All right, cool. So, all right, everybody, we're going to get going on the next section here. I'm Andy Whitman. I'm the senior research analyst that covers facility service, and this next section is with Aramark. We've got somebody maybe that you haven't met before. Bayless is the EVP of supply chain. This is a really important role inside the organization at Aramark. This is probably one of the biggest margin opportunities inside of the company. So we're really happy that she's here. And while we'll talk about the whole company, I do plan to kind of take advantage of you being here to talk about that specifically. Maybe just my first question is always the same with everybody. But why don't you just give us like one minute for people who aren't unfamiliar with Aramark about who the company is and what you do. And then we'll kind of launch from there.
So the best way to describe Aramark, it is a food and facilities outsourcer, global. So we operate internationally as well as here in the U.S. So if you're a university, a hospital, a sports team, and you want an expert to come in and run your food and beverage or your facilities and save you money while we're doing it, we will come in and do that. So we have thousands of clients all over the world in numerous industry verticals. We also run some GPO companies where we're allowing clients to use our contracts and our price books.
Great. All right. So one of the new things that everybody wants to talk about is data centers. And while most people don't think of a contract catering food supply company as a data center play, it turns out that in the last month that Aramark is getting labeled with that. And so let's just start with whatever you want to ask about. This Nexus project was press released a couple of months ago. And since then, you've gone on to announce a couple of large wins. So why don't you just talk about what that is, and then I'll ask some further questions to kind of talk about the opportunity from here.
Okay, sure. So Nexus, brand-new line of business for Aramark, brought on because of the opportunity from the AI Data Center build-out. And we have secured a client that we're working with. We have confidentiality, so we're not going to say too much about them. But a client that we're working with to be their provider while the construction project is going on for food service and some other amenities around that. It's really exciting for Aramark. This is something we're good at. We're used to working in large, complex, remote environments. So if you think of our mining business, our national parks business, the remote camps that Aramark operates in, this is something that is in our DNA and we're used to doing. And so this opportunity, you know, stood before us. We realized there's a nice market out here for this. We've gotten a lot of attention from everybody involved with this type of area, and we're really excited to roll up this new line of business.
I understand there's been two sites that have been won. One of them has actually started to ramp as we sit here today. And the company has mentioned that these could be about $100 million of annual revenue. And that's on a per se basis, if I'm not mistaken, right? So I guess my question would be is, when you look at the environment out there, while these two sites are with one customer, how many more sites like this are really in your pipeline? What are you looking at, recognizing that maybe not every data center is this gigantic or this remote, but there's certainly lots of data centers getting built? So just maybe you could frame up the opportunity that's out there, I think would be helpful for everyone to understand.
So I'll just speak in some generalities. You can think there's probably several hundred of these going to be built over the next several years. We are talking to multiple prospective clients around this, and we're looking to cultivate a sustainable business off of this amazing opportunity that's sitting in front of us. As I said, it's leveraging on all of Aramark's strengths already, so it's something that we're good at, and it's the new industry vertical that has been stood up is meant to go attack this opportunity. There's also some nice synergies with our Avenger GPO. So this is our GPO that services hotels and hospitality. So a lot of the things, a lot of our competitors focus on just food and beverage. We certainly have that. But our vendor GPO also focuses on, you know, linens, textiles, mattresses, you know, all the things a hotel needs to operate that these sites will need as well. So we come ready prepared with great deals for our clients to maximize their economics on.
And just for context here, how long is a typical construction cycle supposed to last on one of these?
Everybody talks about three to five years, you know, and you ramp up. If you figure there'll be some, you know, ramp up like this where one's, you know, nearing completion, the other one's going to ramp up another site for a particular client. So that's how we're looking at it is there'll be some rolling business here.
We could keep talking about that a lot more, but I think those are the key highlights on the data.
It's really exciting for us.
Anything else that's going on right now, I guess there'd be the only other thing would be talked about is like Some of your competitors have these offshore remote businesses as well, but it sounds like you guys feel like you've really carved out a niche here that you've got a leadership position.
Is that anywhere else? Yeah, look, the market's going to be big enough for others to play in as well, so there's plenty of stake here for everybody. But we feel that we have a head start on the market. We feel that it speaks to Aramark's sweet spot, and then having the vendor hospitality GPO product line ready is also an advantage for us.
Okay, let's dig into the supply chain work that you've done. And maybe just the best place to start here is how important is the supply chain? Just for context, like, I mean, the business at the gross margin level is really people and supplies, right? I mean, that's what it is. And so just frame up for everybody how important a supply chain is as part of your cost structure and what the opportunity is for you to address and make more efficient.
And I'm not just saying this because I'm the supply chain person, but I think it's super critical. It's at the heart of every part of the Aramark operations and our GPO operations is providing the right products and services that our clients want and need. And we want to make sure we're providing different clients of different levels of quality they're looking for, different economics we're looking for, different mix of products. So we want to make sure we're servicing that with a client-centric focus. And that is one of our specialties, that we look at what the client needs, not just what might be synergistic across the different verticals, but we're really looking at a client-focused perspective around supply chain. So given that it's on the underpinnings of all of our operations and the GPO companies also fall under our purview, we know we're an important part of Aramark's margin story.
Over the years, you know, we've covered Aramark a long time. There's always been menu standardization, skew reduction, things to really consolidate purchasing. It seems like it's never at the promised land. It's always something that can get better. Kind of where are you on that journey today, just skew rationalization and purchasing scale?
So there's a little bit of a balance here. So what we want to rationalize is things that make economic sense. But at the same time, we want to make sure we have the innovative products and the variety that clients are looking for. So you want to balance the synergies of optimization with the variety and the selection that clients want. So there is that perspective that we bring to the table there. We want our chefs to be excited to serve. We want our clients excited to eat what we're serving. But we're always looking at how do we optimize, whether it's a GPO client or the Aramark business, how do we optimize the offering to show that breadth of product variety, product quality, and great economics and an optimized efficiency. So we may present as brands. We may present as the Aramark business, the Avendra GPO, or the Hipsy Senior Living GPO. But behind it is just one organization. So we're leveraging those synergies in the back end.
And then how important is technology to, like, getting those synergies? And are you making investments today that are going a different way or taking advantage of, maybe, like, AI?
Technology is super important to what we do. You think of the $20 billion plus of spend. That's a lot of data. And we're getting it from thousands of suppliers that we're processing on a daily basis, millions of transactions a day. So tech is the, we're actually probably more of a tech organization than anything else in supply chain. That's really the foundation of what we do. We used AI a couple of years ago before it was cool to do so. And we did it because we were trying to solve a problem of really understanding all the products that we bought from all these different sources. And we recognized we were getting the big stuff right, but not the little stuff. So we put in an AI system mosaic, which I think we've talked about publicly. and that harmonization engine that operates underneath the covers has given us visibility and insights that are unparalleled compared to what we could accomplish before. And then that's just spawned more AI use cases. So all of our client dashboards, all of the Aramark internal dashboards, all AI-fueled, and now we're just having some fun with it. We have chatbots. You need an answer to a question, I don't have to go to my desk anymore. I pull out my phone, I ask the chatbot, it'll tell me the answer. So we just keep rolling out more and more AI tech.
When you look at this, you mentioned that you're buying $20 billion worth of food and supplies, and that's obviously probably a little bit more than half that I think is for other people through the GPO, but substantial partial, but it's for your own consumption. When you look at your own consumption, is it fair to think about how much is purchased through one of these preferred relationships, and what could that be? Is that a fair way of looking at it?
Yeah, so if you think of the $20 billion plus, the way we talk about it, that's our contracted spend. We actually buy more than that if you look at our AP spend. But that's what's running through our contracts. And so things that supply chain has said, yes, I want you to buy here. So the business is very well behaved. And with the AI tech, it allowed us to see things that maybe we missed before. So compliance is at an all-time high for the Aramark business. On the GPO side, clients also want this economic optimization and advantage, so they ask us to do those same types of thought processes on their spend as well. So we've been doing that type of work using the AI tech.
Yeah, and so recently it seems like the GPO initiatives have been focused a little bit more internationally. I think you did an acquisition there not too long ago, and I think you've taken your Avenger brand, which was mostly, I guess, a North American thing, and you're kind of co-branding that internationally. So it feels like you're seeing something there, an opportunity to be a little bigger, a little better. Why don't you just talk about that and maybe talk about the role that M&A might have in the future internationally?
Sure. So we started on the international journey a couple of years ago, and we really put some investment into broadening a vendor to be a vendor international, which is what it's branded as today. And for years, we had been buying some GPOs in Europe and some other places, and all of that now is underneath the Vendor International umbrella and has really paid some dividends for us. So the European business, the fly was really turning there. LATAM, the Caribbean, Mexico, we've put some investment in those areas as well. So that's how we've been able to grow the GPO so quickly. I think we've had double-digit growth for the past several years on the GPO side of the house and it's both organic as we've done things to, you know, we have very customer-centric perspective, clients like that. so we've been able to grow organically, and then we've also made these M&A investments so we can have some accretive growth from those bolt-ons.
Are they difficult to integrate when they're different platforms and the whole benefit is scale? It feels like they might buy in different parts of the market. Internationally, you've got regional language company differences. Is it just harder to do internationally?
I wouldn't say it's harder. I mean, you do have to do work. So when we bought a vendor, that was a North America primarily, and we integrated that in North America. I wouldn't say that was any easier or harder than the international ones. But immediately what you're doing is looking at your contracts. That's not as hard as integrating systems. So you have a contract with so-and-so. I have a contract with so-and-so. And you put those together to get some synergies that come pretty quickly. And then you can take those monies or those economics. You give back to the clients to make sure you retain them. and then you keep some of that to invest in the tech and the systems integration. So we usually do that over time on the systems side.
One of the things I haven't thought about for quite some time would be like the food distribution logistics behind your supply chain. I remember at the IPO you had a very large food distributor, Cisco, delivered the majority of your stuff. Where does that stand today in terms of like the amount that they're delivering for you? And how do those contract? Is there an opportunity there to leverage your skill even further, I guess?
I mean, we use food distributors, just like you said, for our big, what we call broad line. So Cisco, obviously, very important partner of Aramarks. We use U.S. Foods and PFG with some of our GPOs. So we make sure we have great relationships there. That helps not only with economics, where we think we have some great, really strong deals, but also in redundancy and risk so those are probably our most important relationships we meet with them quite frequently I think that you know our
partnerships there are very strong okay and then I always think about those businesses that's particularly strong in North America are there are their distributor relationships internationally absolutely you can
launch and leverage the same way absolutely so we have a MFD master food distributor, which is like the broad line, in all of our large geographies. And then we do use a lot of regional players as well for some specialty products and some areas where maybe a broad liner doesn't exist. So we probably have, you know, several hundred distributor relationships
across the globe. Got it. And as we step back, I mean, so talking about margins, you know, the company over the last, I think, three years has been delivering on average, for at least you correct me, 40 basis points or so the last three years of annual margin expansion. It's a pretty punchy number. As you look forward, how much can the supply chain you think deliver over maybe the
next three years on average? Yeah, look, we're a big piece of that margin expansion, and we take that very seriously, that responsibility. So we enjoy growing both organically and with M&A to help the company because you're getting a two punch with our growth because first of all you're getting the economics of the scale so that tends to bring margin forth and then you're also getting as the gpo grows because of the structure of it it helps pull the enterprise up yeah it really feels
like when i think about your margin it's like labor optimization supply chain optimization and then sgna leverage are really the the three big areas right am i missing a big bucket so i guess That brings us to the next thing, maybe a little bit further outside of your expertise, but let's talk about labor optimization. I mean, you think about, like, I always think about, like, I did a stadium tour a few years ago, and I thought about, you know, low attendance night, it's raining out, you're able to just kind of head count last minute to make sure the heads were right for the attendance that you're expecting. Great way, example of how to optimize your labor costs. What are the things like that inside the company are happening right now to really get at optimizing what you can do on the labor side?
And, Andy, it's your lucky day because before I was the head of global supply chain, I used to run the global operational excellence team, which was food and labor productivity. So this is right in my sweet spot. So we studied a lot of these things. And what we would do is, and today now there's an AI tool called LaborIQ, that all the things that we develop, those models, now is in this tool that makes it easier for the operators to do this. But you're absolutely right. Let's take a stadium, and what we would learn is, okay, early on everybody's buying beer and hot dogs. Later on they're going for ice cream. Nobody's going to be at these places in the seventh inning, but these ones will be crowded, so we would flex the labor accordingly. and it works the same in the other parts of Aramark with day parts and these days are bigger than those days. So created a bunch of models to really optimize when you use your labor and when you scale up and when you scale back. So it's very much a thoughtful exercise.
Is this deployed across, would you say, all businesses, B&I, education, K-12 education? Is this applicable to all businesses and rolled out at the same level at all businesses?
Yeah, so the concepts are, now different businesses behave different ways. If you're K-12, you know, you're serving lunch, maybe some breakfast, and then everybody's gone. And it's a very consistent demand curve. If you're in the stadium, it's going to look more like this. And there's certain days that nothing's going on in certain days. So it does vary a little bit business by business, but the concept is the same. You want your labor there when you need it. It's as simple as that, right?
If you were to look at other metrics like the things that you obviously want to avoid is overtime or having to do agency, These were things that were happening after COVID, and we just had to because that was the nature of the world. Where do those things stand today?
It's all part of the KPI chart, right? So it's my, you know, sales as a percent of labor is a KPI that is used. The percent of overtime, the percent of agency labor, those are all monitored and watched. And are we fully optimized in what we're doing from the operations perspective?
What's your evaluation today on those things?
I think we do a pretty strong job. I mean, that's how we're driving some of our performance. and, you know, you want to make sure you have enough labor to serve the customer. Nobody wants to stand in line. At the same time, you want to maximize your client's economics as well. So you want to make sure you have that balancing act. The tech makes it easier because you can see it in real time and then know where do I deploy my labor and where do I not. And what are my historical patterns that way? If I'm playing, you know, a certain team, I know I'm going to have a full stadium, so I'm going to flex up my labor. If it's on Tuesday night and versus Saturday night, I know I'm going to have a certain pattern. So those are the kinds of things that matter.
We've spent most of our time, and we haven't even really talked about the top line. So let's do the top line next. I wanted to kind of start with customer retention and just talk about kind of where you are. And, you know, year-to-date, I think it's been really good. Why don't you talk about how the year-to-date performance is tracked versus the last couple of years and what the company's goals are around customer retention?
So we've been really thrilled and grateful that our retention has been above 98%. It's a really strong showing for us. I think that speaks to the performance of the enterprise and how we're really being client-focused and really trying to keep those customers happy and make sure we're delivering value to those clients. I mean, the normal bar for us is 96, so that means we're above, you know, where we normally are. So very happy about that, and we'd love to see that continue. So our intention is to continue to stay in a great place with retention. That allows, then, the engine of net new to churn out. You know, we've been targeting 4% to 5% of net new. We'd love to exceed that. And if we can keep the retention where it's at and continue to drive this, you know, high top-line new business, you know, it'll really put those numbers in a great place. Yeah, I mean, it seems like it's coming through right now.
I mean, the gross new wins that are the other side of that net new, obviously, if you're living at 98, I think just mathematically that as the year progresses, you're halfway through your fiscal year. I think the way you calculate it, that number drops a little bit every quarter until the full year number is in, just mathematically.
Just the way the mechanics work, right?
Yeah, but it's still very good. You're tracking ahead of schedule. The gross new wins, the company has won some of the largest contracts in the company's history, really, in the last six months. So it feels a little unusual that way, but you keep putting points on the board. It's like UPenn Healthcare, Barnabas Healthcare, then this Nexus thing kind of came. Were these like long cycle sales? I mean, it's no secret that John Zilmer, when he took over in 1920 and COVID kind of screwed everything up for a while, was tough on the industry, but like he invested in sales and service. Were these the type of long cycle sales that were kind of gestating for a while that came to be after getting there? And the reason why I asked that is like, that might suggest that there's more large wins that have been worked on for years. And so I'm just trying to understand kind of how the sales process
and some of these real big ones came about. Yeah, I think you saw John Zilmer come back and really focus on growth, profitable growth, but growth, invested in the sales force, you know, added feet on the street, as we call it, really pounding the pavement, working on generating new client wins. And yeah, we always have a full funnel. So we're always looking to pull in more and more and more because we want to make these KPIs happen. So I think that we're always working
on something. Okay. So one of the other things that just last year it was actually another really good year for gross new sales and as should happen, your employees took their incentive comp and actually kind of hit the margins a little bit in the fourth quarter. It was a source of probably too much investor angst at the time. But you're selling the heck out of the business again. Do the accruals for those costs, have they been running through so that it doesn't have the unusual fourth quarter effect that it had last year?
Yeah, I mean, I think our finance folks try to keep that. But look, it's a great problem to have where you had to pay your people too much money because they sold too much business. So we'll take that one every day. And what do you think?
I just don't want to surprise the market. That's what I'm saying. And it feels like it's in the guide.
Yeah, they try to keep it in pace so that, you know, I won't speak for my finance friends, but the sales guys were very enthusiastic coming into the sales year.
Yeah, and they're incentivized on new sales and they're incentivized on retention.
Retention, yeah.
And then just as it relates to pricing that's out there right now, how would you kind of evaluate the competitive environment on price? And actually, maybe we should talk about capital, too, because sometimes new contracts are won on the basis of a renovation of the facility. You'll put that in the food price and get a long-term contract to earn it back. But price and capital are the two of the service quality, obviously, matter. But can you just talk about what the company is seeing regarding those two things right now?
So on the pricing side, we're about 3%. You know, we try to keep in line with inflation. We're not pricing for profit, per se. So we're trying to keep in line with where we see the inflationary trends. And capital is just part of our business. We certainly will invest in a client's capital. If that's something that's part of their value proposition, it's always part of our DNA.
Got it. What else do I want to say? We've done gross new sales. We've done recension. We've done pricing. I guess the last piece would be to talk about volumes. It seems like the volumes have actually been pretty good. We've seen, I think, the last quarter was kind of punctuated by some volumes in sports and entertainment that kind of juiced the numbers a little bit. It's certainly good to see. But there's other things like in the B&I. Have you seen volumes in that business? That's always been kind of a tricky one. People, the COVID recovery is part of it. Now there's the AI talk about like, what does AI do to some of those jobs? Maybe you can talk about volumes in B&I in particular and what your thoughts are on that.
And you started with sports. You know, people are paying for experiences out there. And our per caps are great. And, you know, the attendance is great. So it's been really nice. And there's always something coming. You know, we've got FIFA coming up. We have the NBA playoffs going on right now. also there's always something going on in the world of sports that's driving people to pay for these experiences. And we haven't seen any softness there. It's been really strong. On the B&I side, I think it's just you're replacing volume in one place with volume in another place. So, you know, obviously the COVID impact of some people being less in the office on Mondays and Fridays, we've seen some of that back off as more people are coming back to the office. But then we just now have more, you know, we fill it with more clients. So maybe some of the clients have fewer days than historical clients, but now we just have more of those. So the volumes continue to grow and continue to climb. I think we've had double-digit growth in BNI. So it's, from a supply chain perspective, we're just buying
more stuff, and I love it. Yeah. One of the things that it seems like is happening is it feels like entertainment venues that typically host sports seem to be hosting more events that are non-sports. Is that something that Airmark is realizing as a benefit to the business overall?
It's always been part of the...
More concerts, more circuses, more whatever else?
Well, I think the market realizes people pay for experiences. And as you look at the music industry, it's shifted away from people buying CDs. Now everybody's just digital, and the income stream is different. So now there's more concerts out there. But hey, we'll take a Taylor Swift Air store anytime. That really boosted our stadiums.
Do you have a view on kind of the summer lineup this year as it compares to last year? It's some question that we get periodically. I'm just wondering in terms of...
There's a lot of great concerts going on.
FIFA's a big deal. I think I calculated 19 games that you'll be hosting. I think, Felice, didn't you say that this was something that is not really considered very much because it's an offset to some of the other things that might be happening anyway, so this would be upside?
There's always something, yeah.
Yeah. This is kind of a big something it feels like with FIFA, I would say.
FIFA's big. Yeah, we've got four stadiums, 17 games. 17 games, okay. You know, we're hoping to, that this will really, you know, we're just thrilled to be able to participate in it. It's really exciting for us. And the summer concert lineup looks good to me, too.
Okay, great. Any thoughts on the cash flow or the balance sheet in terms of the company's willingness to think about, you know, doing share buybacks? Certainly, the company has made some comments about where the leverage will be at the end of the fiscal year, which is a lower level of debt than, frankly, has been seen in, like, 20 years. Which is the point that you have to kind of be around to know that the company has been highly levered, and this is going to be at a totally different place. So I know investors are thinking that buybacks could be coming back in a more meaningful way pretty soon. Are we thinking about that incorrectly, do you think?
No, I think you're right on that that will be part of our, you know, has been and will be. part of our program. You think our free cash flow, about 40% of our EOI, and we are excited about the leverage at the end of 2026 being under that three times ratio.
And then just in terms of M&A, is that, I mean, you talked about on the supply chain how you're looking for GPOs. It seems like that has been one of the higher priorities for the company. Any other areas that you think are standing out as areas that maybe you'd like to invest in, in terms of the marketplace?
I think all three, if you think of the US, international, and GPO space, like our three operating areas here, we're always looking for M&A. So in some places, you know, the U.S. is probably more small to medium type of bolt-on types of opportunities. International, you know, they're looking at enhancing capabilities. Our two recent purchases there were around, you know, a premium offering that really helped bolt on some of our capabilities. And in the GPO space, we're looking for scale that's accretive to us. So accretive on margin, clearly. And then also a creative in where hospitality and senior living is our two big spaces, something that can help us there. Great. All right. Well, we're out of time for this room,
but the good news is that we've got a breakout session for this. So if you want to meet us there, we're headed to the Aster Suite 1A. We'll be there in about five minutes and we hope to see you there. Thanks for the presentation. I appreciate it. Thank you.