Leo Carrington: Good morning. Thanks for taking my questions, John and Tom. If I may ask, firstly, a follow-up really on AIM Services. The underlying operating income guidance was lowered to reflect disposal, but the free cash flow guidance was maintained or has been maintained. Can you help bridge this gap and explain the moving — the difference? And then, as a follow-up, on guidance for the year, Q1 margins, in particular, FSS United States and to some degree, Uniforms took a step back in Q1 2023 compared to Q4 2022 on a versus 2019 basis. Can you explain — maybe you have already explained why this is beyond the timing of contract openings? And also why this gives you the confidence to leave the guidance unchanged for the rest of the year that would be great. Thank you.
Tom Ondrof: Leo, just to be clear that last part of that question, you were comparing it sequentially, right, Q4 of 2022 to Q1 of 2023?
Leo Carrington: Yes. But the progress, if you like in basis points versus 2019 as a base.
Tom Ondrof: Got you.
Leo Carrington: And I’m — and I’m — I suppose tough comp of Q1 2019 because FSS United States margin was very healthy back then but –?
Tom Ondrof: Let me rather than give you a quick answer, I’d rather — let me look at that, and then we’ll come back to you specifically on an answer to that one..
Leo Carrington: Sure.
Tom Ondrof: If that’s okay. On AIM Services cash flow, because it was non-controlling interest, we would receive a dividend from them. We really didn’t have the cash crossing borders and that that dividend was de minimis, to be honest. I’m not particularly material and not certainly material enough to change our free cash flow guidance for the year. So that’s why you don’t see a change in that? Is it just — it wasn’t big enough for us to call out.
Operator: Thank you. And our next question comes from Faiza Alwy with Deutsche Bank. Your line is now open.
Faiza Alwy: Great. Thank you. Good morning. I wanted to ask about the Uniform business actually. I know you mentioned that you’re still on track for a spend in the back half of the year. Give us some color on when we should expect carve-out financials and give us a better sense of what’s been happening with this business? Has it trended sort of — since you’ve made the announcement, has it been trending in line with your expectations both from a revenue and margin perspective?
John Zillmer: Yes. I would say that the business has generally been trending according to our expectations and the plans that we’ve established for, as we work through the process of achieving the separation, adding the public company costs to the business to go ahead and adding resources to the business to go ahead and prepare it for the separation and so the process continues at pace. As we said, we expect to close it by the end of this fiscal year or in the back — second half of this fiscal year, if you will. And I think that’s all we’re prepared to guide to at this stage. We’ve gone through the process of the separation audits. Those are largely complete. We’ve established the Board that we’ll be making an announcement in the future about the actual — the people selected to serve on the Board going forward as an independent public company.
And there are a number of other steps that we’re taking over the course of the next several months. We are also — we also are giving consideration in the capital markets and what the potential timing might be to go ahead and do whatever the debt raise might be for the business and looking at optimal timing from that perspective. So there’s a number of variables that will impact the timing ultimately. And we’re working through all those. But I would say at this point, the business is performing at expectations and according to plan.
Operator: Thank you. Our next question comes from Andrew Wittmann with RW Baird. Your line is open.
Andrew Wittmann: Great. Thanks. I guess, Tom, my question for you. The cash flow from ops section of your report shows a $30 million reduction to a contingent liability. I was hoping you could talk about what that is and how it affected, if at all, your adjusted earnings. It’s not specifically called out in your reconciliation and so I guess that’s the genesis of my question. You have this other line here gains loss in settlements, but I don’t know if it’s in there or not. So hoping you could just talk about what that was and how it affected your adjusted results.
Tom Ondrof: It’s — it’s — it is in there. It’s in the — in that net 12 I think you’re looking at. And it’s related to the next level earn-out. The long and short of that is that we — in order to get the deal done, we had a gap in price as you normally do with buyers and sellers. And their expectation was high and ours was a little bit lower. And so to fill that gap, we had an earn-out construct, and they’re going to perform to our expectations as opposed to their very ambitious goals at the onset of the deal. So that’s just a reversal of some of that earn-out.
Andrew Wittmann: Okay. That’s helpful. And then I was just wondering, secondarily, with, I guess, 6% price in there. Are you able to understand how the elasticity of demand is either affecting your customers or the end market consumers of your product? I mean, you’ve got the COVID, kind of ramp, you’ve got the layoff trends. There’s a lot of different things that are affecting volume today. But I was just wondering specifically if the end market consumer is reacting to these and changing behavior at all that you can see.
John Zillmer: Yes. Great question, Andrew. I would say that consumer behavior continues to remain very consistent. Our participation rates are rising, which would indicate that customers are satisfied and our understanding of the pricing needs, if you will, so participation rates increasing in the core business. And so really no change to real consumer behavior over the last several quarters related to what I would characterize as related to pricing dynamics. So that’s really the only way I can answer it. I think it’s so far no impact.
Operator: Thank you. And our next question comes from Stephanie Moore. Your line is now open.
Stephanie Moore: I wanted — good morning. I wanted to just ask about your view on customer appetite for outsourcing, how this might change in a weaker macro environment? I know that this is a secular tailwind for the business. So I would love to get your thoughts on that as we navigate what might be a weaker macro?
John Zillmer: Yes. I would say — again, very good question. I would say we continue to see an increased trend towards outsourcing in a number of the businesses that was first originally driven by the COVID environment and the transition. Now we see continued improvement in that outsourcing environment due to cost pressures that may be facing those self-operators from both an inflation perspective and a labor staffing perspective. So it continues to be a tailwind. The pipeline of opportunities that we have is still significantly populated with self-op conversion opportunities. And so I would say it continues to be a significant source of new business potential for us, and it crosses a range of the businesses that we operate in. And it’s not just the food; it’s also facilities as well.
Stephanie Moore: Great. And that’s really helpful. And then switching gears to B&I. Curious if you can callout maybe any specific markets where you’ve seen a more acute increase in activity as of late?
John Zillmer: Well, we are seeing B&I business in Europe has been increasing at a rapid rate. It was more depressed last year. The rate of recovery in the international was slower. This year, it’s accelerating. We’re seeing continued B&I business improvement in Continental Europe. And so we’re very pleased with that and continue to see that business growing nicely.
