Aramark(ARMK) - 2021 Q2 - Quarterly Report

PART I - Financial Information Item 1. Financial Statements (Unaudited) Unaudited financial statements for April 2, 2021, show substantial revenue declines and net losses due to COVID-19 Condensed Consolidated Balance Sheets Total assets decreased to $14.49 billion by April 2, 2021, primarily due to reduced cash and debt repayments Condensed Consolidated Balance Sheet Highlights (in millions) | Account | April 2, 2021 | October 2, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1400.0 | $2509.2 | | Total current assets | $3506.5 | $4675.8 | | Total Assets | $14487.7 | $15712.7 | | Liabilities & Equity | | | | Total current liabilities | $2397.2 | $2347.5 | | Long-Term Borrowings | $8105.6 | $9178.5 | | Total stockholders' equity | $2623.5 | $2736.0 | Condensed Consolidated Statements of Loss Revenue for Q2 FY21 decreased 24.4% to $2.82 billion, resulting in a $77.6 million net loss Three Months Ended Financial Performance (in millions, except per share data) | Metric | April 2, 2021 | March 27, 2020 | | :--- | :--- | :--- | | Revenue | $2819.7 | $3731.6 | | Operating income (loss) | $5.3 | $(97.7) | | Net loss attributable to Aramark stockholders | $(77.6) | $(202.3) | | Diluted Loss per share | $(0.30) | $(0.80) | Six Months Ended Financial Performance (in millions, except per share data) | Metric | April 2, 2021 | March 27, 2020 | | :--- | :--- | :--- | | Revenue | $5563.5 | $7985.2 | | Operating (loss) income | $(15.1) | $156.6 | | Net loss attributable to Aramark stockholders | $(158.8) | $(56.5) | | Diluted Loss per share | $(0.63) | $(0.23) | Condensed Consolidated Statements of Cash Flows Net cash from operations improved to $221.9 million for the six months ended April 2, 2021, driven by working capital changes Six Months Ended Cash Flow Summary (in millions) | Cash Flow Activity | April 2, 2021 | March 27, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $221.9 | $(91.6) | | Net cash used in investing activities | $(175.7) | $(196.6) | | Net cash (used in) provided by financing activities | $(1163.6) | $1245.3 | | (Decrease) increase in cash and cash equivalents | $(1109.2) | $956.3 | - Financing activities in the first six months of fiscal 2021 were dominated by debt repayments, including $871.7 million of long-term borrowings and a net change of $(315.6) million in the Receivables Facility[16] Notes to Condensed Consolidated Financial Statements Notes provide details on accounting policies, COVID-19 impact, segment performance, government relief, and debt status - The company operates in three reportable segments: Food and Support Services United States (FSS United States), Food and Support Services International (FSS International), and Uniform and Career Apparel (Uniform)[25] - Due to the COVID-19 pandemic, the company has taken advantage of government relief programs, recording $74.0 million in foreign labor-related tax credits and $3.1 million from the CARES Employee Retention credit[38][39] - On April 28, 2021, the company signed an agreement to acquire Next Level Hospitality, a provider of culinary and environmental services in the senior living industry[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19's material impact on all segments, leading to revenue declines and losses, and details liquidity and debt management Impact of COVID-19 on our Business COVID-19 significantly disrupted fiscal 2021 business, causing revenue deterioration, with the company responding via cost reductions - The impact of COVID-19 was more significant during the three and six-month periods of fiscal 2021 than in fiscal 2020, as the pandemic did not materially affect operations until late in the second quarter of fiscal 2020[93] - In response to the pandemic, the company has focused on cost reduction efforts, contractual negotiations, and taking advantage of relief provisions like the CARES Act and other governmental programs[93] Results of Operations Consolidated revenue for Q2 FY21 decreased 24.4% to $2.8 billion, with operating income improving to $5.4 million Consolidated Results - Three Months Ended (in millions) | Metric | April 2, 2021 | March 27, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $2819.7 | $3731.6 | (24.4)% | | Operating income (loss) | $5.4 | $(97.7) | (105.5)% | | Net loss | $(77.6) | $(202.0) | (61.6)% | Consolidated Results - Six Months Ended (in millions) | Metric | April 2, 2021 | March 27, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $5563.5 | $7985.2 | (30.3)% | | Operating (loss) income | $(15.1) | $156.6 | (109.7)% | | Net loss | $(159.0) | $(56.1) | 183.3% | Segment Results All segments experienced revenue declines due to COVID-19, with FSS United States revenue falling 30.5% Revenue by Segment - Three Months Ended (in millions) | Segment | April 2, 2021 | March 27, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | FSS United States | $1551.0 | $2231.1 | (30.5)% | | FSS International | $677.7 | $853.5 | (20.6)% | | Uniform | $591.0 | $647.0 | (8.7)% | Operating Income (Loss) by Segment - Three Months Ended (in millions) | Segment | April 2, 2021 | March 27, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | FSS United States | $0.9 | $65.8 | (98.7)% | | FSS International | $12.3 | $(191.2) | (106.4)% | | Uniform | $21.7 | $46.8 | (53.6)% | Liquidity and Capital Resources As of April 2, 2021, the company maintained strong liquidity with $1.4 billion cash and available credit, having repaid significant debt - As of April 2, 2021, the company had $1.4 billion of cash and cash equivalents, approximately $819.6 million of availability under its senior secured revolving credit facility, and approximately $389.7 million of availability under its Receivables Facility[116] - During the first six months of fiscal 2021, the company repaid $780.0 million of outstanding borrowings under its U.S. revolving credit facility and $315.6 million under its Receivables Facility[116] - On April 6, 2021, the company amended its Credit Agreement, which increased availability on the revolving credit facility by $200.0 million and extended the maturity dates on a portion of its debt[116] Covenant Compliance As of April 2, 2021, the company was in compliance with debt covenants, with a waiver for the Consolidated Secured Debt Ratio Covenant Adjusted EBITDA Reconciliation (Twelve Months Ended April 2, 2021, in millions) | Line Item | Amount | | :--- | :--- | | Net loss attributable to ASI stockholder | $(563.8) | | Interest and other financing costs, net | $400.1 | | Benefit for income taxes | $(272.4) | | Depreciation and amortization | $575.2 | | Other Adjustments | $573.0 | | Covenant Adjusted EBITDA | $712.1 | - The company's Interest Coverage Ratio was 1.79x, below the 2.000x requirement, which is an incurrence-based covenant[125][126] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company manages interest rate risk with mixed debt and swaps, with no material changes in market risk since FY2020 - The company's market risk associated with debt obligations has not materially changed from October 2, 2020[131] - The company plans to repay the entire $500.0 million principal amount of its 4.750% Senior Notes due 2026 on June 2, 2021[132] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were functioning effectively as of the end of the reporting period[133] - There were no changes in internal control over financial reporting during the second quarter of fiscal 2021 that materially affected, or are reasonably likely to materially affect, internal controls[133] PART II - Other Information Item 1. Legal Proceedings The company is involved in various legal proceedings, but management does not expect a material adverse effect on its financial condition - The company is involved in various legal proceedings but does not expect them to have a material impact on its business or financial condition[135] - A reserve of approximately $19.7 million has been accrued for a specific dispute with a client as of April 2, 2021[79] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[136]