Aramark ($ARMK)

Good morning. I think we're live. I'm Josh Chan, business services analyst here at UBS. We're pleased to have Aramark join us this morning, bright and early. They are an $11 billion market cap provider of food and facility services around the world. With us from Aramark is Jim Tarangelo, CFO. [Operator Instructions]. But with that, Jim, glad to have you back at the conference.

Appreciate it. Nice to be here.

Yes. Thank you. Thanks for being here. Maybe just to start off, could you give a brief overview of Aramark and some recent highlights to kind of level set everybody here?

Yes, sure. Just to kick it off. And for those who are new to the story, we're a leading global provider of food and facility services across a 15-country footprint with a range of sectors, including education, which includes colleges, universities and K-12 schools; B&I or business and industry; health care, which includes hospitals and senior living facilities; and sports, leisure and corrections. We reported our earnings about a month ago. We're off to a really solid start this year. Adjusting for a calendar shift, which I know we'll talk about, we're growing at about 8%, which is at the high end of our algorithm. And I think more importantly than that, our forward-looking metrics, which for us are retention and new business, we're off to a really strong pace in the first quarter, which bodes well for the overall momentum of the business.

Great. So we're at a consumer conference. And so recognizing that you serve a little bit of a different segment of the consumer maybe than the general public. But how would you describe the state of your consumer base? Any trends that you're seeing from a willingness to spend type of perspective?

Unlike a traditional retailer or fast casual restaurant, we operate in the segments that I just mentioned, which are particularly resilient and predictable. So the headline is that our consumer remains strong and healthy. The metrics we use by sector to measure that vary. So for example, within higher education, the health of our consumer is really driven by enrollment and meal plan. And Aramark is very well positioned with heavy exposure to large southern warmer climate schools and the enrollment trends are healthy there. You shift over to even B&I and sports and entertainment, we tend to operate at the higher end of the K curve. So we continue to see strong robust spending. And the outlook overall, we talk about base business growth, which I think for traditional retailer would be same-store sales, we're anticipating 3% to 4% base business growth for the full year. So it gives you a sense of the confidence we have with respect to the consumer outlook.

And then as you start calendar 2026, what are some of the priorities for you as CFO? What does Aramark have to kind of get right this year?

It all starts with growth. We're a growth-oriented company. We've implemented a growth-oriented model as part of the company's transformation. And that's important for a number of factors. For us, growth leads to scale in procurement. So we manage over $20 billion of spend. The more we grow, the more we manage with our procurement, the better deals we get with our suppliers and manufacturers. We also scale our overhead. We look to essentially grow our overhead at half the rate of sales. So some natural margin accretion on top of that. So that's really core to the model. On top of that, obviously, we look for continual improvements in the middle of the P&L. The second thing is really execution. So with the strong net new business, the strong start on new business, successfully rolling out those accounts this year is a key priority for the business.

So yes, on new business, it seems like you've had more success recently gaining new business. So is there some driver behind sort of the recent success in gross new wins?

It's really the culmination of years of work, new business and strong retention doesn't change overnight. But again, if you flash back a few years to when Aramark implemented this new model, this growth-oriented model, we did a number of things to better position the company. So we realigned the incentives of the business so that 40% of our incentive-based compensation is based on net new business, combination of new and retention. We decentralized the business, investing in the respective lines of business, putting the decision-making closer to the field and where the operations are and elevating our overall client satisfaction scores. And then we literally invested heavily in retention and sales resources, doubling the size of those groups over the past few years. So with those things and on top of that, a change in the culture, those are the key drivers to the improved retention and new business that we're experiencing.

So 2 of the newer wins that are higher profile happens to be in health care. And so is it more of a coincidence? Or are you kind of capitalizing on some trends in the health care market that's shifting in your favor?

There are definitely some trends that are occurring in health care, right? If you sort of take a step back, there's -- health care institutions are facing reductions in funding from government and insurance companies. And as context, right, a lot of these larger health care networks have been built up over a series of acquisitions, acquiring additional hospitals. So as a result, you end up with hospitals with different incumbents providing food and facilities, different technologies, really disparate processes and systems. So one of Aramark's strengths is being able to simplify that, bringing disparate incumbents under one roof, streamlining the processes, simplifying the operations, harmonizing the technology, even things like POS, getting a common POS across the business, putting in a common labor management system as an example. And with that, you're able to not only generate better economics, but elevate the experience for the clients and consumers at those organizations.

And how is your sales force in terms of kind of going after the health care market? Do you feel like they're well equipped to kind of pursue additional opportunities in that vertical?

They've had a great year, right? So we -- I mentioned we won Penn Medicine, which is one of the largest health care institutions in the country. That was won in fiscal '25. We're in the process of rolling that out. We've rolled out 8 or 9 hospitals, have a few more to go over the next couple of months. And then as part of our earnings call earlier in February, we announced the win of RWJBarnabas, again, one of the largest health care institutions in the Northeast. That will commence in June. So yes, with that, I'd say that the sales force has had a pretty strong year, and they're well positioned for continued momentum in the business.

Great. And Collegiate Sports has been an opportunity, especially with the outsourcing push from the NIL money. I guess how -- have you seen like an equilibrium in terms of that outsourcing? Or do you see continued opportunity as colleges push towards outsourcing?

There's still a lot of opportunity. As you know, the collegiate athletic programs are changing quite a bit. You have athletes at top-tier Division 1 programs literally making millions of dollars per year. So with that, there's enhanced funding requirements for those programs. And collegiate institutions are partnering with Aramark, and we're well positioned to help them professionalize the collegiate stadium. So we have our senior leader in that business who used to run a number of large stadiums in our sports and entertainment business. So professionalizing the experience, elevating the fan experience. And then with the introduction of alcohol into the majority of our stadiums as well, the average checks have significantly increased, doubled over the course of a couple of years within those programs. So that, in combination with capital -- disciplined capital investment that we can deploy is a good way for us to help college and universities meet those additional funding requirements.

Okay. And over on B&I, that's actually been one of your highest growing verticals lately. And so what's driving the growth within B&I? And how are you winning business there? Because presumably, new wins has to be a big part of that growth?

B&I has been remarkably successful for many, many years in a row. We've had 17 quarters in a row of double digit growth. And I think if I'm sitting here a year from now, I'd probably be talking about 21 quarters, and that's the confidence we have in that business. It really starts with strong retention, strong execution at your underlying accounts and strong new business, underlying the success that they've had. On top of that, our refreshment services, micro markets or convenience retail, as some might call it, fits within that business as well. And they've been able to expand in a good way, take advantage of technology, introduce more frictionless experiences and enabling Aramark to serve small- and medium-sized clients that might have been a little bit more difficult previously. And then within our traditional B&I group, we've taken what we call a portfolio approach, which means we have a senior leader that governs a range of services from coffee services, micro markets, vending to traditional dining for corporations all the way to catering for premium catering for the Board. That's all under -- managed under one senior relationship manager, larger clients like that. So some of our competitors have a bit more of a siloed approach. So we've been able to umbrella all of those brands into one -- basically under one roof, which has been effective for how we compete in the market.

I want to touch on Pro Sports a little bit because I think there may have been a couple of transitions away from you recently associated with new stadium changes that are coming years from now. But I guess, how are you thinking about the competitive landscape within the Pro, Pro Sports business?

We've had a good track record with new stadiums. So we won the Las Vegas A's, which will be a marquee new stadium in Major League Baseball. That will start up roughly 2 years from now. And we've partnered with Will Guidara, many of you from New York would know, a prominent entrepreneur restaurant here in branding and elevating the fan experience at the A's. So we're excited about that. With that, professional sports is a market that is pretty heavily outsourced. And so when a new stadium does come up, it is a fairly competitive process. We remain very disciplined in how we allocate capital in those areas. Of the stadiums you mentioned, we plan to continue to operate for many years to come, and we'll see how things play out with the new stadiums there.

And then I guess when you think about new wins, what's the mix of new wins between first-time outsourcing and conversion? And how is that trending?

Yes. As context, historically, we win about 1/3 of our new business from first-time outsourcing, about 1/3 from small and regional players and about 1/3 from the larger competitors. The percentage that we've been winning from first-time outsourcing has remained elevated, about 40% or north of 40%. And that's really driven by a couple of items. First, the size and scale and procurement advantage that a larger enterprise has going back to the $20 billion of spend that I mentioned earlier, provides economic advantages to outsourcing. Second, the technological requirements of self-op have become more challenging. I think about frictionless experiences, unattended convenience stores on a campus and then more recently, the introduction of AI, which we leverage into our labor, culinary experience, supply chain. We've had a nice steady investment in that area. And to do that in-house is proving to be more challenging.

Any questions from the audience?

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Yes. Good question. The larger accounts that we've won and are rolling out in health care, there's always complexity. And again, we have to execute and get that right. Generally, health care has less capital investment and the contractual structure within health care tends to be what we call fee, which is cost reimbursable, which provides some mitigation against sort of start-up costs getting out of control. So with that, Penn is essentially mostly rolled out already. So we have pretty good visibility, and that's on track. And with RWJBarnabas, just given our experience with Penn, the contractual structure, we feel pretty confident about what those start-up costs will be. And it's already -- and that's baked in and reflected into our guidance.

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There is. In general, we measure that in terms of what we call participation rates. So we look at when we run, say, a financial institutions' cafeteria, we know how many people are coming to the building each day, and then we know how many folks are eating at Aramark's cafeteria. In general, if you look across the business, that tends to be at about 50%. So there's always more opportunity to sort of increase participation rates. And that's one of the drivers. You look at our B&I business, we've been growing, we said double digit for many quarters in a row. The other thing within B&I, 80% of those operations are subsidized, which means that the cost for a meal in-house should be better and cheaper than going out to retail is another driver of getting folks in the door. And if you look at sort of some of the higher-end financial institutions with the elevated culinary experiences and what sort of the younger generation expect, another advantage to sort of elevate that with Baristas and micro markets experience, so that's been a key driver of the B&I-based business growth.

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We have a rigorous process for reviewing the financials. And there's approval levels that come to the regional Finance Director, the CFOs of the business and then to my level. And we're targeting a 15% to 20% IRR across the business. Now some of those are -- some of the more competitive can get obviously tighter. But overall, it's really a portfolio approach and that we -- what we expect from the business. Ultimately, the measure of how we're doing there is going to say, "Hey, is the market becoming sort of too competitive?" If you look at the margins in the industry, not just Aramark, the margins generally are improving. The industry is growing and the capital levels over time have remained relatively steady. So those for me are the markers that the industry has remained rational and disciplined. There are certainly cases like a new stadium would be a good example where those do get competitive, but we expect our operators to balance that out overall.

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We have about 2/3 of our business is what I call sort of dynamic pricing where we generally either have full autonomy or partnership with our clients can adjust pricing. So think of a beer or a hot dog at a stadium, that could actually change literally from event to event. You price differently for a game than you might at a concert. About 1/3 of the business is what I call contractually based pricing. So think about like residential meal plans and higher ed or board plans. K-12 is another good example. We should a set of price for the year. A lot of those discussions happen now, and we embed our expectations into those pricing discussions. On top of that, this is a very flexible business model, right? So we can execute menu engineering. We can substitute products. If chicken is expensive, you could put more pork on the menu, unlike a fast food restaurant. So that provides a lot of flexibility. We look to get productivity through labor on top of that. So given the general pricing capabilities that we have on top of the productivity gains, that's how we mitigate any potential effect from inflation.

So less exciting maybe than winning business, but equally important, retention has been very strong lately. So what's driving that? And do you think it's a step change in the business and being able to retain?

Again, it's similar to the new. It's a culmination of, I'd say, years of work to get the retention levels improved in the business. On top of the structural things that we did to improve that, the cultural and operational changes at the company have been palpable as well. John Zillmer and I, our CEO, on a monthly basis when we do our operating reviews with the businesses, I mean, we are reviewing the top prospects in terms of new business, in terms of retention, the ones that are coming out to bid. And there's very much a proactive culture at the company to resign accounts before they come out to bid. Now sometimes it's state and you have to have a bidding process. So we're proactive. It's a key part of our operating review process. And with that, we've seen the retention elevated, right? We're doing about 93% to 94% retention for many years. And then the last few years, we've been operating at about 96%. Last year, I think it was 96.3%. And as we mentioned, off to a really strong start this year.

That's great. So kind of putting it all together in terms of net new, I guess, last year, you exceeded your 4% to 5% net new target aided by a large win. This year, you have another large win. So I guess, are you in a good position to possibly be at the high end or exceed your target 4% to 5% net new this year, too?

The outlook is strong, right, for that area. So I think given what we see today, we certainly would expect to be toward the high end of that. I mean we are operating ahead of schedule, is what the wording we use in Q1. We talked about a pretty strong and robust pipeline of new business. We're in active discussions with a few large opportunities as well that we keep folks posted on. But with that, yes, we think we're in a very solid position to deliver on that.

Great. So conceptually, you're targeting 4% to 5% net new. You're not the only player in the industry that's targeting something like that in terms of net new. So do you think the industry kind of affords the opportunity for several players to grow net new in this similar range?

It's a large growing market. We estimate the market size for food and facilities to be in excess of $300 billion globally. On average, we think it's about 50% outsourced. Now that will vary by country and sector. So sectors within the U.S., for example, hospitals, health care, K-12 surprisingly is still predominantly in-sourced. So there are a lot of opportunities for those conversions to self-op. Many of the countries that we operate have high percentages that are still self-op as well. So that provides a decent amount of runway for the business to grow. In terms of the competitive situation to the question earlier, similar, right, in terms of the market has generally remained disciplined in terms of capital levels, margins generally improving and the industry and most of the large players are growing.

Maybe a couple of questions around AI. So I know your exposure is pretty modest, but could you kind of frame out for us what your exposure to white-collar work may be?

Yes. I think we just take a step back in terms of the overall exposure or lack thereof to AI disruption. I think if you go down the segments we're in, right, one of our largest segments, sports and entertainment. I don't think folks are going to stop going to baseball games due to AI. We talked about education earlier. And I think if anything, COVID proved that people want to be in person with a collaborative experience. So within K-12, and I mentioned the enrollments being favorable overall. We're in parks and destinations and the experience-based economy is leading to that business growing as well. When you get to B&I, in particular, I'd estimate our overall global B&I is maybe 15% to 20% of the company's revenues. Within that, I'd estimate sort of pure white collar, maybe it's 20% of that or so. So down to sort of a few low single-digit percentage of pure white collar. Within that, we're operating at the very high end of the job curve. So it's hedge fund -- large investment banks, financial services, it's portfolio managers like the folks in this room. And -- so with that and with the contractual structure within B&I, which, as I said earlier, about 80% of that is cost reimbursable, we think we're well positioned. I would just add, generally speaking, our clients continue to add employees. The participation rates remain good. And this has been the strongest performing sector for us over the past 4 years. So we just think the overall exposure is really de minimis.

That's good to hear. You did mention on your earnings call that there's -- there could be some opportunities around data centers. So I guess what competitive advantages do you have in a setting like that hypothetically? And how big could these opportunities be?

Yes. Certainly, obviously, data centers is an area that's receiving a tremendous amount of investment through the large tech companies here in the U.S. Aramark is very well positioned and able to serve clients in remote locations, right? We do -- that's what we do every day, whether it's serving miners in Chile at 12,000 feet in the mountains, whether it's serving doing food and facility services and rigs offshore in the Canadian sands in Canada to extract oil. Within destinations, we're operating almost 1,000 people at the top of Yosemite National Park. So with that, we have the capability to operate in challenging remote locations. We're able to offer comprehensive food, hospitality and food services in those locations. So if you think about how those infrastructure and data centers will be rolled out, there's clearly will be an opportunity, I think, for Aramark in that area.

Okay. And then one topic that's come up a little bit recently is the GLP-1. So is there any way that you can measure the impact of that, if any, on your business in terms of volume per check, number of items bought per transaction or something like that? Is that something that you monitor?

The overall GLP-1 impact on our financials, there's really been no impact. If anything, we've seen taste sort of evolve maybe toward higher end sort of more healthy eating protein-enhanced products as an example. And those items tend to be more expensive. So we just haven't seen any negative impact from consumer behavior as a result of the GLP-1.

In terms of your guidance, so you're guiding to 7% to 9% growth this year, excluding the calendar shifts. How are you thinking about the contribution to this growth in terms of net new base volumes, price and what dictates whether you're at the high or the low end?

The construct for the guidance is based on -- I talked about base business earlier. And so we're basically anticipating pricing of about 3%, volume 50 basis points to 1% that forms the core for the base. And then the net new at 4% to 5% of revenue is the foundation for the guidance at the 7% to 9%. We've been -- if you look at the first quarter, adjusting for the calendar shift, the print was 5% organic. We had about a 3% headwind from a 53rd week calendar shift in the prior year. Adjusting for that, we're running at about 8% in the first quarter, and that's what we would expect essentially for the first half of the year. So with that, we're already operating in the middle of that range.

Okay. Yes. Could you remind us a little bit on how the phasing works? Because I guess that the 300 basis points hurt you in the first quarter, but then the benefit in the second quarter?

Correct. Yes. Without getting into too much detail on it, with the 53rd week in fiscal -- we're a September fiscal year. So with that extra week in fiscal '25, we have a high activity week, particularly in education, think about colleges and universities shift into fiscal '25 out of Q1. The opposite impact will happen in Q2 where they're going to gain a high activity week. So the real simple way to think about it as a headwind of 3% in Q1 becomes a tailwind of roughly 3% in Q2, and that will play out in a similar way for the year, have no impact on the full year. And if we look at the first half results, again, that will be -- it will be negated in terms of how we look at it.

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In terms of the fuel cost, I think of it our visibility with our distributors is pretty well set for the next 3 to 4 months. So we have essentially locked in pricing on the fuel cost for -- through the distributors. So good visibility with respect to how that will play out for a significant part of the remainder of the year. And then it gets back to potential inflation impact, I think, is sort of where you're going with that question. And we have a number of tools in place with a flexible operating model in 2/3 of the business, we have what I call this dynamic pricing and then always looking for productivity opportunities to offset inflation. So that, coupled with generally longer-term agreements with our suppliers and distributors gives us pretty good visibility as to the outlook of the business.

It looks like you may be servicing a number of World Cup games later this year. So what kind of impact is baked into the guidance there? And I think there's -- beyond the stadium, there's also like adjacent opportunities with villages and volunteer food service, are those opportunities as well?

We're going to be operating 19 World Cup games across 4 Aramark venues. So we're looking forward to showcasing our capabilities on the world stage. It's a really important event for the organization. In terms of the overall financials, we essentially will be neutral because while they're setting up and operating those stadiums, you're essentially missing out on concerts and things like that during the summer months. So what's baked into the guidance is essentially a neutral impact on it, and we'll see how things play out depending on the level of activity and what the average checks that those games are.

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Right. It gets back to employers wanting the collaboration, wanting folks in the office as opposed to leaving the office being unproductive. If you look back over 10 to 15 years, that subsidy percentage has been in the neighborhood of about 75 -- 2/3 to 75%. So there's always been heavy subsidies in that sector just because of the conditions sort of trying to operate. So we've seen sort of almost the opposite where high-end tech firms, high-end financial services are looking to improve the overall experience and collaboration. I think initially, it was sort of coming out of COVID, how do we entice people back into the office. But when you look at the cost of those programs versus the benefits of having folks in-house and enhancing and fostering collaboration, the trend has been pretty good. I just haven't seen any reduction in folks talking about bringing those back.

On international, maybe just a minute on how that continues to outgrow the U.S. business and whether you feel like that is sustainable?

International has been a growth engine for Aramark for many, many years. We've had 19 quarters of double-digit growth. And similar to B&I, I think if we're sitting here a year from now, it's probably 23 quarters of double-digit growth. We're literally growing in all geographies and countries, particularly in the larger countries, which bodes well for that business. The team has done a nice job really targeting sectors where we can differentiate and have strong capabilities. So an example would be remote services. That means mining capabilities in South America. It means extracting oil and providing services to those companies in the remote areas, oil in Canada. And again, offshore, as an example, in the North Sea. So global strong capability that we're able to take advantage of and are very well positioned in that business. So it's been really, again, years of work to put in a growth-oriented culture, seasoned experienced team that are generating those consistent results.

In terms of inflation, what are you seeing there? What's been -- what was the inflation rate in Q1? And then what do you feel like is the trajectory of inflation?

The inflation rate has been operating at about 3% for the business. And again, that's consistent with the pricing for the business. We generally look for pricing to mirror inflation. At the time of the earnings call, I think we saw inflation starting to moderate slightly month by month. Today, you probably have a bit of a different answer the outlook there. But generally, at 3% is what we've seen, and it's been stable for the business.

Okay. And labor availability has been fairly reasonable?

It has. Yes. The labor has been stable, generally predictable across the business. That's what we do every day. I think about the baseball season, right? You ramp up a stadium from 0 employees to over 500 employees in the course of a week. So we're accustomed to ramping up labor. Our operational folks, that's what we get paid to do. It's effectively manage labor. And I would say it's a pretty normal environment for labor right now across the businesses.

Okay. And then you mentioned pricing discussions. So how are you thinking about where inflation might go in the next year and as you kind of have those conversations with customers about price for those contracts?

Yes, I think you're referring to sort of the contractual portion of the business, right?

Yes.

So as we talked about, yes, within residential board plans and higher ed and directions in K-12, much of those discussions are happening between now and the end of the year when those prices are set. We embed our inflation expectations into those discussions. And it's generally been normal course. Again, we do that every year. We sit down with our clients, and we look to obviously bring in productivity where we can. But with inflation running at about 3%, it's a fairly typical year, and those discussions are going well.

And then from a margin perspective, you're talking to 30 to 40 basis points of margin improvement, I think, in 2026. So what's contributing to the margin expansion? And is this kind of the sustainable rate if environment is normal kind of going forward?

Just as a reminder, within Q1, right, we had about -- due to the calendar shift, we had about a $25 million headwind on margin, again that will unwind in the second quarter. So if you adjust for that, margins were up about 20 basis points in the first quarter. The second thing I'll add is we had significant headwinds from the prescription drug costs for GLP-1s in fiscal '25. And we phased out coverage of those programs, again just for weight loss starting January 1. So the first quarter still had some headwinds from higher and elevated prescription drug costs, and I think it was about $10 million to $20 million in the prior year. So we're now lapping that impact. We also had higher incentive-based comp in the prior year that primarily hit the second half of the year, mostly the fourth quarter due to the exceptional performance on net new business. Again, not a bad problem to have, but the incentive-based comp was higher in the prior year. So we will lap that in the second half of the year, so that we'll build on the sort of run rate of about 20 basis points that we've had in the first quarter, getting to that range that you talked about. And then, yes, it's doing all the things we typically target in terms of margin drivers. It's scale in our supply chain, improving compliance across the business to improve supply chain and then managing to the middle of the P&L with improving food and labor costs versus the prior year.

And on that point, you have incentive comp in Q4 last year, but you also won a large contract in Q1 or Q2. So will there be an incentive comp dynamic too in the upcoming quarter?

Yes. So Penn was embedded into '25, RWJ would be in '26. We'll see how things play out at this point. It wouldn't be a bad problem to have if we have elevated new business have to pay our folks a little bit more. But at this point, we're anticipating normalized payout.

Okay. I think most people would take the net...

Right.

I guess if your retention is stronger this year than normal, could there be a bit of a margin tailwind because mature accounts usually contribute more to the business?

Generally, yes. Yes, the higher the retention, it bodes well for overall margins for the business. So that's one of the potential pluses. But as we talked about earlier, as we are opening a lot of large new accounts sort of offsets that. Both of those items are reflected in the guidance that we provided.

That makes sense. And then how are you thinking about free cash flow conversion either off of adjusted operating income or net income? Is there any opportunity there or any change with respect to conversion?

The model is essentially a 40% conversion rate on AOI is how we think about the cash flow. Over the sort of mid and longer term, there's certainly an opportunity to improve that as we optimize working capital. So we're always looking to improve our collection days with our operators, continue to extend payments on [ AP ]. Those are sort of the core operational things that we do. As we deleverage, bring down debt, there's less cash coming into interest expense. So I'd expect that to improve over time. Now offsetting that is the faster you grow, we do have a moderate use of working capital when the business is growing. Our receivables are essentially double our accounts payable on the balance sheet. So again, as you grow, moderate use of working capital, but not a bad problem to have.

You've been gradually reducing your leverage and targeting 3x by year-end. Does that mean a couple of hundred million of debt reduction as the year goes on? How should we think about the path to that?

The deleveraging to under 3x is really the cornerstone of our capital allocation strategy. And a couple of drivers there, and we were talking a little bit earlier about it. But once we're under 3x, the interest level from large institutional investors outside the U.S., as you know, in Australia, Japan and Europe, as an example, sometimes there's an aversion -- an optical aversion. So we've seen a significant increase in interest in the demand and our Investor Relations teams have been out in those respective regions and having those conversations. So under 3x as that part of our line of sight has simply increased demand for the story, which we like. There was also evidence, as you know, companies that are under 3x have higher trading multiples. So in terms of creating overall shareholder value, that's an important metric for us. So we're operating at a very comfortable level today at 3.2x. It's the lowest leverage we've had in decades. It's a very resilient cash flow business. But this idea of being under 3x is important for the organization. So -- and that will come primarily from -- there will be debt paydown, but just from EBITDA appreciation is the main path to getting under 3x.

The natural deleverage.

Yes.

All right. Any -- oh, there is a question.

[indiscernible].

Did you say positive to date?

[indiscernible].

Yes. It's one of these businesses where all the sectors that we're in have a lot of runway. So there are some companies who are trying "Hey, should we devote more capital here or deemphasize this business?" We're pretty fit-for-purpose organization, having spun the uniform business out. The sectors that we're in, the countries that we're in have plenty of runway. So our starting point for establishing budgets starts with new business. And again, the model is targeting new business roughly 10% to 11%. That's the foundation for the discussion with all the lines of business. So it's not like there's any businesses where we don't see the growth engine, the growth-oriented model to play out as expected. So there's no real need for sort of a change in strategy. The strategy is working, right, generating the results. So that makes those discussions easier overall.

[indiscernible].

It's correct. I mean sometimes you get carried away with over trying to change the strategy too much, and we've kept it very simple.

How important is M&A to the organization? And what's kind of things are the most...

Our M&A strategy primarily is sort of small and medium-sized strategic bolt-on deals. I just wouldn't anticipate anything transformational. If you think about -- there's a significant drop in size and scale after the big 3. So our M&A strategy generally revolves around doing small deals in refreshment services and micro markets. Those deals are highly accretive. You're able to add on additional business onto an existing route that really elevates the overall productivity of that business. So that's been a successful area where we've deployed capital. Within international, we focused on brands, capabilities that can elevate and enhance the core Aramark brand. So we did Wilson Vale and Gray's Inn, 2 examples in the U.K., that have really furthered us into the premium segment of high-end museums, high-end blue-chip B&I clients as an example. And then GPOs. GPO is a business that has very attractive economics. Working capital is actually negative. It's accretive to the margins. And then it contributes back to where we started on the strategy. It increases the overall scale of what we're managing to spend. We had a lot of success increasing our GPO presence in Europe as an example. And by building it up, we've actually just signed a very large hotel, one of the larger hotel chains in the world that is now a large customer in Europe because of the GPO groundwork that we've laid.

Great. With that, I think we're out of time. Please join me in thanking Jim for...

Thank you, guys. Thank you. Appreciate it.

Thanks for being here.

Thank you.