Q4 2021 Aramark Earnings Call
Yeah.
Yeah.
Good morning, and welcome to our March 4th quarter, and full year fiscal 'twenty 'twenty. One earnings results Conference call. My name is Paul and I will be your operator for today's call.
At this time I would like to inform you that this conference is 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 Philip <unk>, Vice President Investor Relations and corporate Affairs Mosquito. Please proceed.
Thank you and welcome to Aramark earnings Conference call and webcast I Hope all of you are doing well.
This morning, we will be hearing from our Chief Executive Officer, John Zillmer as well as our Chief Financial Officer, Tom Andre.
As a point of reference there are accompanying slides for this call that will be viewed through the webcast.
These specific slides collectively will be made available following our prepared remarks for easy access.
Additionally, 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 risk.
Uncertainties and important factors, including those discussed in the risk factors MD&A and other sections of our annual report on Form 10-K, and our other SEC filings.
We will be discussing certain non-GAAP financial measures a reconciliation of these items to U S. GAAP can be found in this morning's press release as well as our website.
So with that I will now turn the call over to John.
Thanks, Louise and good to be with all of you.
Today I'll provide a strategic overview of our fourth quarter performance recap our progress throughout fiscal 'twenty. One that included record levels of net new business and sharing the initial view of the year ahead that we expect will build on the strong foundation for growth we've experienced this year.
Our teams across the globe, we're committed to reaching for remarkable burst or for our stakeholders driven by service innovation and growth.
Over the course of the year, we executed on our strategic initiatives, despite the challenging and complex operating environment and.
The cultural transformation of the business.
Find with our renewed close partnerships with clients and suppliers.
Not only allowed us to navigate this unprecedented period, but also put us in a position to win and further increased performance levels across the business and every one of our segments. We have made great progress.
Among the highlights I'm most proud of this year, we meaningfully accelerated <unk> growth trajectory by adding seasoned senior leadership talent and making organizational changes that significantly bolstered our industry and line of business expertise.
Sales leadership in many key roles.
Best thing and growth oriented areas of the business.
By enhancing sales training and development programs.
By further aligning our compensation approach with Aramark strategic objectives, including net new business, which now represents 40% of the company's bonus incentive plans across the organization.
By strengthening client and supplier relationships.
In enhancing our operating infrastructure.
I'd like to take a moment to discuss our strong fiscal 'twenty, one net new business performance, which we attribute to the ownership mindset, we have been cultivating our ongoing focus on innovation and the scale of our platform.
Our annualized gross new business wins totaled nearly one point to $5 billion the highest in company history, representing seven 7% to pre Covid revenue.
This performance was broad based across segments with particularly strong contribution from the education facilities in other sectors with them.
S U S.
In higher education business, specifically, we added a record number of new clients that further strengthens the portfolio of our largest business.
Our new business wins extended across lines of business geographies and client size.
In the United States average annualized revenue for our new business wins with $3 $4 billion, emphasizing the breadth and depth of our ability to source clients large to small.
Our international segment continued to experience a broad based steady growth trajectory across all countries.
Specifically led by industries, such as mining education health care and P&I.
Uniform added to this performance is reflective of the investments we've made in growing this business our teams across the company are hard at work Onboarding. These new clients.
We continue to benefit from greater from greater first time outsourcing activity, representing approximately 40% of wins globally and nearly half of all wins within the U S segment derived from self op conversions.
Our strengthened talent and new capabilities provide further differentiation in the marketplace and reflects how well we've adapted to the new normal.
In fiscal 'twenty. One we also improved retention rates of 95, 5% 150 basis points better than our historical average we are targeting retention rates ultimately reached 97%.
Accordingly, the magnitude of new business wins combined with significantly improved retention rates a lot of allowed us to achieve record annualized net new business performance.
As examples of our progress the annualized revenue of our net new business was over $500 million five times higher than the average of the previous five years.
S. S. U S segment reported a notable improvement with record high net new business of nearly $300 million.
Blowing net negative met new results in three of the prior five years and his international increased net new business to approximately $150 million over 30% higher than its historical average.
Each segment reached important milestones by increase in retention rates more than 100 basis points led by uniforms with an improvement of 180 basis points.
Collectively this level of annualized net new business represents three 1% of our pre COVID-19 level of revenue.
Together with our typical base business growth typically 1% to 2% we were well on our way to our mid single digit growth goals.
I'd now like to review Aramark organic revenue performance by reportable segment in the fourth quarter than in total increased 37% year over year and reached 87% of pre COVID-19 levels.
S. S. S U S reported and the organic revenue increase of 58% compared to the fourth quarter last year as we implemented many of our newly created programs across sectors.
We welcome students and educators back to in person learning at the start of the school year in both K through 12 and higher education.
Fans largely returned with stick to stadiums at full capacity for major League baseball and the National Football League season is underway.
Our leisure business benefited from ongoing activity of National parks.
Corrections had already returned to pre COVID-19 levels.
B and I clients began to implement greater in person returned to work activity.
At a measured pace at Aramark, we're fully back in our offices here in Philadelphia as of October 18th.
Facilities continued serving clients with in demand services, ensuring locations were ready and save for increased enforcement activity.
In health care gradually improved patient care began to normalize with a higher level of voluntary procedures routine medical appointments and hospital dissertation.
International organic revenue grew 21% year over year, driven by stronger performance in Canada and Europe.
Sports and entertainment and education in our international geographies reported improved business activity with the pace of reopening behind the U S.
Organic revenue in the uniform segment grew 5% in the quarter, driven by rentals and adjacency services with hospitality clients experiencing increased levels of activity.
Areas of focus in uniforms include higher growth rates in recurring business customer and route density optimization merchandise management and enhanced back office utilization.
As you saw from our announcement a few weeks ago. We're extremely excited to have him Scott joined as President and CEO of Aramark uniform services I am confident that Kim's leadership and extensive commercial experience positions her well to accelerate profitable growth in this segment, while simultaneously enhancing our employee and customer experiences.
I look forward to Kim's meaningful contributions to the business as a member of our executive leadership team reporting to me.
I also want to take this opportunity to thank red Robin for his many years of service as he retires from Aramark.
Now I'd like to provide some perspective on a few relevant water topics important to our business that had been top of mind and capturing the headlines for what seems like months, namely navigating a dynamic global supply chain and tight labor market.
While we have seen supply chain disruptions in the foodservice industry, our scale proactive management deep bench of suppliers and menu flexibility has helped us mitigate much of this for our clients.
Our overall focus remains on leveraging spend optimizing supplier relationships and assuring availability of in demand products and honoring our commitments to sustainability and local diverse suppliers all of which will position us to continue to effectively weather the storm.
We are also actively monitoring the markets for inflationary pressures and buying opportunities relying on our use of fixed contract contract pricing and the ability to pass on market driven pricing to moderate any near term impact on the business.
We are currently in active deployment of our new fueled ordering technology for our managed services business, which will streamline our operators buying activities and ensure alignment with optimized supply chain programs.
On the labor side, we continue to effectively adapt to the environment.
Been implementing strategies to mitigate labor costs led by disciplined scheduling protocols inefficient resource management aligned with demand as well as leveraging technology in this area.
We're also able to benefit from our scale by you lose utilizing our flexible operating model full employee base and leveraging client locations in adjacent geographies.
Additionally, I'm pleased to announce that we've taken a big step in our goal of reducing our environmental impact and carbon footprint by committing to establish a definitive target for our greenhouse gas emissions.
When we finalize our goal it would be a science based targets submitted through the science based target initiative or S. E. T. I as you likely know S. E T I as a joint effort between the UN Global compact the World Wildlife Federation and other international environmental auditing groups.
Important news for Aramark, as we deepened our commitment to transparency and our environmental stewardship.
I would also like to take this opportunity to commend the community service and passion exhibited by the Aramark teams globally are most recent building commuter today community day.
Instead of thousands of team members, leaving nearly 80 virtual and in person projects, taking place in six different countries IMAX.
I'm extremely proud of our commitment to making a positive impact on people and planet.
And now Tom will provide a detailed financial review of the business.
Tom.
Okay.
Thanks, Carolyn and thank you everyone for joining us today.
Over the next few minutes I will discuss our financial results in the quarter.
<unk> detailed insight into the business as we frame the ongoing recovery.
And share our outlook as we enter fiscal 'twenty two.
In the fourth quarter and really since the start of toby's impact on the business.
We've continued to control what we can control.
Whether that was effectively leveraging our variable cost based operating model at the outset of the pandemic.
Implementing disciplined strategies to strengthen our balance sheet.
Taking action to invest and transform the culture of the organization. We are extremely proud of the progress we've made in <unk>.
Recognize that this is just the beginning.
Our performance in the quarter reflected our team's focus and resolve.
<unk> operating income was $165 million, resulting in a constant currency Oi margin of four 8% improve.
Improving 120 basis points from the third quarter.
Improved profitability was driven by strong unit based cost management and the ability to leverage above unit operating cost and SG&A across higher sales volumes.
These drivers resulted in an adjusted EPS that was 21 cents compared to an adjusted loss per share of 35 cents in the fourth quarter last year.
We also took action over the course of the year to manage our balance sheet, resulting in interest expense savings of over $10 million versus fourth quarter fiscal 'twenty one.
Which also contributed to the adjusted EPS improvement improvement.
In fiscal 'twenty, one the company delivered $480 million a year over year improvement in net cash provided by operating activities.
Strong result was achieved through improved unit profitability.
Other than expected working capital management.
As well as from federal tax refunds and deferred payroll taxes related to the cares Act.
Note that we continue to participate in the appropriate country specific government assistant programs from which we received approximately $159 million in labor credits.
Mentioned previously throughout the year.
The improved net cash provided by operating activities combined with the measured use of cap capital expenditures helped the company generate $282 million in free cash flow.
Better than our previously stated outlook.
At year end, we maintain strong liquidity with over $2 billion in cash availability.
Now, let me briefly review our GAAP results.
In the fourth quarter consolidated revenue was $3 6 billion operating income was 132 million and diluted earnings per share was 14th.
These results included $86 million in revenue from next level hospitality.
Continues to be excluded from our organic revenue metric until we lap the acquisition in the third quarter of fiscal 'twenty two.
As John mentioned, we are encouraged by the rebounding based revenues with organic revenue, reaching 87% of pre COVID-19 levels in the fourth quarter slightly better than anticipated due to the acceleration of new account openings and higher than expected pricing pass through.
The performance in the quarter was driven about many areas of the business that have already approached or exceeded pre COVID-19 organic revenue levels.
The result of the initial contributions from fiscal 'twenty, one net new business.
Rising and base volume recovery.
In other selected areas, we are seeing some revenue streams within our portfolio continued to be impacted by COVID-19, such as retail and catering in the U S higher education and healthcare sectors.
Conferencing convention centers concerts, and certain events in U S sports leisure and <unk>.
Correction sector.
Higher education in Canada, and Continental Europe.
Sports and entertainment in Continental Europe as.
As well as hospitality clients and Canadian operations in our uniform segment.
In addition.
<unk> would be and I, both in the U S and international have had a longer recovery as companies have delayed their return full return to the office.
Collectively we anticipate these revenue streams that we are grouped into a Covid index will show continued improvement in fiscal 'twenty two.
As you can see on the slide the <unk>.
Non COVID-19 impacted areas of certain sectors, particularly within facilities and other health care and education.
Well as the uniform segment are operating at or above pre COVID-19 revenue levels.
Finally, let me share our fiscal 'twenty two outlook.
Based on our current expectations for fiscal 'twenty, two we projected following full year performance.
Organic revenue growth between 23, and 27% over prior year with revenue expected to approach pre COVID-19 levels by year end.
The revenue outlook reflects a continued impact from COVID-19 in fiscal 'twenty two of approximately one six to $1 9 billion or 10% to 12% or pre COVID-19 revenue.
Partially offset by net new business wins and pricing pass through.
Adjusted operating income margin in a range of five to five 5% with the second half of the year, reaching six to six of the house.
ALR margin outlook considers the $1 6 billion to $1 9 billion revenue impact of COVID-19.
In many cases the company has brought back operating and above unit costs in advance of full revenue recovery.
Covid impacted volumes recovery, we expect this transitional impact on Oi margin to one line, allowing us to leverage the existing cost in the business.
<unk> get an incremental margin on the remaining COVID-19 volume recovery of 15% to 20%.
Oh, why margins will be temporarily affected by the startup of new accounts, which typically have lower margins in the first year of operation with an acceleration thereafter.
Yeah.
The magnitude of new account startups in fiscal 'twenty, two is growing meaningful meaningfully following recent new business wins.
As we continued to deliver on our net new results in future years, those startup costs will be absorbed by the accelerating margin cadence of new client wins from prior years.
At the moment net new business is translating to approximately 10 to 15 basis point headwind on fiscal 'twenty two margins.
Lastly, with global supply chain shortages that we're all managing through.
We have been providing exceptional solutions for our clients to meet their needs.
Some cases this has resulted in utilizing secondary suppliers where are negotiated pricing is not always as favorable as with our preferred partners.
While we are diligently managing this dynamic period. These off programs supply chain actions have resulted in what we believe is a temporary cost increase in certain areas of the business.
We work with clients to help.
And our innovative we address.
Through pricing supply chain initiatives and operating efficiencies, we expect to offset inflation.
Free cash flow between 300 million at $400 million, which includes the upcoming December repayment of approximately 65 million of deferred payroll taxes associated with the cares Act.
And annualized net new business in a range of $550 million to $650 million, which would represent three 5% to 4%.
At 4% of pre Covid revenue and an increase relative to the record performance achieved in fiscal 'twenty one.
We had over $500 million of net new business or three 1% pre COVID-19 revenue.
Together with a typical price volume base business growth of 1% to 2% and is currently shrouded by the impact of Covid.
As John mentioned, we're well on our way to a mid single digit growth goal.
Ultimately, we expect to achieve mid single digit organic revenue growth with ongoing margin progression that reaches pre COVID-19 levels and beyond.
We look forward to sharing more on our operational and financial framework that we expect to deliver new levels of performance success in her remarks upcoming analyst day in a few weeks.
Thanks for your time this morning John.
Thank you Tom.
'twenty two is just underway with new client wins already occurring as well as a robust pipeline of opportunity ahead.
We're confident in our ability to build upon the momentum that we are that we're creating.
Finally for those who would be able to participate in our analyst day next month, Tom myself and the rest of the leadership team look forward to our time together.
Thank you everyone and operator, we'll now open the call for questions.
Thank you Sir we will now begin the question and answer session. If you have a question. Please press Star then one on you touched on phone if you wish to be removed from the queue. Please press the pound sign or the husky.
We're using a speakerphone you may need to pick up the handset first before pressing the numbers.
To accommodate participants in the question queue. Please limit yourself to one question and one follow up.
Kevin Mcveigh.
From credit Suisse is online with a question.
Great. Thanks, so much and congratulations on the results and really on the.
I I outcome as well I think just that recognition really underscores some of the incremental disclosures you folks have been able to demonstrate since you've transition Dan so congrats on that E genre.
You know just really exceptional new business bookings could we maybe talk about that a little bit how much of it was competitive takeaways or new logos and.
Any thoughts as to.
You know just post Covid is there a structurally higher level of outsourcing neat you're starting to see as a result of just the increased challenges of kind of maybe you know folks that had been maintaining facilities internally just wanted to start there because just really exceptional numbers around that.
Yeah, well, thank you very much.
Yes, absolutely we are seeing an increased level of outsourcing.
That 50% of the wins in the United States came from self op conversion and and globally over 40%, where some self op conversions first time outsourcing about so.
That is a significant tick up over the over the historical average.
You know I would say that the marketplace is still very competitive.
We are working very hard and in every sales situations to not only retain our existing customers, but to sell our competitors' customers when they come to market.
So it was really the industry hasn't changed but there is an accelerated level of outsourcing activity that I think all of the organizations who will benefit from.
And I think it bodes well for the next certainly the next 12 months and possibly well beyond we're seeing our customers both in our traditional marketplaces as well as some non traditional opportunities.
To us to consider yes. So we're excited about our prospects, but all in all we're just really excited about all of the businesses.
Results, they've been able to achieve.
You know really reenergizing the growth culture of the company.
And really installing leadership that understands the lines of business and really are focused on that that growth narrative. If you will and I think the other significant impact item for us beyond what's happening in the marketplace. It's just the focus of the cultural change and the compensation change, which drives behavior as well. So we're excited about the <unk>.
We expect.
<unk> performance improvement.
And we're going to continue to incent people to make that happen.
And just a quick follow up because I think the cultures. So critical to Aramark just any thoughts on that because you know in addition to the wins, you're really seeing a dramatic improvement in retention.
Just whats driving that and if I heard you right I think 40% of bonus is tied to new business is that right.
And then what's that been historically.
That is correct and historically it hasn't been a component of the senior leadership bonus element. It's been it was focused on EPS and margin growth in the past.
Or EBIT or EBITDA.
And so the board and the management team recommended making this change last year and the results have been dramatic and we intend to include this in our bonus.
Bonus program is going forward.
I would say the cultural transformation has been fantastic and what we've really done is we've reinvigorated both the hospitality culture and the growth culture, we've put people into positions that they know and understand and they're committed to businesses that they love they grew up in with customer relationships there.
Our long standing and that's and that's driving the business improvement as well.
We're we're excited we think we're at the we're in the first inning or the second inning. We've had great results. This year, but we have very strong expectations moving forward.
Hey, Kevin at this time I'd like to just clarify 1.2, I think you meant this but just to make sure.
The bonus the 40% target is based on net new business, So human factors and retention, which I think is really focused people as well. So if you win $100 and you lose $100 that gets you nowhere on your bonus.
That's right that's very helpful.
Thanks again.
Thanks, Kevin.
Yeah.
Neil Tyler from Redburn is online with a question.
Yeah. Good morning, Thank you Keith.
Two questions. Please first of all in your outlook.
Guidance.
It seems that the operating leverage figures that you've offered.
0.2 around about 300 million daughter headwind at ally against the 2019.
19 base.
If I take the drop through that you've you've presented us with if that's correct.
Could you, perhaps tell him talk us through the other puts and takes and.
Does that get us to that maybe the midpoint of waste.
You're guiding to this year and then and then secondly, you mentioned the 10 to 15 basis point headwind on the margins of that new but on a sort of normalized gross margin basis and are you confident that the the new business you're winning them.
Is all of us are sustainably.
Higher margin done then that this big last thank you.
Yeah, I'll start with the second piece.
With the new business that we're winning because it's fundamental to the to the the.
The algorithm if you will over the coming years.
We've got a very robust pro forma process.
The ground up regardless of the size of the contract and John mentioned the average contra.
Contract win this year it was about $3 $5 million, so that ranges from quite a bit smaller to bigger.
And there's a lot of bread and butter accounts in there that may not rise to the level and usually don't rise to the level of say, Jon and I review on it because the investment is very small.
And whatnot, so we need this rigorous process because all of these little wins.
Accumulate to a lot.
And so the operators.
Sales folks finance folks within each of the lines of business and countries.
<unk> worked through these pro forma together, it's not just the sales team or just the operators doing it.
It's reviewed it does progress up to change if there is a certain levels of capital investment or the annual revenues get get large so again very rigorous process to ensure that we're getting a return that were.
Getting a margin.
That will be up at least around the company average over time, the bigger of the accounts we've talked about the.
The longer ramp up.
And then obviously the cost plus versus P&L.
Dictates sort of that debt.
That margin progression over the life span of the contract so a long way of saying that we feel confident that debt.
This start up because we're coming off really a zero growth base as we start to get into years, two and three as this years and start to lap what we're gonna be winning going forward. This this headwind disappears.
And it starts to build on itself and so hopefully that'll make sense, but again feel good about the type of business we're winning.
And that would ultimately be margin enhancing.
For us as we can.
Go forward in.
In terms of the build schedule and what you referred to it it is roughly.
Covid.
Index headwind to think about right around $300 million.
But really trying to show on that the one schedule in the in the deck how.
How you would build back too.
Pre COVID-19 level margins and how that factors in to it based on what our current outlook is so if you take that 300.
And and added on top of this fiscal 'twenty two outlook.
Plus factor in some of the supply chain and new business headwinds, we're dealing with at the moment you you work yourself back to that high <unk>, 6%.
<unk> margin.
Just to show that we're progressing as we have in and Theres a lot of noise in the system, but that we're managing through it and ultimately we think back to and beyond those 19 margin levels.
Got it. Thank you very much that's very helpful.
I would just add one comment to not only to this question, but in general.
We have not as a result of our we have not changed our return expectations of our profit expectations in order to accelerate this growth recovery or this new account net new business wins are return requirements are still the same return on net assets. Our return on invested capital requirements are the same. So this is not.
A phenomenon born of dropping our price this is a phenomenon.
Performance.
It improved activity levels.
And frankly, great salesmanship.
Thank you very clear.
Yeah.
Toni Kaplan from Morgan Stanley is online with a question.
Thanks, so much.
I wanted to ask about the long term algorithm that you set out in the release.
Just how to think about the pieces.
Is it 3% new business, 2% price and he mentioned that.
New business weighs a little bit over 3% I think next year, a three and a half to four so just trying to gauge. What you think normal is long term for new business and and price and any other factors that we should be thinking about.
Yeah.
Yeah, I'll start that John if you want an opinion.
Can fall oriented.
Yeah, I think that that's sort of shaping it up we'll talk a little bit more about it in a few weeks at the analyst day.
But I think getting into that.
Four.
4% to 5% net growth.
And then pricing volume being on top of that we're really trying to deemphasize the pricing component because again when we talk about we're trying to bring value to our clients and to just pass through pricing that they can almost do on their own doesn't create a lot of value. So we want to drive this more through that healthy.
<unk>.
Strong new business strong retention.
And then just pass through pricing.
Rice appropriately and then ultimately try to drive some.
Air quotes same store sales.
On top of that so.
The key driver here is the net growth and we'd really like to get that up ultimately into that 4% to 5%.
Range.
Yeah, that's absolutely right and thanks for the question Tony.
Wanted to address the key driver in the growth narrative to be net new sort.
So improved retention.
Sales in that.
You know call it four to four five.
Per cent range potentially getting higher and some years since we have.
Great results.
And then some volume recovery as a result of enhanced marketing capabilities and enhanced programmatic support.
So building a base business volumes through increased participation. That's a component of it and then we see pricing really is.
Set to inflation to keep the margins moving upward as we're able to accelerate the growth because there's so much there's so much margin opportunity and so much leverage opportunity as we build scale.
Get that growth engine running but that's what we're really trying to focus the team on we'll get our cost recovery through pricing will mitigate costs.
True.
<unk> other kinds of initiatives.
What will really drive growth by selling new accounts, retaining our existing business and then growing volumes in our in our base business.
Great I wanted to ask my follow up on education.
It really surpassed at least our expectations in the courtyard you.
You mentioned the record new clients.
In higher Ed.
You know what is it.
From your perspective, and obviously you had a different expectation than we did but what is it.
Or were there more was there strength in more students coming back in person versus maybe what was expected or was it really the the new client wins.
That maybe was better than expected.
Yeah, I think it's a combination I think the students.
Students returning to campus was roughly on our estimates some up some down a little bit depending on the individual university or account.
So I think all in all that was relatively neutral, but we had a extremely good new account sales year.
And a great retention year as well so.
I think that was the key driver for higher Ed.
Terrific. Thank you.
Ian Zaffino from Oppenheimer is online with a question.
Hi, great.
First of all congratulations on the II Award.
Really impressive.
And also on the corner.
But on your question would be on the South option. Obviously, you saw a nice increase there I may sound like conversions can you maybe talk about the areas where you saw the most wins.
Maybe also waste at the least wins and you know if you can maybe bring those up where you would see an increase or an even greater increase.
I'll hop wins.
Okay.
Yeah, a couple of a couple of color points here first of all we had very broad based success across the enterprise so almost all businesses had.
The significant net new sales activity with the exception of a couple that were impacted by.
Significantly by Covid picked National Parks for example, the National Park service did not.
Have any bid processes over the course of the last call. It 24 months. So so that business did not have significant net new performance.
We would hope we're always bidding on new opportunities, but that business is essentially just operating its current.
And doing it and doing very effectively but so not a lot of growth coming from them.
But other businesses like facilities had fantastic sales years.
You can self op conversions of activity on the facility side, which is which was very encouraging and we continue to see increased demand from that business.
I said hiring higher Ed had record wins very strong performance in K through 12.
Good performance in N V and I, both domestically and internationally. So it was a very broad based.
A successful year from a new account sales activity and from a retention perspective. So we're very pleased about that this isn't one account that we sold in one business. That's driving this results it's very broad based.
Level of activity from all lines of business.
Okay. Thank you and then.
Follow up would be on the education side.
What do we need to see to basically get back to.
Pre COVID-19, you talked a little bit about like the retail and catering volumes were a little bit slower to recover is that a function of just students being back in a function of take rates.
Or any kind of types of restrictions or maybe just give us a little color there.
Yeah, I would say that that's really more of a function of.
The campus is changing their business model at least in the short term until they work through the full recovery so youre.
Youre seeing less.
Catering by administrations student activity pretty much normalized levels.
And the number of students enrollments are at pretty much normalized levels and meeting our expectation.
But the campus administrations are not having big meetings.
And big conferences, and those kinds of things. So that's that extraordinary catering are typically.
At significant revenue growth to us so I think that'll take a little bit longer to return.
And so I would say, it's that kind of a change.
Changed more than more than a gap in terms of student expectation Tom.
Tom I don't know if you have any other color you want to add to that.
No.
That covers it.
Okay.
DNI component of higher end sort of the way to think about it.
Oh, Yeah, you could you could characterize it that way.
Sure certainly.
Alright, Thank you very much.
Thank you.
Andy I know men framework from Jpmorgan is online with a question.
Hi, Hi, John I just wanted to.
Go through the client retention, a little bit, which you know obviously I'm not you know.
Not only did you have an extraordinary year at 95 five years ultimately targeting 97% over the medium term I really just wanted to talk about kind of the 95, five in and kind of going into fiscal 'twenty two.
Surely heard that some of the contracts that might've been up for competitive bid in the whole industry. So there's not air market as the whole foodservice industry. Just was really kind of pushed out I have a question from Covid and semi question.
Yes.
Do you see the same thing I have some delayed rfps.
Just kind of staying with the current vendor, which might make for the whole industry fiscal 'twenty two are harder to hold on to all the client retention gains in 'twenty one like in other words, maybe earmarks client retention has to recede before moving higher.
Yeah, No. That's a great question, but I think I would tell you that really 'twenty was the year that had significant activity levels depressed.
In 2020, one as a as a in terms of our fiscal year saw a pretty normal levels of activity across all the businesses again.
In 'twenty, there weren't any K 12 bids done but last year there were sick.
Accelerated because you've got the legislated.
Weighted requirement to go ahead and re bid.
So I think we saw a pretty normalized activity.
In our fiscal 'twenty, one from a from a rebid perspective part of a retention and we'll talk about this at the analyst day, but there were businesses that closed down there were universities are shut down there were businesses that shut down and just never and never came back so some of that gap between the what my etc.
Spectation is at 97% and 95 five is the fact that some of those businesses just shuttered.
But we count those are when we when they don't reopen we account for this loss. So there was a little bit of that impact and we'll get into that.
On December nine and make sure that we have a full disclosure on what that impact was in both 2020. One so it's very very clear to you but.
So I would expect.
21 was a normal year I think 2022 will be a normal year I think the only anomaly is that level of increased outsourcing activity.
It will drive further opportunities for us.
Great. Thanks, John.
Yeah.
Ashish Sabedra from RBC capital markets is online with a question.
Thanks for taking my question again, a strong momentum of new business win.
And pretty really strong because people couldn't get to new wind guidance as well John you mentioned robust pipeline and also you're just in response to the last question highlighted increased self op conversion opportunity I was just wondering as you think about the 22 new win expectation.
Is it still driven mostly by self up like 50% driven by solid pulp into others from a competitive and just wondering if you could provide incremental color on that front. Thanks.
Sure I would I would say we have an expectation of continued.
The first time outsourcing activity in 'twenty, two that will impact the total percentage.
You know I think we have an expectation that that phenomenon normalized we've always had about call it 35% of our wins coming from self op, so that gap with 15%.
You know year over year over the historical average is significant in 'twenty, one and we've taken very strong advantage of that.
Whether it's still maintains that level in 'twenty, two a hard hard to say.
But I my expectation is that we'll see continued significant impact from that self op conversion process across a range of the businesses.
So if it's 50, if it's call it 40% or 45.
You know I think that that's probably a good way to think about it.
And if it continues to accelerate we will.
Disclose that as it happens.
But we're very encouraged by the level of activity.
That's very helpful color and maybe just a quick question on uniform services as the volumes have come back close to the pre pandemic level and then with the new leadership in place.
Any incremental thoughts on strategic Optionality for that business. Thanks.
Sure.
I'm going to have to tell you I'm very excited about Kim Scott joining the company. She has an extraordinary background.
And as a commercial leader as a growth oriented leader and we're very.
Excited to have her join the team.
And I think she'll bring it.
New insights and fresh perspective to the business.
The team has done an extraordinary job over the course of the last couple of years really managing through Covid.
Covid spy.
Spite of the write off we took on five P. P.
The company has worked very aggressively to get the Aps implementation done to get the new business rates up into achieved record retention. So all in all I'm very happy with uniform performance and excited about Kim's new perspectives and leadership moving forward as we've said before we always maintain.
Strategic Optionality.
And the board will always be considering what's the appropriate next step.
But for right now we are focused on driving the performance of that business and we think we have a great leader to do that.
That's very helpful. Thanks and.
Once again on a strong quarter. Thanks. Thank you. Thank you very much.
James Ainley from Citi is online with a question.
Great Good morning, everybody.
Thanks for taking my question.
The question is you mentioned that one six to $1 $9 billion is.
Still revenues still impacted by Covid.
Could you could help us break down that revenue line in terms of industries.
When do you think ultimately that revenue might come back in and where do you see some risk and I guess kind of reflecting on comments from last time. We spoke you talked about delta having delayed some in person with turnkey outfits interested to hear kind of what what corporates are now saying about their plans.
Plans to return thank you.
Sure Tom and I are both take this you know I would say the single biggest factor really is trying to.
I'm trying to understand the pace of recovery I'm trying to model it and it's still it's still a little difficult companies are still taking a very measured approach to return to work strategies.
So we're.
While we're excited by the activity and the changes that are occurring.
We just it's very difficult for us to really model, how that's going to unfold, particularly on the P&I sector, both domestically and internationally as various countries are impacted by.
By either other waves of COVID-19 or by just a change in their their governmental programs. So.
I think we've done a I think a good job of trying to identify for the street, what the impact is potentially for the year, but again, we are estimating based on our best understanding what's happening in the business.
Multiple businesses are impacted Tom I think you probably have some color you can add with respect to how that's about 1.9.
<unk> breaks down.
Yeah, Yeah, we tried that John just referred to in the in the deck.
Tried to break that down a little bit and show you the components.
Showing first that there is some some core parts of each business that are back to or above 100% of pre COVID-19 levels. But then there are some other areas.
Some revenue streams that are are still relatively impacted or or significantly impacted at the moment.
The pace is I.
I guess is anybody's guess at this point, it's a smaller and smaller portion as we move along you know I would tell you as a bit of color there.
As you look back over this first half of fiscal 'twenty, two, particularly the first quarter, probably don't expect much movement there.
Nothing really new happening in this quarter versus first quarter versus fourth quarter just finished.
Matter of fact as sports goes indoors.
You know.
Could that we're not sure what that's going to do.
In that area so.
I don't see a great deal of movement in this in this bucket over the first half, but then as we talked about in the outlook, saying things returned to pre COVID-19 levels.
Or close to as we progress through the year and into the second half.
Okay. Thank you.
As a follow up could I maybe.
We also have a bit more color in sensitive.
The cost outlook, I mean, you talked about being able to pass on them.
Cost pressures in terms of price, but when you sort of look at the bucket.
<unk> laid out and see what kind of price increase do you think you need to pass on in the year ahead.
Well I.
I Hope I said, there's a little tongue in cheek, but I hope very little I mean.
Again, we drive our value through cost control for our clients and so it's a bit of a dance that we obviously need to recover our costs.
And our teams do a tremendous job of that.
But we also need to provide value for our clients. So.
It's a case by case much base as much as it was in the early days of Covid, where were negotiating contracts. So the teams are out there.
Diligently working.
You know in some cases theres a bit of a delay in pricing such as higher Ed Theyre fixed for the semester, obviously and then they it.
They negotiate for the new semester, others, it's instantaneous it's contract driven.
The changes can happen instantaneously, but but always we're looking to provide you know what can we do first before just passing that belong to the client.
Yeah.
Yeah, I would just add that while we still have the contractual rent to do that we think it's imperative that we use all the levers we have under our control because ultimately that's what helps the client derive value from us as an operator.
See higher value, if we're able to really deliver to them beyond their expectations.
But there comes a time when you have to use the lever.
And we've got systems in place an infrastructure in place that really assist our frontline managers with understanding what the cost implications are going to be for them and they're very specific location, because it's different by geography different type business unit base.
Based on the products that they use them.
And the mix of menu offerings. So we've got systems in place and process in place that really help them make their individual decisions and negotiations.
And we're very confident in our team's ability to go ahead and recover that.
And both inflationary cost pressures.
Okay perfect. Thank you.
Stephen Grambling from Goldman Sachs is online with a question.
Hi, Thanks, I may have missed this in the beginning but what are some of the expectations at the segment level as we think about organic growth and margin assumptions and then could you also for 2022 and can you also bridge us kind of from that sales and margins to free cash flow guidance as we think through some of the other line items, such as Capex contract investments cash tax.
And working capital.
Tom you got this one.
[laughter].
Yeah five segments Steven.
They haven't really gone into that level of detail. So.
Well I'll take a pass on that one provide the overall guidance.
We're getting as John said broadbrush.
Positive results across the piece.
Year to year.
It could vary a bit but.
We feel very good about.
The progress that each of the segments are making.
In the in their growth journey.
And expect good results from all three overtime.
In terms of bridging the cash flow.
We had a strong very strong quarter.
A strong year.
For cash flow you know he certainly was helped with.
It's you know about it.
Federal tax refunds are very strong working capital management and of course the underlying.
Operating results.
A bit higher if you look at it as a conversion or a percentage of NOI higher certainly than than we've done before because of a couple of those.
<unk>.
Cares Act items.
But we do expect as we get into next year.
The guidance to be back around that.
Sort of $45 50 per cent AOR conversion.
Which we historically have been too.
Personally and we will talk about it again in a few weeks of personally like to see that continue to push a little higher.
Capex I think you know pulling this back to the new business wins. This year I think the market remains very rational.
As John mentioned, we're not lowering our return expectations or.
Investing a lot more to win these contracts so I think proportionally.
I don't feel a lot of pressure on Capex, and therefore free cash flow.
So I think you know trying to get into that near 50%.
Conversion rates of free cash flow as you know is a realistic target horse.
And perhaps one follow up as a point of clarification on the 10% to 15% had when you cited for new contracts is that the full headwind from both going from call it zero to 3% net.
Net wins and and the impact of the ramp from new contracts or is it really just the headwind from you know kind of going from zero to 3% plus thanks, Yeah. It's it's it's really the headwind going from a standstill.
So as you heard at the zero to three portion because that's what I'm, saying and what once we start to lap it in a few years and we've got a consistent growth model knowing.
That that headwind dissipates.
Awesome. Thanks, so much.
Yes.
Andrew Wittmann from Baird is online with a question.
Yes, good morning, and thanks for taking my question guys first just thank you on the disclosure for the net new retention. The gross new wins. This is obviously really important indicators that I think many of US have wanted to see disclosed for a long time. So thank you for the transparency says a lot.
Just just based on that I thought we'd use the opportunity to ask a question as well.
And regarding the gross new wins.
Record heard that we heard record retention and that's all very positive.
The context and I'm looking for is is the one to four how does that compare you said record how much right.
Yeah.
Andrew did we lose you.
Hello.
I apologize.
Hello.
Goodbye everybody.
I'm sorry, we've had thank you my phone has been awful morning, the context that I was looking for was the.
The context I was looking for was that.
The five year average of new wins.
Has the one year of Covid impact that brings that went down so how much better was 21 on gross new wins than historical levels.
Oh, Yeah, Yeah, I think that was a fair number I mean, COVID-19 'twenty was impacted the five year average, but believe it or not they were they were.
There were years in the past five years, and certainly past eight that were lower than than than last year in 'twenty.
So I don't know that I would attribute a lot of that.
That five year average.
Just to Covid, helping out the costs. Okay in terms of the in terms of the jump from from the five year average to 'twenty one.
Okay. That's helpful. And then I was just wondering in terms of the impact of where Youre, winning your business education facilities seem like the kind of the areas where you've won the most can you just talk about how those margin profiles of those businesses compared to your overall fleet average as the business recovers more should we is this is this helpful to your average margins.
Or is it.
The other way.
Okay.
Yeah, I would I would say.
Yeah in general are helpful.
We don't like to talk about margins in the individual components of the business because of the competitive nature of the marketplace. So I don't want it to be disclosing my individual line of business margins.
But I would say in general helpful. Both businesses operate.
You know above the company average okay. Thank you very much.
Richard Clarke from Bernstein is online with a question.
Hi, good morning, Thanks for taking my questions.
The first one.
It's been a mantra in the industry of margins recovering ahead of volumes and if I try and kind of on pick your guidance for next year are you expecting that we'll still be seeing a material COVID-19 impact as we exit 2022 or are you because of this acceleration in new business wins would you step away from that.
Your margins were a copper ahead of volumes.
Okay.
Ah well.
Well Richard it becomes.
Slightly complicated one and we talked about this a year ago.
You assumed that the the new 16 billion, which was our pre COVID-19 level.
It was exactly the same as the new 16 billion.
I think we would recover so we sort of continue to stand by that statement.
Unfortunately or fortunately.
And actually we think it's very fortunate that the what the composition of the new 16 billion, which includes some pricing which includes material now new bids that new business.
Provides a headwind on the.
On the margin.
And to the previous question as we sort of go from no growth to growth.
You've got a sort of pull it apart and that's what we again, we tried to show on the slide to say.
If we theoretically just brought back.
The same revenues they recovered we would recover too.
Our higher than 19 margin, but now you're able to do all of this new.
And in the short run margin dilutive revenue, that's going to bring us back up to 16 in a different way.
Then getting to that back to that margin is going to be much more of a chore by 16, but ultimately that is all good news for the long run because I'd, rather have great net growth than just a pure recovery.
From a margin standpoint.
Okay that makes sense.
Yeah, and I would just add as the volume recovery takes place. So as those accounts that are still below the COVID-19 levels pre COVID-19 levels as they recover.
We'll recover a generally a higher rate of margins based on the leverage in the business and based on the actions. The company has taken so if you if you.
If you build the recover the recovery volume on top of what we've been able to achieve from a net growth perspective, we should be operating at a higher margin as we exit.
Okay.
And then maybe just a follow up I think this was a question that someone tried to answer earlier than they got cut off but the 1.24 billion of gross wins you've highlighted.
'twenty one is that number itself impacted by Covid or if he was kind of reverse that out and is that number actually $1 5 billion on fully normalized revenue was actually better than what you're presenting in those lines.
No we tried to normalize it so the one to four is a.
Normalized number against again against a normalized pre COVID-19 comparison, so when we talk about it being if you do the math.
That's all I had just a number on a number that to the one to four on the pre Covid revenue is that that three 1%.
On that base. So we tried to make it a comparative.
Number.
Pre Covid post COVID-19.
Okay. So there's actually a smaller number today, but that's what it will be when its way back to fully recovered volumes.
No that's well.
Is that correct, Tom or is that the pro forma or is that the pro forma.
Okay.
Both both.
<unk> denominator exclude COVID-19.
Okay. Thank you.
Both normalized numbers.
Okay. Thank you very much.
Similar Rosenbaum from Stifel is online with a question.
Hi, it's Adam on for Shaun.
Could you talk about how the company is tracking in terms of the routing technology rollout for the uniform Division.
Sure Shlomo I'm, sorry, I had a trouble quite understanding the question.
Yeah, how is the company tracking in terms of the routing technology rollout for the uniform Division.
Terrific. Thank you that was something that was much easier to here.
Yeah, it's going very well.
The ABS implementation as we've talked about.
Over the last several quarters.
Running.
We're right at right around 80% of revenues covered and expect to be completed with the implementation and the rollout.
I call it.
Second quarter of our of our calendar I'm, sorry of our fiscal year so call.
Call. It January February March will be completed with the rollout again working through the optimization strategies. So.
The team has been able to do a terrific job of getting that implementation done.
During during the Covid environment, and we're very pleased by the progress and fully expect it to be wrapped up as planned.
Okay.
Yes.
Yeah.
And your last question is from Hamzah, Missouri.
With Jefferies.
Good morning. Thank you most of my questions answered I just had one question.
Could you just remind us on how big your GPO business is today and the skills you have sort of relative to competitors and end and whether that's a focus.
Going forward as well thank you.
Yeah.
Yes.
Yes. It is a focus going forward we continue to.
Continue to work very aggressively to grow both.
Through new customer acquisition as well as a new client representations, if you will as well as looking for bolt on.
Potential acquisitions in that space and so we've done a number of small bolt ons over the course of the last few years.
So in terms of total purchase spend I don't know have we disclosed that number before Tom I'm not certain.
We have not.
Yeah.
I would yeah I would say you.
Combined the combined scale of the two purchasing organizations between.
Ventura and the supply chain organization from Aramark, We've got you now.
Very adequate scale to compete with our.
With the large other G P o's out there and we're really focused on growing that purchase spend and leveraging it.
We've had actually very strong results over the course of the last.
Quarter as a result of the improving hospitality trends taking place.
Travel trends taking place to work, we're very encouraged by that business and continue to be focused on it.
Very good thank you.
Thanks Hamzah.
With that I will now turn the call back over to Mr zoom or for closing remarks.
Okay terrific again, thank everybody for joining us this morning.
Excited about the future of the organization about the achievements of the company has been able to make.
In the last 12 months during a very difficult environment and we are excited.
As for the future of Aramark I'd like to say, thank you to all the associates and employees of Aramark around the world who've done such great work for our clients and our customers.
And looking forward to seeing them all in the field as we all recover and get back to normal life. Thank you very much.
Thank you for participating this concludes today's conference you may now disconnect.
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