Good day, and thank you for standing by. Welcome to the Q3 2025 UniFirst Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steven Sintros, President and Chief Executive Officer. Please go ahead.

Thank you, and good morning. I'm 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 are they -- 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…

[Operator Instructions] And our first question is going to come from the line of Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. I was just looking to please -- perhaps unpack organic growth a little further. I know you talked new biz by a solid margin, improved retention, a challenging pricing and then some incremental softness in wearer levels. So can you kind of speak to and characterize the demand environment and anything of note with regards to particular end markets or client size? And then how is that a driver versus your investments in the business to enhance new customers, sell additional products, enhance customer experience, et cetera?

Sure. I'll start with the existing customer base. In general, I think I would characterize the mood of the existing customer base is somewhat cautious in terms of investments in heads. And we have seen some targeted reductions from some of our -- and again, when I talk about our customer base, it's easier for me to have more specific visibility to some of the larger customers, but we have seen examples of cutbacks on employment levels and some targeted manufacturing sector companies. Just in general, we've talked about last quarter, how we saw some incremental pickup in reductions, and that has continued this quarter at somewhat of a higher level, somewhat offsetting the benefits recently on improved retention, as well as solid sales performance. Obviously, those things all sort of work together. And any trend in the current quarter only impacts the current quarter so much. But when you look at the four components of growth. Again, we feel good about our new account sales and the retention trajectory that we're on, but seeing some softness in those other areas, which over the short term are impacting the overall growth.

That's helpful. And then if I may dive in -- if we may dive in a little deeper on pricing. You referenced a challenging environment and then seeing some of the vendors increasing pricing and sourcing costs. Can you give some further insight there as to the pricing dynamics? Pricing and cost...

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.

And then on the add-stop metric. Has that -- you said it's declined a little bit compared to the previous quarter. And I'm wondering, has it gone negative? Or is it flat? What you're seeing in the business at least as far as what your customers are doing?

Yes. I think we mentioned last quarter, it flipped into the negative position and it still remains negative a little bit 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. Shane F. O’Connor: 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 time line 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 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 really helpful. And maybe one here, I know you said not seeing as much of an impact on the cost structure from tariffs yet, but could potentially see an impact in the future depending on how things play out. I was hoping maybe you could just unpack that a bit more and maybe where we would expect -- or where you would expect to see some impact on the business from a cost standpoint?

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 countries, 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 -- we grew a little over 9% this quarter. The van business, which is the business we're really focused on growing most significantly was mid-double digit -- 15% or so 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 do 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, 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 the -- 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. So that $5.7 million is really broken into those two areas, like you said. About $3.5 million was related to the prior strategic discussions with Cintas. Yes, some of those costs were -- did bleed into this quarter more significantly, but they weren't, what I'll call, recent cost if that makes sense. With respect to the -- with respect to the other legal matter, it is an ongoing item that we built an accrual for. We don't anticipate it having any longer -- significantly longer tail to it, 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 kind of 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, those direct sales in the third quarter were a few million dollars lower than the third quarter of a year ago. So if you kind of look at that, it's not quite a -- doing my math in my head here, not quite 0.5 point on the growth. But it did -- obviously, with the growth being a little lower, it did have an impact sort of on the trajectory that we thought was worth mentioning. And some of that will be made up in the fourth quarter. And if you look at our implied growth in the fourth quarter, you'll probably notice it's a little bit up from the trend because of some of that time.

[Operator Instructions] And our next question comes from the line of 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 bar codes 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, which 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.