Good morning, and welcome to Aramark's Second Quarter Fiscal 2024 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.

Thank you. Welcome to Aramark's second 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. 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 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. So with that, I'll now turn the call over to John.

Good morning, everyone. We had another great quarter of results driven by our commitment to growth across the company. Aramark hit record total company revenue for any second quarter in our history, as well as record second quarter profit in International. The vast majority of our profitability improvement in the quarter came from strategies we've taken to drive performance, while also benefiting from some inflation tailwind. Once again, substantial base business growth, pricing and net new business contributed to organic revenue growth, which was up 9.4% in the second quarter compared to the prior year. We continued to experience consistently strong retention rates, along with sizable new business potential. Organic revenue in the U.S. segment increased by 7% in the second quarter versus last year, led by three areas of the business. First, we've seen continued momentum in Collegiate Hospitality due to enhanced culinary partnerships and new business wins as well as innovation leading to increased participation. Sports & Entertainment had another great quarter with impressive per capita spending rates and higher attendance levels, especially during the NFL season, as well from our growing presence in the NCAA. We expanded our grab-and-grow micro markets and self-checkout offerings and launched additional local restaurant partnerships, which continue to resonate with fans. We'd also like to congratulate the South Carolina Gamecocks, the Iowa Hawkeyes and the Purdue Boilermakers for their achievements in reaching their respective NCAA basketball championship games, all Aramark clients. And lastly, workplace experience gained momentum across all regions as the quarter progressed, led by new business coming on board, increased employee participation rates and additional catering activity. The U.S. segment continues to deliver new business wins. Most recently, we were very excited to add Oracle Park, the home of the San Francisco Giants, to our baseball portfolio. I was at the stadium for opening day and experienced firsthand the enthusiasm of our Aramark team proudly serving fans with new innovative culinary creations combined with iconic fan favorites. Other new client additions include the University of New Mexico, Denison University and Clark University in Collegiate Hospitality, as well as Dublin City Schools and Student Nutrition to name a few. Corrections also continued to expand the portfolio, taking great pride in the success of our IN2Work program as a second chance employer, a program that is now in over 300 of our locations. In the International segment, every country and region within the Aramark portfolio saw organic revenue growth in the second quarter, led by mining services in Latin America, increased business dining volume in the U.K., and continued strength in education across Canada, resulting in a year-over-year increase of 16%. Our Aramark Korea team served fans at a pair of Major League baseball opening day games for the National League West rivals, the San Diego Padres and the L.A. Dodgers, who played in Seoul towards the end of the quarter, leading to new opportunities in sports. New business has been strong in International, which most recently included expanding our presence with Merlin Entertainment in the U.K., offering additional B&I services to Continental AG in Germany, and building upon our remote camp capabilities in Canada, adding Woodfiber LNG and Ledcor Group as clients. The International team has been awarded numerous new wins, collectively providing us the ability to build scale in the countries we serve. In the second quarter, we hosted our first International Innovation Summit in Santiago, Chile, which included participation from our country leaders, global clients and technology partners, with approximately 700 attendees. We used our time together to explore food and facility service models of the future focused on innovation around customer experience, safety, sustainability and artificial intelligence. Now let's turn to global supply chain. Our overall objective continues to be focused on consistently growing and leveraging our managed services global supply chain and GPO network spend of $19 billion, and providing quality products, services and analytical insights to our clients. International expansion is an area of focus on our strategy with several of our multinational clients, offering us the opportunity to broaden our procurement services on a global scale. As I previously mentioned, we saw some continued improvement on the inflation side, which helped product costs in the second quarter. Jim will be providing additional detail on the benefits we're experiencing. Our AI work in global supply chain is creating additional efficiencies with enhanced data harmonization and analytics for our operators and clients, particularly in sourcing optimization and reporting. As an example, we're leveraging these capabilities to share insights with our clients and further understanding their community impact with local, regional, diverse and sustainable spend to achieve their ESG goals. Finally, we continue to strengthen our balance sheet and are in active discussions to sell the remaining portion of our ownership stake in the San Antonio Spurs NBA franchise. We expect to sell the remaining interest prior to the end of the fiscal year, and we will provide additional detail on a potential transaction soon. I'll now turn the call over to Jim.

Thanks, John, and good morning, everyone. Over the past several months, I have spent time with many of you reviewing the business and outlining my immediate priorities since becoming CFO in January. I have focused on two primary areas: continuing to drive profitable growth with the goal of reaching new levels of financial performance, and leveraging that growth to capitalize on our underlying margin levers. With that, we had another very strong quarter, building on the momentum we generated in the first quarter, reinforcing that our model is working and producing the results we expect. With this framework now firmly in place and the operating environment normalized, the company is at an exciting inflection point as we execute on our strategies, all with the mindset of creating significant value for our stakeholders. As John reviewed, in the second quarter, we reported organic revenue growth of more than 9% versus the prior year, driven by strong base business growth and the contribution from net new business, along with pricing. Operating income in the second quarter grew by 27% year-over-year to $159 million, and adjusted operating income was up 29% on a constant currency basis from a year ago to $187 million. AOI margin grew by nearly 70 basis points year-over-year on a constant currency basis, with approximately 50 basis points driven by those underlying levers core to our model, including scale in SG&A, supply chain efficiencies, disciplined middle of the P&L management and progression of new business maturity, with the remainder coming from improving inflation trends. Turning to the business segments. FSS U.S. achieved AOI growth of 21%, with an AOI margin improvement of 65 basis points on a constant currency basis compared to the same period last year. Education, Business & Industry, and Sports, Leisure & Corrections all had particularly strong quarters due to disciplined middle of the P&L management, combined with higher base business growth especially in our Collegiate Hospitality and Correction businesses from our ability to recover the price inflation lag we've previously discussed. The International segment had year-over-year AOI growth of 29% and an AOI margin improvement of nearly 45 basis points, both on a constant currency basis. Year-over-year AOI growth was driven by higher base business volume, net new business, and supply chain efficiencies led by the U.K., Germany and Latin America. Regarding inflation, we are seeing trends tracking similarly to what we experienced in the first quarter, and providing some tailwinds to our underlying margin levers. We still anticipate inflation to be around 4% to 5% for the fiscal year, consistent with our expectations we conveyed last quarter. Turning to the remainder of the income statement. Interest expense decreased by almost 25%, primarily from the $1.5 billion debt repayment of the 2025 senior notes. The adjusted tax rate was approximately 26%. Our strong quarterly performance resulted in GAAP EPS of $0.20 and adjusted EPS of $0.29, an increase of 79% versus the prior year on a constant currency basis. With respect to cash flow, the company generated a cash inflow in the quarter consistent with our normal seasonal business cadence. Cash flows from operating activities in the second quarter was $221 million, and free cash flow was $140 million. The current quarter was impacted by payments of approximately $25 million for the remaining fees associated with the completion of the spin transaction, as well as higher income tax payments from the increased profitable growth, and slightly more capital expenditures. At quarter-end, the company had over $1.1 billion in cash availability. We also took steps to enhance our capital structure by repricing our 2028 and 2030 term loans at lower interest rates. This repricing is expected to generate annual interest expense savings of approximately $10 million. We will continue to proactively pursue opportunities to further strengthen our balance sheet. I'll wrap up with our outlook expectations for the remainder of this fiscal year. We are very pleased with our year-to-date performance and the trends we are seeing in the business. As a result, we are updating our fiscal '24 outlook for organic growth to be at 9% or better, and reaffirming our expectation for AOI growth and adjusted EPS growth which we indicated would be toward the higher end of the range last quarter. With that, we currently anticipate the following full year performance: Organic revenue growth at 9% or better; AOI growth of 17% to 20%; adjusted EPS increasing 30% to 35%; and lastly, a leverage ratio of approximately 3.5x by the end of the fiscal year. Our strong performance reinforces that our profitable growth strategies are working. With the foundation for success firmly in place across the organization, we couldn't be more excited about our future. Thank you for the time this morning. And with that, I'll turn it back to John.

Thank you, Jim. Our teams around the globe are the driving force behind our success and a key reason I remain confident in our ability to go to and through our financial targets, focused on organic revenue growth, margin expansion, adjusted EPS growth and capital structure enhancement. We're working hard each day to build upon our momentum and deliver on our promises for all stakeholders. Very specifically, the point I'd like to convey with respect to our strong quarter is that we feel very good about the quarter that's in the books. We believe that the macro environment continues to cooperate, and that we've raised our revenue guidance and our AOI expectations for the second half of this year have both risen. Having already pointed towards the high end of the qualitative AOI guidance range on the last quarter, we plan to update the quantitative AOI guidance range as the year progresses. Operator, we'll now turn the call over to questions.

Our first question comes from Toni Kaplan with Morgan Stanley.

Great job on revenue growth this quarter, and you've moved to the higher end of the guidance range. There seems to be strong momentum in the business. Could you provide some additional insight on the new business that you mentioned several times in your prepared remarks? Are you seeing acceleration there? Is there a shortening of the sales cycle? Are you able to attract new clients? Please give us an overview of what the new business looked like for the quarter and how it’s trending, as well as the overall environment for new business.

Sure. Thanks, Toni, for the question. First of all, we feel very good about our momentum in terms of new business development and new account wins. Many in the pipeline and many that are already verbal wins that we don't have signed contracts for. So we're seeing very significant momentum on the new business side, a very active pipeline, very active selling season in higher education and K-12, which as you know, they're still in the middle of their selling seasons. So we feel very good about the momentum and about our net new goals for the year. And we'll disclose fully after the full year what our net new results and the components of growth are for the entire enterprise. But right now, we're very pleased with the momentum and got some very satisfying wins to date, and many more to come.

Terrific. I wanted to follow up on margin, particularly in the U.S., which looked strong. Can you elaborate on the drivers behind this? Are you seeing benefits from maturity in some of last year's new business on the margin side? Also, could you provide an update on the price/cost spread and your thoughts on potentially adjusting the AOI guidance, considering you're already at the higher end? Any comments on the U.S. margin performance would be appreciated.

Yes. Thanks. So really strong performance year-to-date on margins, averaging about 65 basis points of margin improvement. And as I noted, about 50 basis points coming from those underlying levers, with the remaining coming from the inflation moderating. Within that 50, we really like what we're seeing particularly in supply chain. The growth has really positioned our supply chain organization to generate efficiencies, negotiate better deals, and we're seeing good results out of our GPOs. Secondly, I would just note the middle of the P&L, as the operating environment continues to normalize and our operators can focus on optimizing food and labor without sacrificing service to our clients. We've seen really nice results there as well.

Next question comes from Ian Zaffino with Oppenheimer.

It was a very good quarter. I would like to ask about the new business. What was the primary driver? Was it mainly new outsourcing or competitive wins? Could you provide more details on that? Additionally, as you examine your pipeline, which specific lines of business are performing particularly well? Are there any significant new client opportunities you can discuss?

Sure. Actually, performance is very broad-based. All the business is doing very well with respect to new business wins. And higher education may sell the most business they've ever sold in their history in terms of numbers of new accounts. So it's been a very solid year from that perspective. Very strong growth in B&I. Big wins, obviously, across the enterprise in corrections and in other verticals. So we're very pleased with the broad-based nature of the new account wins. The strength of the pipeline, both domestically and internationally, the International business has had a very strong year from a new perspective. So yes, we're very encouraged. And I would tell you, I think we're seeing still significant tailwind from self-op conversion around the world. We're seeing significant opportunities across all the verticals and across all geographies. So feeling very good about the new business pipeline and the overall results.

Great. And then if I could sneak in another question. Can you just share the status of the Mantle Ridge ownership in your company, if you have any type of sense? And you've been posting great results, including from last quarter. Some are thinking that it could be some type of overhang coming. So any insight you could give us, that would be helpful. If it's behind the...

Yes, certainly. Generally, in short, the Mantle Ridge vehicle that held Aramark stock has been fully and permanently wound down and is no longer a factor for Aramark. And I'm generally not in the habit of commenting on matters relating to our shareholders, but I have obtained permission to share the key details of the current circumstances, because we do have a reason to believe that there's a little bit of confusion around the current state of their ownership. So as I said, the fund has been fully and permanently wound down. I can confirm that all the stock controlled by Mantle Ridge has found a long-term home. Some was sold over the course of the last six months since their initial sell-down in August, and the balance has found their way to long-term holders. As I am sure the filings over the course of the next couple of quarters will show, the organizations that have received shares are well-respected long-term investors who have underwritten the company's strategy thoroughly. And we feel very good about the nature of that relationship. So the bottom line is Mantle Ridge's ownership is no longer a factor for Aramark. Paul Hilal is a friend, and I trust I will be calling on him for advice in the future, but we have no longer a relationship with Mantle Ridge from an ownership perspective.

Our next question comes from Lizzie Dove with Goldman Sachs.

Congrats on a nice quarter. I'm curious, we've heard some negative commentary from other companies over the last few weeks. Does it feel like you're kind of seeing the same pressures? Curious if you could provide an update there just on what you're seeing in terms of health of the consumer? And I'll ask my follow-up now, and also kind of any pushback you're receiving on pricing.

Yes, I would say we're seeing a very healthy consumer, particularly in the businesses and the verticals that we operate in, as evidenced by the organic growth of the enterprise. Continue to see very strong consumer response in the Sports and Entertainment business, very high levels of attendance and per capita spending, which I think is a really strong indicator. I think part of that speaks to the verticals we operate in and the essential services we provide across a range of businesses and a range of geographies. So we aren't seeing that consumer pressure, if you will, but other retail organizations may be seeing. From an inflation perspective, we're seeing an environment that is beginning to show some moderation as we've talked about. We still believe our expectations are in the 4% to 5% range, both for a food and labor perspective. But we're also able to achieve pricing to offset those inflationary cost pressures. So we feel very good about the model that's in place, our ability to recover those costs, and the overall state of the growth of the enterprise and the state of the consumer that we serve.

Our next question comes from Heather Balsky with BofA.

Could you clarify your guidance? It seems like you are indicating the high end. Is this just regarding AOI growth or does it also apply to EPS growth?

Yes. In terms of the guidance, we really are pleased with the performance year-to-date and the traction that we have. So I think it's reasonable to conclude on both fronts that we'd be toward the higher end of the range as well on AOI and EPS.

Could you provide any clarity or maybe some quantitative information on what you're seeing regarding the pricing discussions on the new accounts, and if anything has changed in the last couple of months?

No, really nothing. With respect to new accounts, pricing discussions are part of the negotiation process as we sell the new business. But the pricing is always based on what is appropriate from a P&L perspective and a margin perspective as we sell new business. So there is no downward pressure on pricing discussions with new clients. And frankly, we've got very good pricing velocity on those accounts that we already serve. So I would say right now, we're very pleased with the pricing environment. As you know, last year, we struggled during the contractual pricing period on a couple of businesses due to the lag. That lag has been fully recovered, and we are ahead of that process now. So we feel very good about the pricing environment in general.

Our next question comes from Andrew Steinerman with JPMorgan.

I just wanted to get a data point on that 4% to 5% food inflation for input costs that you continue to assume. How was that in your book of business in the first half of the fiscal?

Yes. That was roughly 4.2% in the first half. We observed that it was very stable in the first quarter, and we actually saw some improvement during that time. It then remained steady in the second quarter at around 4.2% to 4.3%. Recently, we have noticed a slight easing. Throughout most of the year, it has been in the 4% to 4.5% range for input costs, with some volatility from quarter to quarter. However, we expect to see continued easing for the rest of the year, though it's challenging to predict the exact extent of that easing.

And that's for Aramark's book of business, right?

That's correct. That's for our book of business and for our specific market basket of products that we buy and sell to our consumers.

Our next question comes from Neil Tyler with Redburn Atlantic.

First, John, on the new wins and your confidence that you expressed earlier, is there any change in the source of those compared to, say, this time last year, whether that's first-time outsourcing or competitive bids? That's the first question. And then secondly, within the International segment, obviously strong organic growth. Can you remind us to what extent the Merlin contract is now sort of at cruising altitude, or is that contributing meaningfully still to the year-on-year comparison?

Yes. I would say, first of all, with respect to Merlin, it's at cruising speed year-over-year. All the Merlin business was open and operating last year at this time as well. So it's basically a very similar operating environment. We did pick up an additional piece of business from Merlin, but we're just beginning to operate that now. So that hasn't really affected the revenue numbers yet in terms of year-over-year comps. And in terms of the source of new business wins, I would say it's very consistent with what we saw last year. General industry trends continue to be similar. I would say, first time outsourcing still contributing probably in the 40% to 45% range of new business wins, and the balance competitive bids from either regionals or other major players. So I would say, on balance, very similar to last year's sales environment.

Our next question comes from Shlomo Rosenbaum with Stifel.

John, referring back to your comment about Merlin, you mentioned an additional piece of business. Is this a client that has significant potential for growth from your current position, or have you reached a limit there?

I believe there is still plenty of opportunity for expansion with Merlin. While I don't want to speak on their behalf, they clearly manage a number of operations in various locations globally and would welcome the chance to operate for them in other regions. In terms of the business in the U.K. and the U.S., it remains relatively stable, with the addition of this new component. We are optimistic about it. I do think there is still potential for growth with Merlin, and we will continue to work diligently to excel for them and hopefully broaden our partnership.

Okay. Great. And then just for the follow-up, just getting into the weeds a little bit. Could you comment, there was a 2% growth in rest of the world for International. And I don't know if that's just a tough comp, it kind of stood out amongst a really strong growth over there. And then just in the U.S., everything is doing really well. I know that it's taking some time to stabilize health care. Maybe you could talk about how you're thinking, a time frame for that, to kind of reach stabilization and start to grow?

Yes. I think we've reached that stabilization point for the health care business, and I think you're speaking specifically about senior living. We believe we've stabilized that business and that we will be growing from here in that segment. We're very pleased with the leadership of that team and the progress they've made in the business. So very confident in our ability to grow that significantly over time. With respect to the 2% comp for rest of world, we have over 20% organic growth in rest of world. I think the impact that you're talking really is about with respect to the GAAP numbers, which reflect all the currency translation effects in International. So that would account for that variance. But our rest of world calculation is that we're over 20% organic growth.

John, I'll just add in that the $83 million of FX headwinds that you see there, that was primarily in the rest of the world, specifically in Latin America.

Our next question comes from Leo Carrington with Citi.

John and Jim, it sounds like you're indicating that the 17% to 20% AOI growth guide could be raised later in the year. So why hold off doing it now? What could pursue above the top end of that, or what lands you in the middle? And then secondly, perhaps just what kind of margin expansion might be reasonable to expect in H2 on a year-over-year basis compared to what you've achieved in H1?

Sure. So yes, like I said, we had very strong performance in Q1 and Q2, with 65 basis points of margin improvement. In terms of the outlook, we remain very optimistic, and I said we're expecting to be toward the higher end of that range. A couple of factors in terms of we're lapping some significant pricing actions in the prior year. So we'll see how inflation plays out and the timing of new, obviously, it could have an impact as well. But like I said, we're really optimistic with the outlook, and we'll continue to keep you posted on that front.

Yes, I would like to add some commentary. As we mentioned earlier, we are very confident in our ability to meet the upper end of our AOI and EPS guidance. However, we are somewhat influenced by the inflation environment. We believe this is a favorable time as inflation may further moderate, which would provide a beneficial tailwind for the third and fourth quarters. As we observe these changes, we will continue to update our AOI guidance. Clearly, we aim to maximize that number, and we are all motivated to enhance the performance of the organization. We will provide further updates as more data becomes available regarding inflation in the second half of the year.

Okay. If I could follow up on that, can you explain to what extent pricing has contributed to the margin expansion in Q2, specifically how it has aligned with the cost inflation we have incurred?

Yes. So again, the underlying levers, right, which excludes the pricing component, was about 50 basis points. So the delta between 68 and 50, so 15 to 18 basis points margin improvement, was a result of the pricing and inflation moderating.

Our next question comes from Ashish Sabadra with RBC.

Solid progress on the margin front. I was wondering if you could highlight some of the efforts in place to continue to drive more better margin expansion, particularly on the supply chain efficiency side as well as the progress on the cost takeout front.

Certainly. On the supply chain side, we continue to work very aggressively to pursue. As we build the business and grow the organization, we continue to use that leverage to go ahead and negotiate new and better and more attractive deals with our suppliers and the manufacturer partners that we have around the world. And we've been able to do just that. We're seeing significant improvement year-over-year in supply chain profitability. That contributes to the overall profitability of the enterprise. So very pleased with that progress. We're also working very aggressively to build our international scale in terms of global supply chain and working with other partners to go ahead and build that scale, which gives us additional opportunity to impact the business both domestically and internationally. So very focused on supply chain growth, and we think it will be a big contributor to margin expansion over time. That's one of the key levers for the company that we've identified in our business case and in our Investor Day, if you will, that will be a solid contributor going forward. And it has proven to be and will continue to be.

And I'm sorry, I didn't get the second half of the question. Yes, some of the other drivers there of margin expansion, the middle of the P&L. We really like what we saw over the operating environment, more normalized, our operators are doing a great job, optimizing food and labor costs, specifically reducing overtime and agency labor, again, as that environment more normalizes. And then secondly, on our SG&A, the organization is really fit-for-purpose with the spin. You can see SG&A actually corporate costs down a little bit versus the prior year. So we're able to take a lot more growth on really without adding much to the top line cost.

Our next question comes from Stephanie Moore with Jefferies.

I was hoping you could talk a little bit about the strength you're seeing in the base business. What's driving a lot of this growth in this environment?

Yes. We're seeing overall participation rates and strong customer acceptance in a number of businesses. Higher education, we're seeing very strong performance in terms of the customer satisfaction scores and the overall participation on university campuses. We're seeing upperclassmen select board plans on a more frequent basis, which is a key driver of growth opportunity. We're seeing very strong base business growth in the B&I segment, both domestically and internationally, as return to work has normalized and businesses are focused on growing again. And we're seeing very strong new business wins in B&I as well contributing to that. So overall, we're seeing a very healthy environment for all the businesses we operate in. And we're very pleased overall with the results in both the operating environment, their cost containment, the customer counts, overall participation rates, all very supportive of just that strong base business growth.

Great. That's helpful. And then just as a follow-up, could you remind us for which retention rates are trending at the moment?

Yes. We expect to achieve 96% retention, which is our historical standard, and we are on track to meet that goal this year. I feel very positive about maintaining high retention rates across the enterprise.

Our next question comes from Jasper Bibb with Truist Securities.

I was hoping you could give a bit more color on the GPO and supply chain efficiencies. I guess how are you thinking about the opportunity to keep growing spend under management over the next few years and what that could drive in terms of margin leverage?

Well, very specifically, we believe that the supply chain GPO opportunity is very significant. We continue to look at both the organic growth of that through the addition of new business as well as the potential M&A activity in the GPO sector, both domestically and internationally, looking at ways to continue to build scale. But our primary growth vehicle for the GPO will be the organic growth of selling new business, adding new accounts and adding that spend to our existing $19 billion worth of spend. That has a double benefit. So we are in both the income from the GPO and we are able to negotiate better deals that impact our core business as a result of that increased volume. So it is a key factor for the long-term margin expansion of the enterprise. And as I said, we are working very aggressively to continue to build that business, both domestically and internationally, and working with our existing partners to find ways to serve them in other parts of the world. That opens up a whole new range of opportunities for us.

And then curious if you could provide any update on sales force productivity. It seems like you've gotten good leverage there on the investments you made a few years ago. But any update on where that stands today would be helpful.

We are very pleased with the overall productivity of our sales force. Each month, we conduct an operating review with the presidents of our businesses and country leaders to assess sales results. This regular review allows us to continuously track productivity, and we are happy with what we see. We believe we have created a highly efficient sales organization, and we are fully staffed, feeling confident in our resources aligned with growth opportunities. We are always exploring new verticals to enhance our company’s capabilities and broaden the range of prospects for our sales team. A prime example of this is Merlin, a vertical that has traditionally been self-operating but offered a significant business opportunity. We will continue searching for new verticals to integrate into our portfolio.

Our last question comes from Josh Chan with UBS.

I think you mentioned that the underlying margin improvement was 50 basis points this quarter. I think it was the same last quarter. So could you just remind us what's implied in your guidance in terms of underlying margin improvement for the year?

Yes. We have not included any advantages from moderating inflation or inflation tailwinds in our full year guidance. We expect inflation to remain at similar levels as it was in the second quarter for the rest of the year.

Okay. And then I guess in terms of just the core margin improvement, could you talk about your confidence in that sustaining beyond 2024 based on the initiatives that you have to drive improvement?

Yes. Given the traction that we have, we're very comfortable that the model is working. And the levers that are driving the margin improvement will continue on into 2025 and 2026, with respect to improved efficiencies and scale in our supply chain, the commentary made with respect to SG&A that will be similar as we plan for the next couple of years as well. And then again, at the middle of the P&L, the trends that we are seeing, I think, will give us some momentum and tailwinds into 2025 as well.

Yes, I would like to make one final comment. As Jim indicated, we feel very good about the performance in the middle of the profit and loss management. The operating team is doing an excellent job focusing on delivering efficiency and services to our customers. Ultimately, that is the best measure of an organization’s effectiveness. Can you manage the business well and meet the results that your clients expect? We are confident in our ability to do this and to make a meaningful impact on the business. Thank you all for your time this morning; I truly appreciate it. I feel pleased about the quarter, and we will keep you updated throughout the rest of the year as we achieve great results. Thank you very much.

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