Aramark (ARMK) Q3 2021 Earnings Call Transcript

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Aramark (ARMK 1.19%)
Q3 2021 Earnings Call
Aug 10, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Aramark's Third Quarter 2021 Earnings Results Conference Call. My name is Paul, and I'll be your operator for today's call. At this time, I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. We will open the conference call for questions at the conclusion of the Company's remarks.

I will now turn the call over to Felise Kissell, Vice President, Investor Relations and Corporate Affairs. Ms. Kissell, please proceed.

Felise Kissell -- Vice President, Investor Relations and Corporate Affairs

Thank you, and welcome to Aramark's third quarter fiscal 2021 earnings conference call and webcast. I hope those listening are doing well. This morning, we will be hearing from our Chief Executive Officer, John Zillmer as well as our Chief Financial Officer, Tom Ondrof.

As a reminder, our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website. During this call, we will be making comments that are forward-looking.

Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the risk factors, MD&A and other sections of our annual report on Form 10-K and our other SEC filings.

Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning's press release as well as on our website.

With that, I will turn the call over to John.

John Zillmer -- Chief Executive Officer

Thanks, Felise, and thanks to all of you for joining us today. This morning, I'll provide a strategic review of the business as well as highlight the significant opportunities ahead that we believe will contribute to Aramark's strong and profitable growth trajectory.

In the third quarter, revenues improved as the quarter progressed, led by an accelerated pace of client reopenings in the United States, particularly within our Sports & Entertainment and Leisure portfolios.

This upward momentum continues largely due to our team's dedication to serving clients and focusing on our growth agenda. Our ongoing commitment to be a trusted partner has led to significant new year-to-date business and high-levels of client retention that exceed 96%. The selling season in Higher Education just finished and we achieved a record number of new account wins, driven by historically high closure rates, a testament to our investment and leadership, sales resources, and training.

In the past few months alone, we've added numerous Higher-Ed institutions to the client portfolio, including the University of South Carolina-Beaufort and Saint Peter's University. And we are in the process of finalizing additional contracts that are preparing to begin operations for the fall semester.

We are also extremely proud to announce we've added five historically black college and university clients this year, including North Carolina Central University and Elizabeth City State University. We continue to expand and extend our current partnerships and are pleased to announce that we have finalized a 10-year contract with the University of North Carolina at Chapel Hill extending a 20-year partnership.

Beyond Higher Education, new business wins occurred throughout the organization, including our B&I sector, adding Walmart's headquarters and our Sports & Entertainment business gaining the athletics programs for the University of Arizona and Virginia Tech, just to name a few.

And in K-12, we now provide food service to the Fort Worth Independent School District, a significant self-op conversion. We are seeing greater first time outsourcing activity with nearly half of our wins in the U.S. segment coming from self-op conversions this fiscal year, up from historical levels of approximately one-third.

In our international segment, we proceeded to win broad based new business across all geographies that most recently includes the addition of the University of Toronto Mississauga. We're pleased with our overall sale progress to date and there are additional significant opportunities in our pipeline that we expect to close in the coming months as well as into our new fiscal year.

Turning now to Aramark's performance in the third quarter. Organic revenue increased 34% year-over-year and reflected ongoing sequential quarterly improvement. AOI margins grew to 3.6% in the quarter, driven by cost discipline and scalable operating efficiencies.

In reviewing the quarter by business segment, U.S. Food and Facilities drove an organic revenue increase of 52% year-over-year, resulting in solid sequential quarterly revenue improvement. Education began notably recovering before the final bell of the academic year. The team is aggressively preparing for the upcoming fall semester, one we expect essentially all clients to return to in-person learning. K-12 continues to benefit from Universal government sponsored meal programs that are extended through June of 2022.

In Higher-Ed, we're providing additional meal flexibility, new offerings and digital innovation. This includes the launch of Food Lab that features rotational menu concepts, unique product introductions, and seasonal events, in addition to premiering restaurant row in partnership with local restaurant entrepreneurs.

In Sports, Leisure and Corrections demonstrated significant improvement, especially at the end of the quarter. The NBA steadily increased fan counts throughout the playoffs and all of our major league baseball clients moved to full capacity by July 1, aside from the Toronto Blue Jays who just returned home last week, permitting partial fan attendance.

Leisure kicked off the recreational season that typically begins in late May, with strong visitor frequency following a record reservation demand. Corrections has already returned to pre-COVID levels. The sector has experienced highly encouraging trends as many returned to typical summer activities, attending baseball games, concerts, and the national parks. In the coming months, we are also gearing up for full capacity expected throughout our NFL portfolio.

Business and Industry experienced an uptick in activity throughout the quarter as companies execute return to work strategies. We expect a greater proportion of clients to be in-person post-Labor Day. Many clients are offering food services as an added incentive to further attract employees back to the workplace, that includes adopting subsidized pricing or offering complimentary meals. And we've recently implemented artificial intelligence and touchless payment technologies in many of our client locations to create speed of service and compelling grab-and-go options.

Facilities & Other has outperformed to pre-COVID levels driven by more frequent and comprehensive services. The Facilities business had great success in vertical sales, extensively expanding its offerings to existing client locations. Healthcare steadily improved, largely reflecting increased retail activity as visitor restrictions eased.

The business is expected to greatly benefit from heightened demand in elective procedures that had been delayed due to COVID. Our acquisition of Next Level Hospitality officially closed in June 4, and has already contributed over $23 million in revenue, which we believe is indicative of the growth opportunities for it ahead.

International continues to effectively manage through various stages of geographic recovery, as the team exhibits ongoing agility and responsiveness in addressing real time client needs.

Organic revenue increased 28% year-over-year with areas such as China already surpassing pre-COVID levels and Chile operating at high capacity driven by mining services, given the very high demand for copper. From serving world leaders and delegations at the NATO Summit in June to the athletes of the Olympic and Paralympic villages, it is a privilege to provide clients the support that they need.

Uniforms continues to make progress in its strategies to optimize new sales resources, in addition to implementing the ABS rollout currently underway. Organic revenue increased 5% in the third quarter compared to last year, as most base volumes rebound. We have seen a slower recovery in our hospitality business, approximately 20% of pre-COVID revenues and the Canadian market where government imposed restrictions were still in place throughout the quarter.

Adjacency services including first aid and restaurant management, once again, drove double-digit growth and we continue to see a significant opportunity to expand these offerings. Retention rates have improved 300 basis points and customer satisfaction scores increased to 10% higher than pre-COVID levels, a reflection of the transformative actions underway.

In supply chain, our team has been effectively managing through market and category needs working in close collaboration with our clients and supplier partners. This includes leveraging our significant purchasing scale and a broad bench of cross channel partners. We're also deliberate in our menu design given the inflationary environment and apply flexibility on menu alternatives as appropriate.

While it's not our preference, we are able contractually to pass on increases in supply chain pricing. Supply chain's overall focus remains to optimize spend, ensure availability of innovative products, honor our commitments around local and diverse suppliers and stay true to our sustainability efforts.

On the labor side, we're confident in our ability to appropriately navigate the current marketplace. We have a strong talent acquisition team and compelling programs in place designed to attract top tier talent, including our newly instituted employee stock purchase program, all featured in our recently launched Aramark careers website designed to create an optimal candidate experience.

Aramark is consistently recognized as an employer of choice and highlighted as one of the world's Most Admired Companies by Fortune. We've been successfully implementing strategies to mitigate labor costs led by disciplined scheduling protocols, an efficient resource management aligned with demand as well as differentiation through innovative technology. We're also able to benefit from our scale by utilizing our full employee base and leveraging client locations in adjacent geographies.

Lastly, I'm extremely proud of our Be Well. Do Well commitment. They continues to make important strides to reduce inequity and improve the health of those across the globe. Through our Healthy for Life initiative, we were honored to have recently been recognized by the American Heart Association with their award for meritorious achievement based on our efforts to promote better nutrition and lifestyle.

We are also appreciative to just being named as One of the Best Companies for Multicultural Women by Seramount as well as One of the Best Places to Work for Disability Inclusion with a score of 100% on the Disability Equity index for the fifth consecutive year, a reflection of our dedication to create equity and increase access to opportunities for our team.

Before turning it over to Tom, I want to take a moment to thank our Board member Calvin Darden for his many contributions to Aramark, following his retirement announced a few weeks ago. Cal closely partnered with me to create our Executive Diversity Council that is focused on leveraging diversity, equity and inclusion to elevate our culture, drive business outcomes and advance positive social impact. We wish Cal the best.

Now, Tom will provide a detailed financial review of the business.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Thanks, and good morning, everyone. Over the next few minutes, I will discuss our financial results in the quarter as well as provide our outlook for the remainder of the year. As John mentioned, we are encouraged by the continued base revenue recovery in the quarter tied to improved levels of business activity throughout the portfolio as well as increasing contributions from net new business.

The accelerated pace of client reopenings, driven primarily by the Sports & Entertainment and Leisure businesses, contributed to the organic revenue reaching 73% of pre-COVID levels compared to just 55% during the third quarter last year. These improving trends have extended into the fourth quarter.

New business wins continue to build within all segments and the pipeline is robust as we approach the new fiscal year. With the education selling season just finishing, the K-12 and Higher Education businesses should deliver their highest level of annualized new business revenue since Aramark's IPO in 2013.

In the Uniform segment, fueled by the sales investments made over the past 18 months, along with our international segment, are on pace to approach record levels of new business revenue as well. We will provide annualized components of revenue growth and summary of wins detail on the year-end earnings call.

Adjusted operating income was $106 million in the quarter, resulting in a constant currency AOI margin of 3.6%, up over 250 basis points from the second quarter. Higher profitability across all segments was driven by rebounding sales volumes, combined with effective cost management, partially offset by ongoing investment in growth resources, and inventory write-downs for certain PPE in uniforms.

Corporate expenses increased primarily due to higher equity based compensation associated with the Company's incentive strategies to align the organization with shareholders. Adjusted EPS was $0.03 compared to a loss of $0.69 in the same period last year. This significant improvement was led by the profitability drivers just discussed as well as a partial quarter interest expense benefit from the $500 million debt repayment completed in early June.

In the third quarter, Aramark generated net cash provided by operating activities of $12 million and spent $101 million on capital expenditures, resulting in a use of $89 million in free cash flow; typical, based on historical cadence of the fiscal quarter. Net cash from operating activities benefited from increased operating income as well as strong working capital management.

Capital expenditures continue to be managed with purpose to drive performance in existing accounts associated with client reopenings and support growing new business activity. Through nine months, the company has driven a $309 million year-over-year improvement in net cash provided by operating activities, combined with a favorable $15 million variance in capital expenditures to produce a $324 million improvement in free cash flow.

This strong year-to-date result was led by improved operating income and effective working capital management, as well as the benefit of deferred payroll taxes and a $94 million federal tax refund that occurred in the second quarter related to the CARES Act.

Note that we continue to participate in the appropriate country-specific government assistance programs, from which we received approximately $130 million fiscal year-to-date in labor credits. These credits offset the costs we incurred globally related to the retention of employees and for absorbing 100% of the benefit cost associated with furloughed employees.

As a result of our solid performance in free cash flow, we had over $1.9 billion in cash availability at quarter end allowing us to advance our capital allocation priorities, including our acquisition of Next Level and dividend payment in the quarter.

We remain well-positioned to evaluate additional deleveraging opportunities, while balancing our disciplined use of capital investment to facilitate new business wins and drive results in existing client accounts as well as pursue select accretive M&A.

As previewed last earnings call, we took further actions this quarter that strengthen our balance sheet in addition to debt repayment, including, refinanced $833 million of the 2024 term loan B credit facility to extend maturity to 2028; closed a three-year extension on substantially all of our revolving credit facility; as well as term loans A and C to 2026, reflecting approximately $400 million; upsized our revolving credit facility to $1.2 billion, increasing cash availability by over $200 million; and most recently, finalized an extension of our existing receivables facility by two years through June 2024 to provide additional financial flexibility.

These refinancing actions together with the $500 million debt repayment mentioned earlier are expected to result in a quarterly interest expense savings of approximately $3 million going forward.

I will now briefly review our GAAP results. Consolidated revenue was $3 billion, operating income was $74 million and diluted earnings per share was $0.13. Results for diluted earnings per share included the benefit of a non-cash gain on an equity investment in the San Antonio Spurs of $138 million, partially offset by a non-cash loss of $61 million from the termination of certain defined benefit pension plans in Canada. Exiting the pension plans was a proactive action to eliminate uncertain future liabilities.

Before moving to our outlook for the fourth quarter, I want to quickly review a few key modeling assumptions. As you can see in our third quarter results, the performance of the Next Level Hospitality will be excluded from organic revenue and adjusted operating income metrics until we lap the acquisition date in Q3 of fiscal '22.

Beginning in the fourth quarter, our share count is expected to be approximately 258 million, with the increase driven by the timing of equity based-compensation as well as the cumulative participation in the employee stock purchase program.

So, let me wrap up by sharing our outlook for the remainder of the fiscal year. We are extremely encouraged by the upward trends of the business, while appreciating the exact pace and timing of recovery is evolving, as we continue to monitor the broader environment. While developing and executing a wide array of client reopening plans, we will leverage our resilient variable costs in unit business model, continue to implement our supply chain strategies and drive above unit operating efficiencies.

Based on our current expectations for the fourth quarter, we anticipate continued organic revenue recovery, reaching 80% to 85% of 2019 levels; adjusted operating income margin in a range of 4.5% to 5%, and free cash flow outlook raised to generating $150 million to $250 million for the fiscal -- for fiscal 2021, driven by an expected strong seasonal cash inflow in the fourth quarter associated with the Higher Education business.

Thanks for your time this morning. And now I'll turn the call back over to John.

John Zillmer -- Chief Executive Officer

Thank you, Tom. I'm enormously pleased with our business execution and successfully reopening client locations now at an even more accelerated rate, combined with driving our growth strategies that are expected to result in record new wins by the end of this fiscal year, and this is just the beginning. Our teams across the globe are our greatest asset and I want to personally thank them for their heroic acts that are driving trust and confidence in Aramark's prosperous future.

Thank you operator and we'll now open the call for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Jaafar Mestari from Exane BNP Paribas is online with a question.

Jaafar Mestari -- Exane BNP Paribas -- Analyst

Hi, everyone. Thanks for taking my question and I've got two short ones if that's OK. Firstly, just on the September reopening outlook. Looks like you have solid visibility now on which clients want to be back and at which levels etc. You're guiding on revenue.

You've also tweaked the cash flow guidance to reflect the working capital that comes with those reopenings. So I'm curious whether this September reopening also has an impact on margins. And in particular, if there have been any reopening costs in your Q3 operating profits or if there will be reopening costs in Q4 that are included in your margin guidance and effectively if they're one-off and -- that provide upside into next year?

And then just briefly, I couldn't help but notice that we've always discussed procurement as a division. You've promised some more disclosure on net new business, gross new business, retention, all those components. So, so far you've refrained from making any reporting changes or disclosure changes. So just curious if there's a batch of those coming from the full year results?

John Zillmer -- Chief Executive Officer

Yes, I'll take that last question first and then Tom will address the first one. Yes, we don't recognize new business wins until we have a signed contract. So we are always hesitant to go ahead and name those accounts until we have the document in our hands. That's our -- that is our general approach.

And so even though we have new wins that are under letters of intent, we wait until we have a signed contract before we announce them. And we always wait for our clients to give us their approval to do so. So, our intention is to document our new business wins for the year in our year-end call, when we'll catalogue those opportunities and those wins from the year and we'll give a greater level of detail at that time.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, and on the margin question there, certainly Q4 is shaping up to be a little bit more uncertain, given the events of last few weeks. So the reopening within business, dining in particular, a little bit within education K-12 will include some uncertainty and costs above the unit that we're factoring into that guidance as we try to, you know, in B&I Engineer the Work Week, is the phrase we're using, and understand when people will be in and how many people will be in, the flow that will be recreated for the companies that are coming back after Labor Day; that all comes at a cost.

Our first priority is to serve our clients and to be fully staffed for what they expect to come in. But I think there's still a lot of uncertainty client-to-client as to those coming back what that will take. So, we're client first that could carry some cost, transitory in the quarter as we reestablish ourselves and we factor that in.

Jaafar Mestari -- Exane BNP Paribas -- Analyst

All right. Thank you.

Operator

Gary Bisbee from Bank of America is online with a question.

Gary Bisbee -- Bank of America Securities -- Analyst

Yes, hey, thanks. Good morning, guys. Maybe just following up on that last comment, the reopening commentary all positive, returns in the quarter is good. I didn't hear much mention of, until Tom's last comment, sort of delta and how that may be changing. What is the recent increase, John, in terms of what you're seeing from client activity today and/or discussion or planning around reopening? Is there any meaningful changes you're seeing at this point?

John Zillmer -- Chief Executive Officer

Yeah, thanks for the question, Gary. Yes, we are seeing some customers defer their reopening dates by 30 to 60 days and we're seeing that in the B&I sector. But I think people are still taking a wait and see attitude based on the timing of the Delta variant and what impact it might have on their businesses.

So, I think we've been able to show in the last year and a half that we can adapt and pivot to whatever the circumstances are to manage the expectations for the client. And so we're poised and ready for when they come back and that will result in some cost incursion in the fourth quarter as we get ready for those customers to return so that we have adequate staffing in terms of management and people.

So that there -- we believe there will be a slight delay in the recovery in B&I as a result of the Delta variant. We don't believe that that'll have an impact on Higher Education, Sports & Entertainment. It's really limited mostly to companies and their return to work strategies.

Gary Bisbee -- Bank of America Securities -- Analyst

Okay, thanks. And then on the really positive new business commentary you provided, is there any way to tease a part out of that, how much of the improved performance this fiscal year results from the many strategies you've put in place to really prioritize growth in winning business versus just a positive environment where the self-op guys want to get the heck out of running it themselves, given the complexity of doing so in a pandemic?

And to the extent that's not easy to tell, I guess, if we just think more longer term, how are you thinking about pipelines of business looking even beyond this fiscal year and the positioning to continue to deliver strong new business going forward? Thank you.

John Zillmer -- Chief Executive Officer

Yes, that's a great question, Gary. And absolutely, I think our strategy, the changes we've made to leadership, the additional sales resources, the sales training and development activities that we've engaged in over the course of the last year and a half have really paid significant dividends and is resulting in very significant win rates, higher closure rates than we've had historically. And I think that's a testimony to the quality of the leadership team and the quality of the sales team. And so even though we are seeing more self-op conversions, you still have to win those conversions. You still have to compete for those wins, and nobody hands you the business.

So, I think it's a result of those improved capabilities and the improved focus and frankly, the incentive compensation approaches that the Company has taken and that the Board has adopted toward incenting net new sales growth or net growth for the leadership team. So I think those are all components of it. But I think it's primarily due to the improvement in the quality of the people and the improvement in the quality of the offerings that we're putting in front of customers.

Gary Bisbee -- Bank of America Securities -- Analyst

Thank you. That's great.

Operator

Shlomo Rosenbaum from Stifel is online with a question.

Shlomo Rosenbaum -- Stifel Nicolaus -- Analyst

Great. Thank you, good morning, and thank you for taking my questions. This one might be more for Tom. Hey Tom, could you kind of quantify the impact of, like inflation on the quarterly results? And kind of your expectation for 4Q? Maybe just some more color on what's happening exactly with the wages and with the input costs?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, for Q3 there wasn't a massive impact in the input costs. So, I think they really started to accelerate right at the end of the quarter. As we get into this quarter, I mean, we're expecting the U.S. in the fourth quarter to be sort of in the 3.5% range on product costs; Europe, well below that. It's remained actually below expectations at the moment. So there's a bit of an offset there. Asia have been pretty steady and as about as expected.

So, the impact is really just coming through the U.S. business on product costs. And as you well know, the business model is set and we're pretty adept at being able to manage those costs. As always, we're trying not to lean completely on passing that through as our contracts primarily allow us to do and manage it in other ways to provide that value to customers. So, it's not really a driver too much for us in the Q4 guidance. We feel we can manage through it both on the product costs and the labor side.

Shlomo Rosenbaum -- Stifel Nicolaus -- Analyst

Great. And then what was going on exactly in the Uniforms division? Maybe you could talk a little bit more about the PPE write-down. And then just in general, kind of the expectations for the acceleration of revenue growth in the fourth quarter and whatever outlook you can give beyond that, if possible.

John Zillmer -- Chief Executive Officer

Yes, just to frame it, Uniforms -- the Uniform business has largely recovered to pre-COVID levels in the core business. So we do have significant linen operations that have not fully recovered and that is probably the biggest source of the shortfall, restaurant operations have not returned to using tablecloths and napkins, even though they may be very robust businesses at this point. So linen still continues to be soft.

And the Canadian operations had significant restrictions still through the end of the third quarter. So, we like what we're seeing in Uniform services. We're seeing a solid pace of recovery in the core business. And ex-linen and Canada, the business is largely recovered to pre-COVID level.

We continue to see opportunities on the growth side. Retention rates are significantly higher than historical averages and we're seeing great high closure rates in new business wins. As you know, we've added significant numbers of sales resources over the course of the last year and actually in the last two years. So we're encouraged and we think the pace of recovery will continue in Uniforms. And hopefully we'll begin to close the gap on the linen side of the business at some point here in the near future.

Shlomo Rosenbaum -- Stifel Nicolaus -- Analyst

What about the write-down?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

And then, you know the write-down is, a year-ago basically we jumped into PPE and really built inventory to be able to serve our clients, be able to sell it to third parties. We -- KN95 masks which were initially quite popular, were deemed through the CDC to be inadequate for medical purposes. So there's a stock of that inventory that we've been writing down as it's been very slow moving.

Shlomo Rosenbaum -- Stifel Nicolaus -- Analyst

Thank you.

Operator

Ian Zaffino from Oppenheimer is online with a question.

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Hi, great. Thank you. Very good quarter. Thanks for taking my question. I kind of wanted to just talk about some of the new wins here. I know you mentioned -- first of all, can you tell us maybe specific areas where you think most of those businesses coming from or should be coming from, what areas, you know education and I think B&I has been big areas, but is it really exclusive to that? What are the areas there?

And also, is there any one area that maybe you see more competition in or less competition in? I know, you've talked about self-op being somewhat competitive, but is that more competitive, less competitive than what you're seeing? And just kind of overall, where you see the opportunities? Thanks.

John Zillmer -- Chief Executive Officer

Yes, you bet. I think the industry has always been highly competitive, particularly among the big three and then all the various regional competitors as well. So it's always been a highly competitive industry and really that hasn't changed. Everybody is working hard to sell new business. We've enjoyed success throughout the enterprise.

We've highlighted wins in Higher Education and we've highlighted the Walmart corporate headquarters, for example. But we've also had very significant wins in the Facilities business, some of which we haven't disclosed yet, but will shortly as we have those signed contracts that significantly add to the Facilities component of the business, in food, manufacturing and other areas of the company.

We've enjoyed good success in healthcare as well, both on a retention side -- both on the retention side as well as new account wins. So I would say it's very broad based. We're enjoying very significant success in terms of new account wins. And we'll be very excited to talk about it in its totality at year-end. This is a point in time kind of business. We have retention that we started at 100%, and we work toward year-end, and when we finish, we can report the number for total retention.

Right now it's trending at 96% and above, and we're very pleased with that. The new account wins are at a record pace, and we'll be very happy to disclose them by name when we have the contracts signed and in our hands. But I would say, most importantly, it's very broad based, it's not limited to one business or another. But we've enjoyed particular success in Higher Education, in B&I, Facilities and in Uniform Services this year.

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Okay, great. And, Tom, can you just talk about cash flow a little bit with the raise. Is that a function of the cadence of the recovery being smoother than you expected? Are there any other drivers that are driving that increase? Thanks.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, I think if you go back a year, I mean -- and certainly the bond issue a year ago was out of caution. I think John and I believed that the business was resilient enough, and certainly the cost base variable enough to manage through the massive uncertainty that we're all facing a year-ago. So, that cash as you know, the $1.5 billion was not used and needed.

And so, the business has really just delivered on that variable cost base. We've all seen it this past year, and been very proud of the business and its ability to execute and what the teams have brought. And so, the cash flow generation, I think hasn't been surprising. It's got its normal seasonal cadence quarter-to-quarter, but by and large is a relatively working capital neutral business, which is very attractive.

We've been able to manage capex appropriately without sacrificing any of the needs of the clients. So, again, we've been very pleased with how the cash flow has been managed throughout this past year and you know that this solid base that we've had, cash availability, and now we're in a position to start to delever.

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Okay, great. Thank you very much. And I'll talk to you guys later. Thank you.

John Zillmer -- Chief Executive Officer

Thank you.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Toni Kaplan from Morgan Stanley is online with a question.

Jeffrey Goldstein -- Morgan Stanley -- Analyst

Hey, guys, this is Jeff Goldstein on for Toni. Thanks for taking my questions. I just wanted to ask on Uniform. Margins came up quarter-over-quarter, but are still fairly below 2019 levels. Even though like you said, revenue is getting fairly close to even there. So I imagine this gap is still driven by investments in the business. So maybe you can confirm that and then just talk about when we would expect to see these investments roll off and for margins to move closer to 2019 levels.

John Zillmer -- Chief Executive Officer

Yes, that's a great point. Yes, it is still related to the investments that we're making in the ABS rollout and to the investment in new account or new sales executives. The significant -- and frankly, the write-down of PP&E that also contributed to the softness in the margin going -- in the previous quarters.

So, we do see the trajectory beginning to return with the start of the new fiscal year as some of those costs roll off. And as the -- and as we lap the new account sales, executive additions and as we begin to see the benefits of the ABS rollout begin to accrue in the operations as well. So we see the improving trajectory. We've talked a lot about what kind of expectation we have for that and we believe we'll begin to realize that beginning in 2022.

Jeffrey Goldstein -- Morgan Stanley -- Analyst

Okay, great. And then, I'm curious what you're hearing from your Higher-Ed clients in terms of the fall environment. Are you expecting fully in-person learning with full attendance? Do you anticipate any continued pressure on enrollments there? Are universities looking for more unique services, given the environment? Maybe things around delivery, maybe just some broader thoughts around the Higher-Ed environment going into the fall would be helpful.

John Zillmer -- Chief Executive Officer

Sure. You bet. I was with the University President on Friday of this week, as a matter of fact, and they are planning for full enrollment and full participation in in-class learning. There is an expectation that throughout the Higher Education community that classes will largely be in-person and they may make some modifications, but they'll be relatively small. And their expectations are that enrollments are going to be at very high levels, given the fact that you had many students defer from prior years -- from prior year into this year to start their campus, their on-campus experience.

So, the commentary inside of Higher Education is all very strong and we're planning for a very robust reopening. In fact, some of the universities are going to be starting up here in just a very short period of time, and our people are working full time day and night to be ready for those students to get back to campus.

Jeffrey Goldstein -- Morgan Stanley -- Analyst

All right. Thanks for the color.

Operator

Andrew Steinerman from J.P. Morgan is online with a question.

Andrew Steinerman -- J.P. Morgan -- Analyst

Hi, it's Andrew. I heard you say new wins are at a record pace year-to-date. And I also appreciate the client retention number of 96% is a high number for you. So I just wanted to make sure I'm putting these two things together correctly. So, when I put them together, I think you're saying net new sales year-to-date is notably higher than the year-to-date number in recent years. I think that's what you said, I'm not expecting a number, but I just want to make sure that's what you're saying.

And then on the other part of that equation, the 96% client retention that you shared with us today, which is obviously an awesome number. My question is, do you feel like that rate might be benefiting right now from renewal decision deferrals during COVID? And that number could inch down as we get into a post-COVID environment?

John Zillmer -- Chief Executive Officer

Yes, first of all, your math is 100% correct. That -- absolutely net new business significantly improved over prior years and -- as a result of those significant new business wins and high customer retention. So the -- it's our expectation that we will maintain this retention rate going forward. There may have been early in the early in the year, some slowness in terms of the activity level with respect to new client, or I'm sorry, to client contract changes. But I would say that pace has accelerated throughout the year.

We've been -- we have a very active pipeline of new account wins. We've been very aggressive in terms of renewals and retention. And so, it's our expectation that we'll maintain this number moving forward. That's always been our goal to be there in this 96% range. And so we're very pleased that we're there. I don't believe it's COVID affected. I think it's a result of performance and delivering on our client expectation and the very proactive retention efforts that we've undergone.

Andrew Steinerman -- J.P. Morgan -- Analyst

That's great, John. Thank you very much.

John Zillmer -- Chief Executive Officer

Thank you, Andrew.

Operator

Andy Wittmann from Baird is online with a question.

Andrew Wittmann -- Robert W. Baird -- Analyst

Yes, thank you. I wanted to ask one question, one just kind of technical detail question here. First on Facilities. You mentioned in the press release and the number showed that your revenues are up over pre-COVID and that's great. I think in the prepared remarks, you made some comments around cross selling.

I was just curious as to the nature of those cross selling new work that you experienced in the quarter, are those related to like deep cleaning services or other things that could be tied directly to COVID or are they -- I don't know, how you call it, other services that will be provided during the long-term even if COVID were to go away tomorrow?

And then my second question, I guess, is probably for Tom. And it has to do with Uniforms and the installation of ABS which is obviously progressing along nicely there. Is any way you could quantify the costs incurred for those transition cost to installing that, and just want to make sure that those are not excluded from the adjusted EPS number? So those are my two questions. Thank you.

John Zillmer -- Chief Executive Officer

Yes, I'll take the Facilities question first. We don't count project cleaning as a new account win. That's just base revenue growth in an existing account. So these new wins in Facilities are new services provided to either existing or new customers. So -- and at large components, we have existing customers that have made the decision to outsource large components of their Facilities Management model over the course of the last year and have transitioned from self-op to conversion, and in some cases, those include additional services that they were self-performing, and are now transitioned to our Facilities group. So, yes, all new business wins, not base business growth.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, on ABS, the installation costs are not adjusted out and we'll consider putting together a bit of an overview into next year as we complete the project and provide some guidance as to the cost and the benefits going forward, if that would be helpful. So we'll consider that, disclosing those two pieces of information around the ABS project at a later date.

Andrew Wittmann -- Robert W. Baird -- Analyst

Okay, look forward to that. Thank you.

Operator

James Ainley from Citi is online with a question.

James Ainley -- Citigroup -- Analyst

Yes, good morning, everybody and thanks for taking my question. Two questions, please if I might. Firstly, on B&I clients, can you talk about how maybe they are structurally reconfiguring their restaurant spaces, maybe to allow for or to compensate for the low attendance in the office, but maybe get higher participation as a result. And whether there's sort of capital required from yourselves to support that reconfiguration?

And then just secondly, just on sort of temporary nature of some of the contract terms that you've had over the last year, 18 months; are those largely rolled off or should we expect them to roll off over the next quarter? Thank you.

John Zillmer -- Chief Executive Officer

Yes, with respect to the contract terms, we haven't seen a significant shift back to P&L yet. We're still operating most of our B&I locations on management fee contracts. And we don't have -- there is not an expectation of an accelerated pace of shifting back. We think that'll take some time as companies ramp up their strategies and return to work environments.

Some companies are considering changing the configuration in terms of the way that customers will be served. Those are mostly technological kinds of implementations like touchless payment technology, grab and go kinds of opportunities, convenience opportunity, so not significant capital investment required to make those kinds of changes in existing operations. And even in those organizations that are going to have remote working kinds of -- or hybrid working experiences, we don't see structural changes to the serveries as being necessary or required.

We do see many companies adopting more aggressive, subsidized payment plans, or subsidized approaches to food service as an inducement to get employees to return to work. We've seen many companies considering going back to free meals, which we think will certainly drive participation significantly.

And then the whole safety and security protocol environment we see taking some time before that really evolves to pre-COVID activities. So we think participation will rise naturally, just because it'll be easier for people to take advantage of the serving environment in their existing facility rather than leaving the building and coming back. So, we do see higher participation as a result of this moving forward in the B&I sector, and think that that'll be very beneficial.

James Ainley -- Citigroup -- Analyst

Very good. Thank you.

Operator

Stephen Grambling from Goldman Sachs is online with a question.

Stephen Grambling -- Goldman Sachs -- Analyst

All right, thanks. I guess another follow-up on the new business wins. And I know you're going to give more detail coming up, but is there any color that you can provide directionally on the on-boarding timing as we think about the sales contribution, and also any margin impact as it relates to these new contracts which sometimes start at lower margin rates? Thanks.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, timing typically, given -- if you take the total blend of business wins across Higher-Ed business, dining, healthcare, etc., typically about 40% of that is in year and the balance rolls into the following year as a basic metric. In terms of margin, yes, you're absolutely right that typically in the year of our opening between start-up costs and just general unit inefficiencies that will start at a lower than average unit contribution and then build from there.

John Zillmer -- Chief Executive Officer

Yes, we typically see a learning curve as we open new accounts. Obviously, Higher-Ed tends to open all at one-time, so you have a big burst of activity in the fall. Same with the K-12 business. So that's immediate impact almost beginning in the beginning of the fiscal year. But B&I wins are spread throughout the time frame, and even though we've been awarded the account in, say June, it may not open for us or transition until December. So there's some timing in terms of the opening that may impact the in-year volume.

But as Tom said, about 40% generally affects the in-year sales. So, we're excited by the new business wins. We see significant growth coming from new business and we're excited to see those new accounts open and begin to contribute to the organization.

Stephen Grambling -- Goldman Sachs -- Analyst

That's helpful. Maybe one other follow-up. And again, I know it's hard to have a lot of visibility on '22. But are there any one-time items, discrete things that you can that at least flag to us and investors? Thanks.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Not that -- no. We're sitting here looking at each other, no.

John Zillmer -- Chief Executive Officer

Yes. But Tom and I are staring at each other going, huh. I think we're -- I think nothing that comes to mind.

Stephen Grambling -- Goldman Sachs -- Analyst

Awesome. Thanks so much. Well, best of luck.

John Zillmer -- Chief Executive Officer

Thank you.

Operator

Richard Clarke from Bernstein is online with a question.

Richard Clarke -- AB Bernstein -- Analyst

Hi, good morning. Thanks for taking my questions. Just want to -- just look at your Q4 guidance, you're talking about revenues maybe being back within 15% of 2019, but the margin will still be sort of only about 60% of 2019 levels. I know you've called out a few factors in that, but the general kind of industry guidance has been margin should get back ahead of volumes. Is that your expectations and is that the lost 15% needs to happen? Is this about renegotiation or what are the steps now to get margins back to 2019 levels and above?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, I think it's just continued progression; that last 15% matters, as you saw on the way down, last year. So I think the uncertainty as I talked about earlier, certainly doesn't help right now. We like certainty. We like predictability. We can schedule staff, order more appropriately and efficiently with certainty. So that's playing in a little bit right now, but that's transitory.

But, we still feel very good about getting back to '19 margins ultimately beyond because as we grow, we're going to leverage our above unit cost. We continue to build the supply chain and power that with growth, and just generally operate more efficiently in unit as we improve our retention rates. So, all those things still hold. But I think given the phase we're in now, we've got to be client first as we reopen, making sure we do it safely and appropriately and play this a little bit long.

John Zillmer -- Chief Executive Officer

Yes, and I would just add, as Tom said that 15% does matter. The incremental profit on that last 15% is extraordinarily high because we've got all the labor back and the management back and generally all the fixed costs to -- in-place to go ahead and recover back to a 100%. So there's -- that 15% is important, but it is not a -- it is not subject to negotiation.

It is not -- we're not waiting for clients to give us approval to do things. It's really all about creating the efficiency as employees return to the work environments. And you would see if you broke down the business -- the businesses, some will be at pre-COVID margin, some will be slightly below. And as you'd expect, those businesses that haven't fully returned to work are where we have the margin gap still. But in the other businesses, you see margin recovery coming rather rapidly as they get back to pre-COVID levels.

Richard Clarke -- AB Bernstein -- Analyst

Thanks for that. And maybe just a quick question on your Sports, Leisure and Corrections division. I mean, I would expect Corrections part of that is probably pretty stable compared to 2019. We're hearing lots about national parks being a record attendance. Your overall revenues there are still in the quarter about $200 million lower than they were in 2019. So, just maybe want to understand the bridge there? Is that just all the sports component, that's still a long way off capacity? Maybe what's your anticipation for that into the fourth quarter?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, it is. As John mentioned, I mean, sports is the driver there. If you go through the timeline of Major League Baseball reopening, everything really with the quarter cutting off June 30-ish. That's right when things were fully reopening. And so this quarter really had partial attendance at best in all of our facilities. So it was the primary drag.

John Zillmer -- Chief Executive Officer

Yes, and on the National Park side, while we're seeing record demand at Lake Powell and at Yosemite, the operations at Denali are still largely shut down as cruise ships have not returned yet to Alaska. And so -- and that park is primarily fed by cruise ship traffic.

So even though it is open and operating, it has not returned to pre-COVID activity levels and probably won't until next summer when cruise ships are back operating in the Alaskan corridor. So that would be the, probably the big impact item on parks. The rest of the park is operating at very high levels with very high demand.

Richard Clarke -- AB Bernstein -- Analyst

Okay. That makes a lot of sense. Thanks for the color.

John Zillmer -- Chief Executive Officer

Thank you.

Operator

Hamzah Mazari from Jefferies is online with a question.

Hamzah Mazari -- Jefferies -- Analyst

Hey, good morning. Thank you. On just the new business wins, could you maybe comment on who you're gaining share from? I know you mentioned self-op being sort of half of your wins versus one-third historically. I guess on that, do you expect that to continue going forward because of better sales execution and maybe COVID? And then maybe just talk about who you're gaining share from as well in the same answer, if possible?

John Zillmer -- Chief Executive Officer

Sure. Well, we're winning accounts from a broad base of our competitors. I don't want to single anybody out, in particular. But I would say that we've got, as we have achieved a very high level of self-op conversion wins across a range of the businesses that we believe will continue. We think that, that trend will continue to evolve. It may not stay at the 50% level, maybe it'll drop back a little bit. But we see continued interest in self-op conversion across a range of business and so in a range of industry. So we expect that we'll continue to have very good results there.

In terms of share gains from competitors I would say it's consistent with past performance. We win some from Sodexo, we win some from Compass, we win some from regional competitors and they win some from us. So it's a very competitive industry. We try to develop programs that are consistent with our client's expectations and strategies and we try to offer proposals that offer them the best solution.

I'm not so much worried about who I'm competing against as making sure that the offering that I design and the offering that I customize for my clients is best suited to serve their needs. And that's how I think about winning, by winning the customer and not winning against my competition.

Hamzah Mazari -- Jefferies -- Analyst

Got it. Very helpful. And just my follow-up question, on the Uniform side, could you maybe talk about where you are in terms of adding further ancillary services to your product line? Whether it be first aid or other stuff? Maybe if you could talk about where you are there. I know, you touched on the ABS software, etc., but maybe on the ancillary services side, just update us there. Thank you.

John Zillmer -- Chief Executive Officer

Yes, we can -- we certainly can. We -- continue to enjoy double-digit gains in revenue and new accounts on the ancillary services and that would be primarily first aid and restroom services. Those two offerings, we still have a lot of runway available to us in our existing client base and obviously in our -- against competitive accounts. So we see those as the two primary areas with first aid being probably the primary execution strategy. And we'll continue to focus on that going forward.

I don't anticipate adding any other kinds of services. I really just want to focus on those two. They're both high margin, very accretive to earnings and we've got the existing sales staff and support in place to go ahead and execute on those strategies and we're winning those at double-digit rates.

Hamzah Mazari -- Jefferies -- Analyst

Got it. Thank you so much.

John Zillmer -- Chief Executive Officer

Thank you.

Operator

I will now turn the call back over to Mr. Zillmer for closing remarks.

John Zillmer -- Chief Executive Officer

Again, thank you, everybody, for joining us this morning. We really appreciate your support of the company and the hard work and dedication of the Aramark team. I can't say enough about the performance of this organization over the course of COVID-19. We're proud to lead it. We're proud to be here and looking forward to a strong close to this fiscal year and onto a great 2022. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Felise Kissell -- Vice President, Investor Relations and Corporate Affairs

John Zillmer -- Chief Executive Officer

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Jaafar Mestari -- Exane BNP Paribas -- Analyst

Gary Bisbee -- Bank of America Securities -- Analyst

Shlomo Rosenbaum -- Stifel Nicolaus -- Analyst

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Jeffrey Goldstein -- Morgan Stanley -- Analyst

Andrew Steinerman -- J.P. Morgan -- Analyst

Andrew Wittmann -- Robert W. Baird -- Analyst

James Ainley -- Citigroup -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Richard Clarke -- AB Bernstein -- Analyst

Hamzah Mazari -- Jefferies -- Analyst

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