Good morning, and welcome to Aramark’s Second Quarter 2020 Earnings Results Conference Call. My name is Cherie, and I will be your operator for today’s call. At this time, I would like to inform you that this conference is being recorded for rebroadcast, and that all participants are in 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 Felise Kissell, Vice President, Investor Relations and Corporate Affairs. Ms. Kissell, please proceed.

Thank you, and welcome to Aramark’s second quarter fiscal 2020 earnings conference call and webcast. I certainly hope those listening are doing okay. This morning, we will be hearing from our Chief Executive Officer, John Zillmer, as well as our Chief Financial Officer, Tom Ondrof. As a reminder, our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website. 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 our other SEC filings. Additionally, we will be discussing certain non-GAAP financial measures; a reconciliation of these items to U.S. GAAP can be found in this morning’s press release, as well as on our website. With that, I will now turn the call over to John.

Thank you, Felise, and good morning everyone. First and foremost, I hope all of you and your families are safe and healthy. I would like to open the call with some thoughts and reflections on the current operating environment, share a few observations given the mission-critical role Aramark has played and will continue to play as a key enabler in a broader recovery, and where we go from here. I will also review our quarterly performance, as well as the proactive actions our board and management team are taking to position Aramark to emerge as an even stronger company. When I returned to Aramark in October, I never imagined we would be front and center amid a global crisis with a critical mission ahead of us. During the pandemic, our teams have worked tirelessly on the frontlines at hospitals, schools, and other facilities providing safe and hygienic food, uniforms, and facility services. Our team members have stepped up in unimaginable ways to serve clients at countless locations. As I shared with employees a few weeks back, these individuals are truly heroes, working among heroes to help us get past this acute period. As we review the business today, Aramark has taken decisive actions to navigate this challenging environment while pursuing paths to ultimately build a sustainable, growth-minded organization that can particularly flourish when the pandemic is behind us. Our strategies are deep-rooted in our ability to leverage a diversified and flexible business portfolio, to join forces with an impactful network of world-class leaders and influential partners, to maintain strong liquidity and financial flexibility, and to unlock the long-term economic potential of the business. We are taking timely proactive steps to adapt the company to the current challenging environment and differ to bolster our already strong financial position. To that end, we recently announced an upsized offering of $1.5 billion of senior notes and an amendment to our existing credit agreement to provide additional financial flexibility and to further improve the company’s already strong balance sheet, as well as available cash balances. Our proactive drawdown on our revolver as a precautionary measure is similar to other prominent companies: the temporary reduction of salaries for certain executives, including the named executive officers, as well as the cash retainer fee of our directors, and other significant reductions to general corporate expenses. I know Tom plans to share his perspective, as well as actions underway to optimize working capital and defer capital expenditures as appropriate, to adapt the company without compromising the business or the strength in Aramark over the long term. We are managing through varying degrees of closures and cancellations of schools, colleges, businesses, and sporting events for the top-line impact from these necessary governmental actions that began in March and continues through today. To mitigate the bottom-line impact, we are simultaneously flexing our highly variable cost structure. In some capacity, we are operating in hard-hit areas such as education, helping to serve students while schools are closed, and providing over 25 million meals across hundreds of K-12 school districts, as well as business and industry focused on the manufacturing and pharmaceutical sectors that remain in operation. We are in close touch with the professional sports leagues that are currently determining the most appropriate timeline for their return, including Major League Baseball, for an important potential upcoming season for us that could represent a bridged schedule playing until late fall. Our leisure business is in operation in some of our larger properties, including Lake Powell, Pikes Peak, and Lake Canal, with reduced attendance, while Yosemite and Denali are currently closed. Denali is largely accessed by Alaska-bound cruise ships with a peak period typically from June to September, and our corrections segment remains relatively stable, as we assist clients supporting the safety and well-being of this population. Our teams in healthcare, facilities, and uniforms are admirably managing the demand in frontline care that includes food service, cleaning, and supplying PPE for essential roles in hospitals and other critical industries. At healthcare facilities across the country, we have opened onsite pop-up grocery stores to serve as a one-stop shop for doctors, nurses, and other hospital staff to grab necessities on their way home. We’ve mobilized our emergency relief and large-scale event expertise to aid temporary field hospital operations in several cities. And at hundreds of essential businesses and state and municipal facilities, we are providing safe hygienic meals and uniforms, as well as additional deep cleaning and facility services. In international operations, our diverse verticals across 18 countries are at different stages of managing through their respective operations. In Asia, where we primarily operate in healthcare, our business has largely recovered. We’ve been awarded new opportunities in this region, specifically in China, based on the strength of our response to the pandemic and the commitment we demonstrated to our clients. In Canada and Europe, most predominantly in Spain and Germany, we have seen a slowdown as a direct result of government-mandated shutdowns, with continued operations in healthcare and other essential businesses. Operations in Latin America have been affected to a lesser extent and our teams are quickly adapting to the changing conditions in that region. Broadly, we are complying with country-specific government protocols and expect to participate in the appropriate programs for employee support, business loans, tax deferrals, or reimbursement once these programs are formalized. As I mentioned earlier, I wanted to spend a moment discussing how the company has been contributing to the pandemic response. I’m proud and humbled by Aramark’s efforts and those of our individual team members. We’ve created an effective platform that is joining forces with world-class and influential partners to foster a hospitality spirit throughout our portfolio and beyond. Recently, we were honored to join the Debra and Leon Black Family, the Mayor’s Fund, Robin Hood, and the American Red Cross in supporting the healthcare heroes at the epicenter of the pandemic in New York City. Aramark employees are providing procurement assembly and delivery services for up to 500,000 packages of shelf-stable food and personal care products to staff at hospitals across the five boroughs through June. As part of our philanthropic program, we have donated over 150,000 pounds of food to local organizations and continue to provide food supplies and other resources to communities around the country. And as you may have seen yesterday, we are supporting the American Red Cross coronavirus outbreak fund to honor the incredible healthcare workers for their hard work and sacrifices during National Nurses’ Week and National Hospital Week. Our uniforms division has shifted certain production lines to manufacture millions of medical masks, scrubs, and gowns for healthcare providers and other critical industries. Our products are shipping to Aramark clients across the U.S. in healthcare, pharmaceutical, biotech, medical device, and other vital industries where employees rely on these supplies to perform their jobs. As we look to the future, our teams have been working to define the new normal across our operations. We have developed comprehensive reopening plans, including new models for service delivery and customer engagement, all designed to ensure the safest, most hygienic environments. Our diverse supply chain remains stable and largely unaffected for frontline operators, clients, and customers. We’re particularly focused on assisting with PPE supply replenishment, which our uniforms team is now helping enormously to address. We’re closely monitoring commodity markets and seeking appropriate entry points to mitigate any potential future volatility. Our commitment to strong relationships with key strategic and preferred suppliers has been invaluable during this period. While focused on helping communities in need across the nation, we also recognize the immediate hardship that is having on many of our employees. In addition to offering support where we can, our government affairs team is working to identify opportunities for Aramark to be of service in response to the pandemic and targeted stimulus that will help us provide that service. Aramark expects to see multiple benefits under the CARES Act, including employee retention tax credits, payroll tax deferral, NOL carry back modifications, and other stimulus measures as we have every intent to fully reactivate the business and ultimately pursue multiple growth opportunities ahead. While we are managing the complexities of the current environment, we have also continued to sharpen our organizational bench strength, including the return of Jack Donovan, a respected hospitality industry veteran who was appointed President of Higher Education in March. Jack previously spent 18 years with Aramark, holding various leadership roles, including President of Higher Education and Group President of Education, Corrections, and Sports and Entertainment. He also served as Executive Vice President and Chief Growth Officer of Univar Corporation. We look forward to Jack’s leadership and the impact it will have on one of our largest businesses. I am confident that with our strengthened executive team, combined with our seasoned board and passionate employee talent, Aramark has the right people in place to quickly resize our flexible business and manage through even the most challenging periods while ensuring we will be fully prepared to perform strongly in the recovery. With that, Tom will now provide a detailed financial review of the business. Tom?

Thank you, John. When I joined the company a few months ago, I certainly didn't expect the world to be where it is today. We've all had to make many adjustments both personally and professionally. And like John, I couldn't be more proud of how the Aramark team around the world has responded. Our performance in the second quarter was in line with preliminary results announced on April 22. It is a testament to the flexibility of the variable cost model and the diversification of the business. Our strong capital structure was further enhanced after quarter-end with recent actions that increased liquidity and amended the secured debt covenant in our credit agreement to provide for greater flexibility. While there was an underlying revenue growth across the overall business in the quarter, organic revenue fell 5.4%, or $218 million, compared to the prior year, driven by an estimated $325 million impact related to COVID-19. U.S. Food and Facilities had an organic revenue decline of 7.7%, or $186 million, compared to the prior year. The decrease was primarily attributable to an unfavorable impact across much of the segment, as John detailed, of an estimated $225 million related to COVID-19. This impact was slightly offset by underlying net new business growth in business dining and facilities, and through solid pricing gains throughout all the U.S. businesses. International organic revenue decreased 4.1%, or $38 million, compared to the prior year, as our teams dealt with the virus for much of the quarter, specifically in China. During this period, COVID-19 reduced revenue by an estimated $75 million, offsetting the net new business growth, strong account retention, and price increases across multiple regions, most notably in emerging markets. Additionally, year-over-year performance was favorably impacted by about $12 million in the quarter from a strategic exit of non-core custodial accounts in Europe late last fiscal year. The Uniform segments showed resilience in the quarter, growing the top line 1% compared to the prior year, despite an estimated $20 million impact from COVID-19. The positive momentum from our investment in sales resources earlier in the year, combined with the segment's diversified client portfolio, helped mitigate the revenue impact of the virus. First aid and restroom services continue to perform well in the quarter as the demand for clean, safe, and healthy workspaces increased in the current environment. Adjusted operating income was down 30%, or $72 million, in the quarter on a constant currency basis, compared to the prior year, with an estimated $70 million of the downturn attributable to COVID-19. This limited impact was due to our ability to quickly flex the fully variable components of the P&L, namely cost of goods sold, hourly labor, and other direct unit costs. I want to note the provisions needed to fund our equity and incentive-based compensation plans were significantly reduced given the impact of COVID-19. When we true up these provisions at the end of the quarter to get an appropriate estimate of potential payout, it just included funding generated throughout the first half of the year. This actually provided a bigger benefit in Q2 than we expect to see in Q3 or Q4 if the current level of business impact from COVID-19 remains the same. While a portion of the lower equity-based and incentive compensation expense in the quarter won't repeat, it will be offset by the significant actions we took at the end of the quarter and into April to reduce semi-variable costs, including renegotiations of contracts, field management salary and other compensation adjustments, and reductions to general corporate expenses. With these additional mitigating initiatives now in place, we continue to expect the AOI drop-through rate to ratably improve to approximately 20% over the near term, which we believe can be managed lower to near 15% over an extended period, as conditions and duration warrant. Before turning to a detailed view of AOI performance by segments, let me add one broader point about the drop-through rate. We will continue to operate the business with a long-term perspective and not achieve a short-term metric. We have left untouched many costs required to maintain and grow the underlying business, including sales and client management resources. If we can win new business, retain a client, or extend a contract by carrying extra costs or making a high return capital investment, we will do so in light of both near-term cash management and long-term value creation. In fact, as an example, we're already benefiting from this approach, as we have signed over $75 million in new business in Asia and Europe since February due to the efforts of our teams to provide additional support and meet clients' needs during the initial outbreak of the virus. Now turning to AOI segment performance. U.S. Food and Facilities declined 39%, or $59 million, on a constant currency basis, primarily as a result of an estimated $50 million profit impact related to COVID-19, as well as negative net new business in education, and an increased investment of sales resources to accelerate long-term growth recovery. The International segment's AOI fell 67%, or $29 million, on a constant currency basis, driven by an estimated impact of a little more than $30 million from COVID-19, slightly offset by the benefit from the strategic exit of non-core facilities late last year in Europe. The international operations tend to have higher drop-through rates, as labor costs are less variable in the near term due to labor laws and regulations specific to each country. AOI uniforms decreased 9%, or $6 million, on a constant currency basis, due to an estimated impact of nearly $10 million related to COVID-19, as well as for personnel costs related to sales growth initiatives and the interruption of operations due to tornado damage caused to our Nashville commercial laundry facility. These profit decreases were somewhat offset by solid underlying new business growth and synergies from the AmeriPride acquisition. Corporate results were $22 million favorable to the prior year, attributable to a reduction in equity-based compensation expectations resulting from the impact of COVID-19. Adjusted EPS was $0.26 for the quarter, down 44% from the prior year on a constant currency basis, as a result of lower adjusted operating income. For the six-month period, free cash flow of negative $297 million was $163 million less than the prior year due to a $235 million negative change in working capital. Accounts payable and accrued expenses, mainly accrued payroll bonuses, and commissions payable declined at the end of the second quarter as a result of COVID-19, offset somewhat by a decrease in inventory and accounts receivable. Capital expenditures were slightly lower on a year-over-year basis. Free cash flow was historically negative in the first half of the fiscal year, due to seasonality in the business, with the second quarter typically generating positive cash flow. In the second fiscal quarter, the company generated $108 million in positive free cash flow. In order to appropriately position ourselves in the current environment, we will exert near-term cash discipline that includes prudent management of working capital and capital expenditures while still looking to capitalize on long-term growth opportunities. Working capital is expected to be roughly neutral once we approach a steady operating state. Capital expenditure needs are very stable, and the significant majority arise from client retention and new business opportunities. The ability to defer this spend can often be negotiated in many cases without compromising the business. We also have limited maintenance capital needs. M&A will not be a focus in the current environment, but we will remain watchful for strategic and highly accretive deals to supplement organic growth should any opportunities arise. In the second quarter and immediately afterward, we took proactive actions to strengthen our cash position. As previously announced in March, we fully drew down our $1 billion revolver and subsequent to quarter-end, we successfully issued $1.5 billion in unsecured senior notes due in 2025. These actions give us significant balance sheet strength during uncertain times. In conjunction with the debt issuance, we worked closely with our secured lenders to amend the credit facility covenants to provide additional flexibility. The amendment suspends Aramark’s senior secured debt covenant for four quarters from the September 2020 quarter to the June 2021 quarter. Thereafter, the secured debt covenant will be tested using the latest quarters from calendar 2019 as needed to total four quarters. This amendment is intended to prevent the effects of COVID-19 from distorting the covenant calculations. We're currently focused on liquidity in the near term, and deleveraging is still an important part of our capital allocation strategy. We remain committed to paying down debt as operations stabilize. Let me touch briefly on our GAAP results before concluding. These metrics are largely impacted by COVID-19 in the same way I outlined earlier. Additionally, GAAP operating income, net income, and diluted earnings per share were impacted by a pre-tax, non-cash goodwill impairment charge of $199 million, specifically related to our Northern Europe reporting unit, which was driven by a change in various factors, including the discount rate used in testing and the pre-COVID near-term growth outlook for this reporting unit. This is the same reporting unit within the FSS International segment that had been previously identified as having undergone additional testing for possible impairment in the 2019 10-K. Finally, given the rapidly changing market dynamics, we have determined to withdraw our previously stated guidance for the 2020 fiscal year. While there is uncertainty ahead, I want to reinforce our belief that the company is well-positioned with an experienced and focused management team, diversified client base, geographic reach, and flexible operating model, as well as strong liquidity. We believe that the demand for safe food, hygienic facilities, and cleaner uniforms will ultimately enhance the trend toward outsourcing notwithstanding the clear near-term disruption. We will remain focused on this opportunity and on our strategy to fully deliver on the company's long-term potential. Thanks. John?

Thank you, Tom. It is an extraordinary time for all of us, but even in this period, I'm confident that Aramark has considerable opportunities ahead with an ability to unlock significant value for shareholders. This is a moment where experience particularly matters, and I'm extremely honored to have the opportunity to work beside such a strong and seasoned team, who bring deep industry knowledge and proven service and consumer experience. From strengthened customer relationships to added leadership bench strength, to significantly enhanced financial flexibility, combined with an expected increased demand for quality and hygiene worldwide when normalcy returns, Aramark will emerge with renewed purpose and resolve. Operator, I'd like now to open the call up for questions.

Thank you. [Operator Instructions] Our first question will come from Kevin McVeigh with Credit Suisse. Please go ahead.

Great. Thank you so much and congratulations on executing in a tough environment. John, can you share with us any sense of how you plan to reopen and how that can ultimately impact the service trajectory going forward? You know, obviously where appropriate, and just any sense of the cadence on that?

Certainly, Kevin, thank you for the question. Sure, you know, obviously, you see a very rapidly developing environment, with multiple municipalities and states beginning to develop their reopening strategies. And, you know, we believe that we'll be well-positioned to go ahead and participate as those reopening’s take place. We've developed several new business models, you know, to implement upon reopening strategies. As you would expect, our employees will all be wearing appropriate PPE as they serve their customers; they'll be temperature checked every day. You can expect the service model will be different in locations based on the needs to maintain safe and hygienic conditions. You can expect that self-serve operations will probably be shuttered in the beginning and maybe for the longer term. And so, you'll see more grab-and-go kinds of opportunities, and we’ll facilitate customer orders, both from a mobile application perspective, pre-order perspective, situations may exist where customers are slotted into service times and periods to maintain social distancing and service flexibility. So, our teams have been very actively engaged in developing these new models and we are prepared to literally customize a solution for every customer location that we operate in, whether that's B&I or higher education or the other businesses we operate. So, we feel like we've developed the appropriate plans and are ready to engage as soon as our customers are.

Super helpful. And then, you know, on the uniform side, you kind of press released earlier that you'd cut over some manufacturing facilities. Can you just give us a sense of what the planning PPE opportunities are, and also on the hygiene side as it relates to, you know, kind of the uniform model currently and where the opportunity is longer-term?

Yes, absolutely. You know, we think we provide an essential service, and we like to call it cleaner and safer in healthcare, you know, providing clean uniforms, safer environments, healthier environments, and the services that we provide play right into that need, if you will. We have switched over production in our Mexican manufacturing operations to manufacture PPE equipment. As you know, we've had a very strong clean room business where we had historically been providing those kinds of services and capabilities to the pharmaceutical sector in the chip manufacturing sector. So, this is a logical extension of that capability. And we're increasing our manufacturing capacity. So, we can literally make millions of masks going forward. We see that as both a short-term need for our customers and for other constituents and we also see it as a longer-term opportunity for the organization as we expand that capability in that manufacturing capacity.

Makes a ton of sense. Thanks so much. Stay safe.

Thank you.

Thank you. Our next question will come from Toni Kaplan with Morgan Stanley. Please go ahead.

Thank you. I was hoping you could talk about how you're thinking about the longer-term structural changes for the business post COVID-19. For instance, how are you thinking about the potential for a greater shift to working from home in B&I? Maybe lower higher ed enrollments, changes to prepaid meal plans, just any sort of structural changes we should be thinking about? And you also mentioned the benefit from a greater shift to outsourcing. So, positives and negatives, just wanted to hear your thoughts.

Yeah, absolutely. I think it's a little early to predict what the structural changes will be. I do believe in higher education that there will be significant demand. We're hearing more and more from our higher education customers about their desire to reopen in the fall and to be engaged and to make sure that the student experience is appropriate. You know, the distance learning experiment that's taken place over the last several months has been frustrating for many, including educational institutions; I don't think students feel like they're really getting the educational experience that they would like. And so, there is a very high desire to go ahead and return to the higher ed sector and we're seeing that in both large institutions, as well as small institutions. We have the opportunity, I think, to customize programs and service methodologies to serve the needs of the students in a safe and hygienic way and to serve the needs of administrations in a safe way. So, I think we can return to an environment where we can operate very, very effectively. In business and industry, it remains to be seen how many employees will return to their work locations. I do know that human beings are creatures who prefer to be social, and working from home on a temporary basis is somewhat attractive, but I think all of us have experienced the desire to kind of get back into the world, and we think that will have an impact as well on decision-making in terms of bringing people back to work in their respective environments. We can adapt all of the locations we operate. As I said, we have a very flexible operating model. So, we can develop service capabilities and methodologies to upsize or downsize based on the ramp-up of employees into individual locations. So, it's something we're very sensitive to, something that we're working on diligently in terms of making sure that we have the right service models in place, and we are confident that the opportunities to grow the business will continue. And you mentioned the self-op conversion element. We do believe that more and more companies who currently operate their own food service will recognize the value added of having an organization that has both the breadth of capabilities, as well as the scope of opportunity or services that we can offer to potentially outsource their services. Historically, when there's been a significant event like this, almost always self-op conversion increases, and we think that will happen now as well.

That's great. And can you give us a sense of maybe some of the recent trends in the business in April? Have you seen any growth rates trough? And I guess just anything around the variability around recoveries and maybe particularly sports, you know, if you expect that attendance and events may return before there's a vaccine, you know, things like that.

Yes, it’s a very dynamic environment. I would say it’s a little early to call what’s going to happen with respect to the return of sports. I think the leagues are working very carefully to try to understand how to get back to operation in a way that protects both the players and the fans. They are working through their various ideas and various approaches. So, it’s really too early to make a call on when that might happen, but we're highly confident that everybody is very much incentivized to go ahead and get back to operation. I just can't tell when that timing may take place. With respect to April results, I don’t—Tom, do you have anything that you want to comment on?

Yes. I’ll take a quick look at the flash for April. You know, it looks to be, you know, probably on a revenue basis around 50%, roughly down. I think there's, you know, in the pockets that we've mentioned; obviously, the number of units operating is far larger than that, but I think that’s sort of the state of play and where we see things, you know, sort of six to seven weeks in.

Thank you.

Thank you. Our next question comes from Ian Zaffino with Oppenheimer. Please go ahead.

Hi, great. Thank you very much. Very good call. I just wanted to focus on talking about new business wins; you know, surprising you actually talked about that, especially in this environment. You know, how you actually going about winning this new business? And maybe John, also, just broadly since you've joined, maybe if you could kind of discuss your new wins and what they've been doing in this new world? Thanks.

Sure. Thank you. Well, first of all, you know, I think our teams have been dedicated to this new sales effort from the outset, and recognizing that these kinds of times present not only significant challenges but significant opportunities. Our people have really been focused on, you know, continuing to find ways to serve customers, both our existing and new customers, and focused on continuing to grow the organization. That's why I think Tom mentioned in his remarks that we have not taken any action against growth focus cost buckets; we're not reducing sales forces; we're not eliminating investments in sales technologies; we're really continuing to invest in those areas. And we have been very successful. We've sold over $100 million worth of new business since February, internationally, which is just a terrific effort. A significant portion of that is in China, specifically in the healthcare sector, but also significant wins in Germany and other countries. So, we're continuing to focus on the sales effort. Domestically, we've got some significant wins that are, you know, in the queue already that we haven't announced that we're very excited about, both in the higher education space as well as the B&I space, you know, so our teams are really focused on continuing to grow the business and knowing that the company will come out of this; we want to be focused on creating that growth paradigm or re-energizing growth paradigm that we talked about all the way back in October when I joined the company. So, some good wins, and you know, there are some very significant opportunities in the pipeline that we're working on. We do see customers delaying slightly and deferring, you know, we’re obviously not in person making presentations, but we are submitting, for example, a very large healthcare opportunity, a video presentation that was recorded in each of the person's home. So, I literally recorded a video in my own home to submit for this presentation. Organizations recognize the imperative to continue moving forward and so we're doing that on the growth side.

Okay, great. And then just as a follow-up, wanted to just also focus on the comment about Asia, or I think is particularly in China having recovered. What does that actually mean by recovered? And then also, maybe give us a little bit more color on that recovery, as far as what areas did really well? Which areas are still lagging? And, you know, maybe discuss if you know the China recovery is kind of a blueprint you'd see in the rest of the world as the rest of the world moves past quarantines? Thanks.

Yeah. Well, that's a great question. And I think that's got application to much more than just our particular business, right. You know, first of all, China is the area that has recovered most significantly. And yet, particularly, we operate in the healthcare sector there and our business has returned to pre-COVID conditions. We’re operating at a higher rate than we had prior to the pandemic occurring there, or beginning there in Wuhan, with several of our operations there. First of all, our operations ran 24 hours a day, seven days a week in China during the crisis. Our business team there, our leaders in China did an extraordinary job of responding to the crisis, and it's really a result of their efforts that led us to sell several significant new hospital additions, including the largest operation we will operate there over the course of the last couple of months. Whether that represents a blueprint for a recovery around the world is very hard for me to comment on. I do believe that the conditions in China are very different from other parts of the world. So, it's hard to say, but our operations are generally operating very well there and we've got great leadership in a team that's done an extraordinary job. Aramark almost always, in times of crisis, responds and performs extraordinarily well under very adverse conditions and our people in China have just done a fantastic job.

Thank you very much.

Thank you.

Thank you. Our next question comes from Shlomo Rosenbaum with Stifel, please go ahead. Your line is now open, Shlomo.

Sorry, can you hear me now?

Yes, we can. Shlomo, how are you?

I want to start with just a couple of, you know, cash flow and cost items. Are there any requirements in terms of ending semesters early for the company to make any refund payments on mid-meal plans? And then just in general, you talked about commodity prices; were there some shortages in areas like meat? Is that spiking any of your costs or is that a concern in terms of some of your fixed-price contracts?

Right now, we are not seeing any dislocation in our supply chain with respect to the products that we purchase and the supply availability. Obviously, we operate under very long-term agreements and have very solid supply partners, so this situation with respect to grocery store capacity and meat production is not one that's affecting us at this point in time. And so, as a general rule, we are somewhat insulated by the difference between the products that we buy and the way we buy them. So, right now, supply chain disruption is not a significant impact for us. With respect to campus dining, we have had, in almost every case, discussions with our customers and our clients with respect to their intent in how they will handle various refunds for board plans. You know, we were very close to the end of the semester and had pretty much worked down to the board plan. So, we don't anticipate that there would be a material impact from any refund that might be required of Aramark underneath those programs, and we would expect that there would be an underlying negotiation with the customer about future program costs or modification of programs to support them. But generally, we don't see it as having a material impact.

Okay, thank you. And then just one other item. Before this whole pandemic, one of the efforts that you had to improve the Uniforms performance business was to roll out the routing system that AmeriPride added to all other parts of the Uniforms business to improve the route density. Can you talk about some progress you might have made during the quarter? Is it still going according to the way that you wanted to do that? Or is there any slowdown over there, any thoughts on costs just where you are with that program?

Sure. That’s a great question, Shlomo, thank you. As a matter of fact, we’ve continued to work through the implementation, and we’ve modified the implementation process because as you would expect, you’re limiting travel and you're not having people, you know, going cross-country to go ahead and do implementations in locations where they don't operate. So, instead of the original plan, what we've done is adopted a regional-based plan close to the AmeriPride locations where we could go ahead and extend the capability and do the installations in a tighter geographical perspective. We’re continuing to make progress in the implementation. We’re continuing to see benefits from the implementation, but it's in those operations that are geographically contiguous to the existing AmeriPride locations. So, we've adopted a change in the implementation plan, but we’re still implementing, if that makes sense.

Thank you.

Thank you. Our next question comes from Andrew Steinerman with JPMorgan. Please go ahead.

Hi, Tom. I wanted to jump into the 50% revenue declines you’ve seen in the last, you know, kind of six or seven weeks. If you could make a comment by division: U.S. food services, international, and uniforms? And then secondly, you know, have revenue declines in recent weeks been less than that average? Like do the declines feel like they’ve already passed the largest magnitude of decline during that period?

Yes. Hi, good morning, Andrew. I don’t really want to get into the breakdown at the moment. You know, we’re still sorting it out having just looked at the information. It appears as an anecdote to say that it’s been pretty steady throughout the month. I will comment on that. You know obviously, it was a sudden turn right at the end of March and not much has changed. Things were in a steady state for the balance of the month, so we don’t really see much though, as John referred to, a lot of talk has really bubbled up here in the last week in a number of places, including business dining. So, I think pretty steady for the month would be the cadence.

And could you just say if the Uniform declines are less than the food and services declines?

They have been.

Thank you. Our next question comes from Gary Bisbee with Bank of America. Please go ahead.

Hey, this is Jay Hanna on for Gary today.

Hi, Jay.

Just a quick question: going back to that sort of new customized model you're going to be using with regard to the heightened hygiene standards and probably more social distancing within the cafeterias. I mean, how do you expect this to flow through the cost structure, I guess, like on a unit basis?

You know, first of all, I think as we ramp up operations, we'll be ramping them up to meet the customer demand. So, we will not go to 100% capacity initially. If you take an average B&I location, the expectation, we believe, is that they will stage employees back into the facility, so they may start with 30% or 40% and then stage them in over several weeks as they test the waters in terms of reopening. That I think will differ greatly by community, you know, by infection rate in various localities, by the medical system in different communities, so I think it will be a wide range of activity. Our expectation is that we’ll ramp up slowly to meet the increased demand as it comes on board, and our service programs will be designed initially with lots of grab-and-go, you know, pre-packaged food products that can be delivered either at the desk for the consumer or that they can pick up from pick-up stations or that they can come to the cafeteria and grab maintaining appropriate social distancing standards. Our expectation is all of our employees will be wearing appropriate PPE and they will all be temperature-checked every morning before they come into work, so we’ll be confident that we’ve got a safe environment. We’ll also be engaging in very significant deep sanitation practices throughout every day multiple times throughout the day, so we’re conveying a very healthy hygienic environment to the customer so they can feel comfortable coming into the location. So, we anticipate a ramp-up over a period of time. We’ll scale up our operations over that time period and manage the cost structure accordingly to maintain the appropriate levels. So that's probably the simplest way to put it, and I think it will be different by business unit. It’s going to be very customized by location and by customer.

Okay. And then, just with regard to the decremental margin level, what you think gets you from that 20% down to 15% that was spoken to in the release and the deck?

Yes, I’ll take a shot and then Tom can add color commentary if he’d like as well. You know, we are—as Tom said, we’re not managing to that metric; we’re managing to be able to grow the enterprise. But we’re being highly sensitive to this issue, and you know, today, if the business begins to ramp up over the period of the month of May and June, you know, we’ll continue to manage in the framework that we have around that 20% level. If the downturn continues or gets worse for some reason, we have the flexibility to take additional costs out that we haven’t focused on yet because we’re really focused on being able to rebuild the enterprise and to respond quickly to customer demand when that time comes. So, we’re being very careful, as I said earlier, not to take out growth resources, not to touch the sales organization, or not to touch investments that relate to the growth of the company and the capability of the company. So, we’re very focused on a very disciplined strategy here, but there are other levers that we can pull if necessary, and that's how we would get down to the 15% level. Tom, I don’t know if you want to add anything to that?

No, that’s well said.

Okay, thank you and good luck.

Thank you.

Thank you. Our next question comes from Andrew Wittmann with Baird. Please go ahead.

Great. Thanks for taking my question. I only have one question because most of them have been asked and answered, but I did want to, unless I missed it, I wanted to get a little bit of a sense about how you all are thinking about free cash flow. Obviously, you had some impacts here in the March quarter, but maybe the best way to characterize it as maybe a range and how you think that the second half of the year compares to last year—second half of the year in terms of cash flows. Is it just the impact of net income you talked about that working capital might be a source of cash capital? Presumably, there are going to be fewer growth CapEx needs, but if you could just help us a little bit understand what you guys are thinking about for free cash flow for the balance of the year, I think that’d be helpful.

Yes, John, do you want to go ahead and take that one?

Yes. As you know, Q3 is not particularly strong cash flow quarter for us historically and certainly the environment has put additional pressure on working capital in particular, you know, at the moment. So, Q3, we’re managing – tightly managing strongly. The cash conversion cycle, you know, needs to level out balance between AR, AP, and inventory. Right now, there is, you know, a slight increase in DSOs as everybody was coming to grips with the world. And so, we’re balancing that out at the moment, but we’re, you know, as we get to steady state, we feel like we’ll, as I said before, very much get to a cash flow, sorry, working capital neutral position. So, you know, when it comes to – when you pull that all the way down, you got, you know, somewhat of a weak Q3 historically, and we think we’ll manage to, you know, neutral, maybe slightly positive cash from operations getting to neutral working capital. CapEx, we’re working hard negotiating with clients looking at what can be deferred without compromising the business. And then, like I said, we’ve got limited maintenance CapEx, so as we go into Q3, you know, again, with the history we would expect that to be, you know, a moderate use and Q4 really just depends on higher ed and restarting and also to a degree, the SME world. So, hard to give you a look for the half without complete clarity yet on Q4, but I would expect moderate use on free cash flow in the third quarter.

Okay, great. Thank you, I’ll leave it there.

Thank you. Our next question comes from Manav Patnaik with Barclays. Please go ahead.

Hi, this is actually Greg calling in. I guess on the flexible labor structure. I mean that's always been part of the business model, but usually with better visibility into when demand is going to pick up or slow down. So, I’m just hoping to get some color on your ability to flex up the labor as these locations start to open up, but still maintaining the same level of service that you look to achieve?

Yes, that's a great question, and that is, you know, the terrific thing. We’ve been able to maintain contact with our employees who have been furloughed and laid-off. We’ve maintained an active communications approach with them to keep them engaged. As you know, we talked about having a recruitment operation put in place for frontline employees so that if they were looking for employment we could help them find additional opportunities. We expect that as the call-up takes place we’ll see the vast majority of our employees return to work under the conditions, you know, as we ramp up. Our management team—I'm 100% confident we’ll have a great leadership team in place, our technical employees, skilled chefs and the like. You know, we’ve been very careful to make sure that we have ongoing relationships with them and ongoing communication so that when the time comes that they return to the company that they know and love. We believe that we’ll be able to ramp up to meet the demand. Again, it will be a ramp-up process. It will take place over a period of time; there won’t be a 100% callback for everybody right at the beginning; it will depend on each individual location and the business model, but keep in mind, many of our businesses, you know, our higher education, K through 12, basically, are furloughed during the summertime to begin with. So, those are groups of employees who are very used to this as part of the process and the way they live their lives. So, we believe we’ll be able to maintain our appropriate labor standards, but we’ll get the people back that we need to have back to meet the customer demand.

Yes, that makes sense. And then, just given that when these locations open, I imagine there’s going to be a greater focus on cleanliness and hygiene across these locations. Just wondering about the potential opportunity on the facility services side to answer for some of that? Thanks.

Yes, that’s a great question as well. You know, we do think it's a very significant opportunity. You know, we've developed protocols to put in place in all of our locations that are Aramark responsibilities, and so we will have, you know, a very significant deep cleaning and hygienic standards in all of our operations to give the customer the strongest sense of safety and security and well-being. And we have a very strong capability, so we can sell to our customers who are looking to—our clients who are looking to create that kind of an environment for their employees, and we think there will be significant demand for enhanced sanitation and security, and we’ve got all the right protocols and all the right sales models in place and are actively beginning to have dialogues with our customers about that opportunity. So we do see it as something that has significant potential for us.

Thank you. Our next question, we will now move to Hamzah Mazari with Jefferies. Please go ahead.

Good morning. Thank you. My first question, and I think, John, you alluded to this several times, but how are you approaching the focus on the U.S. turnaround just given the COVID disruption? I know you mentioned investments are not being held back; is there anything as part of your turnaround that you think is going to get pushed to the right in this environment?

You know, I don't think so. I think the investments that we had intended to make in the business, we are continuing to make, and that is particularly focused on the growth paradigm, as I said. So, adding sales resources, adding sales managers to the businesses, we've taken those actions and we have not made any reductions to those parts of the organization going forward. So, I think, you know, we have not deferred or delayed those investments. You know, we’re very much focused on going on offense, if you will, when the timing is right, when our customers are ready for it and when the marketplace is ready for it. And so, we’ve positioned ourselves in such a way that we believe we can respond very, very rapidly, particularly, you know, to the theoretical self-op conversion opportunity that we believe will exist. So, you know, that’s the simple answer. We’re working very hard, you know, to continue to invest in the organization for its long-term growth. We’ve continued to make enhancements to the leadership team as well. The addition of Jack Donovan to the Higher Education team, we’re very excited about—Jack has a very strong leadership background both inside of Aramark and outside of the company, and we really feel like he’ll make a difference in that business. We’ve continued to focus on other—on making other leadership changes throughout the organization, the appointment of Carl Middleman to the International job, the appointment of Allison Birdwell to the Sports & Entertainment job. We’re very excited about the leadership team and the capabilities that it brings to bear. So, we’re going to continue to invest in the growth of the enterprise.

That’s great. And just a follow-up question: are you still, you know, seeking out government assistance? Is that a focus? Maybe you can just tie that into how you’re thinking about current liquidity? Thank you.

Sure. We do have a very active government affairs organization working against both the CARES Act and making sure that the company is positioned to go ahead and utilize any of the provisions under the Act that would be beneficial to our employees and to the organization. You know, we continue to have efforts underway to lobby in a way that can be productive for both our organization and the industry, particularly as it relates to K-12 sector with the USDA as it relates to healthcare. And so, we’re very proactive in terms of trying to make sure that we can get our legislators to understand the ways that they can help keep our employees working and help the recovery. So, we do have a very active effort underway in that regard and we’ll continue to focus on it.

Thank you. We will now move to Seth Weber from RBC Capital Markets.

Hi, good morning. Hope everybody is doing well. I just wanted to try to tie together a couple of comments on the educational space, the negative new—net new wins here in the second quarter, you know, but I think I heard some commentary about some better traction going forward. I think in the prior call you had talked about comps turning positive by the end of the year; is that still your expectation on the educational space? Thanks.

Yes. I think with respect to new account sales, we feel very strongly about the pipeline that we have in place and some of the new account wins that we’ve been able to achieve to date; you know, some which we haven't announced yet because we’re still under the contracting phase. So, we do feel very comfortable that we’ll get to a very positive position by year-end. You know, our retention rates have significantly improved across the enterprise, including in higher education, so, you know, we’re confident that we can have a very positive run rate by year end.

John, let me just add there. Just remember, I would state the obvious potentially, but the negative net new business for the net new business, whichever way it goes, is really a product of a year ago because that's what flows through, especially it’s so pronounced in education that, you know, because the start-up dates were at a certain time throughout the sector. That flow through is really a product of what happened or didn’t happen a year ago on the impact of this year and then as John referred to, the pipeline of the things that are being worked on now will carry into next year.

Okay, thanks. And Tom, I was surprised. I think I heard a couple of times—mentioned positive pricing; can you just shed any more color on what’s driving that? You know, it is sort of surprising given the macro challenges?

I can touch on that, John.

Go ahead.

I think I mentioned in the last call that I was impressed with, coming in fresh, impressed with Aramark’s ability to price to the contracts that they have with clients. There is a lot of focus on it; you know, it’s a negotiated number with clients and, you know, the ability to follow up on that and achieve pricing is certainly a testament to the service levels, and that’s been a consistent driver of revenue growth for quite some time and certainly in the first quarter and this quarter. Your point is a valid one going forward, I mean in the environment, it might be a little more difficult to get the pricing even contractually, potentially, but that’s a lot of what’s being negotiated right now with clients side-by-side in conjunction with many other topics to best serve the client and make sure that we, Aramark, and the clients are both served. So, yes, pricing has been a big driver. I’m impressed with the focus on it here, and we will continue to be.

Super. Thanks very much, everybody.

Thank you. I’m showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Zillmer for any closing remarks.

Terrific. Again, thank you everybody for joining this morning. We look forward to continuing the dialogue with all of you, and again I’d like to thank the Aramark employees around the world for their hard work and dedication during this extraordinary time period. I’m excited to be your leader, and thank you again for all your hard work. Take care.

Ladies and gentlemen, thank you for participating. This concludes today’s conference. Thank you for your participation. You may now disconnect.