Aramark

Good morning and welcome to Aramark's fiscal 2024 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 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's earnings conference call and webcast. This morning, we will be hearing from Aramark CEO John Zilmer, as well as CFO Jim Tarangelo. As always, there are accompanying slides for this call that can 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 filings. We 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.

Good morning, everyone. Thank you all for joining us. On today's call, Jim and I will be providing a detailed review of Aramark's earnings results released this morning and sharing our expectations for the business in fiscal 25. Every quarter this past fiscal year, we reached new highs in our financial performance, which resulted in us raising our full-year outlook throughout fiscal 24 and ultimately achieving record revenue and AOI profitability for any year in global food and support services history. This is a testament to what our teams are capable of, raising the bar every single day and challenging ourselves across the organization to deliver for our stakeholders. For fiscal 24, this mindset led to year-over-year organic revenue growth of 10%, adjusted operating income increasing 20%, and adjusted EPS rising by 35% on a constant currency basis. I truly believe the best is yet to come in recognizing our full potential. We also announced this morning that the Board approved a new $500 million share repurchase program, clearly demonstrating our continued confidence in the business and the significant growth opportunities ahead. Our strong and predictable cash flow provides us considerable financial flexibility To first, strategically invest to drive growth, focus on building upon our prominent client portfolio. Second, to pay down debt with a clear line of sight to reducing leverage to around 3x by the end of this fiscal year. Third, issue a quarterly dividend, which was just increased by 11%. And fourth, initiate a share buyback program to repurchase Aramark shares, highlighting our capital structure capabilities. These actions reflect our ongoing commitment to maximizing shareholder value and further positioning the business on a firm foundation to deliver great results. Once again, we experienced significant annualized gross new business wins in fiscal 24, totaling more than $1.4 billion and representing nearly 9% of prior year revenue, the best year ever for global FSS. Retention for the total company was impacted by recently exiting some lower margin facility services accounts, most notably Chicago Public Schools, as a result of a policy change driven by political considerations. And while I'm not pleased with the effect this had on our overall retention number of 93.2%, we see this as a unique occurrence. Our core food service businesses in both the United States and international achieved retention of 95.2%, in the fiscal year. Our new business pipeline across the organization remains substantial, including in first-time outsourcing, and we are already off to a great start this fiscal year with several large opportunities leaking into fiscal 2025. In just the first six weeks, we've added clients such as Broward Health Medical and MasterCard. I have strong confidence in the company's ability to achieve net new of 4% to 5% with retention levels above 95% in fiscal 25 and beyond. Turning to the business segments, FSS-US grew organic revenues 7% in fiscal 24, primarily from record-based business volume and pricing. In the fourth quarter, organic revenue in the segment increased 4% as pricing began to normalize with improving inflation, particularly in education. strong per capita spending, and high fan attendance levels continued in sports and entertainment, along with increased participation rates in workplace experience and retail expansion in corrections, more than offset facilities, which I referenced earlier. New clients added in the fourth quarter included SAP America in workplace experience, House of Blues in Guinness locations in sports and entertainment, and Palantir now in refreshments, as well as our Senior Life Plus business partnering with Asbury Communities to provide dining and hospitality services in continuing care retirement communities. Destinations also began operations at Adventures on the Gorge, which encompasses more than 70,000 acres in West Virginia. Corrections continued to expand the portfolio in the fourth quarter with our Into Work program, a key differentiator as a second chance employer, offering training, certification, internships, and scholarships. IntoWork recently had a record graduating class from its warehouse and supply chain program, and in total now has more than 6,000 graduates. In the U.S., we just launched Hospitality IQ, a hub for AI-powered business applications to enhance the guest experience, empower our operators, and further drive our clients' business objectives. These platforms include our award-winning Mosaic AI supply chain platform, which allows clients to receive real-time, actionable supply chain data customized to their specific locations. Culinary Copilot, an AI-powered resource that provides real-time menu recommendations. And Aramark Connected, which creates a frictionless, unified guest experience, leveraging multiple autonomous services that are open around the clock. This offering is particularly appealing to clients in education, healthcare, and workplace experience. Hospitality IQ represents another step forward in Aramark's mission to provide innovative and practical solutions for clients with strong financial benefits. Now on to international. Momentum in international continued with organic revenue increasing 17% in fiscal 24, as the team has been extraordinarily successful in collaborating to deliver on our strategic priorities in the countries we serve outside the U.S. from partnering across borders to sharing best practices to thoughtfully building scale. These actions led to strong base business growth, high retention, and significant new business. In the fourth quarter, international's organic revenue increase of 16% included contribution from all geographic regions across the portfolio, with the UK, Germany, Canada, and Chile leading the country-specific performance. Aramark is proud of our long-standing European sports and entertainment presence with the Bundesliga in Germany and La Liga in Spain, and more recently, as I shared on my last call, just entering the English Premier League as we become the Everton Football Club's official global food and experiences partner for their new stadium opening in a few months. We are now also pleased to announce the continuation and expansion of our relationship with one of the most powerful global brands in sports, FC Barcelona. Through a dynamic long-term partnership, Aramark will be the exclusive food and beverage and hospitality partner for the renovated 105,000-seat Camp Nou Stadium, scheduled to reopen later this year. Additional new clients awarded in the fourth quarter within international included Allied Irish Bank in Ireland, BBVA España in Spain, and BP Gulf of Mexico in our offshore business, among many others. Moving to global supply chain. Global supply chain continues to grow, leverage, and optimize our spend by providing a high standard of products, services, economics, analytical insights, and sustainability solutions for our clients. Our global GPOs are aggressively expanding with double digit organic net new growth across all our GPO channels, contributing to the $1 billion in new spend this past fiscal year, with total spend reaching $20 billion. This momentum comes from wins in hospitality, senior living, wellness, and entertainment. We also launched Avendra International in the fourth quarter to enhance our service capabilities in the international marketplace, a key area of focus for us. To accelerate our success, we continue to selectively pursue acquisition opportunities to complement our organic efforts and enhance our potential in targeted areas. A word on inflation. Inflation continues to be favorable across our global portfolio. Europe, North America, and Asia are all showing continued improvement, with only Latin America lagging behind. We expect this overall trend to continue with the business returning to historic inflation levels in the 2% to 3% range as we move through fiscal 25. Lastly, we're focused on optimizing our balance sheet and leveraging our financial flexibility, as I mentioned in the beginning of my remarks. As part of this strategy, we recently completed the sale of a remaining ownership stake in the San Antonio Spurs NBA franchise for approximately $100 million and used the proceeds for debt repayment. We continue to work closely with the Spurs as a valued client. Before turning the call over to Jim, I'd like to highlight a few more accomplishments and the recognitions we received in the fourth quarter. As a new academic year began Aramark volunteers work together with local organizations to assemble and deliver backpacks filled with school supplies to students in need across 30 communities in the US, Ireland and Chile. Second, the company was highlighted as one of America's most admired workplaces 2025 by Newsweek with fostering innovation and professional growth as key considerations. We were also named as the best place to work in healthcare by the industry-leading publication, Modern Healthcare, taking the number two spot. And finally, a number of Aramark leaders received prominent recognition for our commitment to people and the planet for environmental sustainability, DEI efforts, and building local communities. This included our head of sustainability, Alan Horowitz, as a featured speaker during UN Climate Week. I'm proud of what we've accomplished this past year at Aramark. and know we have tremendous runway going forward. I'll now turn the call over to Jim.

Thanks, John, and good morning, everyone. As John mentioned, we had another record-breaking quarter, building on the strong results we have delivered throughout the fiscal year. Our passionate teams across the company are pursuing significant revenue growth and operational efficiency opportunities, which are expected to drive continued momentum in the business. We are really pleased with Aramark's performance in fiscal 24. As you recall, we start the year with an outlook of 7% to 9% growth in organic revenue. We delivered 10%. 15% to 20% growth in AOI, we reported 20%. 25% to 35% growth in adjusted EPS, we had 35%. And leverage of approximately 3.5 times, we ended the year at 3.4 times a 50 basis point improvement compared to the prior year. We exceeded or achieved the high end of our financial expectations across the board, reinforcing that our growth-oriented model is working, driving our margin levers, and generating substantial underlying performance. Now, let's review these results in more detail. For the full fiscal year, we reported revenue on a GAAP basis of $17.4 billion. up 8% compared to the prior year, with approximately 2% of foreign currency translation impact. Organic revenue grew 10% versus the prior year, driven by record base business volume, pricing, and the contribution from net new business. Fourth quarter organic revenue was up 7% from increased base business volume and reflecting more normalized pricing from favorable inflation trends. Adjusted operating income was $882 million in fiscal 24, up 20% on a constant currency basis, resulting in an AOI margin of 5.1%. This consistent execution of our profitable growth model led to margin progression for the full year of 50 basis points. For the fourth quarter, AOI was $271 million and grew 8% on a constant currency basis. AOI margin was up 10 basis points from higher revenue growth, cost discipline, and supply chain efficiencies, which more than offset the gain in the prior year from possessory interest at a destination site, which we previously highlighted. Excluding this item, the company would have experienced double digit AOI growth. Our results for the fiscal year led to adjusted EPS of $1.55. an increase of 35% on a constant currency basis. For the fourth quarter, adjusted EPS was 54 cents, up 14% on a constant currency basis. Interest expense and effective tax rate ended up in line with our expectations and consistent with the modeling assumptions provided on our IR site. On a GAAP basis, Aramark reported consolidated operating income of $707 million and EPS of 99 cents for fiscal 24. And for the fourth quarter, operating income was 219 million, and EPS was 46 cents. Moving to cash flow. Consistent with our typical seasonality of the business, the fourth quarter generated a significant cash inflow, which contributed to our strong cash flow for the full year. Net cash provided by operating activities in fiscal 24 was $727 million and free cash flow was $323 million. Our free cash flow grew by 121% compared to the prior year period from higher cash from operations and favorable working capital. As we have previously stated, our current free cash flow would have been even higher if it were not for approximately $100 million of one-time cash payments for taxes from the gain related to the AIM services sale as well as for expenses from the spend. Cash from investing activities benefited from the sale of our remaining ownership stake in the San Antonio Spurs NBA franchise, as John shared earlier. In fiscal 24, we reduced net debt by $1.6 billion, which contributed to our leverage ratio getting down to 3.4 times, an improvement of 50 basis points year over year. We ended the fiscal year with over $2.6 billion of cash availability. We continue to remain strategic around extending our balance sheet maturities and our cost of financing, closely monitoring the credit markets for opportunities. Lastly, we are very excited about the Board's approval of our new $500 million share repurchase program. This is a significant step in further demonstrating the strength of our capital structure, confidence in our future, and focus on shareholder value creation. We intend to pursue stock repurchases opportunistically, which at a minimum is expected to offset equity dilution and be accretive to earnings. Our capital allocation approach will be strategic in achieving our deleveraging objectives and utilizing excess cash generation to repurchase shares, factoring in our intrinsic valuation assessment of the equity to optimize repurchase activity. In conjunction with these actions, let me be clear that our top priority is always to invest in the business to drive and propel growth, and we have the financial flexibility to do so. I'll now wrap up with our outlook for fiscal 25. We are extremely pleased with the performance in fiscal 24, and we continue to make great progress in achieving our longer-term financial targets, which I am confident in us going to and through. With that, we currently anticipate the following full-year performance. Organic revenue growth of 7.5% to 9.5%, AOI increasing 15% to 18%, adjusted EPS growth of 23% to 28%, and a leverage ratio of approximately three times. Of note, fiscal 25 and the fourth quarter specifically contain an extra or 53rd week. This has an expected benefit of about 2% on organic revenue in AOI. Also, the outlook for adjusted EPS doesn't include any benefit which would occur from potential share repurchases. In summary, we continue to deliver on both top and bottom line performance. Our strategies are producing great results, and we are excited to keep this momentum going. Thank you for your time this morning, and with that, I'll turn it back to John.

Thank you, Jim. Entering this new fiscal year, we are confident in our ability to build upon the success we've worked so hard to establish, leveraging our hospitality culture and growth mindset. Our teams have laid the groundwork to create significant new business and value-creating opportunities, and we know what needs to be done. We will continue to take the steps necessary to reach and surpass new levels of financial performance. I am really excited about what's ahead. An operator will now open the call for questions.

Thank you. We will now begin the question and answer session. If you have a question, please press star then 11 on your touchtone phone. If you're using a speakerphone, you may need to pick up the handset first before pressing any numbers. In order to accommodate participants in the question queue, please limit yourself to one question and one follow-up. To remove yourself from the queue, please press star 11. We'll pause for a moment while we compile our Q&A roster.

Our first question comes from Neil Tyler with Redburn Atlantic.

Your line's open.

Good morning. Thank you. Good morning, John, Jim. Two, please. The first question really is just on the facilities contracts that you've exited. You mentioned that's a sort of unique, specific issue. We could take it from that. Can you confirm that there are no more sort of lurking within the portfolio you're unsatisfied with the profitability of? And Can you perhaps give us an indication of what that means in terms of basis points of revenue growth missing from FY25? That's the first question. The second one is really on the margin. I think excluding those one-offs in the base year, the margins expanded sort of close to 70 basis points year on year. The guidance implies something toward half that level for the forthcoming year. So I wonder if you could just sort of talk about the different levers side by side within those two years, which is taking over from which, and in what order you see the sort of contributing factors to the margin improvement for FY25. Thank you.

Sure. We'll take the first part of the question first. First of all, yes, there are no other large facilities contracts lurking in the background that are unprofitable that we are looking to exit or to manage our way out of. Those are very unique circumstances, one of which was, as I described, Chicago Public Schools. Another was a very large organization that's gone through some very fundamental change with respect to their industry, and they made a very tough decision to go ahead and change the decision they'd made literally the prior year. So it was a very significant new contract, which we had recently won and had begun to mobilize. And then because of a leadership change in that organization, they reversed course and went back to doing things the way they had done them. So, yeah, very difficult but very unusual circumstances. We don't see that continuing. and we're very pleased with the overall state of the facilities business, its margin profile and profitability, and the runway ahead. It is one of the businesses that has the largest opportunities for the company's growth rate going forward. So Jim, do you want to go ahead?

Yeah, in terms of the impact, like we said, so the retention rate in the food business was 95% versus 93%. So overall facilities impact is about 2% on retention. You can think about that in terms of the revenue impact as well. The larger two contracts had an impact of over 1% on the retention rate that John was just mentioning. Yeah, in terms of the margin progression, we've made great progress this year. We generated 50 basis points of margin improvement. I really see that as sort of our underlying run rate. There's always some one-offs quarter to quarter. But the levers are working. We've seen great efficiencies in supply chain. We continue to scale Our overhead, if you take a look at the SG&A costs, you can see how we're able to scale the business with the revenue growth. I think at the midpoint of the guidance or so, we're at about 40 basis points for fiscal 25. And again, there's a range. If you take the low end of revenue and high end of AOI, you'd be higher than that. So like I said, we're very comfortable with the 50 basis points underlying rate and the progression that we've seen. And we'll see how things play out over the next year.

That's great. Thank you very much.

Thank you.

Our next question comes from Josh Chan with UBS. Your line is open. Hi, good morning.

Congrats on a good Q4 and finish to the year. I was wondering on your net new, I noticed that you kind of are presenting them on a consolidated basis. So wondering if there's any difference in terms of U.S. versus international in terms of net new this past year that we should be aware of. Thank you.

Yeah, we did present it on a consolidated basis. But yeah, the net new is very strong in international. But both domestic and international had record new account wins. And when you factor out the retention losses that we had on the facility side, both organizations would have had very strong net new as well. So as I said, I think we consider this a very unique circumstance in particular for U.S. Food and Support Services, very confident in the runway that that business has, the size of the opportunities, frankly, our overall pipeline of opportunities, and frankly, some accounts that we anticipated that would be closing last year have leaked into the first quarter of this year. Some of them were very sizable, so a little bit of a timing difference with respect to when we would recognize those. As a general rule, because we have incentive compensation tied to net new, we're very disciplined about when we recognize it. So at the end of the fiscal year, we call the number. And some of those opportunities that leaked into the first quarter of this year are very significant. And we look to be able to talk about those shortly.

That's really helpful. Thank you. And then you mentioned that on the education side specifically that you're lapping some prior year price increases. I was just wondering if you can talk about pricing just on an overall basis going forward in 2025. You know, what level of pricing is currently embedded in that guidance? That would be really helpful. Thank you.

Sure. So, yeah, as the inflationary environment normalizes in the twos or so, I think we could expect our pricing to be in the 2% to 3% range for fiscal 25.

Thank you, and good luck on the new year.

Thank you. Thank you.

Our next question comes from Ian Zafina with Oppenheimer. Your line is open.

Hey, good morning. This is Isaac Salzen on for Ian. Thanks very much for taking the question. My question is on the Strahd Revenue Guide for 25. Maybe if you could just help us understand the main drivers in terms of vertical contributions or U.S. or international breakdown. And then you've noted, I guess, the fiscal 25 includes an extra week. So maybe if you could help us, remind us on the impact again on the year and the guidance. Thanks.

Sure. So on the print, the guide, you know, 7.5 to 9.5 percent growth in fiscal 25. We estimated about a 2 percent impact from the 53rd week. So sort of if you adjust for that 5.5 to 7.5 is where we would be. Generally, in terms of the way we think about the growth, contingent growth across both broad-based growth really across all sectors in both the U.S. and international. As I mentioned, pricing I think will be about 2% to 3% of that. Generally, net new at 2% to 3%, and then the remainder coming from volume.

Yeah, Jim, correction on the net new. It should be 4% to 5% for net new for next year, right?

Yeah, the in-year impact.

Oh, got it, in-year impact. Got it. Thank you.

Okay, understood. Thank you very much. Our next question comes from Andrew Steinerman with J.P. Morgan. Your line is open.

Hi. When looking at your impressive gross new, how does that break down between new outsourcing and winaways? And do you feel like there's still a rising tide for the overall kind of food services provider industry in terms of a trend towards newly outsourced contracts?

Thanks, Andrew. Yeah, I would say we still see a very robust environment in terms of new account opportunities, both from a first-time outsourcing as well as just the overall market growth. So yeah, I think we believe that there's lots of runway ahead, very strong pipelines across the range of the business, both domestically, internationally, literally in every business unit. So we feel very strongly about our ability to achieve those long-term objectives that the company has set. So really nothing changing, just still a very robust environment and one that we're working very hard to take advantage of.

And the profitability and the required upfront costs for new outsourcing still looks conducive?

Yeah, absolutely. Consistent with our historical margin profile and the cost of investment in new business still, you know, at that low single-digit rate, call it 2.5% to 3% potentially in the business. So really no change to the overall economic profile of winning new business.

Thank you. Our next question comes from Lizzy Dove with Goldman Sachs. Your line is open.

Hi, Doug. Thanks for taking the question. I wanted to see if I could get an update on the GPO network spend. I think you previously said that would surpass 20 billion by the end of this year. Any update on how you kind of see the opportunity to grow that further? And, you know, just a reminder of the key benefits there, especially on the margin side of things.

Sure, Lizzie. Thanks for the question. Yeah, we absolutely see continued growth in the GPO network as one of the key drivers for our profitability going forward. You know, we are consistently looking for new acquisition opportunities, both domestically and globally, to expand the GPO reach. We've been very successful this last year, not only in the organic growth of the GPOs selling some major new accounts and adding that billion dollars of spend, but we've also been able to cultivate some very strong new partnerships and relationships that are helping to help us negotiate new and better deals, both domestically and internationally. So we are in the process of working through several opportunities, which we'll probably be able to disclose in the January timeframe with respect to some opportunities internationally. and we continue to be focused on the growth in this segment of the business because of its strong earnings potential.

Got it. That's helpful. And then just on the margin side, I know, you know, especially post-COVID, the net new business kind of ramped up very quickly.

Hey, Lizzie, we're having a little trouble hearing you.

Oh, can you hear me now?

Yeah, it's better.

Thank you.

Perfect. Thanks. So just on the margin side with the net new business, obviously that ramped a lot post-COVID and was, you know, there's the profitability of that with, you know, initially it's a little bit of a headwind and then ramps over time. Could you give a reminder of where you're kind of at? Is that still kind of a margin benefit to 2025? Is that net new kind of ramps or are we kind of through that kind of phasing up now since you had that jump up in that new business?

Yeah, so again, we've printed a record new business, right, three years in a row here in a record print, again, excluding the uniforms business in 24. And so with that, as we talked about, right, the margin profile, those newer accounts progresses over time. I think if you look at the margin levers, it will continue to be a benefit in fiscal 25. It was a benefit, that progression in 24. And I think by 26, we'll be in that sort of steady state with respect to how that new business and the progression of the margins materializes.

Got it. Thank you.

Our next question comes from Jasper Bibb with Truist Securities. Your line is open.

Hey, good morning, everyone. On the guidance, you mentioned some new contracts, one at the end of the year, the exited facility services work, and then the 53rd week next year. Just any follow-up on how we should think about the, I guess, quarterly cadence of organic growth through fiscal 25, given those moving pieces?

Yeah, I think with that, we'd expect the quarterly growth to accelerate. So Q4 fiscal 25 will likely be the highest revenue growth of all four quarters, just the way the timing of the new is working out and some of the losses that John mentioned in facilities.

Yeah, that makes sense. And then I was wondering about the Avenger International launch. How do you think about the benefit of consolidating some of those international GPOs? Is there potentially an impact to your purchasing power or maybe taking down the overhead costs required to support the international GPO operations?

Yeah, we have already done the work of consolidating the GPOs internationally into one organization. So as we've acquired GPOs internationally, we've built them into one organization. We're really rebranding the individual companies as Avendra International, but the back office work has already been done. The consolidation and leadership work has already been done, and we're reaping the benefits of the improved management of that supply chain and that spend, which resulted in significant improvements year over year in total monies earned for the GPOs internationally. We are reaping the benefits of it. We continue to focus on growth internationally because we believe we have a very strong position and the opportunity to grow organically with our existing customers that we serve in the United States and other parts of the world. And we're working to strengthen that network by way of bolt-on acquisitions as well as just the organic growth in those existing GPOs.

Understood. Thanks for taking the questions.

Our next question comes from Pfizer Alway with Deutsche Bank. Your line is open.

Yes. Hi. Good morning. I wanted to ask about the new business wins and, you know, what your win rate has been like over the last few years and if that has changed over time.

Yeah, our win rate has consistently gone up over the last several years. Obviously, we have a very strong sales organization and very strong sales leadership, both domestically and internationally. And so while we don't disclose our closure rate in individual businesses because of competitive INSIGHTS THAT THAT WOULD GIVE. WE ARE SEEING CONTINUED IMPROVEMENT IN CLOSURE RATES YEAR OVER YEAR, AND WE'RE VERY EXCITED BY THAT PERFORMANCE. SO, YOU KNOW, I WOULD SAY GENERALLY YOU COULD PROBABLY ATTRIBUTE A NUMBER OF 10 TO 15% IMPROVEMENT YEAR OVER YEAR IN OUR OVERALL CLOSURE RATES, WHICH IS SUBSTANTIAL.

GREAT. THANK YOU. And then, Jim, I wanted to ask about your interest expense guide. I'm curious what you've built in there, because I know you've paid down some debt, and you do have some bonds that are due in 2025. Could you just give us some color on the assumptions behind your interest expense guide?

There's a lot of moving pieces there. So you recall we repriced some term loans in 2024 at favorable pricing. As you mentioned, we have some 2025 maturities that we need to address in the next few months as well, and we have some swaps rolling off as well. So the guide at 230 is on a 53-week basis. On a 52-week basis, we think 225. We're seeing how interest rates play out this year and if they continue to decline, potentially some opportunity there. But those were the moving pieces in how we built up the guide.

All right, thank you.

Our next question comes from Shlomo Rosenbaum with Stiefel. Your line is open.

Hi, this is Adam for Shlomo. The company is pricing normalizing, particularly in education. Does education see much less pricing than the rest of the business, and is the company being more price competitive in this segment to win new business?

Yeah, I think what you're seeing there in the education sector in the fourth quarter is that the higher education sector business generally had one less week of operating days in the prior year. So the calendar just started about a week later. So we should see more normalized growth rate in that segment in Q1. And again, the pricing consistent with what we talked about for the rest of the business.

Okay. And could you provide more color on the non-cash inventory adjustment in the corrections business? Does this imply a write-down?

Yeah, sure. So as we fully integrated the union acquisition, which again, strategically has been an excellent transaction for the business, building our capabilities in not only food service but commissary, and you've seen the growth that we've generated in corrections and a lot of that attributed to getting that deal done. Over the past year, we've essentially fully integrated that business as the earn-out period has concluded. The business during COVID built up some inventory like many companies did, and as we brought it on to our remarks, policies, and procedures, we adjusted the inventory to continue to optimize. and we took a non-cash charge of about $17 million. Thank you.

Our next question comes from Tony Kaplan with Morgan Stanley. Your line is open.

Thanks so much. I was hoping you could give us an update on the workforce, how turnover is trending, and particularly also you mentioned the 2% to 3% pricing, so just how we should be thinking about the price-cost spread as we move through 2025.

Sure. Thanks, Tony. First of all, on the price-cost spread, we fully anticipate being able to recover any inflationary increases from food supplies through normalized pricing. So we don't see a particular spike affecting us this year from an inflationary perspective, both on the food and labor side. Labor inflation is in the 4% to 5% range. We anticipate being able to price to recover that as well. So overall pricing should be in the two to three percent range, might be a little bit higher depending on how things roll out over the course of the year, but I think we'll be very sensitive to watching both from a labor perspective as well as a food perspective. But we see a much more normalized environment. Our ability to recover costs and our ability to reprice is built into our contract structure, and we really don't have any impediment to recovery. at these kinds of rates.

Yeah, the other thing I'd note there is the operating environment has normalized, right? There's productivity with labor. We've seen a reduction over time in agency costs, right, which does offset some of the inflation that John mentioned.

Great. And then just for a follow-up, I think we all saw a number of headlines in September. So I wanted to just get your thoughts on whether we should be seeing industry consolidation at this point and what you think would drive that and just maybe the M&A environment. Thanks.

Sure. Yeah, I somewhat anticipated this question and as I think was publicly stated by the other organization, there are no discussions going on between the two parties. You know, I think it's likely that any further consolidation in this industry will be at the margin. Basically, some of the smaller regional players that may decide to go ahead and sell, family-owned organizations that may sell, that kind of thing. I don't think you'll see any real major consolidation any longer in this industry. So, it is, you know, it's highly competitive. You've got the three large players that have positions that are very well staked out. And are there some regional companies that are potentially going to consolidate? That's a possibility, but it probably won't be significant.

Very clear. Thank you.

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

Yeah, great. I thought I would start out and just – ask on the 2026 uh guidance uh last year at this time you kind of reiterated it here i just was wondering john what you're thinking about of the status of those targets if they're still good uh how you're tracking towards them etc yeah absolutely those targets are still good and it's our intention to get uh to and through them um and i think we've been able to over deliver

This year, our expectation is for another very strong year in 2025 and to be on the money or above the 26 targets that we established. So, yeah, we're feeling very bullish about the overall performance and the overall environment, Andrew.

Cool. And then I just wanted to ask a little bit on the sports and entertainment business segments. I mean, you've highlighted almost every quarter good attendance, good per caps here through 24. And I was just wondering kind of what you're seeing in terms of the comps this year. It sounds like you picked up some venues, which is always good. But if you look at maybe just even like playoff games, other things that can be notable, I'd just be kind of curious as to how you're thinking about that. And really underlying that, how is your experience of the consumer to the extent that you've got these ones that are a little bit more commercial with in terms of the commercial spending or the consumer spending. I'm just kind of curious what you're seeing across the business there, but specifically in sports and entertainment as well.

Sure. We continue to see robust consumer demand in the experiential markets of sports and entertainment. People are still very much willing to go ahead and spend, to go ahead and either attend sporting events or concerts and and the activity level very high, per capita spending very strong across really all the venues, and we have not seen any change to consumer behavior from that perspective whatsoever. From a playoff perspective this year, we had four teams in the MLB playoffs. We'll probably be a couple of games short of our experience last year where we had two teams go very, very deep, but But we already exceeded our planned budget, if you will, for playoff experiences. So we feel like we're in very good shape from an internal expectation perspective. And we're looking forward to a strong NHL and NBA season. And then, you know, in a strong close to the NFL, where we've got a number of teams that are performing very well. So a lot of what drives the per caps literally is team performance. And when your teams are doing well, customers are excited and they're willing to spend to go ahead and see their teams. So right now, I would say it continues to be very robust and very supportive.

Great. Thank you very much.

Thank you.

Our next question comes from Jafar Mastari with B&P Paribas XA. Your line is open.

Hi, good morning, everyone. I have a couple of questions. Firstly, just on the new business signings, could you maybe comment a little bit about the timing of those? You do not give explicit numbers in H1. We have a 1.4 billion number. Was this signed broadly, linearly through the year, or was it in any way weighted towards the second half? And the reason I'm asking is, sort of get a view on the ramp up, you're assuming how fast some of those can start contributing to revenue in 25.

Yeah, again, I think the signing of that 1.4 was generally spread out relatively even throughout fiscal 24, so I don't think there's anything unusual to point out without that business would roll out for fiscal 25.

Super, very clear. Then in terms of retention, again, FM is the big hits, obviously, but outside of FM, your retention is still down about 30 basis points. Could you maybe give us some color on where you've not always been successful in food, if there are any trends to highlight or if it's just a bit broad-based? And specifically in education, one of your competitors has flagged that in 2018 in K-12, some contracts had to be re-signed because of a change in procurement regulation and they say they have a large number of those that are coming up for renewal in 24 and a little bit less but still in 25. Is that something you're seeing?

Yeah, the USDA regs are very explicit in terms of how often school districts in the K-12 sector need to go out to bid and It affects the companies all a little bit differently depending on the timing of the award of contracts. So we had a larger year last year where we would have expected more contracts out for bid. Our competitors, I think, have a more active rebid season this year than we do. So it affects each of the companies somewhat differently, but that phenomenon is consistent for all three of us. You know, I would say in terms of retention, you know, we had very strong retention in most of the businesses with facilities being the one outlier, both domestically or primarily domestically. So, you know, I think it's, you know, I think we feel very strongly about the company's ability to be at its historic and even higher retention levels and considered this last year to be really an anomaly in terms of the circumstance. We also had one significant loss internationally due to a low price bid that was significant, but international was able to offset that through their new sales performance. So, you know, overall I'm very comfortable with our retention rate being in that plus 95% range. and with our net new in the 4% to 5% range on an annualized basis. So I think the targets that we've established for ourselves are very consistent. We've been able to achieve them, and our people are very disciplined about both sides of the equation, selling new accounts at record levels and retaining their existing customers to the greatest degree possible.

And the very last one for me, I promise. If I do the math on your guidance, 2% 63rd week, then 2% or 3% pricing, 2% or 3% in-year net new business. This leaves me with like-for-like volumes that need to contribute a positive 1.5%. In this industry, historically, it's been flat. So how are you able to forecast that? markedly positive volumes? Is it that there's still some return to the office? Is it more digital, more self-help, better upsell to the end customer?

We had, again, really high levels of base business, both volume and price throughout fiscal 24, and even in the fourth quarter, really strong base business across all the sectors. So we continue to expect base business, both with volume performing better than historic, even in 25, and that's the trend we're seeing as we close out even the first month here. So, yeah, we expect base business to continue to be elevated, not at the levels that we saw record levels in 25, but certainly elevated, be higher than our historic levels in 25. Super.

Thank you very much.

Our next question comes from Harold Antor with Jefferies. Your line is open.

Hello, this is Harold for Stephanie Moore. I guess, you know, on a vendor, you know, could you provide us, you know, the, I guess, the cross-selling opportunities and then, I guess, you know, how you are seeing your clients being receptive, particularly as clients as you expand with them internationally, if you could provide any sense of how you've seen your business with current clients grow on Expand through this new initiative?

Yeah. First of all, I'm sorry we had a little bit of difficulty hearing you, but let me answer what I think I heard. First of all, the Avendra international growth rate, the opportunity that we have is very significant with our existing customers of Avendra, and we're continuing to do work with them in multiple countries around the world in multiple markets, and we see that organic growth potential as being very significant. Overall, last year we had significant organic growth in Avendra both domestically and internationally, as we talked about in our presentation. uh, remarks, uh, over a billion, two of new spend, uh, generated as a result of these, uh, expanded relationships. So, uh, some very large new customers, uh, but also just significantly significant volume growth with our existing, uh, client base. So, you know, we see the vendor growth as an opportunity for continued, um, uh, earnings improvement. Every time we add spend, it increases our ability to negotiate new and better deals. that impact not only our customers at Avendra, but also our overall supply chain, which benefits Aramark on the contract food service side as well. So it's a very symbiotic relationship, one we're very much focused on growing, and we feel very good about the results last year and will continue to pursue that business aggressively.

Thank you. And then I guess just on hospitality IQ, if you could provide, I guess, how receptive clients have been there, how the body of clients are receiving there, and if you could provide any sense on anything else you're doing on the tech side.

Yeah, the hospitality IQ, a lot of it's already out there with our clients. A couple of examples we've talked about is our culinary co-pilot with our menus that's optimizing often complex requirements. contractual requirements with our menus and matching that with optimizing our supply chain. So that's something that enhances the client needs but also manages costs effectively. So that's something that's working very well. We've used the tool to aggregate our SKUs across the business. As you know, we have thousands and thousands of profit centers, thousands of SKUs, and what the AI tool has enabled us to do is aggregate that spend with a common denominator and allow us to negotiate more effective pricing with our manufacturers and suppliers. So those are two tools already underway, generating very positive results.

Thank you. I'll now turn the call back over to Mr. Zilma for any closing remarks.

Terrific. Thank you very much, everybody, for your support of the company. I feel very I'm very good about the results for fiscal 24. I'm very positive about the runway for 2025 and 2026. I'm really proud of the Aramark team. They've done an extraordinary job. I want to thank the Aramark team for their hard work and dedication to our customers, our clients, and our shareholders. We're all in this together. I'd also like to say to the veterans that serve Aramark, thank you for your service to this country. and have a great Veterans Day. Take care.

Thank you for participating. This concludes today's conference. You may now disconnect.