Aramark

Good morning and welcome to Aramark's second quarter fiscal 2025 earning 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, 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 our CEO, John Zellmer, 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.

Thanks, Felice, and thanks to all of you for joining us today. Before we begin, I want to acknowledge the deep pain all of us at Aramark are feeling from the unimaginable loss of our beloved colleague and friend who we lost during the mass shooting at Florida State University. T. Ruchava, Regional Vice President in the Southeast, had been a part of the Aramark family for over 25 years. Our thoughts are with T. Rue's family and we are supporting them wherever we can. This morning, Jim and I will be reviewing our second quarter results along with our performance expectations for the remainder of the year. We continue to see significant growth opportunities in the business and remain confident in our ability to achieve our financial objectives for fiscal 25 and beyond. We are currently experiencing very positive trends across the company as we enter the second half of the fiscal year including first, a strong retention rate, a strong client retention rate above 98% in both FSS US and international, a level we don't typically see at this point in our fiscal calendar. Second, monthly acceleration of revenue growth as the second quarter progressed, which continued into April with revenue growth of 6%. And lastly, new client wins already totaling $760 million this fiscal year to date with significant new business immediately ahead, providing us clear visibility to achieving net new of 4% to 5% in fiscal 25. Like others, we are managing the fluctuations in the marketplace both on Wall Street and Main Street. Given the breadth and depth of our portfolio, Aramark has a proven track record in benefiting from a highly resilient business model, particularly during periods of uncertainty. We expect to be well positioned, no matter the macro environment. The robust capabilities we've built are rooted in the power of our people, the strength of our supply chain, and a growth-minded hospitality culture focused on providing exceptional service for our clients. Turning to the second quarter specifically, Aramark's organic revenue grew to $4.3 billion, representing an increase of 3%, a strong outcome considering the exit of some facilities accounts last year and the calendar shift in education we discussed previously, as well as certain temporary weather-related client-site closures that occurred in the southeast portion of the United States during the quarter. Without these factors, revenue would have grown another 3%. We experienced record AOI profitability for any second quarter in global FSS history, and once again delivered over 20% adjusted EPS growth on a cost and currency basis from the consistent execution of our strategies. Moving to the business segments. In the FSS US, organic revenue increased to $3.1 billion, or roughly 1% in the second quarter, affected approximately 3% by the factors I just mentioned. Operational performance was driven by new business and higher participation rates in workplace experience, increased micro-market and vending services and refreshments, and additional new business wins and corrections. Most recently, we kicked off the season in Major League Baseball, the largest component of our sports business, with our client portfolio poised to have strong team performance. Our per capita rates on opening day increased nearly 15% compared to the prior year, and we are seeing the trend of higher per capita spending continue. The new sales pipeline remains robust in each of our sectors, particularly in first-time outsourcing. Recent new wins include the Philadelphia Union, our first entry into major league soccer here in the United States, the University of Nebraska athletic venues growing our presence in the Big Ten and throughout the NCAA, Loyola Marymount University, where almost every student participates in a meal plan, Rutgers University in Camden, and the Okaloosa School District in Florida, to name only a few. As I mentioned previously, we expect revenue growth in the U.S. to continue accelerating over the next two quarters from strong new business, high retention rates, and increased volume growth, as well as having the facilities exits behind us. The top line revenue growth drivers include an increase in base business volume within education, especially in collegiate hospitality from continued meal plan optimization, as well as more operating days at multiple universities within the portfolio. The new business ramp up in the sports, leisure, and corrections sector. Continued momentum in business and industry, particularly with increasingly prevalent return to office practices. and strong based business performance in healthcare from vertical sales and expansion of core operations with new growth in senior living. We are focused and well on our way to capitalizing on those opportunities. International had another quarter of outstanding performance with organic revenue reaching 1.3 billion, an increase of 10% year over year. Virtually all countries reported revenue growth in the quarter with the UK, Spain, Chile, and Canada leading the way. We are seeing incredible benefit from our ongoing strategy to provide clients with a superior overall experience, utilizing our in-country expertise, employee talent, and product offerings. Similar to the United States, we continued our strong success in sports by adding the Sussex County Cricket Club and Wimbledon Football Club in the UK and gaining Hanwha Eagle Stadium in Korea. We also won the Generali Stadium in Vienna, which is home to the successful Austrian football club FK Austria. And we were very excited about the upcoming season at Everton Football Club's new stadium in Liverpool. Additional new business awarded in the second quarter within international included the Cadelco Salvadore Mai in Chile, the iconic Sotheby's, as well as numerous other new client wins across the entire portfolio. Along with the board, I was just with our German team and had the opportunity to see our operations thriving firsthand and to visit key clients, including the European Central Bank and Airbus Industries. We saw an excellent example of innovation with our partnership at SAP where we launched our S-Mart store, a checkout free shopping experience that demonstrates how seamless real-time technology integration can work to bring the customer experience to the next level. The capabilities include advanced RFID for inventory, computer vision AI for consumer engagement and product testing, and generative intelligence tools to drive smart decision making. This pioneering solution is a living innovation lab and highlights what can be achieved when technology and hospitality join forces. Turning to global supply chain, our focus remains on growing, leveraging, and optimizing our spend while providing quality products, services, economics, analytical insights, and sourcing solutions to clients. Performance continued to be strong with the team using our AI-driven technology to create further purchasing compliance and contract productivity. We continue to actively grow our global GPO footprint and are pursuing several international geographies for further expansion. Organic revenue growth remains strong across all of our GPO channels through a combination of both new and base business. Our recent acquisition of Quantum is integrating well, and we're pleased to have the talent and capabilities of the Quantum team as part of Avendra International. We expect to capitalize on the material procurement synergies and drive significant growth as a result of the acquisition. Recent US tariff activity has introduced a broader level of uncertainty in the market related to pricing levels and inflation expectations in general. We believe that our business model is well insulated from this volatility. The vast majority of our food products are sourced locally in the respective countries, including the US, where we operate. With the removal of Mexico and Canada from the tariffs list, at least for the items we buy, we just have low single digit levels of purchasing from tariffed countries. mostly in textiles, disposables, amenities, and equipment, primarily as part of the GPO. We're working closely with clients to adopt alternative solutions for their needs and leveraging our extensive and adaptable supply chains. Regarding capital allocation, our ongoing ability to generate strong cash flow provides us flexibility to invest in the business to propel growth while executing other shareholder return strategies, including dividends and share repurchases. As part of this focus, we repurchased nearly 4 million shares, or about $140 million, since we initiated the program back in November. Our leverage is still expected to be around three times by the end of the fiscal year. We also recently enhanced our financial flexibility even further by extending certain debt maturities out to 2030 and beyond. Before handing the call over to Jim, I want to reiterate our high confidence in realizing the numerous growth opportunities that lie ahead for the business, driven by our extensive strategic and operational capability, and we believe we're well on our way toward achieving them. Jim?