Q1 2023 Aramark Earnings Call

Speaker 1: uh

Speaker 2: Good morning and welcome to ARA Mark's first quarter fiscal 2023 earnings results conference call. My name is Norma 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 re-broadcast and that all participants are in a listen only mode. We will open the conference call for questions at the conclusion of the company's remarks. I will now turn the call over to Feliz Casell, Vice President, Investor Relations and Corporate Development. This is Casell, please proceed. Thank you and welcome to ARA Mark's first quarter fiscal 2023 earnings conference call and webcast.

Speaker 3: Hope you all are doing well. This morning we will be hearing from our chief executive officer, John Zilmer, as well as our chiefs-enancial officer, Tom Androv. As a reminder, our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website.

Speaker 4: 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, mDNA, and other sections.

Speaker 5: of our annual report on Form 10-K and our other FCC filings.

Speaker 6: Additionally, we will be discussing certain non- GAAP financial measures. A reconciliation of these items to US GAP can be found in this morning's press release as well as on our website. So with that, I will now turn the call over to John . Thanks, police.

Speaker 7: Thank you all for joining us today and I hope your year is off to a great start. I'm pleased to share that Aeromark began fiscal 23 with strong performance driven by a continued commitment to provide exceptional service to clients. I am incredibly proud of our teams across the globe who demonstrate each and every day what makes Aeromark so remarkable.

Speaker 8: This morning, Tom and I will review our fiscal first quarter results, as well as the key initiatives currently underway that we believe will drive continued success.

Speaker 9: As announced just last week, we reached an agreement to sell our non-controlling 50% equity stake and AIM services for $535 million.

Speaker 10: The proceeds are intended to be used for accelerated debt repayment, and we expect that monetizing this interest will further enhance operating focus, strengthen our balance sheet, and be accreted to EPS.

Speaker 11: The sale to Mitsui are partner in the joint venture since it was established decades ago to provide food services in Japan. It is expected to close at the beginning of our fiscal third quarter subject to customary closing conditions and approvals.

Speaker 12: We will continue to identify these types of opportunities, specifically in areas where we have a non-controlling interest to enhance our ongoing focus on delivering profitable growth and shareholder value.

Speaker 13: Operationally, we remain focused on managing our cost structure and maximizing unit efficiencies, coupled with pricing to counter persistent inflation. We continue to work closely with clients to tailor solutions that meet their needs, leveraging our extensive supply chain network, and our constantly monitoring of all of market conditions.

Speaker 14: for opportunities to benefit from improving pricing and product availability trends.

Speaker 15: Our results in the quarter built on both the top and bottom line momentum we've established over the past couple of years. Organic revenue grew 18% and adjusted operating income increased 47% on a constant currency basis, resulting in more than 100 basis points of improvement to AOI margin.

Speaker 16: Within the U.S. food and facilities segment, organic revenue also increased 18 percent compared to the first quarter last year, driven by strong performance from all sectors.

Speaker 17: Education experienced increased student enrollments and improved presence of staff and more events on campuses in collegiate hospitality partially offset by the end of universal government sponsored programs in K-12 student nutrition.

Speaker 18: Sports, leisure, and corrections continued its strong growth trajectory again this quarter, primarily from increased event pricing and per capita spending, as well as a more robust event calendar. This has particularly benefited from a significant level of new business growth.

Speaker 19: Workplace experience group growth levels led the way with a year-over-year increase of more than 40%, driven by client pricing, higher meal participation rates, and greater in-person activity, in addition to solid new business openings.

Speaker 20: HealthCare Plus continued its exceptional performance driven by ongoing based business growth from vertical sales and greater visitor presence that was complemented by a substantial step up in net new business compared to historical levels.

Speaker 21: and facilities and other grew as a result of expanded services and frequency, particularly from large client accounts along with a strong level of new business startups.

Speaker 22: International organic revenue is higher by 28% year over year driven by constant consistent net new business performance, pricing and ongoing based business volume recovery, particularly within the BNI portfolio, where we experienced greater lunchtime participation rates and a return of catering activity for special events.

Speaker 23: including holiday celebrations and networking gatherings. Organic revenue in our uniformed services segment increased 7% compared to the first quarter last year due to solid new business sales and retention rates, as well as the implementation of additional pricing strategies.

Speaker 24: Our U.S. and Canadian operations experience strong recurring rentals and double-digit growth in adjacency services.

Speaker 25: We continue to make progress on the uniform spin and still expect completion in the second half of this fiscal year.

Speaker 26: Within the last few weeks, Kim added the final pieces to her executive team, complementing the leaders already in place, including a chief technology officer.

Speaker 27: We have identified the individuals who we expect to serve as the Board of Directors for Uniform Services after the spin is complete, and it will be available to act in an advisory capacity throughout the separation process.

Speaker 28: We are extremely pleased with the skill set and industry expertise that we believe will make a significant strategic impact on the business.

Speaker 29: Last week we released a comprehensive update on our ESG platform. The Be Well, Do Well Progress Report is the latest chapter documenting our ESG journey and in it we highlight our ongoing commitment to diversity initiatives, community building, and development related actions, food and worker safety.

Speaker 30: and the progress we've made in responsible sourcing and waste reduction. MSCI recently gave us an A rating and Newsweek recognized this is one of America's most responsible companies.

Speaker 31: We continue to drive the importance of ESG metrics reflected by the inclusion of an ESG scorecard in our fiscal 23 annual incentive plan for our senior leadership team.

Speaker 32: I'm proud of the significant measures we've taken to make a positive impact on people and the planet and the efforts underway focused on making a lasting impact.

Before turning it over to Tom, I would like to highlight the recent election of Kevin Wills to Aramark's Board of Directors at our annual meeting on Friday. Kevin's impressive background and accomplishments are an excellent addition to our board and aligned with the company in strategic value, in strategic vision.

I also want to thank Board Member Dan Hendrack for his numerous contributions and partnership. It is our intent that Dan will move over to serve on the Board of Directors for Interformed Services upon the spin.

I will now pass it over to Tom for a detailed financial review of the business.

Thanks, John , and good morning, everyone.

Our performance in the first quarter reflected continued momentum across the Air Mark portfolio. As we delivered revenue and HAOI results, the demonstrated the team's growth mindset and commitment to deliver great service to our clients and increasing profitability for our shareholders.

For the total company, organic revenue of $4.7 billion was 18% higher year over year.

It consisted of more than 4% from NetNewBusiness, roughly 6% of pricing.

and approximately 8% related to higher based business volume.

Adjusted operating income was $242 million, a constant currency increase of 47% compared to the first quarter last year.

AOI margin increased just over 100 basis points to 5.3%.

Improve profitability during the quarter compared to prior year was due to leveraging higher sales volume from broad-based net new business growth pricing.

and base business recovery, primarily within the B&I sector and sports entertainment business.

as well as disciplined operational and administrative cost management.

all of which more than offset inflation, a tight labor market.

all of which more than offset inflation, tight labor market, and new account startup costs.

Generally, we've experienced an increase in the use of agency labor to support the rapidly growing level of operations, particularly in collegiate hospitality, which we expect to manage down over time.

In addition, we are encouraged by the continued signs of stabilization within the global supply chain.

that have allowed us to begin to gradually transition back to preferred sourcing programs where possible and appropriate.

This has helped partially mitigate rising food costs due to persistent inflation that we continue to experience during the quarter.

Over the medium term, we continue to see four key opportunities to drive improved profitability, despite a tough economic backdrop.

continued supply chain stability, and ever-increasing purchasing power from growing our managed spend and GPO business.

Second, the improving profit profile of past new business wins as they mature over the coming years, coupled with our ability to consistently maintain our higher level of net growth into the future.

Third, continued tight management of above unit cost, and lastly, the potential to benefit for pricing actions already implemented as inflation mitigates.

These opportunities, together with the ongoing option to create value through actions such as the AIM Services Sale, give us confidence in our ability to continue to grow our bottom line over time.

Our results in the quarter led to adjusted EPS of 44 cents on a constant currency basis, nearly double the 23 cents reported in the first quarter fiscal 22.

FX impacted adjusted earnings per share by 3 cents due to the stronger dollar relative to this time last year.

On a GAAP basis, Aramark reported consolidated revenue of $4.6 billion.

operating income of $200 million, and diluted earnings per share of 28 cents for the first quarter.

Now turning to cash flow.

In the quarter, net cash used in operating activities was $607 million.

and free cash flow was a use of 706 million. As expected, the first quarter experience to cash outflow associated with AERAMARK's normal seasonal business cadence, specifically in the collegiate hospitality business.

In addition, the accounts receivable increased due to strong year-over-year revenue growth in the quarter, and accounts payable was a higher use of cash in the quarter, largely from the timing of supplier disbursements.

Cash flow results also reflected the scheduled remaining deferred FICA payment of $64 million granted under the CARES Act that we highlighted during our last earnings call.

At quarter end, ARIMARC had approximately 1.1 billion in cash availability.

As John mentioned, and as you saw in our announcement last week, we reached an agreement to sell our equity stake in aimed services, and we plan to use the proceeds for debt repayment.

Let me make a few quick comments on the P&L impact from the transaction.

As a non-controlling interest, revenue from AME services was not historically recorded as a part of our financials, so there will be no impact to future revenue.

We did record our share of income, which contributed approximately $30 million to pre-COVID AOI and Fiscal 19.

and was not expected to be fully recovered until next year.

With the Plan Debt Repayment associated with the sale, we expect annualized interest savings of more than 30 million, making it immediately a creative DPS.

So let me conclude with our outlook for fiscal 23.

We maintain our previously stated four-year outlook while updating certain measures associated with the sale of our interest in AIM services.

With that, we currently expect organic revenue growth between 11 and 13 percent.

Adjusted operating income growth of 32 to 37% reflecting the effect of the aim transaction.

Free cash flow in the range of $475 to $525 million before payment for the $64 million FICA payment just completed this quarter.

and the anticipated cash flow of approximately $100 to $120 million related to restructuring charges and transactions from fees associated with uniform spend.

After these specific items, we expect our reported free cash flow to be in the range of 300 to 350 million.

And finally, as I just mentioned, we plan to use the proceeds from the AIM Services transaction toward debt repayment

that is expected to bring our leverage ratio to approximately four times by the end of this fiscal year.

We begin the new year as we finish the last.

We begin the new year as we finished the last. Resolute in our commitment to drive profitable growth.

The new fiscal year is off to a solid start as we manage the business in the midst of the current ongoing macroeconomic challenges.

We will continue to work to balance delivering short-term results without sacrificing our ability to sustainably grow the top and bottom line over the long term.

Thanks for your time this morning. John ?

Thank you, Tom. We believe there are numerous opportunities for the business and that we are well on our way toward achieving them.

We will continue to manage our portfolio to drive significant and sustained value to organic growth, margin progression, and a strength and balance sheet. Our new business pipeline is strong and we're highly motivated to continue winning. I'm immensely grateful for our teams across the globe for the driving force behind our success.

now and in the future, serving our clients, employees, and the communities we live in.

I also want to take this opportunity to congratulate our clients, the Philadelphia Eagles and Kansas City Chiefs who will be competing in the Super Bowl this upcoming weekend.

An operator will now open the line for questions.

We will now begin the question and answer session. If you have a question, please press star then 11 on your touch tone phone. If you're using a speakerphone, you may need to pick up the handset before pressing the numbers. In order to accommodate participants in question queue, please limit yourself to one question and one follow-up. If you have a question, please press star then 11 on your touch tone.

One moment for our first question, please. And our first question comes from the line of Tony Kaplan with Morgan Stanley . Your line is now open.

Hi, thanks so much. I was hoping you could talk about the new business trends this quarter versus last quarter and areas of notable strength or weakness and particularly maybe within education as well. Thanks.

Sure, the first quarter is always probably our slowest quarter from a new business development perspective as you would expect, particularly in education. Most of the sales activity occurs in the latter half of the year as accounts go out for bid and are then awarded typically towards the springtime.

But I would say it's very consistent with prior year's performance. Pipeline is very strong. We have a lot of verbal new wins that we don't count until we have a signed contract. So we're very pleased with the current results and our expectations are that we will be able to deliver on the net new business.

as we project it. So nothing to add beyond that.

Great. And we've gotten a couple of questions this morning on basically the understanding the impact of the divestiture on AOI for next year. Any sort of clarification that you can give on that just so that I think people can understand it a little bit.

minute ago, the base sort of pre-COVID AOI level was roughly 30 million. It's not fully recovered yet. So the AOI impact will be less than that for the...

for the full fiscal year and obviously we'll be missing by the time we close about half that number so you know I something bit less than 30 We're roughly divided by two is the AOI impact and that that's roughly the 2% in decrease in the Or move in the AOI guidance that we put out

and then our savings on the interest side should be an excess of 30 million. So, you know, the net of those two really gives you the accretion between the...

the two numbers, the AOI given up in the interest savings.

Thanks so much. Thank you. Next question.

Our next question comes from Anne Savino with Oppenheimer, Your Line is Open.

Hi, thanks. Very solid quarter.

I just wanted to follow up maybe if I could on this aim. Maybe you talked about the multiple. I'm calculating about 18 times. What sort of drugs have that worked? And then also maybe you could touch upon any other opportunities that you could identify that you haven't mentioned so far. You might have a follow-up. Thanks.

I'm sure, you know, we've we've talked in the past about monetizing our potential sports team's ownership in the San Antonio Spurs. You know, there's nothing to report on that front currently, but that's obviously a non-controlling interest that that we wouldn't historically continue to own.

opportunities for our shareholders.

I think the driver I am in was the.

the ability to grow those businesses. And a lot of times when we don't have a controlling interest, it's a little tougher to have the impact that we'd like to have. So that's where we're really evaluating these. And if they're just meandering along, so to speak, we'll monetize and use that elsewhere. And that's where we're really evaluating these businesses. And if they're just meandering along, so to speak, we'll monetize and use that elsewhere.

Yeah, I would follow up that comment with AIM services has obviously been a terrific joint venture for us over multiple decades. We've enjoyed a wonderful relationship with Mitsui and we expect to continue to enjoy a relationship with them helping to build other businesses in other parts of the world and are working to develop a memorable understanding to that effect going forward.

impact in terms of the management of the business itself. So this allows our international team to really focus on driving growth in those companies and those countries where we're fully baked, if you will, and really allows us to focus.

from a development perspective and a management perspective more effectively going forward. Okay, thanks. And then just on the inflation front, can you maybe give us an outlook on sort of, I know you touched upon it, maybe a little bit more of a detailed outlook. And then also remind us your ability to hold on to some of the pricing, especially on the P&L side.

inflation is slowing. It's certainly not reducing, but its rate of increase is slowing. Underneath that headline, food is persistently high. So we're experiencing that, and our units are hanging onto that. We're having to communicate that fact to our clients.

because sometimes the headlines do change opinions without looking underneath it. We're in that mode right now where we're really continuing to keep up, keep the pricing mindset going within our units.

I don't think that for the balance of the year we really are going to be looking at much of a softening of the food inflation. We certainly hope it's coming. You know, our ability to hold on to the pricing in the P&L contract environment.

I think it should be strong. I think we'll be able to hold on to it. And keep that impacted place. I mentioned that as one of our ability to drive profitability as we go forward into the future.

Thank you. One moment for our next question. Our next question comes from Andrew Stiderman with JP Morgan. Your line is now open. Hi Tom, if you could believe it I'm going to ask my two questions about FX. So the FX drag and just reported quarter was three cents and you said you know because of the stronger.

at that full year guide on slide 13, your model assumptions. I see this line that says FX will be a 2% drag on fiscal 23 guide at current FX rates. I assume that's a revenue figure. So if you could, what is the assumed FX drag on EPS? And of course you can imagine I'm talking about at current FX rates.

Yeah, about both is the answer for, or about 2% for both. Both what we anticipated and then what we expect for the full year. And that it does impact.

revenue and bottom line.

equally. You said, just to make sure I heard you, you said you were expecting about three cents of FX drag in the quarter.

Yeah, 3% in the quarter we were expecting you asked that you asked to begin with. Yes, it's probably a little bit more than we expected.

Oh, okay, that makes sense. We expect it to be a little bit lower to average out about 2% for the...

I understand now. Thank you so much, Tom.

I understand now. Thank you so much, Tom. Thank you. One moment for our next question.

Your line is now open.

Yes, thank you. Morning, John . Morning, Tom. Quick question on the revenue guidance and breaking that out into the components.

You're running, I think you said pricing is running around 6%, I understand the base effect will cause that to slow. But then if you add net new into, on top of maybe a mid-single-digit price effect that doesn't leave a lot within the mid-point of your revenue guidance for further organic growth.

recovery given the trajectory you're on. So are you seeing any sort of signs of maybe participation rates declining anywhere or any other trends that would cause you to be sort of cautious on the recovery of the base business?

One moment, please stand by.

Ladies and gentlemen, please stand by. Your call will be soon momentarily.

Ladies and gentlemen, please stand by. Your conference will resume momentarily.

Ladies and gentlemen, please stand by. The conference will resume momentarily.

So, thank you.

I guess that's excellent.

Ladies and gentlemen, please continue to stand by. One moment please.

Okay, can you hear us now? Yes, I can hear you now. Thank you.

Our next question comes from Neil Tyler with Redburn. Your line is now open.

Yeah hi guys. So the question I had was really on the revenue guidance and taking the midpoint of that organic revenue guidance and if I deduct pricing which I think you said is running at about 6% obviously that will ease due to base effects and if I deduct

your net new contribution in the midpoint. That doesn't leave a lot left for the base business recovery. So I suppose the question is, are ending in the business that you're seeing that would cause you to expect that to the rate of recovery to slow?

meaningfully i.e. participation rates going in the wrong direction or any longer-term caution on the impairment of any of your businesses. Thank you.

Now, I really don't. It's just really a gradual lapping of last year's recovery because we started the year in the mid-80s, finished the year in the mid-90s. And so, you know, the recovery, you know, is going to ease the sort of base recovery is going to ease as we go throughout the year.

with net growth staying in that sort of 4 to 5% range that we talked about. And then pricing obviously we'll use a bit too as we.

We lap what was very strong pricing this past Q4 as we get to the next, this year's Q4. So I think all those things will naturally ease that the net growth will stay constant.

Okay and then I suppose yeah so in that context you know when you spoke previously about you know the you know there's a bridge to your to your revenue targets and trajectory and you talked about

1.6 to 1.9 billion at the beginning of last fiscal year and I guess you sort of overshot that a bit so maybe there was one and a half billion left. Can you give us some updated thoughts on how much of that you think may not come back?

Well, yeah, the bulk of it is BNI and it could be 80% of that balance. I mean, we're so far well beyond the 19 number that in terms of recovery, it's almost irrelevant now. We're hitting the crosswinds of.

what is not COVID recovery and what is the beginnings of recessionary impact, layoffs and that type of thing, particularly within BNI and you see in the tech sector. So it's really hard to disaggregate coming up on three years on or past three years on.

as to what is what is layoffs, what is COVID recovery, what is participation rates, what is pricing. So, you know, with respect to the question, it's just becoming less and less relevant, especially as we're moving way beyond our COVID-19 base revenue levels.

Yeah, I would just add that.

Yeah, I would. You know, I would just add that. You know, there are.

really all the other businesses have gone well beyond the COVID recovery index in our growing rather nicely without significant impairments. Really the only business that has any lasting impacts is B&I which still has some return to work kind of activities taking place but you're seeing those trends those trends accelerate.

So hard to predict exactly how the rest of that business will get layered in whether companies continue to maintain 4 day work weeks or continue to expand their work schedules. So, just really hard to predict, but we've. You know, we fully expect that BNI as a business will be very profitable.

and the like. And I have to also add my apologies for the technical difficulty story that Paul dropped. We couldn't reconnect. So apologize to the listeners for that brief gap in coverage.

Thanks very much, I'm glad it wasn't something I said.

hahahahahahahaha That's nonadaan .. nonadaan looooot X

No, not at all, Neil. Thank you. Thank you.

Your line is now open. Our next question comes from Slomo Rosenbaum. Our next question comes from Slomo Rosenbaum. telephone..

Our next question comes from Slomo Rosenbaum with Steve, your line is now open.

All right, thank you very much for taking my questions. Tom and John , maybe you could give a little bit more detail into the growth in FSS International, maybe break it apart a little bit into new business growth. You said you're not so focused on COVID recovery, and it seems like there was some kind of COVID recovery over there.

The quarter was obviously heavily impacted by Merlin internationally compared to first quarter last year. That reminds me, John , that the opening was was early summer so it had been third, early third quarter last year. So first and second quarter have a bump for international because of the size of that account win but again they've also maintained very consistent growth levels throughout the years and have benefited from that.

have had a little higher BNI.

have had a little higher BNI mix.

in international business than the US. And so that recovery post-Labor Day in the first quarter also helped them a bit more than the US.

Okay, great. And can you talk about the trends in retention just by business unit a little bit more? Is there any, you know, is there any nuances or change from last quarter? And, you know, are there any specifics you can give us? Because I know that was, John , that was a big focus of yours coming in, you know, in terms of, you know, strategically.

targeted range.

And so we're very pleased with the current results here today and continue to drive towards those very high numbers. We're consistently setting the target at 96 plus. And, you know, we are really on target to achieve those those numbers again this year.

Great, thanks.

Thank you.

Thank you. Our next question.

comes from the line of Heather Balsky with the Bank of America. Your line is open.

Hi, thank you for taking my question. My first question is just with regards to your long-term outlook and the business exit and how to think about margins and is there an impact there and also taking into account what you're seeing in FX and inflation. It would be great to just touch on that again.

Are you talking about the impact of AIM on the

specifically on the yeah yeah yeah yeah if

basis points for the company. So that would, you know.

That would probably be the impact as we move into the, you know, 24-25.

In terms of inflation outlook, John , I don't know.

Yeah, I think we're.

You know, we have an expectation that inflation will continue to moderate over the balance of this year, but still running at very fairly high levels.

From both the food and labor rate perspective, so. Our units are working very hard to continue to recover those cost increases looking at opportunities for service changes menu changes and the like just managing actively. The P and L and.

So our expectation is that it will be here for the next couple of quarters. We're going to work very hard to offset it. And so far we've been able to minimize the impact from a P&L perspective. You see things like the price of eggs and everybody responds to those headlines.

If you can imagine, eggs are a big component of collegiate education, and it's a significantly higher cost than expected, but our units are finding a way to work around it. That's the expectation we have. We'll find the appropriate mechanisms to go ahead and offset those cost increases as we move forward. factories.

Thank you. I think we expected to soften a little bit as the year goes on, the first quarter being a heavier impact in the second half of the year.

is the current expectation.

Okay, and you mentioned earlier in the Q&A about on the on inflation that there's a little bit of an education piece now just given the disconnect between food cost and food inflation and a big headline around CPI.

Can you talk a little bit more about how those conversations are going? Are you seeing more resistance? Have you been getting the price increases that you want through?

Yeah, I would say that generally we're getting the price increases that we need. You've got timing issues that affect some of the businesses with respect to when they can achieve pricing, some are regulatory in nature, state-oriented purchasing contracts that require certain pricing on certain dates.

You know, particularly in the corrections business, you see some of that in the K-12 sector as well and delayed pricing and collegiate hospitality as board rates and negotiated literally the year before. So there's some of those kinds of timing impacts in terms of when you're able to actually achieve the price that you need.

But one of the things that we do is we provide our frontline managers with very detailed tools that they can use as talking points with their customers and clients related to what the real cost of food is on a food away from home perspective, what they're dealing with from an actual cost perspective. So thank you very

They have those tools that are provided to them on a monthly basis that they can use in those pricing discussions and negotiations. And they also use those as tools to help them manage the menu mix, if you will, going forward. So there are active discussions all the time, and pricing is one of those things that work.

consistently doing and we call it hand to hand combat. It's basically you're in there negotiating consistently to go ahead and achieve the result that you need to achieve.

Right, thank you so much.

Thank you.

And our next question comes from Leo Carrington with Fiddy. Your line is now open.

Good morning. Thanks for taking my questions, John and Tom.

If I might ask firstly a follow-up really on AIMS services

The underlying operating income guidance was lowered to reflect this disposal, but the free cash flow guidance was maintained or has been maintained.

Could you help bridge this gap and explain the moving?

the difference and then

So as a follow up on guidance for the year, Q1 margins...

in particular, FFS, FSS, United States, and to some degree, uniforms, took a step back in...

Q1, NT3.

compared to Q422 on a versus 2019 basis.

I don't know, maybe you have already been explained why this is beyond the timing of contract openings.

And also why this gives you the confidence to leave the guidance unchanged for the rest of the year. That would be great. Thank you. Leo, just to be clear, that last part of that question, you were comparing it sequentially, right? Q4 of 22 to Q1 of 23. Yes, but the progress, if you like, in basis points versus 19 as a base. And I suppose...

And also why this gives you the confidence to leave the guidance unchanged for the rest of the year. That would be great. Leo, just to be clear, last part of that question, you were comparing it sequentially, right? Q4 or 22 to Q1 of 23? Yes, but the progress, if you like, in basis points versus 19 as a base. And I suppose tough comp of Q1, 19 because...

SS United States, margin was very healthy back then. But let me rather than give you a quick answer, I'd rather look at that and then we'll come back to you specifically on an answer to that one. Um, um, um, um,

Okay. On aim services cash flow, you know, because it was not controlling interest, we would receive a dividend from them. We really didn't have the cash crossing borders. And that debt that dividend was

de minimus to be honest, not particularly material and not certainly material enough.

to change our free cash flow guidance for the year. So that's why you don't see a change.

in that is it just it wasn't big enough for us to call out.

Okay, thank you.

Thanks. Thank you.

And our next question comes from Faja Alway with Deutsche Bank. Your line is now open.

Great, thank you. Good morning. I wanted to ask about the uniform business, actually. I know you mentioned that you're still on track for a spin in the back half of the year. Give us some color on when we should expect, you know, carve out financials. And, you know, give us a better sense of what's been happening with the business. Has it trended?

as we work through the process of...

achieving the separation, adding the public company costs to the business to go ahead and adding resources to the business to go ahead and prepare it for the separation.

And so the process continues a pace. As we said, we expect to close it by the end of this fiscal year, or in the second half of this fiscal year, if you will. And I think that's all we're prepared to guide to at this stage. We've gone through the process of the separation audits. Those are largely completely.

We're also giving consideration to the capital markets and what the potential timing might be to go ahead and do whatever the debt raise might be for the business and looking at optimal timing from that perspective. So there's a number of variables that will impact the timing ultimately.

And we're working through all those, but I would say at this point business performing at at expectations and according to plan.

Thank you so much.

Great, thank you so much. Thank you.

Our next question comes from Andrew Whitman with RW Baird. Your line is open.

Great, thanks. I guess, Tom, I have a question for you. The cash flow from ops section of your report shows a $30 million reduction to a contingent liability. I was hoping you could talk about what that is and how it affected, if at all, your adjusted earnings. It's not specifically called out in your reconciliation.

And so I guess that's the genesis of my question. You have this other line here, gains, losses, and settlements, but I don't know if it's in there or not. So hoping you could just talk about what that was and how it affected your adjusted results.

It, it.

It is in there, it's in the in that net 12. I think you're looking at. And it's related to the next level or now. Yeah, the long and short of that. Is that we in order to get the deal done, we, you know, we had a gap in price that you. Normally do it with buyers and sellers.

And their expectation was was high and ours was a little bit lower. And so to fill that gap, we had an earn out construct. And they're going to perform to our expectations as opposed to their very.

you know, ambitious goals at the onset of the deal. So that's just a reversal of some of that earn out.

Okay, that's helpful. And then I was just wondering, secondarily, with, I guess, 6% price in there, are you able to understand how the elasticity of demand is either affecting your customers or the end market consumers of your product? I mean, you've got the COVID kind of ramp, you've got.

you know, the layoff trends. There's a lot of different things that are affecting volume today, but I was just wondering specifically if the end market consumer is reacting to these and changing behavior at all that you can see.

Great question, Andrew. I would say that consumer behavior continues to remain very consistent. Our participation rates are rising, which would indicate that customers are satisfied and our understanding of the pricing needs, if you will.

related to what I would characterize as related to pricing dynamics. So, you know, that's really the only way I can answer it. I think it's so far no impact.

Thank you very much.

Thank you. And our next question comes from Stephanie Moore. Your line is now open. Your line is now open.

Hi, good morning. Thank you. Good morning. I wanted to just ask about your view on customer appetite for outsourcing, how this might change in a weaker macro environment. I know that this is a secular tailwind for the business, so I would love to give your thoughts on that as we...

driven by the COVID environment and the transition, now we see continued improvement in that outsourcing environment due to cost pressures that may be facing those self-operators from both an inflation perspective and a labor staffing perspective.

It continues to be a tailwind, the pipeline of opportunities that we have is still significantly populated with self-op conversion opportunities. And so I would say it continues to, to,

be a significant source of new business potential for us. And it crosses a range of the businesses that we operate in. It's not just the food, it's also facilities as well. Great, now that's really helpful. And then switching gears to B&I.

was more depressed last year, the rate of recovery in the international was slower. This year it's accelerating. We're seeing continued BNI business improvement in continental Europe . So we're very pleased with that and continue to see that business growing nicely.

Okay, and then lastly for me, and I apologize if I missed it, but did you touch on the P&L transition and the back to P&L from cost plus and is where you are in that transition for the end of the last quarter? Thank you. Class of 2018, students' faces have been projected, or should they face down, and we

Yeah, I would say it's really unchanged. There is no significant pressure from client organizations to transition back to PNL. And I would say it's relatively consistent.

with prior quarters, we continue to be predominantly management C in the B&I sector, except in the very large operations that have a P&L capability. You continue to have companies.

Struggling with their return to work strategies, the 3 day work week, 4 day work week. And so there has not been significant pressure to transition back to P and L. And frankly, in this inflationary environment, when you've got both food cost, inflation and labor rate inflation. You know, that actually works for our advantage to continue to stay on a management fee.

from just far a mystery with XAINBNP Parabalt. Your line is now open. Hi, good morning, everyone. And just one question really, you're just trying to put together all the comments you've made on inflation trends through the year.

new business trends through the year, the recovery in like-for-like volumes, which obviously towards the end of the year you won't have much of that left, inflation will be normalised. So now that the year has really started and you had this Q1 and you're able to reiterate the full year guidance for 11 to 13% organic growth, I'm really curious what sort of Q4 performance you're seeing.

the sequence of organic growth is going to be 18, 14, 10, 6 or a bit stronger than that in the exit rate or on the contrary a lot more front-end loaded than that with the volume recovery and the inflation that's above credit in age one.

Well, yeah, I think directionally you're correct. We said at Analyst Day, our medium term algorithm is 5 to 7% top line growth. That's what we'd expect from the business on an ongoing basis, once the COVID recovery and those base volume recoveries subsided.

that also included 1 to 2% pricing. So, you know, if you strip it all the way back to that net growth.

Number, you know, we would continue to expect to see. That that anchor that floor of sort of that 5 to 45%.

You know, as we exit the year and going into 24 or 25, the variables are what's pricing and, you know, is there any remaining COVID recovery for what that's worth is we continue to get further and further away from that. So something that's more with what we said at Annelace Day.

You know, the 4 to 5 base plus pricing is probably roughly going to. Be what the Q4 year end exit rate is and going in 2425.

All right, super. And then there are any specific break points in the year that you flag or is the...

the volume recovery and inflation subsiding, is that going to be very progressive?

for the recovery and inflation subsiding is that going to be very progressive throughout the year.

Yeah, I would say it's very hard to predict exactly when inflation will abate. We are continuing to move price to offset the costs of food and labor rates throughout the year, so I would expect pricing to remain relatively high going into the close of the year in the Capital

call it the second, third and fourth quarters. So unless we see something drastically change in terms of the overall environment, I would expect pricing to continue to be at a relatively high level compared to prior years. But we do anticipate that at some point it will transition.

and normalize. So what we're really focused on is selling the net new business and growing accounts and you know the core growth of the company and just using the inflation impact or using pricing to offset the impact of inflation and to generally you know grow the company through those new account acquisition.

opportunities. So hard to say exactly when those breakpoints will be, but we're focused on delivering net new and ultimately growing the company in that way. I just add one more comment that it's, you know, coming off of one to 2% growth for a number of years pre-COVID.

to then exit this as we get into 24-25 and beyond that mid-single digits. It's maybe easier to lose perspective on how good and improvement, how fundamentally different that is pre-COVID to sort of going into next year and beyond.

from one to two to the mid-single digits or upper single digits. So we're proud of what the business has accomplished and changed throughout the last few years to be able to give us to that incrementally new level of growth as we go forward. Thank you. Our next question comes from Anaf Benayak.

Mark, your line is now open. Hi, good morning. It's Ronan Kennedy. I'm from Manob. Thank you for taking my questions. May I ask, can you just recap the sources of new wins and also your current assessment and outlook for competitive dynamics within the industry? Good morning knows I'm sorry, fall of an age thing andcooked at a time when it's universal,++ still in place.

Well, the sources we haven't really disclosed, the sources of new winds. We typically, if you look at the historic trends, we typically sell about 35 percent of CELFOP conversions, about 35 percent from our core competitors. That's our number two?)

the balance from small to regional competitors. So I think that's very consistent with the historical trends. Maybe a little bit higher rate on the self-op conversions over the last couple of years, but we expect that that trend may continue throughout this year. So that's our anticipated source.

I'm sorry, the second part of your question was competitive dynamics. I think nothing has really changed. It's a very competitive marketplace. We're all competing aggressively for new business, but our win rates are going up. We've achieved record new account wins in the last two years and we expect to achieve. Again, another great result this year. We're very focused on.

that net new perspective, if you will, in growing the business dramatically and achieving what Tom just highlighted in that mid-single digit net growth number. You know, it's truly an extraordinary result that we've been able to achieve the last couple of years and have expectations for continuing that trend going forward.

Please comments.

Operator, are there any further questions? Our last question comes from Ashish Subhadra with RBC Capital Markets. Your line is now open. Thanks for watching!

Thanks for taking my question. I wanted to drill down further on the prior question on the uniform business and particularly on the pricing. There was a particular call out on pricing. I was just wondering if you could talk about how the pricing realization is trending compared to prior year pre-pandemic levels.

And also a question on the growth and demand environment there. Some concerns around employment or employment slowing down could be on the growth in that I was just wondering if you could help respond to that and talk about the strength there from Anseli Services.

I think we'll see continued demand improvements in the uniform sector, continue to see lots of opportunity to convert non-users, non-wearers to uniform, to weekly rental uniforms. And we continue to see very strong demand for ancillary services.

both in the US and Canada, both of those businesses grew at double digit rates last year on the Ancillary Services side in the last quarter. So we anticipate that demand will continue to be strong and that we can achieve significant growth in that sector, in that business.

And I think further commentary at this point is probably left going forward to Kim. She begins to get ready to spin the business. There'll be an opportunity for an investor day and road show that will take place later this year.

and Kim's approach to pricing. I think they have been more equipped and more aggressive with pricing than historical and have on the back of you know the energy increases over the last year or so. You know it really worked very hard to get pricing into their clients.

a little bit more.

calculated and specific.

That's very helpful, Kallur. Thank you very much.

I will now turn the call back over to Mr. Zilmer for closing remarks.

Again, thank you very much for joining us this morning. We really appreciate the support of the company and its operations. Again, thanks to the Aramark team around the world for all the hard work that they do. And again, my apologies for the technical difficulty in the middle of the call. Thank you very much, everybody. Thank you for participating. This concludes today's conference. You may now disconnect.

Everyone have a wonderful day. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1-1.