UniFirst Corp (UNF) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the first-quarter earnings conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards we will conduct a question-and-answer session.

(Operator Instructions).

I would now like to turn the conference over to Steven Sintros.

Please go ahead.

Thank you and welcome to the UniFirst Corporation conference call to review our first-quarter results for fiscal 2014 and to discuss our expectations going forward.

I am Steven Sintros, UniFirst's Chief Financial Officer.

Joining me is Ronald Croatti, UniFirst's President and Chief Executive Officer.

This call will be on a listen-only mode until we complete our prepared remarks.

Now before I turn the call over to Ron, I would like to give 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.

The forward-looking statements are subject to certain risks and uncertainties.

Words like 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 factors, including, but not limited to, the continued availability of credit and the performance of the capital markets; the performance of acquisitions; fluctuations in the cost of materials, fuel and labor; and the outcome of pending and future legal and environmental matters.

I refer you to our discussion of our risk factors in our most recent 10-K and 10-Q filings with the Securities and Exchange Commission.

Now I would like to turn the call over to Ron Croatti for his comments.

Thanks, Steve.

I'd like to welcome everyone joining us for this financial review of UniFirst's first quarter of fiscal 2014.

Steve will cover all the details in a moment, but first I will provide an overview.

UniFirst's revenues for the first quarter of fiscal 2014 set another new record at $346.7 million, a 4.3% increase over the $332.6 million reported for the same period in 2013.

And income for the quarter was also a new UniFirst record at $34.5 million, a 12% increase over the $30.8 million reported a year ago.

Organic growth for the Core Laundry Operations, which accounts for 90% of the UniFirst total business, was the primary driver of our positive first-quarter performance.

Our laundries set a new quarterly record for new account sales, while making slight gains in our uniform wearers ads over reduction matrix.

These are positive factors contributing to our Core Laundry Operations, improving revenue by 5.9% and operating income by 17.6% when compared to last year's first quarter.

Meanwhile, Specialty Garment segment, which includes specialized nuclear, cleanroom laundries and ancillary services reported a 12.3% revenue decrease and a 41.3% operating income dip for the quarter, which compared to the same period in 2013.

These results were expected as we have mentioned in our last webcast based on the cyclical nature of the nuclear industry and with the nuclear arm of the segment representing the majority of Specialty Garment business.

Moving forward, we continue to expect the cyclical challenges to remain throughout 2014 and anticipate a down year for the Specialty Garment unit.

And we also expect this segment to begin bouncing back in coming years as an increased number of large nuclear reactor projects are scheduled with an anticipated increase in decommissioning opportunities in Europe.

In the meantime, Specialty Garment unit will continue to seek and expand upon its niche products and service offering to the nuclear cleanroom communities to take advantage of additional revenue opportunities.

And, finally, our First Aid and Safety segment continued to perform well in the first quarter with the group reporting a slight revenue increase and a modest operating income dip when compared to the same period a year ago.

We fully expect the First Aid unit to continue with their positive performance trends of recent years and anticipate another year of quality growth in 2014 by providing more first aid cabinets, medications, safety supplies to companies, wholesalers and suppliers under its owned and private label brands, as well as providing added safety training classes and new ancillary services to businesses of all type.

Overall, we are pleased with the first quarter of 2014.

We will continue challenging our thousands of UniFirst team partners to maintain and find new innovative ways to improve the quality of sales and service momentum achieved over the first 13 weeks of the fiscal year.

As we look ahead to the balance of 2014, we expect our Core Laundry Operations to continue driving Company growth, benefiting from improved sales productivity as a result of our investment in our sales professionals and our training skills, their prospecting technologies and their sales incentive programs.

We also look to our service folks to remain committed and focused on continuous improvement in all areas related to delivering consistent, high-quality customer products and services.

Accordingly, we continue expanding and implementing our service certification programs for all team partners who directly interact with customers.

Whether new hires or long-term tenured personnel, all service staff are required to complete comprehensive training programs that better prepare them for excellent customer service at all levels, at all times, at all locations.

By ensuring our customer needs are met week in and week out, we know our customer satisfaction level will continue to climb.

Customer retention will benefit, ancillary service sales will grow, new account referrals will increase, and our top and bottom line will advance.

So, despite the slow growth forecast projected for the national economy in 2014, we believe our managers in all UniFirst business segments will again succeed by continuing to focus on and by effectively executing our short- and long-term business strategies as laid out in our Vista 2020 business plan.

This comprehensive corporate plan is our business bible, as it details our path to annual success and to achieving solid growth in both revenue and margins for defined yearly targets.

By continuing to adhere to this plan and by keeping our customers the focus of everything we do, UniFirst will continue to grow and provide quality returns for our shareholders.

And with that said, I will turn it back over to Chief Financial Officer Steve Sintros for more details on the first quarter.

Thanks, Ron.

Revenues for the first quarter were $346.7 million, up 4.3% from $332.6 million a year ago.

Net income was $34.5 million or $1.71 per diluted share compared to $30.8 million or $1.54 per diluted share recorded in the first quarter of fiscal 2013.

First-quarter revenues in our Core Laundry Operations were $312 million, up 5.9% from those reported in the prior year's first quarter.

Excluding the impact of acquisitions and a weaker Canadian dollar, revenues grew 5.1%.

Solid new account sales, as well as certain annual price adjustments, contributed to our topline performance in the quarter.

New account sales, account retention and wear additions versus reductions all trended positively compared to the first quarter of 2013.

Wear additions versus reductions were slightly positive during the quarter compared to flat in the same quarter a year ago.

Core Laundry operating margin for the quarter was 16.8% compared to 15.1% a year ago.

Merchandise amortization, energy and bad debt expense were all lower as a percentage of revenues compared to the prior year.

Selling, payroll and certain other payroll-related costs were also lower than the prior year as a percentage of revenues.

Energy costs for the first quarter of fiscal 2014 were 4.8% compared to 5.1% for the first quarter of fiscal 2013.

Merchandise and service additions did trend higher in the quarter, which could be an indication of increased merchandise amortization as the year continues.

Revenues for the Specialty Garment segment, which consists of the nuclear decontamination and cleanroom operations, were $24.4 million for the first quarter of fiscal 2014, down 12.3% from $27.9 million in the first quarter of 2013.

This anticipated decline in revenues is a result of fewer US and Canadian power reactor outages compared to a year ago.

As a result of this revenue decline, this segment's income from operations decreased to $2.8 million from $4.7 million a year ago.

Looking further ahead, early indications are that the second half of fiscal 2015 and beyond will bring significant new revenues for this segment as large new power reactor projects are scheduled with existing customers.

As always, we will continue to keep you updated throughout the year regarding our expectations for this segment's results.

First Aid segment revenues increased 1.3% to $10.3 million in the quarter compared to $10.1 million in the same quarter a year ago.

Income from operations for this segment fell slightly to $0.5 million in the quarter from $0.7 million in 2013.

The effective income tax rate for the quarter -- first quarter of fiscal 2014 -- was 38.9% compared to 39% in the first quarter of fiscal 2013.

We now expect our full-year fiscal 2014 effective income tax rate will be approximately 38.5%.

UniFirst continues to maintain a solid balance sheet and financial position.

Cash provided from operating activities for the first quarter was $68.6 million, up 22.2% compared to $56.2 million for the first quarter of last year.

The improved cash flows were primarily the result of higher earnings, as well as the timing of income tax payments compared to a year ago.

Cash and cash equivalents at the end of the quarter totaled $141.8 million, down from $197.5 million at the end of fiscal 2013.

This decrease is the result of the September repayment of $100 million in private placement notes that came due.

Of our cash on hand, $61.9 million has been accumulated by our foreign subsidiaries and intended for future investments outside the United States.

The Company also continues to have significant capacity under its existing bank line of credit to continue funding acquisition activity or other capital allocation options.

Capital expenditures for the first quarter of 2014 were $22.8 million.

We continue to invest capital in our Unity 20/20 CRM systems project.

During the quarter, we capitalized $6.4 million related to this project.

We also continue to invest in plant updates, expansions and automation that will allow us to achieve our long-term, strategic objectives.

We continue to expect capital expenditures in fiscal 2014 will be between $90 million and $100 million.

During the first quarter, the Company did not expend any significant capital on acquisitions.

We continue to look for additional acquisition targets as acquisitions remain an integral part of our overall growth strategy.

At this time, we would like to provide you with an update regarding our outlook for full 2014 fiscal year.

In October we communicated that we expect fiscal 2014 revenues to be between $1.372 billion and $1.385 billion and full-year diluted earnings per share to be between $5.60 and $5.85.

Based on our first-quarter performance, we now expect that our full-year results will be at the higher end of these ranges.

As a reminder, fiscal 2014 will be a 52-week year for the Company compared to fiscal 2013, which was a 53-year week for the Company.

The extra week occurred in the fourth quarter of fiscal 2013.

The negative comparison of one less week of operations will have the impact of reducing our year-over-year revenues by approximately 2% and our fourth-quarter revenues by approximately 7.1%.

As we also discussed last quarter, UniFirst has obtained a waiver that will allow our existing healthcare coverage remain intact through August 2014, and as a result, the Company is not required to fully comply with the provisions of the Affordable Care Act until the beginning of our fiscal 2015.

As we continue to evaluate the impact of adopting this act and potential changes to our healthcare offerings, it is clear that our healthcare costs will increase and pressure our current margin levels.

The Company feels strongly about providing affordable health care coverage for our employees and intends to continue its long practice of doing so.

In the upcoming quarterly calls, we plan on providing more specifics regarding the expected financial impact of the Affordable Care Act when it is available.

In addition to the cost pressure from the Affordable Care Act, we have discussed in prior quarters how the cost of and transition to our new Unity 20/20 CRM system will also provide margin headwinds in fiscal 2015.

On the positive side, we view these investments in healthcare and technology as investments in two of our more -- most important assets, our workforce and our service systems.

Both have been crucial to our recent success and require continued reinvestment to maximize their effectiveness.

Finally, I want to provide a brief update regarding the status of claims against us related to New England Compounding Center.

As you may remember, NECC was the company that compounded and sold tainted drugs, which reportedly resulted in widespread outbreak of fungal meningitis and other infections.

As we have previously disclosed, we provided limited once a month cleaning services to portions of NECC's cleanrooms.

In the fall, we discussed in our 10-K filing that we expected that we would be named as a defendant in a number of suits related to NECC.

That occurred in November when we, along with many other parties, were named as defendants in the Master Complaint filed by the plaintiff's Steering Committee.

Individual plaintiffs have now piggybacked on the Master Complaint to file claims against us.

To date we have received claims from over 200 parties in this matter.

While we cannot predict the final outcome of these claims, based on our preliminary review, we believe we have substantial defenses.

In addition, we are in discussions with our insurers concerning coverage matters.

We will respond to these claims as appropriate, and we expect this litigation to take its normal course.

This completes our prepared remarks, and we would now be happy to answer any questions that you may have.

(Operator Instructions).

Andrew Wittmann, Robert W. Baird.

So, in the last few years, we haven't had a lot of positive commentary on ad stops.

I think the words slight improvement is about as good as it has gotten.

So just for context here, is this -- even though it is obviously slight, is this the best to add stops that we have seen in a few years, or how would you put this in a kind of a longer-term context versus the past few years?

Andrew, I would say that this probably is the best quarter we have had in two or three years.

I made the comment that it was better than the first quarter of last year.

Sometimes in our first fiscal quarter, it tends to be little bit better than some other quarters, which is why I provide the perspective versus the first quarter a year ago.

So we are seeing a little momentum.

We did face like because we don't want to give the impression it was robust.

It was not.

We are very interested in seeing how it progresses over the next quarter as we were slightly negative for the last nine months of last year.

So we are as interested as anyone to see if it continues over the next several months.

Is there any end markets -- is this manufacturing; is this like a trade thing?

Energy we have heard is strong.

Can you just give us some detail as to where you might be seeing it?

I think energy certainly continues to be strong, but we are seeing it in some other parts of the country that would indicate that it is more broad than just energy.

I don't know if, Ron, you want to add to that?

No, I think Steve said it all.

We measure it by area of the country, and there are a couple of sectors that are down and four sectors that are up.

Okay.

That's good.

Moving on to maybe some national account commentary, you didn't have anything really in the prepared remarks, at least that I heard.

How much national account business is out there, and is any of the competitive pressures that we've been hearing about from you guys and maybe even others, is that subsiding as everybody is getting more full and we are seeing capacity additions in the industry?

Are big contracts like that now being more scrutinized for price and ones that maybe wouldn't be as aggressive today as they were yesterday?

Well, I think the national account arena is still highly competitive, number one.

There still is a consolidation of a lot of smaller industries or grocery markets or so forth into a national account arena, and I think you'll see that trend to continue.

But the competition has not let up in that arena.

That's the only thing I can tell you.

Okay.

And just along -- I mentioned it in my question there, but I just want to get your thoughts -- we see your CapEx guidance $90 million to $100 million.

We know the CRM is in their automation.

Are there new plants that need to be constructed at UniFirst in the next year or two where you are just growing out of facilities that you have or major expansions, which would actually functionally be a new plant?

Are those the types of things that you are seeing inside the Company today, Ron?

We basically put two plants a year on, and we will do that.

We have done it the last two years, and we will do that the next couple of years.

We have had substantial growth that we need capacity in some markets.

We know we have a plant over a branch in a market.

We do better in sales and gaining market share, so we like that approach, so.

And, plus, we are always adding to a couple of plants, so we basically have four to five major projects going a year.

Sounds busy.

Last question, just on capacity additions, what about routes, Ron?

Where are you on the route curve?

Is this an area where you think you might need outsized investment?

You are twofold now, or have you recently made those?

Just want to get a sense of where the investment is and how that can impact margins.

I will never say a route is twofold.

We like to have full routes.

It keeps our employees stable.

But as required in a location, we add routes.

We add routes every year just as part of doing the business.

I don't think we're at a tipping point one way or the other.

I think it is more business as usual.

Some locations are adding routes, but many still have capacity to absorb additional business.

Okay.

Great.

Thanks, guys.

Good quarter.

John Healy, Northcoast Research.

I wanted to ask a little bit more about the add stop trajectory.

Great to hear the inflection there, but was curious throughout the quarter, was there a trajectory to the add stops, and I guess just by and large, I would love to get a little bit of color and just in terms of how the business progressed in terms of strength or weakness throughout the quarter.

And I believe in the guidance for the full year, I think last quarter you mentioned that it implied that add stops would be a little bit negative for the year, and I was wondering if that has changed in the guidance as well?

I think for the first quarter there wasn't any -- we track it every week -- and there wasn't a substantial difference toward the end of the quarter versus the beginning of the quarter, John.

As far as the rest of the year goes, our guidance at this point probably assumes a flattish or slightly negative adds reductions until we see differently.

I mentioned our first quarter is typically our strongest adds reductions quarter, and although this first quarter was a little bit better than a year ago, I think we want to see it before we start building it in.

And until we see another couple of months of it, I am not sure we're going to be convinced it is a trend yet.

Okay.

Fair enough.

And I wanted to ask just about the December business.

I know you have had a little bit of volatile weather, and I know Christmas fell at a different point in the calendar, and it has impacted some service companies.

Was just curious to know if there has been any sort of -- anything you would want to call out on December in terms of how it looked due to calendar or weather or anything like that?

Yes, I think on balance we are a little behind year over year at least related -- as it relates to the holiday impact.

I think it was a little stronger this year based on the way the holidays fell.

And your point about the weather is a good one.

We have been hit hard here, particularly in the Northeast, and even in some other markets that aren't traditionally impacted as much by the weather, we have had some plant closures for a day here, a day there.

And so we don't think it will have a real material impact on our second quarter, but there will be some incremental impact.

Okay.

And then just final question on the M&A side.

I know when there is something to be said we will all read about it in a filing from you, but I was just curious to know if you feel like the activity level in 2014 is going to bring more to the market than we have seen in prior years?

I know we have been waiting for buyer and seller expectations to align, but when I look at your Company and with the pristine balance sheet and the operational progress you have made, I just wonder if you guys are at a point where you think you might be willing to pull the trigger on maybe some midsized or larger deals at some point in the near future?

Well, we are always looking and shopping.

As individual companies, number one, have to do their tax returns in the first quarter of the year, ownership generally wakes up to their current status, and that's an opportunity window usually in late spring or early summer to talk to them.

But we're talking to people every day we possibly can.

We have to find the larger acquisition at the right return, at the right price, and the seller has to be willing, and most of them aren't in that position today at this point.

Got you.

Thank you, guys.

Andrew Steinerman, JPMorgan.

Hi, it's Molly McGarrett for Andrew.

Last quarter you gave guidance for Specialty Garments to be down 9% in revenues and 15% in operating profit for the full fiscal year.

Should we still assume those numbers?

Yes, I think you can stick with those numbers, Molly.

The first quarter was a little further off those numbers, but that was somewhat expected as it was planned to be somewhat of a light outage season.

The spring outage season in the third quarter is expected to be the stronger quarter this year, which last year was a little bit flip-flopped.

And so we do still feel at this point we can achieve those numbers that we put out there.

Okay.

And then given the strong performance in the first quarter, I know you guided to the high-end of guidance, but what is holding you back from raising guidance for the full year, and particularly with the margin pressures, could you maybe rank the margin pressures going forward, where you think there could be possible bias towards the downside?

Well, I think there is a couple of items we just want to make sure we highlight from a comparative standpoint to make sure you're taking into account.

The first being in the fourth quarter, obviously, the extra week, but also in the fourth quarter, we called out last year we had a $2.3 million adjustment to some of our worker's compensation reserves that was a benefit in the fourth quarter that is not built into our guidance this year.

In addition, if you remember in the second quarter last year, we had a buyout on a large account that provided about $1.7 million of profit that was somewhat of an unusual item.

So there's a few kind of negative comparisons coming from some of those items over the last nine months of the year.

After taking those into account, a couple of the areas that give us some reason to pause about the remainder of the year and the profit trajectory, I mentioned merchandise.

With the solid sales in the first quarter and the better-than-expected adds, we did also have higher than expected merchandise additions, and so we want to see how that is developing over the next quarter or so before we move too much on the guidance and the profit sizes as that is a large driver of our guidance.

Okay, great.

And then just one click modeling, if I could.

Could you give a breakout of growth from acquisitions and FX impact?

Yes, the acquisitions was 1.3%, Molly, in the Core Laundry business, and the balance is from the FX.

Okay.

Thanks so much.

Dan Dooley, Jefferies & Company.

Thanks for taking my questions.

I've got two quick questions.

The first one is on growth.

The net add stops wear addition seems to be ticking upwards, but just to make sure I don't miss anything, it looks like the comps are about 100 basis points easier this quarter, and yet your growth is slightly decelerated.

How should we think about growth going forward, especially as comps are getting a little bit easier throughout the rest of the year?

You know, as far as the growth over the remainder of the year, the organic growth that is in the assumption at the higher end of the range is slightly lower than where we ended up this quarter.

Now part of that is my assumption that adds reductions are going to be slightly negative for the remainder of the year.

If they outpace that, there is probably some upside there.

But that is what is built into the guidance right now.

Got it.

Thank you and then my next -- my last question is on margins.

Everybody knows that better wear additions should be good for margins, and margins are, indeed, expanding.

But if my numbers are correct, it looks like the operating margin growth on a year-over-year basis is about 170 basis points this quarter, which is slightly below the last quarter, which is about 190 and well below 3Q, which was about 300.

So how should we think about the positive impact of higher wearers per existing customers on margins going forward?

I think everything else being equal, Dan, your assumption is correct.

I think there is -- if you go back over the last several quarters, there is just many other factors that are causing those positive comparisons.

The trajectory of merchandise being one of them.

So I think the comment is a good one, but I think that we have talked about last year how some of the year-over-year benefit that we got from improvement at underperforming locations and improved collection of extra charges, I mean those things were some of the things that were driving the improved margin to the level that it was at, and those things have somewhat moderated, at least the impact of them, from a year-over-year basis.

And so I think those are some of the things that are causing, I guess, what you would call a deceleration of the margin improvement, even though adds versus reductions are getting a little bit better.

So, hopefully, that helps your question.

No, it does, absolutely.

Thank you very much.

Appreciate it.

Chris McGinnis, Sidoti & Company.

Steve, just a quick question on SG&A levels, and can you just talk maybe throughout the year how this compares to growth year over year on your SG&A spending?

Well, SG&A was definitely low for the quarter.

We mentioned selling costs being down, and I don't believe we've said it in our prepared remarks, but at this point of the year, we feel we are a little bit understaffed on the selling side.

We continue to grow the salesforce to take advantage of opportunities out there, and from a sales productivity standpoint, we had a good quarter.

But we are still pushing to get those headcounts up and to increase the overall number of tenured reps that we have on the street.

And, so, that will potentially cause the selling costs to come up as the year goes along.

We hope it does because that is really our strategy to continue to push on the new sales side.

Great.

All right.

Thank you very much.

Joe Box, KeyBanc.

Just a follow-up on a prior question.

I think you noted that the guidance assumes a slightly negative add quit for the rest of the year.

If we were to basically just assume that the current situation holds with respect to positive wear levels, how should we think about the sensitivity to Core Laundry organic growth?

I think last quarter you guys were looking for about a 4% organic growth improvement for the full year, so what would be the sensitivity to that number if the wear levels hold?

Joe, because we are making a lot of the adds reductions, and I think it is an important trend to keep watching, but we made the comment that it was a slight positive.

Because the reality is, if the slight negative on projecting becomes a slight positive, it is not going to mean another percent on the growth, for example.

It is going to be more muted and incremental on what we've estimated at this point.

And that just kind of highlights the fact that we are not seeing real robust adds.

They are slightly positive, but to go from slightly positive for the remainder of the year to where we are in the first quarter, it wouldn't be a full percent on the revenues.

I'm not even sure it would be 0.5%, to be honest.

That's perfect.

Thanks for the clarification there.

Can you maybe just rank or put some color around how much some of the revenue drivers, like new account sales, flame resistant garments, and collection of ancillary charges are contributing to your organic revenue growth?

I mean I think this quarter we didn't really callout of anything in particular because I think where we are now in having annualized some of the strong growth in some of those areas, it is more balanced.

I am not sure -- we still are growing higher than average in our protective garment apparel, but it is not to the extent that it was over the last several years, and such a large driver and improving the growth from 5% to 7%, for example.

So I would say it is much more balanced.

It was a good quarter all around and with contributions from many areas.

Understood.

Just relative to pricing, what are you seeing a bigger contributor from right now?

Is it the collection of ancillary fees, or are you actually seeing a decent move on core pricing changes?

I think it is both.

I mean I think, again, we highlighted the ancillary charges last year because of some of the improvements we have made there.

But, again, I think we are more balanced, at least in this quarter, that there is normal contributions from the core pricing, and we continue to push ancillary charges that are always going to be a part of our offering.

But I wouldn't say there was a real trend one way or the other.

Okay.

Thank you.

And one last one for you, Steve.

I think you mentioned a minute ago that you expect to see more sales productivity gains this year.

You guys have obviously done fantastic in that arena over the last several years.

So do you have some new programs in place, or can you point us to anything specifically that should drive it higher?

I think, as Steve basically mentioned, our headcount is an issue at this point.

And if we can get our headcount where we want it to be, we think we will be able to pick that up.

All right.

Thanks, guys.

Nice quarter.

(Operator Instructions).

Kevin Steinke, Barrington Research.

Steve, I was just wondering of the factors you outlined that contributed to margin expansion in the Core Laundry business, if it would be possible to somewhat rank what the largest contributors to the margin expansion were?

Sure, Kevin.

I think from a directional standpoint merchandise was the largest contributor.

The selling cost differential was probably next, which you can see in our SG&A line, and then energy was a few tenths, and then there was a few other small things as well.

But those were the bigger areas.

Okay.

As you talked about merchandise amortization going forward might not be as big of a contributor, so that perhaps implies that some of the slower margin expansion you might expect in addition to those one-time items.

Is that correct?

Exactly.

That's what's built in right now.

Yes.

Okay.

So I think last quarter you talked about at the midpoint of your guidance, you would expect Core Laundry operating margin to be down a few tenths.

Now that you expect towards the higher end of the range, what sort of a Core Laundry margin are you baking into that updated expectation?

The full year Core Laundry margin is slightly over 14% based on that high end of that range, and adding in what we expect Nuclear to do and First Aid, that will get you to the high end of that range.

All right.

Great.

Well, thanks for answering my questions.

Andrew Wittmann.

I have a hunch you know what this question is going to be, but, Ron, any increase in the sense of urgency on your balance sheet and how you are thinking about it here today?

It was a great cash flow quarter.

Sounds like there is some timing stuff in there, but regardless, we are over $6 per share net cash, several hundreds of millions of dollars of capacity here.

What should shareholders be expecting you to be thinking about and maybe doing with that excess cash?

We still follow the Warren Buffett rule, take that cash and we look for acquisitions, and like I said earlier, we are talking to people almost daily.

We have a pretty sizable list of potential people we keep talking to, and that is where that cash is going to go to expand the business.

Is there the kinds of opportunities out there to deploy that kind of capital out there, or do those companies (multiple speakers)?

Like every other thing, if you look at all private businesses out there, they all have issues to resolve, and they all basically deal around family issues, estate issues, children fighting that are second or third generation.

And the parents, I guess, have to make tough decisions.

And when they do that, that opportunity arises.

I can't go out there and solve those problems.

I can just go out there and offer a solution to their problem.

Okay.

Do you think it is a little bit easier, at least from your ability to underwrite deals here today, where your stock is trading?

Clearly the market is expensive or at least historically expensive.

Do you feel like you are able to reach a little bit more to narrow the gap on your side of the equation?

I know that you are always going to be disciplined.

You're not going to overpay, but are you able to get a little bit closer to some of those seller expectations, which maybe have been high historically?

I guess it varies on the quality of the business that we made.

If you go back to what I have always said, we are 65% garment, and garments are the sticky part of the business.

I mean that controls your loss business numbers.

And you look at some of these guys businesses, if they are only 30% garment, they still want that same evaluation, and that's where you get the issues.

Okay.

Leave it there.

And we have no further questions from the phone lines at this time.

Very good.

We'd like to thank everyone for joining us this morning to review UniFirst's first-quarter results for fiscal 2014.

We look forward to speaking to you again in March when we are reporting our second-quarter and our six-month numbers.

Have a great day, a happy and healthy New Year, and thank you much.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.