Aramark

Good morning, and welcome to Aramark's second quarter 2021 earnings results conference call. My name is Justin, and I will be your operator for today's call. At this time, I would like to inform you that this conference is being recorded for rebroadcast, and that all participants are in a listen-only mode. We will open the conference call for questions at the conclusion of the company's remark. I will now turn the call over to Felice Cazell, Vice President of Investor Relations and Corporate Affairs. Ms. Cazell, please proceed.

Thank you, and welcome to Aramark's second quarter fiscal 21 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 Undruff. 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. Good morning, everyone, and thank you for joining us today. The strategic actions we recently executed, combined with our financial results released this morning, reflect our ongoing commitment to drive the business to new heights of success. In a matter of weeks, we've announced an upsized revolving credit facility and debt refinancing, a proactive $500 million debt repayment, and an acquisition that creates an additional revenue channel in the rapidly growing senior living industry. This morning, I look forward to reviewing our second quarter performance and discussing the current state of the business as we advance strategies that align with our commitment to deliver value for stakeholders. The transformation occurring has resulted in newly awarded clients, including Northeast Georgia Hospital and a self-op conversion in the B&I sector with the addition of Corning Incorporated, a Fortune 500 company and leading innovator in material science. We also expanded our role at the University of Hartford, where we earned the facilities business, another self-op conversion. With the higher ed selling season underway, we're extremely pleased to be entering into new agreements with nine universities of the Pennsylvania State System of Higher Education, the largest provider of higher education in the Commonwealth. With these new agreements, we will be serving 11 state-owned colleges and universities within the state system. We're excited by these recent wins, and remain highly optimistic about the extensive pipeline of opportunities. Turning now to the second quarter, revenue was in line with our expectations articulated in last quarter's earnings call and subsequent disclosures, with organic revenue down 26% year over year, improving compared to the first quarter, and laughing when we began to experience a significant impact from COVID in the prior year. The team's unwavering efforts to thoughtfully reopen client sites throughout the organization led to sequential quarterly revenue improvement across all segments. As sales volumes in the business began to reemerge more meaningfully, we maintained extraordinary cost discipline, effectively managing the AOI drop-through rate to 15%, better than our outlook of 18 to 22%, and returning to positive operating margins. While we continued to invest in growth-oriented resources, AOI performance was driven by improved operating efficiencies. This disciplined approach contributed to strong free cash flow generation of nearly $260 million in the quarter, representing an improvement of over $150 million compared to the prior year. Cash availability totaled $2.6 billion at quarter end, providing the financial flexibility to execute the strategic actions I just articulated. such as enhancing our capital structure and pursuing opportunistic mergers and acquisitions. I'd now like to review the performance by business segment in the quarter. U.S. food and facilities reported solid sequential quarterly improvement with key drivers in each business sector. Education gained momentum as more students entered in-person learning environments compared to the fall. In higher education, we're enhancing the on-campus experience to offer university communities added stability, flexibility, connection, like-mindedness and innovation. Our unique approach to creating a hospitality ecosystem was recently highlighted in Food Management Magazine. In the K-12 sector, approximately 70% of school districts across the U.S. offered greater in-person or hybrid learning, with the USDA continuing its universal meal program just extended through June of 2022. Sports, leisure, and corrections improved modestly with the anticipated spring season just underway. In the second quarter, the NBA and NHL introduced fans at partial capacity based on local regulation. Leisure maintained steady performance with solid early attendance at national parks, and corrections reported year-over-year growth. In recent weeks, we've seen an encouraging opening in Major League Baseball, with our portfolio collectively operating at approximately one-third of attendance capacity at this time, and we expect increasing fan counts over the course of the season. We've implemented innovative technology, including self-ordering kiosks, mobile ordering, grab-and-go markets, just to name a few. In leisure, we're experiencing record reservation demand for the upcoming recreational season. In business and industry, additional client locations open throughout the quarter while companies adopt evolving return-to-work strategies. We are experiencing early signs of success in solutions that extend the traditional office setting, including munch mail, Our home delivery offering launched last quarter that has already experienced increased online ordering traffic with conversion rates doubling. Quick Eats, our award-winning walk-in, walk-out digital concept utilizing artificial intelligence, is another business offering that is strongly resonating with our clients and has applicability to other areas of the business. Facilities and other demonstrated success in selling more frequent and comprehensive services as clients remained heavily focused on safety and hygiene, particularly as locations began to increase in-person activity. We continue to anticipate particularly heightened demand in this business. Healthcare continued to report gradual improvement as visitor restrictions eased and elective procedures increased. The team has worked tirelessly to create unique automated patient care experiences from the time of admission through discharge that include customized post-care meal delivery options to best serve ongoing dietary needs. International demonstrated modest improvement quarter over quarter, balancing strong performance from healthcare in China and extractive services in Chile, with government-imposed restrictions in other geographies, particularly in Europe and Canada. The team continues to impressively pursue growth, now having won over $150 million in broad-based new business since the start of the fiscal year, while simultaneously delivering record retention rates. I'm also extraordinarily pleased to announce the addition of Chris Garside, a seasoned food service industry executive who many of you likely know. Chris joins us next week to lead our international growth strategies. Uniforms reported improvement quarter over quarter, while aggressively managing areas of the business that were affected by government-imposed restrictions particularly in Canada. We continue to focus on value-enhancing initiatives, including adjacency services expansion, which once again delivered double-digit growth in the quarter, strong productivity from investments in growth resources that have resulted in improved retention rates and improved closure rates, and ongoing progress in our ABS integration, with this capability-enhancing system on track to reach nearly 75% of revenues by year-end. With the remaining market centers shortly to follow, these efforts collectively contributed to record high customer satisfaction scores. In supply chain, we continue to optimize our spend pools and refine our relationships with the right suppliers to provide the best economics and access to innovative products. We are also focused on our commitments to diverse suppliers, local and regional suppliers, and sustainability are leveraged. In addition, our simplification efforts with field procurement technology and process optimization are making considerable progress. We launched our employee stock purchase plan to all eligible U.S. employees in early April with a goal of expanding globally. The program delivered very strong participation in its first enrollment period with over 85% of those enrolled set to become first-time Aramark shareholders. This initiative aligns our people, values, and performance while reinforcing an ownership mindset within the organization. Before turning the call over to Tom, I'd like to take a moment to review our recent agreement to acquire Next Level Hospitality announced two weeks ago. Next Level will strategically expand our presence in healthcare within the high-growth senior living industry, specializing in skilled nursing and rehabilitation facilities. This provides an opportunity to immediately participate in a largely unpenetrated, highly self-operated category with significant untapped potential to best serve this growing demographic. The business commands comparable margins to us driven by culinary innovation, quality service offerings, and client excellence. We know the team extremely well and are excited to work together in driving our combined capabilities and expertise. Lastly, I would like to share that Jeff Gilliam, who leads our healthcare division, will retire at the end of this calendar year. I want to thank Jeff for his many contributions to the company. I'm also pleased to welcome Bart Carriker as our president and CEO for healthcare. Bart is a healthcare veteran with over 20 years of industry experience. Throughout his career, Bart has played an instrumental role in driving significant growth, improving closure rates, and building a culture focused on growth. We look forward to Bart's meaningful contributions. And Tom will now provide a detailed financial review of the business.