UniFirst Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 18, 2023

There are 7 speakers on the call.

Operator

Greetings, and welcome to the UniFirst Corporation 4th Quarter Earnings Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. I would now like to turn the conference over to Steven Centros, President and Chief Executive Officer, please go ahead.

Speaker 1

Thank you and good morning. I'm Stephen Sintros, UniFirst's President and Chief Executive Officer. Joining me today is Shane O'Connor, Executive Vice President and Chief Financial Officer. We'd like to welcome you to UniFirst Corporation's conference call to review our Q4 results for the fiscal year 2023. This call will be on a listen only mode until we complete our brief remarks, But first, a brief disclaimer.

Speaker 1

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 ks and 10 Q filings with the Securities and Exchange Commission.

Speaker 1

I'm pleased to report that we closed the year with a 4th quarter that modestly exceeded our expectations in both top and bottom line performance. We accomplished a lot as a team in fiscal 2023 that will help strengthen our company as we move forward, growing our business, making strong progress in our technology transformation and closing on our mid year acquisition of Clean Uniform. I want to sincerely thank all of our team partners who continue to always deliver for each other and our customers as we strive towards 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. I wanted to take a couple of minutes to expand on fiscal year 2023, what we accomplished as a company and what we have in store moving forward. It comes as no surprise that as we report our final 2023 results that we have continued the company's long standing record of always growing our top line.

Speaker 1

Our full year fiscal 2023 fiscal revenues increased 11.6 percent to 2,233,000,000 Our Core Laundry operations showed strong organic growth during the year, driven by solid new account sales as well as the impact of the effort to work with our customers to share in the impact of the inflationary environment. Overall growth was also bolstered by our mid year acquisition of Clean Uniform. We couldn't be more pleased with what we were able to bring clean into the UniFirst family. We continue to feel they are a tremendous fit within our organization in terms of their focus on service excellence as well as overall culture. The early days of bringing our companies together have been very constructive with initial efforts being focused primarily on retaining Clean's most important assets, its people and its customers.

Speaker 1

We are also very excited about leveraging some of the experience and knowledge that the Clean team has with respect to UniFirst CRM technology as well as some of the proprietary applications that Clean has built to further enhance the usability and efficiency of our CRM. As we discussed last quarter, due to strong leadership and service reputation that CLEAN brings with it as well as the complexities of where we are in our technology transformation, we will be strategic and patient in the full integration of the two businesses. That being said, in the 6 months since the closing date, Clean has produced very solid operating results. Our Specialty Garments segment contributed very strongly on the top and bottom line in fiscal 2023 with record revenues and profits during the year. As a reminder, our Specialty Garments segment is made up of both our nuclear and clean room operations.

Speaker 1

Our clean room division continues to show steady growth in profitability, which we expect As we have mentioned over the years, our Nuclear division's results can be more volatile based on the impact of certain projects as well as swings in activity with some very large customers. In fiscal 2024, we do expect the Nuclear division of this segment to take a step back from its record setting 2023 results due to decreased revenue from its Canadian customers. We believe very strongly in the bright future of our First Aid and Safety division, which grew 22.5% in fiscal 2023. We continue to make investments in the sales and service infrastructure of this segment to expand our footprint and ensure that we can reach existing UniFirst customers as well as new prospects in the market that have a strong need for these products and services. As expected, the investments to expand our reach and route structure Certainly limited our ability to expand the profitability of this segment, but we are happy with the progress toward the longer term goal of building a much larger, more profitable business that meets our customers' needs.

Speaker 1

As we have discussed throughout the year, we have progressed we have continued to progress on 2 large technology initiatives designed to transform the company in terms of our overall capabilities and competitive positioning. These initiatives are the rollout of our new CRM in our corporate wide Oracle ERP system. With respect to our CRM systems project, as of today, we've effectively deployed 100% of our U. S. Laundry operations onto the new system.

Speaker 1

Going forward, there is still work to be done to optimize the new system, including further enhancements to our CRM, full conversion to our new barcode technology, aligning with Clean's technology footprint, as well as integrating with our ERP. Over the next 2 or 3 years, we will continue to expend costs through our operating results and capital expenditures related to these key initiatives. Shade will provide additional commentary and estimates of these costs in his comments shortly, we think it is important to understand the impact that these initiatives are having on our results. Overall, we continue to be excited about how these investments We'll continue to position the company for future success. I am proud of the fact that the company continues to make Solid progress and contributions in the area of environmental, social, governance, ESG.

Speaker 1

The nature of our industry and rental model has always allowed us as a company to do our part of enhancing the economy's environmental footprint Given our role as a natural recycler as well as the better utilization of resources and operation like ours enables. We continue to make investments and progress in the areas of reduction of water consumption, growing our fleet of electric delivery vehicles, Renewable sources of energy like solar, upgrading facilities with LED lighting, environmentally efficient laundry detergent, creative textile recycling and more. While many of these efforts have been ongoing, we are preparing ourselves to increase the level of measurement and reporting to ensure we are focused on making the right investments to meaningfully impact the environment, support our customers and have a positive impact on our business. As we've discussed throughout the year, in our core laundry compared to prior years have continued to be pressured by higher operational costs being impacted by the inflationary environment. As we look forward to fiscal 2024 and beyond, margin improvement will certainly be a key focus of the organization.

Speaker 1

Executing on our growth model, while also managing costs in areas we can control will be critical, all while assuring we don't impact our ability to execute on Transformational initiatives or adversely affect our customer service levels. In addition to day to day execution, we are focused on margin opportunities in many areas. As I mentioned, there is work being done optimizing the use of our new CRM, including leveraging some of Clean's proprietary technology across all of UniFirst. Areas such as strategic pricing and account profitability and strategic manufacturing and sourcing represent strategic significant opportunities. Although some of these benefits going forward will be more significantly enabled through the implementation of our ERP, which Shane will discuss more about shortly.

Speaker 1

We continue to focus on these areas and others we feel can move the needle in the near to midterm. Overall, we expect fiscal 2024 to be another solid year for UniFirst. As our outlook includes, we expect our top line to surpass 2,400,000,000 And at the midpoint, consolidated EBITDA to improve by approximately 20%. Although some of that growth is attributable to lower key initiative costs, Even excluding this benefit, EBITDA is projected to show double digit growth. Overall, we expect to accomplish these goals all while continuing to always deliver for our customers and continue our journey to transform the company in terms of technology and overall capabilities.

Speaker 1

I'd like to once again thank our thousands of dedicated team partners who make everything we accomplish as a company possible. With that, I'd like to turn the call over to Shane, who will provide more details on our Q4 results as well as our outlook for fiscal 2024.

Speaker 2

Thanks, Steve. Consolidated revenues in our Q4 of 2023 were 571 $900,000 an increase of 10.7 percent from $516,400,000 a year ago And consolidated operating income increased to $36,100,000 from $33,300,000 or 8.5 percent. Net income for the quarter increased to $27,600,000 or $1.47 per diluted share from $26,200,000 or $1.39 per diluted share. As we mentioned last quarter, Due to the increase in non cash acquisition related intangibles amortization that we will be incurring as a result of the Clean acquisition, We believe that EBITDA will become a valuable metric for us to include in our commentary going forward. Consolidated EBITDA increased to $69,200,000 compared to $60,200,000 in the prior year or 15%.

Speaker 2

Our financial results in the 4th quarters of fiscal 2023 and fiscal 2022 Included $6,100,000 $9,100,000 respectively of costs directly attributable to our key initiatives. In addition, we incurred costs related to the acquisition of Clean Uniform during the Q4 of fiscal 2023 of approximately $300,000 The effect of these items on the Q4 of fiscal 2023 and 2022 combined to decrease Both operating income and EBITDA by $6,400,000 $9,100,000 respectively Net income by $5,300,000 $7,600,000 respectively and diluted EPS by $0.28 $0.40 respectively. Our core laundry operations revenues for the quarter were $505,000,000 An increase of 10.1 percent from the Q4 of 2022. Core laundry organic growth, which adjusts For the estimated effect of acquisitions as well as fluctuations in the Canadian dollar was 5.3%. This organic growth rate was impacted by pricing efforts over the last year to share with our customers the percent for the quarter from 6.3% in prior year.

Speaker 2

However, the segment's EBITDA margin increased to 12.2% from 11.8%. The costs we incurred related to our key initiatives and the Clean acquisition were recorded to the Core Laundry Operations segment and combine to decrease both the Core Laundry operating and EBITDA margins for the Q4 of fiscal 2023 2022 by 1.3% and 2%, respectively. The segment's operating and EBITDA margins were further impacted by higher merchandise, payroll and payroll related costs, which were partially offset by lower energy and legal costs as a percentage of revenues. The purchase accounting for the most for the recent Clean Uniform acquisition additionally impacted the segment's operating margin, most notably in the form of elevated non cash purchase related intangibles amortization. Energy costs for the quarter were 4.3 percent of revenues, down from 5.3% a year ago.

Speaker 2

Revenues from our Specialty Garments segment, which delivers specialized nuclear decontamination and clean room products and services, We're $41,400,000 for the Q4 of fiscal 2023, an increase of 13% over 2022. The segment's top line growth was primarily driven by its clean room and North American nuclear operations. Segment's operating income during the quarter was $6,800,000 an increase of 69.4% over 2022. Our First Aid segment's revenues in the Q4 of 2023 Increased to $25,400,000 from $21,200,000 with both the whole Sales and van operations contributing to this growth. However, the segment had an operating loss of $900,000 during the quarter.

Speaker 2

These results continue to reflect our investment in expanding our First Aid Van business and building the foundation for what we expect to eventually be a much larger business. At the end of fiscal 2023, We continue to reflect a solid balance sheet and financial position with no long term debt and cash, cash equivalents and short term investments totaling $89,600,000 We did not repurchase any additional common stock under our current stock repurchase program during the quarter. Cash provided by operating activities for the year increased to $215,800,000 compared to $122,600,000 in prior year, primarily due to lower working capital needs of the business. In fiscal 2023, we continue to invest in our future with capital expenditures of $172,000,000 and the acquisition of 5 businesses for which we paid $306,200,000 The most significant being the Clean Uniform acquisition for a purchase price of approximately $300,000,000 We expect our full year revenues For fiscal 2024 will be between $2,415,000,000 $2,435,000,000 We further expect that our fully diluted earnings per share will be between $6.52 $7.16 This guidance includes $16,000,000 of costs that we expect to incur attributable to our key initiatives, which at this point relate only to the CRM and ERP projects.

Speaker 2

These key initiative costs Decreased our EPS assumption by $0.64 Consolidated EBITDA is expected to be $307,800,000 an increase of 21.5%. This outlook assumes core laundry revenue growth At the midpoint of the range is 9.4% and its organic growth, which also excludes the effect of the extra week to be 4.8%. Core Laundry Operations operating and EBITDA margins are assumed to be 6.4% and 12.5%, respectively, which were decreased by our key initiative cost assumptions by 0.7%. Our Core Laundry operation Operating and EBITDA margin improvement compared to 2023 reflects lower direct costs we expect to incur Related to our key initiatives, primarily due to the conclusion of the domestic rollout of our CRM system and our ERP initiative entering implementation phases that are largely capitalizable as well as moderating merchandise costs and other input costs as the inflationary headwinds that have been impacting our operating environment have continued to ease. Energy costs are expected to be 4.3 percent of revenues in fiscal 2024 and next year's effective tax rate is assumed to be 25%.

Speaker 2

Our Specialty Garments revenues are forecast to be down from 2023 by approximately 2% due to projected declines in the Canadian Nuclear Business, partially offset by continued growth in the clean room business. The change in business mix will have a larger impact on the profitability of this segment, and we expect operating income will be down approximately 17%. As we have commented in the past, This segment's results can vary significantly from period to period due to seasonality as well as the timing and profitability of nuclear reactor outages and projects. Our First Aid segment's revenues are expected to be up approximately 13% compared to 2023 and the segment's profitability is expected to be marginally positive. We expect that our capital expenditures in In 2024 will approximate $150,000,000 which reflects lower new facility investments that have strategically run high over the last few years, partially offset by higher application development investments, most significantly related to our ERP implementation.

Speaker 2

Throughout 2023, We have focused our efforts on the global design phase of our ERP initiative, which was not capitalizable. Starting in the first Quarter of 2024, we will be entering implementation phases of our initiative where the majority of the costs will now be capitalized. We expect our ERP implementation will be a multiyear initiative that will continue through 2027 with early phases focused on master data management and finance capabilities, followed by subsequent phases with a procurement and the We expect the total amount of this project to be approximately $85,000,000 and have partnered with 1 of the world's largest Strategy through execution professional services firms to assist us in our implementation effort. We expect this initiative and the capabilities it will enable will provide the following benefits to our organization. Improved inventory planning and forecasting will allow us to manage our inventory levels more effectively, improve the time to install new accounts and fulfill the daily needs of our existing customers as well as improved direct sourcing costs.

Speaker 2

Improved visibility and centralized management of local Stockroom inventory will enable us to more effectively utilize our used garments inventory. Enhanced procurement capabilities will enable us to Centralized sourcing with enhanced strategies around vendor management and negotiation as well as improved visibility, Oversight and analytics into organizational spend. Automation of manual processes will enhance the efficiency of our back end office functions And simplification of our IT architecture and improvement in our data quality will reduce operational complexity and cost to deliver. We believe that these benefits will provide 150 basis points to 200 basis points of improvement to our EBITDA margins. However, we caution that the larger value will be derived from the later phases of the project and will take time to realize.

Speaker 2

Our guidance assumes our current level of outstanding common shares and no unexpected changes generally affecting the economy. This concludes our prepared remarks, and we would now be happy to answer any questions that you might have.

Speaker 3

Thank

Operator

Our first question comes from the line of Manav Patnaik with Barclays, please proceed with your question.

Speaker 2

Hi, good morning. This is Ronen Kennedy on for Thank you for taking my question. Can I just please confirm the overall contribution to the extent you disclose them from pricing Versus new business and then the cross sell penetration and how those compare to historic levels and what the outlook for each of those Components is contemplated in the guidance for 2024? So we

Speaker 1

have not historically broken out those Components, but I can give you directionally what we're seeing with respect to, I guess, The broader 2023 and what we expect going forward. Particularly pricing being a large item that we've talked Given the inflationary condition, we expect that impact to decrease. We've seen some of that over the back half of twenty twenty three and we expect that In 2024 as well, we expect contribution from new account sales and retention to be similar in 2024 as well as cross sell. I think the other components of our growth Reasonably stable trajectory. In terms of Often one of the other components we talk about is wearer levels.

Speaker 1

And I would say wearer levels have continued to be stable through the back half of this year. And that's At this point, what we've assumed going through 2024.

Speaker 2

That's helpful. Thank you. And as a follow-up, if I may, just confirm the assumptions for the broader macro and then more specifically for the merchandise Amortization like materials, commodity and labor inflation, and how pricing where you will be pricing with regards to capturing The impact of those?

Speaker 1

Yes. In terms of a couple of different things you mentioned there. In terms of our overall merchandise We have talked a lot in the last couple of years how we've seen escalating merchandise costs, both from a quantity perspective Coming off some of the lows of the pandemic when less merchandise was infused given the labor environment. The strong growth In heads, in labor, coming out of the pandemic has obviously caused our merchandise to escalate, exacerbated by higher Cost of merchandise in a number of different areas including freight, raw materials and so on. A number of things are happening at this point that are causing our merchandise Cost and trajectory to start to flatten.

Speaker 1

And it's really exist in all areas. We're getting a little bit more to a mature population coming off The lows of the pandemic and also as you can imagine, we are experiencing lower freight costs bringing in product, Raw material costs, if you follow things like cotton and in some cases on a smaller extent, things like rubber for mats and so on, Have also moderated from a year ago. So those things are starting to work our way through the supply chain and contribute The fact that our merchandise cost overall is starting to flatten a bit.

Operator

Our next question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Speaker 3

Yes. Thanks for taking my question. I just wanted to follow-up on the retention aspect Of the business, I know last quarter you mentioned that you've seen a slight tick up in customer attrition over the last few months, but I know your retention rates historically have been pretty darn high. So we're just curious how your current rate compares historical standards and if you've seen any change in customer attrition relative to when you were talking about this last quarter.

Speaker 1

Yes. I would say not much of a change since last quarter. It's just been a few months. I think overall for the year, the comment stands that we were a bit higher. When you say historical, I would say that our retention had improved for a couple of years, and then we kind of took a little bit of a Back this year, a lot of feedback during the pandemic and so on, maybe a lot of decisions From customers, whether it's changing vendors, both on the sales and retention side, we're sort of delayed and maybe a little more energy around that this year as people Looking to control their own costs, maybe put more things out to bid.

Speaker 1

Let's just anecdotally maybe some of the things that could have impacted it. So Certainly, our ongoing growth model assumes continued high retention rates and a lot of the things that we're focused on as a company With our technology transformation and process transformation is to continue to improve that retention. So, I would say not much of a change from a few months ago.

Speaker 3

So following up on the ERP comments, Shane, that you made at the end, just want to make sure I've got this right. It's a multiyear initiative It's going to continue through 2027. Benefits should be 150 to 200 basis points EBITDA margins, but most of that's going to be realized towards the end of the project. So And it will maybe take some time after that. So is that just want to make sure I'm thinking about this correctly, like the benefits from this, We likely won't see a lot of this until fiscal 2027 or later.

Speaker 3

Is that correct?

Speaker 4

Yes.

Speaker 2

I think that that's sort of what I was communicating there. Now in some of the earlier phases, there will be benefits that will be realized, Right. As we go through some of those FICO centric or finance centric activities. But the more meaningful value that is being sort of communicated here is really around the supply chain capabilities as well as the procurement capabilities that are some of the later phases. So yes, the more meaningful value is It's expected to be realized in those later phases when we get to, I guess, the capabilities that I had mentioned.

Speaker 1

One thing I want to add to that and I sort of alluded to it in my As many companies experienced this disruption in their supply chain, in many cases, it was more about getting product than being able to optimize maybe where you got Product and how you got product. And so we are making efforts and initiatives to improve in those areas that we think Can help our costs and profitability over the next few years, even leading into the benefits that the supply chain ERP benefit will ultimately accelerate and enable. So I just wanted to make that comment in the context is we're not waiting to the end of the ERP to make improvements in these areas, but the ERP will eventually enable those fully.

Speaker 3

Understood. And understood it's a longer term project. I wanted to make sure I just had the timing right on that stuff, but appreciate the extra color there. My apologies to the other analysts. I'm going to try to sneak one more in really quick, which is just wanted to on a housekeeping question, just wanted to understand How much the Clean Uniform acquisition contributed to revenue in the quarter?

Speaker 3

And what quarter do you expect to see that impact from that extra work week in

Speaker 2

When we acquired Clean, it was about $90,000,000 Their run rate for the quarter is largely in line with that. And actually, I'm sorry, I missed the second part of the question.

Speaker 3

No worries. I was just curious, is that Work week always in the Q4 or does it sometimes hit in different quarters? Just curious when we should be adjusting for that out of organic growth?

Speaker 2

Yes, that's a good question. Yes, the extra week is going to be in our Q4, and we usually Time in the Q4, historically have over the last number of instances where we've had a 53 week year.

Speaker 3

Got it. Thank you.

Operator

Our next question comes from the line of Kartik Mehta with Northcoast Research, please proceed with your question.

Speaker 4

Hey, good morning. Steve, maybe just your thoughts on where how your customers are feeling About the economy and obviously based on guidance, it seems as though you're not anticipating much of a pullback on the economy and I'm assuming that Your customers are giving you pretty positive feedback on how they're feeling about their business.

Speaker 1

Yes. I would say pretty stable environment. I think you see it with some of the job creation numbers coming out recently. We're obviously always cautious given the environment with interest rates, whether there's another shoe to drop. But right now, I would say companies are still Making investments, hiring, we see it a little bit on our own hiring side.

Speaker 1

It may be a little bit easier to bring in employees, It's still a competitive labor environment out there, which to us tells us that people Are pulling back and that's really what we're seeing from our customers right now. So we think it's a pretty healthy environment right now. Obviously, we continue So look out for any indicators of that turning, but we have not built any of that into our assumptions.

Speaker 4

And then Steve, I think you had said or maybe Shane on Pricing that you're expecting a little bit of a pullback from where you were last year just because of what's happened with inflation. And I'm wondering Is any of that pullback related to a change in the environment where you're seeing extra competition? Or is this all related to just lower inflation, so customers are asking aren't willing to pay that extra like they did a year or 2 ago? Yes.

Speaker 1

I think everyone's trying to be as cautious as they can with cost, ourselves included and our customers included. I think as far as the competitive environment goes, I think It remains, right? It remains stable from prior quarters, prior years. It's aggressive. It's competitive, but I wouldn't say there's been any near term change in that.

Speaker 1

And We continue to work with our customers. So I don't want to give the impression that we can't obtain price as necessary given the environment, but it's a little bit pulled back from a year ago, I would say.

Speaker 4

All right. And just one last question. I think, Nishane, you talked about On the specialty garment side that you're expecting nuclear, that part of the business to be down, but clean energy should continue to grow. What's the breakout of that business within that segment?

Speaker 2

At this point in time, that segment is about fifty-fifty, Nuclear versus clean room.

Speaker 4

Perfect. Thank you very much. I really appreciate it.

Speaker 1

Thank you.

Operator

Our next question comes from the line of Andy Wittmann with Baird. Please proceed with your question.

Speaker 5

Great. Good morning. I guess I just want to make sure I understood the 2024 guidance a little bit better. So Shane, I guess maybe this one's coming your way. If I looked at it on a clean basis, excluding your key initiatives costs, looks like the EBITDA margins implied about 13%, Compares to about 13% if you adjust out the factors in 23% by my calculations.

Speaker 5

So first one to confirm that. But also, It feels like with the clean room, not the clean room, the nuclear business being down And finalizing margin there, you're picking up a little bit of margin on the core segments because of merchandise, because of labor, some of the things you called about, but It's really just a pretty modest increase on those factors. Mike, am I thinking about that the way you're thinking about the 2024 guidance correctly just to start out with?

Speaker 2

No, that's exactly right. If I take a look at my core, I'm expecting a little bit of margin improvement, About 20, 30 basis points of improvement, sort of excluding the impact of the lower key initiative costs. Really what that is, Just to break that down for you. We had mentioned the fact that merchandise is moderating. Still seeing a little bit of Headwind is probably 10 to 20 basis points on the merchandise side, but obviously the headwind that we're seeing there is significantly reduced From the what we've experienced over the last couple of years, which is positive trend.

Speaker 2

The Clean acquisition and the non tangibles amortization, which actually is impacting my operating income, but not my EBITDA. But on the operating income side, that's probably about 30 basis points Headwind as well. Energy is about 20 points or 20 basis points of benefit. And then there's a number of other input costs that have trended lower as Steve And I'd articulated in my comments, as the inflationary pressures are continuing to ease, we're seeing some favorable Trends there as a percentage of revenues that are sort of offsetting those other items.

Speaker 5

Okay. That makes sense. I guess maybe my question is, With the CRM being effectively fully implemented here, the items that you talked about really are not, I don't think Affected by the implementation of the CRM. So the question I guess is, where can there be benefits to the CRM in 2024, that may arise as positives or maybe why isn't there More contributions from some of the efficiencies that I know you've talked about this as kind of a customer retention tool that it's not all about efficiencies. I would think there'd be maybe a little bit more.

Speaker 5

So maybe Steve, could you address that?

Speaker 1

Sure. I think some of it you mentioned some of it, right? And we talked about some of the modernization of the work that our route drivers have to do, which was critical in us kind of getting in place from an employee retention perspective and a customer service perspective. Overall, I've talked about merchandise control as being one of the areas that the CRM helps enhance. And I think we are starting to see some of that.

Speaker 1

So when we talk about the moderation of our merchandise And our ability to collect on charges if there's lost merchandise and the overall tracking of merchandise, I think we are seeing improvements in that area. I think as we've deployed the CRM, some of that has been muddied by the inflationary condition. And so hopefully, as we move forward, we'll continue to see more of that Come through in the area of lower merchandise as a percent of revenue and start really seeing some of that benefit. I will say and I made comments in my prepared remarks about this, we continue to enhance the CRM, Clean had some good experience with the CRM and some applications that they had built to enhance the usability of the CRM, some of that in the area Account profitability, tracking and maintenance. And so we think that getting some of that benefit as well, we think we can improve around the edges in the areas of price management and so on.

Speaker 1

So it's really customer retention, merchandise management, I'd say management of revenue and pricing, they are the areas. And so it's implicit in our results and we'll continue to drive efficiency of the CRM to try to pull as much out of it as possible.

Speaker 5

Okay, good. I think I'm going to leave it there. Thanks, guys.

Speaker 1

Thank you.

Operator

Our next question comes from the line of Andrew Steinerman with JPMorgan. Please proceed with your question.

Speaker 6

Hi, Shane. Did you mention the intangible amortization from Clean in the Q4? And could you just also give us a sense Of what that amortization will be in 2024?

Speaker 2

Yes. Let me get that in front of me. So one of the things that we did do to provide that visibility in our press release, we've Included in a footnote underneath our cash flow, what the non cash intangibles, amortization So that you can see that component of that. Just to call that out, That amount in the Q4 was $19,300,000 versus $15,100,000 in last year's comparable quarter. And the majority of that difference equates to the Clean Uniform acquisition, Right.

Speaker 2

That difference being about $3,500,000 in the quarter is sort of what the run rate would project for next year as well.

Operator

Okay.

Speaker 4

Thank you.

Operator

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

Speaker 6

Hi, good morning. Thanks for taking my questions. I guess for your core margin improvement of 20 to 30 basis points next year, Could you give us a sense of how that would flow through the year? Are you expecting margins to be down in the 1st part of the year and then you recover some of it in the back half. Just kind of could you help us with kind of shape?

Speaker 6

Yes.

Speaker 2

I mean, That margin realization, really, I mean, aside from some of the seasonality that we see in our quarters where Oftentimes, we have slightly higher profitability in our Q1. And obviously, our second quarter is down from a margin because of the timing of some costs that we incur as well as the impact of the holidays, right? There's There's a slight margin improvement as we go throughout the year. Again, primarily driven By the impact of the merchandise continuing to moderate as we go throughout the year as a percentage of revenues, but it's relatively or it's relatively nominal. Again, our profitability will trend mainly towards the seasonal experience it's historically had.

Speaker 6

Okay, perfect. Yes, thanks for that color. And I guess for my follow-up, you did mention that CapEx would be tapered off a little bit from at least from the facility side of things. And so could you just talk about the rationale behind that? Do you feel like your facilities are in good shape heading into next year?

Speaker 6

Yes.

Speaker 1

In general, when you look at the elevated CapEx, that elevated CapEx really comes from new facility, new plant processing plant builds. That's the biggest a plant runs $20,000,000 or so these days. And so if you have 2 or 3 of those going on, that's where you sort of get that elevated CapEx. And we had more projects sort of centralizing around the last couple of years. Overall, we continue to invest in our existing facilities, make sure we're Replacing equipment, increasing automation where we can, the commentary around lowering the CapEx really is around When you look at the outlook for this year and into next year, less large project builds going on.

Speaker 1

And a couple of the ones we had going on were replacing facilities, Older facilities that we had obtained through acquisitions. So we're a little further along in that road map, but we will continue to invest In the facilities, just at a little bit of a lower rate on the new plant builds.

Speaker 6

Okay, great. Thank you, Steve, and thanks, Shane, for the color.

Speaker 1

Thank

Operator

you. There are no further questions at this time. I will turn the call back over to you.

Speaker 1

Great. I'd like to thank everyone for joining us today to review our Q4 results. We look forward to speaking to everyone again in January when we expect to report our Q1 performance. Thank you and have a great day.

Operator

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.

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