Good morning, and welcome to Aramark's First Quarter 2024 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. At this time, I'd like to inform you that this conference is being recorded for rebroadcast and that all participants are 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, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.

Thank you, and welcome to Aramark's first quarter fiscal 2024 earnings conference call and webcast. This morning, we will be hearing from our Chief Executive Officer, John Zillmer; as well as our Chief Financial Officer, Jim Tarangelo; who started in this role in January. We at Aramark are excited for Jim's appointment. 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'll now turn the call over to John.

Good morning, and thanks for joining us. Before we get started, I first want to acknowledge our team in Chile as they are dealing with devastating wildfires near Santiago. Although our operations are not affected, scores of our employees have been impacted. We're working with our leadership team on the ground to ensure everyone's safety, and we'll be coordinating a thorough response with the appropriate relief organizations. Now to the quarter, I am really pleased with a great start to the new fiscal year, generating broad-based revenue and AOI growth with solid margin improvement across the business. The strong performance resulted in record revenue for both the FSS U.S. and International segments, along with record first quarter profit in International. Our growth-focused strategies are working and we're seeing favorable margin trends driven by prior year's new contract maturities, scale efficiencies in our purchasing, and tight SG&A cost management, which has been helped by moderating inflation. We're extremely encouraged by what we are seeing in the business and Jim will be reviewing in greater detail shortly. We're excited to have Jim as Aramark's newly appointed CFO. As you know, Jim is a 20-year veteran of the company with a proven track record and he's worked closely with Tom over the past four years. His depth of knowledge about the company across the Board and across borders, having served as CFO for International segment is a tremendous asset in his new role. Tom is also joining us today as he continues to serve as a Trusted Partner and Strategic Advisor to help ensure a seamless transition over the next few months. Tom leaves a strong legacy that is both broad and deep, focused on accelerating net new business, optimizing supply chain economics, containing above unit costs and instilling a value creating mindset throughout the organization. Our top-line momentum continued in the first quarter with year-over-year organic revenue growth of 13%, which was driven by especially strong base business growth, net new business, and pricing. A combination of higher sales volume and pricing contributed to the favorable trends that are positively driving the top-line. The U.S. segment increased organic revenue 10% compared to the prior year, starting with Collegiate Hospitality which experienced strong performance in residential dining, retail and catering, as well as improved pricing with the start of the academic year. We're having early success with our recently launched Eat to Excel health and wellness program, which is focused on providing student athletes with a balanced nutrition regimen to support peak competitive performance, personalized to each athlete's training schedule, goals, and biometrics. The dietary recommendation is fully integrated with our Collegiate Hospitality dining program and is easily accessible through a digital app. Sports & Entertainment demonstrated strong per capita spending and high attendance levels from the NFL and NCAA regular seasons along with more concert events. Our culinary team had great success partnering with well-known NFL mom Donna Kelce during the holidays at Lincoln Financial Field and Arrowhead Stadium, adding the famous cookies she makes for her sons in support of the Eagles Autism Foundation and Kansas City-based Operation Breakthrough, a win for everyone involved. I also want to congratulate the Kansas City Chiefs for reaching this weekend's Super Bowl. And workplace experience benefited from the startup of significant new client wins and strong base business growth as our services provide a compelling solution for employers, with revenue in this business now fully recovered from pre-COVID levels. International organic revenues increased 21% year-over-year. Performance was driven by consistently strong net new business combined with an active events calendar in Europe, particularly in the UK and Germany, continued strength in education in Canada, and greater mining activity in Chile. New business wins at this early stage in the fiscal year have been broad-based across the company. This includes adding Tulane University and Collegiate Hospitality, expanding our services for the European Central Bank in Germany, and more locally being awarded the Philadelphia Zoo among others. We believe our new business pipeline is robust and we continue to see high retention levels across the client portfolio. Now let me turn to global supply chain. Our overall focus continues to be growing and leveraging spend to generate value for the enterprise while also providing quality product and services to clients and our customers. We've seen inflation moderating over the past quarter, and while some areas of the globe are slower to show this trend, overall inflation is running better than originally expected and the first quarter benefited from this tailwind in improved product costs. We believe the current supply chain landscape presents enormous opportunities and we are actively seeking to take further advantage of this potential, working closely with our manufacturing and distribution partners. Last week we released our Be Well. Do Well. progress report highlighting our commitments on responsible business practices, specifically on people, which includes enabling equity and wellbeing for millions on the planet, including promoting planetary health on our path to net zero and governance by assuring robust ethics and compliance in everything we do. We're proud of our efforts in these areas and encourage you to review this in-depth update. Before turning the call over to Jim, I'd also like to welcome Brian DelGhiaccio as our newest member of Aramark's Board of Directors following our annual meeting last week. Brian is currently Executive Vice President and Chief Financial Officer of Republic Services, a company I know well from my time at Allied Waste. Brian's extensive executive experiences will provide valued perspectives, particularly in strategic planning and M&A. I want to also thank Art Winkleblack for his immense contributions to our Board. Art announced his retirement and did not stand for re-election. On behalf of all of us at Aramark, we're extremely grateful for Art's service to the company. Jim?

Thanks John, and good morning, everyone. I wanted to start by thanking Tom for his tremendous leadership and partnership over the past four years. Combined, we have over 50 years of industry experience. It's been a real pleasure and privilege to be on this transformational journey with you. We look forward to continuing to have you as a Strategic Advisor and wish you well as you transition toward a full retirement in May. We are off to a terrific start in fiscal 2024. The company generated strong financial performance with broad-based revenue and profit growth. In the first quarter, Aramark reported consolidated revenue of $4.4 billion, representing organic growth of 13% versus the prior year period, driven by strong base business growth through a combination of volume and pricing as well as a contribution from net new business. Both the U.S. and International segments reported double-digit top-line growth in the quarter. Operating income in the first quarter was $167 million, up 10% versus the prior year. Adjusted operating income was $231 million, up 28% on a constant currency basis compared to the same quarter last year. AOI margin was 5.2%, increased 64 basis points year-over-year on a constant currency basis. The higher profitability was from leveraging higher sales volume, disciplined cost management at both unit level P&L and SG&A, as well as supply chain efficiencies. We also did experience favorable inflation trends overall, which benefited the quarter. Our results were aided by our innovative yet practical approach to technology. We continued to leverage technology, including most recently utilizing AI throughout our supply chain, to aggregate spend more effectively and get better pricing from our suppliers and manufacturers. Turning to the business segments, the U.S. reported AOI growth of 19% with an AOI margin improvement of almost 50 basis points compared to the same period last year. Education, B&I, and sports, leisure and corrections all had particularly strong quarters, driven by effectively leveraging higher revenue, especially in our Collegiate Hospitality and correction businesses, from our ability to recover the price inflation lag we've previously discussed. On a constant currency basis, the International segment had year-over-year AOI growth of 37% and an AOI margin improvement of 54 basis points, led by the team's efforts in the UK, Germany and Canada. Turning to the remainder of the income statement, interest expense in the quarter benefited from the $1.5 billion debt repayment associated with the proceeds from the Uniform Services spin transaction. The $1.5 billion debt repayment will result in interest expense savings of about $100 million in fiscal 2024 compared to the prior year. Our adjusted tax rate was approximately 26%. The quarterly performance resulted in GAAP EPS of $0.11, which included expenses related to the completion of the spin, and adjusted EPS of $0.41, an increase of 33% versus the prior year on a constant currency basis. Regarding cash flow, as expected and consistent with our normal first quarter cadence, we experienced a cash outflow due to the natural seasonality of the business, specifically in Collegiate Hospitality and Sports & Entertainment. This increased moderately compared to the first quarter last year due to a higher use of working capital as a result of the strong growth of the business and increased capital expenditures, which is consistent with historic levels as a percentage of revenue. In addition, we also had the one-time impact of cash taxes paid on our gain on sale from AIM. We've taken several strategic and proactive steps to strengthen our balance sheet, resulting in a reduction of our net debt position by more than $2.2 billion compared to the end of the prior year period. This includes debt repayments of $1.5 billion from the spin proceeds and another $630 million from divesting our non-controlling interest in AIM and the San Antonio Spurs. We continue to expect our leverage to be at approximately 3.5x for fiscal 2024 and our debt repayments combined with improved business performance has us on the right path to achieve this goal. This would represent the lowest leverage Aramark has experienced since 2017. At quarter end, the company had over $1 billion in cash availability. We will continue to opportunistically enhance our capital structure given our financial flexibility. This includes evaluating additional shareholder returns as our leverage ratio comes down. I'll wrap up with our performance expectations for this fiscal year. We are highly encouraged by what we saw in the first quarter and the continued strength in the business around organic revenue growth, supply chain initiatives and cost discipline combined with inflation moderating. As a result, we are updating our fiscal 2024 outlook for both AOI and adjusted EPS growth to reflect these favorable profitability trends and reaffirming our expectations for organic revenue growth and our leverage targets. With that, we expect organic revenue growth between 7% and 9%, AOI growth between 17% and 20%, adjusted EPS growth between 30% and 35%, and a leverage ratio of approximately 3.5x by the end of the fiscal year as I mentioned. I'm very pleased with the financial results this quarter. We are confident in the momentum that continues to build across the business. I've had the honor to be at Aramark for 20 years of my career. I clearly see in the Aramark of today the unwavering commitment to serve our clients, the energy and focus of our growth teams to win profitable new business, and our collective ability to achieve strong, sustainable performance. Our strategy is working and producing great results. Thank you for the time this morning. With that, I'll turn it back to John.

Thank you, Jim. The fiscal 2024 is now underway, and we look ahead with great confidence. The work we've done has centered on building a consistent and sustainable business, focused on providing valued hospitality services to our clients. The foundation is set for continued success, and we expect our momentum to carry through this year and beyond. I couldn't be more excited about what's to come. And operator, we'll now open the call for questions.

Thank you. We'll now begin the question-and-answer session. Our first question comes from Lizzie Dove with Goldman Sachs. Your line is open.

Hi, good morning. Thank you for taking the question. Firstly, I just wanted to wish Jim a big congratulations on the appointment to CFO, and this is certainly a great set of results to start with. One main question for me is that you really outperformed pretty much across the board. I'd point out organic revenue coming in much higher than expected, particularly on the International side. And then, of course, your guidance range being adjusted to the higher end. I'm curious what drove the outperformance in these areas and if you can just provide some more details and color there.

Sure. Thanks, Lizzie, and appreciate it. Yes, I think if you think about the main drivers of the margin performance, right, it's really the underlying levers we've talked about: scale and SG&A, supply chain efficiencies. We're seeing good results at the middle of P&L with food and labor costs. So I think really primarily the overperformance, if you think about the 67 bps, just sort of 50 bps coming from the underlying performance, and then I think inflation moderating probably delivered a little bit of the upside.

Perfect. Thanks so much.

Thank you.

Our next question comes from Harry Martin with Bernstein. Your line is open.

Hi, good morning, everyone. Thanks for taking my question. I guess, I'll ask the obvious question on the guidance. You did 13% organic growth in the first quarter and kept the guide at 7% to 9%. I mean, to hit the bottom end of that range would be quite a slowdown. So I wondered why you didn't change that guidance and what your expectations are for the rest of the year on organic growth. And then I guess a question for Jim in the presentation in the revenues by segment, you're now including FM services within the healthcare line, and that line was the spot of weakness down in Q1. I assume that's related to the next level portfolio actions, but could you just add a little bit of detail on the underlying trend in the healthcare market and how long that next level headwind could last for. Thanks very much.

Sure, we'll do. I'll kick it off on the revenue outlook, so we're very encouraged by what we saw in the first quarter and the trends we're seeing with revenue, particularly strong base business growth. It's still early in the year to make the call on revenue. As you know, the timing of new wins and losses could affect how we think about revenues going forward. As inflation moderates, obviously price can moderate, having an effect on the top-line as well. And then the base business trends that we've seen were very strong in the first quarter. I think it's early to see if those are still sustainable. So with that and some seasonality, that's why you do see a decline in revenue for the growth for the remainder of the year. And yes, with respect, we now have reclassified how we show our healthcare revenue. And with that, you can see, as we've previously discussed, some pruning and optimization of our portfolio within next level is a key driver for why you see the revenues being moderately down in that segment.

Yes, I want to emphasize that we have a strong confidence in this segment moving forward, and there are still significant growth opportunities there. We view the current changes as a temporary restructuring and optimization of our portfolio, after which we anticipate returning to substantial growth.

Great. Thanks very much.

Thanks, Harry.

Our next question comes from Andrew Steinerman with J.P. Morgan. Your line is open.

When looking at the fiscal year 2024 guide, I want to know what the implied AOI margin range is. I kind of try to calculate it, and it's either 40 to 50 or kind of 30 to 60 depending on how you do the math on revenues and AOI. And I also want to know if there's been any change of assumption in the food inflation for the fiscal 2024 margin guide.

Yes, Andrew, this is Jim. So yes, I think the straight math sort of the load on the high right at 17 to 20 would be 43 to 47 bps again that sort of the straight math. If you're at the sort of the lower end of the revenue range and higher end of the profit range, I think you're sort of be closer to the 55 to 60 basis points.

And then I also asked about is there a change of assumption in food inflation in the 2024 margin guide?

The current guidance reflects how inflation is running today. So the guidance that we provided reflects our current outlook for inflation, and it's pretty consistent with how it ran in the first quarter.

Okay. Thank you very much.

Our next question comes from Shlomo Rosenbaum with Stifel. Your line is open.

Hi, thank you. Could you talk a little bit about the pricing trends? Just maybe give something quantitative to see where things are and just compare it to the last few quarters to see what the trends are there. And then also maybe you could give a free cash flow range that we should think about in terms of fiscal year 2024. I know that there's that seasonality, but this is also the first year without the Uniforms business in it. And maybe you could give us some guidance on how to think about those items.

Sure. This is John. I'll address the pricing question, and Jim can discuss free cash flow. First of all, we've effectively caught up with our pricing. There was a pricing delay in some of our businesses due to contractual obligations last year, but we've since rectified that. We feel confident about our current pricing position, allowing us to recover cost increases effectively. If we face a scenario where inflation decreases significantly, it might place some pressure on pricing in the future, but we don’t see that happening right now. At present, the pricing environment is stable, enabling us to recover our costs and addressing the pricing delays we experienced last year in areas like higher education and corrections.

And on free cash flow, yes, so we had a normal heavy seasonal use, as we always do in the first quarter. I think some of the drivers there are additional working capital again due to the growth of the business, so that's not a bad problem to have, capital expenditures up as well, driven by the timing of new, but still in line with our historic averages. And then finally, cash taxes were up about $35 million in the quarter. And as I noted, we paid our cash taxes on the gain on sale of AIM. For the full-year again we're not providing specific guidance on cash flow. We're guiding more toward achieving the leverage of 3.5x. I noted the $35 million or so in cash taxes, the one-time part of that being with the AIM gain on sale. And then we have about $20 million to $30 million of additional transaction cash costs from the spend that trailed into fiscal 2024.

Thank you.

Our next question comes from Jasper Bibb with Truist Securities. Your line is open.

Hey, good morning. Wanted to follow-up on the margin upside, I guess, curious if there's been any change in what you're seeing in labor cost inflation. I think your peers indicated that the growth in labor costs was remaining kind of sticky even if the food costs were coming down. So I'm curious if your experience has been similar there.

Yes. I would say that generally we're seeing labor costs moderate a touch as well as food costs. Clearly there is less pressure in the labor environment, particularly as it relates to contract workers and the like and the payment of overtime; that's one of the benefits running through the P&L as our people are managing those middle of the P&L cost structures. There's been significant improvement on the labor side there. But overall wage inflation, I think our expectations are probably no different than our competitors. Somewhere in the 5% range would probably be kind of an appropriate estimate on a going forward basis.

Thanks. And then wanted to ask what you're seeing from a new sales and pipeline perspective. And has there been any change with respect to the mix of new outsourcing opportunities and competitive takeaways?

No, I'd say the pipeline continues to be very robust. We're very pleased with the results to-date and have a lot in the pipeline that we're working to close. And so we're very encouraged by what we're seeing so far. And no change in the level of outsourcing activity; it's still, our pipeline is as big as it's ever been. So without getting into specific opportunities, we're very encouraged.

Appreciate the detail there. Thanks for taking the questions, guys.

Thank you.

Our next question comes from Heather Balsky with BOA. Your line is open.

Hi, thank you. I guess, I'd like to add on to the prior question with regards to your pipeline, and just when you think about the different segments you're in, where you might be seeing the most demand, and also kind of how you think about the right mix for your business in terms of the end markets you want to be in.

We are observing a wide range of opportunities both in the domestic and international markets. This extends across all our business areas, including workplace experience and Collegiate Hospitality, as well as significant possibilities in healthcare and nearly every vertical. We are in the right businesses, focused, and equipped to grow them all. We see opportunities in every market we serve, which is encouraging. My focus is not limited to any one specific vertical or business; we have numerous opportunities to pursue, and our team is effectively delivering results both at home and abroad. This makes our growth narrative particularly exciting.

That's really helpful. I'm going to ask an inflation question. Many investors are looking at what the food distributors are saying and seeing, although you don't report at the same time. I'm curious about how you view pricing, particularly regarding center of the plate, and how your food costs should be interpreted, given that you likely have a different business mix than the food distributors. Can you provide any insights that would help us understand their comments and what it might mean for your business?

Yes, that's a great question, Heather, and it can be a bit confusing due to the way the numbers are reported, which focus more on commodities instead of the range of products we purchase. Our inflation figures are very specific to the items our clients and customers expect us to provide. We monitor these numbers on a weekly basis and have precise insights into what we're spending on goods and services across various business units and countries. This gives us a strong correlation with our market basket costs. Distributors, however, often face more variable exposure to different commodities, while our contracted pricing usually adjusts for that. Therefore, it can be challenging to directly compare distributor costs with ours. Nevertheless, as commodity prices fluctuate, we will see that reflected in lower prices for the products we buy and use as well. It’s difficult to establish a direct correlation, but I'm happy to provide more clarity if needed.

We appreciate it. The more confusion, the better, I guess. Thanks very much.

Thank you.

Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open.

Thanks so much. In the past, you've had some creative technology initiatives that you've deployed. Can you talk about where you're focusing on innovation and any AI initiatives in particular?

Yes, that's an excellent question, and both Jim and I can address this. It is a major initiative within the company to leverage technology in ways that benefit both our frontline managers and our customers. We actually presented a report at our Board meeting last week on the technology initiatives currently in progress. As you might expect, some of the most prominent efforts involve menu design and optimization utilizing AI technologies to assess customer preferences and develop the most effective menu structures. We have pilots running across various businesses for menu optimization, focusing on both cost effectiveness and customer acceptance. It's important to note that while AI can be used to create the cheapest menu possible, it may not resonate with consumers. Therefore, it’s essential to strike a balance between these two goals. We are employing large language models and AI to design programs that optimize for both our needs and those of our customers. The results from the pilots have been remarkable, and we are very optimistic about the potential outcomes.

Yes, I'll just add to that. We're seeing good opportunities, as I mentioned in my script. We're utilizing AI within our supply chain group to harmonize our spend data. And that AI is enabling really effective and optimizing our matching and aggregation of SKUs across the board and enables us to negotiate better pricing with our suppliers and manufacturers.

Terrific. Wanted to follow-up on competition. Are you seeing any changes in the market with regard to either the large competitors or even the smaller mid-size competitors in the space?

Yes. I would say the short answer is no, really no change. It's always been a very competitive environment. We're all pursuing those brand name clients all the time, and the range of competitors continues to evolve and change. Still plenty of regional companies out there, smaller organizations positioned against certain businesses and niches that they like. But overall, I'd say it's a very disciplined competitive environment; really no change to economic structure, bidding strategies. We are always focused on selling quality and customization, and that's what we continue to focus on. And frankly, we're seeing our competitors also doing the same thing. So we like the environment, we like the opportunity. And I would say it's been very consistent over the course of the last several years.

Terrific. Thank you.

Thank you.

Our next question comes from Neil Tyler with Redburn Atlantic. Your line is open.

Good morning. Thank you. I have a couple of questions. First, I'd like to discuss margins and the approach to achieving the midpoint and the factors that contribute to it. Over the remainder of the year, do you anticipate that the year-on-year contributions from elements such as pricing versus inflation, new volume ramp-ups, and the GPO will remain stable, or do you expect the significance of these factors to shift as we progress? My second question pertains to the ramp-up in the base business, specifically in the International segment. Could you elaborate on the developments there and indicate whether there has been any acceleration in volumes from recently secured contracts, which may not be classified as net new but are still showing signs of upward normalization? Thank you.

Yes. I'll take the first one with respect to the underlying lever. So I think the results we generated in Q1 and the sources of those margins coming from, again, scale and SG&A, supply chain efficiencies, disciplined at the middle of the P&L with food and labor, and the continued progression of new business margin maturity. I think we expect a similar mix as we look toward the remainder of the year. As I mentioned, I think if you look at the core levers that drove the majority of the margin improvement in Q1, I sort of rounded to about 50 basis points. If you look at the midpoint of our guidance at 45 bps, that's pretty consistent with what we're seeing. And like I said in Q1, the upside I think generally came from inflation moderating, and that's obviously not definitively built into the outlook.

I would just like to add that I didn't mean to interrupt you. I wanted to mention the acceleration in our base business, which I believe is due to a combination of factors. There has been an increase in volume at existing locations, with more customers returning to work full-time. This has resulted in a rise in customer counts, and we're also seeing the accounts we've sold over the past couple of years starting to mature in terms of the range of offerings. So it's essentially a mix of both. I think we can say we've moved beyond COVID and fully recovered from the losses we faced during that time. Now, we are getting back to a steady state, focusing on volume growth and improving customer counts.

Thank you very much. That's very helpful, very clear.

Thank you.

Our next question comes from Ashish Sabadra with RBC Capital Markets. Your line is open.

Jim, congrats on the appointment and solid results. I just wanted to see if you had any thoughts on M&A. If you're thinking of any tuck-in acquisition or even in terms of portfolio, you've done some pretty good portfolio rationalization, but anything remaining on that front in terms of non-core ownership. Thanks.

Yes. I would say this is John; we're always looking at potential tuck-in acquisitions to go ahead and build out capabilities of the various businesses we operate. We're always open to looking for those kinds of extensions, if you will, as we did with Union Supply. And nothing on the horizon today to talk about, but we're always open and willing to pursue things that may become available if we can do it on an accretive basis. So we don't view M&A as our primary growth driver. It's really a secondary driver. And we'll be opportunistic, but we'll be very disciplined.

That's very helpful color, solid results.

Thank you.

Our next question comes from Josh Chan with UBS. Your line is open.

Hi, good morning. Thanks for taking my questions. I know that on the net new side, you aim at 4% to 5% a year. So I guess with one quarter in, how do you feel about that target for this year, and what do you see are the biggest opportunities or risks on that front? Thank you.

Yes. I would say that that's absolutely a target that we have established for ourselves. It's also built into our compensation system. So you have the entire management team focused on those initiatives on net new growth. And so the organization is very disciplined and very focused on it. We believe, obviously, in setting those targets that they're achievable. And there's nothing that's transpired in the last quarter that would cause me to change that target. I would say, as I said earlier, our opportunities are very robust, our pipeline is very large, and without getting into specific opportunities, I have no concern around the 4% to 5% net new number being a challenge.

Perfect. Thank you for that color. And if I can ask one on the corporate expense that was lowered nicely, I'm sure that the spin had to do with that, but I guess is the new level of corporate expense what we should expect going forward?

Yes, that's correct. This is essentially a rebase for the spin. Our primary focus is on SG&A, which I manage and previously managed in my past role. We collaborate closely with various functional groups to maintain a flat performance compared to the previous year. We did experience some moderate benefits from share-based compensation, adjustments, and some forfeitures that aided the quarter. Overall, I believe this run rate will remain relatively stable.

Okay. Great. Thank you both for the color and the time.

Thank you.

Next question comes from Andrew Wittmann with Baird. Your line is open.

Yes. Great. Thanks for taking my question, guys. I guess with the benefit of few months here since the Uniform rental business has been separated out, John, I was just wondering if you look at the kind of the corporate structure that supports the business, there's anything that you're identifying that could result in that for making more efficient, maybe either now, today, or as you look at as their transition services agreement runs out, probably later this calendar year when they're probably off your assistance, if there's anything to think about there.

Yes. There are minor adjustments. We've really rebased the organization already and we're able to provide those services with a base level of employee that we'll probably maintain going forward. So don't anticipate any further restructuring or any significant change. I think we're very happy with the level of resourcing in the organization today, and we expect that we'll be able to absorb additional growth as the organization continues to add net new business and grow both domestically and internationally, that we can absorb that growth without having to add any SG&A. So that's why we're very confident in being able to manage that lever very aggressively and appropriately going forward. So no anticipated significant change going forward.

Okay. That's helpful. And then I guess I wanted to ask on retention, and obviously retention, you said COVID is in the rearview mirror. But one of the good things that happened from COVID I guess from a retention point of view is that that kind of spiked. I was just wondering if you could address the trends in your retention that you've seen here in the last few months and maybe how that relates to those spikes during the COVID period and versus the historical averages.

Yes, I believe we are right on the historical average. We expect to remain in that range this year, with no significant changes to the pattern. During the first year of COVID, retention increased sharply, but I anticipate it will stabilize around 96%. I don't foresee any significant shifts in our expectations. Some years it may reach 96.5%, and other years it could get close to 97%. Overall, I think maintaining that level of retention is definitely achievable, and I don't see any risks to it.

Thank you very much.

Thank you, Andrew.

Our next question comes from Harold Antor with Jefferies. Your line is open.

Hello, this is Harold Antor on for Stephanie Moore. So two quick questions. Just want to get an idea, COVID is in the rearview of what your focus, priorities and strategies are for the company looking forward over the next fiscal year and further.

Sure. So I've worked with John and Tom, obviously in implementing our growth-oriented strategy right over the years, and it's working right. You see what growth can do in the first quarter, and we're producing great results. So yes, the strategy is very consistent as I transition into this role. I think over the next year or so is really about execution, continuing to drive the underlying levers that we've discussed. I think it's sort of back to the basics in terms of operational discipline now that COVID and the supply chain disruption is behind us. So there are some opportunities, I think with food and labor, middle of the P&L without disrupting the high-quality service that we deliver to our clients. So that's really the focus for me. I am fully committed and very confident in the outlook we provided for this year and committed to the 2026 targets the company has established.

Thank you.

Our next question comes from Faiza Alwy with Deutsche Bank. Your line is open.

Yes, hi. Thanks and good morning. I wanted to follow-up around supply chain, so we talked a little bit about inflation and product costs improving, but you made a comment around how the current landscape presents significant opportunities. So wanted to hear a little bit more around your supply chain initiative beyond just inflation decelerating.

Yes. As you know, we have a very robust supply chain organization that includes not only the core contract food service business but also Avendra and a number of different GPOs in the Avendra family focused on different verticals and different businesses, both domestically and internationally. And we continue to be very interested in expanding the size and scope of the GPOs both organically through new sales efforts, by taking on new customers, as well as extending geographies that we serve in the GPO arena. And so it is an important component of our future growth and our future profitability. It's a terrific organization. Autumn Bayles, who runs that organization having taken over for John Orobono last year when he passed away, is doing a terrific job, has really integrated very efficiently and effectively into the leadership of that role. And so we're very pleased with the overall performance. They are hyper-focused on optimizing for our frontline managers through the right products, the right services, and the right partners. They're very focused on sustainability and all those efforts that we have from an ESG perspective as well. And so we're committed to it. We believe that we can continue to accelerate the growth of the supply chain profitability, and that will be an important part of our long-term margin improvement going forward.

Great. Thank you for that. And I just wanted to clarify or follow-up around comments you made on pricing. I think you said that as inflation moderates, pricing will moderate as well. Are you starting to get any pushback around pricing or just curious, sort of how you're anticipating pricing going forward to the extent inflation moderates? Should we assume that it's really just moderation and incremental pricing, or are you starting to see some sort of, do you have to give back on pricing, I guess is the question.

Yes. No, we wouldn't be giving back on pricing, but we'll see the rate of increase in price may moderate to more closely align with inflation expectations. So as you think about last year, for example, we had outsized pricing because of the very high inflation rate. That's kind of what drove our pricing lag, if you will. We were pursuing very aggressive price increases to recover cost increases that were beyond the norm. I think this industry is likely to go back to a much more normalized pricing model, which is really inflation recovery and without any significant future spikes, I think you'll just see pricing kind of moderate to around the level of inflation, somewhere in that range.

Great. Thank you so much.

Our last question comes from Ian Zaffino with Oppenheimer. Your line is open.

Hi, great. Thank you very much. Congratulations, Jim. Welcome aboard. Very happy to see these numbers here. So question, I guess, would be, on this new environment, how does this impact your ability to win new business, to get new outsourcing versus competitive wins? How are we seeing this now, I guess as you're getting more confidence in the business, we're seeing inflation coming down. Pricing seems to be good. It seems like your sales force is really tip-top. So how do we think about that now going forward as far as what will be the big drivers of growth in those buckets and how to think about the environment, either accelerating or decelerating, et cetera. Thanks.

Yes, I think the overall environment, as we talked about still, is a tremendous opportunity for us, right? There's a significant portion, it's a very large market that continues to have a significant portion that is currently insourced. So the strategy going forward remains focused on new business and like I said, driving the levers that we talked about previously. I think with the supply chain disruption behind us and COVID behind us. It just makes driving those levers sort of more important and brings us toward the underlying strategy that we've outlined.

Yes. I think I'll just add a couple of comments. First of all, we believe that achieving the net new numbers is important for the long-term success of the organization. We've resourced the company, we've rebuilt the organization, we've rebuilt the sales and growth culture, and those things are in place and are sustainable and will continue to drive our long-term performance. So the model really is around retention of our existing customers and maintaining retention at that, call it 96% range, net new of 4% to 5% a year, and then cost recovery through inflationary pricing recovery going forward. And that all translates into a very sustainable long-term value creating growth model. And we're absolutely committed to it. The marketplace certainly can support it. The range and the scope of opportunities available to us are literally limitless, both from a geographic perspective as well as a conversion perspective. So plenty of self-op conversion left in all the markets, and we're going to be competing very aggressively to continue the growth of the organization. So we love the business model. We've built an organization that can now take advantage of it, is focused on it, is compensated on it, and we're delivering on those results.

Okay. Thank you very much. That's great color.

Thank you.

I will now turn the call back over to Mr. Zillmer for any closing remarks.

Well, first of all, I would like to say thank you for all of the team members at Aramark who have produced terrific results in the first quarter. Thank you for all your hard work and efforts. Really proud of the work that the team has done and also like to thank all of the investment community for their support of the organization. And we're looking forward to a good 2024. Thank you very much for your time and attention this morning.

Thank you for participating. This concludes today's conference. You may now disconnect.