Aramark

Good morning and welcome to Aramark's first quarter 2021 earnings results conference call. My name is Kevin and I'll be your operator for today's call. At this time, I'd like to inform you that this conference is being recorded for rebroadcast and that all participants are on 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 Felice Cassell, Vice President, Investor Relations and Corporate Affairs. Ms. Cassell, please proceed.

Thank you. And welcome to Aramark's first quarter. fiscal 2021 earnings conference call and webcast. I hope those listening are doing well. This morning, we will be hearing from our Chief Executive Officer, John Zilmer, as well as our Chief Financial Officer, Tom Androff. As a reminder, our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the risk factors, MD&A, 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. So with that, I will now turn the call over to John.

Thank you, Felice, and hello, everyone. First, I would like to wish all of you a bright year ahead that includes good health, and a return to a more conventional way of life for all of us. As we progress through the new year, I'm exceptionally encouraged by the resiliency of our business through this unprecedented period, as well as the considerable opportunities emerging for Aramark. This morning, I'll highlight our first quarter performance, provide insight into our immediate expectations for the business, and share our progress in Aramark's accelerated growth strategies. We remain committed to unlocking significant value for our stakeholders. Importantly, we continue to promote an ownership mentality within the organization. Having just approved an employee stock purchase program that provides employees an opportunity to participate more broadly as owners of the business, we believe this action will further align our people, values, and performance. Turning now to the first quarter, revenue was in line with expectations that we articulated in last quarter's earnings call and subsequent disclosures. with organic revenue down 36% year over year, consistent with fourth quarter fiscal 20 organic revenue levels. These results reflected various stages of client reopenings, as well as the expected timing shift within higher education as the majority of schools we serve intentionally concluded the first quarter early to preserve the ongoing ability to keep students safely on campus. Our teams across the business demonstrated unwavering resolve by effectively managing and maintaining extraordinary cost discipline that resulted in an AOI drop through rate of 20% at the low end of our stated expectations. This dedication contributed to a free cash flow improvement of $225 million compared to the prior year period while reflecting seasonal outflow in the quarter. We maintained ample cash availability with approximately $2.4 billion at quarter end. As we commenced the new fiscal year, our performance demonstrated continued stability across all business segments as we navigated the effects of COVID-19, while simultaneously working with clients in preparing for a business reemergence. U.S. food and facilities reported an organic revenue level in line with the preceding quarter, as each business sector managed various stages of client activations. We added prominent new clients for our U.S. portfolio, including most recently Florida State University, as well as drove improved retention levels. Education served clients operating both in-person and hybrid learning models. As noted earlier, higher education reflected shortened semester schedules that also resulted in reduced catering and retail activity that typically spiked during the holiday season. The second semester is currently underway. We continue to serve approximately 90% of client locations in some manner, with our clients experiencing a higher student population on campus than during the fall semester. In K through 12, the team did a tremendous job navigating through changing client operating models and strategically designing menus and customized services to meet the needs of communities. Whether the students attended classes in person or joined virtually, while participating in our curbside meal pickup, as we continue to offer the universal government-sponsored meal programs. Approximately 70% of the districts we serve are in a hybrid setting, with many districts in the process of resuming increased in-person learning. This promising progress gives us considerable optimism for the business. Sports, leisure, and corrections improved slightly quarter over quarter as we entered the new fiscal year. Sports and entertainment began to activate as certain NFL teams introduced fans at a limited capacity based on local regulation. The NBA and NHL are implementing various strategies for partial attendance in their upcoming games. Leisure maintains steady performance as the team ramps up for the anticipated increased activity in national parks as we head into the spring season. Lastly, corrections remain stable. As we experience a longer recovery in business and industry, we are developing innovative solutions to offer clients that go beyond their traditional office setting. This includes the launch of Munch Mail a few weeks ago, an exclusive home delivery option that provides curated gourmet offerings. The B&I team has already fulfilled tens of thousands of client orders across the country. Facilities and other has essentially returned to historic levels largely from significant success in offering additional project-oriented services. The facilities team is currently deploying educational digital content to clients that provide new insights related to innovations occurring within the business. We are pursuing numerous cross-selling opportunities in this area given the heightened demand for safety and hygiene. Healthcare remained relatively stable, and the team has worked tirelessly to provide capabilities in telehealth and mobile ordering, in addition to offering post-care meal delivery to patient homes, extending the boundaries Aramark operates for clients. International performance improvement quarter over quarter was driven by the team's ability to effectively leverage our expertise in managing complex and evolving government-mandated restrictions, specifically in Europe. Our healthcare and extractive services businesses exhibited particular resilience across the portfolio, with China once again driving nearly double-digit revenue growth. The international team continued to win broad-based new business, totaling over $100 million in the first quarter, while simultaneously delivering strong retention rates. Uniform services offerings remained in high demand, and the team committed to implementing additional value-enhancing strategies, including the expansion of our adjacency services that drove double-digit year-over-year growth in this area, and investments in growth resources, which are already demonstrating productivity in recent sales conversions, and the ongoing implementation of our ABS route accounting system integration that provides significant scaled efficiencies while offering enhanced service capabilities to clients. In supply chain, we are progressing well with our priorities focused on value creation, innovation, culinary collaboration, and supplier development. As we pursue this mission, we're ensuring that our operating teams have the right tools to simplify their efforts. We introduced a new system that will serve to improve spend visibility, optimize adherence to programs, and uphold Aramark's commitments to sustainability, supplier diversity, and local regional suppliers. This approach has proven exceedingly advantageous represents promising future opportunity as we strategically leverage our spend pools. Lastly, as part of Aramark's Be Well, Do Well ESG commitment, we just released our Sustainability Impact Report that highlights our efforts to further enable equity and well-being for millions related to healthy eating initiatives, employee resource capabilities, diverse owned business partners, and tuition support for qualified frontline associates. Our strategies are centered on sourcing responsibly and operating efficiently, while mindful of our ongoing focus on margin progression. Before turning it over to Tom, I would like to highlight the recent election of Bridget Heller to Aramark's Board of Directors. Bridget is a highly respected business leader with 35 years of experience in food, health and wellness, and consumer care, with an extremely impressive track record of accelerating growth at several Fortune 100 companies. while simultaneously championing diversity and inclusion. We're thrilled for the opportunity to have Bridget join the board and to leverage her extensive value-creating experience. I will now turn the call over to Tom for a detailed financial review of the business.