Greetings, everyone. And welcome to the Fourth Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. Later we will have a question-and-answer session. [Operator Instructions] And it is now my pleasure to turn the call 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, Senior Vice President and Chief Financial Officer. We would like to welcome you to UniFirst Corporation’s conference call to review our full year and fourth quarter results for fiscal year 2020. 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 want to start by saying that fiscal 2020 has certainly been a year like no other and as we head into fiscal 2021, our company the country and the world continue to deal with the impact of the pandemic. This continues to be an unprecedented time, and first and foremost, our thoughts are for the safety and well-being of all those dealing with the impact of this virus. For our full year of fiscal 2020, the company reported revenues of $1.804 billion, which came up just short of last year’s $1.809 billion. However, as a reminder, fiscal 2019 was a 53-week fiscal year, and therefore, on an even work week basis revenues in fiscal 2020 grew by 1.6%. Full year operating income for fiscal 2020 was $172.7 million, down from $232 million in fiscal…

Thanks, Steve. Revenues in our fourth quarter of 2020 were $428.6 million, down 10.6% from $479.6 million a year ago. Fourth quarter of 2020 had one last week of operations compared to prior year due to the timing of our fiscal calendar. Excluding the impact of the extra week in 2019, revenues decreased 3.5%. Operating income for the fourth quarter decreased to $40.8 million from $58.9 million in the prior year period and net income for the quarter decreased to $31.6 million or $1.66 per diluted share from $46 million or $2.40 per diluted share. Our Core Laundry operations revenues for the fourth quarter were $384.6 million, down 10.9% from the fourth quarter of 2019. Core Laundry organic growth, which adjusts for the estimated effect of acquisitions, the impact of the extra week in 2019, as well as fluctuations in the Canadian dollar was negative 4.2%. When we last spoke in July, we had indicated that on a weekly basis we had been seeing recoveries in our revenues related to our customers reopening their businesses after temporary COVID-related closures and that year-over-year our weekly run rate was down approximately 4% to 5%. However, we also cautioned that those recoveries had recently started to moderate. Since that time, as Steve mentioned, our weekly revenues have remained relatively stable with any benefits from customer re-openings being largely offset by higher wearer and service reductions, as well as headwinds we are seeing from our energy dependent markets. Core Laundry operating margin decreased to 9.9% for the quarter or $38.1 million from 12.9% in prior year or $55.6 million. The segment’s profitability was affected by many items, including the impact of the decline in rental revenues on our cost structure, additional costs we incurred responding to the pandemic, as well as higher casualty claims…

[Operator Instructions] Our first question comes from the line of Andrew Wittmann with Baird. Please go ahead.

Great. Good morning, guys.

Good morning.

I should start, yeah, maybe we will start with the margins that were reported in the quarter and you gave a little bit of detail here. I guess last quarter it was a large number of kind of one-time restructuring costs that you guys didn’t quantify then. I was wondering if there were any carryover one-time-ish costs like that in this quarter that were worth highlighting?

Yeah. Andy, last quarter we had talked about -- well, first of all, there were a number of additional costs that we incurred during the quarter related to responding to the pandemic. The two larger items that probably warrant talking about individually. Last quarter we had mentioned the fact that we had instituted some temporary employee compensation programs, that sort of impacted our margins last quarter and those actually did carry over to the fourth quarter and had some impact on our costs in the fourth quarter. The other item similar to the items that we talked about in prior quarter we did incur some additional costs related to internal use PPE. At this point in time, internal use PPE has become more of an operating cost for us. But during the quarter we did incur additional costs related to that as the prices for those continued to adjust and normalize. We spoke about it a little bit in the third quarter and the fact that immediately after the pandemic had started the cost, sourcing those items had become a challenge and the costs related to those items was significantly increased, although those costs had started to normalize. Those elevated costs related to those products carried into the fourth quarter and we incurred incremental costs related to that as well.

Got it. Has the -- on the first thing with, I guess, supplementary pay for your employees, is that adjusted now with COVID being kind of the new normal or is that going to be affecting the fiscal ‘21 numbers as well?

Yeah. Andy, most of it has run its course in the fourth quarter. There’s a little bit of carryover into this quarter, but it’s a more nominal now and sort of we have adjusted back to kind of more traditional compensation programs and levels.

Got it. Sticking I guess with the margins, it sounds like, I mean, clearly, just judging by the amount of costs capitalized in the quarter for the CRM and then the fact that you will be capitalizing more here in ‘21 and you are piloting -- you are getting closer go in live on that one, and I appreciate some of the detail you gave up on this. Do you expect, Steve, that you will be fully live this fiscal year? And then I am just kind of curious as to given that you are going to be capitalizing the total of $35 million to $40 million, what that means for an annualized depreciation burden that you will be recognized to the P&L?

I guess I will take the first part of the question being will we be fully deployed this year? No, I think as Shane referred to, we will be initiating a full deployment at some point kind of mid-year and it will be a phased rollout that will certainly go into 2022, not prepared at this point to give an exact timeline on the end date to that. Some of it will depend on how the early pacing of the deployment goes and so on. I don’t believe we have the fully baked depreciation numbers put together right now. There’s some moving pieces. The broader investment in the system will be depreciated over a somewhat longer period of time than maybe normal software, right? So you are probably looking at a 7% to 10% -- seven years to 10 years sort of average depreciation probably for the investments. Some items will be less like the handheld devices but, so as we get closer in the year, we can give you a little more discreet information about that.

Got it. Okay. It sounds like the energy end market in particular is a pretty significant headwind to the revenues there. I was just wondering, if you could give us, I remember in 2013, heading into the or even early ‘14 heading into that one, it was thought that energy was pushing probably 10% of your company’s revenues certainly, I think, because high margin, more than that in terms of your company’s overall profits. I could be wrong and if I think that’s generally right. It never fully rebounded from that decline. I am kind of curious as to heading into this most recent oil bust where energy stood as a percentage of revenue and what you are seeing in the revenue trends for that end market in particular today.

Sure. Yeah. You are correct. I think after the last dip, it never fully recovered, although, there was some solid recovery particularly in West Texas and somewhat in Western Canada. We probably peg it and we are always cautious when we say, direct energy markets versus indirect support industries and so on. But you are right. We were probably closer to 10% at a peak and probably closer to 5% or 6% coming into this recent decline. What I would say is and I think it’s maybe a way to frame geographically what we are seeing as additional headwinds when we talked about these energy dependent markets. Our U.S. and Canadian operations are broken into 10 regions and we have two regions that Straddle, Texas and the surrounding states. And when you look at the number I referenced in the earnings call saying we were down about 7% from pre-COVID levels. Those two regions are down double-digits. And the one that encompasses West Texas is down into the teens. And so you look at that and you say, there are parts of the country that have recovered a lot better, but those ones that touch oil and those economies continue to be more impacted. I think our operators in those parts of the country would say that, the COVID impact on energy and the demand for energy and that trickledown effect has been more significant than customer closures for example in those parts of the country. And I will throw in our region that encompasses Western Canada is impacted more than the average for the company as well. So I think that just gives you a sense of the level of impact we are seeing in those parts of the country.

Okay. My last question for now then is just looking at the 1Q guidance here Core Laundry down 6.8% at the midpoint revenue wise versus just over 4% this quarter, so sequential degradation. I was wondering is that a compare issue, is this because you are seeing businesses that were re-opening now, re-shutting is it where levels. Just probably some commentary as to why sequential trend in…

Yeah.

… organic revenue is what it is in the guidance?

Yeah. Andy and Shane mentioned this comment about the timing of some annual price adjustments that. We have talked historically about a fair amount of those annual adjustments happening in the summer time frame closing in on the end of our fiscal year. During the -- given that that was somewhat at the height of some of the challenges our customers were having, we pushed some of those annual price adjustments further out to help our customers during that time. So there’s some timing impact and some of that pricing impact will be realized as we move toward later in our first quarter and into the rest of the year. So some of it is a timing issue and a comp issue, as you sort of alluded to. I would say just to be clear the core fundamentals of what we are seeing in terms of volume, growth or degradation, we kind of split the difference. It’s sort of right down the middle right now. We continue to sell a fair amount of new business given the environment, our retention is okay and it’s really we are still seeing some reductions, but we are not really seeing sequential degradation in the core business.

Okay. That’s helpful. Thanks guys. I might chime in later but that’s good for now. Thank you so much.

Thank you.

Thanks.

[Operator Instructions] Our next question comes from the line of Tim Mulrooney with William Blair. Please go ahead.

Steve, Shane, good morning.

Good morning.

Hi.

Just a couple questions this morning. My first one, I’d like to focus on labor availability and service levels if we could for a minute. You know in this environment, have you found it harder or easier to source labor. I know there are millions who remain unemployed. But I have spoken to some of your smaller provider or some smaller providers, I should say, who said sourcing labor has been a real challenge, given some of the government programs, higher unemployment benefits, et cetera. What are you guys seen in your business and has that impacted service levels at all during this pandemic period either favorably or unfavorably?

Yeah. It’s an interesting question Tim. And I think it’s something we certainly dealt with over the course of the last six months. I think in particular some of the government subsidies around unemployment and the increased levels that went through primarily through July and then have been extended at lesser levels have had some impact. I think it was greater back in the June, July timeframe. I think things have opened up a little bit. I would say, that we remain mostly staff to levels that we would want at this time and I think that market-by-market there’s still some hiring challenges, but broadly, I would not say, it’s impacted our ability to service at this point. I think the challenges around we have been looking to ramp-up sales heads in some cases. It’s been a little challenging, just dealing with a lot more of the remote environment and getting together with candidates and so on and so forth. But overall, I think, we see somewhat of a reluctance of some employees to come back to work and it’s not just I think the government subsidies, I think you have childcare issues for sure with a lot of employees with school situations and so I think when candidates…

Right.

…are balancing the desire to come into the workforce or not there’s more issues than just unemployment subsidies for them to deal with. So we are seeing some of it, but we have been able to be, I think, reasonably staffed to support the customers.

Okay. That’s great color. Thank you. Yeah. Certainly school is also a major issue I know. Shifting gears slightly, I mean, staying in your Core Laundry segment, I mean, you mentioned the timing of pricing adjustments would negatively impact organic growth in the first quarter. Is there any way you can quantify that impact for us and would you expect that to carry throughout the year or is the timing pretty specific to the first quarter?

Yeah. It’s more of a first quarter timing issue and we would expect the overall impact that for the year to be a little bit more normal. I think, overall, the pricing environment out there in general is fairly tight and aggressive as you would expect. In a difficult economy, I think, all customers are looking for their vendors to assist in helping them through these difficult times. So it is a challenging environment. But I think that from your particular question it’s more of a first quarter comp issue.

Okay. And speaking of helping through challenging times, maybe we could -- it’s a good segue to your First Aid business. I mean there was a little bit of a decline, which was a little surprising for us. For customers with larger orders of safety in PP&E in the beginning of a pandemic, have you seen a leveling off in orders or has that quantity been consistent? I guess, I am hoping to gauge how much of the initial orders were due to the stockpiling versus kind of a sustained increase in PP&E usage?

Yeah. That’s a good question. And just to be clear, some of our PPEs being sold in our First Aid segment, but we are also selling it through our Core Laundry business, if we are servicing from our Core Laundry routes, whether it be sanitizer or masks. So we have some of those sales in both places.

Okay.

In general, I think, we are seeing -- we are probably seeing a little bit of a slowdown there, and again, it’s somewhat geographic as, I guess, I will say, early on in the pandemic when the cases around the country were primarily focused in the Northeast most significantly, we weren’t still selling any masks in the South. And that sort of transitioned as the cases peaked in those parts of the country and as cases improve in certain markets you do see a little bit of a slowdown. So it’s up and down, I would say, probably right now we are a little down particularly on the masks side than we were earlier on. But I’d say, hand sanitizer and I think other kind of hygienic program type things continue to be reasonably strong and I think people for the most part with some of those products they will be with us for some time.

Okay. Well, thank you for all the color this morning and good luck over the next several months here.

Thank you.

[Operator Instructions] And we have a follow-up from Andrew Wittmann. Please go ahead.

Good. We don’t you guys get off that is usually two sets of question.

We didn’t expected, Andy.

I mean, the -- you guys, the family has a big ownership stake. The company has always thought very long-term. It’s a challenging time for your customers, I mean, the challenging time for you, the balance sheet sitting with a large amount of cash, you didn’t buy any stock in the quarter. I am curious as to why this seems like maybe a time where a long-term owner like the company would be likely to take advantage of somebody and certainly take a longer term view. Steve, I just thought maybe you could get some perspective on that?

With respect to share buybacks, we had ceased the program in the third quarter, just given some of the uncertainty. Certainly, it’s something we will continue to evaluate as we go forward here. And you are right we are obviously company -- confident in the company’s ability to continue to generate cash. When you look at valuations from a stock perspective, it’s not as if our stock or has been unduly punished due to the uncertainty from the pandemic either. But regardless, I mean, we will continue to evaluate that as we go forward. I think, certainly, sitting here today, although, there is still a fair amount of uncertainty. There is a better feeling than back in the April, May timeframe when maybe things were a little more uncertain. So it’s something we will continue to evaluate as we generate cash. Obviously, as you know, during this type of cyclical time, we do generate some more cash with lower investments in merchandise. We benefited during the quarter being able to defer some payroll taxes now that will be paid a little bit later in 2021. So we will be evaluating what the cash balances look like and continue to have those conversations. But you are right, I think the family and the Board, we have always taken a long-term view and we will continue to do that.

Thanks for that. The -- one thing that it appears that pandemic has made abundantly clear is that these facility service offerings, which have always been a relatively smaller portion of your business whether in sanitizers or even your First Aid business, can have pretty significant benefits and will decouple the company from being kind of employee uniform focused and I think it really broadens out the opportunity set, I don’t think you disagree with that. I was just kind of curious as to your thought given this experience on potentially investing more and expanding those facilities services offerings more quickly in response to what is clearly -- what was a large opportunity which has probably grown significantly as a result of this pandemic?

I will take them a little bit separately. On the First Aid side that is part of our strategic roadmap. Our First Aid business has always been relatively small. Certainly as a percentage of our overall revenues compared to at least our largest competitor and we do think there’s opportunities there. So we have been looking for acquisitions, as well as have a plan to organically grow that business a little bit more rapidly than we have in the past. So that is something that we feel makes a lot of sense given the current environment. But also just our overall position in the industry and the opportunities that are out there. As far as the other core facility service products that we deliver on our Core Laundry routes, like you said, sanitizers, hand soaps, bathroom products. We continue to be invested in that and continue to aggressively try to work and take our share of the market in that area. I think we have a pretty broad offering on a lot of those core products and this is an environment that we are working to take additional advantage. Last year we have started to build sales resources beyond our route personnel that focus on selling into our existing accounts and during the quarter those resources certainly paid dividends, being able to take advantage of more opportunities that existed with existing accounts, whereas getting appointments with new accounts was more challenging, particularly at the height of the pandemic. So it is an area of focus that we feel like we can do more in.

All right. Thanks a lot.

Thank you

And gentlemen those are all the questions we have. I will turn it back to you.

Great. I’d like to thank everyone for joining us today to review our fourth quarter results for 2020. We look forward to speaking with you again in January when we expect to report our first quarter performance. Thank you and have a great day.

Ladies and gentlemen that does conclude the call for today. We thank you for your participation. Everyone have a great rest of your day and you may disconnect your line.