UniFirst Announces Financial Results for the Third Quarter of Fiscal 2023
Q3 2023 Financial Highlights
- Consolidated revenues increased 12.7% to
$576.7 million . - Operating income was
$33.4 million , a decrease of 0.9%. - The quarterly tax rate increased to 27.2% compared to 25.4% in the prior year.
- Net income decreased to
$24.3 million from$25.1 million in the prior year, or 3.2%. - Diluted earnings per share decreased to
$1.29 from$1.33 in the prior year, or 3.0%. - EBITDA increased to
$64.0 million compared to$60.3 million in the prior year, or 6.1%.
The Company's financial results for the third quarter of fiscal 2023 and 2022 included approximately
- Operating income and EBITDA by
$9.1 million and$11.4 million , respectively. - Net income by
$6.8 million and$8.4 million , respectively. - EPS by
$0.37 and$0.44 , respectively.
Segment Reporting Highlights
Core Laundry Operations
- Revenues for the quarter increased 11.5% to
$501.7 million . - Organic growth, which excludes the effect of acquisitions and fluctuations in the Canadian dollar, was 7.8%.
- Operating margin decreased to 4.2% from 5.9%.
- Core Laundry Operations' EBITDA margin decreased to 9.9% from 11.4%.
The costs incurred related to the Key Initiatives and Clean Uniform acquisition, discussed above, were recorded to the Core Laundry Operations' segment, and decreased the Core Laundry Operations' operating and EBITDA margin for the third quarters of fiscal 2023 and 2022 by 1.8% and 2.5%, respectively.
The segment's operating and EBITDA margin were also impacted by approximately
Specialty Garments
- Revenues for the quarter were
$49.4 million , an increase of 19.9%, which was driven by growth in the segment's cleanroom and North American nuclear operations. - Operating margin increased to 25.2% from 17.4% a year ago, primarily the result of the strong top line performance.
- Specialty Garments' EBITDA margin increased to 27.1% from 19.9%.
- Specialty Garments consists of nuclear decontamination and cleanroom operations, and its results can vary significantly due to seasonality and the timing of reactor outages and projects.
Balance Sheet and Capital Allocation
- Cash and cash equivalents and Short-term investments totaled
$69.3 million as ofMay 27, 2023 . - The Company had no long-term debt outstanding as of
May 27, 2023 . - The Company did not repurchase any shares of common stock in the third quarter of fiscal 2023. As of
May 27, 2023 , the Company had$63.6 million remaining under its current stock repurchase program. - Weighted average shares outstanding – Diluted for the third quarter of fiscal 2023 and fiscal 2022 were 18.7 million and 18.9 million, respectively.
Financial Outlook
The Company now expects its revenues for fiscal 2023 to be between
- Core Laundry Operations’ operating and EBITDA margin at the midpoint of the range of 4.7% and 10.5%, respectively.
- The impact of strong profitability in the Specialty Garments’ business in the current quarter, as well as improved expectations for the remainder of the year.
- An estimate of
$37.0 million of costs directly attributable to our Key Initiatives as well as$3.0 million of Clean acquisition-related expenses, which combined to decrease the Core Laundry Operations' operating and EBITDA margin assumptions by 2.1% and EPS by$1.60 . - An effective tax rate of 25.75%.
- No impact from any future share buybacks or unexpected significantly adverse economic developments.
Conference Call Information
About
Headquartered in
Forward-Looking Statements Disclosure
This public announcement contains forward-looking statements within the meaning of the federal securities laws that reflect the Company’s current views with respect to future events and financial performance, including projected revenues, operating margin and earnings per share. Forward-looking statements contained in this public announcement are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995 and may be identified by words such as “guidance,” “outlook,” “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “could,” “should,” “may,” “will,” “strategy,” “objective,” “assume,” “strive,” “design,” “assumption,” “vision” or the negative versions thereof, and similar expressions and by the context in which they are used. Such forward-looking statements are based upon our current expectations and speak only as of the date made. Such statements are highly dependent upon a variety of risks, uncertainties and other important factors that could cause actual results to differ materially from those reflected in such forward-looking statements. Such factors include, but are not limited to, uncertainties caused by an economic recession or other adverse economic conditions, including, without limitation, as a result of continued high inflation rates or further increases in inflation or interest rates or extraordinary events or circumstances such as geopolitical conflicts like the conflict between
Consolidated Statements of Income
(Unaudited)
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(In thousands, except per share data) | ||||||||||||||||
Revenues | $ | 576,668 | $ | 511,548 | $ | 1,661,157 | $ | 1,484,408 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of revenues (1) | 379,419 | 334,633 | 1,103,287 | 969,579 | ||||||||||||
Selling and administrative expenses (1) | 132,677 | 116,191 | 372,230 | 332,985 | ||||||||||||
Depreciation and amortization | 31,175 | 27,027 | 88,115 | 80,744 | ||||||||||||
Total operating expenses | 543,271 | 477,851 | 1,563,632 | 1,383,308 | ||||||||||||
Operating income | 33,397 | 33,697 | 97,525 | 101,100 | ||||||||||||
Other (income) expense: | ||||||||||||||||
Interest income, net | (553 | ) | (340 | ) | (6,353 | ) | (1,739 | ) | ||||||||
Other expense, net | 621 | 431 | 1,526 | 1,761 | ||||||||||||
Total other expense (income), net | 68 | 91 | (4,827 | ) | 22 | |||||||||||
Income before income taxes | 33,329 | 33,606 | 102,352 | 101,078 | ||||||||||||
Provision for income taxes | 9,053 | 8,539 | 26,309 | 23,855 | ||||||||||||
Net income | $ | 24,276 | $ | 25,067 | $ | 76,043 | $ | 77,223 | ||||||||
Income per share – Basic: | ||||||||||||||||
Common Stock | $ | 1.35 | $ | 1.39 | $ | 4.23 | $ | 4.26 | ||||||||
Class B Common Stock | $ | 1.08 | $ | 1.11 | $ | 3.39 | $ | 3.41 | ||||||||
Income per share – Diluted: | ||||||||||||||||
Common Stock | $ | 1.29 | $ | 1.33 | $ | 4.06 | $ | 4.07 | ||||||||
Income allocated to – Basic: | ||||||||||||||||
Common Stock | $ | 20,394 | $ | 21,037 | $ | 63,882 | $ | 64,835 | ||||||||
Class B Common Stock | $ | 3,882 | $ | 4,030 | $ | 12,161 | $ | 12,388 | ||||||||
Income allocated to – Diluted: | ||||||||||||||||
Common Stock | $ | 24,276 | $ | 25,067 | $ | 76,043 | $ | 77,223 | ||||||||
Weighted average shares outstanding – Basic: | ||||||||||||||||
Common Stock | 15,087 | 15,170 | 15,084 | 15,211 | ||||||||||||
Class B Common Stock | 3,590 | 3,632 | 3,590 | 3,632 | ||||||||||||
Weighted average shares outstanding – Diluted: | ||||||||||||||||
Common Stock | 18,748 | 18,875 | 18,751 | 18,958 | ||||||||||||
(1) Exclusive of depreciation on the Company’s property, plant and equipment and amortization on its intangible assets. |
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 59,303 | $ | 376,399 | ||||
Short-term investments | 10,012 | — | ||||||
Receivables, net | 279,485 | 249,198 | ||||||
Inventories | 150,253 | 151,459 | ||||||
Rental merchandise in service | 246,998 | 219,392 | ||||||
Prepaid taxes | 17,700 | 25,523 | ||||||
Prepaid expenses and other current assets | 49,254 | 41,921 | ||||||
Total current assets | 813,005 | 1,063,892 | ||||||
Property, plant and equipment, net | 739,607 | 665,119 | ||||||
648,404 | 457,259 | |||||||
Customer contracts and other intangible assets, net | 151,329 | 84,973 | ||||||
Deferred income taxes | 528 | 498 | ||||||
Operating lease right-of-use assets, net | 62,744 | 50,050 | ||||||
Other assets | 109,886 | 106,181 | ||||||
Total assets | $ | 2,525,503 | $ | 2,427,972 | ||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 89,496 | $ | 82,131 | ||||
Accrued liabilities | 150,921 | 146,808 | ||||||
Accrued taxes | — | 1,204 | ||||||
Operating lease liabilities, current | 18,515 | 13,602 | ||||||
Total current liabilities | 258,932 | 243,745 | ||||||
Long-term liabilities: | ||||||||
Accrued liabilities | 124,434 | 123,979 | ||||||
Accrued and deferred income taxes | 119,398 | 106,307 | ||||||
Operating lease liabilities | 45,888 | 38,070 | ||||||
Total liabilities | 548,652 | 512,101 | ||||||
Shareholders’ equity: | ||||||||
Common Stock | 1,510 | 1,508 | ||||||
Class B Common Stock | 359 | 359 | ||||||
Capital surplus | 97,154 | 93,131 | ||||||
Retained earnings | 1,904,490 | 1,845,163 | ||||||
Accumulated other comprehensive loss | (26,662 | ) | (24,290 | ) | ||||
Total shareholders’ equity | 1,976,851 | 1,915,871 | ||||||
Total liabilities and shareholders’ equity | $ | 2,525,503 | $ | 2,427,972 |
Detail of Operating Results
(Unaudited)
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Core Laundry | Specialty | First | Core Laundry | Specialty | First | |||||||||||||||||||||
Operations | Garments | Aid | Total | Operations | Garments | Aid | Total | |||||||||||||||||||
Revenues | $ | 501,719 | $ | 49,407 | $ | 25,542 | $ | 576,668 | $ | 450,039 | $ | 41,198 | $ | 20,311 | $ | 511,548 | ||||||||||
Revenue Growth % | 11.5 | % | 19.9 | % | 25.8 | % | 12.7 | % | ||||||||||||||||||
Operating Income (Loss) (1), (2) | $ | 20,995 | $ | 12,455 | $ | (53 | ) | $ | 33,397 | $ | 26,431 | $ | 7,161 | $ | 105 | $ | 33,697 | |||||||||
Operating Margin | 4.2 | % | 25.2 | % | -0.2 | % | 5.8 | % | 5.9 | % | 17.4 | % | 0.5 | % | 6.6 | % | ||||||||||
EBITDA (1), (2) | $ | 49,812 | $ | 13,400 | $ | 739 | $ | 63,951 | $ | 51,292 | $ | 8,198 | $ | 802 | $ | 60,292 | ||||||||||
EBITDA Margin | 9.9 | % | 27.1 | % | 2.9 | % | 11.1 | % | 11.4 | % | 19.9 | % | 3.9 | % | 11.8 | % | ||||||||||
(1) The Company’s financial results for the third quarter of fiscal 2023 and 2022 included approximately (2) The Key Initiative and acquisition-related costs resulted in a decrease in Core Laundry Operations' operating and EBITDA margin for the third quarter of fiscal 2023 and 2022 of 1.8% and 2.5%, respectively. |
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Core Laundry | Specialty | First | Core Laundry | Specialty | First | |||||||||||||||||||||
Operations | Garments | Aid | Total | Operations | Garments | Aid | Total | |||||||||||||||||||
Revenues | $ | 1,456,167 | $ | 135,613 | $ | 69,377 | $ | 1,661,157 | $ | 1,311,941 | $ | 116,220 | $ | 56,247 | $ | 1,484,408 | ||||||||||
Revenue Growth % | 11.0 | % | 16.7 | % | 23.3 | % | 11.9 | % | ||||||||||||||||||
Operating Income (Loss) (3), (4) | $ | 68,468 | $ | 30,683 | $ | (1,626 | ) | $ | 97,525 | $ | 81,683 | $ | 19,640 | $ | (223 | ) | $ | 101,100 | ||||||||
Operating Margin | 4.7 | % | 22.6 | % | -2.3 | % | 5.9 | % | 6.2 | % | 16.9 | % | -0.4 | % | 6.8 | % | ||||||||||
EBITDA (3), (4) | $ | 149,754 | $ | 33,668 | $ | 692 | $ | 184,114 | $ | 155,714 | $ | 22,738 | $ | 1,631 | $ | 180,083 | ||||||||||
EBITDA Margin | 10.3 | % | 24.8 | % | 1.0 | % | 11.1 | % | 11.9 | % | 19.6 | % | 2.9 | % | 12.1 | % | ||||||||||
(3) The Company's financial results for the first nine months of fiscal 2023 and 2022 included approximately (4) The Key Initiative and acquisition-related costs resulted in a decrease in Core Laundry Operations' operating and EBITDA margin for the first nine months of fiscal 2023 and 2022 of 2.1% and 1.8%, respectively. |
Consolidated Statements of Cash Flows
(Unaudited)
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Cash flows from operating activities: | ||||||||
Net income | $ | 76,043 | $ | 77,223 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation and amortization | 88,115 | 80,744 | ||||||
Share-based compensation | 6,874 | 7,114 | ||||||
Accretion on environmental contingencies | 777 | 447 | ||||||
Accretion on asset retirement obligations | 690 | 732 | ||||||
Deferred income taxes | 11,709 | 1,823 | ||||||
Other | 16 | 20 | ||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||
Receivables, less reserves | (22,148 | ) | (31,998 | ) | ||||
Inventories | 2,110 | (8,258 | ) | |||||
Rental merchandise in service | (19,544 | ) | (25,788 | ) | ||||
Prepaid expenses and other current assets and Other assets | 67 | 3,603 | ||||||
Accounts payable | 3,492 | 850 | ||||||
Accrued liabilities | (13,152 | ) | (21,172 | ) | ||||
Prepaid and accrued income taxes | 7,758 | 3,498 | ||||||
Net cash provided by operating activities | 142,807 | 88,838 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of businesses, net of cash acquired | (306,192 | ) | (42,680 | ) | ||||
Capital expenditures, including capitalization of software costs | (124,067 | ) | (97,259 | ) | ||||
Purchases of investments | (117,012 | ) | — | |||||
Maturities of investments | 107,000 | — | ||||||
Proceeds from sale of assets | 517 | 133 | ||||||
Net cash used in investing activities | (439,754 | ) | (139,806 | ) | ||||
Cash flows from financing activities: | ||||||||
Payment of deferred financing costs | (851 | ) | (5 | ) | ||||
Borrowings under line of credit | 80,000 | — | ||||||
Repayments under line of credit | (80,000 | ) | — | |||||
Proceeds from exercise of share-based awards | 3 | 3 | ||||||
Taxes withheld and paid related to net share settlement of equity awards | (2,850 | ) | (3,898 | ) | ||||
Repurchase of Common Stock | — | (30,453 | ) | |||||
Payment of cash dividends | (16,527 | ) | (15,407 | ) | ||||
Net cash used in financing activities | (20,225 | ) | (49,760 | ) | ||||
Effect of exchange rate changes | 76 | (1,545 | ) | |||||
Net decrease in cash and cash equivalents | (317,096 | ) | (102,273 | ) | ||||
Cash and cash equivalents at beginning of period | 376,399 | 512,868 | ||||||
Cash and cash equivalents at end of period | $ | 59,303 | $ | 410,595 |
Reconciliation of GAAP to Non-GAAP Financial Measures
The Company reports its consolidated financial results in accordance with generally accepted accounting principles (“GAAP”). To supplement the Company’s consolidated financial results in this press release, the Company also presents EBITDA and EBITDA margin, which are non-GAAP financial measures. The Company defines EBITDA as net income before interest, income taxes, depreciation and amortization. EBITDA margin is defined as EBITDA for a period divided by revenue for the same period.
The Company believes these non-GAAP financial measures provide useful supplemental information regarding the performance of the Company and its segments to both management and investors. These non-GAAP financial measures exclude certain items that may impact the comparability of the Company’s results. In addition, by excluding certain items, these non-GAAP financial measures enable management and investors to further evaluate the underlying operating performance of the Company.
Supplemental reconciliations of the Company’s consolidated net income on a GAAP basis to EBITDA and net income margin on a GAAP basis to EBITDA margin are presented in the following table. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures, which are provided below. EBITDA and EBITDA margin should be considered in addition to, and not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.
The Company does not allocate its provision for income taxes to its business segments and as a result, presents it in a separate column in the following tables:
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Core Laundry | Specialty | First | ||||||||||||||||||
(In thousands, except percentages) | Operations | Garments | Aid | Other | Total | |||||||||||||||
Revenue | $ | 501,719 | $ | 49,407 | $ | 25,542 | $ | — | $ | 576,668 | ||||||||||
Net income | $ | 20,927 | $ | 12,455 | $ | (53 | ) | $ | (9,053 | ) | $ | 24,276 | ||||||||
Provision for income taxes | — | — | — | 9,053 | 9,053 | |||||||||||||||
Interest income, net | (553 | ) | — | — | — | (553 | ) | |||||||||||||
Depreciation and amortization | 29,438 | 945 | 792 | — | 31,175 | |||||||||||||||
EBITDA | $ | 49,812 | $ | 13,400 | $ | 739 | $ | — | $ | 63,951 | ||||||||||
EBITDA Margin | 9.9 | % | 27.1 | % | 2.9 | % | 11.1 | % |
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Core Laundry | Specialty | First | ||||||||||||||||||
(In thousands, except percentages) | Operations | Garments | Aid | Other | Total | |||||||||||||||
Revenue | $ | 450,039 | $ | 41,198 | $ | 20,311 | $ | — | $ | 511,548 | ||||||||||
Net income | $ | 26,339 | $ | 7,161 | $ | 106 | $ | (8,539 | ) | $ | 25,067 | |||||||||
Provision for income taxes | — | — | — | 8,539 | 8,539 | |||||||||||||||
Interest income, net | (340 | ) | — | — | — | (340 | ) | |||||||||||||
Depreciation and amortization | 25,293 | 1,037 | 697 | — | 27,027 | |||||||||||||||
EBITDA | $ | 51,292 | $ | 8,198 | $ | 802 | $ | — | $ | 60,292 | ||||||||||
EBITDA Margin | 11.4 | % | 19.9 | % | 3.9 | % | 11.8 | % |
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Core Laundry | Specialty | First | ||||||||||||||||||
(In thousands, except percentages) | Operations | Garments | Aid | Other | Total | |||||||||||||||
Revenue | $ | 1,456,167 | $ | 135,613 | $ | 69,377 | $ | — | $ | 1,661,157 | ||||||||||
Net income | $ | 73,295 | $ | 30,683 | $ | (1,626 | ) | $ | (26,309 | ) | $ | 76,043 | ||||||||
Provision for income taxes | — | — | — | 26,309 | 26,309 | |||||||||||||||
Interest income, net | (6,353 | ) | — | — | — | (6,353 | ) | |||||||||||||
Depreciation and amortization | 82,812 | 2,985 | 2,318 | — | 88,115 | |||||||||||||||
EBITDA | $ | 149,754 | $ | 33,668 | $ | 692 | $ | — | $ | 184,114 | ||||||||||
EBITDA Margin | 10.3 | % | 24.8 | % | 1.0 | % | 11.1 | % |
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Core Laundry | Specialty | First | ||||||||||||||||||
(In thousands, except percentages) | Operations | Garments | Aid | Other | Total | |||||||||||||||
Revenue | $ | 1,311,941 | $ | 116,220 | $ | 56,247 | $ | — | $ | 1,484,408 | ||||||||||
Net income | $ | 81,661 | $ | 19,640 | $ | (223 | ) | $ | (23,855 | ) | $ | 77,223 | ||||||||
Provision for income taxes | — | — | — | 23,855 | 23,855 | |||||||||||||||
Interest income, net | (1,739 | ) | — | — | — | (1,739 | ) | |||||||||||||
Depreciation and amortization | 75,792 | 3,098 | 1,854 | — | 80,744 | |||||||||||||||
EBITDA | $ | 155,714 | $ | 22,738 | $ | 1,631 | $ | — | $ | 180,083 | ||||||||||
EBITDA Margin | 11.9 | % | 19.6 | % | 2.9 | % | 12.1 | % |
Investor Relations Contact
Shane O’Connor, Executive Vice President & CFO
UniFirst Corporation
978-658-8888
shane_oconnor@unifirst.com
Source: UniFirst Corporation