Q1 2021 Aramark Earnings Call
Okay.
Yeah.
Good morning, and walks to Aramark 's first quarter 2021 earnings results Conference call. My name is Kevin and I'll be your operator for today's call. At this time I would like to inform you that the copies of the being recorded for rebroadcast and that all participants are in a listen only mode. We will open the conference call for questions at the conclusion of the Companys remarks.
I will now turn the call over to at least yourself, Vice President Investor Relations and corporate Affairs Ms. Michelle. Please proceed.
Thank you and welcome to Aramark 's first quarter fiscal two 'twenty 'twenty, one earnings conference call and webcast.
I hope those listening are doing well. This morning, we will be hearing from our Chief Executive Officer, John Zillmer as well as our Chief Financial Officer, Tom on dress.
As a reminder, our notice regarding forward looking statements is included in our press release this morning, which can be found on our website.
During this call we will be making comments that are forward looking.
Actual results may differ materially from those expressed or implied as a result of various risks uncertainties and important factors, including those discussed and the risk factors M. DNA and other sections of our annual report on form 10-K, and our other S.
The SEC filings.
Additionally, we will be discussing certain non-GAAP financial measures.
Reconciliation of these items to U S. GAAP can be found in this morning's press release as well and it's on our website. So with that I will now turn the call over to John.
Thank you police and Hello, everyone.
The first I would like to wish all of you of bright year ahead and that includes good health and a return to a more conventional way of life for all of us.
As we progressed through the new year I'm exceptionally encouraged by the resiliency of our business from <unk>.
And at that period as well as the considerable opportunities emerging for Aramark.
This morning, I'll highlight our first quarter performance provide insight into our immediate expectations for the business and share our progress and the aramark the accelerated growth strategies, we remain committed to unlocking significant value for our stakeholders and.
Importantly, we continue to promote and ownership mentality within the organization, having just approved and employee stock purchase program that provides employees and opportunity to participate more broadly as owners of the business. We believe this action will further align our people values and performance.
Turning now to the first quarter revenue was in line with expectations that we articulated in the last quarter's earnings call and subsequent disclosures with organic revenue down 36% year over year and stuff.
With the fourth quarter of fiscal 'twenty organic revenue levels.
These results reflect at various stages of client reopening as well as the expected timing shift within higher education as the majority of schools. We serve intentionally concluded the first quarter early to preserve the ongoing ability to keep the food safely.
Safely on campus.
Our teams across the business demonstrated unwavering resolve by effectively managing and maintaining extraordinary cost discipline and that resulted in and an NOI drop the rate of 20% at the low end of our stated expectations.
This dedication contributed to a free cash flow improvement of $225 million compared to the prior year period, while reflecting seasonal outflows in the quarter.
And we maintained ample cash availability was approximately $2 $4 billion at quarter end.
As we commenced the new fiscal year of our performance demonstrated continued stability across all business segments as we navigated the effects of COVID-19, while simultaneously working with clients and preparing for our business free emergence.
U S food and facilities reported and.
And organic revenue level in line with the preceding quarter and each business sector and managed various stages of client activations.
We added prominent new clients for our U S portfolio, including most recently, Florida State University as well as drove improved retention levels.
Education sort of clients operating both in person and hybrid learning model.
As noted earlier higher education reflected shortens the master schedule. So it also resulted in reduced catering and retail activity. The typically spiked during the holiday season.
The second semester is currently underway, we continue to serve approximately 90% of client locations and some manner with our clients experiencing a higher student population of on campus than than during the fall from aspirin.
And K through 12 of the team did a tremendous job navigating the changing client operating models and <unk> designing menus and customized services to meet the needs of immunities.
And whether the student and and classes and person rejoined virtually while participating wall participating and our curbside pickup as.
As we continue to offer the universal and government sponsored meal programs.
Approximately 70% of the districts. We serve are in a hybrid setting with many districts and the process of resuming increased and learning.
The promising progress gives us considerable optimism for the business.
Sports leisure and corrections improved slightly quarter over quarter as we entered the new fiscal year.
Sports and entertainment began to activate of certain NFL teams introduced fans at of limited capacity based on local regulation.
And the NBA and NHL and are implementing various strategies per parcel attendance and the upcoming games lease.
Leisure and maintain steady performance of the team ramps up from the anticipated increased activity of National parks as we head into the spring season, Lastly, corrections remains stable.
We experienced the longer recovery and business and industry. We are developing innovative solutions to offer clients that go beyond the traditional office setting.
This includes the launch of Munch Mail, a few weeks ago and exclusive home and exclusive home delivery option that provides curated gourmet offerings at the P&I team has already fulfilled tens of thousands of client orders across the country.
The soldiers and other has essentially returned to historic levels largely from the significant success and offering additional project oriented services.
The facility's team is currently deploying educational and digital content to clients that provide new insights related to the innovations occurring within the business.
We are pursuing numerous cross selling opportunities in this area given the heightened demand for safety and hygiene.
Healthcare remained relatively stable and the team has worked tirelessly tirelessly to provide capabilities and telehealth and mobile ordering and addition to offering post meal post care of meal delivery to patient homes and extending the boundaries of aramark operating for clients.
International performance improvement quarter over quarter was driven by the team's ability to effectively leverage our expertise and managing complex and evolving government mandated restrictions specifically in Europe.
Our health care and extract of services businesses exhibited particular resolve runs with volume across the portfolio with trying to once again driving nearly double digit revenue growth.
The international team continued to win and broad based new business totaling over $100 million and the first quarter, while simultaneously delivering strong retention rates.
Uniformed services offerings remained in high demand and the team the team committed to implementing additional value enhancing strategies, including the expansion of our adjacency services the drove double digit year over year growth and this area.
And investments and grocery stores, which are already demonstrating productivity and sales conversions.
And the ongoing implementation of our ABS route accounting system integration and that provides significant scale and efficiencies, while offering enhanced service capabilities to clients.
And supply chain, we are progressing well with our priorities focused on value creation innovation culinary and collaboration and supplier development.
As we pursue this mission and we're ensuring that our operating teams of the right tools to simplify their efforts we.
We introduced the new system that will serve to improve spend visibility optimize adherence to the programs and uphold aramark and commitments to sustainability supplier diversity and local and regional suppliers.
This approach has proven exceedingly advantageous and represents a promising future opportunity as we strategically leverage our spend pools.
Lastly, as part of the remarks be well do well ESG commitment. We just released our sustainability impact report that highlights our efforts to further enable equity and well being of millions related to healthy eating initiatives employee resource capabilities diverse owned business partners.
And tuition and support for qualified frontline associates.
Our strategies are centered on sourcing responsibly and operating efficiently while mindful of our ongoing focus on margin progression.
Before turning it over to Tom I would like to highlight the recent election of Bridgette Heller the Aramark 's board of directors.
It is a highly respected business leader with 35 years of experience and food health and wellness and consumer care and extremely impressive track record of accelerating growth of several fortune 100 companies.
Simultaneously championing diversity and inclusion.
The rote for the opportunity to have Bridget joined the board and to leverage her extensive value creating experience.
I will now turn the call over to Tom for a detailed financial review of the book.
Thanks, John and good morning, everyone.
Before we begin I want to also commend our teams around the globe on the collective ability to rapidly adapt to the current environment.
And maintaining an unwavering commitment to safely serve our clients.
The focus and dedication and continue to be reflected and our strong operating and financial performance.
And as John mentioned, while our results remain impacted by COVID-19 the.
The first quarter materialized as we discussed on the last earnings call, including <unk>.
Stable sequential quarterly organic revenue performance across all segments.
The favorable <unk> drop through rate of 20% of corresponding revenue decline.
And continued effective cash flow management, resulting in an improvement in free cash flow of $225 million compared to the same quarter last year.
These results enabled us to maintain ample cash and availability of approximately $2 4 billion and at quarter end.
For the total company organic revenue was down 36% and the quarter compared to the prior year in.
In line with the preceding quarter and a considerable improvement since the trough early in the third quarter of last year.
U S food and facilities reported organic revenue decline of 45% versus the prior year similar to the fourth quarter.
All lines of business at stable revenue trends with the exception of higher Ed which was unfavorably affected by the early completion of the academic semester and nearly all of our operations.
<unk>, which benefited from higher frequency of services.
At for existing clients and increased demand from project work.
International organic revenue was down 29% compared to the prior year, which reflected a modest improvement compared to the fourth quarter of fiscal 'twenty.
The teams continued to effectively navigate the government imposed restrictions while also benefiting from the impact of delivering strong new business and retention rates.
Organic revenue and uniforms decreased 10% versus the prior year also of relatively consistent performance compared to the fourth quarter of fiscal 'twenty.
Growing demand and ancillary safety and hygiene services was offset by increased government imposed restrictions, particularly in Canada. The.
The investment and does it and additional growth resources throughout the quarter.
As well as improved sales productivity continues to establish the foundation for future growth within the segment.
The company reported adjusted operating loss of 9 million and the quarter. Once again, our operating teams effectively managed and unit product labor and other direct costs.
The appropriately serve clients based on their specific needs.
Caring for an anticipated increase in business activity.
The purposeful balanced led to a favorable a a lot of drop through rate of 20% and corresponding revenue decline.
Corporate expenses on an adjusted basis were up $7 5 million compared to the prior year primarily.
Primarily from higher equity based compensation expense put in place to reward and inspire of the organization to drive shareholder value creation.
Adjusted EPS was the loss of 31 cents and the first quarter.
Largely due to interest expense, including the relate that related to the $1 5 billion bond issuance last April.
On a GAAP basis, Aramark reported revenue of $2 7 billion from the operating loss of 20 million and the diluted loss per share of 32.
Now, let me turn to cash flow.
As is normal due to the seasonal cadence of the business specifically within higher Ed.
Free cash flow was the use of <unk> during the first quarter.
However, through disciplined cash flow management, the outflow of $180 million was $225 million better than prior year.
The strong focus on working capital improve cash flow for the $200 million, coupled with slightly lower cap capital expenditures and smaller accrued expense and deferred income the payments more than offset lower net income compared to the same quarter last year.
The company's strong cash flow and liquidity position provides the platform to advance our capital allocation priorities.
We will continue to invest and growth through the disciplined use of capital to facilitate new business wins and invest to drive results and existing client accounts.
Second we will continue to be opportunistic opportunistic with targeted and accretive tuck in acquisitions.
Third we will look to delever.
Previously announce we repaid $680 million on our U S revolving credit facility in October.
Later in the quarter, we repaid an additional $416 million on our U S revolver and receivables facility.
These proactive prepayments totaling $1 1 billion.
Are expected to result, and an interest expense savings of approximately $12 million over the remainder of the fiscal year.
And lastly, we remain committed to returning value to shareholders through the board's approval last week of our upcoming quarterly dividend of <unk> 11 per share payable on March 3rd for shareholders of record on March sorry on February 17th.
We continue to participate and the appropriate country specific government assistant programs.
Including benefits from the cares Act and the U S.
Through these global programs, we received approximately $38 million of labor credits and the first quarter to offset the cost we incur globally related to the retention of employees and for absorbing 100% of of the benefit cost associated with furloughed employees.
Under the cares Act, specifically, we had deferred remittance of federal payroll taxes as.
As well as approximately $6 million of income tax benefits from the quarter.
Related to NOL carry back modifications at.
We'll continue to pursue opportunities to optimize the available stimulus programs as appropriate.
Finally, I want to provide an update of our view of the remainder of the fiscal year appreciating the pace and exact timing of the recovery is evolving.
We will continue to leverage our resilient variable cost of operating model.
And while investing and the business with the growth oriented long term mindset.
Based on our current expectations, we anticipate.
Ganic revenue improvement over the course of the year with a modest improvement and business activity and the second quarter compared to the first quarter.
And adjusted operating income drops your rate of 18% to 22% and the second quarter at.
As a result of improved operating efficiencies, while continuing to invest and growth resources.
Caring for client re openings.
And margins are expected to sharply improve and the second half of the fiscal year as we transition from managing the drop through rate and <unk>.
Driving margin progression.
And free cash flow for the fiscal 2021 raise to neutral to positive $200 million.
Dependent on the pace of recovery and timing of underlying revenue growth.
Based on the delivery of strong cash flow management results and the first quarter.
Thanks for you. This time this morning, and now I'll turn the call back over to John.
Thank you Tom.
I am immensely grateful for our exceptional teams around the globe, who demonstrate and unwavering commitment to best serve our clients employees and communities, resulting and Aramark latest inclusion and unfortunately, most admired companies as well as being named the best place to work for LGBTQ equality by the human rights campaign.
We focus of our extraordinary future, we remain highly committed to executing transformative actions the best.
And that capitalize on Aero market expense the growth opportunities are.
Our belief and the Companys expense that has never been stronger.
Thank you for your time and operating operator, please open the call now for questions.
Thank you we will now begin the question and answer session. A few of the question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign at the hash key if you're using the speaker phone and you may need the pickup the handset before pressing any numbers in order to accommodate the participants and the question queue. Please limit yourself to one question and one follow up.
Our first question comes from Ian Zaffino with Oppenheimer.
Okay.
Thank you very much and good morning, everybody.
Great to hear from you guys.
Question with the on on the free cash flow you took it up if you took the range up.
And I'm, just trying to understand whats driving that.
You seem to be very confident.
The quarterly dividend as well.
What are you seeing that's giving you the confidence.
And maybe like how you think about the business and as Covid Wanes and then all of a follow up thanks.
Sure Tom and I can both address the first of all of them and we are extraordinarily confident and our management teams the ability to manage through.
The variations.
The effect of business due to COVID-19, we've been able to demonstrate very strong cash flow management results over the course of the last nine months. We believe our team is very well positioned to continue to do that.
And generally we believe the business improving.
And quarter to quarter, and we will through the balance of the year and <unk>.
Tom do you want to add some commentary.
Yes.
Yeah, I think it's just that I think where we are.
We're getting more comfortable with the environment, how our clients and.
Suppliers are working with us on receivables.
The receivables and payables and.
And certainly our teams are managing the inventory if you just talk about the core working capital management, so more and more comfortable as time goes on there, which gives us some confidence as well as the team's ability to manage capex.
Okay, Great and then can you guys just touch upon the bidding environment.
And what do you assume there.
And maybe versus last quarter, and then also maybe year over year.
And then also I know you guys have really been working hard on.
And with the customers one of our market is able to deliver and.
And almost like a new aramark is that sort of resonating with customers right now.
And what are you sort of hearing from them as far as feedback about that what you'd like to satisfy at the Congress.
Capital Wow, Okay. That's the good question.
First of all yes, and we think that the messaging is resonating very well with clients and customers.
Net aramark evolution, and our Recommitment talked about hospitality culture, and serving our clients and customers.
And it has been received very very well and.
From a cultural perspective, the people and this organization are extraordinarily committed.
Doing what's right for the business.
And I, just and are making.
ROIC efforts around the world really perfect customers and I think that's resulting in a significant improvement and retention rates.
And its being demonstrated also in our ability to sell new business around the world and have strong results throughout the.
Throughout the international sector and the last quarter in terms of new business growth were seeing strong results domestically with.
With respect of bidding activity.
We are seeing very strong pipelines and the business.
With significant additions.
Across the enterprise and we're also seeing significant self op conversion opportunities begin to appear.
Across the number of different businesses.
Some of which are would not historically have booked at the outsourcing as a way of serving their customers. So are we.
We see continued opportunity and the bidding sector of the business is or and the bidding of the business I would say that the companies and this.
And this industry have been very disciplined.
About the bid process, obviously, we're all very focused on operating our individual businesses and cost containment and cost management.
But we see significant opportunity for growth going forward and that's why we continue to invest and growth resources across the enterprise.
Alright, great. Thanks, so much of the color.
Our next question comes from Richard Clarke with Bernstein.
Hi, Good morning, Thanks for taking my question and just a question.
Tommy you hinted that from the second half you are going to stop talking about drop through rates and start talking about the margin recovery.
What signals that sort of change and language that change and mentality and I'm sure you're aware of that Youll European counterparts kind of dropped at the drop through language in this year and have already tie in to that kind of margin guidance profile anything we should think different about aramark. The best still seeing some drop three months may be compared to your <unk>.
Or a P and pace.
No I don't think Theres anything unique about it I think at.
And finally, a little easier to talk about the business and explained the business and manage the business to a drop through rate is where.
Pre lapping.
Covid.
And with the with the declines and as we as we flipped.
And the second half of the year.
It would be of a growth measurement.
And so I think it's just that natural evolution as you begin to lap.
At the end of March the debt that nomenclature will change.
So maybe just as a follow up to that then can we assume that sort of from the second half youll margin recovery becomes a little bit less volume dependent of will you still be dependent on the sort of volumes getting back from for margin to come back.
I think it's a bit of both the certainly the the margins help and.
Areas like uniforms, where it's got a bit more of the fixed cost base, but.
Certainly not completely dependent on the the volume recovery.
Okay, and frankly I think at.
The next question comes from Jay <unk> with Exane BNP Paribas.
Hi morning, everyone at <unk> from Exane.
Two questions from me. Please if thats the case firstly on this revenue to EBIT drop through and I hope.
And obviously, 18% 20% of or 22%. They are all significantly better than anyone would have assumed a year ago, but if I can be picky at the global competitor at like Sodexo.
And with calculates that Theyre actually talking about it broke true below 15% in their new.
Guidance and Thats, 15% is the level of you actually did acknowledge theoretically achievable in the past so.
The question is when you talk about investing and grocery sources is this something you could quantify in dollar terms and would it be fair to assume you're probably at a 15% drop through the.
And then you're making those investments into the business.
Yeah, I would I would say that debt.
And that's probably a relatively.
It's probably a good assumption.
I'm not going to specifically identify the dollars of the growth investments that come across.
A range of different businesses.
And for competitive reasons, I really don't want to disclose what I'm doing.
With respect to adding salespeople and sales resources, we've been very explicit about the number of people we've added.
And uniform purposes, we added 150 last year, we're adding an additional 100 this year.
On the uniform side, and that's making significant from making significant progress from the per sales productivity is ramping up pretty rapidly.
On the foodservice side, we continue to add resources throughout a number of the lines of business. If you will so we did guide Eric.
Early on that we believe if we were in a long term cost cutting environment, we could get drop through down to the 15% range.
But we've been very disciplined about doing what's right in terms of the long term health of the business.
We have not made of single cut to a growth part of the organization or the marketing organization.
We've been very disciplined about cost containment and cost management at all levels the company.
But we're still focused on accelerating growth and the future. So.
I would I would say.
And we're managing the business, we're controlling at very effectively we're focused on the priorities that we have.
For the business and there may be differences.
In terms of both mix and seasonality between us compass Sodexo that might drive some of that difference as well so.
But we think we're doing the right things for the business and we're and we're focused on our strategy and not theirs.
Super Thats very clear and actually my follow ups would of been on that specific cases of uniforms.
Actually so that sales push is still happening is there at dates at which you still can reflect and decide more clearly is the uniforms business can be significantly improves and the year.
Leadership with those investments or whether the phase two for a more open ended.
<unk>, yeah, well I've got the.
Net.
And that reflect and has already taken place I know that the business can you can significantly improve.
The we can improve both margin and growth rates and that business dramatically by taking the actions that we're taking.
And we see significant improvement as a result of the a b at implementation.
Transitioning the sales organization from one that was roughly one third the size of the spin cost.
The one that has a significantly greater and the level of resources.
And so yeah, we believe the business from strongly improve well is showing is beginning to show that improvement.
And.
So we're focused on that.
And on the effectively changing that organization and making it as competitive and as profitable as we possibly can.
Super Thank you very much.
<unk>.
Our next.
Western comes from Toni Kaplan from Morgan Stanley.
Just a question on the debt Paydown given it seems that you've weathered the storm pretty well to this point and cash flow is trending positive can you talk about the decision to still have so much cash on the balance sheet. Just looking forward now how are you thinking about the pacing and scale of pay down as the economy recovers.
Well, we're certainly looking at it and.
What we were prudent back in April.
And we'll continue to the prudent.
There's still uncertainty out there and as well.
All we all know that certainly the vaccine is starting to roll and theirs.
And there's other positive signs.
From a macro standpoint, but.
We've also seen things change fairly quickly and and we just don't want to get too far ahead of ourselves. So we're looking at at.
Couple of Prague.
Progress payments, so to speak last quarter and will continue to review that as we go.
Okay. That's helpful and then within the uniform can you talk about any success you've had integrating the the ABS routing system and the financial benefits Youre seeing when beginning to convert routes to the system and then can you just remind us of the timeline of when that should be fully implemented and any long term margin savings you think you can get from that.
Yes.
Great question first of all we are rapidly deploying ABS throughout the throughout the business. We anticipate that we'll have somewhere in the range of 75% of our revenues.
The covered by the end of this fiscal year.
And that we will finish the appointment.
And probably through the first quarter of next year, so that by January.
January of 2022 will have the the vast majority if not all of the revenues of the company operating under ABS.
Well, you've undertaken and undertaking this and Ah.
And obviously, a very difficult operating environment, but the team has done extraordinarily well we've got multiple teams doing implementations across the enterprise and as you are probably aware of there was there's certainly pre work and when we go ahead and do these versions and our existing facilities plus we're converting.
The.
And the former facilities at we're operating on a b at the <unk>.
New updated version and so theres multiple conversions taking place.
The in those locations, where we've transitioned to a be asked.
From our old route accounting system. The margin improvements are dramatic and the customer service improvements are dramatic and allows us to spend.
The spend much more time of their customers maintain and to have 100% customer visitation scheduled to have the field managing the business as opposed to having to manage the accounting.
Aspects of it and so they are significant.
And we're seeing progress across all of those operations. Both the results that were demonstrated during the pilot.
R R.
And we're seeing those.
And those results replicated as we move through the organization and we're very excited about the the long term margin enhancement potential of the.
Conversion and I think and the path we've talked about a couple of hundred basis points of margin improvement that we can articulate from the impact of avs.
Thank you. Our next question comes from Andrew Sternum and with Jpmorgan.
And wanted to talk about Tom your comment that you expect modest organic revenue growth improvement and the second quarter year over year fiscal quarter compared to the first quarter of the 36% decline I just wanted to make sure that I'm understanding that that point correctly and particular.
Are you thinking about those last two weeks of March of this of.
This quarter, which hit the easy comps and other words of your staying maybe mid <unk> debt 30 revenue declines organically from now until five weeks from now and then growth and the last two weeks of the quarter and.
And if that is the way youre lining things up could you just give us a sense of it.
Volume stay just where they are now how might that year over year of growth look at look like and that was kind of last two weeks as we enter that kind of new period of easy comps.
Yeah, Andrew it's really hard to.
Dissect two weeks in March and tell you exactly what I think at this point and time again because of things.
<unk> continued to be.
Positive, but the.
But the subject to change so.
And we thought we saw the first steps of modest improvement in January.
Merrily, as we said and our guidance and primarily in the U S.
So we remain hopeful and we'll stay very diligent on our costs.
Because.
A month doesn't necessarily make a trend, but but we're confident.
On January that the the modest improvement will be there and to your to your point, that's exactly how the mask of the work that will.
And.
The show.
We believe some improvement the.
First sort of two thirds of the quarter and then.
Should sort of show some growth rate at the end.
Right, but could you just give me a sense of if volume stayed the way. They are now the way. They are now not showing improvement and just mathematically when we got to that kind of last two weeks of March pay at what type of growth would we be entering.
And just not prepared to give that level of granularity at this point, Okay fair enough. Thank you very much.
The next question comes from James Ainley with Citi.
Yep.
Good afternoon, everybody and.
I'm interested in.
So what maybe some of your P&I clients of saying to you about their plans to get people back into the office and I'm thinking more particularly about how clients are planning the future office locations have they can stick of the space and you mentioned I think you said much mail can you expand maybe about how clients and plan to use the <unk>.
And that and whether Theyre thinking maybe about hybrid models, where you've got some people on the selling some people off site, but they.
Provide some kind of food service between those two groups.
Yeah, I would say at.
And there are still companies are still wrestling with what their eventual office situations, we're going to look like and particularly the pure white collar.
Kinds of locations.
And I would say that it's a range of here's the range of viewpoints. We have many customers who are basically saying, we're coming back we're committed to our space, we're committed to bringing our employees back together and.
And that's extraordinarily important for our culture and therefore, that's what we're going to do and we have some companies.
And we're evaluating.
Having a return to work strategies.
And include some return to the office and some work from home. So it's just the very broad range hard to say that theres any.
Trend yet in terms of what the impact might be for the business, but the good thing is our operating model and our and our service capabilities and flexible we can adapt at or whatever the client wants us to do for them whether that includes net.
Adjusted and our in office environment, or a combination of services capabilities to serve customers at home.
And and the Andean and office locations. So.
And we've had been busy designing solutions serves our customers' needs across that range of opportunities and have the flexibility to go ahead and do whatever they need us to do for them. So.
And we'll adapt I'm very confident of that but we have we have.
The large range of different kinds of customers.
But that really is at this point with really no definitive.
The model, if you will and the blue collar sector. Most of those companies are back to work and operating and location because they need to have employees on site and production capacities and alike.
So the.
The mixed environment, both white and blue collar operations.
Most of those operations are returning to work so it'll be a broad.
Spectrum I think of course, but.
Several months.
And that evolves and business starting that's the one business, where we think really have and much longer tailwind in terms of from a longer recovery period, if you will.
And to get that business back to normal levels, but.
It's still too early to say, how it will end up.
Thank you. Our next question comes from Manav Patnaik with Barclays.
Hi, This is actually at Greg on the line today I was hoping to just talk about the food services sales force retention.
I think you've talked about a couple of efforts around and play engaged and and senior management retention and all of that so just just hoping for some more color on efforts around engagement and and centralization on the on the sales force side for food services. Thanks.
Sure and with respect to engagement I think we've got of I think we have a terrific team of <unk>.
Sales leaders, we have and organization now that is very much committed to the growth focus of the enterprise.
And and centered on growth and so you have both the operating team as well as the sales team working very closely together.
To achieve the growth of objective companies from a very high level of engagement, we've redesigned incentive programs.
To address them.
The sales force.
The change commission structures and enhanced commission structures.
And in such a way to really allow them to earn very significant improvements and potential income.
And.
We were very I think theyre very excited about their prospects.
And we've got at a very good team, we're throwing at we're adding people throughout the business. We are adding resources. The almost all of the lines of business and so I think that's exciting for our for our organization to really be focused on growth being engaged R. R.
Entire team has incentives for growth built into their incentive compensation for this year, including the senior management of this company and so it's singular focus and one that's got the entire company engaged not just sales force.
Okay and.
And then I also wanted to quickly hit on delivery.
Delivery at seen done.
Almost all of the food services segment still at very at the Athene do you view that as sort of of transitory offering during this period or do you think that become more of a permanent part of the strategy going forward.
Yeah, I would I would say we're prepared we're prepared to whatever evolves with respect to delivery and whether that's on campus, whether that can be and I and locations or whether it's the patient.
And at home services.
We're prepared to go ahead and offer that service and have that capability designed and developed.
Yeah, and ready to be implemented where necessary so.
I think there are some parts of the business, where it will become permanent, particularly and patient delivery of meals.
And that inpatient and home at home support and it was very important for the health of them.
And.
<unk> of patients when they return from a hospital setting and that's an area that our hospital clients have really begun to focus on and and find the fine to be at a very effective service offerings.
I think it will have some more permanent implications can be and I and we will have solutions are developed and are we have solutions developed to go ahead and sort of that need.
And it will continue to try to take advantage of that marketplace and both the partnership ventures as well as direct offerings.
Thank you. Your next question comes from Shlomo Rosenbaum of Stifel.
Hi, Good morning, Thank you for taking my questions.
And I just wanted to talk a little bit on the uniforms business and you might have touched on this in and your comments from me maybe Tom did.
The uniforms gross seem to be kind of flat, maybe down a little bit more of I can think of as like eight 6% decline last quarter call at $9. Eight this quarter you didn't have to do with like the geographic.
The impact was there more of shutdowns and Canada or something like that and I'm, just trying to kind of contrast that with sort of the consistent.
Consistent growth and seen.
With you beforehand, and what I'm seeing and like the Cintas, where they they made more progress from the last quarter in terms of.
No year over year improvements and a sequential basis and up Theres the geographic difference over there.
Yeah, there and.
Thanks for the questions from others. There is really two differences and thank the geographic differences one obviously the restrictions and Canada have been very dramatic so that's impacted the Canadian results are much more.
And then the U S results and.
And that task of that is.
<unk> a factor also.
Geographically for us our concentration of business from the West Coast.
Reacted pretty significantly in December to the shutdowns from California, and then the business the mix across the enterprise and as you know we have a little bit more of a hospitality focused restaurant focused and so the shutdowns that affected our restaurant operators, where they were limited and.
And had the turbine limited capacity and then had to shut down during various time periods impacted us more.
Significantly then it would've and Pos and our other editors so I think it's primarily.
And shut down related and and.
Geographic mix related and more than anything else I think and our core business.
We're very comparable when we disaggregate the the business and look at all of our competitors, we think our year over year growth rates are very very similar with the exception to that with the exception of those geographic differences and the mix difference.
Okay great.
And then if you can.
The mind, just commenting a little bit more of it.
You talked about at through the year in terms of.
The company's debt had been kind of self service looking to more outsource.
And.
And the time period debt would take for that to kind of show up and the numbers are you seeing debt kind of snowball and in other words are you seeing more activity as time goes on in terms of companies looking to outsource more and.
If that is true do you think that that could potentially overtake the headwinds that we're seeing kind of in the b and ice sector.
It's really.
Taking a while for people to return to office, particularly and the white collar jobs.
Yeah.
Good question and I think yes, we are seeing an acceleration in that.
And that self op conversion.
The trend if you will.
And we are seeing some closures of new accounts are included and that's the Sacramento State University for example.
As the self op conversion that will be taking over that.
And that was.
<unk> and there are.
Several of the.
A lot more and the pipeline I hate to I can't I really identify them because from a competitive perspective I don't want to give my competitors any information about things that I may be working on.
But I would say generally the trend is accelerating and there are opportunities being presented to us across the range of business types.
And our healthcare.
Universities facilities.
Sports and entertainment conversions that are of very significant.
Thank you. Our next question comes from Stephen Grambling with Goldman Sachs.
And.
Hi, Thanks.
Can you just remind us of where retention rates are what is the ideal rate you'd be targeting and how the changes to incentives may also impact retention and addition to spur new contract wins.
Sure.
Great question. The first of all retention is running.
And at very high rates right now.
And.
The continued improvement across the enterprise and all of the business, we operate including uniform services.
Higher retention than our historic standards.
We're targeting ultimately of corporate goal of 90, 697% I would say at this point, we're operating at a level higher than that but of course, you know and our retention is.
A metric that only goes down but and today, we're operating at very high levels of retention, we've had very good results across the business.
And we're very excited about that.
We're also we did also include retention of key element of our incentive compensation programs for the operations team as well as sales pension specialists. So.
So yes, we are all very much focused on it we're seeing significant improvement and we expect.
And how to be able to deliver very good results from the and we want to hit at that long term target of call at 96% of 97% of corporate retention on the on an annualized space.
That's helpful and and one click quick clarification of the uniform segment based on your comments is it fair to assume that excluding the headwind from some of the government restrictions and Canada growth would've sequentially improved and should we generally assume that you would have a step function improvement. Once these are lifted or do you have to rebase and build.
Out of that lower base, because you'll lose some sales opportunities of demand permanently.
Yeah.
And.
I think you'll see an acceleration of growth once the restrictions of our limited are lifted we saw that as restrictions were eased during the summertime.
We were able to recapture of significant revenues and a very short.
At very quickly.
I would say there are there are elements of the business that have permanently shut down and there are customers of restaurants to name of small businesses that have closed as a result of COVID-19 that where our customers and so there will be some decremental.
Impact from that I can't really tell you what that number is per day.
But we anticipate that we will be able to sell our way through that one of the reasons that we continue to be very bullish about this business is the productivity that our new account sales managers are delivering.
Both the ancillary services like first aid.
Well as part of rental revenues. So we feel very good about our ability to to overcome any of the closed business kinds of impacts that we may face or competitors may space as a result of COVID-19.
Thank you. Our next question comes from Johanna with Bank of America.
Hey, guys. This is Jay on for Gary Bisbee today.
And just going back and some of the prior questions with regard debt increased flexibility and and new offerings and the.
Take care of the DNI customers of Yours, I mean, how do you expect cost to trend within a lot of the accounts as they begin to reopen and and you start to see some of these new services and new demands from these customers.
You know from a debt.
Great question, and I always say that our contract types of.
Essentially today are.
Allow us to pass along any of the cost of increase and those.
Increases and cost for providing those different kinds of services.
And definitely.
The development of alternative service models and approaches.
We will as those get implemented and impacts on a more permanent basis, those will be baked into our contract structures. So I don't anticipate any.
The margin implications per aramark.
And we may find that.
And that we actually have margin improvement potential as a result of these some of the secondary offerings that we're adding.
To that core contract so.
And on the cost will be variable and.
And we think we can manage through those to effectively deliver of service offering for our customers.
Okay, Great and then back to the uniform business for the customers that have stayed open and have you seen any sort of sustained reduction and the actual number of uniform wearers and the customer sites and you've seen that trend back.
Positive Lee or any.
Of the insight there would be appreciated.
Yeah, you know I haven't I haven't seen that level of granularity with respect to the data I would tell you that based on a if I look at base business versus the base business and extract the close of the count.
And it looks at me like the weekly revenues are holding.
And as they return and that the.
At the number of wears pretty consistent location of the location, particularly when you look at the Blue collar operations.
So, but but again I haven't done that level of analytics in terms of the the total debt so hard to really.
Hazard a guess if you will.
Yeah.
Thank you. Our next question comes from Hamzah <unk> with Jefferies.
Hi, This is the right talent filling in for Hamzah.
How much room do you guys have how much more room do you guys have can move toward management fee contracts from P&L and.
And it only little particular boat at the colt and.
What does that mix stand at today.
And it would make you revert back the P&L contract from the ship share.
Yeah, I would tell you that.
It's different by vertical obviously and the.
The P&I specter of those contracts are all management fee now very few P&L.
And that business. They were all renegotiated as part of our strategy with respect to responding to the changing needs of our customers during the during the original base pandemic.
And they would revert the P&L when populations and facilities are back to more normalized levels and make it part of <unk>.
Profit and loss of operation, where we're hopeful that we get to the point.
Where we will be converting them back from management fee the P&L.
And at some point and the future.
And in terms of our other contract types.
For our other verticals if you will.
And they have.
Different contract structures and.
And higher education, and those contracts had been.
A lot of buy and we're operating under memos of understanding or letters of understanding with our university customers of their impacted but I think throughout the organization.
We're committed to doing what's right for our clients and our customers.
Committed to doing the bright for our shareholders and so we'll manage through the contract change process and a very disciplined way to be able to meet everybody's needs.
In that respect we've been able to do that historically.
And we responded very rapidly during the during the initial days the pandemic to change contract structures and I anticipate we'll be able to evolve and adapt as.
And as we come out of this.
And don't expect any significant long term impact with respect to the overall margins of the company or the overall profitability of the company.
Got it. Thank you sort of my follow up how are you thinking about the sports book of business and anything you are hearing there now and.
From implications from the successful.
<unk> seen rollout.
Yeah, I think right now you've got both of the NHL and NBA working through crafting solutions for their arenas.
And obviously this is also something thats impacted by local jurisdictions and both political and the the health environment and local jurisdictions driving some of that decision making.
The major league baseball for US is of significant.
Contributor during the during the spring and summer months.
At the present time it looks like spring training is planned to start on time and it'll be roughly a one month of spring training and opening day somewhere around the first of April for teams and are and those teams are working with their local jurisdictions and the league to go ahead and develop.
Approaches.
Think of the fact, the NFL was able to.
To have a complete season without any missed games with fans in attendance outdoors.
Stadiums.
It gives us a lot of encouragement of major League baseball will find the solution that also.
The allows fans to be and stadiums and that has higher vaccination rates occur and and.
And spend and some of infection and hospitalization rates drop.
You'll see a and acceleration of the opportunity for fans B and.
Sports venues, so we anticipate.
That will have some recovery and the.
The third and fourth quarter coming through a major league baseball and sports and entertainment and we're excited about the prospect.
And to have our fans back and ballparks.
Thank you I'll now turn the call back over to Mr. Zillmer for closing remarks.
Again, thank you very much everybody for your time. This morning, we're extraordinarily excited about the prospects.
The company and frankly and just the.
The resilience of this business and the.
The efforts of.
The best management team and the industry and just an extraordinary bunch of people running this company and day to day people, who really dedicated their lives.
<unk> and urban customers are doing a terrific job and I just want to thank all of them for the work that they do and I'm. So proud to be leading this organization and to be a part.
Of a reborn aramark. So thank you very much everybody.
Thank you for participating this concludes today's conference you may now disconnect.