some, but the summary of our Q1 results as we continue to make progress in some of the recovery of our revenues and our margins and overall profitability remain very stable. This next slide gives you a little bit more of a perspective of what we've been dealing with, with respect to customer closures during the pandemic. You can see the sharp decline in revenues during our third quarter when we were really at the peak of closures with our customers. During the fourth quarter and Q1, we started to see some recovery in our customer base. Admittedly, that recovery has somewhat stagnated as cases have continued to increase of COVID-19, but we continue to be optimistic that with the vaccine coming out over the latter part of the year, we will hopefully start to see more momentum from the return of our customers to normal business levels. These next 2 slides just represent necessary GAAP to non-GAAP financial disclosures. The margins and information that I presented on prior slide show the reconciliation out of some unusual items over the last couple of years that have been noted on this slide. Our final slide just accentuates again the strong capitalization and overall financial position of the company, with over $2 billion in total assets, no debt on the balance sheet as well as approaching $500 million in cash and cash equivalents. The company is well positioned to continue investing in its future. At this point, that concludes our prepared remarks, and we would be now happy to answer any questions that have been put forth from our investors. I am being told that at this time, there are no questions that have been submitted by our investors. With that, there being no other matters for consideration at this meeting, I declare that the meeting is adjourned. I'd like to wish everyone good health, and thank you all for your participation.

This concludes the meeting. Thank you for your participation. You may now disconnect.