Aramark

Good morning and welcome to Airmark's third quarter fiscal 2023 earnings results conference call. My name is Kevin and I'll be your operator for today. At this time, I would 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 with questions after the conclusion of the company's remarks. I will now turn the call over to Felice Cassell, Vice President of Investor Relations and Corporate Development. Ms. Cassell, please proceed.

Thank you and welcome to Aramark's third quarter fiscal 2023 earnings conference call and webcast. This morning you'll be hearing from our Chief Executive Officer, John Zilmer, as well as 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 other SEC filings. Also, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to US 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, Felice, and thanks to all of you for joining us today. This morning, Tom and I will review our third quarter results, which reflect a strong focus on growth across the organization and momentum in our return to normalized margins. We will also share an update on the significant progress we've made on the uniform services spinoff transaction. We will then turn to our raised financial expectations for this fiscal year with just one quarter to go before opening a line for questions. We believe that our performance driven culture and all that it represents has created substantial opportunities that we expect to capitalize on in the months and quarters ahead. Before I get into the results, I want to acknowledge a tremendous loss the Aramark family had a few weeks ago. John Orobono, our senior vice president of supply chain, lost his hard-fought battle with cancer. As many of you know, John returned to Aramark in October of 2019 and was with the company for almost 40 years in total. He was a true inspiration, a dear friend to so many of us, and a visionary who changed the way supply chain is managed, first for Aramark, and then throughout the food service industry, establishing a true gold standard. True to his focus on doing everything he could for Aramark, he left a strong, capable team and a solid succession plan. Our hearts are heavy, but we have full confidence in those who learn from all John so generously shared. I will now turn to the quarter. Aramark's organic revenue grew over 14% compared to the same period last year. global food and support services consisting of the FSS U.S., FSS International, and corporate reportable segments contributed year-over-year growth of more than 16%, and uniformed services increased by approximately 5%. Within global FSS, the U.S. segment grew organic revenue nearly 15% year-over-year, led by continued momentum from net new business, strong per capita spending, and increased event attendance in sports and entertainment, and continued favorable trends across the business and industry sector as a result of greater return to work activity at client locations. International organic revenue increased more than 20% versus the comparable period last year. Performance was driven by robust net new business performance, a busy sports and concerts calendar in Europe, particularly in Germany and Spain, as well as strong mining activity in South America. Global FSS continues to add broad-based new business contributions from all sectors and geographies with retention rates maintained above 95%. Since last quarter, just to name a few, our student nutrition team won DC public schools and within BNI, we expanded our relationship with Walmart to serve their new headquarters and add micro markets and vending locations across the country. Collegiate hospitality has been active during its typical selling season and was recently awarded Towson University and the College of William and Mary, among others. The international segment also gained new clients in higher education, including Kingston University in the UK and Ridley College in Canada, and had ongoing success with other bread and butter wins across the portfolio. One of the most important developments of the quarter that Tom will review more in detail was our work with customers in the education sector and corrections business. As we have said in the past, the margins in these businesses have been artificially compressed due to the sudden and significant inflation not seen in this country for decades. We're very pleased to report that our clients have recognized our strong service levels and the cumulative effect of many quarters of outsized inflation. And they've recently agreed to meaningful price adjustments that will bring us a big step closer to normalized margins. The benefit from this will occur partially in the fourth quarter and more fully in the first quarter of fiscal 24 and beyond. The progress and spirit of partnership we've seen in this quarter makes us more confident than ever that our return to normalized margins is proceeding apace and we fully expect will inevitably be achieved. The meaningful progress this quarter is a gratifying proof point of the strength of our bond with our clients and their satisfaction with our service to them. Organic revenue growth in uniformed services was driven primarily by pricing actions and growth in adjacency sales, partially offset by the rollback of an energy surcharge that was implemented in the third quarter last year that represented approximately 80 basis points. We're pleased to have uniformed services leadership well in place and the strategic growth plan is underway with early signs of success coming from improved analytics, portfolio targeting analysis, and adjacency sales. We expect this underlying momentum to build into next year and well beyond. Regarding the spinoff, our collective teams have made significant progress related to the operational, regulatory, and financial logistics. We expect to complete the spinoff at the end of our fiscal year, subject to customary closing conditions and based on the current macroeconomic and capital market environment. A few key milestones as we work towards execution of the transaction. Just this morning, we announced the future board of directors for uniforms as an independent public company composed of a strong mix of industry expertise public company experience and diverse perspectives. This impressive and highly qualified group will provide helpful strategic insight to the uniforms leadership team and their mission to drive significant value. The board will be chaired by uniforms industry veteran Philip Holliman. former president and chief operating officer of Cintas, with over two decades of experience in the industry. The Uniforms Board will also include other seasoned leaders who have strong, relevant backgrounds in uniform and similar route-based businesses. AUS is finalizing terms on approximately $1.8 billion in financing through banking partners, consisting of $1.5 billion in term loans and a $300 million revolving credit facility. Given the attractive cash flow attributes of the Uniforms business, the interest rates are anticipated to be comparable to Aramark's most recent refinancing. With these proceeds, SpinCo is expected to transfer approximately $1.5 billion to Aramark, maintaining neutral net leverage for the total company, all with an eye to continue a path of delevering for both Aramark and AUS. Finally, Kim and her team will host an analyst day in New York City the morning of September 13th. Think. excuse me, September 13th, which will also be available via webcast to review the strategic plan for uniforms and the next phase of value creation. This will be a great opportunity for you to meet the strong team of executives, including exceptional new hires from leaders within the industry. And we'll share more details with you soon. We're excited about the potential and strategic benefits of both businesses operating as independent companies. Before turning the call to Tom, I'd like to highlight a few key accomplishments related to our ESG and DEI initiatives, reflecting our ongoing commitment to positively impact people and the planet through our Be Well, Do Well plan. These initiatives remain highly important to us, as well as our clients, partners, and shareholders across the globe. First, we've taken another step forward in our sustainability efforts. Just last month, we received confirmation from the Science-Based Targets Initiative of our goals to reduce our carbon footprint according to their net zero standard. These targets follow and complement our existing ESG commitments. Also, I'm proud of our recent recognition as a best place to work for disability inclusion and perfect 100% score on the Disability Equality Index once again. We continue to be focused on creating a welcoming and inclusive culture across the organization, and diversity, equity, and inclusion will continue to be a top priority for us. We believe that our focus on our people has become a key differentiator for the company that has led to tremendous outcomes. I could not be more proud of what our team has been able to achieve. Tom?