Aramark Services (ARMK) Provides Preliminary Q2 Results

Aramark (NYSE: ARMK), a global leader in food, facilities management and uniforms, provided preliminary results for the second quarter fiscal 2020 in conjunction with a proposed offering of debt securities. The Company’s second quarter performance reflects the benefits of its highly diversified business—extensive offerings, sectors, geographies, and client portfolio—and low fixed cost, low asset intensity operating model. In addition, Aramark and its secured lenders agreed to amend the covenants on their secured facilities to further enhance the Company’s financial flexibility.

“We are taking timely, proactive steps to adapt the Company to the current environment, and to further bolster our strong financial position,” said John Zillmer, Aramark’s Chief Executive Officer. “Our ability to quickly resize our flexible business model enables us to manage through even the most dynamic periods while remaining prepared to most fully respond to the demand for safe and hygienic food, uniforms, and facilities services in the recovery.”

Preliminary Second Quarter Fiscal 2020 Results1

Aramark released key preliminary unaudited results for the second quarter fiscal 2020.

Preliminary GAAP Results

• Revenue of approximately $3.7 billion
• Operating Income of ($106 million) to $4 million
• EPS of ($0.81) to ($0.39)

(Consensus sees Q1 EPS of $0.22, may not compare, on revenue of $3.69 billion)

Operating Income and EPS ranges include a potential non-cash impairment of $100 to $200 million, specifically related to the balance of goodwill in the reporting unit in the International segment that was referenced in the Company’s 2019 10-K.

Preliminary Adjusted Results

• Organic Revenue of approximately $3.8 billion
• Adjusted Operating Income of $157 million to $167 million
• Adjusted EPS of $0.24 to $0.26
• LTM Covenant Adjusted EBITDA of $1,585 million to $1,595 million

Adjusted Operating Income, Adjusted EPS and Covenant Adjusted EBITDA are not impacted by the potential goodwill adjustment.

Preliminary Balance Sheet Results

• Cash and Cash Equivalents of $1,203 million
• Net Debt of $6,763 million with no significant maturities due until 20232

1 Aramark is determining potential benefits under the CARES Act that was signed into law on the last day of its fiscal second quarter. Final results may differ based on this determination.

2 As of March 27, 2020. Does not give effect to any currently proposed financing activities.

The impact of COVID-19 on the business for the fiscal second quarter was consistent with Aramark’s previous disclosure on March 19th, 2020. While there was underlying revenue growth in the overall business in the fiscal second quarter, total Company revenues decreased approximately $325 million with a corresponding AOI decline of approximately $70 million related to COVID-19. To further limit this drop through in the coming periods, Aramark implemented at the end of the quarter cost-saving initiatives—including renegotiations of client contracts, salary and other compensation adjustments, and reductions to general corporate expenses—that are expected to result in an operating income drop through of approximately 20% in the immediate term with additional flexibility to drive drop through even lower to approximately 15% as future market conditions warrant. These operating actions, combined with the Company’s flexible financial model and strong liquidity, provide Aramark the ability to move through this unprecedented period with resilience.

“Rapidly flexing the Company’s operating expenses and capital expenditures enables us to best navigate this challenging environment, while preserving our ability to provide the safe and hygienic food service, uniforms and facilities our existing and future clients will need to welcome back their employees, students, fans, visitors, and other consumers,” said Zillmer. “These actions are intended to help us quickly bring back our valued team members as we develop comprehensive re-opening plans, including new models for service delivery and customer engagement.”

Credit Agreement Amended

Aramark and its secured lenders agreed to amend the credit facility covenants to provide additional covenant headroom, further enhancing the Company’s financial flexibility. The amendment suspends Aramark’s senior secured debt covenant from the September 2020 quarter to the June 2021 quarter, inclusive. Thereafter, the senior secured debt covenant will be tested with reference to the post-suspension quarter and the last three calendar quarters of 2019, and exclude quarters in between. This amendment is intended to prevent the effects of the COVID-19 pandemic from distorting the covenant calculations and distracting the Company or its lenders from the prudent management of the business over the quarters ahead.

Earnings Conference Call

As previously announced, Aramark will host a conference call to review its full second quarter 2020 earnings results on Tuesday, May 5, 2020 at 8:30 a.m. ET with a news release issued before the call.

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