Good day, and thank you for joining us. Welcome to the Q3 2025 UniFirst Earnings Conference Call. Please note that today's conference is being recorded. I will now turn the call over to Steven Sintros, President and Chief Executive Officer. Please proceed.

Thank you, and good morning. I'm 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 UniFirst Corporation's conference call to review our third-quarter results for fiscal year 2025. 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. Our third-quarter results were largely in line with our expectations. It is rewarding to see our recent investments beginning to yield measurable returns, evidenced by gross margin improvement and more effective execution across the business. I want to sincerely thank all of our team partners who 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 as they are the workforce that keeps our communities up and running. They are our existing and prospective customers, as well as our own UniFirst 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. Whether that means providing uniforms, workwear, facility services, First Aid and Safety, cleanroom, or other products and services, our goal is to partner with our customers to ensure that we structure the right programs with the right products and services for their business and team, all while providing an enhanced customer service experience. Third-quarter consolidated revenues were $610.8 million, an increase of 1.2% from fiscal '24. Earnings in the quarter reflect improvements in our gross margin, as well as several unusual items that impacted our profitability, which Shane will discuss in more detail shortly. Our team continues to focus on investing in our people, technology, and infrastructure to further enable growth and profitability. The benefits of this strategy will take time to be fully realized, but we are confident in our ability to seize the significant opportunities ahead and drive significant shareholder value. As mentioned, we are pleased with the progress we continue to make in the areas of operational execution and gross margin enhancement. Core Laundry Operations, key operational costs, continue to trend favorably which benefits being recognized in both merchandise and plant production expenses. To date, we have not experienced significant headwinds from the newly imposed tariffs. However, we have started to see some of our vendors increasing prices related to their additional sourcing costs, and we foresee potential for future increases. The tariff situation remains fluid and we will continue to provide updates in the coming quarters. Overall, we believe we have positioned ourselves well to navigate the disruption, with our efforts over the last few years to improve the diversification within our supply chain. From a top-line perspective, there were positive performance trends from both our sales and service organizations in the quarter. We installed more new business than a year ago by a solid margin, and consistent with our expectations, customer retention improved compared to the third quarter of 2024, excuse me. However, a pricing environment that continues to be challenging, as well as some incremental softness in our customer wearer levels, has limited our ability to build more top-line momentum. Additionally, growth in the quarter was impacted by lower direct sales revenues compared to the same quarter for the previous year. Direct sales trends can vary with respect to timing. However, our full-year direct sale assumption remains the same and continues to reflect growth over fiscal '24. As a company, we will continue to focus on investments in the business that will enhance our ability to attract new customers, sell additional products to our existing customers, and improve our customers' experience and drive improved retention. From a profitability perspective, we continue to believe there is ample opportunity with ongoing efforts focused on driving continued improvement and consistency in our operational execution. We are excited about the progress the team is making in aligning our operations around the UniFirst way, which focuses on creating and executing scalable, repeatable processes to drive a consistent and differentiated customer experience, and is critical for us to achieve our goals. Opportunities also exist in the areas of strategic pricing, procurement sourcing, inventory management among others. And as we have talked about, our new ERP system and related technology investments will be fully enabling these benefits. However, ahead of the full implementation, we are working to take advantage of the opportunities available to us in the midterm and setting ourselves up for more robust improvements post-deployment. With that, I will turn the call over to Shane, who will provide more details on our third-quarter results, as well as our outlook for the remainder of fiscal '25.

Thanks, Steve. In our third quarter of fiscal 2025, consolidated revenues were $610.8 million, up 1.2% from $603.3 million a year ago, and consolidated operating income decreased to $48.2 million from $48.5 million, or 0.6%. Net income for the quarter increased to $39.7 million, or $2.13 per diluted share, from $38.1 million, or $2.03 per diluted share. Consolidated adjusted EBITDA increased to $85.8 million from $84.8 million in the prior year, or 1.2%. Our effective tax rate increased to 25.7%, compared to 22.9% in the prior year. As a reminder, our tax rate can move from period to period based on discrete events, including adjustments to our tax reserves, the timing of tax credits, and excess tax benefits and deficiencies associated with employee share-based payments. Our financial results for the third quarters of fiscal 2025 and 2024, included approximately $1 million and $3.9 million, respectively, and costs directly attributable to our key initiatives, which are currently focused on our ongoing ERP project. The effect of these items on the third quarter of fiscal 2025 and 2024, combined to decrease operating income and adjusted EBITDA by $1 million and $3.9 million, respectively, net income by $0.7 million and $2.9 million, respectively, and diluted EPS by $0.04 and $0.16, respectively. Net income and diluted earnings per share also benefited from a $2.8 million gain on the sale of a nonoperating property during the quarter. This gain was recorded to other income expense net but did not impact operating income or adjusted EBITDA. Our Core Laundry Operations revenues for the quarter were $533.2 million, an increase of 0.9% from the third quarter of 2024. Core Laundry organic growth, which adjusts for the estimated effect of acquisitions, as well as fluctuations in the Canadian dollar, was 1.1%. Core Laundry segment's operating margin declined to 6.9% for the quarter, or $36.7 million, compared to 7% in the previous year, or $36.9 million. Segment's adjusted EBITDA margin, however, remained unchanged at 13.5%. Costs 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 third quarter of fiscal 2025 and 2024, by 0.2% and 0.7%, respectively. During the quarter, we also incurred approximately $5.7 million in expense related to advisory costs for a strategic matter and legal costs related to an employee matter. Excluding the benefit of reduced key initiative costs and the $5.7 million in advisory and legal expense, Core Laundry adjusted EBITDA margin showed solid improvement over the prior year. As Steve discussed, this improvement was driven by lower merchandise and production costs as a percentage of revenues, and was partially offset by higher health care claims expense. Selling and administrative costs also ran slightly higher as a percentage of revenue compared to the prior year. Energy costs in the third quarter of 2025 were 4.1% of revenues, compared to 4.3% in the prior year. Revenues from our Specialty Garments segment, which delivers specialized nuclear decontamination and cleanroom products and services, increased to $47.8 million from $47.6 million in the prior year, or 0.5%. Growth in the European nuclear operations and cleanroom operations were largely offset by a decrease in North American nuclear revenues. The segment's operating margin for the quarter was 22.8%, down from 23.9% in the prior year. As we mentioned 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 increased to $29.8 million, from $27.3 million in the prior year, or 9%, driven by growth in our van operations. The segment had a nominal operating income of $0.5 million during the quarter as the segment's results continue to reflect the investments we are making in the First Aid van business. At the end of our third 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 $211.9 million. In the first nine months of fiscal 2025, cash flows from operating activities were $196.5 million, and free cash flow increased by 22% to $86.7 million. We continue to invest in our future with capital expenditures of $109.8 million, repurchased $25.6 million worth of common stock, and acquired four small First Aid businesses for which we paid a total of $5.4 million. We would like to provide an update regarding our financial outlook. At this time, we are maintaining our annual revenue guidance within the range of $2.422 billion to $2.432 billion. However, we are increasing our diluted earnings per share guidance to a range of $7.60 to $8. This adjustment reflects an updated assumption that our key initiative costs in fiscal '25 will be approximately $7.5 million, revised down from our previous estimate of $12 million. As a reminder, fiscal 2025 includes one less week of operations compared to fiscal 2024, which included an additional week in its fourth fiscal quarter. Also, guidance does not assume future share buybacks or unforeseen economic events. This concludes our prepared remarks, and we would now be happy to answer any questions that you may have.

Our first question comes from Manav Patnaik with Barclays.

This is Ronan Kennedy on behalf of Manav. I was hoping to further explore organic growth. You mentioned new business growth by a solid margin, improved retention, pricing challenges, and some incremental softness in wearer levels. Can you discuss and characterize the demand environment, particularly in relation to specific end markets or client sizes? Additionally, how do these factors motivate your investments in the business to attract new customers, sell additional products, and improve the customer experience?

Sure. I'll begin with the current customer base. Overall, I would describe the sentiment of our existing customers as fairly cautious regarding investments in hiring. We have noticed some targeted reductions from certain clients, particularly among larger customers, and there have been instances of cutbacks in employment levels, especially in the manufacturing sector. We previously mentioned last quarter that we observed a slight increase in reductions, which has continued this quarter at a somewhat elevated rate, counterbalancing the recent advantages we gained from improved retention and strong sales performance. These factors are interconnected. Additionally, any trends we see in the current quarter affect that quarter but not beyond. Looking at the four components of growth, we remain optimistic about our new account sales and the retention progress we are making. However, we are seeing some weakness in other areas, which is currently affecting our overall growth.

That's helpful. If I could delve a bit deeper into pricing, you mentioned a challenging environment and noted that some vendors are increasing their pricing and sourcing costs. Can you provide further insight into the pricing dynamics?

Yes, it's a good point. I mean, obviously, we've been talking about for the last year coming out of a very high inflationary environment, the things we're taking a step back from a pricing perspective. I think as we're transitioning now potentially, and this is why it's such a fluid situation, into an environment where tariffs may be impacting vendor cost, or some of our own costs. It's a little bit of a wait and see to how that impacts pricing going forward. I think we're sort of in this in-between state right now where companies are still looking to recover from a lot of the inflation that they experienced over the last couple of years, obviously, with an eye towards what might be coming with respect to tariffs. So I would say we're still sort of stuck in the middle of that right now, and it's unclear how that's going to play out over the next quarter or two.

And if I may sneak in a quick follow-up on that. Is there a particular area of the business where pricing has been most impacted, or could potentially be?

No, I wouldn't say so. When I talk about pricing generally, it's really across our customer base. Large, medium, small customers, right? I think we talk about the competitiveness, and I wouldn't say there's any particular sector or size of customer that is being more impacted.

Our next question comes from the line of Kartik Mehta with Northcoast Research.

Steve, I just wanted to maybe understand a little bit on new sales. Kind of the environment today if you're seeing a lengthening of the sales cycle, or if you look at contribution from new sales to overall growth, if they're different today higher or lower than they were 3 to 6 months ago?

No, I wouldn't say they're significantly different. I think we talked in the first quarter about having a little bit of a slower start to the year. Particularly from a year-over-year comparison, you remember back in early '24, we sold a really large national account. But over the last couple of quarters, we've started to pick up some momentum. So I would say it's incrementally positive today compared to 6 months ago, but not a dramatically different percentage when you look at it as a component of our overall growth.

On the add-stop metric, you mentioned it has declined a bit compared to the previous quarter. I'm curious if it has turned negative or if it remains flat, based on what you're observing from your customers.

Yes. I think we mentioned last quarter, it flipped into the negative position and it still remains negative a little more so in the current quarter.

Perfect. And just one last question. Any change in the environment in your ability to sell ancillary products? Are customers getting a little bit more cautious because of the environment and maybe not buying ancillary products as much as they used to? Any change that you've noticed?

I think the caution from customers is overall. So it probably does have some ancillary impact on that. That being said, and not as much impact in the current quarter, but we've talked before about we think we have a lot of opportunities to continue to penetrate our customers more holistically over time with direct sales and other facility products that were probably somewhat underpenetrated today. So we still feel good about that opportunity. But as far as what's going on today, yes, some of that probably has wrapped up a bit in the caution.

Our next question is going to come from the line of Tim Mulrooney with William Blair.

This is Luke McFadden on for Tim Mulrooney. Maybe one here just on the key initiatives. Could you just give us an update on progress as it relates to those initiatives and drivers behind the reduction in costs for those this year? Was this primarily a reflection of better implementation than previously expected? Or is it more a timing dynamic where we should expect to see these costs maybe come through next year, or in future quarters? Just any color there would be helpful.

Yes, Luke. I'll give you an update there. As I had mentioned in my prepared comments, at this point in time, those key initiative costs are primarily attributable to our ERP implementation that we have ongoing. I would say that that project continues to move along very, very well, right in line with the timeline that we had originally established. Where we are in that project is right now, we're in the middle of our second release which is a finance-centric release. We'll be replacing our general ledger and a lot of our other finance modules. So where we are is we've sort of just concluded a lot of the detailed design work, and we're going into the implementation phase. When you take a look at the costs that are going through my P&L, it's not necessarily related to a lower level of spend, it really relates to the types of costs that we're incurring. Depending upon the activities that you're advancing within each individual release, you can either capitalize those costs or expense them. And right now, we are in a phase where a high percentage of those costs are being capitalized. As we move along throughout the remainder of the phase and as we approach an eventual deployment of this release, we will be incurring additional costs related to change management and also training of the organization to digest the new solution. And those costs will actually be expensed. So there is the probability that we'll see some additional costs go through the P&L. But right now, the trend that you're seeing is primarily related to the activities that we're advancing.

That all makes sense and is really helpful. I understand that you mentioned not seeing a significant impact on the cost structure from tariffs yet, but there could be potential effects in the future based on how situations develop. Could you elaborate on that and indicate where you might anticipate some impact on the business from a cost perspective?

Yes, sounds good. I mean I think if you look at the environment right now, and this is why it remains relatively fluid, but we've talked before about how if you take a look at the largest portion of our costs, it's obviously our merchandise for our customers. And the largest portion of that is garment. So I'll speak to that, and it kind of gives you a sense of the environment. We source garments from all over the world. Some self-manufactured, some through subcontract partnerships, some through third-party vendors. The vast majority, if not virtually all, of those garments are coming from somewhere outside of the United States. Many of these countries will be subject to some level of tariff. At this point, 10% in many of the cases. And in a couple of cases, there are countries that there are no tariffs at this point. So you can sort of see that regardless of where the garments are coming from, they're getting hit with some level of tariff today. How that changes in terms of what countries work what trade deals and how all that settles out will sort of impact, or result in the ultimate impact that that has. Obviously, China had been a country that had been on balance experiencing higher tariffs. We don't have as much exposure there across our source base, which is positive at this point. But again, it's fluid. As the countries make different deals and we see where things settle, we'll probably be able to react a little bit more and see what the overall impact will be.

That's great. Makes sense. And if I can squeeze one more in here, maybe just to switch gears. On First Aid, you continue to see some nice growth there. I know you've made some smaller acquisitions. Maybe could you just talk about the strength you're seeing in that business and maybe where you're having the most success?

Absolutely. Yes. We continue to be very excited about the future of that business. We've talked before about how that business is made up of really two pieces, kind of the van operations, which service the kind of rank and file street customers every day. And then we do have a wholesale business that sells through some distribution partners. The van business, which is the business we're really focused on growing most significantly, was mid-double digit, about 15% growth this quarter. So we continue to see strong penetration not only with our existing UniFirst customers on the Laundry side, but just in general. We're also doing a good job penetrating those customers with all the services that First Aid and Safety bring. When you think about that end customer in that First Aid business, it's not just the cabinet on the wall. It's safety training, it's AEDs, it's fire extinguisher certifications. It's a number of things. And so as we broaden our customer base, we're also looking to penetrate those customers more and seeing good progress in those areas. And it's a little early in the cycle, but we're seeing at least some positive momentum as we try to push the profitability of that division as well through this growth cycle.

Our next question is going to come from the line of Justin Hauke with Baird.

Great. I guess I've got two here. I guess the first question is just thinking about your labor costs, which I don't think you really talked about here on this call. Just anything you're seeing on labor costs there, and particularly with some of the immigration factors and some of your production labor, I guess?

Yes. Holistically, I think it's pretty stable right now. I mean, again, I kind of referenced the heavy inflation we went through over the last couple of years. And I think the combination of moves that we needed to make during that time to kind of increase wages and so on, as well as the overall kind of stabilization of the employment environment a bit, we've been in pretty good shape there. And I think that some of the improvements we're seeing in execution as that labor force has become more stable, less overtime, less turnover, and higher efficiency. So we feel pretty good there. There has been some impact from some of the immigration changes, but not something notable in terms of impacting our overall performance.

Okay. I appreciate that. I guess my second one, to the extent you can comment on. The $5.9 million strategic advisory costs and the legal expense that you called out is that related to the previous kind of merger deal discussions that were out there? Or is that something else? I'm just trying to understand why it would be in this quarter. And then on that the legal matter, is that a resolved issue? Or is this an accrual for something that's ongoing?

Yes. The $5.7 million is divided into two areas as you mentioned. Approximately $3.5 million was tied to the previous strategic discussions with Cintas. Some of those costs carried over into this quarter more noticeably, but they weren't recent costs. Regarding the other legal matter, it is still ongoing, and we have established an accrual for it. We do not expect it to extend significantly longer, but we did increase the reserve for it this quarter.

Our next question comes from the line of Josh Chan with UBS.

I guess, Steve, you mentioned the wearer levels stepping down a little this quarter and then you called out manufacturing. I was just wondering how broad-based you're seeing this lower wearer levels and whether it's kind of concentrated in certain pockets? Or is it more pervasive around the customer base?

Yes. Good question. I mean obviously, with 300,000 customers, it's hard to narrow that down. I would lean on that it's a little bit broader, right? No one customer, or even sector, really makes up the majority of the trend. So I think I'd probably just have to answer saying it's a little more broad-based.

Okay. That's fair. And then maybe just a quick clarification on Shane's comment about the direct sales. How big of an impact did that have on your growth in Core Laundry this quarter? Because I guess that could inform what the underlying trajectory really is?

Yes. Year-over-year, direct sales in the third quarter were a few million dollars lower than the same quarter last year. If you consider that, it is not quite a half point on the growth. However, since the growth was somewhat lower, it did affect the trajectory enough to mention. Some of that will be compensated for in the fourth quarter. If you examine our projected growth for the fourth quarter, you'll likely see it is slightly higher than the trend due to some timing issues.

Our next question comes from Andrew Steinerman with JPMorgan.

I wanted to jump back into the systems around the key initiatives. The CRM system, the ABS system, has been done for a while. And so I wanted to know if you feel like the company is now getting current benefits from the ABS system in terms of merchandise control, and generally kind of account level profitability. And then when thinking about the ERP system, which you said is still on track in terms of timing, just remind me, I forgot if the ERP, the Oracle system includes route management? Or is that a separate system to optimize?

Yes. Good question, Andrew. With respect to the ABS, I think absolutely is the answer. I think after the changes over a couple of years deploying that system, I think the organization is really settled into utilizing it and getting its benefits. You mentioned merchandise control. We talked about our merchandise cost and the benefits that we've been seeing. So we do feel good about that. Just in general, I think from a route efficiency standpoint and the time that our route drivers automating a lot of their activities has been very beneficial. In terms of the ERP. Yes, ERP will not specifically handle route optimization. The ABS system has put us in a better position with the serialization of our barcodes to be more aggressive on route optimization. And one additional piece of the puzzle, which we haven't talked that much about, but we're also in the midst of an implementation of telematics for our route trucks, including inward and outward-facing cameras. And that data from the telematics will give us very good, obviously, mileage, but also route stop times will be part of the puzzle in terms of advancing additional route optimization.

I'm showing no further questions at this time. And I would like to hand the conference back over to Steve Sintros for any closing remarks.

when we expect to report our fourth quarter performance, as well as our outlook for fiscal '26. Thank you, and have a great day.

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