Aramark Reports First Quarter Earnings

YEAR-OVER-YEAR SUMMARY

• Revenue +44%; Organic Revenue +41%
  • Performance improvement across all segments, led by FSS U.S.
  • Revenue at 93% of pre-COVID level; Organic Revenue at 92% of pre-COVID level
• Operating Income up $161 million; Adjusted Operating Income (AOI) up $176 million
  • Operating Income Margin of 3.6%; AOI Margin of 4.3% on a constant-currency basis
  • Higher profitability driven by improved sales volume and effective cost management
• EPS increased $0.49 to $0.17; Adjusted EPS increased $0.53 to $0.22
• Continued focus and delivery on growth strategies
  • Strong start to fiscal year in Net New Business driven by client retention and new account wins
  • Created two strategic partnerships to provide clients additional differentiated service offerings and concepts

Aramark (NYSE: ARMK) today reported first quarter fiscal 2022 results.

"I am grateful to the Aramark team around the world and their commitment to our hospitality culture," said John Zillmer, Aramark's Chief Executive Officer. "Their ongoing dedication is evident in our financial performance, with organic revenue reaching 92% of pre-COVID levels in the first quarter, while effectively managing through a heightened inflationary environment."

*Pre-COVID level reflects performance compared to the same period in fiscal '19

FIRST QUARTER RESULTS

Consolidated revenue was $3.9 billion in the quarter, an increase of 44% compared to the prior year. Organic revenue, which adjusts for the effect of currency translation and the Next Level Hospitality acquisition, improved 41% year-over-year with growth in all segments.

A steadily improving pace of account re-opening activity and pricing pass-through, as well as the benefit from new client wins, resulted in consolidated revenue at 93% and organic revenue at 92% of pre-COVID levels.

• FSS United States organic revenue increased 61% compared to the first quarter last year largely driven by the following factors in each sector:

• FSS International grew organic revenue 28% year-over-year and delivered significant improvement compared to the preceding quarter through a combination of pricing pass-through, new account wins and gradual account re-opening activity, most notably within Europe driven by the sports & entertainment and education businesses. China, Chile, and Spain continued to outperform pre-COVID levels on a constant-currency basis* with double-digit growth in revenues compared to the first quarter of fiscal 2019.

• Uniform & Career Apparel organic revenue increased 7% compared to the same quarter last year. December represented the first month since the onset of the pandemic with revenues higher than pre-COVID levels, driven primarily by pricing pass-through and new client wins.

*Constant-currency relative to Q1 fiscal '19 rates.

Difference between Change (%) and Organic Revenue Change (%) reflects the effect of the Next Level Hospitality acquisition and the elimination of currency translation.

*May not total due to rounding

Operating Income was $140 million, an increase of $161 million compared to the prior year. Adjusted Operating Income was $167 million, a year-over-year increase of $176 million, resulting in an AOI margin of 4.3% on a constant-currency basis. Year-over-year improvement reflected operating leverage from greater revenue levels at existing accounts and the contribution from new accounts, partially offset by start-up costs associated with new client wins and off-program supply chain utilization as the Company managed through the current environment.

• FSS United States leveraged operating costs with increased sales volumes, particularly in Sports & Entertainment.

• FSS International benefited from previously implemented cost savings actions, while experiencing reduced government support programs.

• Uniform & Career Apparel improved due to targeted pricing actions and business efficiency initiatives, particularly in merchandise and distribution.

• Corporate overhead costs were tightly managed to appropriately support the organization.

Operating Income (Loss) results include Next Level Hospitality contribution in Q1 '22 as well as the effect of currency translation.

*May not total due to rounding

GAAP SUMMARY

First quarter fiscal 2022 GAAP results improved across all metrics compared to the prior year as the business continued to recover from the impact of COVID-19. On a GAAP basis, revenue was $3.9 billion, operating income was $140 million, net income attributable to Aramark stockholders was $43 million and diluted earnings per share was $0.17. These results included the contribution from the Next Level Hospitality acquisition that closed in June 2021. Comparatively, first quarter 2021 revenue was $2.7 billion, operating loss was $20 million, net loss attributable to Aramark stockholders was $81 million and diluted loss per share was $0.32. A reconciliation of GAAP to Non-GAAP measures is included in the Appendix.

CURRENCY

In the first quarter, the effect of currency translation impacted reported revenue by $16 million and had a negligible impact on operating income, Adjusted Operating Income, earnings per share and adjusted earnings per share.

CASH FLOW AND CAPITAL STRUCTURE

As expected, the first quarter experienced a cash outflow associated with Aramark's normal seasonal business cadence, specifically in Higher Education, and higher working capital due to significantly increased revenues. In December, the Company made a scheduled deferred FICA payment of $64.2 million as previously stated. In the quarter, Net Cash used in operating activities was $503 million and Free Cash Flow was a use of $569 million. At quarter-end, Aramark had over $1.4 billion in cash availability.

DIVIDEND DECLARATION

As announced on February 2, 2022, the Company's Board of Directors has approved a quarterly dividend of 11 cents per share of common stock. The dividend will be payable on March 2, 2022 to stockholders of record at the close of business on February 16, 2022.

BUSINESS UPDATE

Aramark commenced fiscal 2022 with cost discipline and strong organic revenue improvement through the early-stage execution of its accelerated growth strategies to deliver profitable new business wins and improved retention rates. The Company added a number of new clients across the business, including the largest client win in its history that occurred subsequent to quarter-end.

Revenue improvement reflected ongoing recovery from COVID-19 as well as contributions from net new business and pricing pass-through. In the first quarter, organic revenue reached 92% of pre-COVID levels.

As previously articulated, the Company has brought back certain operating and above-unit costs in anticipation of a full recovery. Aramark expects an incremental margin of 15% to 20% associated with the return of the related COVID-impacted volumes. The number of new account start-ups in fiscal 2022 has grown significantly following record new business wins in fiscal 2021, which affects AOI margin as unit-level profitability typically increases after the first year of operations.

The Company continues to proactively manage the heightened inflationary environment through supply chain initiatives, operational efficiencies and, where appropriate, pricing pass-through. Aramark's scale, deep supplier bench-strength and menu flexibility have helped mitigate issues for clients.

In the quarter, Aramark embarked on strategic partnerships with Patient Engagement Advisors (PEA) and Starr Restaurant Organization that are expected to enhance the Company's service offerings and capabilities:

• PEA adds a technology and service platform to Aramark's Healthcare portfolio that assists clients in providing continual care pre- and post-discharge for patients

• Starr will enable additional hospitality experiences for clients by providing creative concepts and brands across Aramark's portfolio

Aramark believes its recent strategic actions, combined with its strengthened financial performance, position the Company to achieve its near-term outlook and longer-term financial targets provided at its Analyst Day in December 2021.

OUTLOOK

The Company provides its expectations for organic revenue growth, Adjusted Operating Income, Adjusted EPS, Covenant Adjusted EBITDA and Free Cash Flow on a non-GAAP basis, and does not provide a reconciliation of such forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for the impact of the change in fair value related to certain gasoline and diesel agreements and other charges and the effect of currency translation. The fiscal 2022 outlook reflects management's current assumptions regarding the continued impact of COVID-19 on Aramark and its clients. The extent to which COVID-19 continues to impact segments, operations, and financial results, including the duration and magnitude of such impact, will depend on numerous evolving factors that are difficult to accurately predict, including those discussed in the Risk Factors set forth in the Company's filings with the United States Securities and Exchange Commission.

Aramark maintains its full-year performance expectations for fiscal 2022:

As articulated in its December 2021 Analyst Day, Aramark is targeting financial performance to achieve the following fiscal 2025 goals:

"Another extraordinary year is already under way, and we feel great optimism about the future," Zillmer added. "Across the organization we have the teams to succeed, and I am confident in our ability to deliver on the opportunities ahead."

CONFERENCE CALL SCHEDULED

The Company has scheduled a conference call at 8:30 a.m. ET today to discuss its earnings and outlook. This call and related materials can be heard and reviewed, either live or on a delayed basis, on the Company's website, www.aramark.com on the investor relations page.

About Aramark

Aramark (NYSE: ARMK) proudly serves the world’s leading educational institutions, Fortune 500 companies, world champion sports teams, prominent healthcare providers, iconic destinations and cultural attractions, and numerous municipalities in 19 countries around the world with food, facilities, and uniform services. Because our culture is rooted in service, our employees strive to do great things for each other, our partners, our communities, and our planet. Aramark ranked No. 1 In the Diversified Outsourcing Services Category on FORTUNE’s 2022 List of ‘World’s Most Admired Companies’ and has been named to DiversityInc’s “Top 50 Companies for Diversity” list, the Forbes list of “America’s Best Employers for Diversity,” the HRC’s “Best Places to Work for LGBTQ Equality” and scored 100% on the Disability Equality Index. Learn more at www.aramark.com and connect with us on Facebook, Twitter, and LinkedIn.

Selected Operational and Financial Metrics

Adjusted Revenue (Organic)

Adjusted Revenue (Organic) represents revenue growth, adjusted to eliminate the effect of the Next Level Acquisition, the effect of material divestitures, the estimated impact of the 53rd week and the impact of currency translation.

Adjusted Operating Income (Loss)

Adjusted Operating Income (Loss) represents operating income (loss) adjusted to eliminate the change in amortization of acquisition-related intangible assets; the impact of the change in fair value related to certain gasoline and diesel agreements; the effect of the Next Level acquisition; merger and integration related charges; and other items impacting comparability.

Adjusted Operating Income (Loss) (Constant Currency)

Adjusted Operating Income (Loss) (Constant Currency) represents Adjusted Operating Income (Loss) adjusted to eliminate the impact of currency translation.

Adjusted Net Income (Loss)

Adjusted Net Income (Loss) represents net income (loss) attributable to Aramark stockholders adjusted to eliminate the change in amortization of acquisition-related intangible assets; the impact of changes in the fair value related to certain gasoline and diesel agreements; the effect of the Next Level acquisition; merger and integration related charges; loss on defined benefit pension plan termination, less the tax impact of these adjustments; the impact of tax legislation and other items impacting comparability. The tax effect for adjusted net income (loss) for our United States earnings is calculated using a blended United States federal and state tax rate. The tax effect for adjusted net income (loss) in jurisdictions outside the United States is calculated at the local country tax rate.

Adjusted Net Income (Loss) (Constant Currency)

Adjusted Net Income (Loss) (Constant Currency) represents Adjusted Net Income (Loss) adjusted to eliminate the impact of currency translation.

Adjusted EPS

Adjusted EPS represents Adjusted Net Income (Loss) divided by diluted weighted average shares outstanding.

Adjusted EPS (Constant Currency)

Adjusted EPS (Constant Currency) represents Adjusted EPS adjusted to eliminate the impact of currency translation.

Covenant Adjusted EBITDA

Covenant Adjusted EBITDA represents net income attributable to Aramark stockholders adjusted for interest and other financing costs, net; provision for income taxes; depreciation and amortization and certain other items as defined in our debt agreements required in calculating covenant ratios and debt compliance. The Company also uses Net Debt for its ratio to Covenant Adjusted EBITDA, which is calculated as total long-term borrowings less cash and cash equivalents.

Free Cash Flow

Free Cash Flow represents net cash used in operating activities less net purchases of property and equipment and other. Management believes that the presentation of free cash flow provides useful information to investors because it represents a measure of cash flow available for distribution among all the security holders of the Company.

Net New Business

Net New Business is an internal statistical metric used to evaluate Aramark's new sales and retention performance. The calculation is defined as the annualized value of gross new business less the annualized value of lost business.

We use Adjusted Revenue (Organic), Adjusted Operating Income (Loss) (including on a constant currency basis), Adjusted Net Income (Loss) (including on a constant currency basis), Adjusted EPS (including on a constant currency basis), Covenant Adjusted EBITDA and Free Cash Flow as supplemental measures of our operating profitability and to control our cash operating costs. We believe these financial measures are useful to investors because they enable better comparisons of our historical results and allow our investors to evaluate our performance based on the same metrics that we use to evaluate our performance and trends in our results. These financial metrics are not measurements of financial performance under generally accepted accounting principles, or GAAP. Our presentation of these metrics has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. You should not consider these measures as alternatives to revenue, operating income (loss), net income (loss), or earnings (loss) per share, determined in accordance with GAAP. Adjusted Revenue (Organic), Adjusted Operating Income (Loss), Adjusted Net Income (Loss), Adjusted EPS, Covenant Adjusted EBITDA and Free Cash Flow as presented by us may not be comparable to other similarly titled measures of other companies because not all companies use identical calculations.

Explanatory Notes to the Non-GAAP Schedules

Amortization of Acquisition-Related Intangible Assets - adjustments to eliminate the change in amortization expense resulting from the purchase accounting applied to the January 26, 2007 going-private transaction and amortization expense recognized on other acquisition-related intangible assets.

Effect of Next Level Acquisition - adjustments to eliminate the operating results of Next Level Hospitality that are not comparable to the prior year periods.

Merger and Integration Related Charges - adjustments to eliminate merger and integration charges related to the AmeriPride acquisition, including costs for transitional employees and integration related consulting costs, and charges related to plant consolidation, mainly asset write-downs, the implementation of a new revenue accounting system and other expenses.

Gains, Losses and Settlements impacting comparability - adjustments to eliminate certain transactions that are not indicative of our ongoing operational performance, primarily for the impact of the change in fair value related to certain gasoline and diesel agreements ($3.2 million loss for the first quarter of 2022 and $3.4 million gain for the first quarter of 2021), gain from the insurance proceeds received related to property damage from a tornado in Nashville ($3.1 million for the first quarter of 2022), income from prior years' loss experience under our general liability, automobile liability and workers' compensation programs ($18.1 million for the first quarter of 2021) and other miscellaneous charges.

Loss on Defined Benefit Pension Plan Termination - adjustment to eliminate the impact of a non-cash loss from the termination of certain single-employer defined benefit pension plans.

Effect of Tax Legislation on Provision (Benefit) for Income Taxes - adjustments to eliminate the impact of tax legislation that is not indicative of our ongoing tax position based on the new tax policies, including the benefit related to the CARES Act for net operating losses being carried back to prior fiscal years ($22.2 million for the first quarter of 2021) and a valuation allowance against certain foreign tax credits ($16.1 million for the first quarter of 2021).

Tax Impact of Adjustments to Adjusted Net Income (Loss) - adjustments to eliminate the net tax impact of the adjustments to adjusted net income (loss) calculated based on a blended United States federal and state tax rate for United States adjustments and the local country tax rate for adjustments in jurisdictions outside the United States. Adjustment also reverses a valuation allowance recorded against deferred tax assets in a foreign subsidiary that were previously deemed to be not realizable (approximately $8.5 million for the first quarter of 2022).

Effect of Currency Translation - adjustments to eliminate the impact that fluctuations in currency translation rates had on the comparative results by presenting the periods on a constant currency basis. Assumes constant foreign currency exchange rates based on the rates in effect for the prior year period being used in translation for the comparable current year period.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current expectations as to future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. These statements include, but are not limited to, statements under the heading "Outlook" and those related to our expectations regarding the impact of the ongoing COVID-19 pandemic, the performance of our business, our financial results, our operations, our liquidity and capital resources, the conditions in our industry and our growth strategy. In some cases forward-looking statements can be identified by words such as "outlook," "aim," "anticipate," "are or remain or continue to be confident," "have confidence," "estimate," "expect," "will be," "will continue," "will likely result," "project," "intend," "plan," "believe," "see," "look to" and other words and terms of similar meaning or the negative versions of such words. These forward-looking statements are subject to risks and uncertainties that may change at any time, actual results or outcomes may differ materially from those that we expected.

Some of the factors that we believe could affect or continue to affect our results include without limitation: the severity and duration of the COVID-19 pandemic; the pandemic's impact on the United States and global economies, including particularly the client sectors we serve and governmental responses to the pandemic; unfavorable economic conditions; natural disasters, global calamities, climate change, new pandemics, sports strikes and other adverse incidents; the failure to retain current clients, renew existing client contracts and obtain new client contracts; a determination by clients to reduce their outsourcing or use of preferred vendors; competition in our industries; increased operating costs and obstacles to cost recovery due to the pricing and cancellation terms of our food and support services contracts; currency risks and other risks associated with international operations, including compliance with a broad range of laws and regulations including the United States Foreign Corrupt Practices Act; risks associated with suppliers from whom our products are sourced; disruptions to our relationship with our distribution partners; the contract intensive nature of our business, which may lead to client disputes; our expansion strategy and our ability to successfully integrate the businesses we acquire and costs and timing related thereto; continued or further unionization of our workforce; liability resulting from our participation in multiemployer defined benefit pension plans; the inability to hire and retain key or sufficient qualified personnel or increases in labor costs; laws and governmental regulations including those relating to food and beverages, the environment, wage and hour and government contracting; liability associated with noncompliance with applicable law or other governmental regulations; new interpretations of or changes in the enforcement of the government regulatory framework; increases or changes in income tax rates or tax-related laws; the failure to maintain food safety throughout our supply chain, food-borne illness concerns and claims of illness or injury; a cybersecurity incident or other disruptions in the availability of our computer systems or privacy breaches; our leverage; the inability to generate sufficient cash to service all of our indebtedness; debt agreements that limit our flexibility in operating our business; and other factors set forth under the headings Item 1A "Risk Factors," Item 3 "Legal Proceedings" and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of our Annual Report on Form 10-K, filed with the SEC on November 23, 2021 as such factors may be updated from time to time in our other periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov and which may be obtained by contacting Aramark's investor relations department via its website at www.aramark.com. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and in our other filings with the SEC. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, us. Forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, changes in our expectations, or otherwise, except as required by law.

* For the three month periods of January 1, 2021, April 2, 2021, July 2, 2021, October 1, 2021 and December 31, 2021, the effect of currency translation reflects the impact that fluctuations in currency translation rates had on the comparative results by translating the fiscal 2021 or fiscal 2022 period balances using the foreign currency exchange rates in effect for the comparable periods of fiscal 2019. 

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