Unifirst Corp (UNF) Q4 2023 Earnings Call Transcript

Greetings and welcome to the UniFirst Corporation's Fourth Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. I would now like to turn the conference over to Steven Sintros, President and Chief Executive Officer. Please go ahead.

Thank you, and good morning. I am Steven Sintros, UniFirst's President and Chief Executive Officer. Joining me today is Shane O'Connor, Executive Vice President and Chief Financial Officer. We would like to welcome you to the UniFirst Corporation conference call to review our fourth quarter results for fiscal year 2023. This call will be on a listen-only mode until we complete our brief remarks, but first a brief disclaimer. This conference call may contain forward-looking statements that reflect the company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties. The words anticipate, optimistic, believe, estimate, expect, intend, and similar expressions that indicate future events and trends identify forward-looking statements. Actual future results may differ materially from those anticipated, depending on a variety of risk factors. For more information, please refer to the discussion of these risk factors in our most recent Form 10-K and 10-Q filings with the Securities and Exchange Commission. I am pleased to report that we closed the year with the fourth quarter that modestly exceeded our expectations in both top and bottom-line performance. We accomplished a lot as a team in fiscal 2023 that will help to strengthen our company as we move forward, growing our business, making strong progress in our technology transformation, and closing on our mid-year acquisition of Clean Uniform. I want to sincerely thank all of our team partners who continue to always deliver for each other and our customers as we strive towards our vision of being universally recognized as the best service provider in the industry, all while living our mission of serving the people who do the hard work. I want to take a couple of minutes to expand on fiscal year '23, what we accomplished as a company, and what we have in store moving forward. It comes as no surprise that as we report our final 2023 results, we have continued the company's longstanding record of always growing our top line. Our full-year fiscal 2023 revenues increased 11.6% to $2.233 billion. Our Core Laundry operations showed strong organic growth during the year, driven by solid new account sales as well as the impact of the effort to work with our customers to address the inflationary environment. Overall growth was also bolstered by our mid-year acquisition of Clean Uniform. We couldn't be more pleased with what we were able to bring Clean into the UniFirst family. We continue to believe they are a tremendous fit within our organization in terms of their focus on service excellence as well as overall culture. The early days of bringing our companies together have been very constructive with initial efforts being focused primarily on retaining Clean's most important assets, its people and its customers. We are also very excited about leveraging some of the experience and knowledge that the Clean team has with respect to UniFirst CRM technology as well as some of the proprietary applications that Clean has built to further enhance the usability and efficiency of CRM. As we discussed last quarter, due to the strong leadership and service reputation that Clean brings with it, as well as the complexities of where we are in our technology transformation, we will be strategic and patient in the full integration of the two businesses. That being said, in the six months since the closing date, Clean has produced very solid operating results. Our Specialty Garments segment contributed very strongly to the top and bottom line in fiscal 2023 with record revenues and profits during the year. As a reminder, our Specialty Garments segment is made up of both our nuclear and cleanroom operations. Our cleanroom division continues to show steady growth in profitability, which we expect to continue as we move forward. As we have mentioned over the years, our nuclear division's results can be more volatile based on the impact of certain projects as well as swings in activity with some very large customers. In fiscal '24, we do expect the nuclear division of this segment to take a step back from its record-setting 2023 results, due to decreased revenue from its Canadian customers. We believe very strongly in the bright future of our First Aid and Safety division, which grew 22.5% in fiscal '23. We continue to make investments in the sales and service infrastructure of this segment to expand our footprint and ensure that we can reach existing UniFirst customers as well as new prospects in the market that have a strong need for these products and services. As expected, the investments to expand our reach and round structure have certainly limited our ability to expand the profitability of this segment, but we are happy with the progress toward the longer-term goal of building a much larger, more profitable business that meets our customer's needs. As we have discussed throughout the year, we have continued to progress on two large technology initiatives designed to transform the company in terms of our overall capabilities and competitive positioning. These initiatives are the rollout of our new CRM and our corporate Oracle ERP system. Regarding our CRM systems project, as of today, we have effectively deployed 100% of our U.S. Core Laundry operations onto the new system. Going forward, there is still work to be done to optimize the new system, including further enhancements to our CRM, full conversion to our new bar code technology, aligning with Clean's technology footprint, as well as integrating with our ERP. Over the next two or three years, we will continue to expand costs through our operating results and capital expenditures related to these key initiatives. Shane will provide additional commentary and estimates of these costs in his comments shortly, as we think it is important to understand the impact that these initiatives are having on our results. Overall, we continue to be excited about how these investments will continue to position the company for future success. I'm proud of the fact that the company continues to make solid progress and contributions in the area of environmental, social governance, ESG. The nature of our industry and rental model has always allowed us as a company to do our part to enhance the economy's environmental footprint, given our role as a natural recycler, as well as the better utilization of resources in operations like ours enables. We continue to make investments in progress in the areas of reduction of water consumption, growing our fleet of electric delivery vehicles, renewable sources of energy like solar, upgrading facilities with LED lighting, environmentally efficient laundry detergent, creative textile recycling, and more. While many of these efforts have been ongoing, we are preparing ourselves to increase the level of measurement and reporting to ensure we are focused on making the right investments to meaningfully impact the environment, support our customers, and have a positive impact on our business. As we've discussed throughout the year, our profits in our Core Laundry compared to prior years have continued to be pressured by higher operational costs, being impacted by the inflationary environment. As we look forward to fiscal '24 and beyond, margin improvement will certainly be a key focus of the organization. Executing on our growth model, while also managing costs in areas we can control will be critical, all while ensuring we don't impact our ability to execute on our transformational initiatives or adversely affect our customer service levels. In addition to day-to-day execution, we are focused on margin opportunities in many areas. As I mentioned, there is work being done to optimize the use of our new CRM, including leveraging some of Clean's proprietary technology across all of UniFirst. Areas such as strategic pricing and account profitability, and strategic manufacturing and sourcing represent significant opportunities. Although some of these benefits going forward will be more significantly enabled through the implementation of our ERP, which Shane will discuss more about shortly, we continue to focus on these areas and others we feel can move the needle in the near to midterm. Overall, we expect fiscal '24 to be another solid year for UniFirst. As our outlook includes, we expect our top line to surpass $2.4 billion. And at the midpoint, consolidated EBITDA to improve by approximately 20%. Although some of that growth is attributable to lower key initiative costs, even excluding this benefit, EBITDA is projected to show double-digit growth. Overall, we expect to accomplish these goals while continuing to always deliver for our customers and continue our journey to transform the company in terms of technology and overall capabilities. I'd like to once again thank our thousands of dedicated team partners who make everything we accomplish as a company possible. With that, I'd like to turn the call over to Shane, who will provide more details on our fourth quarter results as well as our outlook for fiscal '24.

Thanks, Steve. Consolidated revenues in our fourth quarter of 2023 were $571.9 million, an increase of 10.7% from $516.4 million a year ago. And consolidated operating income increased to $36.1 million from $33.3 million or 8.5%. Net income for the quarter increased to $27.6 million or $1.47 per diluted share from $26.2 million or $1.39 per diluted share. As we mentioned last quarter, due to the increase in non-cash acquisition-related intangibles amortization that we will incur as a result of the Clean acquisition, we believe that EBITDA will become a valuable metric for us to include in our commentary going forward. Consolidated EBITDA increased to $69.2 million compared to $60.2 million in the prior year or 15%. Our financial results in the fourth quarters of fiscal 2023 and fiscal 2022 included $6.1 million and $9.1 million, respectively, of costs directly attributable to our key initiatives. In addition, we incurred costs related to the acquisition of Clean Uniform, during the fourth quarter of fiscal 2023 of approximately $0.3 million. The effect of these items on the fourth quarter of fiscal 2023 and 2022 combined to decrease both operating income and EBITDA by $6.4 million and $9.1 million, respectively. Net income by $5.3 million and $7.6 million, respectively, and diluted EPS by $0.28 and $0.40, respectively. Our Core Laundry operations revenues for the quarter were $505 million, an increase of 10.1% from the fourth quarter of 2022. Core Laundry organic growth, which adjusts for the estimated effect of acquisitions, as well as fluctuations in the Canadian dollar, was 5.3%. This organic growth rate was impacted by pricing efforts over the last year to share with our customers the cost increases that we have incurred in our business as well as solid sales performance. Core Laundry operating margin decreased to 6% for the quarter from 6.3% in the prior year. However, the segment's EBITDA margin increased to 12.2% from 11.8%. The costs we incurred related to our key initiatives and the Clean acquisition were recorded to the Core Laundry operation segment, and combined to decrease both the Core Laundry operating and EBITDA margins for the fourth quarter of fiscal 2023 and 2022 by 1.3% and 2%, respectively. The segment's operating and EBITDA margins were further impacted by higher merchandise, payroll, and payroll-related costs, which were partially offset by lower energy and legal costs as a percentage of revenues. The purchase accounting for the recent Clean Uniform acquisition additionally impacted the segment's operating margin, most notably in the form of elevated non-cash purchase-related intangibles amortization. Energy costs for the quarter were 4.3% of revenues, down from 5.3% a year ago. Revenues from our Specialty Garments segment, which delivers specialized nuclear decontamination and cleanroom products and services, were $41.4 million for the fourth quarter of fiscal 2023, an increase of 13% over 2022. The segment's top-line growth was primarily driven by its cleanroom and North American Nuclear operations. The segment's operating income during the quarter was $6.8 million, an increase of 69.4% over 2022. Our First Aid segment's revenues in the fourth quarter of 2023 increased to $25.4 million from $21.2 million, with both the wholesale and van operations contributing to this growth. However, the segment had an operating loss of $0.9 million during the quarter. These results continue to reflect our investment in expanding our First Aid van business and building the foundation for what we expect to eventually be a much larger business. At the end of fiscal 2023, we continue to reflect a solid balance sheet and financial position with no long-term debt and cash, cash equivalents, and short-term investments totaling $89.6 million. We did not repurchase any additional common stock under our current stock repurchase program during the quarter. Cash provided by operating activities for the year increased to $215.8 million, compared to $122.6 million in the prior year, primarily due to lower working capital needs of the business. In fiscal 2023, we continued to invest in our future with capital expenditures of $172 million in the acquisition of five businesses for which we paid $306.2 million, the most significant being the Clean Uniform acquisition for a purchase price of approximately $300 million. I'd like to take this opportunity to provide our outlook for fiscal 2024, which will include one extra week of operations compared to fiscal 2023 due to the timing of our fiscal calendar. At this time, we expect our full-year revenues for fiscal 2024 will be between $2.415 billion and $2.435 billion. We further expect that our fully diluted earnings per share will be between $6.52 and $7.16. This guidance includes $16 million of costs that we expect to incur attributable to our key initiatives, which at this point relate only to the CRM and ERP projects. These key initiative costs decreased our EPS assumption by $0.64. Consolidated EBITDA is expected to be $307.8 million, an increase of 21.5%. This outlook assumes Core Laundry revenue growth at the midpoint of the range of 9.4%. Its organic growth, which also excludes the effect of the extra week, is expected to be 4.8%. Core Laundry operations operating and EBITDA margins are assumed to be 6.4% and 12.5%, respectively, which were decreased by our key initiative cost assumptions by 0.7%. Our Core Laundry operations operating and EBITDA margin improvement, compared to 2023 reflects lower direct costs we expect to incur related to our key initiatives, primarily due to the conclusion of the domestic rollout of our CRM system and our ERP initiative entering implementation phases that are largely capitalizable. As well as moderating merchandise costs and other input costs as the inflationary headwinds that have been impacting our operating environment have continued to ease. Energy costs are expected to be 4.3% of revenues in fiscal 2024. Next year's effective tax rate is assumed to be 25%. Our Specialty Garments revenues are forecast to be down from 2023 by approximately 2% due to projected declines in the Canadian Nuclear business, partially offset by continued growth in the cleanroom business. The change in business mix will have a larger impact on the profitability of this segment, and we expect operating income to be down approximately 17%. As we have commented in the past, this segment's results can vary significantly from period to period due to seasonality as well as the timing and profitability of nuclear reactor outages and projects. Our First Aid segment's revenues are expected to be up approximately 13% compared to 2023, and the segment's profitability is expected to be marginally positive. We expect that our capital expenditures in 2024 will approximate $150 million, which reflects lower new facility investments that have strategically run high over the last few years, partially offset by higher application development investments, most significantly related to our ERP implementation. Throughout 2023, we have focused our efforts on the global design phase of our ERP initiative, which was not capitalizable. Starting in the first quarter of 2024, we will be entering implementation phases of our initiative, where the majority of the costs will now be capitalized. We expect our ERP implementation will be a multi-year initiative that will continue through 2027, with early phases focused on master data management and finance capabilities, followed by subsequent phases with procurement and supply chain focus. We expect the total amount of this project to be approximately $85 million and have partnered with one of the world's largest strategy through execution professional services firms to assist us in our implementation effort. We expect this initiative and the capabilities it will enable will provide the following benefits to our organization: improved inventory planning and forecasting will allow us to manage our inventory levels more effectively, improve the time to install new accounts, and fulfill the daily needs of our existing customers directly. Improved visibility and centralized management of local stock room inventory will enable us to more effectively utilize our used garment inventory. Enhanced procurement capabilities will enable us to centralize sourcing with enhanced strategies around vendor management and negotiation as well as improved visibility, oversight, and analytics into organizational spend. Automation of manual processes will enhance the efficiency of our back-office functions and simplification of our IT architecture and improvement in data quality will reduce operational complexity and cost to deliver. We believe that these benefits will provide 150 basis points to 200 basis points of improvement to our EBITDA margins. However, we caution that the larger value will be derived from the later phases of the project and will take time to realize. Our guidance assumes our current level of outstanding common shares and no unexpected changes generally affecting the economy. This concludes our prepared remarks, and we would now be happy to answer any questions that you might have.

Our first question comes from Manav Patnaik with Barclays. Please go ahead with your question.

Hi, good morning. This is Ron Kennedy on for Manav. Can I just please confirm the overall contribution to the extent you disclose them from pricing versus new business? And then the cross-sell penetration and how those compare to historic levels and what the outlook for each of those components is contemplated in the guidance for '24?

So, we have not historically broken out those components, but I can give you directionally what we're seeing regarding the broader 2023 and what we expect going forward. Particularly pricing being a large item that we've talked about, given the inflationary condition, we expect that impact to decrease. We've seen some of that over the back half of '23, and we expect that in '24 as well. We expect contribution from new account sales and retention to be similar in 2024, as well as cross-sell. I think the other components of our growth, reasonably stable trajectory. In terms of the other components we talk about, wearer levels, and I would say wearer levels have continued to be stable through the back half of this year, and that's at this point what we've assumed going through '24.

That's helpful. As a follow-up, could you please confirm the assumptions regarding the overall macro environment and specifically the merchandise amortization, materials, commodity, and labor inflation? Additionally, how will you be pricing to address the impact of these factors?

Yes. In terms of a couple of different things you mentioned there. In terms of our overall merchandise costs, we have talked a lot in the last couple of years about how we've seen escalating merchandise costs, both from a quantity perspective coming off some of the lows of the pandemic when less merchandise was infused given the labor environment. The strong growth in heads in labor coming out of the pandemic has obviously caused our merchandise to escalate, exacerbated by higher cost of merchandise in a number of different areas including freight and raw materials. A number of things are happening at this point that are causing our merchandise costs and trajectory to start to flatten. And it really exists in all areas. We're getting a little bit more to a mature population coming off the lows of the pandemic. And also, as you can imagine, we are experiencing lower freight costs, bringing in product, raw material costs, if you follow things like cotton and in some cases, on a smaller extent, things like rubber for mats, have also moderated from a year ago. So those things are starting to work their way through the supply chain and contribute to the fact that our merchandise cost overall is starting to flatten a bit.

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

Thanks for taking my question. I just wanted to follow up on the retention aspect of the business. I know last quarter, you mentioned that you've seen a slight tick-up in customer attrition over the last few months, but I know your retention rates historically have been pretty high. So, we're just curious how your current rate compares to historical standards? And if you've seen any change in customer attrition relative to when you were talking about this last quarter.

Yes. I would say not much of a change since last quarter. It's just been a few months. I think overall for the year; the comment stands that we were a bit higher. When you say historical, I would say that our retention had improved for a couple of years. And then we kind of took a little bit of a step back this year. A lot of feedback during the pandemic and so on, maybe a lot of decisions from customers, whether it's changing vendors, both on the sales and retention side, were sort of delayed, and maybe a little more energy around that this year as people looking to control their own costs put more things out to bid. That's just anecdotally maybe some of the things that could have impacted it. So certainly, our ongoing growth model assumes continued high retention rates, and a lot of the things that we're focused on as a company with our technology transformation and process transformation is to continue to improve that retention. So, I would say not much of a change from a few months ago.

Okay, Steve. I have a couple more quick questions. Regarding the ERP comments you made at the end, I want to confirm my understanding. It’s a multiyear initiative that will extend through 2027, and the benefits are expected to improve EBITDA margins by 150 to 200 basis points, with most of that realized towards the end of the project. It might also take some time after that to see significant effects. So, just to clarify, we likely won't see much of this impact until fiscal 2027 or later, correct?

Yes, I believe that is what I was trying to convey. Initially, there will be benefits from some of the earlier phases, particularly related to FICO and finance activities. However, the significant value we are discussing comes from the supply chain and procurement capabilities, which are part of the later phases. So indeed, the most meaningful value is expected to materialize in those later phases when we achieve the capabilities I mentioned.

One thing I want to add to that, and I sort of alluded to it in my comments, is we certainly think supply chain is a big area of opportunity. And during the pandemic, as many companies experienced disruption in their supply chain. In many cases, it was more about getting product than being able to optimize, maybe where you got product and how you've got product. And so, we are making efforts and initiatives to improve in those areas that we think can help our cost and profitability over the next few years. Even leading into the benefits that the supply chain ERP benefit will ultimately accelerate and enable. So, I just wanted to make that comment in that context— we're not waiting until the end of the ERP to make improvements in these areas, but the ERP will eventually enable those fully.

I understand this is a longer-term project, and I wanted to confirm the timing. I appreciate the additional information. I apologize for being the analyst here, but I will quickly ask one more question about housekeeping. I would like to know how much the Clean Uniform acquisition contributed to revenue in the quarter and when you expect to see the impact from the extra work week in fiscal 2024. Thank you for addressing my question.

Yes, when we acquired Clean, it was approximately $90 million. Their run rate for the quarter aligns closely with that. I apologize, I missed the second part of your question.

No worries. I was just curious, is that extra work week always in the fourth quarter? Does it sometimes sit in different quarters? Just curious when we should be adjusting for that out of organic growth?

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

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

Good morning. Steve, could you share your thoughts on how your customers are feeling about the economy? Based on the guidance, it appears you are not expecting much of an economic pullback, and I assume your customers are providing you with positive feedback regarding their business outlook.

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

Steve, I believe you mentioned or perhaps Shane did regarding pricing, that you're anticipating a slight decline compared to last year due to inflation. I'm curious if this anticipated decline is connected to changes in the environment, such as increased competition, or if it's solely due to reduced inflation or customers being less willing to pay the higher prices they accepted one or two years ago.

Yes. I think everyone is trying to be as cautious as they can with costs, ourselves included and our customers included. I think as far as the competitive environment goes, I think it remains stable from prior quarters, prior years. It's aggressive, it's competitive, but I wouldn't say there's been any near-term change in that. And we continue to work with our customers. So, I don't want to give the impression that we can't obtain price as necessary given the environment, but it's a little bit pulled back from a year ago, I would say.

Right. And just one last question. I think, Shane, you talked about on the Specialty Garment side that you're expecting nuclear. That part of the business to be down, but Clean energy should continue to grow. What's the breakout of that business within that segment?

At this point in time, that segment is about 50-50 nuclear versus cleanroom.

Our next question comes from the line of Andy Wittman with Brad. Please proceed with your question.

Good morning. I wanted to clarify the guidance for '24 a bit better. So, Shane, this might be directed at you. Looking at it on a Clean basis, excluding the costs associated with your key initiatives, it appears that the EBITDA margins are around 13%, which is similar to what I calculated for '23 once I adjust for certain factors. I wanted to confirm that. Additionally, it seems like the decrease in the nuclear business is impacting the margins, but you are seeing a slight increase in the Core segments due to merchandise and labor, among other things you mentioned. However, this increase seems to be modest. Am I interpreting the '24 guidance the way you intend?

No, that's exactly right. If I take a look at my Core, I'm expecting a little bit of margin improvement, the 20 basis points, 30 basis points of improvement, sort of excluding the impact of the lower key initiative costs. Really what that is, just to break that down for you, we had mentioned the fact that merchandise is moderating. Still seeing a little bit of a headwind. It's probably 10 basis points to 20 basis points on the merchandise side. But obviously, the headwind that we're seeing there is significantly reduced from the what we've experienced over the last couple of years, which is a positive trend. The Clean acquisition and the non-tangible amortization, which actually is impacting my operating income, but not my EBITDA. But on the operating income side, that's probably about 30 basis points of headwind as well. Energy is about 20 points or 20 basis points of benefit. And then there's a number of other input costs that have trended lower as Steve sort of articulated in my comments, as the inflationary pressures have continued to ease, we're seeing some favorable trends there as a percentage of revenues that are sort of offsetting those other items.

Okay. That makes sense. My question is regarding the CRM, which is now fully implemented. The items you've mentioned don't seem to be affected by the CRM implementation. So where might we see benefits from the CRM in 2024? I would expect there to be some positive contributions, especially considering you referred to it as a customer retention tool, though I understand it's not solely about efficiencies. However, I anticipated there would be a bit more impact. Steve, could you address this?

Sure. I think part of it has to do with the modernization of the work our route drivers do, which is essential for employee retention and customer service. I've mentioned that merchandise control is an area where the CRM enhances our efforts, and we're starting to see some improvements. When discussing our merchandise management and our ability to collect on charges for lost items and overall tracking, we are noticing progress. However, the inflationary conditions have impacted our results as we deploy the CRM. Moving forward, I hope we will see continued benefits, particularly with lower merchandise as a percentage of revenue. In my prepared remarks, I mentioned that we are further enhancing the CRM. Clean has had positive experiences with the CRM and has developed applications to improve its usability, particularly in tracking account profitability. We believe we can achieve benefits from these enhancements as well. Our focus is on customer retention, merchandise management, and revenue and pricing management. These elements are reflected in our results, and we will keep working to enhance the efficiency of the CRM to maximize its benefits.

Our next question comes from the line of Andrew Steinerman with JPMorgan. Please proceed with your question.

Hi, Shane, did you mention the intangible amortization from Clean in the fourth quarter? And could you just also give us a sense of what that amortization will be in '24?

Yes. One of the things we did to provide visibility in our press release was include a footnote under our cash flow detailing the non-cash intangibles amortization. In the fourth quarter, that amount was $19.3 million, compared to $15.1 million in the same quarter last year. The majority of this difference is related to the Clean Uniform acquisition, with about $3.5 million accounting for this quarter. This amount is what we project as the run rate for next year as well.

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

Hi, good morning, and thanks for taking my questions. I guess for your core margin improvement of 20 basis points to 30 basis points next year, could you give us a sense of how that would flow through the year? Are you expecting margins to be down in the first part of the year and then you recover some of it in the back half? Just kind of could you help us with kind of the shape?

Yes, I mean that margin realization really does reflect some seasonality we experience in our quarters, where we typically see slightly higher profitability in the first quarter. Our second quarter usually shows a decline in margins due to the timing of certain costs we incur as well as the effects of the holidays. There is a slight margin improvement as we progress through the year, mainly driven by the moderation of merchandise costs as a percentage of revenues. However, this improvement is relatively small. Overall, our profitability will largely follow the historical seasonal trends we have experienced.

Okay. Perfect, thanks for the color. And I guess for my follow-up, you did mention that CapEx would be tapered off a little bit from, at least on the facility side of things. And so, could you just talk about the rationale behind that? Do you feel like your facilities are in good shape heading into next year? Thank you.

Yes. In general, when you look at the elevated CapEx, that elevated CapEx really comes from new facility, new plant processing plant builds. That's the biggest a plant runs $20 million or so these days. And so, if you have two or three of those going on, that's where you sort of get that elevated CapEx. And we had more projects to sort of centralizing around the last couple of years. Overall, we continue to invest in our existing facilities, make sure we're replacing equipment, increasing automation where we can. The commentary around lowering the CapEx really is around, when you look at the outlook for this year and into next year, less large project builds going on. And a couple of the ones we had going on with replacing facilities, older facilities that we had obtained through acquisitions. So, we're a little further along in that roadmap, but we will continue to invest in the facilities, just at a little bit of a lower rate on the new plant builds.

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

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

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