Hi, I'm Andrew Steinerman. This is Stephanie Yee over there, Vice President on my Equity Research team. This is the Business Services track and the Aramark Fireside Chat. It's a 30-minute session. You can imagine we prepared our questions, but we want it to be interactive. And I'll look for your hands to be raised. There is a mic that will go around if you're gonna ask a question, but you know, feel free to jump in. We think we captured the important questions, but just in case, it's always truly up to you. Our CFO, Tom Ondrof, is with us. They just reported earnings a couple days ago. It's truly a great time to engage. Tom has been with the transformation team at Aramark since 2020 and spent 24 years at Compass, which is the industry competitor. This is just a very timely conversation. Also, Scott Sullivan is with us at the conference today, who's in IR. Welcome back. Good morning. Thank you. Yep, good morning. So I think the main discussion was in the conference call, when you look at the 2024 guide, and this is a September year-end, so they're talking about September 2024 now, that the implied margin expansion was about 40 basis points in 2024. And that what I would call kind of a more measured progress than I had thought. Organic revenue growth enhanced, everything's great on the top line. My question is: How would you describe the kind of the 40 basis points of margin expansion? And if you could, you know, really talk about both the headwinds and the tailwinds in fiscal 2024, as you see them at this time? No, I appreciate that, and thanks for having us in today. Measured is probably a good word. You know, if I step back, our guidance, to your point, is sort of a 40-45 bips margin improvement this year against our longer range target creates sort of a linear path to that goal. And I think, you know, I guess people did expect it to be a little more front-loaded. That's quite possible for us. I mean, we look at margin as a byproduct, not a driver. We drive the top line. We're about balance. John and I have preached that to the business since the beginning. We want both top line and bottom line, and again, margin is the byproduct of that. What could, you know, accelerate or tip that scale a little bit more front-loaded to fiscal 2024? Again, we're measured. We're sort of going down the center of the fairway on our guidance. If inflation does continue to ease, as we've seen in the second half of this year, we landed, you know, mid-single digits at the end of the year. And as we talked about on Tuesday, that's what we're expecting for the year. If- 5-6, really, so like high end of mid-singles, right? Yeah. Yeah. So if it tapers off consistently throughout the year, that's gonna be a tailwind. You know, our guidance contemplates on the high end, you know, margins, you know, pushing 55-60 basis points. That's quite within the realm of possibilities, depending on what happens. You know, the level of new business wins could also be either a tailwind or a headwind. You know, headwind if we have a massively great year with the startup cost more than we expect outside the 4-5 range. Unfortunately, a bad year would be a tailwind on margin, so we don't want that. No. So, you know, a few factors in there, but again, trying to split the fairway. But something that's, you know, well above that sort of 40-45 basis points, given what the macro environment does, is quite possible. Right. And, so when you talk about 5%-6% cost inflation, that's global food cost inflation in general or global food cost inflation on your basket? It's on our basket, yeah. Okay. And is there any way, from an outsider, that we could track that? Like, you know, Alex, you know, puts together food at home, and that's basically what we track within CPI. Like, is there any way we could do that better? Meaning, you have your basket- Yeah. - but you don't really show it to me. Yeah. You know, it is unique because we are, you know, a client-driven business. So it's unique to what those clients demand of us. We do have flexibility, where we're given complete control, less so in cost-plus type contracts. Food away from home, it would be an aggregate, I think. And, you know, food away from home is a measure that I think probably best represents it. Yeah. But, you know, nothing's perfect, as we've talked about before. Right. And are there other, you know, tailwinds going on? Like, you know, maybe, you know, speak about the growth of your, your GPO or what- whatever you think are tailwinds that would help 2024, this is a good time to talk about it. Well, that's, that's what we're excited about. It's not just 2024, but, but beyond, and why we feel so confident in, in, the longer-term outlook we've, we've put in place, you know, based off our Analyst Day goals from a couple of years ago. We're still very committed to those and very confident in those, once we adjusted for the spin of the uniform business. But the tailwinds, we've, we've sort of put into five buckets. You know, we talked about the, price lag, benefit for the, specifically for the corrections and, and higher ed businesses that have very distinct pricing opportunities throughout the year, once or twice a year. The balance of our business, fortunately, has pricing opportunities throughout the year. But we're not a business where you can just push a button and raise prices, like the High Street, Main Street, retailers can do. Ours is a discussion with clients and a lot of data and, you know, trying to show value to our clients so that, for instance, if prices, if inflation is 5%, you know, we wanna go to the client, ask for maybe 3%, and we get the other through operational efficiency, 'cause that's where we drive value and show value to our clients. So we will get opportunities to enhance profitability and margin, if inflation continues to ease and that pricing comes through at a high level. We've got opportunity with our new business maturity. We've gone from basically, as you know, Andrew, a standstill four years ago, where we had no net growth, to a step change over the last three years. That carries with it some inefficiencies. New business typically comes on and dilutive to overall margins and then builds as we have it and run it more efficiently over the course of one, two, three years. We're getting to more of a cruising speed on that step change of net growth. So startup costs sort of just lap each other and aren't really a relevant thing, and contract maturity of older contracts offset the newer ones. But we'll get benefit there. But the three main drivers, and will continue this year and beyond, are our supply chain leverage- As we build out our GPO, which we acquired just before COVID, about 18 months before. We really, truly, for the first time, have an opportunity to drive the value that that GPO brings to the organization. And that's coupled with the growth that the business is developing. Because with the GPO, it's not that you just have volume, it's that you have growth, is what matters to manufacturers and suppliers. $16 billion of volume that our GPO controls is important, but it's more important that that becomes $17 billion, $18 billion, and $19 billion over the next few years with suppliers when we're negotiating with them. And that's what we have for the first time because, again, we weren't growing before. We also have an opportunity to get back our unit level contribution, which really got blown up during COVID. We had great disciplines, Pete, prior to 2019 in a unit. Very, you know, good compliance on products from right products, right suppliers. We had good, you know, labor disciplines, you know, not using temp labor, managing schedules and hours, disciplines on other directs in the unit. If you think about it, napkins and paper products. COVID blew all that up. We had to buy products from wherever. We're using temporary labor 'cause we just needed, you know, people. You know, the amount of paper and product that got into units during COVID was crazy. Single use forks, knives, and all that sort of stuff. We're getting all that out of the system and getting back to the old disciplines. Compliance, yeah. Compliance, both on labor, scheduling, on products, getting everything back. So that unit profitability continues to build and sort of as a stealth opportunity for us. It was a bit this year, but it'll be more so in 2024 and beyond, so we can get back to those basics at the unit. And then the last benefit really is the SG&A containment. As a practice, I like to hold our business accountable to growing their SG&A, the above unit cost, at half the rate of revenue. So if we're growing 6%, we would grow SG&A 3%. We have the opportunity now post-spin, and we've already started in on it, to really look at everything we're doing and contain that. I think we can contain that to zero over the next few years, and that operating leverage is quite significant versus even a 3% growth off 6%. So those five variables are drivers for certainly for 2024, but 2024, 2025, 2026 and beyond. Right. So say again, you can hold SG&A flat for the next couple of years because you're taking out stranded costs and you're adding in just, let's say, normal SG&A. We're just looking at different, you know, different ways to do the, to run the business a little bit better, and every day, and I think that we can be a little more aggressive post-spin than, than, maybe we were, you know, prior to 2019. Right. I think you kind of just answered this question by saying we also have to get efficiencies. But just my question is: Is this a business with, with pricing power? I know you said, "Hey, we're assuming 5%-6% food inflation." My first question is, like, when you add all your input costs, including labor, what's your input cost inflation, and how does that compare against the 3%-4% that you're gonna get on, on price? Like, and I think you said, we don't fully get it in price. We don't. And if you combine labor, it would be the overall basket of inflation. Labor, food would be less, with, you know, less than in a lower part of that mid-single digits. So getting 3-4 pricing still leaves you with a bit of a gap. And again, that's the value gap in our mind. That's what we have to go out and show the client, "Hey, we're an efficient operator. We'll be able to do this for you." 'Cause otherwise, if we just hand them a bill for the—for inflation— Where's your value? Right. They can do it. Right. Right. Okay, and this is always. This isn't particularly now. Right. You're saying you always have to do that? Yep -like, point of efficiency. Okay, that makes sense to me. What really surprised me, and maybe you could be like, Andrew, who's been coming for a long time, but, you know, your largest vertical now is sports, leisure, and corrections. And it is kind of a mouthful to say sports, leisure, and corrections because it's really three businesses. But, you know, it's 30% of U.S. FSS. You know, could you just go through, you know, help us understand it? You know, where is all that growth coming from? Is it really all of those subsegments? And my other question is, is this business more cyclical now? I'm really thinking about kind of the sports and leisure part of the business, because I think it's like you've really picked up spend per capita there, and, you know, how that might fare in a more moderate, let's quote, "leisure environment." Is it the case now? Yeah, I don't think it's more cyclical. I mean, it's around the edges. We certainly have this, the sports entertainment business has really boomed the last couple of years. And it's a variety of factors, cash coming out of those units has been something we've been wanting for years, 'cause it does raise the per caps when people are using credit card versus cash. It becomes a bit of play money, I think, for people. But we've also done more to really just drive you know the customer experience make things easier you know food lockers at a venue where you can order from your seat. Or even if you're not sitting down by the dugout on a baseball game, you can order from your seat. When your food's ready, it's in a locker, and it pings you, and you go get it. You don't have to stand in line. So things that just make the experience easier, the queue shorter. So that's grown, but I don't think it's tipped the balance that the business is any more cyclical than it's been. In terms of growth across those three verticals, certainly sports has had a good couple of years. Merlin, the US version or portion of Merlin is- Merlin. is in that. Oh, it's actually in sports. Why? That's the group that's- Okay. -been running it. Okay. So you'll have to ask- Okay, no problem. -John, that question. Okay, including Merlin. Destinations, you know, not so much. They tend to run - they run national parks - Yeah and whatnot, and that their bid cycles tend to come in cycles. So I think the last couple of years for destinations hasn't been as much, but there's some good pipeline opportunity for them over the next two years. You know, we've been talking about that pipeline in national parks for a while. I know. You go talk to NPS for me. I'm just saying, like, yeah, when, when is that gonna get realized? Well, they've just been pushing off the RFP processes. So really, nothing much has moved here recently. Right. And you're still confident that you're gonna win more than your fair share of parks when it does move, right? We already have more than our fair share, but we'll continue to. And corrections- I think corrections has grown well, as well. I mean, we've noticed that we- Some wins, right? Missouri was noted in our earnings release and you know, a few others in the two years before that. So, you know, I think corrections and sports and entertainment have grown faster than destinations, but the, as you've noted, the group in total has moved forward quite nicely. Okay. Where are we in B&I? At most. You know, it's funny. It's like here at J.P. Morgan, we're a five-day-a-week shop. I assume there's not that many places still that are five-day a week. Need more enthusiasm when you say that. -shop. My compliance has been 100%. And so, you know, where are we, both in terms of profitability and the profitability is tied to those volumes? Are we still gonna be talking about volume recovery, or do you think we're now at steady state, and is B&I back to a typical margin for B&I is mid-single digits? Like, are we back—like, as we start the year here, this fiscal year, are we in mid-single digits for B&I? Yeah. So, it, you know, tough to pull apart this many years later, what exactly- And net U.S., sorry. Yeah, in the U.S. But tough to pull apart what really is, you know, COVID recovery versus a net growth that we've had. And we've had some very good net growth in B&I, but I think if you wash away all the details, the B&I business will be bigger in FY 2024 than it was in FY 2019. Which is significant. And that's probably with some return to work issues that never did come back. But we've had increased participation, as we sort of suspected, when you're in the office three days a week, or two days a week, you eat here, you know, so we almost are getting 100% participation when you're in- You think that's sticky, right? That seems sticky versus 50% participation before was the average when people were in five days a week. So that sort of leveled out, but the net growth has been substantial, which is great. So I think we're gonna have a business that's bigger than it was in 2019. In terms of the margin, the phenomena I talked about with that in-unit margin contribution discipline, the margin's not quite back yet, but has that opportunity as we rebuild those disciplines that we had to, you know, relax during COVID. So that's another part of the FY 2024 profit and margin journey. Right. Will you get B&I back to mid-single-digit margins by throughout the year, or by the time we finish the year? I think very close. Okay, that's cool. You talked about some repositioning the portfolio in the Next Level acquisition, which is senior living, and it was really senior living was a new vertical for them when they did this 2021 acquisition. It just feels like you did a 2021 acquisition, and here you're talking about repositioning. Is something off? No, not at all. You know, we went in eyes wide open. Next Level was a senior living business, very attractive. Food services. Food services. Yes. Yeah. Doesn't own the properties or anything like that. And very, very large, underpenetrated and self-op oriented business. You know, $80 billion plus sort of market opportunity. So very exciting opportunity to be in, which we weren't in. We wanted to get a beachhead. Next Level had been built over very quickly, over about four or five years through a private equity group. And we knew in due diligence that there were some clients, either because of far-flung geography or, you know, sort of financial positioning, that we weren't gonna be, you know, wanting to be long-term partners with. So, they had an earn-out, as you know, through the end of last year, the calendar last year. So we were a little bit hands-off to that point because we wanted to let them do their thing and try to earn their earn-out.... So starting in January, we've really spent time getting the base of that business, which is primarily skilled nursing and Medicare, Medicaid, reimbursement-oriented, pared down to a core of customers that we really, really wanna move forward with and are good partners. And then we've added four salespeople, primarily focused on the CCRC side, which is the, you know, the higher end, uh- Private pay. Private pay venues. We've sold a couple right at the end of the year and have got good momentum going into the new year with that. So just sort of building this business from a firmer base, and we're excited about where that's gonna go from here. Okay, so is fiscal 2024 a year of growth or? I think it will end up being a year of growth for them, marginally, and then more so as we go forward. Great. About 10 minutes, 10.5 minutes left of questions from the audience. Oh, there has to be questions. Are you kidding me? Go ahead. Hey, Tom. Thanks for joining today. Thanks. So, I know you mentioned that you have your expected inflation is around 5%-6%. Are you including any improvement in the guide, or are you expecting that even if it, if there's any deceleration, then that could be a kind of improvement on top? Well, that's sort of where the range is. So if we have sort of sharp deceleration of inflation throughout the year, the guide contemplates sort of up to 60 bips, close to 60 bips of margin improvement, 20% AOI growth. I think that's what's gonna be the big driver to take you up to that end of the range. Again, we try to sort of split the middle of the fairway. And again, if there's a reacceleration of inflation, that's gonna sort of take you down. 'Cause one of the things that contemplate is that in the 7%-9% revenue, we've gotten pricing that's gonna roll into this year, last year, but then we're also talking about pricing increases with our clients now. So in our revenue guide of 7%-9%, it was comprised of 4%-5% of new contract wins and 3%-4% of pricing. If we don't need that pricing because inflation's decelerating, we're gonna be on the lower end of the revenue, but it's gonna help the bottom line, so we'll probably move up to the top end of the AOI guidance, and therefore, the margin's gonna move up to the top end. Does that make sense? Where—like, do you feel like the top end of your margin guide? I know you put it up to 60 basis points. Do you feel like that's a cap? Like, if inflation continues to decelerate, margins can show upside, right? Yeah. Yeah, I mean, like you said, we're sort of in that 40-45 bips margin down the middle of the fairway, midpoint of the guidance. That's okay. Now, let's see what happens. You know, we're managing the business sustainably for the long run. We, John and I, value, and the business values balance, top and bottom line. We'll continue to do that. And a couple of variables, like I said, outsized net growth or undersized net growth may influence that a little bit, and the inflation rate may influence that to the top or the bottom. But we've set a guidance that sort of captures what we think may be, you know, either side of the, of the fairway. If it's incredibly sharp either way- Right. That may have us reassessing things. Right. I like the way you said, you know, this year is 40-45 basis points, middle of the fairway, and then to get to the 2026 goals is sort of like a linear progression, and you're saying similar in 2025 and 2026. Do you feel like your margin targets for 2026 are a cap? Oh, absolutely not. I mean, we again sharp deceleration of inflation. We certainly assume it will ease over the next three years, but a sharper, quicker deceleration this year will help, you know, move that forward, I think, a bit faster than, you know, how aggressive do we get on SG&A containment? How quickly can we sort of get the disciplines back in the units? All those things work together. Right. -to say we'll, we'll move to and through those numbers. Right. Of course, if you said a linear path, and you say 40-45 this year, that only gets you to the bottom end- Mm-hmm. -of the '26 guide. Yeah. I just wanted to make sure that to and through is still- Absolutely, still there. Yeah, still there. Okay. Other questions? Just to follow up on that. So you mentioned that inflation is actually, if it decelerates further, then maybe you don't reach the 4, the higher end of the pricing guide. So how, considering, I think you mentioned that you were experiencing higher inflation previously, and now you're gonna benefit from passing that through pricing to your clients, but you don't expect to give back pricing. I think that's what you've mentioned in your last earnings call. So is that changing? Do you see pressure from clients coming in, where you may not be able to pass on that same level of pricing and have that margin expansion? Well, that's. Again, I think if I'm following your question, we've assumed sort of 3%-4% pricing, some of it, which we've already gotten as we roll into this year. If inflation is decelerating, we're not gonna get what we thought. We won't, we won't need the 3%-4% pricing, and we won't get it from clients because the data won't support it. So that's why our revenue may slip, you know, more to the bottom end of the range. But that's gonna help the bottom line, because of the pricing we've already gotten, as I sort of talked through. But again, I think we've captured that in our guidance, you know, those sort of variables. Like, the only thing I would caveat is if there's sharp either way, then we may reevaluate. I mean, if we get, you know, true deflation, you know, just, then, you know, it, it could be, you know, it could be a even a bigger benefit. If, if there's a sharp reacceleration, then we'd have to readdress that, too. But I don't think if there was a question – a subquestion in there about giving pricing back... No, it's, I've not seen that in my 30 years in the industry. Let's talk about net new. You know, in past fiscal year, fiscal year 2023, net new was 4.3% of the trailing revenues. The company made a comment, which I think sounds kind of early to make, that you've already signaled confidence in 2024 net new to be 4%-5% of trailing revenues. Like, what gives you so much confidence? Is this sort of like an awkward period of time, like a lot of signings get done in the spring? Or do you already have some stuff in the bag signed, like, let's call it in October and November, to make such a confident statement about this year's net new? We do, and it's one of the beauties of the business, that you do have great visibility into the RFP process, and you know, hello to contract, as we call it. You know, and the discipline that we have in the sales process, that we can make those statements. So, you know, we said two years ago, coming off 4-5 years of average zero net growth for Aramark from fiscal 2015 to 2019, we made a pretty bold statement in 2021 that said we're gonna grow 4%-5% net growth for the medium term, you know, sort of through the next 4 years or so. And we are achieving that, and we achieved it last year. We were above it last year with Merlin. Yeah. We were up about 5.3%, but, you know, largest contract in the company's history. But even without that, we were in the low 4s. Right. This year, we're at 43. Right. For 2024, we expect to be in that 4%-5% range again. Comfortably. Comfortably. To your point, we booked Boston Children's in October- Oh, is that right? Three weeks after, which was a nice win for us. John mentioned that on Tuesday. We have some other verbals that, you know, would love to detail, but not quite yet. We haven't finished the negotiations. Significant win in the UK, also of most likely a K-12 district here in the States. So, good momentum in the first quarter, and we feel good about that statement for the year. Right. The answer is that you already have good momentum and net new in the first quarter. Okay. Other questions, Scott? Two questions. One on pricing is the first one. You mentioned that you will pass along 50% of your, of inflation. I think that's what I heard you say. Maybe, probably, we took probably a little higher. Little higher. Yes. Do you know if your customers are doing the same thing as you, and are your supply chains doing the same thing as you? Because it's an interesting... I love the idea. It's certainly a value added, but in the end, if there's somebody in the middle of these value chains who is operating differently, in some respects, it creates a pressure and a disadvantage to that person in the value chain. Yeah, I think, I think in a way, the way our model works, if I'm following your question, is we're, we're sort of taking that. So in order to recover our cost, if we were losing $5 because of inflation, if we say to the client, "We'd like you to give us $3 or $4 of those dollars," we then take the initiative to find the other dollar through other mechanisms in the unit so that we recover our profit without passing it on. So I don't think it then has that ripple effect. The customer's not. They actually benefit because they're only getting less inflation or less cost at the end. And then, down the supply chain, we deal with them separately, trying to manage that cost. You're trying to treat your supply chain as if it is intended to hit your targets about how you're gonna manage pricing? We are. I mean, it gets a little. I mean, we would go back to them and negotiate. We would... You know, if they're trying to get us an increase of $4, we're gonna try and negotiate $3. Got it. So it ripples up and down the chain, if that makes sense. Okay. Other question has to do, post the spin-off of the uniform business. You probably had certain hypotheses that you were going to incorporate into the new business on its, on a standalone basis. Can you tell us what some of those hypotheses are proving right or wrong in terms about how you're gonna manage for margin profiles or, you know, sales force productivity or anything, in essence, that you made the assumption about doing the spin-off and post-spin-off, those things are showing up as you thought on, on metrics and performance? For the food service business? Yeah. I, no, I don't, I don't think the spins had anything to do with those types of things in terms of the net growth. Four to five percent was something we stated. All of our Analyst Day projections in 2021 included uniforms, so we haven't come off that 4%-5% net growth, you know, which is driven by, you know, sales resources, sales productivity metrics, all those things. We didn't lower it because we spun off uniforms or raise it, really. Margin profile, I think that they were two very distinct businesses in terms of margin profile. You know, uniforms is a, you know, double-digit margin business. Food service, a little narrower, but ultimately, the growth profile, I think, is phenomenal, in the marketplace in food services. So, you know, not a lot of difference between pre and post-spin in terms of the metrics we were losing or looking at, which is, again, a bit of a testament to how different and separate the businesses were run. Okay, perfect, Tom. That's a wonderful place to stop. Thank you so much for the dialogue. We appreciate it. Thank you.