Q3 2022 Aramark Earnings Call

Okay.

Good morning, and welcome to Air Max third quarter 2022 earnings results Conference call My.

My name is Olivia and I'll 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 you.

Vice President of Investor Relations and corporate Affairs. Mr. <unk>. Please proceed.

Thank you and welcome to Aramark 's third quarter fiscal 2022 earnings conference call and webcast.

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 <unk>.

A reminder, our notice regarding forward looking statements.

In our press release this morning.

Can be found on our website during.

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 in the risk factors M DNA and other sections of our annual report.

On Form 10-K, and our other SEC filings.

Additionally, 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 on our website.

With that I will now turn the call over to John .

Thanks, Felicia and thanks to all of you for joining us as you know over the past couple of years, we've been focused on several actions to transform the company.

Including regarding the hospitality culture, and it's still a growth mindset, all while navigating through a major macroeconomic challenges.

Good morning, I will review our progress in those areas all of which had led to should have led to strong business performance in the quarter.

I'll also provide an update on the planned spin off of Aramark uniform services.

It is intended to be tax free to aramark and its stockholders.

Against the tough backdrop, I couldnt be more pleased with the team's delivery at the early stages of our strategic growth plan, which continues to drive momentum across our organization and create long term value for shareholders.

Our results in the third quarter reflected an acceleration of new business growth and effective cost management across the business.

We have reached a significant milestone with revenue now surpassing pre COVID-19 physical 19 levels across all segments.

Business and industry, which had been slower in its return demonstrated continued progress over the course of the quarter and we believe is well poised for ongoing recovery.

Net new business through the first three quarters has already surpassed last year's record breaking full year number and we expect to capitalize on a robust sales pipeline through the remainder of the year.

Positioning us well to achieve our waste net new business target this fiscal year and carrying that momentum into next year.

While global inflation trends remain elevated we are operating with a heightened focus to reduce the impact on the business.

As we have previously discussed we believe that we have extensive resources to efficiently manage this inflationary environment, including menu reengineering labor optimization and technology deployment among others.

The quarter also included 5% growth from pricing compared to the prior year as we work closely with clients to mitigate costs and navigate through this inflationary period.

Our supply chain team is providing real time insights for effective client pricing strategies tailored to specific clients sectors and geographies.

Each of the three business segments continue to gain momentum both on the top and bottom line, reflecting the hard work our teams have put into driving the business forward.

Within U S food and facilities organic revenue grew by 45% year over year with all lines of business contributing.

Education performed strongly through the end of the academic year, but our team is currently preparing for the new school season in both collegiate hospitality and student nutrition, our newly branded higher education and K through 12 businesses we have.

<unk> begun implementing enhanced pricing strategies for upcoming board plans and on campus retail outlets and higher education.

Sports leisure and corrections significantly improved compared to the prior year led by strong attendance levels Sports and entertainment drove increased per capita spending led by major League baseball as well as benefited from the return of a more robust concert schedule at our client venues.

Our destinations portfolio experienced a greater guest activity, particularly in the national parks and corrections. Once again performed above pre COVID-19 levels due to a draw a strong portfolio of new business wins.

Business and industry now branded as the workplace experience group continued to show a gradual progress has returned to office levels remained specific decline in culture and geography and.

And speaking with clients, we remain optimistic for even greater person in person interactions tend to fall.

Clients are already more active with employee engagement events, including social gatherings networking opportunities and wellness sessions, a testament to the continued value and importance of in person engagement.

Facilities, another drove successful ongoing demand and core business offerings with an added focus on new engineering solutions and client project services, we're advancing innovation and adding capabilities, including robotics as an example.

Healthcare plus exhibited growth led by increased client activity related to elective surgeries and clinical care. The team has successfully renewed several significant marquee accounts.

<unk> established new offerings, including ambulatory surgical centers.

Additionally, we've made great progress and have created industry excitement by introducing a new health care model focused on patient post care in partnership with patient engagement engagement advisors.

International grew organic revenue of 49% year over year. This performance was led by new business wins and increased event activity, particularly in sports and entertainment within Europe as well as improvement in DNI across the countries we serve the.

The international team continued to drive consistent net growth that was broad based in both geography and size, particularly in Chile, Germany, Canada, and the U K from health care to education to be ni.

Uniforms performance surpassed pre COVID-19 levels for a second consecutive quarter as momentum builds towards its debut as an independent publicly traded company organic revenue grew 11% driven by rental revenue growth as well as strengthen adjacency services entertainment is beginning to execute on the many value creating opportunities available to them.

Yes.

Since our uniforms spin announcement last quarter, we've made progress in the operational separation and have added leaders with extensive public company experience to complement the deep industry expertise of the team already in place.

We're on track to complete the transaction in the second half of fiscal 'twenty, three and we will continue to provide updates as appropriate.

I would now like to spend a moment sharing some initiatives taking place at Aramark that speak volumes about the character of our team and our special culture, we've been able to create across the company.

It's no secret that people are the cornerstone of everything we do building, an inclusive accessible and equitable workplace, where all employees can thrive and grow their careers as essential to aramark success with that I am proud to have signed the CEO letter on disability inclusion and I'm, even more proud that Aramark was again named one of the best places to work.

Work for disability inclusion by the 2022 disability equality index.

Moreover, our vision for the future focuses on positively impacting people and the planet and we serve as we serve our client partners employees shareholders and other stakeholders.

Our progress in this effort continues as we just committed to significantly reduce greenhouse gas emissions associated with the food we serve in the U S by 25% by 2030 in conjunction with our World Resources Institute core food pledge.

We also plan to significantly expand the availability of plant based lower carbon footprint meals across our portfolio offering healthier more client friendly solutions.

I'd now like to turn the call over to Tom for a detailed financial review of the business.

Thanks, John and good morning, everyone.

Our performance in the third quarter took another step forward as we continue to execute on strategies to drive both revenue growth and margin progression.

Clear line of sight for continued improvement for the remainder of the year, but before reviewing our updated fiscal 2022 outlook.

I want to discuss our financial results in the quarter.

For the total company organic revenue of $4 2 billion was up 39% over prior year and exceeded pre COVID-19 levels for the first time, driven by strong net new business and pricing pass through as well as the continued recovery of Covid related volumes, which reached about 93% of pre COVID-19 levels compared to roughly 80%.

8% last quarter.

More than half of the remaining volume to be recovered as attributable to white collar Eni with the rest associated with ancillary service offerings in other lines of business, including conference in convention centers and sports and leisure.

And retail catering in higher Ed and healthcare.

We expect these revenue streams will continue to improve into the fourth quarter and throughout fiscal 2023.

As a reminder, we anticipate the returning volumes to carry higher than average incremental margins.

Only 15% to 20%.

In the third quarter adjusted operating income was $178 million on a constant currency basis growing 73% year over year, resulting in an oi margin increase of 85 basis points to four 4%.

This progression was due to operating leverage from increased revenue levels and tight cost management, particularly on the labor line, where the use of agency and temp later labor has been reduced.

We have also seen a slight improvement and supply chain fill rates, allowing us to start to move back to negotiated products from preferred suppliers.

Margin improvement in the quarter was impacted by increased inflation as well as the effect of significantly higher levels of new business with related startup cost and the natural profitability ramp over the life of contract.

While inflation startup costs, and new contract and efficiencies have a short term drag on margins as we accelerate our topline growth.

These factors add to dollar profit growth today, and we expect in time will benefit margin as well, giving us confidence in our ability to exceed pre COVID-19 AOI margin levels.

Our results in the quarter led to adjusted EPS of <unk> 25.

Compared to an adjusted EPS of <unk> <unk> in Q3 last year.

On a GAAP basis, Aramark reported consolidated revenue of $4 1 billion operating income of $148 million and diluted earnings per share of <unk> 16.

Compared to organic revenue GAAP results included $85 million in revenue associated with two months of next level of hospitality in the first month of Union supply group, which closed in early June .

Next level is now part of our organic revenue and NOI metrics as we have lapped the acquisition date.

Now turning to cash flow.

In line with the normal quarterly cadence of the business net cash used in operating activities was $14 million and free cash flow was a use of $96 million.

Increase in working capital specifically accounts receivable was the result result of significantly increased revenue in the quarter as new business began operating Covid base volumes continue to recover.

At quarter end, we had approximately $1 3 billion of cash availability and no significant debt maturities due until 2025.

In this period of rising interest rates, we will be strategic and opportunistic.

And debt repayment and refinancing.

While we will continue to invest to drive performance in existing accounts and support growing new business activity, we remain committed to achieve a leverage ratio below three five times by fiscal 2025.

Let me wrap up by reviewing the latest outlook for fiscal 2022.

We raised both our organic revenue growth in annualized net new business expectations.

Organic revenue growth is now expected to be 31% to 32% for the full year.

Which would indicate the fourth quarter reached 107% to 108% pre COVID-19 fourth quarter fiscal 2019 levels.

We had previously provided an outlook of 27% year over year organic growth.

Annualized net new business is now anticipated to be between $725 to $775 million.

Impaired to our previous outlook of $650 to $750 million and our initial outlook at the beginning of the fiscal year of $550 million to $650 million.

This twice raised outlook is being driven by strong performance year to date improved close rates and a robust sales pipeline that we expect to carry into fiscal 2023.

We maintain our full year outlook for AOI margin of at or near 5% with a Q4 margin of mid 6%.

And free cash flow outlook between $300 million and $350 million that will include a significant cash inflow in Q4 in line with the company's standard seasonality.

Like John I am very proud of our teams as they continue to deliver great service for our clients and improving results for our stakeholders.

Fueled by annualized net new business at levels never before reached at Aramark. We've now surpassed pre COVID-19 revenue levels and believe we are poised for fiscal 2020 Three's top line to be approximately $18 billion inclusive of the U S.

And <unk> AOI margin continues to progress as our full year outlook for this fiscal year is more than double fiscal 2021 performance of two 4%.

With ongoing improvement expected as we move toward our fiscal 2025 target of 7% to seven 5%.

I am extremely excited about where we are now and where we're heading as we worked to wrap up fiscal 2022 and prepare for the new fiscal year.

John .

Thanks, Tom.

As we move into the fourth quarter with a revenue run rate that exceeds pre COVID-19 levels I am excited about the opportunities ahead, our growth minded culture has created a foundation for consistent net new business.

The breadth and resilience of our portfolio across sectors and geographies reinforces our ability to drive results. While also benefiting from heightened outsourcing and other positive industry trends.

Margin has progressed since fiscal 'twenty, one and our leverage ratio continues to improve.

And we are making value enhancing decisions and includes strategic acquisitions and partnerships as well as the planned spinoff of uniforms.

I am extremely proud of what we've accomplished as a global team to position Aramark for success as we execute our strategic against our strategic growth plan working to transform our business to achieve our fiscal 'twenty five targets I couldnt be more confident in our people our clients our purpose and our future.

And operator, we'd now like to open the line for questions.

Thank you we will now begin the question and answer session. If you have a question. Please press star one on your touch John .

If youre using a speakerphone you may need to pick up the handset first before pressing the numbers.

In order to accommodate participants in the question queue. Please limit yourself to one question and one follow up.

Please standby, while we compile the Q&A roster.

Okay.

And Toni Kaplan from Morgan Stanley is on the line with a question. Your line is open. Thank you.

Congrats on a really outstanding quarter on the organic growth front across the board.

To just find out if youre seeing any sort of change in the new business environment as a result of.

The increased uncertainty in the macro just any change in client conversations obviously, the new business was very very strong in the quarter or so.

It didn't seem like you are but just just give us an update on on the most recent that you are seeing.

Hey, Brad Thanks, Tony our sales pipeline is very robust going into the fourth quarter and into next fiscal year. So we don't really see any change in client related activity as it relates to new business.

And we see continued.

Process on clients that are currently self operated continuing outsourcing for the first time.

So we believe the trajectory for next year is also going to be very very strong. So nothing from a macro perspective that seems to be impacting the new business results.

Terrific and just shifting no margins.

Could you give us a little detail on how much inflation is impacting you maybe with regard to supply chain food costs.

Looking forward with commodity prices down pretty meaningfully since may should that be less of a headwind in future quarters, maybe that starts to dissipate a little bit. Thanks.

Yes, Tony I think Tom and I are both take this.

I think we are beginning to see as you indicated some commodity price.

Softening, which is very favorable for us, particularly as it relates to.

Several of the commodities that we purchase and utilizing our locations. So we do believe that if that phenomenon continues that that will help mitigate the impacts of inflation I think our teams have done a very good job of offsetting inflation to date in operations through both pricing strategies and other operational improvements and we.

Expect to continue to be able to do that.

Whatever happens in the overall macro inflationary environment.

And.

We have seen in the quarter, we saw significant new account openings.

In a number of businesses.

Impacted margin in just a touch in.

In the quarter and we expect as we continue to open those new accounts and as those accounts mature for the margins to come along with it. So we're very.

Very pleased about the progress we're very pleased about the way people are managing and executing at the unit operating level. The way we are serving our clients the things the actions that we're taking to go ahead and do that.

And we've got terrific data that we provide to our people on the inflation front. So theyre managing in a very real time basis and able to enable to recover those costs as they occur Tom anything to add.

Just a reminder that the.

Input costs are just a portion of what what we experience on the product cost line and as John said a lot of levers in there that we continue to pull on our teams continue to work on.

Preproduction waste postproduction waste.

New menu engineering portion control all of those things are in addition to just the pure input cost so.

Lot of levers there and the teams are doing well.

Super Thank you.

Thank you and our next question coming from the line of Ian Zaffino from Oppenheimer. Your line is open.

Alright, Thank you very much.

Good quarter guys. Thanks.

Thanks for taking my question.

Question would be on okay.

Great.

But here you guys said that 18 billion of organic revenues for next year.

It's clearly higher than what we had by over $1 billion and I think question Street, that's the same.

So.

Whats basically where is that growth coming from maybe give us a little bit of color on that and why is it so strong vis vis kind of what the street is expecting.

Sure.

Okay.

A few things are probably the bigger driver is our is the confidence in the continued recovery of the Covid base I mean, we've talked about exiting this year with with roughly $1 6 billion Unrecovered.

That flows into next year as P&I continues its trajectory.

Conference Convention centers, even concerts.

We're very strong at the beginning of the year, obviously stronger right now.

And that base recovery combined with the net growth.

And our confidence in that in that sales funnel, what we book this year, what we're already seeing as we were already into next year's selling season really.

And what we see in that pipeline.

All very confident and then pricing obviously pricing kicks in it has throughout the year.

That's helping the revenue cause as well so I think it's all of those factors combined.

So that gives us confidence on the $18 billion roughly.

Sure.

The underlying I don't know where the market is.

Missed but I think.

Potentially it's Ben.

The net growth being able to continue that for what will be a third year at record levels as well as the covered recovery.

Okay. Thank you and then just sticking on.

Net new business.

Much stronger than your predicted just three months ago.

How much of that I guess that would effectively be all new customer additions because there probably isn't a whole lot of inflation in there given the quarter over quarter, Don how much inflation thats a change quarter over quarter right. So that that entire increase is effectively either.

New customers or renegotiation et cetera, correct. Okay, great. Thank you about that.

Well, it's all new customers. There is no inflation and there is no renegotiation component again, the net new that that is a.

New business, new client number and those results have been.

Exceedingly strong and continuing to get stronger throughout the year. That's the reason for the rate the guidance raise now for the second time.

We had record results last year, our guidance for this year was to top that.

And we've been able to actually exceed our expectations. The team has done a great job of delivering on the net new business side.

Very strong retention numbers.

Roughly equivalent to last year and terrific new business wins.

Very impressive guys. Thank you very much.

Thank you.

Thank you and our next question coming from the line of <unk> from Bank of America. Your line is now open.

Hi, Thank you for taking my question.

I realize we're a quarter away from you guys guiding next year and.

Your guidance for the fourth quarter this year.

Implies a pretty healthy.

Margin I was hoping you could talk about next year, just help us think about the give and take the impacts from new businesses, new businesses maturing inflation, how how should we think about margins for 2023.

Well as I said, we will continue to progress those forward.

On our path to the seven to seven 5% in fiscal 'twenty five.

As you just mentioned lots of puts and takes.

As we move into fiscal 'twenty three.

We'll certainly be able to.

Built on the.

Doubling of the margin from last year at two 4% to this year and then again progressing into 'twenty three.

There's a few factors that are we still are.

Not completely.

<unk> I think we as we sat here a year ago. We thought we all thought inflation was transitory and that prove differently. So we do as John just mentioned before starting to see a little bit of an easing in both availability and input costs. So that's good news.

We will help the margin that contract maturity of accounts that we booked in 'twenty. One last year, we will continue to progress as well as the accounts this year.

So that starts to add to the mix the COVID-19 revenue recovery and those that incremental.

Margin flow through is going to help the cause we continue to manage our above unit cost very very tightly.

So all those things are going to work in our favor to progress the margin and keep us on track for that 25% margin goal.

Yeah, and I would only add that we are.

We're just a couple of months away from the close of the fiscal year and we will be working.

Very diligently on our fourth quarter disclosures to give you chapter and verse on net new business wins, and how that will shake out for the year.

Our expectations for the profitability ramp up and those components and what the impacts are for margin next year or so.

We will be able to reflect more accurately I think at that point and what our expectations are.

This quarter the fourth quarter as we've talked about we expect mid sixes that is seasonally our strongest quarter.

We expect to have very.

We expect to finish the year very favorably.

In the quarter and then given the nature of the business. We would expect that will show continued improvement.

Yes.

There is a degree of uncertainty with respect to supply chain, we believe inflation.

It's showing the Tennessee to potentially moderate over the back half of the year.

But we remain too.

It's to be seen how that impact next year's results. So.

I'd say were just a little bit early from giving guidance for next year, but but we're very confident in the trajectory.

And I would say that this year is and isn't is unfolding exactly as we had predicted from an earnings perspective or margin perspective or growth perspective.

And we feel like our teams really have a handle on the expectations for the business. So we're very confident in the trajectory.

Tom said running into 2025.

Great. Thank you and just one housekeeping question, you talked last quarter about sort of your.

Expectations for inflation in terms of how the how.

It would be running I think it was.

And then in the high single digit range I'm curious just sort of you talked about some easing how is it kind of lining up right now with what you had.

<unk> forecasted for.

Well I would say at present is lining up pretty close to our expectations really nothing yet that gives us a strong signal one way or the other we've had as we've said so I'm using in the commodity markets on certain categories, which potentially bodes well.

But as you saw in the Tyson announcement Yesterdays continued impact on their supply chain with.

Protein availability and the like so we're still navigating and managing through that but we expect to be able to manage the impacts on our business, which is really what I'm. Most concerned about do I have.

Capability of either passing through on pricing or reengineering or all those other levers that we have to pull so that we can hit our targeted expectations and we believe that we are fully in control of the business that we operate in that we have that ability.

Great. Thank you so much.

Okay.

Thank you and our next question coming from the line up.

I'm from Bernstein. Your line is now open.

Good morning, everyone.

Thanks for the question.

We could dig into the drivers of the uplift in the net new guidance a little bit.

A little bit more detail.

Is it more on the gross win side.

Or is your retention running a little bit better than expected.

And then in the sort of international business versus the U S.

Last year in kind of at the start of this year. The U S is ready to think game changer compared to.

The prior average.

And the international business, starting to accelerate a lot faster as well.

Any sort of more color, we can get on the left and the new end guidance would be very helpful.

Sure I think broadly speaking the gross wins are driving it.

A little more of a retention retention.

We ended up being relatively consistent with last year when the dust settles on the fiscal year, but the gross wins will be.

Again, another record level built on last year's record level.

It's coming pretty broad based.

International certainly benefited from the Maryland win but they've also.

We had an extraordinary year across almost all the geographies in terms of the bread and butter wins as well.

We really like to see as we've talked about before they take a little less time to ramp.

And work the inefficiencies out.

<unk> does continue to.

Gain good traction.

Broad based facilities.

And corrections have had extraordinarily good years.

And then again Theres just a steady engine with uniforms based on the investment made in the sales force starting back in 19 that just continues to gain traction.

And they continue to push forward on their new business wins. So again I think it's pretty broad based driven primarily from the gross wins.

With consistent retention levels.

Great and then.

As it related follow up.

Could you give us a little bit of how <unk> thinking about the phasing of those annualized new win.

Turning into revenues, so the $505 million from last year whats going to shake out at around 750 at the midpoint. This.

How much of those translate into revenue for 2023 and how much.

We will take 2024 and beyond to get to so annualized volume.

If you go back ordinarily, it's sort of <unk>.

40% in year and 60% roll into the following year is the typical split right now it's a little off just because of the COVID-19 ramp up particularly in a couple of areas business dining being the primary one where.

The ramp up to full populations is still taking a little bit of time, but.

But I think if you generally use sort of a <unk>.

<unk> 50, 40% to 50% in year end and then the balance rolling into the following year with maybe a bit of a tail beyond that.

That will work for you.

Great. Thanks very much.

Okay.

Thank you and our next question coming from the line of Andrew <unk> from JP. Morgan. Your line is open hi, I was backing into the fourth quarter revenue of about $3 $9 billion to $4 billion and that's about an organic constant currency revenue growth of 9% to 13% I was just wondering Tom if you could just give a little.

Since we're so far into the quarter already on the three segments. How you think that three segments will perform on our organic constant currency basis, even if youre not going to give a number this direction.

Where do you think that momentum is amongst the three segments in the fourth quarter.

Yes.

Pretty broad breadth broad.

<unk> based in.

And consistent across each.

Just was talking about it.

<unk> is continuing.

To show progress.

Trending as they have in the last couple of quarters.

Uniforms, I think could even have a little bit better I mean, sorry U S could have a little bit better.

Fourth quarter, given the rollout of a couple of big Big accounts again within corrections and facilities in particular.

And then.

International just keeps chugging, along so I think they will continue to show the pace and trend that they've shown in the previous couple of quarters.

Okay. Thank you.

Our next question.

Okay.

And our next question coming from the line of Shlomo Rosenbaum with Stifel. Your line is open.

Hi, Thank you very much for taking my questions I wanted to focus a little bit on the uniforms division and John .

John with the with the revenue coming back to pre COVID-19 levels and pretty much finished with the routing.

Software.

Implementation when should we start to see really those 200 to 300 basis points of margin expansion versus what the company was doing in that unit prior to Covid. It seems like the setup is already there. We're just when how long is it going to take you to harvest that in order to get there.

The significant margin expansion.

Yes.

For the question Shlomo.

First of all I think the business itself has shown remarkable resilience this year end.

The third quarter performance was truly extraordinary but from both a growth perspective as well as a retention perspective outperforming its competitors on the top line growth side.

Significantly so really pleased with the job that they're doing and we are continuing to see the margin expansion will start to flow through on the business.

Yes.

So the so the implementation is complete the optimization stage is ongoing.

Yes, Kevin.

Our harvesting plan if you will.

Which she'll talk about with with investors as we begin to go through the process of the spin and begin to have.

Dialogue with with the shareholder community and the investment community. So.

We will have greater detail after quarter four.

But we believe very strongly in the trajectory of the business.

And the performance and as I said earlier the business is basically doing exactly what we thought it would do.

Under the circumstances and given the investments we've made.

One of the things Thats, most encouraging as we continue to see Salesforce productivity ramping up that's a result of the avs implementation as well as the increased staffing levels, leading to and so that 11% growth year over year and so that is part of the investment of that.

On that system.

And the implementation of various recovery mechanisms that we've been able to undertake.

This inflationary environment so.

I feel very strongly that as we go through the spin process and begin to add added disclosure about the business.

Got it.

I think that it will be very apparent.

Going forward, we will get into more specifics as we close out this year and get into the first quarter of next year.

Okay, Great and then just one maybe for Tom.

As we see interest rates fluctuating, but generally heading you have been hitting higher does it make it more challenging for the company to achieve the targeted leverage ratios over time on a pro forma for the spinoff when typically youre going to have to kind of reduce some of the dead to sign some of it to the.

The spinoff company to upstream a dividend, but if the interest rates are higher does that impact the way that we should think about it.

It is not helpful.

We certainly would like.

More.

A calmer market, but we have the benefit of time.

We've talked about the second half of next fiscal year.

So we're continuing to keep an eye on the markets.

We'll refinance.

Opportunistically as we move through <unk>.

The fall through the winter.

Sure.

Well, we'll work it out.

But yes, it would be nice to have the market settled.

Yes.

I would add.

I would add that the most important thing is we as we move forward with both the execution of the spin strategy in the core business. The continued earnings improvement from both elements of the business.

We have very we have multiple levers to manage with respect to cash flow.

And we're very confident in our ability to go ahead.

That trades very very well, we're confident in our ability to refinance.

On an appropriate basis, so don't see don't see the macro environment has a significant.

Impact item with respect to our strategy moving forward and our ability to go ahead and get down to that three five times level that we've modeled for 2025.

<unk>.

Thank you.

Thank you and our next question coming from the line of Andrew Wittmann from Baird. Your line is open.

Yes, great. Thanks for taking my question guys.

Excuse me.

I was hoping you could talk a little bit about the margins implicit in all these great new wins that you're announcing today.

Maybe talk a little bit about.

On the capital if anything has changed on the needs there or if the mix of <unk>.

Customers that you're winning on capital heavier capital lighter customers.

Yeah.

Sure on the capital no real mix a matter of fact, I think it's actually probably a little lighter than the normal.

We've got.

Fortunately a pretty robust pipeline.

Sports and entertainment going into next year.

Higher Ed.

Two user tend to use a little more capex. So.

We love to use it.

Generally brings higher margins and longer term contracts, when we're able to invest in clients, but I think this year overall, it's probably been a little lighter use of Capex then than we would normally see with these wins.

Margin wise.

Again, nothing extraordinary I think.

Typical sort of.

Startup margins, which we continue to feel confident in that.

21 wins are ramping 22.

Nothing.

Out of the ordinary there so feel good about that and then what we're looking at going forward again, it overall testament to the market.

General and general push to outsourcing and look.

I think we as an industry.

<unk> benefited in the last couple of years.

Coming out of the pandemic.

It certainly increased activity.

Made people look at outsourcing.

More robustly.

And we're all benefiting from it so.

The idea that that we're really having to chase price.

Or.

No.

The race to the bottom so to speak is just just not in the mix. This is.

A good robust process. This is a good <unk>.

Strong industry in terms of growth potential.

We're getting more and more disciplined in what we did.

As I've said, many times I'd, rather win three out of $5 10.

And we're going to continue that pace.

Yeah, and I would just add generally that our return requirements or requirements for the company have not changed we still have very high expectations for the.

Internal rate of return as we as we grow the business and we still have very strong.

Pro forma development practices. So the performance for these larger accounts come all the way up to Tom and I and so there is.

Very significant process in place to make sure that we are selling business that is profitable new growth.

And our margin and return requirements have not changed.

So we have high expectations that as we sell this new business. It will help it will help us to continue to grow the margins.

Going forward not deteriorate the margins so while we have the short term effects of new account openings.

The investment in the early stages of a new account or our expectation is that over the lifecycle of the account those returns are.

Very close to or higher than company average and will contribute to expanding margins.

That's helpful context for my follow up question I wanted to ask about the uniform segment margins and a little bit more detail.

I think John you made the comment that kind of above peers and I think that's true here. Obviously, you had a very good growth rate here, but I'll just say on the margin side.

Flat margins was probably a pretty good outcome for.

For most companies, but you guys were up pretty materially. So I was wondering if you could talk about what some of the drivers were of those margins certainly price has got to be one component, but I would imagine there is other factors maybe you could talk about the merchandize cost labor expense or where maybe it's just an easy comp, but I think some color around that would be helpful.

Thank you.

Absolutely we are excited about.

About the margin improvement and I think the cost discipline and that business has been.

Extraordinary I think they've worked very diligently on the merchandise side and particularly they've worked very aggressively on the plant labor side.

<unk> to make sure that as they had staffing issues theyre able to mitigate.

Mitigate the use of contract labor or temporary labor to make sure that they've got full time employees in place to eliminate those.

Additional costs, so I think they've done a very good job on the operational execution front.

And then you have you have the natural margin leverage of that growth rate. So there is as.

As we add those new accounts, particularly the average rental revenue accounts the weekly.

Rental revenues.

Contribute to margin almost immediately.

And so.

<unk> made very good progress there and we're very encourage they've been able to go ahead and recover the inflationary cost of fuel as well and that's contributing to that margin improvement.

Multiple elements. So you have the avs implementation you have new account wins, you have at a very high level of cost.

Controlling the operations and a lot of a lot of discipline contributing to that to.

To that margin improvement and performance.

Okay. Thank you very much.

Thank you.

And our next question coming from the line of Leo Carrington from Citi. Your line is open.

Uh huh.

Good morning, Thank you.

I'll just ask a follow up two follow up questions on the drive is it net new business and the guidance range.

Firstly.

The magnitude of trends Youre seeing in uniform sources case from I know you said catering with positive uniforms was positive but its the.

Any any real difference in terms of magnitude or source of the wins to call out between the two the two businesses.

And then.

Secondly, I'll Miss it was good to see the emissions reduction targets announced in June I mean, aside from the environmental benefits of this to what extent environmental.

It'll considerations being in formerly all specifically specified intended now.

I'll take the second question first.

There is increasing importance placed on.

ESG.

As.

Initiatives in the company's approach to various issues.

Many tenders these days, particularly anything related to.

Government entities and obviously, we're all we're all dealing with what the SEC might ultimately do with respect to reporting requirements. So there is heavy emphasis and a lot of attention being paid.

On both the sustaining sustainability side and the governance side as well so we are.

Very attuned to it and we are very committed to doing what's right for our people and planet.

And we've got a great leader in Ash Hansen, focusing on those efforts and a gentleman named Alan Horowitz.

Is focused on the sustainability efforts and so it is something that that has the attention of everyone, including the board.

And it is and it does come with heightened attention in bid processes. These days. So I would say ash spend is a very significant component over time.

Working on the sales process and the proposal process with and presentation process in the sales arena. So it is an important element and content.

On your first question the momentum between uniforms and food and facilities on that on the gross business wins is pretty equivalent again with the investment made in <unk>.

In uniforms, a few years back.

They are there they are chugging away and delivering results and I think it's just going to continue to get better.

I know, Kevin and intends to continue to make incremental investment in that sales team to.

We continue to drive the business forward and then the same on the food side.

Little bit little bit later reinvestment in that sales team on the food facility side.

Into fiscal 'twenty.

The early stages of the pandemic, but.

Great momentum started to be shown there as well.

As we move that forward.

Our record level last year already setting a new record this year.

<unk> robust going into next year. So both sides of the business are performing well.

New business wins.

Okay. Thank you very much.

Yeah.

Thank you and our next question coming from the line of Hamzah Mazar from Jefferies. Your line is open.

Hey, good morning, I, just had one or two part question.

Maybe if you could just struck a bar where you are in terms of.

Lib, Morocco migration and packet warmer you mentioned those aside from pricing in terms of managing inflation.

How much more room is there to go on tech deployment and labor optimization. That's the first part and then secondly, as part of our.

That could you walk us through how much of your pricing kind of like Josh and real time versus what piece of the portfolio has a lag and just remind us how much that how long that lag is thank you.

Sure.

There were a couple of businesses that have very specific timing elements to them with respect to pricing one of which is the corrections business. Those contracts are with government entities. They typically have.

Contract renewal date pricing opportunities.

And that that were.

Focused on very significant portion of that occurs.

In the in the fourth quarter.

And then there's obviously the higher education or.

The collegiate hospitality business that.

His focus on pricing and that comes in the fall Obviously board planned pricing has said almost a year ahead.

And so the board plan prices.

Essentially our fixed throughout the operating year so.

So we have an expectation that pricing increases rather significantly and collegiate hospitality.

Starting in the starting in the fourth quarter.

The rest of the business is more real time.

And each and every account is a client negotiation because we our guests and our customers houses and so when we raise prices we do it with the approval and the.

In the negotiation with our clients, but as a general rule.

We find it to be a very cooperative.

Barnett and hence the ability to go ahead and pass through pretty directly.

Those prices when we need to.

But as Tom has said many times, we're all we're always focused on delivering value first so on managing the business aggressively those other levers in terms of technology. The other levers in terms of labor optimization.

Are important elements of our cost containment strategy and so pricing is important.

But we manage all the levers at the same time with respect to deployment of technology I would say we're in the early stages.

Payment technologies.

<unk> deployed but there are other opportunities to look for technology deployment in particular on the facility side.

There can be value enhancing and labor cost reducing so.

I would say that we have plenty of opportunities for deployment left.

We don't have what I would characterize it.

As a.

A significant gap.

Or a technology debt. If you will so any of these deployments that we decide to make our optimization decisions not.

Not technology that decision. So we don't have some backed up capital deployment requirement.

In order to implement these technologies, we make these decisions on an individual basis based on what's best for the business and the client and customer.

And that's how we deploy it.

I think the only thing I'd add on that that last point around labor and technology deployment.

It's an evolutionary process in our business not a revolutionary war.

We continue to move at the pace of our consumers' taste with technology.

At our core as John has said many times, we're a hospitality.

People engagement experience business.

Technology can add to that but it can also subtract and so we've got to be careful about the pace at which we move and make sure its appropriate.

With what our what our clients want and while it's a bottomline enhancer at times.

We're mostly doing it.

To speed queues.

And increase the customer experience not just simply to drive out cost.

Thank you.

Thank you and our next question coming from the line of John Mcdonald from RBC Capital. Your line is open.

Hi, Thanks for taking my question, maybe quickly just on higher education can you give us more color on the recent rebranding to Aramark leached hospitality, especially around the fact that the increase.

Yourself sustainability farm to table as well as other ESG concerns is that helping us capture more value or drive higher pricing. Thanks.

Yes, I would say, it's absolutely as we as we develop our approaches in individual client locations.

We're always.

Speaking to all of the audiences in particular students administrations.

And really understanding their unique needs and desires for their individual campuses. So so we think of it as a.

As a collegiate ecosystem that they're managing for a particular customer and set a.

<unk> joins from clients and customers so.

So it's a very deliberative process, it's one that.

Our frontline managers, our district managers, our Rvp's are all intimately engaged in and it has the.

The focus of our entire leadership team, Jack Donovan and Trevor Ferguson, the people, who really lead collegiate hospitality.

Really look at this business very holistically and very differently than most most operators. They are constantly assessing the marketplace needs constantly assessing the.

Impacting the impact of the change.

In student behavior, and client expectations and adapting their locations constantly so it is very important as you would expect students are at the forefront.

Young people are at the forefront of many of the desire changes in the way we operate and we're always focused on doing what's best for serving those those customers.

Great. Thank you and then maybe just a quick follow up on <unk>.

DNI sector can you maybe just touch on what percentage of those lost volumes Youre baking into returned in 'twenty three or any other information around just kind of the continued recovery that would be great. Thanks.

Our park that answer to next quarter, when we give guidance, we're still working through the.

A full recovery of P&I.

23.

What are our view is there so more to come on that.

Okay. Thanks.

Thank you I will now turn the call back over to Mr. Zelnick for closing remarks.

Again, thank you all for joining us. This morning, we're extremely excited about the performance of the quarter and the expectations for the balance of the year we have.

I think the best team in the industry.

Love, what we do and we're really excited about the future of the organization.

<unk> be more pleased with the progress we've made and the expectations for the business going forward. So thank you very much and appreciate your support and of the company.

And I look forward to further conversations take care.

Ladies and gentlemen, thank you for participating. This concludes today's conference you may now disconnect good day.

Yeah.

Yeah.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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