Aramark (ARMK) 2014 Q3 法說會逐字稿

Good day and welcome to Aramark's third-quarter FY14 earnings results conference call.

At this time, I would like to inform you that this broadcast is being recorded for rebroadcast; and all participants are in listen-only mode. We will open the conference call for questions at the conclusion of the Company's prepared remarks. In order to accommodate all participants in the question queue, the Company has requested that you limit yourself to one question, then requeue if needed.

I will now turn the call over to Ian Bailey, Vice President of Investor Relations.

Mr. Bailey, please proceed.

Thank you.

Welcome to Aramark's conference call to review Operating Results For the Third Quarter of FY14. Here with me today are Eric Foss, our President and Chief Executive Officer, and Fred Sutherland, our Executive Vice President and Chief Financial Officer. I would like to remind you that any recording, use or transmission of this audio may not be done without the prior written consent of Aramark.

In today's discussion of results, unless otherwise noted, we will be referencing Aramark's adjusted operating income, adjusted net income, adjusted corporate expenses and adjusted EPS metrics, which are non-GAAP financial measures. These measures exclude amortization and depreciation resulting from the Company's going private transaction in 2007; share-based compensation expenses; acquisitions and divestitures; changes in currency translation rates; gains, losses and settlements that impact period-over-period comparability; severance expenses related to our initial public offering; refinancing expenses; rebranding; and other transformation-related expenses.

We will also be referencing adjusted or organic sales, which exclude the impact of acquisitions, divestitures, and currency translation. A full reconciliation of these calculations is available in the press release we issued this morning, which has been posted to our website at www.aramark.com.

Additionally, various remarks that we may make in this call relating to matters that are not historical facts, including remarks about anticipated future costs and savings, future expectations, anticipation, beliefs, estimates, plans and prospects, constitute forward-looking statements. 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 SEC filings. We disclaim any duty to update or revise such forward-looking statements, whether as a result of future events or otherwise.

Lastly, I would like to reiterate our goal of addressing the full queue of questions during the Q&A session. Limiting yourself to one question and then requeuing if needed will greatly help us in addressing all the participant inquiries today.

With that, I'll turn the call over to Eric.

Eric?

Thank you, Ian.

Good morning and thanks to everyone for joining us. We're pleased to report another quarter of solid financial results. This is our third earnings call since the IPO, and it's the third call in a row where we're posting solid numbers and delivering meaningful improvements in our profitability. And we're achieving this despite the challenging consumer and macro environment.

This is also the second call in a row where we've been able to increase our adjusted EPS outlook for the year. As you saw in our release this morning, our full-year FY14 expectations was taken up to a range of $1.45 to $1.50 per share on a 53-week basis.

Year to date, we've delivered organic sales growth at the upper end of our annual guidance framework of 3% to 5%. At an 11% increase year to date, the improvement in our adjusted operating income is also at the upper end of that framework. And adjusted EPS for the first nine months of 2014 is up in excess of 20%.

So clearly, we have a lot to be proud of with our financial performance this year. And our results are reflective of several factors. The first is the 270,000 team members across Aramark that make this success possible. And I want to show my appreciation and thank them for their efforts.

It's also the result of our clearly-defined strategy, which is focused on and organized around accelerating growth; activating productivity for growth as well as margin expansion; and then attracting and retaining the best talent. Through this strategy, consumer insights are really leading to innovations. And we are increasingly able to deliver on our right to win, to compete and win effectively in the marketplace.

This innovation comes in many shapes and sizes, from opening the first Panera restaurant on a college campus to partnering with Starbucks on their new pilot project of mobile coffee trucks for college campuses to a new dynamic pricing model focused against delivering against the right consumer value proposition. Innovation at Aramark is an increasingly important cultural and competitive strength.

Also embedded in this transformative strategy is our continued focus on strengthening our selling capabilities, boosting our client retention through an enhanced focus on quality, as well as building the Aramark brand. Our productivity efforts are centered on the significant cost buckets of food, labor, and SG&A. And we're focused on reinvesting in our people through a combination of better recruiting, onboarding, and improved training and leadership development.

And finally, we're reworking our infrastructure in many of our core systems to support this transformation to ensure our front-line associates have the tools and technology to deliver a consistently high-quality customer experience. So clearly, this strategy is working. And the details of our third quarter financial results are a great validation.

We showed strong and balanced revenue growth in financial performance across all reportable segments. Global organic sales growth for the quarter was up 4%, with our North America business growing the top line organically by 4%; our International business grew organic sales by 6%; and our uniform business posted revenue growth of 3%. Importantly, this momentum was diversified across geographies, business verticals, as well as new and existing clients.

Another highlight of the quarter was our role as the food service provider for the FIFA World Cup tournament in Brazil. Our team in Brazil did a great job delivering service excellence in a very large, complicated, and geographically diverse environment. Just imagine the scope of performing across 12 venues at 64 tournament games, with approximately 3 million fans in attendance. We were honored to have won this marquee global event and to demonstrate once again our ability to deliver exceptional service on such a large scale.

Our client retention rates and new business pipeline remain solid. Year-to-date retention is consistent with the mid-90s percentage for the fiscal year that we've targeted. Our net new business trends for the year are solid. And it was another quarter of impressive new wins, including the University of Kentucky which year to date is the largest self-op conversion of 2014 in the higher education sector. We're extremely proud to have the University as a 15-year Aramark partner, and look forward to delivering an innovative on-campus experience for them.

Other notable wins in the quarter include the University of Miami Hospital and the Plainfield School District in Illinois, the fourth largest school district in the state, with almost 30,000 students.

In the area of branding, on our last call I mentioned the importance of our Healthy for Life platform. And our commitment continues in this vital area. And I'm proud to report on this latest initiative. We recently launched a multi-year partnership with the highly respected Children's Hospital of Philadelphia for a research study and educational program to improve the health and wellbeing of families in underserved communities. Our goal is to lay the foundation for a low-cost, sustainable model that can be replicated across the country. So our strategic efforts to accelerate growth are working.

Moving on to our second strategic imperative, activating cost and productivity improvements, it was also a good quarter of progress. Important productivity milestones were met, including the transfer of a number of corporate processing functions to our Nashville shared service center. And we've also begun to relocate certain field processes as well.

As I mentioned last quarter, we continue to roll out tools to help our front-line managers control food cost, optimize menu options, and more efficiently schedule labor. While there's still much to do in both of these areas -- and frankly, we're identifying better ways of doing things continuously -- we're making progress with these initiatives and the resulting margin expansion that follows is evident. We expect by year end to successfully complete our Productivity program we launched in 2013; and as we approach FY15, we're beginning to think about how these programs can be supplemented and expanded to drive further gains in the coming years.

As evidenced by our results, the combination of top-line growth in productivity improvement is meaningfully improving our profitability. For the total Company, our third-quarter adjusted operating income grew double digit, at 10%. Across segments, our Food and Support Service North America business grew their adjusted operating income 10%; our Food and Support Services Business in International grew adjusted operating income by 22%; and our Uniform business grew their adjusted operating income by 8%. For the first nine months of FY14, across the Company, we've achieved a solid 11% growth in adjusted operating income, as well as improved our operating margins by 40 basis points.

Our third strategic priority is to ensure we attract and retain the best talent. A lot of effort is being invested in developing programs that ensure we're recruiting, training and recognizing our valued employees so that we develop the most engaged workforce possible. These efforts are translating into lower turnover and better employee satisfaction, which allows us to deliver great service at the moment of truth, ultimately improving service levels to both clients and consumers.

We recently completed formal training sessions for 3,000 of our front-line managers to help them deliver unparalleled customer service to improve the customer experience and deepen customer loyalty. We also launched a comprehensive campus recruiting program designed to develop our next generation of leaders. Our strong execution of this clear and focused strategy is positioning Aramark to compete and win not only today, but well into the future.

Finally, last week our Board of Directors declared a $0.075 quarterly dividend for holders of shares of Aramark common stock, payable September 9, 2014, to holders of record on August 19, 2014.

And with that, let me turn the call over to Fred for a more detailed review of our third-quarter financials.

Fred?

Thanks, Eric.

In the third quarter, we achieved sales of $3.6 billion and adjusted operating income of $192.4 million. As Eric mentioned, organic sales growth in the period was 4% and adjusted operating income growth was 10%.

Adjusted net income for the quarter was $77.8 million, compared to $59.4 million in the third quarter of 2013. Adjusted earnings per share were $0.32 versus $0.28 in the third quarter of 2013.

The diluted share count in the third quarter was 243.7 million shares, up from 208.3 million shares in the same period last year, primarily as a result of the Company's IPO this past December. As detailed in the non-GAAP schedules attached to our press release, changes in currency rates from the prior year reduced sales by approximately $23 million, with a minimal effect on operating income.

Now looking at the third quarter in a bit more detail, our North America Food and Support Services segment sales were $2.5 billion, with adjusted operating income of $122.2 million. Sales were up 4% organically, and adjusted operating income was up 10%. Sales growth was particularly solid in the Education, Healthcare, Hospitality, Corrections and Parks businesses from higher new business.

In our International segment, third-quarter sales were $765.2 million, a 6% organic increase. This increase was led by continuing double-digit growth in our key emerging market geographies and positive organic sales growth in Europe. Third-quarter adjusted operating income increased 22%, to $39.2 million, from our food, labor and SG&A productivity efforts.

In our Uniform segment, sales in the third quarter increased 3% organically to $367.1 million. Adjusted operating income grew 8%, to $45.6 million, from a combination of solid sales growth in both merchandise and plant productivity initiatives.

Corporate expenses, adjusted for the items described in our opening comments, were $14.6 million in the quarter. The year-over-year increase was expected, as some areas of reinvestment, particularly around technology solutions, reached implementation stages during the third quarter.

With food inflation so top of mind recently, we did want to take a moment to discuss how we think about the issue and provide some details about how we manage through commodity price increases. While our business is certainly not immune to food cost increases, we do have certain structural and operational advantages that factor into our management of these costs.

As a Company that derives a significant revenue stream from food service, we are obviously affected by food inflation. But it is also important to remember that we generate about 10% of our revenue from our Uniform segment and about 15% of revenue comes from Facilities Services. Additionally, about 30% of our food service contracts are management fee-based, cost-plus, contracts where we do not bear input costs. So the structural combination of non-food service activities and cost-plus contracts insulate about a half of our revenues from the impact of food inflation.

From an operational standpoint, we have centralized supply chain and culinary functions that leverage purchasing volumes; work to protect costs through fixed price contracts and some forward purchasing; and optimize menus through SKU rationalization and menu substitution. And finally, we can work with our clients to increase prices, although there is sometimes a lag effect due to the need, for example, to publish a college board plan rate in advance.

Turning to the balance sheet, total debt as of the third quarter end was $5.7 billion, which represents a reduction of approximately $525 million from the same period in 2013. The Company's total debt to adjusted EBITDA ratio on a trailing 12-month basis was 4.6 at the end of the quarter, down from 5.3 a year ago. Liquidity remains strong. And at quarter end, the Company had approximately $590 million (sic, Press Release, "$591.4 million") of available borrowing capacity under its $770 million revolving credit facility.

Net capital expenditures year to date were $310.5 million, compared to $254.9 million in the prior-year period. Our rate of capital spending increased year over year, as we focused on several key account renewals; a number of large new account wins; and spending on technology. The result, we expect that CapEx for the year will be in the range of about 0.5% of sales above our expectations going into the year. As expected, non-cash working capital was a use of cash during the first three quarters. Consistent with historical patterns, we expect that non-cash working capital will be a source of cash in the fourth quarter.

As it relates to our outlook, third quarter results were a bit better than we expected from a combination of better sales, stronger flow-through, and lower interest expense. We were pleased to carry this third-quarter performance through to our annual outlook, thereby increasing our adjusted EPS expectation to a range of $1.45 to $1.50 per share.

Now let me turn the call back over to Eric.

Thanks, Fred.

Well, that concludes our prepared comments.

Don, if you would, we're happy to entertain any questions.

(Operator Instructions)

Manav Patnaik, Barclays.

Good quarter. I just wanted to get an update from you in terms of the competitive environment in the US, and maybe specifically tie it up to the M&A pipelines as well. Because one of your European competitors, obviously, just went public. And they've been touting their story as being more aggressive of acquisitions in the US. And I just wanted to get your perspective on that.

Sure. Let me take the first, and then I'll ask Fred to comment on the M&A front.

Relative to the competitive environment, I think the competitive environment remains rational. If you look at what we've tried to do the last couple of years, certainly what we've tried to do since going public, is to accelerate our growth momentum. We've successfully done that. I think if you look at our results competitively versus our primary competitors, both in third quarter as well as year to date, I think you're seeing industry-leading growth come from us right now.

So we like what we're seeing in the marketplace relative to improving our competitive position and picking up market share. That growth has been pretty balanced across both improving our base performance, which is about 50% of that growth, as well as picking up net new business. We mentioned a couple of wins in the quarter.

So as we go forward, that's very consistent with not only our expectations, but what we've talked about in terms of the long-term growth model.

Fred, you want to comment on M&A?

Sure. On M&A, specifically in North America, we like where we stand in the Food Service business. As you know, we're one of the top providers. We really compete pretty effectively across all of the geographic geographies and the market verticals. And while there are opportunities from time to time in Food Service in North America, we don't see that, for us, as a particularly important driver of our overall performance.

With respect to Facility Services and Uniform Services, there are also opportunities from time to time. And there, probably would be for us over time a little more important to help us build out geography and provide, particularly in Facilities, some additional scope of services. So we'd see M&A probably playing a little bit more role in those two service categories.

Andrew Steinerman, JPMorgan.

When looking at the wording of the outlook, you chose to quote over 3% to 5% multi-year outlook, and then give the EPS range for the year. Given we only have one last quarter, I just wanted to confirm on a same week basis, you're still looking to be 3% to 5% organic growth in the fourth fiscal quarter.

Yes. Andrew, this is Eric.

I think that algorithm that we've committed to that is multi-year is one that we want to keep out there at that 3% to 5%. I think you've heard us talk before, and will continue to hear us talk about, there can and will be some quarter-to-quarter variability to that. But I think the important point is, as we look at the numbers that we've delivered, we continue, as we look to the future, to be encouraged by the outsourcing opportunity. The confidence that we've got in the strategies and plans leads us to the continued outlook of driving continued growth and creating long-term shareholder value.

And so I think that's very consistent with where we've been, certainly, and where we're headed. So having said that, we don't want to get into specific quarterly guidance.

Gary Bisbee, RBC Capital Markets.

The fiscal year guidance, if you look at what that implies for earnings in the fourth quarter, it is little profit growth. I guess I just wanted to get a sense for how much of that may be conservatism. Or are there some reasons that we should think about, either, I don't know, if it's something on the margins? And as part of that, if you could also just confirm what the extra week means for earnings. Obviously, it's helpful for revenue. I believe you'd said it's actually negative for cash flow because some costs get pulled forward, cash costs. But what about earnings? Thank you.

We expect, in general, as you've seen, our framework for our annual increase in adjusted operating income is in the mid-to high-single digits. As Eric mentioned, we're operating now in the upper half, top end of that range. We continue to expect that our adjusted operating income growth will be consistent, and that that annual framework will hold up.

And with respect to EPS, the impact of the 53rd week is somewhere around $0.01 a share, maybe slightly higher than that.

Andrew Wittmann, Baird.

Eric, I wanted to dig into some of your comments that you had about the business environment and, specifically, your overall impression about the net new business and maybe how that's tracking versus the targets that you had going into the year. I think there's been some pretty good wins here, but I didn't know how this compared to what you thought you'd be getting. So I think some commentary on that to flesh that out would be helpful.

Sure, Andrew, happy to. Again, if you looked at our third quarter, if you look at our year-to-date performance, and if you look at our long-term growth of that 3% to 5% top line, again, the way this business model will work is about half of that growth will come from the performance of our base business. That's certainly consistent with what we saw in third quarter. It's consistent with what we've seen year to date, where roughly 2 points of that's coming from our base business, a combination of pricing as well as volume growth coming from our pursuit of adjacency selling opportunities.

The other half of that growth, again, in the quarter, a couple of points, is coming from net new business. And as we look at the full year, and as you go back and think about what we've added this year relative to some of the key client wins, it's going to be one of our best years ever. We had a record year, if you remember, in 2013. And again, had some big wins late in the year, a couple of big state Department of Corrections businesses.

But if you look at year to date, we feel very comfortable with the net new business that we've won. And as we look at that pipeline as it develops for the rest of this year and 2015, again, we're very encouraged.

Jeff Farmer, Wells Fargo.

Just following up on that question and the line-of-earnings questions that you talked about earlier, you had these two pretty healthy upward EPS revisions for 2014. So again, what, if anything, does this mean to FY15 EPS growth in the context of the longer-term, low-double-digit EPS growth guidance? You alluded to it, but I'm just curious.

Have you pulled forward any revenue recognition opportunities, any margin opportunities? Any reason to believe that life gets a little bit more challenging in terms of meeting that double-digit EPS growth guidance as you get into FY15?

Well, we'll talk about full-year 2015 guidance later as we close down the year. But I think the fact is that what we feel comfortable with is the multi-year guidance that we've given, again, 3% to 5% top-line growth, which translates to mid-to high-single-digit adjusted operating income, which translates to double-digit earnings per share is the algorithm and the business model that we continue to be comfortable with.

(Operator Instructions)

Suzi Stein, Morgan Stanley.

This is Denny Galindo on for Suzi Stein.

As we look at the margin expansion this year, it's been better than expected every quarter. And I wonder if you could give a little bit more color on where this margin expansion is coming from and maybe the mix of drivers, whether more of it's from pricing, more of it from efficiency or something else. And then how does this compare to your expectations during the Roadshow?

Well, first of all, the answer to the last question, it's very consistent with what we laid out at the Roadshow. So I think what you heard us talk a lot about at the Roadshow is the game we're playing is one of continuing to accelerate our growth, while also expanding margins. So I think I used the term multiple times, that this is an organization where we have to dribble with both hands and make sure we accelerate the top line revenue growth while also expanding margins. That's exactly the game and the skill set we've demonstrated through the first three quarters as a public Company.

I also mentioned, as we did the Roadshow, that we will invest back in the business. So as we capture some of the cost in productivity, we will invest back in the business. That will be largely focused on growth initiatives and building our brand. It will be focused on making sure we've got an investment in people capability, particularly at the front line, and it will be focused on making sure we've got the right tools and technology to effectively run this business.

If you look at what's driving the 40 basis points of margin improvement year to date, it comes across the spectrum of supply chain food, labor and SG&A. Again, if you look at our performance this year, I think about half of that will probably come from SG&A. And the other half will come from a combination of food and labor, with the heaviest part of that probably being on the labor side. We do have some headwind as we have some of these startup contracts, particularly on the food side.

So that's just typical of what you would experience as you're gaining new business wins. And as we go forward, I think the composition of that will shift probably more to about 80% of the cost capture on food and labor and 20% to 25% on the SG&A side.

Does that answer your question?

Yes, it does. Thank you very much.

Sara Gubins, Bank of America Merrill Lynch.

Just following up on that. For food pricing, what are you assuming in your guidance for the end of the year? And maybe could you help us think about the potential drag headed into next year?

I just want to make sure I understand your question. When you say food pricing, are you talking about food inflation? Or are you talking about our pricing approach?

Sorry. Inflation and probably therefore after that, your pricing approach, but primarily inflation.

Okay. So a couple things on inflation. As Fred mentioned in his comments, I think there are a couple of things to keep in mind relative to food inflation. Number one is just the diversity of this business model allows you to manage inflationary pressures, I think, pretty proactively. So let me try to describe that to you.

Part of that diversity model is driven by the sectors and services in which we provide service. So again, remember, in addition to the Food business, we have a Uniform business, a Facilities business, a Healthcare technology business. Second is if you look at our contract structure, we have both P&L contracts, where we would absorb those costs. But we also have client interest contracts, where those costs would get passed through to the client. Third, we have the option of both menu management optionality, as well as pricing actions.

So again, we purchase a very diverse market basket of goods. And when you have a few of those categories that might be pressured -- recently we've seen some pressure in the protein and dairy category -- again, it's important to note that those two categories represent a pretty small portion of the overall market basket of about 15%.

And again, this point around uniforms and facilities, about 25% of our business is non-food. And then 30% of our contract types are client interest, where the costs don't flow through to our P&L. That then leads us to what can we do about menu and pricing. And we're confident in our ability that we can price through a lot of the inflationary pressures and/or offset them with the cost and productivity initiatives.

So I think my simple point to you is we feel confident in our ability to deal effectively with inflationary concerns.

Stephen Grambling, Goldman Sachs.

The first is just a follow-up on some of the margin commentary. And if you could just expand on the puts and takes in cost control, specifically helping to quantify the investments being made in the sales force versus the benefits that you're getting for some of these labor management tools.

Sure. I'll comment and then I'll let Fred jump in as well.

I think relative to the costs and productivity and the investments, we feel very good. And I think the accelerated revenue growth is depicting the investments that we've made on the selling resource side are actually paying off for us. I think the same is true relative to the capability and what's happening on the customer experience side, as well as the technology and tools that our front-line managers, in particular, are very excited about to help them manage a fairly dynamic business.

So I think those investments are ones that -- and the branding work is one that we talked a little bit about. And I think it's important that as we've rolled out the brand, the early reaction has been very, very positive, whether you talk to consumers or clients or our current or potential employees. So I think we feel good about the investments and the return we're getting.

Do you want to make any comments, Fred, about the whole cost bucket?

Yes. I think we've gotten balance. Clearly, the SG&A initiatives are a little easier to execute because they don't involve the broad field down to the unit level. But as Eric mentioned, we're rolling out a significant number of tools and training and standardized process for our front-line managers.

On the sales reinvestment, remember that our business outside of the Uniform business is not a business with literally hundreds of sales folks, hundreds and hundreds. These markets are the higher education market, the business market -- fairly well-defined, business to business, finite set of clients. And so we look at each one of those markets verticals, what are our sales resources, what should those sales force resources be?

And then we are gradually, where we think we are a bit short, spending money to bring more sales resources in. And as we do that, there's no reason to believe that their capability productivity, once they hit run rate, would be any different than our existing sales resources.

(Operator Instructions)

Andrew Wittmann, Baird.

I wanted to dig in a little bit to the growth rates, and particularly in maybe Uniform and International. While still good, they did decelerate a little bit, particularly in International. Maybe a little commentary around that would be helpful. Specifically, how much of a contributor was the World Cup? And was there a lost contract there, or was it just normal lumpiness that you'd see in that segment?

Sure, Andrew. Let me take the International one, and then I'll let Fred talk about the Uniform business.

If you look at our International business, I think we're pretty pleased. We saw our International business, if you look at our Europe business, we grew in the quarter, I think, probably one of the few competitors to see that type of growth in Europe. And we saw our business across the UK, Ireland and Germany all grow.

The important emerging market business saw double-digit growth, again, was up about 11%. Again, I think that compares very well versus what you've seen from others. And we've done that while also making good progress on the margin front. So we saw double-digit growth in the emerging markets across China and South America.

Relative to your question on the FIFA World Cup, it's a really small contributor to the overall revenue. It's well less than 0.5% of revenue in the quarter. So it's very de minimis.

On uniforms, our growth outlook for the Uniform business is pretty much the same. I think you'll see that our growth rate may bounce around a little bit quarter to quarter. It's not atypical for the industry, just given some of the ebbs and flows of the business, direct sales as they affect one quarter versus another. So we still view the Uniform business as a business that will fit very much within our overall growth model.

I'd add one thing to what Eric said about the FIFA World Cup. Because we work largely through other contractors to work with us at these venues -- in fact, we were not recognizing the full gross revenues of all of the FIFA volume, just an accounting thing. And so that's why, as Eric mentioned, that really had a de minimis impact on the quarter.

Suzi Stein, Morgan Stanley.

I just had a follow-up on the CapEx. It ticked up in the quarter, as you mentioned. And I was curious exactly maybe some more color on what types of investments you were making. And is any of this CapEx related to the Kentucky win, or other big wins? And how do client investments play a big role in winning a large contract like the Kentucky contract?

Sure. So our CapEx did tick up in the third quarter. So year to date, whereas in the first six months of the year, year to date we were running behind prior year, we're about even or a little bit above prior year through the nine months.

And think of our CapEx growth being divided into a couple of buckets. One is key renewals. Another is key new business. Another is the ramp-up in technology spend. And another, which is not a factor right now but will be more of a factor over the year, next year too, is increasing our capacity in the Uniform business.

So we have successfully renewed several large key accounts in our higher education space. And there have been and will be some capital associated with that. These are new, long-term contracts. And then some of these key new accounts that we've brought on, UK is one, have capital associated with them.

And capital is, in some of these bids, not unimportant. But really think of the capital as a way to transform, let's say, a college campus. So as the college, particularly a university that's self-operated, is looking to really become much more sophisticated and modernized and much more student focused in what they offer, there's typically some sort of physical transformation that goes along with that.

It may be the dining hall. It may be the student union. It may be portable food service facilities. It may be food service mini facilities inside dorms. And typically, we're happy to work with a client to help fund part of that. We look at that as an investment in the account. We expect a good return on that investment.

And then, as you probably know, from an accounting point of view, we amortize that investment against our P&L over the life of the contract. Typically, if there is meaningful investment, we would be getting a long-term contract, 10 or 15 years. And then finally, that investment, if the contract were to be terminated earlier, would be essentially the unamortized value owed back to us from the client.

Stephen Grambling, Goldman Sachs.

This is another follow-up to, I think, Andrew's question earlier. As you look at the number of contracts that are coming up for proposal, are you seeing any change in the number from previously insourced potential customers versus those that are already outsourced?

I would say that the trend is fairly consistent. Again, as we look at the pipeline, again, one of the things we obviously don't control is the timing of that. But I think one of the things that has happened over the last couple of years is with the healthcare situation and labor costs rising is we have seen, particularly in the education space and the healthcare space, probably an increased movement from in-housed to outsourced. But I think as we look at the pipeline going forward, the composition of that looks fairly consistent.

That's helpful. Thank you.

It appears there are no further questions at this time.

Ian, I'd like to return the conference to you.

Thank you for joining us today. And I'll be available, if you have any follow-up questions, all day long.

Thanks, Operator.

Thank you for participating and have a nice day. All parties may now disconnect.