Aramark(ARMK) - 2024 Q2 - Quarterly Results

Executive Summary & Highlights Q2 Fiscal 2024 Highlights Aramark reported strong Q2 fiscal 2024 results with significant growth and enhanced its capital structure Q2 FY24 Performance vs Prior Year | Metric | Q2 FY24 Change | | :--- | :--- | | Revenue | +7% | | Organic Revenue | +9% | | Operating Income | +27% | | Adjusted Operating Income (AOI) | +29% | | Operating Income Margin | +59 bps | | AOI Margin | +69 bps | | GAAP EPS | +271% to $0.20 | | Adjusted EPS | +79% to $0.29 | - The company opportunistically enhanced its capital structure by favorably repricing 2028 and 2030 Term Loans by 50 bps, expecting interest expense savings, with over $1.1 billion in cash availability at quarter-end[1] CEO Commentary The CEO attributed record Q2 revenue and profit to strategic execution, volume growth, and cost control - The company achieved record revenue for any second quarter in FSS US and International segments, and record second quarter profit in the International segment[2] - Profitability improvement was primarily due to leveraging higher revenue, accelerating supply chain objectives, disciplined cost control, and benefiting from inflation trends[2] Second Quarter Results Consolidated Revenue Performance Consolidated revenue for Q2 fiscal 2024 reached $4.2 billion, a 7% increase, with organic revenue growing 9% Consolidated Revenue (Q2 FY24) | Metric | Q2 FY24 Value | YoY Change | Organic YoY Change | | :--- | :--- | :--- | :--- | | Consolidated Revenue | $4.2 billion | +7% | +9% | - Revenue growth was driven by strong base business volume, pricing actions, and net new business growth, while currency translation reduced revenue by $84 million[3] Segment Revenue Breakdown Both FSS United States and FSS International segments reported strong revenue growth, with International showing particularly high organic growth Segment Revenue (Q2 FY24) | Segment | Q2 FY24 Revenue | YoY Change | Organic YoY Change | | :--- | :--- | :--- | :--- | | FSS United States | $3,044 million | +7% | +7% | | FSS International | $1,156 million | +8% | +16% | - FSS United States growth was led by Education, Sports & Entertainment, and Business & Industry sectors[5] - FSS International growth was broad-based, primarily from mining services in Latin America, business dining in the UK, and Education in Canada[5] Operating Income and AOI Performance Operating Income and Adjusted Operating Income (AOI) grew significantly, reflecting margin expansion from revenue leverage and cost discipline Operating Income & AOI (Q2 FY24) | Metric | Q2 FY24 Value | YoY Change | Margin Change (bps) | | :--- | :--- | :--- | :--- | | Operating Income | $159 million | +27% | +59 | | Adjusted Operating Income (AOI) | $187 million | +29% | +69 | - Increased profitability was driven by leveraging higher revenue levels, supply chain strategies, and disciplined cost control, despite a $3 million negative impact from currency translation[6] Segment Operating Income and AOI Breakdown Both FSS segments delivered strong AOI growth, with International achieving record Q2 profitability, while Corporate expenses decreased Segment AOI (Q2 FY24) | Segment | Q2 FY24 AOI | AOI YoY Change | AOI Constant Currency Change | | :--- | :--- | :--- | :--- | | FSS United States | $168 million | +21% | +21% | | FSS International | $47 million | +21% | +29% | | Corporate | ($28 million) | +8% | +8% | | Total Company | $187 million | +27% | +29% | - FSS United States benefited from higher base business volume, new business maturity, operating cost management, and supply chain efficiencies[7] - FSS International achieved record second-quarter profitability from strong business growth and supply chain economics, despite the absence of AIM Services[8] - Corporate expenses were lower due to tight control of above-unit overhead costs[8] Cash Flow and Capital Structure Cash Flow from Operations The company generated a net cash inflow from operating activities and positive Free Cash Flow during the second quarter Cash Flow (Q2 FY24) | Metric | Q2 FY24 Value | | :--- | :--- | | Net cash provided by operating activities | $221 million | | Free Cash Flow | $140 million | - The company paid approximately $25 million in the quarter for remaining fees associated with the spin transaction completed on September 30, 2023[9] Capital Structure Enhancements The company proactively repriced its Term Loans, expecting annual interest savings, and maintained significant cash availability - Repriced $730 million 2028 Term Loan B and $1.1 billion 2030 Term Loan B at lower interest rates[9] - Expected annual interest expense savings of approximately $10 million[9] - Maintained over $1.1 billion in cash availability at quarter-end[9] Dividend Declaration The Board of Directors approved a quarterly dividend of 9.5 cents per share of common stock Dividend Details | Metric | Value | | :--- | :--- | | Quarterly Dividend | 9.5 cents/share | | Payable Date | May 28, 2024 | | Record Date | May 13, 2024 | Business Update & Strategy Aramark remains committed to profitable growth through innovation, operational efficiency, and its hospitality-focused culture - The company maintains an ongoing commitment to profitable growth, benefiting from increased base business volume, pricing actions, and net new business[11] - The strategy focuses on differentiating through innovative food and facility service offerings centered on customer experiences[11] - Management expects to scale revenue through supply chain efficiencies and disciplined cost management, alongside improving inflation trends[11] Outlook Fiscal 2024 Full-Year Guidance Aramark raised its full-year fiscal 2024 outlook for Organic Revenue growth and reiterated expectations for AOI and Adjusted EPS growth FY24 Outlook | Metric | Updated FY24 Outlook | Previous Outlook | | :--- | :--- | :--- | | Organic Revenue Growth | ~+9% | +7% to +9% | | AOI Growth | +17% to +20% | | | Adjusted EPS Growth | +30% to +35% | | | Leverage Ratio | ~3.5x | | - The updated outlook reflects confidence in global teams and the execution of strategies focused on creating significant stakeholder value[14] Company Information Conference Call Details Aramark scheduled a conference call to discuss its earnings and outlook, with access available via its investor relations website - A conference call was scheduled for May 7, 2024, at 8:30 a.m. ET to discuss earnings and outlook[15] - The call and related materials are available on the investor relations page of www.aramark.com[15](index=15&type=chunk) About Aramark Aramark is a global leader in food and facilities management, serving diverse clients across 15 countries - Aramark (NYSE: ARMK) provides food and facilities management services to leading institutions and companies in 15 countries[16] - The company is recognized on FORTUNE's "World's Most Admired Companies" and other prestigious lists for diversity, responsibility, and equality[16] Non-GAAP Financial Measures & Explanations Definitions of Non-GAAP Measures This section defines key non-GAAP financial measures used to supplement GAAP metrics for evaluating operational performance - Definitions are provided for Adjusted Revenue (Organic), Adjusted Operating Income, Adjusted Net Income, Adjusted EPS, Covenant Adjusted EBITDA, and Free Cash Flow[18][19][21][22][23] - These measures are used as supplemental indicators of operating profitability and cash operating costs for performance evaluation[24] - Non-GAAP metrics are not measurements of financial performance under GAAP and should not be considered substitutes for GAAP measures[24] Explanatory Notes to Non-GAAP Schedules This section details various adjustments made in non-GAAP reconciliations to ensure transparency in financial reporting - Adjustments include those for the spin-off of Uniform Services, amortization of acquisition-related intangible assets, and severance charges[26] - Further adjustments cover spin-off related charges, gains and losses impacting comparability, and the effect of debt repayments and repricings[27][28][29] - Explanations also detail the tax impact of adjustments and the effect of currency translation for constant currency reporting[30][31] Forward-Looking Statements This section serves as a legal disclaimer regarding forward-looking statements and associated risks and uncertainties - The press release contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[32] - Key risk factors include economic conditions, client retention, competition, operating costs, currency risks, acquisitions, and high leverage[33] - Readers are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to update them[33] Condensed Consolidated Financial Statements Condensed Consolidated Statements of Income The statements present financial performance for the three and six months ended March 29, 2024, compared to the prior year Three Months Ended (in thousands, except per share data) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Revenue | $4,199,913 | $3,916,156 | | Operating Income | $159,086 | $125,357 | | Net income from Continuing Operations attributable to Aramark stockholders | $53,449 | $14,249 | | Diluted EPS from Continuing Operations | $0.20 | $0.05 | Six Months Ended (in thousands, except per share data) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Revenue | $8,607,678 | $7,829,876 | | Operating Income | $326,036 | $277,042 | | Net income from Continuing Operations attributable to Aramark stockholders | $81,985 | $52,747 | | Diluted EPS from Continuing Operations | $0.31 | $0.20 | Condensed Consolidated Balance Sheets The balance sheets provide a snapshot of the company's financial position as of March 29, 2024, compared to September 29, 2023 Balance Sheet Highlights (in thousands) | Metric (As of) | March 29, 2024 | September 29, 2023 | | :--- | :--- | :--- | | Total current assets | $3,328,421 | $5,220,027 | | Total Assets | $12,560,900 | $16,871,241 | | Total current liabilities | $2,658,102 | $5,029,967 | | Long-Term Borrowings | $5,879,086 | $5,098,662 | | Total Stockholders' Equity | $2,891,140 | $3,712,718 | - Significant changes in current assets and liabilities reflect the impact of the Uniform Services spin-off, with current assets of discontinued operations decreasing from $620,931 thousand to zero[41] Condensed Consolidated Statements of Cash Flows The statements outline cash movements from operating, investing, and financing activities for the six months ended March 29, 2024 Cash Flow Summary (in thousands, for Six Months Ended) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities of Continuing Operations | ($435,797) | ($362,438) | | Net cash used in investing activities of Continuing Operations | ($289,821) | ($204,164) | | Net cash (used in) provided by financing activities of Continuing Operations | ($833,012) | $486,117 | | Decrease in cash and cash equivalents and restricted cash | ($1,558,226) | ($30,450) | | Cash and cash equivalents and restricted cash, end of period | $414,141 | $334,981 | Reconciliation of Non-GAAP Measures Adjusted Consolidated Operating Income Margin Reconciliation This section reconciles reported Operating Income to Adjusted Operating Income by segment, highlighting various adjustments AOI Reconciliation (in thousands, for Q2 FY24) | Metric | FSS US | FSS International | Corporate | Total Company | | :--- | :--- | :--- | :--- | :--- | | Operating Income (as reported) | $144,365 | $42,576 | ($27,855) | $159,086 | | Adjusted Operating Income | $167,989 | $47,292 | ($27,855) | $187,426 | | Adjusted Operating Income (Constant Currency) | $167,966 | $50,340 | ($27,855) | $190,451 | | Adjusted Operating Income Growth | 21.21% | 21.43% | 7.56% | 27.15% | | Adjusted Operating Income Growth (Constant Currency) | 21.20% | 29.26% | 7.56% | 29.21% | - Key adjustments include amortization of acquisition-related intangible assets, severance and other charges, spin-off related charges, and gains, losses, and settlements impacting comparability[45] Adjusted Net Income & Adjusted Earnings Per Share Reconciliation This reconciliation details adjustments from Net Income to Adjusted Net Income and Adjusted EPS for the second quarter Adjusted Net Income & EPS (in thousands, for Three Months Ended) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net Income from Continuing Operations Attributable to Aramark Stockholders (as reported) | $53,449 | $14,249 | | Adjusted Net Income | $76,599 | $25,772 | | Adjusted Net Income (Constant Currency), Net of Interest Adjustment | $80,298 | $44,299 | | Diluted EPS (as reported) | $0.20 | $0.05 | | Adjusted EPS | $0.29 | $0.10 | | Adjusted EPS (Constant Currency) | $0.30 | $0.17 | - Adjustments include amortization of acquisition-related intangible assets, severance, spin-off charges, gains/losses, debt repayment effects, and tax impacts[51] Net Debt to Covenant Adjusted EBITDA Reconciliation This reconciliation calculates the Net Debt to Covenant Adjusted EBITDA ratio for the trailing twelve months Leverage Ratio Calculation (in thousands, for Twelve Months Ended) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net Income from Continuing Operations Attributable to Aramark Stockholders | $476,914 | $246,317 | | Covenant Adjusted EBITDA | $1,284,945 | $1,463,650 | | Total Long-Term Borrowings | $5,921,485 | $8,017,097 | | Net Debt | $5,452,050 | $7,605,390 | | Net Debt/Covenant Adjusted EBITDA | 4.2x | 5.2x | - Covenant Adjusted EBITDA includes adjustments for interest, taxes, D&A, share-based compensation, and other specified items[56] - The twelve months ended March 29, 2024, has been restated to exclude the results of the Uniform segment for the entire period[56] Free Cash Flow Reconciliation This section reconciles Net cash from operating activities to Free Cash Flow, illustrating cash available after capital expenditures Three Months Ended (in thousands) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities of Continuing Operations | $221,280 | $253,310 | | Net purchases of property and equipment and other | ($81,042) | ($77,038) | | Free Cash Flow | $140,238 | $176,272 | Six Months Ended (in thousands) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities of Continuing Operations | ($435,797) | ($362,438) | | Net purchases of property and equipment and other | ($192,243) | ($162,595) | | Free Cash Flow | ($628,040) | ($525,033) | - Free Cash Flow represents cash flow available for distribution to security holders, calculated as net cash from operating activities less net capital expenditures[23]