Aramark

Good morning and welcome to Aramark's fourth quarter and full year fiscal 2023 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 in a listen-only mode. We will open the conference call for questions after the conclusion of the company's remarks. I will now turn the call over to Felice Cassell, Senior Vice President, Investor Relations and Corporate Development. Ms. Cassell, please proceed.

Thank you and welcome to Aramark earnings conference call and webcast. This morning, we will be hearing from our CEO, John Zellmer, as well as our CFO, Tom Ondra. There are accompanying slides for this call that may be viewed through the webcast and are also available on the IR website for easy access. Our notice regarding forward-looking statements is included in our press release. 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 SEC filing. We also will be discussing certain non-GAAP financial measures. A reconciliation of these items to US GAAP can be found in our press release and IR website. With that, I will now turn the call over to John.

Thank you, Felice, and thanks everyone for joining us. This morning, Tom and I will provide a detailed review of our fourth quarter and full year fiscal 23 results and key performance drivers, including net new business. Our growth teams continue to deliver, including significant new business wins closed in just the past few weeks, which I will review shortly. I'm proud of the work we've done to strengthen performance and culture, and I'm eager to capitalize on the numerous opportunities our client-focused approach continues to generate. We'll also preview our performance expectations for the year ahead, which show positive momentum entering this new era for Aramark, following the completion of the uniform services spinoff. We'll take a moment to highlight the results for uniforms at a high level, and Kim and Rick will provide more detail in their upcoming earnings call for Vestas now an independent, publicly traded company. Aramark's performance this past fiscal year demonstrated the progress we've made towards the strategy and financial goals outlined at Analyst Day nearly two years ago, resulting in a stronger balance sheet, improved profit margin performance, and meaningful, sustainable growth. Over the past year, organic revenue grew nearly 16% and adjusted operating income increased 34% on a cost and currency basis. Free cash flow was $334 million. That included a payment of deferred payroll taxes related to the CARES Act, as well as transaction and restructuring costs associated with the spinoff. Free cash flow before these items was $471 million, which along with higher EBITDA and over $800 million of net debt reduction throughout the year, resulted in a 1.4 times leverage ratio improvement from the prior year to 3.9x at year end. Adjusted EPS increased 50% on a constant currency basis compared to prior year. As part of these results, global FSS consisting of the Food Service for the U.S., Food Service International, and corporate reportable segments drove organic revenue growth of nearly 18% and AOI growth of more than 46% on a constant currency basis. And in the uniform services segment, organic revenue grew 5.5% and AOI increased 10% year over year on a constant currency basis. The uniform team's strategic initiatives contributed once again to its improved profitability in the fourth quarter. AOI grew 15% on a constant currency basis and AOI margin reached 11.8%, nearly 70 basis points better than the third quarter. and 106 basis points better than the fourth quarter of last year. We believe the pathway for value creation that Kim and Rick outlined at the Vestas Analyst Day in September is taking shape, and we're excited for their promising future as a standalone company. Turning now to Global FSS, Net New Business. With a growth mindset now well established, our net new business momentum continued, achieving a 4.3% prior year revenue. High retention rates and strong new business winds drove growth in this priority area. The hospitality culture that we continue to cultivate and enhance has resulted in strong relationships with our clients. We've also been opportunistic in repositioning the portfolio within our next level business as we create a new senior living offering, which we believe has enormous potential ahead. Retention rates were 95.5% with strength across the portfolio, maintaining the positive step change versus our historical levels, even as the environment normalized this year. Annualized gross new business wins totaled nearly $1.2 billion, representing 8.8% of prior year revenue. Now entering another year of expected strong new business performance, we believe that we are starting to reach a cruising speed and delivering consistent growth. We added clients, both large and small, across multiple lines of business and geographies. Among others, a notable win added in the fourth quarter was the Indianapolis Motor Speedway, one of the world's biggest sports complexes and home to the iconic Indy 500. Favorable outsourcing trends continued throughout the year, with 40% of our wins globally and close to 50% in the U.S., coming from self-op conversions compared to around one-third historically. While we provide more detailed disclosures on our net new business performance at the end of each fiscal year, our focus on driving growth is constant. In just the first few weeks of fiscal 24, we're off to a great start, which includes having just been selected to provide food and nutritional services to one of the most admired and respected children's and pediatrics institutions, Boston Children's Hospital. We remain confident in our robust pipeline for fiscal 24, and expect to achieve net new business equivalent to 4% to 5% of prior year revenue for the third consecutive year. Now turning to our fourth quarter results, again exclusively focused on global FSS. Overall performance reflected a strong top and bottom line across the portfolio. Revenue of $4.2 billion included organic revenue growth of more than 12% year over year, driven by strong net new business, pricing, and base business growth. Operating income was $220 million. Adjusted operating income was $256 million, representing an increase of 33% year-over-year on a constant currency basis. Operating leverage from higher revenue and the maturing of new business from prior years, as well as improved supply chain economics and disciplined above-unit cost management, resulted in higher year-over-year profitability in the quarter. The FSS US segment increased organic revenue more than 10% compared to the same period last year, and AOI grew more than 24% on a constant currency basis. Performance was driven by strong per capita spending and greater event attendance in sports and entertainment, as well as continued favorable trends across the B&I sector. As we previewed last quarter, we've made notable progress on the price inflation lag within the education sector and corrections business. This pricing partially benefited the fourth quarter and will more fully contribute to results in the first quarter of fiscal 24 and beyond. The FSS international segment grew organic revenue approximately 19% year-over-year and increased AOI more than 50% on a constant currency basis, even without the AIM operations following its divestiture in April. Performance in the quarter reflected strong results across geographies, including a busy events calendar and greater B&I participation rates in Europe, strong mining activity in South America, and the start of the school year for higher education clients in Canada. Corporate expenses were relatively flat year over year as we remained focused on above-unit cost containment while appropriately supporting the international and U.S. segments. Collectively, our performance in the quarter was a strong end of the fiscal year and sets a solid foundation going forward. Given our strengthening financial profile, the Board of Directors just approved a 15% increase to our pro rata portion of the pre-spend dividend. The $0.095 dividend per share will be payable on December 8th. We remain focused on driving our ESG and DEI strategies, which resulted in the following recent accomplishments. Aramark was selected as one of America's greenest companies by Newsweek for our commitment to our sustainability footprint. We were recognized as the best company for diversity, equity, and inclusion by Black Enterprise and named the 2023 Champion of Board Diversity in the Forum of Executive Women. And just a few weeks ago, we announced our partnership with JPMorgan Chase on their Diverse Supplier Grant Initiative that is focused on assisting diverse owned businesses. Before turning the call to Tom, I want to congratulate two exceptional Aramark leaders on their well-deserved retirements. First, Bruce Fears. With 40 years of stellar service to the company, most recently as president and CEO of Aramark Destinations, Bruce's commitment to our business and stewardship to some of the country's most iconic places is legendary, and we're grateful for all the years he's served Aramark and this industry. Sasha Day will step in to lead Aramark Destinations returning to her roots where she initially joined the company 20 years ago. Most recently, Sasha served as Chief Growth Officer for the collegiate hospitality business. And Andy Ciclos, President and CEO of Aramark Canada since 2016. With his passion and focus on results, Andy established strong client relationships and elevated Aramark's position as a Canadian company. Steve Prisco has been named President and CEO of Aramark Canada. Steve has extensive experience within the Canadian business, which he joined in 2004, having served in roles including assistant general counsel, chief financial officer, regional VP for Canada's largest operations, and most recently, chief growth officer. I wish the best to Andy and to Bruce in their retirement, and I know that Sasha and Steve will be remarkable in their new roles. Tom?