Episode 57 – Healthcare: Trends, Opportunities and Challenges

Welcome to the TRSA podcast. Providing interviews and insights from the linen, uniform, and facility services industry. Most Americans might not realize it, but they benefit at least once per week from the cleanliness and safety of laundered, reusable linens, uniforms, towels, mats, and other products provided by various businesses and organizations. TRSA represents the companies that supply, launder, and maintain linens and uniforms. And in this podcast, we will bring the thought leaders of the industry to you.

 

We’re back with another episode of the Linen Uniform and Facility Services podcast interviews and insights by TRSA. I’m your host, Jason Risley. TRSA recently hosted one of its signature in person events, the 11th Annual Healthcare Conference in Scenic, Scottsdale, Arizona. Thanks again to all of our members that joined us for the event. For those that were unable to make it, we have some good news.

 

Today’s episode features highlights from a panel presentation with several leading executives in the healthcare sector, including Randy Bartsch, the CEO of Ecotex, Jason Burstein, the president of Nixon Medical, Jim Cashman, the CEO of Image First, Carl Philip the second, the CEO of Novo, Andrew Kratky, the CEO of Emerald Textiles, and Joe Laporta, the president and CEO of the Health Care Linen Services Group. 1st of all, over the last, you know, day and a half, there’s been lots of interesting discussion. I think for most of us, you know, the the R word, the recession has been, on a few lips that I’ve talked to concerns about costs and, labor and and capital market changes. We’re gonna get into a few of those things, but one of the first questions I wanna pitch to the entire group, which is, you know, to what degree what to what degree, do you feel inflation and the economic downturn is likely to affect your company over the next 12 months? Joe, we’ll start with you and come this way, and we’ll mix it up as we move along.

 

You know, 1st and foremost, we continue to feel margin pressure given supply chain challenges. So as inflation increases, there is that potential that that’s going to increase as well. We also have a customer base that, continues to to feel some severe margin pressure as well. So, you know, dealing with those dynamics is kind of as we go, especially since, for many of us, we were forced to, you know, give some price increases over the past couple of years. So So I think it’s really 2 things that we’ve got our eyes on.

 

You know, it’s certainly just the cost of everything going up and potentially continuing to go up, and then it’s, you know, working closely with our customers to find ways to, you know, you know, help them manage, you know, through this very difficult time. Thanks, Joe. Jim, from Image First’s perspective, how do you see the next 12 months? Yeah. A lot of what Joe just said.

 

I think I’m an optimist though. I look at it this way. With the economic pressures, I think it’s gonna help us stabilize our workforce. I think it’s gonna give people a few less chances or opportunities out there to change jobs, which is, gonna be a blessing for all of us, getting our people more efficient and productive in their roles. It’s also gonna allow us to really drive, what we feel we do well, the quality initiatives with our client base and get really sticky and show our value.

 

As others may be struggling with the economic pressures of cutting costs, reducing the quality of their linens, those types of things, we’re committed to staying strong in that area, and attempting to differentiate ourselves as we work through these times. Andy? Yeah. I agree. I mean, I, I parcel it out in a, in a 2 different, I guess, perspectives or, or, you know, problems.

 

1 from a customer perspective, you know, there’s no question that we’re starting to see customers really hone in on price and quality and delivery. And not that they weren’t doing that before, but they’re ratcheting up the game and really trying to understand, like, how are they going to drive their costs down, especially considering, like Joe said, we went in and we get price increases and inflationary costs and whatnot. So I think the pressure is starting to ramp up. I think we’re going to see it continue to ramp up. And I think that we need to come up with ways to offset costs that doesn’t necessarily impact us, which there are ways to do that, us as laundries and service providers.

 

And there’s ways to do that. But you have to stay engaged with your customer. You have to communicate to them and work with them to come up with those ideas. And you can help bridge the gap from that perspective. And we’ve had some success doing that on the West Coast and with some of our larger healthcare providers.

 

I think the second thing that we’re going to experience and that we have experienced is that, with inflation going where it has and interest rates going where it has, the M and A activity in the market that’s taken place over the past couple of years is naturally going to slow down. It’s going to be harder to get a deal done because you’re not able to leverage it as much or your interest rates are higher. And so, you know, we see as we look at expanding, right, we have organic growth, we have greenfield sites, we have this and the other thing. But part of it is looking at, you know, the M and A and, you know, the market and where we can expand. And it’s just going to be more difficult.

 

So I think, you know, maybe to what Jim was alluding to, things are going to slow down in certain ways. It’s a chance for us to really stabilize the operations, stabilize our labor force and put us in a position where, you know, we can maximize the efficiency within the plant, really service customers and help bridge the gap with what their issue is going to be, which is going to be cost, which which we’re seeing. That sounds I know it sounds crazy, but, you know, I mean, the Fed is trying to do that on purpose. I mean, it’s actually their stated mission is to cool things off. I don’t think the current trajectory that the country’s on or was on prior to the Fed going on its campaign was sustainable.

 

And I’ve always said that our industry is noncyclical top line, but it tends to be slightly countercyclical bottom line. So piggybacking, piggybacking off of what, Jim said, I actually think this is gonna help us with the labor market, and I have several friends in other industries that tend to be a little more leading indicator than ours, and they’re starting to see the cracks in the workforce. A friend of mine that owns a chemical company, they’ve laid off people for the first time in the last 10 years. You know, their demands falling off. So I think in order for us to really thrive, we kinda gotta hit that reset button on some of our input cost, as well as getting our labor under control.

 

And then I think the the biggest concern is, not necessarily being driven by the recession, but things that are already in motion is our customer base. Everybody sees it in the news. They’re all struggling financially. They’re all posting multibillion dollar losses. You know, and we’re in a position where we’re not the highest margin business on the face of the earth.

 

So, we have very limited, room to wiggle through that to absorb that with them, but they’re gonna be coming trying to figure out how to offset that anywhere they can. So I think, the general cloud of the recession, although somewhat different driver behind it, is what is the behavior of our customer base gonna do over the next 12 months? Because I think the economy softening actually probably makes us operating our businesses a little bit easier, but we’re gonna be seeing a bunch of pressure on the customer side. Yeah. I think I think that’s right.

 

You know, customers I I do see that, at least, you know, in our region, customers are getting smarter, right? They’re really honing in and trying to understand the business more because they’re getting their pressure to drive costs down and drive costs up. So you naturally have to be smarter about it. And, you know, linen and laundry and services risen up in terms of importance to the hospitals, considering what happened with COVID, right? Like everybody recognizes that.

 

And so, you know, we’re on the radar and, we need to be able to navigate. Like I said, we gotta be able to navigate it, but they’re getting smarter. You know, they continue to use GPOs to a certain degree. We’ve seen, with one of our customers just recently this week, they walked away from a GPO JLL, at Adventist. So that could take place, but they’re putting these people in, that have deep procurement supply chain backgrounds that are going to be smarter around how to take cost out.

 

And there’s going to be some pressure that comes along with it. So at the end of the day, we know our business, right? You guys all know your business and you gotta be able to work with them, figure out what are the other options and alternatives to drive cost out without negatively impacting yourself, and keeping the customer and retaining the customer. Great. Jason?

 

Couple things to add. You know, we’re very focused on retention. Turnover has been extremely disruptive to our business, and I imagine it’s been a disruptor across the industry. With the, you know, the general consensus is the economy is gonna is gonna take a turn for the worse. And while that’s gonna help us with retention, we’re very focused right now on not wasting the current crisis, doing the stuff that we need to do.

 

So when the economy does take a turn, that we’re setting new records. So that’s how we’re approaching retention. We do expect customers to be, in in a much tougher situation than they are today. They were flushed with cash, so they were just pumped full of cash in 2020 and 2021, And their cash is diminishing. That’s impacting how they’re spending money, impacting their their capital plans.

 

We do expect that to result in some pressure on us. So we’re being just thoughtful about our expense structure, where we’re spending money. We’re doubling down on things like continuous improvement just to prepare for what we see coming. Perfect. If you kind of look at those capital market issues, guys, you know, what what concerns you most?

 

Is it is it valuations? Is the cost? Or is it liquidity? What are what are the things that, that concern you? Jason, you wanna go first?

 

I mean, we’re definitely being thoughtful. Jack is our CFO. He’s sitting in the middle of the room. So he’s definitely thinking ahead about, what’s happening and how to convert certain loans into more favorable terms. Carl?

 

I’ll speak in, you know, the kind of generalities. You know, I we operate our company with probably a lower level of leverage than some other companies our size. We typically only operate with senior secured debt, try to keep it around 3, 3a half times EBITDA. But even then, this impacts us. But the reason why I’m going down this path, which I’m gonna say interest rates, because, you know, not having ability to access cash to keep you from doing a deal.

 

But that’s not going to affect your ability to run your day to day operations. I think when you have kind of the perfect storm of inflation running high, you’re you’re fighting the good fight to get your price increases, do what you need to do to offset your cost, to have a highly leveraged capital structure and have your floating interest rates keep going up, it just takes more money out of the equation that you have to focus on your core business. So I’d say from a trying to operate and run your business from a blocking and tackling a day to day basis, I think the rising interest rates are are probably gonna have the most profound impact on us as we operate. We have to figure out how to navigate that. I’d followed up with access to cash because the people at this table have mostly grown through acquisition.

 

So to be able to sustain what we provided for investors and continue the consolidation of the market, the lobbyists players are doing. The access to that capital, I think, affects it on a more of a strategic level. And kind of are we gonna be able to keep the same pace that we have? But I think that rising interest rate risk is creating more near term pressure on just focusing on what we do have today. Andy, what about, what’s your view?

 

Yeah. I’m I’m kind of aligned with really everything that Carl said. I think the day to day, you know, is going to get pressure a little bit with highly leveraged businesses because that obviously takes away from your cash. And you’re going to have to prioritize, you know, from a day to day operation standpoint, you know, the nice to haves versus need to haves over the next 12 to 18 months or however long this lasts. You you’re going to have to prioritize and manage through it.

 

And at the same time, you know, I don’t think there’s going to be a huge impact to customers unless, you know, you really can’t fund and and operate your business because you don’t have the appropriate cash flow or whatnot. But at the end of the day, it’s really around those interest rates in the near term. I think longer term, you know, we’ll work our way out of it. I think valuations do come into play for sure because if you think about, the M and A market and what private equity does, right, unless they’re gonna over equitize because they have a have a fund available, you know, it has to be done with debt. And if debt and leverage, if you’re not going to be able to do 6 or 6 and a half or whatever times at an interest rate that’s at 8 or 9%.

 

Right? Those deals aren’t going to go through. You’re going to have to be at 3 to 3 and a half times leverage. Interest rates are still gonna be high if you have to, you know, go through, you know, debt financing or you have to really over equitize even to manage through the 3 to 3 and a half times. So, I think that’s what’s happening around valuations.

 

And it’s going to bring valuations down. And look, from a valuation perspective, because there was this influx of cash in the market and interest rates were low and you could leverage things, highly leveraged things, companies that were selling kind of were able to get away with pro form a adjusted EBITDA, so on and so forth that raised up their valuation because it raised up their performance on the P and L and balance sheets. Right? And that I think has compressed and kind of gone away. And everybody’s looking at the real strong companies with a strong balance sheet, strong cash flow, real table the pro form a stuff.

 

And that’s where we’re seeing, you know, kind of valuations and and how we’re looking at it. Thanks, Joe. You know, to be successful in our industry or at least to be competitive requires continuous recapitalization and reinvestment in automation, technology, people, all of that costs money. When you think of the acute care market especially which is very capital intensive, you know, the pandemic is, you know, and the general maturing of our industry is going to, you know, by the sounds of it have an impact on consolidation. Mean broadly, not so much with HLSG but broadly what kind of impact do you think we’re looking at on the consolidation within the industry overall?

 

So I tend to believe that know, over the next 3 to 5 years, we will see both our customer base consolidate, certainly as, they attempt to manage through this very difficult time that they’re dealing with today and in the future. So I think our customers are going to continue to consolidate, attempt to acquire. So they’re gonna become bigger and more sophisticated. As they grow, I believe that, they’re gonna require us to grow alongside them. So the expectation is that, you know, we invest in, you know, more sophisticated infrastructure that, our plants have the latest automation, etcetera, etcetera, and even redundancy for for that, from that standpoint.

 

More and more customers ask us, what’s your plan b? What’s your plan c? So, I definitely have seen the, like I said, I I definitely believe that the that’s where this is going, continued consolidation. And, you know, like I said, from a customer standpoint, And and as as, you know, our industry, you know, continues to develop consolidation as well. So that’s how we’re thinking about it, but we feel like we have to do this to to manage these larger customers.

 

So we’re gonna have to invest. Obviously, we’re gonna be very strategic. I think the pandemic certainly put a pause on some of the things that we wanted to do. But, but I I I just think to manage a much more sophisticated, more demanding integrated customer that, now has physician offices, surgery centers, long term care, etcetera, etcetera, they’re gonna require more from us. So so we’re it’s gonna take investment.

 

Thanks. And I’ll pitch it over to you, Carl, for your kind of view again on this, capital investment and consolidation trends given the current economic climate? Yeah. You know, piggybacking off the last comment, you know, I I do believe availability of capital is gonna slow it, but it’s certainly not gonna stop it. I think that you’re gonna continue to see consolidation.

 

I think it’s healthy. I think it’s needed. You know exactly what, Joe just said. It’s our customers are consolidating, and if we don’t do something similar, we’re gonna find that there are very few very powerful decision makers spreading business out amongst too many people that don’t have the collective power to stand up to them. So and those dynamics, typically what you see in an industry is profit shrinking and and bad things on that side.

 

So I think for the health of the industry, we have to try to continue to consolidate at the same rate, that our customers are. I think that in general, in terms of capital being deployed, not just on acquiring and consolidating your business, though, I I do believe that the health care discipline in laundry has continued to gravitate towards what I would call go big or go home. And you can see it in the data. I mean, the number of plants that do health care laundry has actually been declining for quite some time, but it’s declining because typically older plants that are a little bit past their prime that have lower capacities are being replaced by these mega plants that can do 40, 50, 60, +1000000 pounds per year. And with that type of volume, that’s really the only way to justify and get an ROI on some of the, you know, more intense level of automation that exist out there, because you can’t spend 2 and a half, $3,000,000 on a sort deck if you’re gonna do 10 or £15,000,000 out of it.

 

The math’s just never gonna support it. And even at that level, the automation that you’re spending, most people are like, well, you know, is your labor cost going down because you’ve invested in that equipment? And the reality is not very much. That’s not what’s driving your ROI. What’s driving it is your ability to get the economies of scale of the volume going through your plant.

 

You cover your fixed cost better, and that’s really what in my mind drives that economic model towards building and consolidating these these larger plants. Now if you’re in small rural areas, obviously, that model’s not gonna work, but it’s probably happening to a smaller scale. So 2, 5 to £10,000,000 plants are gonna get replaced by a £20,000,000 plant that has, you know, better technology in it, lower cost to produce, and and that’s the trend that I kinda keep seeing going forward. So I think it’s inevitable or necessary that we continue to to deploy our funds in order, you know, to keep reinvesting and advance the the the size and the efficiency of our plants. Yeah.

 

Absolutely. Couple of thoughts on capital investment. So we, you know, we don’t just think it’s about the latest and greatest equipment. There is merit to that. There’s also merit to getting out of more out of what we have.

 

So we think about how do we really take advantage of what we already have in house. And we have some, very automated plants. So we think about just productivity and how to set clear expectations and how to provide better support, training and, how to manage performance. And then on the capital front, in terms of the latest and greatest, I think there’s an increasing demand for capital investment that’s going to reduce the need for labor. You know, cost of labor has gone up so much.

 

So we’re definitely seeing equipment manufacturers releasing things that are going to help to automate sorting and other, you know, other manual functions that can be automated today. And and those things are are very interesting to us as well. Yeah. I mean, it’s interesting because when we compare North America to Europe, Europe’s always had an increased cost of labor and so that market has adapted through different technologies and different plant designs to really reduce or increase the throughput for each person that is in the plant. This whole pandemic has been a slow moving train wreck but notwithstanding you know I think the labor shortage was really accelerated through the pandemic and we’re in a situation right now whether you, you know, I mean, we here we here we are at a resort and if you’re staying here, you don’t have linen service, which is a bit ironic given that we’re in the laundry business.

 

Notwithstanding, there just isn’t the staffing. I had a flight, on Sunday, and we sat on the tarmac for 45 minutes because they didn’t have ground handlers. You scratch your head but that’s the service economy that North America faces and so we’re going to have to, as Jason said, reinvent or relook at how we do things. This road has been traveled in our industry, in other places on the globe and we’re just going to have to dig down and work with our vendors and suppliers to figure out how we can take those innovations and ideas and either better use the stuff we have or find out new ways of doing things. I’m going to segue into the topic of automation and innovation And as you, you know, as you look at your businesses and plan for the future, you know, what do you what do you see on the forefront for for, automation?

 

Jason? Yeah. I touched on a couple of things. I guess, sortation, feeding, converting, any kind of manual hand folding, so automating that. Those are, I guess, be the top things that I’m seeing.

 

Yeah. So, I I would say this. So I get asked this question a lot. So what do you see for automation? Are we gonna get tile folders?

 

Are we ever gonna get rid of the human feeding the machine? You know, I I think the reality is the products that we use like, automation works really well when you’re dealing with widgets. You have a line of metal running down the line at a 100 miles an hour, and it’s got a thing cutting it into a very specific size. I don’t know about you guys, but I can get one bale of no offense to our linen vendors here, but you can get one bale of sheets and you could lay them all out, and they’re all, like, plus or minus 5% of each other. And the way that they get presented to you, a robot’s not gonna be able to figure that out, very easily.

 

And if they can, the reality is, like, our 2 largest equipment vendors in our space combined revenues less than a1000000000, I believe. So if you think about, what do they spend, 3% on r and d, there there’s just not the r and d budget available servicing our industry to truly automate those types of things. In fact, I think that Tesla Bot is likely to get developed before, and you have a machine that can pretty much replicate all human interaction before we’re gonna be able to solve that holy grail. So what what I what we’re doing for our company in terms of automation, there is a benefit of efficiency, but we’re focused more on the automation that makes it easier for our employees. So how is the product presented?

 

Are you creating scenarios where they don’t have to bend over, use the foot pedal to, you know, lift a little bag of linen up and just removing the need to call for a bag on every single machine? Like, why can’t that be delivered directly to you? So, as we think about the fact that we’re all fighting for employees, you know, we’re thinking about, well, how do we make it more pleasant to work in one of our plants, drive retention higher, drive employee satisfaction, have a byproduct of being slightly more efficient in the process, but, you know, that’s where our focus was when we built our new plant in Miami that went live this past year. It was we don’t want anybody to call for a bag, and we don’t want anybody twisting and turning, and we don’t want anybody bending over to pick anything up. We want everything presented to them next to the machine and feed directly into it.

 

So I agree with that. And I think the the basic fundamentals of the laundry process between soil and wash and, you know, clean and sort and whatever, you know, all of that, there’s going to be the human interaction. I think that there are pockets though, that we’ve seen that can remove that labor content. Garment systems, for example, you know, are something that, you know, we’ve put into place. We’re getting a little bit more aggressive on because the ROI on it is quick within 12 months.

 

Right? If you, you know, if you have the size of operation, you know, depending on the size of the operation, I guess. But I think there are pockets of automation that we can take advantage of. And that’s, you know, when we look at, and I talked about the nice to haves versus need to haves, you know, around capital, That’s more of a nice to have, but that’s a nice to have that’s close to a need to have because you can reduce that labor content and get a quick ROI on it. So I think kind of the basic fundamentals of the process, you know, to your point, Carl, you know, create efficiency by dropping things in people’s hand and let them feed and let them go and generate that efficiency.

 

But there are pockets in areas that you can really drive, you know, a reduced headcount requirement, you know, in the business and and have short term ROIs on it. Yeah. Jim, in your case, obviously, being focused on, the outpatient as a core business, You’ve got many more locations. They tend to be a little bit smaller, and are configured a little bit different. But, how do you see, changes in automation or innovation affecting you guys?

 

Yeah. Really two areas. Certainly, it’s the efficiency piece first. Know, the history of Image First is we were a 4 day week laundry working single shift, and we’ve gone to 5 6 day week double shifts in our plants. So we’re getting a lot more out of our equipment.

 

Our uptime, our throughput is tremendously higher than it was 3 or 4 years ago. So we wanna get more out of what we have, and and Jason talked about that. A lot of similarities in the businesses. The other piece, we were just at the CLEAN Show. We all saw the new automation that’s out there.

 

A lot of it’s not, you know, blazing new trails for us. It’s been in place in Europe for years years, but it’s coming over here. And I think that’s where we continue to put pressure on our suppliers to to find things that make it more efficient. So our automation is gonna be in markets where we have labor challenges, and we wanna replace automation replace labor with automation. And it’s gonna be in areas where we need capacity in markets, and it’s gonna allow us to put more through in a given hour, a day, or a week, or whatever it might be.

 

But really focused on that, and really looking at the best use of every dollar we spend from a from a, conversion standpoint. You know, obviously, what I’m hearing is kind of a common theme is that it’s incremental improvement and then, kind of cleaning up some of the things that happen, and just if we can tighten those things up, we can, you know, if you got 1800 employees, you get a 10% gain, that’s a 180 spots, and that’s gonna improve the business, and that’s gonna improve the bottom line. Joe, anything else to add? No. No.

 

I I think, the word incremental is is accurate for us. It represents us well. We stepped into some plants that that frankly had some legacy equipment. So I think, you know, we’re chipping away at some of those, we’ll call it weak antelopes that maybe should have been replaced several years back. But we’re also looking at it a little bit more globally.

 

Aside from the equipment, there’s some really great technology tools and we’ve invested there. As you think about PM maintenance systems, think about logistics systems, a whole series of dashboards for our customers that we’ve developed. You know, we’ve attempted to kind of, spread the money around a little bit while we’re we’re also updating facilities, cafeterias, bathrooms. So our approach has really been kind of threefold. It’s equipment, it’s technology, and it’s facilities.

 

Now for a brief message from TRSA. Laundries are certified hygienically cleaned through 3rd party inspection and quarterly testing that quantifies an established threshold of pathogens on textiles to levels that pose no threat of illness. Inspectors also verify employee training, safety standard compliance, and operational efficiencies. Certified laundries must maintain a quality assurance or QA manual that indicates their management, housekeeping, and training practices comply with the hygienically clean standard. Now back to the episode.

 

We’re talking about the capital market side and investment and reinvesting in our businesses. There’s obviously other things that keep you up at night, especially, with the uncertainty that’s out there both on the on the client side. From the panel’s perspective, what are some of the things that are keeping you up at night? Jim? We had this exact conversation last last evening.

 

Certainly, there’s a labor challenge in getting people to come work for us and getting the peep the great people we have to stay with us. Really, I would say the number one thing that I think about when my head hits the pillow is as we grow, how do we keep our culture strong, And how do we continue to to, reward and recognize our associates as we get larger and larger? Attracting people to Image First, we we’ve been successful at that. And we feel that that next level of leadership, that AGM general manager level, we’re growing so fast, we can’t grow all of our own from our own farm system. So we’ve gotta recruit.

 

And whether they’re from the porta potty business or whether they’re from one of your companies, we wanna be able to attract that really talented leader that has a lot of runway and headroom, in his or her career left. So I would say it’s it’s really around culture and then kinda senior level talent excellence. I look at it from the standpoint of what I really can’t control. Right? I mean, you can run down your p and l, and labor’s a concern.

 

I think that seeing labor be less of a concern over the past kind of 5, 6 months, give or take a little bit since, you know, kind of the inflationary costs have hit. My view is customers. What keeps me up at night is customers and what they’re going to do, what’s important to them, how are we gonna navigate those situations. Because at the end of the day, they drive the business. And I think that when you look at some of the larger customers, they’re disorganized too.

 

You have groups that want to focus on cost. You have groups that wanna focus on ESG. You have groups that wanna focus on whatever they wanna focus on. And being able to navigate that, doing it in the right way so that they don’t jump ship or, you know, go out to an RFP, and then it’s a price spreadsheet by price reduction exercise for them and really keeping them whole and and, you know, part of the business, that’s the biggest thing for me. I mean, I’m looking at some of these things on here.

 

And there’s no question that there’s a lot of, you know, concerns out there about, you know, whether it’s labor or energy and and whatnot. But, you know, look, customers are the driving force behind the business. And if we have customers, you know, we can, you know, manage and control a lot of what’s going on here. We just gotta do it smart. But, you know, then pivoting off and doing something different is is my biggest concern.

 

That’s that keeps me up at night. Yeah. For sure. Jason? I mean, I’ll I’ll put a slightly different spin on things.

 

I think, leadership is crucial to performance. So we’ve been successful attracting, leaders from outside the business, but we’re getting very thoughtful about how do we develop talent inside the business, how do we have very strong front line leadership and how do we develop the talent to progress into more senior roles, like general management roles? So crucial to maintaining the culture, as Jim mentioned. So we’re getting more conscious of identifying the hidden talent that we have. I think everyone has that, but really looking for talent and and developing it.

 

Because if we have the right leadership, it addresses effectively everything. You know, I wanna kinda go back to, you know, Andy, you talked about customers, and I think that’s absolutely critical. Joe, you touched off in your opening comments that the consolidation isn’t about the consolidation of laundry, it’s really about capturing and meeting the needs of customers And as health systems continue to consolidate, as rural health care moves more towards urban cores, and they’re doing that not because they want to disadvantage the rural communities, they’re doing that because that’s where the resources are, where they can get the size, the scale, and the world class leading medicine, and they can only do that with size. And so to your point, I think, and I’ll let you, you know, comment on it, Joe, but health system the number of hospitals in this country will go down. Anybody disagree?

 

I mean, that is going to happen. Number 2, in order for hospitals to health systems to move forward, they’re going to have to work cooperatively in different ways. You know, we see that, we’ve seen that over the last 10, 15 years in GPOs and so both back end procurement and economies of scale in terms of, you know, buying power, but in the end, they’re still responding to the needs, the health care needs of individual, you know, people and communities, and they’ll need to get size and scale, in order to meet the needs of the health system, which I think can you know, categorically, everybody’s agrees is is if it’s not broken, it’s pretty damn close. Yeah. So I would definitely, hone in on labor, but but it’s not just I mean, that I mean, the the labor discussion has been out there for a while.

 

It’s actually been out there for years, but it’s our vendor’s labor. It’s our customer’s labor. All of the you know, these labor challenges, tend to impact our business, and and I have very little control over that. However, it it makes me think differently about partnering with with various vendors, etcetera. Big customers, as they consolidate, that’s always exciting to win that big customer, but that’s pretty disruptive if and or when they leave.

 

So, I I think about that’s that’s something that I think about quite a bit is, you know, how disruptive that can be. So I have to think about the business, you know, when that contract potentially ends and how that could impact the footprint of our real estate. So, you know, it’s it’s labor and and and certainly customers for for me. For sure. Our panel represents some of the top leadership in both the acute care sector of our laundry business as well as the non acute outpatient market, with Jason and Jim.

 

And so I’m going to flip it over to you. I mean, obviously, we’ve seen more and more, you know, as we do, TSA polling and and people respond to different, questionnaires. More and more people seem to be getting into that non acute, space, the route based space. And certainly, Jim, that’s something you know a lot about, not only from our industry, but, you know, from your prior for your prior, experiences. What what’s your view?

 

Would you will that that space continue to consolidate? Or what what what what’s your general view of the of the outpatient market? Absolutely. It’s gonna outpace the growth of the acute space for sure for the for my lifetime in this industry. Without in my belief, without question.

 

People want we heard about consumerism this morning. People want a choice. They wanna know where their elective surgeries. They wanna have 4 or 5 options. And, they wanna make sure they’re getting the best doctors.

 

So from that standpoint, the aging of America, the growth of American population, and the consumerization desire is only gonna drive more and more growth in the acute space or the, outpatient space. Make no mistake about it. The health care space is is awesome. And we are all fortunate to be in this in this industry because it is growing and we’ve proven through COVID and the 0 eight, 09 recession that it is very, very, consistent and reliable. And investors like that.

 

And so, so I think that, and we’re seeing you talked about the consolidation of client base. You know, we just won a a big award in an account on the East Coast. We had all the outpatient service, about 16,000 a week in outpatient. And they wanted to go to one supplier for their entire offering. Well, thankfully, we have capacity to take on this acute market as well, and we were awarded the business.

 

That’s something 2 or 3 years ago we wouldn’t have been able to do. So, I think you’ll continue to see that type of move from acute to outpatient and then a mix of both, but very healthy and remaining strong. Jason, how do you what’s your views on kind of the increased amount of competition within the outpatient space? Yeah. We’ve seen a lot more involvement from the acute, providers kind of getting pulled into the non acute space.

 

As well as other laundries, mixed laundry operators in the space. There’s some benefits to it. It certainly softens up the market. It helps us to get better. We have to be clear.

 

We have to execute better. We have to differentiate more effectively. So there’s some benefits as well. Thanks. And then, you know, this session, part of, part of some of the themes that were raised by previous, presenters and in prior healthcare conferences, we’ve had speakers come in and talk about, kind of the future of home healthcare, you know, long term care, I mean, other other aspects of the the care continuum.

 

And, you know, as you as you look at that for your businesses, do you see refocusing on some core decisions or do you see expanding into some of these other opportunities? What other opportunities are you keeping your eyes on? Hey. Yes. Happy to jump in.

 

So so we believe, certainly, new and different ideas are great, however we wanna stay in our lane. You know, for us, we really like the managed services part of the business. Today, that team and and by the way, that’s distribution folks working at the hospital, on on our behalf and on the customer’s behalf. Our team today is about 200, distribution techs, and, you know, we believe that would be, you know, for a lot of different reasons. That that’s really the way that that we think is is smart growth for us.

 

Perfect. Anybody else wanna jump in and add some? Yeah. I mean, for us, you know, we’re mainly acute. Most of our business runs through acute.

 

Call it 80%, give or take a little bit out of the £330,000,000 that we’re processed. And we do all the outpatient MOBs for, you know, the healthcare systems that we service on the acute side as well. You know, we know, and, you know, per what Jim said, that there’s gonna be this and has been and will continue to be this migration to additional outpatient MOB facilities. And that’s kind of where the growth is while the hospitals go down. So, you know, for us, as we look at it, it is a different business model.

 

It’s a model that, you know, we can support, but it’s a different business model. And anybody getting into that space, you know, really has to understand that’s not acute. Acute is big facilities, big equipment, you’re pumping, letting it through, doing it as fast as you human, as you human can. The outpatient, it’s a different experience of the customer. It’s a different cell.

 

It’s a different, really everything and model. And so, you know, anybody going into that space really needs to right size their business to to do that, whether it’s, you know, smaller footprint facilities, getting the right equipment in, putting in the, you know, the right business model to If you’re gonna if you’re gonna get in there. But look, the market’s growing and it’s a great opportunity. If you’re gonna if you’re gonna get in there, but look, the market’s growing and it’s a great opportunity for us. I don’t think we’ll ever get into the home care stuff, most likely, but, you know, MOB and outpatient, you know, that it makes a ton of sense.

 

It’s a natural move as we, as we look forward to to growth. We’re very aligned with Emerald on that front. I don’t know there’s much more I could add, but I think he summed it up, from the large acute care operators view on on the marketplace and our place in it. On the acute care side, obviously, we’ve all, seen the impact on, health systems and their group purchasing organizations and other other things, and there’s this kind of a bias when you come to a conference like this, you know, where we sell, you know, essential value added services, and then you’ve got the buyer going, well, it’s just a damn commodity. Yeah.

 

And so when when you when you look at that, and you look at the way that, you know, GPOs and purchasing and and, you know, Andy, you you were on both sides of the procurement, space. You know, you know, we’ve done things like hygienically clean and and, other infect changed? It’s definitely harder to get time. We’re finding that the supply chain organizations are dealing with a lot of the issues that we’re dealing with in terms of turnover and disruption in their business. They’ve dealt with a lot of stuff over the last couple of years.

 

So that’s been a change. We’re still successful getting FaceTime. A lot of it’s virtual today. Pre pandemic, it was face to face meetings. But those those relationships are critical.

 

Supply chain is, you know, on on one hand, it’s certainly challenging. So we’re very thoughtful about just how we organize ourselves and how we how we approach those, those opportunities and how we build those relationships. So we can have some more sway over the decision making. I think the, you know, the biggest thing we’ve seen in our customer side is we’ve we’ve always viewed ourselves as being in a relationship business. We tell everybody in our company, you know, you need to be having very strong relationships at at least 3 different levels in the hierarchy of your customer.

 

But what we’ve seen kind of post pandemic is, you know, the same type of things we’re seeing in the labor market everywhere. Even the people that we’ve sat across the table from, you know, they’re switching jobs. They’re getting offered more money to go there. So I think I’ve seen a spike in kind of the turnover of those roles where you’ve, you know, may have had a relationship for 10 or 20 years, but they’re either retiring or somebody threw a lot more money than to go solve somebody else’s problem. So, you know, I think the the onus coming out of this is making sure, a, you’re you’re continuing to have that multi level interaction and relationship and where you’re seeing that turnover, how do you grab that and rebuild it?

 

Because at our core, we all know that we’re not a commodity. And if you don’t have that relationship, they’re going to treat you like it. You have to have a deeper level of trust for them to listen to you, hear you out, and see that that value of that service is beyond, the cost of the widget, you know, that they’re trying to go run through a very strict supply chain decision making process. So I I think that turnover out of the pandemic is probably the biggest thing we’ve seen in terms of, you know, people that used to hold those jobs for a very long time are now moving and bouncing around a lot more than they used to. Yeah.

 

Yeah. But I I think they’re just paying a lot more attention to us and what we do. I mean, I came to Emerald 2 years ago, almost to date, and, you know, coming out of COVID and the pressure around that, they are paying more attention to what’s going on in their business and especially to us. And, you know, I’ve seen that, you know, increase and accelerate over the past kind of 12 months, give or take a little bit. I think we’re going to continue to experience that, that they’re paying attention to what’s going on.

 

And but I also think at the same time, you know, they’re sensitive and have a better understanding of what we’re dealing with because they’re dealing with the same things, right? They can’t get nurses or, you know, whatever. They understand when we say, hey, we’re having trouble with labor because they’re having those same problems. And so I think there’s, you know, a balance there of, hey, getting some more pressure and, you know, getting some more attention to really having a better understanding because they’re the ones that are seeing the impact in their business as well. Each of the companies that are represented by our panelists have had absolutely tremendous growth and expansion over the past several years.

 

And, you know, when you expand your geographic territory and you are building plants and, you know, there’s a lot of moving parts. There’s advantages as been touched on with scaling. But when you think of, Jim, with culture, how do you scale culture? How do you communicate and maintain those core values that are the essence of Image First to inspire your team? It’s a great question.

 

It’s a culture evolves. Culture is not stagnant, and we really stress that. It’s it’s like watching a child grow up. You don’t see the changes every day, but when you see their school pictures each year on the refrigerator, they look a lot different. And that’s what we kind of describe our culture as.

 

We have a very, very prescriptive set of operating principles in our business, And it’s our service vision. It’s our, mission. It’s our values and it’s our goals. And I look at it as like a living organism. And really, kind of our our service vision is our head, and our mission statement is our heart, and our values are really the soul of the business.

 

And when we interview for people, we don’t interview because they know how to run a they don’t know how to talk to a customer, or they don’t know we don’t interview for their laundry skills. We interview for their cultural fit, and we really stress what our culture is. And then we make sure they experience it and feel it, from day 1 to day 1,000, so that they can see there’s a distinct difference here. And that’s the feedback we get. So culture evolves, but, the core of the culture should should remain, strong.

 

And those are what we call our values or the soul of the business. And really just, again, being very deliberate about it and not tolerating poor leadership, inconsistency in our behaviors. You know, as Jack Wells says, you know, we don’t tolerate idiots well. If they don’t fit, we identify it pretty quickly, and, you know, we’ll reload. Do you foresee unionization efforts increasing in the industry?

 

Over the past while, certainly over the last number of months, we’ve seen in the news all kinds of businesses that we would have thought would be typically nonunion become unionized. Starbucks, Disney, Amazon and on and on and on. And, there was a piece recently a few weeks ago that probably many of you saw it on your Google alerts around an effort by, Unite Here to go after the laundry businesses starting in Chicago, I don’t know if you saw that article, but anyways it was somewhat frightening but just in terms of the context, the midterms that have happened, what’s the overall view? My question to the panel and we’ll go through everybody is, do you what’s your view? Do you think it’s as I’ll use the word extreme, as many of us feel?

 

And how are and how do you see, addressing that? So, Joe, I’ll start with you. Yeah. Hey. Happy to, and and I I saw the same article you had mentioned.

 

Interest coming from our employees, and I think that’s key. So having said that, we don’t feel the pressure that, I guess, we’re seeing on the screen here in our markets today. So little or no kind of visibility or pressure today. We’re watching it closely, but the key is the employees, you know, as we proactively go out and speak to them about these topics, they don’t seem interested. They don’t wanna participate.

 

Interesting. Jim? It’s a continual a continual concern that we all we all face here. We have a a location that’s unionized, and I do think there’ll be more an increased effort in unionization across our industry over the next couple of years. The secret there again is is your culture strong.

 

Do we have great relations with our associates? Can we really show show them why they can directly communicate with us versus needing a third party? And that comes down to to leadership again and strong leadership of the business and really educating our people what to look for when they their possible union organization signs. And once it is, a real campaign of avoidance. And so I think a lot of it’s just training and education and training around it, and then taking great care of your associates so that Yeah.

 

They don’t have a need for representation. Jason. Yeah. I mean, I’ll I’ll second those comments. I I think, you know, it’s the preventative measures are really most effective.

 

And just thinking back to the question about culture, we’re very focused on culture, about sustaining it and reinforcing it as we grow. We’ll do, I think, some very good things around putting the right leadership in place versus hiring from the outside. Because we hire from the outside for a new location. It forms its own culture, and we don’t want its own culture. We want to bring our culture.

 

So we’ll think about leadership selection. We’ll think about relocating talent in a variety of roles, even production level roles into a new facility to help establish the right culture. So we’ll identify cultural ambassadors that we can bring in either permanently, by relocating or just on an interim basis to help establish the right culture at a location. But effectively, you know, we see a vote to unionize as a vote against management. So we work to really avoid that by doing a wide variety of things.

 

The risk is certainly higher than it was before. So I think the reality is the risk has increased. I still think the risk is relatively low. I mean, we certainly don’t see anything in any of our plants. We acquired a plant that was union, which is something we claimed we would never do, but the right opportunity arose.

 

So we bit the bullet and had the same fears everybody has when they do that. Is it gonna spread? Are they gonna attack our other plants? And, you know, I think what people have seen is that interacting with management at our nonunion plants has actually been better for the employees than the ones where we inherited a union contract that we didn’t even negotiate. And, you know, there’s already been talk within that path we want to even be pursuing.

 

So I think it’s higher. I don’t want to belittle the fact that the culture and the country has shifted towards, this being a cooler thing to do when it really wasn’t in fashion for a while. You know, being predominantly in the southeast, I think culturally it’s less of a risk for us, but I certainly think it’s more geography by geography. There are going to be parts of the country that have a substantially higher risk of this happening. And I think you guys just have to be thoughtful and know if you’re in in that part of the world.

 

And if so, you know, everybody else had perfect suggestions on on what you do to try to avoid that and, you know, have a free relationship with how you interact with your employees. Yeah. Andy, I mean, you’re obviously in California, which is a heavily unionized state. And, probably there’s no, operator in the country that has, a higher number of unionized employees than than Emerald. But you’ve managed to navigate that.

 

Yeah. So we acquired so we were I’d say legacy Emerald was nonunion across the board. So about half of our plants are nonunion and then half of our plants are union through what we acquired with Angelica. We had the same concerns that Carl had shared. Is it going to spread?

 

How are employees gonna to take to it? And frankly, we haven’t really seen much by way of the unions being able to penetrate the other facilities and get organized. In fact, I think with, you know, with one of our facilities a couple of months ago, the employees voted down the union to deunionize because they’re not seeing the benefit that they’re getting from the union. What they see is a paycheck that has a number that goes to the union instead of going to them. And I think that at the end of the day, paying union dues, if that’s kind of the main target and the main goal, I’d rather give that to the employee.

 

The employee would rather receive it because at the end of the day, they’re not getting the benefit, you know, technically that you would get from a union and kind of what, you know, took place in the past. I think all of the things that the group talked about in terms of kind of do preemptive discussions and talk to the employees and communicate and make sure that they understand that they’re part of a, you know, a bigger group and a bigger thing just in general. I think that goes a long way. I think it also just comes down to the fundamentals of being, you know, and paying competitive wages and giving competitive compensation structures, you know, whether it’s the direct labor or anybody else. And, you know, we’re drivers.

 

And, you know, I think that we’ve had a level of success there. We’ll see how things play out. But, you know, look, it’s still a threat. There’s no question that at any point in time, they could get organized in one of the plants and one of our plants and say, hey, we’re going to go Union and, you know, jump on the bandwagon. But we haven’t given them a reason to do that.

 

And I don’t think that they’re really seeing the overall value that things are gonna meaningfully change. Well, one of the things, I mean, each of these businesses, each of these operators, each of these leaders are progressive in terms of understanding the environment in which you’re in, understanding the externalities that exist and preparing for them. I mean, you talked, Jason, about from a with a financial storm, you know, doing things now so that you’re prepared so you can stay on mission with how you run your business. You’ve heard that thread, you heard the thread around culture, you heard the thread about, you know, reinvesting in plant and, you know, taking some of the new facilities, Joe, that you guys have acquired and bringing them up to speed as opposed to deferring reinvestment. Whether the deferred investment is in your people, in your equipment, or in your in business in any way, particularly as we, you know, enter this next phase, there’s huge risks.

 

And so while the tone of the last hour has probably been somewhat you know, there’s been a certain amount of shade over it, I would I know having you know, knowing these guys, everybody here on the panel is optimistic about the industry, healthcare in general, our role as a non clinical support service and the potential going forward. So you know, any closing comments before we wrap things up? I think it’s really I’ve been in the industry a very long time. It’s a wonderful industry. I’m proud to work in it.

 

I know our people are proud to work in it. There’s just so many benefits that we provide to society, and and there’s so many environmental benefits. It’s a recycling industry, which is really wonderful. So I sleep very well at night. Thanks for having me on the panel.

 

Yeah. So I guess I’d go back to the question on culture. You know, and it’s just something that we launched as a company at the beginning of the year. But we decided to take a very pragmatic approach that if you wanna control, the destiny of of your culture and your company, you really have to treat it like any other business process, right? You got to put controls around it.

 

You have to have systems. So what we did at the beginning of the year is we took our 5 cultural values and distilled them as a senior management team into 21 fundamentals of our culture. I won’t claim to have come up with it. I stole it from Ritz Carlton, but they really had two themes. One is that most of your frontline employees don’t know how to connect these big lofty values that you tend to put on your value statement to their day to day job.

 

So you try to create these fundamentals that are more action oriented. And then the second thing you do is, just like anything else in life, between going to church or anything else, that you do to try to instill in your way of life, you create rituals around it. So we have an app that every one of our employees has access to. Every new hire actually gets a little pamphlet like this, when they start. It’s got our 21 fundamentals.

 

Every single meeting, that any of our employees go to during the week, they’re required at at least one of their team meetings to cover what the fundamental of the week is. Our senior leadership team writes a weekly insight about the fundamental of the week that gets distributed to the entire company. Since we launched it this year, we went through our first 21, and I personally wrote the first 21 myself. And now we’re cycling through our senior leadership team writing what does that value mean to them, what does that fundamental mean to them, perhaps giving an example. But this was our way of, you know, treating it like the same way we say, here’s how you feed a sheet into an ironer.

 

This is the template of how you become somebody that lives what we call the Novo way. So, just something that, you know, we launched this year that was a little bit, new. I haven’t heard a lot of other people doing it, but if anybody has questions, I’m happy to share. But it’s had a phenomenal success and impact on our company where we’ve had multiple cultures from different companies, come together over the past 7 years. Perfect.

 

Andy? Yeah. Just, quickly to TRS and and Randy, thanks a lot for having us up here and and having the opportunity to talk to all sparse, but, but we appreciate the time. I think, as as Randy kind of pointed, when we have these discussions and we have these panels, there’s, you know, always it’s always on what what are the problems and how do we solve the problem. So it kind of cast a little bit of a negative net around what’s going on.

 

I think, you know, I share, you know, the back end of the comment around, you know, we’re in a very, very good and strong industry. Healthcare is growing. It is going to continue to grow. And we have the ability to take advantage of that and really be part of that here as we move forward. So I think this is a great business.

 

I think that it’s a great industry and, you know, I’ve had automotive, I’ve had commercial vehicle, I’ve had a variety of different areas that I’ve participated in and end markets to participate in. This one’s really neat. It’s a really good opportunity for us that I think, again, we can take advantage of. So we’ve got to navigate some things, but you know, I think we’re well positioned here as we move forward. Randy, thank you for having us.

 

Sitting up here, I thought it was going to be like a firing squad. So I appreciate the smiles and the nods we were getting. My first T RSA event that’s truly that I’ve attended. I just wanted you know, I got to see some old friends. I haven’t seen Carl Phillips k 1 in, 20 plus years, and I haven’t seen k 2 since he was 12.

 

So, seeing some old friends and then making some new friends this week, I just had a terrific time. And, the passion of this industry and this group is is, alive and well. That’s very clear. So, really enjoyed the last couple of days and thank you all for that. Sure.

 

Thank thank you. And once again, thank you, Randy, and and TRSA for for inviting me to participate. You know, having been in healthcare 32 years, the more time I spend in the plant, the more of an appreciation I have for kind of the different type of healthcare services that we provide. You know, been in a lot of different sectors in health care, and and I often feel that, when we meet with supply chain or we meet with folks, from the hospital, they they don’t often have an appreciation for for what we do. So my message really is twofold.

 

So I would just say to my colleagues that are calling on hospitals, make sure that, you you stick to good fundamentals, quarterly business reviews, reselling what we do as often as you can because they will forget our value. The the second comment I wanted to make, and it goes back to spending time in the plant. And I I think there’s, for me personally, there’s there’s become a much bigger mission, and maybe it’s more of a a personal mission. It’s our ability in this room to impact our employees’ lives through good work. And, I’m really excited about some of the the things we’re doing from a training perspective and moving those people up, elevating people up within the plants to key management roles.

 

So that’s extra exciting for me, and it’s become kind of my mission to be able to change people’s lives, through through good through our good work. Well, listen. I wanna thank the panel. We’re at the top of the hour. We were gonna do a quick q and a, but we we we kind of we kind of used up the time but I do think you got some really good perspectives on the industry and what we do and where we’re going So let’s, let’s give it up for the panel here.

 

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